Revocation of Proposal and Acceptance

In the previous articles of #tuesdayteachings we have discussed what a proposal and an acceptance constitute. It is now also necessary to understand how such a proposal and an acceptance can be revoked.

 

REVOCATION OF PROPOSAL-

Section 6 of the Indian Contract Act,1972 describes the circumstances under which an offer stands revoked; it states that,

“A proposal is revoked—

(1) by the communication of notice of revocation by the proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;

(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or

(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.”

1)     Notice of revocation

Section 5 of the contract act provides that “A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.”

 

·       Before Acceptance

An offer can therefore be revoked before it has been accepted by the offeree or before the acceptance is communicated to the offeror. It is now a well-established principle that acceptance is complete when the offeree sends out the communication of acceptance to the offeror. Accordingly, it must be revoked in such a manner that the revocation should reach the offeree before he accepts or posts his acceptance. If the revocation reaches after the offer is accepted or the offeree sends out the acceptance, making it out of his power, it becomes ineffective.

This principle was laid down in the case of Henthorn v. Fraser. In this case, the secretary of a building offered the plaintiff to sell a property for £750, giving him the right to accept within fourteen days. The plaintiff took this offer with him and travelled to another town where he resided. The next day he posted his acceptance at 3.50 PM which reached the society’s office at 8.30 PM. But before that the society had posted a letter at about 1.00 PM revoking its offer, which was received by the plaintiff at 5.30 PM. The revocation was held to be ineffective. Lord Herschell observed, “If the acceptance by the plaintiff of the defendant's offer is to be treated as complete at the time the letter containing it was posted, I can entertain no doubt that the society's attempted revocation of the offer was wholly ineffectual. I think that a person who has made an offer must be considered as continuously making it until he has brought to the knowledge of the person to whom it was made that it is withdrawn."

The illustration provided in section 5 further clarifies this matter- A proposes by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.

A real-life example in this regard will be- a bid which can be withdrawn before the fall of the hammer.

 

·       Brought to the mind of the offeree

It is a general rule that the revocation must be ‘brought to the mind’ of the offeree. It is accepted that upon its arrival to the given address it will become effective, when in the ordinary course of business, it would have come to the offeree’s attention. If the offeree neglects to pay attention to telex/ post/ fax machine, the revocation is still considered to be effective on its arrival.

 

·        Revocation by the offeror

It is necessary that the communication of revocation should be done by the offeror or by his duly authorised agent. It was however held by the Court of Appeal in Dickinson v. Dodds, that it is enough if the offeree knows reliably that the offer has been withdrawn and that the offeree with this knowledge cannot accept such offer. The facts of this case are- On June 10, 1874, the defendant made an offer to the plaintiff to sell a property for £800 stating that this offer would remain open till 9.00 AM on 12^th June. However, the defendant sold the property to someone else on the 11^th. The plaintiff had knowledge of the sale though not from any authorized agent of the defendant. He still handed a notice of acceptance to the defendant and initiated action against him for specific performance. The Court of Appeal held that there was no contract. James LJ held that, “a sale to a third person which came to the knowledge of the person to whom the offer was made was an effectual withdrawal of the offer". He added, “In this case, beyond all question, the plaintiff knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, 'I withdraw the offer'."

This rule is not applicable to India as section 6(1) clearly states that the revocation should be communicated by the proposer to the other party.

 

·       Revocation before expiry of fixed period

A proposal can be revoked even if it is specified that the offer will remain open till a particular date.   The decision of the Madras High Court in Alfred Schonlank v. Muthunyna Chetti is an illustration of this point. The defendant offered to sell certain quantity of indigo at the plaintiff's office allowing him eight days' time to give his answer. However, On the 4th day the defendant withdrew his offer. The plaintiff accepted it on the 5th day.

The court held such an acceptance to be useless and said, “Both on principle and on authority it is clear that in the absence of consideration for the promise to keep the offer open for a time, the promise is mere nudum pactum.”

(nudum pactum- literally a bare promise; an agreement or promise without consideration and hence unenforceable)

Where the agreement to keep the offer open for a specific period of time is made for some consideration, then the offeror cannot withdraw the offer before the expiry of such period. The decision in Mountford v. Scott laid down this principle. In this case, the owner of a house, for an amount of one pound, agreed to give the plaintiff some time to purchase the house for ten thousand pounds. He could not revoke the offer for that specific period of time. It was held that one pound was sufficient consideration and it was valuable. The effect of such an agreement was that the offeree could accept the offer notwithstanding the purported revocation of the offer by owner.

 

·       Revocation of General/Unilateral Offers

Where an offer is presented to the public at large through newspapers or any other media, it can be withdrawn through the same media and the revocation is effective even if a person performed the terms of the offer in the ignorance of the revocation. This principle was first laid down in an American case, Shuey v. United States. In this particular case, the announcement of a reward for reporting certain criminals in the newspapers was withdrawn by a subsequent notification in the same newspapers. But a person being unaware of the revocation kept working on the track of the criminals and eventually detected and reported them. He initiated action against the defendants but he could not recover. It was held that “It was withdrawn through the same channel in which it was made. The same notoriety was given to the revocation that was given to the offer.”

In a unilateral contract where a person promises a certain sum to another on performance of a stipulated act by that other, the acceptance is complete only when the act has been completely performed.  But can the offer be revoked if a person has commenced the performance but not yet completed it? In order to answer this question, Sir Frederick Pollock suggested that a distinction should be drawn between the acceptance of the offer and the performance of the stipulated act. He proposed that the acceptance be considered complete once the offeree has unequivocally commenced performance (so that the offeror cannot effectively revoke the offer after this time), but the offeror is not bound until the act has been completely performed. This argument of Sir Pollock seems to have been accepted by the English Courts.

In the case of Errington v. Errington, the owner of a mortgaged house promised his son and daughter-in-law that the house would belong to them as soon as they paid off the instalments of the mortgage on the premises, and to his knowledge, they commenced to pay those. Denning LJ held that this promise was a unilateral contractual promise of the ownership of the house in return for the act of paying the mortgage instalments. It could not be revoked now since the couple had initiated the performance of the act, but it would not bind him if they did not complete their performance. The offeror is unable to revoke his offer but his duty to perform his obligation is conditional upon the performance of the said act by the offeree.

 

2)     Lapse of time

An offer stands revoked if it is not accepted within the time specified by the proposal. If such offer specifies that the acceptance be returned by post, then it may be accepted if the letter is posted before the stipulated period even if it arrives after the stipulated time. An important case to note in this point is R. Vinoth Kumar v. Secretary, Kilpauk Medical College, Madras. In this case an application for admission to the institution had to be filed within the prescribed time either by sending a registered post or in person. The plaintiff had sent his application form by registered post four days prior to the last date but it reached after the expiry of time. The application was not considered by the college. It was held by the Court that “where delivery can be made in a mode at the option of the sender, the agency through whom delivery is made acts as the agent of the sender, whereas if the delivery is made in a mode prescribed by the addressee, the agency acts as the agent of the addressee. In the first case, delivery to the agency is not delivery to the addressee, but in the latter case it is.”

If there is no stipulated time, the offer must be accepted within a reasonable period of time. The definition of ‘reasonable time’ is a question of fact, depending upon the circumstances of each case. The determination of such reasonable time would depend on the purpose of the offer, its subject-matter, the method through which the offer is communicated, the subsequent conduct of the parties, renewals of the offer and so on. For example, an offer to sell perishable goods would expire within a short period of time. The proposal lapses even if the acceptor is prevented from accepting within the stipulated or reasonable time due to causes beyond his control.

 

3)     By failure of accepting condition precedent

Where there is a condition precedent to the acceptance of an offer and the offeree fails to fulfil such condition, the offer is said to be revoked. A conditional proposal lapses when the acceptor does not accept the condition. In the case of Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazadoor Union, the appellant company could not work its mills to a full capacity and obtained permission to sell its machinery. The trade union to frustrate the transaction threatened to go on a strike so the employer made them an offer that if the trade union withdrew the strike, the workers would be paid a certain share of profits arising from the transfer of the mill. The trade union made certain counter-proposals but the employer asserted that the condition of withdrawing the strike should be met and other conditions could be discussed later. The trade union did not go on strike but they did not withdraw the strike notice and did not co-operate with the company in the transfer either. The transfer took place and the workers claimed their share. It was held that there was no acceptance of the condition by the workers (trade union) and hence the company was not liable to pay any amount to them.

 

4)     By death or insanity of the offeror

An offer lapses on the death or insanity of the offeror, provided that the fact of the death of the offeror comes to the knowledge of the offeree before he makes his acceptance.

 

REVOCATION OF ACCEPTANCE-

Unlike English Law where the law relating to revocation of acceptance is still unsettled, Indian Law allows an offeree to revoke his acceptance before the acceptance reaches the offeree. Section 5 of the Indian Contract Act validates such revocation of acceptance of an offer. It states that

 “An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.”

The illustration provided with the section further clarifies the rule of revocation of acceptance;

"A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards."

Therefore, it can be understood that an acceptor may revoke his acceptance by communicating the revocation through a speedier mode of communication so that it can reach the offeror before the acceptance itself. If the acceptance and revocation of acceptance reach together, the acceptance shall stand revoked according to the illustration accompanied by the section.

References:

1.     Indian Contract Act, 1872.

2.     Pollock & Mulla, The Indian Contract and Specific Relief Acts, 16th edition.

3.     Avtar Singh, Contract and Specific Relief, 12th edition.

4.     Anson’s Law of Contract, 29th edition.

5.     Halsbury’s Laws of India Contract, 2e 2015.

6.     Henthorn v. Fraser; (1892) 2 Ch 27.

7.     Dickinson v. Dodds; (1876) 2 Ch D 463.

8.     Alfred Schonlank v. Muthunyna Chetti; (1892) 2 MLJ 57.

9.     Mountford v. Scott; (1975) 1 All ER 198.

10.  Shuey v. United States; 92 U.S. 73 (1875).

11.  Errington v. Errington; (1952) 1 KB 290.

12.  R. Vinoth Kumar v. Secretary, Kilpauk Medical College, Madras; (1995) 2 MLJ 158.

13.  Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazadoor Union; (1956) S.C.R. 872.