COMMUNICATION, ACCEPTANCE, AND REVOCATION OF OFFER AND ACCEPTANCE; MODES OF REVOCATION OF OFFER

This article is written by Gayatri Pundhir of Symbiosis Law School, Noida, an intern under Legal Vidhiya

Abstract

This abstract explores the foundational aspects of contract law centered on communication, acceptance, and offer revocation. Delving into the interplay between these elements, it elucidates the critical role of effective communication in establishing and modifying contractual agreements. Highlighting the significance of clear and unambiguous acceptance, it delineates how adherence to prescribed modes solidifies the formation of contracts. Moreover, it examines the right to revoke an offer before acceptance, underscoring the dynamic nature of contractual negotiations. Through legal precedents and statutes, this abstract emphasizes the pivotal importance of precise communication channels and timing in safeguarding and dissolving contractual relationships. Ultimately, it provides a comprehensive insight into the nuanced landscape governing the inception and evolution of contractual engagements.

Keywords

Communication, Acceptance, Revocation of Offer and Acceptance, Modes of Revocation of Offer, Case Laws.

Introduction

In the complex realm of contract law, the trio of offer, acceptance, and the delicate process of revocation form the foundation of enforceable agreements. This examination delves into the core principles of communication, acceptance, and the diverse methods through which offers can be retracted or adjusted.

Offer and acceptance serve as cornerstones in establishing contracts, embodying the essence of mutual accord. The offer, expressing intent with specific terms, meets its match in acceptance, solidifying the agreement’s validity and establishing a contractual bond. However, within this structure lies the intriguing realm of revocation, where an offeror maneuvers through various avenues to withdraw or modify an offer before its acceptance.

This research aims to dissect the crucial role of effective communication in solidifying agreements and elucidate the complex landscape of offer revocation. Through examination of historical instances and modern legal frameworks, it endeavors to unravel the subtleties of offer stability, the effects of time constraints, rejection, and changing circumstances. Ultimately, this exploration seeks to provide a holistic comprehension of how communication, acceptance, and diverse methods intricately shape the evolution and potential dissolution of contractual commitments.

Understanding Offer and Acceptance

An offer in contract law is a proposal made by one party (the offeror) to another party (the offeree), indicating a willingness to enter into a contract under specific terms and conditions.

“As per Section 2(a) of the Indian Contract Act 1872, the term proposal is outlined and defined as, when one person will signify to another person his willingness to do or not do something (abstain) with a view to obtain the assent of such person to such an act or abstinence, he is said to make a proposal or an offer.”[1]

Illustration: ‘X’ proposes to sell a product to ‘Y’ for five lakhs, ‘X’ becomes the offeree, and ‘Y’ assumes the role of the offeror. ‘X’ intends to transfer product ownership in return for five lakhs. Additionally, ‘Y’ simultaneously presents an offer in this transaction.

Elements of an Offer:

1. Intent- The offeror must show a clear intention to be bound by the terms of the offer if accepted. This intent distinguishes a genuine offer from a mere invitation to negotiate.
2. Definite and Certain Terms- The offer must include specific and definite terms regarding the subject matter, price, quantity, duration, and other crucial elements of the contract. Vague or uncertain terms may invalidate the offer.
3. Communication- The offer must be communicated to the offeree or their agent. Merely formulating an offer without communicating it to the intended party does not create a valid offer.
4. Seriousness and Invitation to Accept- The offeror must present the offer with the intention that it is open for acceptance. Offers made in jest, anger, or in a casual manner may not be considered legally binding.
5. Revocability or Irrevocability- Generally, an offer is revocable at any time before acceptance unless it’s accompanied by consideration (part of an option contract) or is made irrevocable by statute or agreement.
6. Legal Capacity- The person making the offer, known as the offeror, needs to possess legal competency to create the offer. For instance, minors and individuals with mental incapacity might not be capable of forming offers that hold legal validity.

Acceptance

Acceptance, in contract law, refers to the unqualified agreement by the offeree to the terms of the offer presented by the offeror.

“According to the Indian Contract Act, 1872, Section 2(b), acceptance is expressed as, when the person to whom the proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus, the proposal when accepted becomes a promise.”[2]

Illustration: A makes B an offer for buying his horse for 20 lakhs. B accepts the offer. Hence, this is known as acceptance of the offer.

Essential Components of a Valid Acceptance

1. Unconditional Assent- The acceptance must mirror the terms of the offer without introducing new conditions or modifications. Any changes proposed by the offeree may constitute a counteroffer, negating the original offer.
2. Communication- Acceptance must be communicated to the offeror or their agent through an appropriate and accepted method of communication. Silence or a mere mental acknowledgment generally does not constitute valid acceptance unless the offer stipulates otherwise or there is a course of dealing between the parties.
3. Intent to Create Legal Relations- The offeree must intend to create a legal relationship by accepting the offer. If the context suggests a social or domestic agreement rather than a legally binding contract, acceptance may not be legally enforceable.
4. Timeliness- Acceptance should be communicated within the specified or reasonable time frame mentioned in the offer. If no time frame is stipulated, acceptance should occur within a reasonable period.
5. Capacity and Consent- Both parties must have the legal capacity to enter into the contract, and acceptance must be given voluntarily without any duress, fraud, or undue influence.
6. Mode of Acceptance- The mode or method of acceptance should align with the requirements specified in the offer. If the offer specifies acceptance through a particular means (e.g., written acceptance), compliance with that mode is necessary for validity.

Communication in Contract Formation

“Communication is defined in Section 4 of the Indian Contract Act, 1872 which says, the communication of proposal is complete when it comes to the knowledge of the person to whom it is made.”[3]

Illustration: When Y sends a letter to Z, proposing to sell his house for 5 million rupees, the communication of the offer will be considered finalized once Z receives the mail.

Significance of Effective Communication in the Context of Making Offer and Acceptance

Efficient communication holds utmost importance in the domains of offer and acceptance, acting as the cornerstone guaranteeing lucidity, comprehension, and the establishment of legally binding agreements. It assumes a pivotal role in transmitting the specifics, stipulations, and intentions of an offer from the offeror to the offeree. Subsequently, it aids the offeree in expressing unwavering agreement or acceptance.

Precise and transparent communication eradicates uncertainties, lessening the chances of misconceptions or misreading concerning the offer’s conditions. It certifies that both parties possess a shared comprehension of the proposed contract’s intricacies and expedites the acknowledgment of acceptance without straying from the initial terms. Moreover, effective communication affirms the consensual nature of the contract, upholding its legality and enforceability. Essentially, it acts as the conduit through which mutual consent is conveyed, establishing a firm base for contractual connections.

Analysis of Various Modes of Communication: In-Person, Written, Electronic, etc.

In the context of communication in the realm of contracts or general interactions, several modes are commonly utilized:

1. Verbal Communication- This involves direct spoken words between individuals, either face-to-face or through phone calls. Verbal communication allows for immediate interaction and clarification.
2. Written Communication- This includes letters, emails, memos, contracts, and any form of communication documented in writing. Written communication provides a tangible record and can be referred back to for clarification.
3. Electronic Communication- In the modern age, electronic modes such as emails, text messages, instant messaging, and social media platforms are prevalent. These offer rapid exchanges and are often convenient for quick communication.
4. Non-verbal Communication- Gestures, body language, facial expressions, and other non-verbal cues convey messages without words and are essential in face-to-face interactions.
5. Visual Communication- Infographics, charts, diagrams, and presentations aid in conveying complex information visually, enhancing understanding.
6. Formal Communication Channels- These include official channels within organizations, such as official memos, reports, or announcements, ensuring structured dissemination of information.
7. Informal Communication- Conversations, casual chats, and unofficial interactions also play a role in communication, often fostering a sense of camaraderie but requiring caution in professional settings.

Cases Exemplifying the Role of Proper Communication in Contract Law

“Powell vs. Lee”[4]

Powell sought the position of headmaster, and the schoolmasters approved his application, intending to employ him. A school manager, lacking proper authority, notified Powell of his selection without proper endorsement. Subsequently, the school managers altered their decision and hired another candidate. Powell alleged a contract breach.

The Court ruled that since the acceptance lacked endorsement from an authorized entity (the school board), no contract existed between Powell and the school board. Therefore, the claim for breach of contract was dismissed due to the absence of a valid contractual agreement.

“Felthouse vs. Bindley”[5]

The plaintiff, Felthouse, discussed purchasing a horse with his nephew, indicating that if he didn’t hear otherwise, he would consider himself the owner. The nephew, occupied with auctioning other items, instructed the auctioneer, Mr. Bindley, to not incorporate the horse in the auction. However, Mr. Bindley mistakenly auctioned the horse. Felthouse sued Bindley for conversion.

The court ruled that no contract existed between Felthouse and his nephew as there was no clear acceptance of the offer from the nephew’s side. The court emphasized that for a contract to be formed, acceptance of an offer must be communicated explicitly, highlighting the importance of clear communication in contract formation. This case stands as a pivotal example underscoring the necessity of communication in establishing a valid contract.

Revocation of Offer and Acceptance

Revoking an offer involves retracting or canceling it before someone accepts it. Acceptance, too, can be withdrawn under specific conditions.

“Section 5 of the Indian Contract Act 1872” says that:

“Revocation of Proposals and acceptance- A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterward. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterward.”[6]

Revocation of Offer

An offer can be withdrawn before its acceptance is communicated. The withdrawal is considered complete when the person to whom the offer was proposed becomes aware of it. The offeror or their authorized representative can initiate this withdrawal.

“Revoking an offer means retracting or annulling it before it’s accepted. Similarly, acceptance can also be retracted under particular circumstances.”[7]

Revocation of Acceptance

The acceptor has the right to withdraw their acceptance until the communication of acceptance is finalized. This withdrawal must be conveyed to the proposer using the same method as the acceptance. Once the acceptance has been communicated, any attempt to withdraw it will not be valid.

Methods of Revocation an Offer

“Section 6 of the Indian Contract Act, 1872”[8] addresses the withdrawal of an offer. It outlines the different methods by which an offer can be revoked, including:

• Direct Revocation: The offeror’s explicit withdrawal of the offer before acceptance

The offeror can withdraw the offer by directly communicating this withdrawal to the offeree before the offeree accepts the offer. This communication of withdrawal needs to reach the offeree before they confirm their acceptance of the offer. If the offeror successfully communicates this withdrawal, the offer becomes invalid and cannot be accepted by the offeree.

• Revocation by Lapse of time

An offer can be revoked by the passage of time if it includes a specified timeframe within which the offeree must accept. Once this stipulated period elapses without acceptance, the offer is automatically withdrawn or revoked. The offeror is no longer bound by the terms of the expired offer, and the offeree cannot accept it thereafter.

• Revocation by death or insanity of offeror

The death or insanity of the offeror results in the automatic revocation of the offer. If the offeror passes away or becomes legally incapacitated before the offeree accepts the offer, the offer is terminated. In such cases, the offeree cannot proceed with accepting the offer as the authority or capacity of the offeror to uphold the offer ceases upon their death or legal incapacity.

• Revocation by failure to accept in manner prescribed

An offer can be revoked if the offeree fails to accept it in the manner prescribed by the offeror. If the offer specifies a particular method or mode for acceptance and the offeree does not adhere to these instructions when confirming acceptance, the offer stands as revoked. The failure to comply with the specified acceptance method results in the offeror being released from their initial proposal.

Case Laws

“Payne vs. Cave”[9]

The defendant, by placing the highest bid at an auction for the plaintiff’s goods, made an offer. However, the defendant retracted their bid before the auctioneer confirmed acceptance by concluding the sale with the fall of the hammer. The English Court determined that the defendant was not obligated to buy the goods. According to common law, the bid represented an offer, which the bidder had the right to withdraw at any time before the auctioneer signified acceptance by officially concluding the sale.

NOTE: This principle has since been incorporated into “Section 57(2) of the Sale of Goods Act 1979”[10], codifying the rule established by this case.

“J.K. Enterprises vs. The State of MP”[11]

The court ruled that the communication of the revocation of a proposal must be both unequivocal and directed to the accurate address. In this particular case, the revocation letter was transmitted via fax. Regrettably, it reached an incorrect address. Consequently, the court deemed this communication ineffective or of no consequence. The failure to deliver the revocation to the intended address led to the court’s decision to disregard its validity in the context of the proposal’s withdrawal.

“Nutakki Shesharatnam vs. Sub Collector”[12]

In this case, the landowner extended an offer to acquire land, contingent upon the payment of a lump sum. The plaintiff retracted this offer before the Acquisition officer finalized the award of acceptance. The court upheld the validity of the offer revocation, emphasizing that the withdrawal of the offer remains valid if it reaches the offeree before the communication of acceptance.

The court held the crucial timing of communication, stating that the revocation should be conveyed to the offeree prior to the confirmation of acceptance to be considered effective.

• “Asia Tech Nagercoil vs. D.G. Ministry of Road Transport and Highways, New Delhi”[13]

The court held that when the tenders submitted by bidders were not opened due to a postponement in the opening process, it cannot be deemed as an acceptance of those tenders. Consequently, the tenderers retain the right to withdraw their proposals. In this scenario, since the tenders were not officially opened and reviewed, there was no acceptance of any bid, allowing the tenderers the liberty to retract their offers.

Conclusion

In the complex world of contract law, how people communicate, agree, and retract offers are crucial to making agreements. Good communication is key to making sure everyone understands each other. When an acceptance is clear and definite, following the right way of communicating, it makes the contract strong. But, remember, before someone officially accepts, they can change their mind and withdraw the offer. This shows how contracts are always changing.

Understanding the critical interplay between these elements unveils the significance of timing, clarity, and proper communication channels. It underscores that the validity of an offer’s revocation hinges on reaching the offeree before acceptance is finalized. These principles, enshrined in legal precedents and statutes, emphasize the importance of precise communication and adherence to stipulated modes in establishing and safeguarding contractual relationships. Ultimately, the holistic comprehension of these concepts illuminates the nuanced landscape governing the inception, evolution, and potential dissolution of contractual engagements.

References

1. https://www.legalserviceindia.com/legal/article-5094-communication-in-law-of-contracts-importance-and-legal-consequences.html (Last visited on Jan. 10, 2024).

2. https://blog.ipleaders.in/revocation-proposal-made/#Case_Laws (Last visited on Jan. 10, 2024).

3. https://www.ezylegal.in/blogs/what-is-section-5-of-the-indian-contract-act-1872 (Last visited on Jan. 10, 2024).

4.  https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/acceptance/#:~:text=Say%20for%20example%20A%20offers,accepted%20it%20becomes%20a%20promise. (Last visited on Jan. 10, 2024).

5. https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/communication-of-offer-and-acceptance-and-revocation-of-offer/#:~:text=The%20Indian%20Contract%20Act%20lays,offer%20is%20now%20not%20possible. (Last visited on Jan. 10, 2024).

6. https://www-ebcreader-com.eu1.proxy.openathens.net/library.php (Last visited on Jan. 10, 2024).

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[1] Indian Contract Act, 1872, § 2(a), No. 9, Acts of Parliament, 1872 (India).

[2] Indian Contract Act, 1872, § 2(b), No. 9, Acts of Parliament, 1872 (India).

[3] Indian Contract Act, 1872, § 4, No. 9, Acts of Parliament, 1872 (India).

[4] Powell vs. Lee (1908) 99 LT 284.

[5] Felthouse vs. Bindley (1862) EWHC CP J32.

[6] Indian Contract Act, 1872, § 5, No. 9, Acts of Parliament, 1872 (India).

[7] LawBhoomi, Revocation of an offer under Indian Contract Act,1872, LAWBHOOMI, (Jan. 10, 2024, 8:13 PM), https://lawbhoomi.com/revocation-of-an-offer/#:~:text=In%20conclusion%2C%20Section%206%20of,death%20or%20insanity%20of%20the

[8] Indian Contract Act, 1872, § 6, No. 9, Acts of Parliament, 1872 (India).

[9] Payne vs. Cave 100 E.R. 502.

[10] Legislation.gov.uk, https://www.legislation.gov.uk/ukpga/1979/54/section/57 (Last visited on Jan. 10, 2024).

[11] J.K. Enterprises vs. The State of MP AIR 1997 MP 68.

[12] Nutakki Sheshratam vs. Sub Collector AIR 1992 SC 131.

[13] Asia Tech Nagercoil vs. D.G. Ministry of Road Transport and Highways, New Delhi AIR 2010 Mad 54.

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