Binding Agreement | On April 10, 1990 ‘A’ offered to ‘B’ to sell his car for sixty thousand rupees. ‘B’ was asked to signify his acceptance by April 18, 1990…  Has this resulted into a binding agreement between ‘A’ and ‘B’?

Question: Binding Agreement | On April 10, 1990 ‘A’ offered to ‘B’ to sell his car for sixty thousand rupees. ‘B’ was asked to signify his acceptance by April 18, 1990. On April 12, 1990 ‘A’ sold his car to ‘C’ for seventy thousand rupees.

This he did without revoking his offer to ‘B’. However, ‘B’ came to know of this fact through other sources on April 14, 1990. Still, he signified his acceptance of the offer on April 16, 1990. Has this resulted in a binding agreement between ‘A’ and ‘B’? [Punjab JS 2012]

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Answer

A proposal can be revoked at any time before the acceptance is communicated to the proposer and not afterwards. It must be revoked in such a manner that the revocation reaches the offeree before he accepts, or posts his acceptance. If it reaches after the acceptance is posted, the revocation is ineffective. A proposal can be revoked even though the proposer has promised to keep the offer open for a specified time unless a statutory rule forbids such withdrawal.

The offeror can withdraw his offer before it is accepted “the bidder can withdraw (revoke) his offer at an auction sale before being accepted by any auctioneer using any of the customary methods.

In the present case at hand, the following is the sequence of exchange of communication:

• ‘A’ offered to ‘B’ to sell his car for sixty thousand rupees on April 10, 1990
• B was asked to signify his acceptance by April 18, 1990
• Without revoking the offer made to B, ‘A’ sold his car to ‘C’ for seventy thousand rupees on April 12, 1990
• B’ came to know of this fact through other sources on April 14, 1990.
• B gives his assent to the offer made by A on April 16, 1990

This clearly indicates that there has no binding agreement set in place between A and B yet. However, though A didn’t revoke the offer made by him to B and still sold the car to C. The fact that B had already knowledge of the sale of the car to C, will not act as communication of revocation of offer made to him as he had knowledge of sale between A and C from other sources. And if B still chooses to signify his assent to the A’s earlier offer, he can do so.

The reasoning behind the same is that Section 4 of the Indian Contract Act envisages that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer that is before the communication of its acceptance is put in the course of transmission to the proposer. The words, “by the proposer” used in the clause imply that a notice of revocation shall be communicated to the other party by the proposer himself or his agent and not by any third person.

Since B came to know the sale of the car from his other sources, doesn’t cover the communication of revocation of offer made by the proposer or his agent duly appointed, hence such knowledge is immaterial. And in the eyes of law, B can still accept the offer made to him by A.

Thus, to conclude, whoever makes an offer can revoke it as long as it has not been accepted by the offeree. This implies that if an offer is made and the offeree wants some time to think it through or makes a counteroffer with changed terms, the offeror has the liberty to revoke his original offer before it could be accepted by the offeree. Once the offeree accepts, however, they will have a binding agreement. So, revocation of proposal must happen before acceptance, and communication of revocation of offer must come from the proposer himself or through his duly appointed agent.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X