How can an offer be made, revoked, or accepted?

Question: How can an offer be made, revoked, or accepted? What rules apply when an offer is made through post or over the telephone? Discuss. [UPJS 2015]

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Answer

A proposal/offer and its acceptance is the universally acknowledged process for making a contract of which the former is the beginning point.

Section 2(a) of The Indian Contract Act, 1872 defines a proposal as “When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

While making a contract, it is essential that the offer should be communicated to the other party. A proposal is complete when it is communicated. Section 4 provides that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

In order to create a valid contract, every offer must be made with the intention to create a legal obligation. Under English law, the position was well settled in the case of Balfour v. Balfour [(1919) 2 KB 571 (CA)], where it was held that “To create a contract there must be a common intention of the parties to enter into legal obligations”.

It is for the court to decide whether the parties must have intended to enter into legal obligations. The test of contractual intention is objective, not subjective. What matters is not, what the parties had in mind, but what a reasonable person would think, in the circumstances, their intention to be.

Section 3 of The Indian Contract Act, 1872 lays down provision for communication, acceptance, and revocation of proposals: The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting, or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.

Thus, a proposal may be communicated in anyway which has the effect of laying before the offeree the willingness to do or abstain. It may, for example, be done by words of mouth, or by writing, or even by conduct.

Revocation of offer

Section 6 of The Indian Contract Act, 1872 is about the ways in which an offer may be revoked. It can be revoked by:

A proposal is revoked in the following ways:

(1) Communication. A proposal is revoked by the communication of a notice of revocation of a proposal by the proposer to the other party. Such revocation may be express or implied, viz; where the proposer varies the terms of the offer. There is no specific mode of communicating a revocation and it can be done in any manner, and a written proposal may be revoked orally. If the tender conditions require the revocation to be communicated to a specified officer, the revocation must be communicated to him. A revocation by facsimile sent to a wrong telephone number, which does not reach the offeree, is not a valid revocation.

(2) Lapse of time. A proposal stands revoked by the lapse of time specified in the proposal or, if no time is specified, after the lapse of a reasonable time, without communication of the acceptance. Therefore, a proposal to purchase shares in a company lapses if no allotment is made for many months. If the offer does not specify any time for acceptance, it will come to an end on the lapse of reasonable time; it must therefore be accepted within a reasonable time.

(3) Failure to fulfill condition precedent. If the acceptor fails to fulfill a condition precedent to acceptance the proposal is revoked.

(4) Death. A proposal stands revoked by the death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the other party before acceptance. If the person making the proposal dies or becomes insane after the proposal is accepted, the contract would be incapable of performance if the parties contemplated that it had to be performed by the promisor himself.

A proposal stands revoked if it is rejected or the offeree makes a counter-proposal; in such a case, acceptance of the original proposal is not effective. Once a proposal is rejected it cannot be accepted. There is no rejection where the offeree makes further inquiries about the proposal or seeks clarifications.

What rules are applicable when an offer is made through post or over the telephone?

In England, the Court of Appeal has decided in Entores Ltd. v. Miles Far East Corporation [1955] EWCA Civ 3 that:

“Where a contract is made by instantaneous communication, e.g. by telephone, the contract is complete only when the acceptance is received by the offeror since generally an acceptance must be notified to the offeror to make a binding contract;”

The Hon’ble Supreme Court in the leading case of Bhagwandas Goverdhandas Kedia v. M/S. Girdharilal Parshottamdas [1966 AIR 543], has described the application of the provisions in communication of offer using instantaneous methods, telephone:

1. That the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror and the contract is made at the place where the acceptance is received.
2. The rule about acceptance by post or telegram is that a contract is complete when a letter of acceptance, properly addressed and stamped is posted, even if the letter does not reach the destination or having reached it is not read by the proposer.
3. In the case of telephonic conversation the contract is only complete when the answer accepting the offer was made and that the same rule applies in the case of a contract by communication by Telex.

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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