Communication, Acceptance & Revocation

of

Proposals

Vibhuti Amarnath Agrawal

F.Y. LL.B.

Roll Number: 01

Subject: Contract Law I

 Contents

Sr. No. Topic Page Number

1. Introduction 3

2. Section 3 3

3. Section 4 6

4. Section 5 9

5. Section 6 10

6. Section 7 12

7. Section 8 14

8. Section 9 15

9. Conclusion 17

10. Bibliography 18

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 Introduction

Before we start with the topic of communication, acceptance and revocation of

proposals, let us first understand what exactly is a Proposal.

The word proposal is synonymous in English use with offer.

Before parties enter into a contract, usually preliminary negotiations take place
between them. If the person making the statement intends to be bound by it as soon
as it is accepted without doing any further act, he is said to make a proposal.
Explaining this, Section 2 (a) of The Indian Contract Act, 1872, states that when one
person signifies to another his willingness to do or to 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. Going further, Section 2 (b) of The Indian Contract Act, 1872,
states that when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a
promise.

Similarly, proposals or acceptances can also be revoked or withdrawn subject to

conditions.

Whatever may be the case, the proposal made, its acceptance or revocation of the
proposal or acceptance needs to be communicated to the respective parties aptly.

Section 3 to Section 9 of the Act enumerate these features as follows:

Section 3: Communication, acceptance and revocation of proposals

The communication of proposals, the acceptance of proposals and the revocation of
proposals and acceptance, respectively, are deemed to be made by any act or

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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.

In S. 2 (a) and (b) we have seen that a promisor has to signify his willingness and a
promisee has to signify his assent. It is therefore, necessary to define what is meant
by such signification and the mode of such signification. This is described as
communication.

The words signifies to another clearly imply that the willingness or the assent, as
the case may be, must be brought to the notice of the other, in other words is
communicated to the other. This section lays down the principle that an acceptance
of the offer made ought to be notified to the person who makes the offer, in order
that the two minds may come together and agree upon the same thing in the same
sense. This section provides two general modes of communication:
1. Any act
This includes any conduct and words, written or oral. Written words could be
through letters, telegrams, telex message, etc. Oral words would include
telephone messages.

2. Omission intending thereby to communicate to the other or which has the

effect of communicating it to the other
This would not mean silence but would include such conduct or forbearance
on ones part that the other person takes it as his willingness or assent. For
example, intent of a person who steps into a public transport. This is an
instance of communicating by conduct.

Case Law: In L.I.C. of India v. Rajavasireddy, [A.I.R. 1984 S.C. 104], the question
arising before the Supreme Court of India was whether receipt and retention of the
insurance premium and the delay in replying to the proposal could be treated as the
acceptance thereof. In this case, the deceased filed a proposal of insurance on his life
for Rs 50,000/- on 27.12.60. He issued two cheques for Rs 300/- and Rs 220/-

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respectively, which were encashed by the L.I.C. by 11.01.61. The deceased died the
next day, i.e., 12.01.61. In an action by the widow of the deceased to claim the
amount, the L.I.C. contended that the contract of insurance had yet to be completed.
It was averred that since the proposal had yet to be accepted by the Divisional
Manager, according to the prescribed procedure in such cases, the amount of the
two cheques had been kept only in deposit in the suspense account and had not
been credited towards the premium account, and therefore, the L.I.C. was not bound
to pay the insured sum if Rs 50,000/-. The contention of the L.I.C. was accepted by
the Supreme Court and since the contract had not yet been concluded, the L.I.C. was
not liable to pay the sum claimed.

Communication of special conditions:

It is equally important to effectively communicate the proposal of special terms.
English authorities have established that it is a question of fact whether the person
taking a ticket had notice of the conditions, or at any rate the other party was
minded to contract only on special conditions to be ascertained from the ticket. In
either of these cases, acceptance of the document without protest amounts to a tacit
acceptance of the conditions, assuming them to relate to the matter of the contract,
and to be of a more or less usual kind.

Example: A passenger purchased of the defendant company a ticket by steamer,

which was in French language. Towards the top of the ticket were the words to the
effect that this ticket in order to be available, must be signed by the passenger to
whom it is delivered. At the foot of the ticket was an intimation in red letters that the
ticket was issued subject to the conditions printed on the back. One of those
conditions was that the company incurred no liability for any damage, which the
luggage might sustain. The vessel was wrecked by the fault of the companys
servants, and the plaintiffs baggage was lost. The plaintiff sued the defendant
company for damages. The ticket was not signed by him, and he stated that he did
not understand French language and that the conditions of the ticket had not been
explained to him. It was held that the plaintiff had reasonable notice of the
conditions and that it was his own fault if he did not make him self acquainted with

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them. As to the absence of the plaintiffs signature, it was held that the clause
requiring the signature was inserted for the benefit of the company and that they
might waive it if they thought fit. The decision also seem to imply that the French
company is entitled to assume that a person taking first class passage either knows
French enough to read their tickets, or, if they do not ask for a translation at the time,
are willing to accept the contents without enquiry. This seems reasonable enough in
this particular case.

While communicating effectively is important, completing the communication loop is

equally important. Section 4 tells us when a communication is considered complete.

Section 4: Communication when complete

The communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made.

The communication of acceptance is complete, -

As against the proposer, when it is put in a course of transmission to him so as
to be out of the power of the acceptor;
As against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete, -

As against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of the power
of the person who makes it;
As against the person to whom it is made, when it comes to his knowledge.

Agreement between parties at a distance: The definition is very important. It helps

one in deciding whether the contract is concluded or not. The definition provides
two stages. Communication of the proposal is the first stage. Receipt of the
communication by the acceptor is the second stage. Whether a proposal has or has
not come to the knowledge of the person to whom it was made is purely a question
of fact.

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Example: A proposes, by letter, to sell a house to B at a certain price. The
communication of the proposal is complete when B receives the letter. B accepts As
proposal by a letter sent by post.

The communication of the acceptance is complete,

As against A when the letter is posted
As against B, when the letter is received by A

A revokes its proposal by telegram. The revocation is complete

As against A when the telegram is dispatched
As against B when B receives it

B revokes his acceptance by telegram. Bs revocation is complete

As against B when the telegram is dispatched
As against A when it reaches him

Instantaneous communication on phone or on telex: A communication by means of

telephone or telex is an instant mode of communication. The communication by
phone or telex machines is direct between the parties and hence instantaneous. In
respect to the communication by post or telegram, a third party is involved.
Communications by phone or telex would fall under the first paragraph i.e., as if the
parties make an oral offer an acceptance. Communication by post or telegram would
fall under the latter parts of the section. If an acceptance on phone is drowned by
noise of a flying aircraft or is spoken into a telephone after the line has gone dead or
is so indistinct that the proposer does not hear it, or the telex machine has gone out
of order, there is no contract. The acceptor should ensure that the acceptance should
be audible, heard and understood by the offeror, the reason being that the
acceptance should be absolute and unconditional which in its turn requires that it
should not be based on any mistake or misrepresentation.

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Section 5: Revocation or 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 afterwards.
An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.

Examples:
1. 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. Similarly, B may revoke his acceptance at any time before or at
the moment when the letter communicating it reaches A, but not afterwards.
2. The liberty of revoking an offer before acceptance is well shown in the case of
a sale by auction. Here, the owner of each lot put up for sale makes the
auctioneer his agent to invite offer for it and every bidding is nothing more
than an offer on one side, which is not binding on either side till it is assented
to. Hence, a bidder may withdraw his bid at any moment before the fall of
the hammer

After understanding the conditions necessary to revoke a proposal or acceptance,

one also needs to know the circumstances under which a revocation can come into
force other than through communication. Section 6 highlights this.

Section 6: Revocation how made

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 fulfill a condition precedent to acceptance; or

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 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

Notice of revocation: Here sub-section 1 appears to make it a condition of revocation

being effectual that it shall be communicated by the proposer or by his authority.

Lapse of time for acceptance: it is implied in sub section 2 that a proposer is not
bound to keep his proposal open indefinitely. This rule is based on the principle that
an undertaking to keep open an offer indefinitely would be a promise without a
consideration and hence such a promise would be unenforceable (S. 25). On the
point of acceptance after expiration of a reasonable time being too late, there is one
direct English authority, where it was held that a person who applied for shares in
June was not bound by an allotment made in November. This case was followed by
the Bombay and Nagpur High Courts.

Condition precedent to acceptance: A condition precedent is a condition, which

prevents any obligation to come into existence until the condition is satisfied.
Conditions such as payment of deposit or earnest money or filling in a certain form
or executing a certain document or time limit within which to communicate
acceptance are often laid down by offerors and failure to satisfy any such conditions
may make a proposal lapse. It may also happen that the other party may do
something obviously inconsistent with performing some or one of the things
requested. This amount to a tacit refusal, and accordingly the proposal is at an end.
The parties can form a contract only by starting afresh.

Case Law: In State of Madhya Pradesh v. Gobardhan Dass [A.I.R. 1973 S.C. 1164],
the Chief Conservator of Forests invited from intending buyers tenders for the sale of
certain quantity of lac and lac products. One of the conditions of sale subject to
which the tenders were to be made, was that 25% of the purchase price was to be
deposited immediately after the close of sale, viz., the acceptance of tender. The
tenders of the respondent firm were the highest and they were accepted for and on
behalf of the Chief Conservator of Forests. The respondent firm neither paid the full

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25% of the initial deposit, nor the remaining 75% of the price. After notice of
payment for the said amount was given to the respondent firm, the goods were
resold by the Chief Conservator of Forests. Action was then brought against the
respondent firm for the breach of contract and the recovery of the loss, which
resulted on resale. It was held by the Supreme Court that since the respondents
failed to comply with the condition precedent to the making of the contract, there
was no contract concluded in this case and, therefore, there was no question of
breach of contract or liability for the same.

Death or insanity of proposer: In a Madras case of an auction sale held by the Court,
the bid was subject to its sanction or acceptance by the Court but before the Court
could accept it, the bidder died and it was held that on the death of the bidder his
bid stood revoked.

Revocation distinct form refusal: The rejection of a proposal by the person to whom
it is made is wholly distinct from revocation, and is not within this section. A counter-
offer proposing different terms has the same effect as a merely negative refusal; it is
no less a rejection of the original offer, and a party who, having made it, changes his
mind, cannot treat the first offer as still open.

A contract comes into effect only when the acceptance to the same is absolute.
Section 7 explains this:

Section 7: Acceptance must be absolute

In order to convert a proposal into a promise the acceptance must
1. Be absolute and unqualified
2. Be expressed in some usual and reasonable manner, unless the proposal
prescribes the manner in which it is to be accepted. If the proposal prescribes
a manner in which it is to be accepted, and the acceptance is not made in
such manner, the proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be accepted

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 in the prescribed manner, and not otherwise; but, if he fails to do so, he
accepts the acceptance

Certainty of acceptance: The rule in the first sub section is based on the principle that
unless the parties have consensus ad idem, i.e., are of one mind, there cannot be an
agreement between them. Where an offer to purchase a house with a condition that
possession shall be given on a particular day was accepted varying the date for
possession or an offer to sell good barley was accepted with the hope that fine
barley would be delivered or an offer to sell rice was accepted with an endorsement
on the sold and bought note that yellow and wet grain will not be accepted, it has
been held that the acceptance was not absolute and unqualified and that the
variations were counter proposals. Where an acceptance of a proposal for insurance
was accepted in all its terms subject to the condition that there shall be no assurance
till the first premium was paid the said condition was held to be in the nature of a
counter proposal. A composite offer, each part whereof is dependent upon the other,
if accepted in part only, the acceptance would not be absolute and unqualified.

Modes of acceptance: This sub section in the first instance throws the burden upon
the offeror, or promisor to prescribe a mode of acceptance. If he does not prescribe
any specific method, the acceptor has to follow usual and reasonable mode. The
offeror cannot impose upon the acceptor the penalty that in the event of his silence,
he would be deemed to have accepted the proposal.

Acceptance in a prescribed manner: Although there can be no contract without a

complete acceptance of the proposal, it is not universally true that complete
acceptance of the proposal makes a binding contract; for one may agree to all the
terms of a proposal, and yet decline to be bound until a formal agreement is signed,
or some other act is done. There may be an express reservation in such words as
these: This agreement is made subject to the preparation and execution of a formal
contract.

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In applying the rule of acceptance in a prescribed manner, the Court must decide
what object the offeror had in view. An expression reply by letter sent by return of
post may have been used with a view to get a quick reply and hence acceptance by
telegram may do. If, however, the offeror expressly dislikes telegrams, an acceptance
by telegram may not suffice. The question would be whether the prescribed mode is
mandatory or directory.

Therefore, if the proposer chooses to require that goods shall be delivered at a

particular place, he is not bound to accept delivery tendered at any other place. It is
not for the acceptor to say that some other mode of acceptance, which is not
according to the terms of the proposal, will do as well.

Case Law: in G.S.R.T.C. v. B. Arunchandra & Co. [A.I.R. 2001 Guj. 343], tenders were
invited for supply of material. It contained condition for payment of earnest money
by the concerned contractor. Inspite of insistence by the owner, the contractor did
not deposit any earnest money. No exemption from payment of earnest money was
granted to the contractor. It was held that under the above mentioned circumstances
there was no concluded contract between the parties and the contractor could not
be held guilty of breach of contract.

Usual and reasonable manner: This expression includes what must have been within
the contemplation of the parties according to the ordinary practice followed in a
particular trade or business or place. This may cover a case of acceptance by
beginning to perform or by opening a letter of credit or by actual forbearance or by
payment of earnest money or deposit, as the case may be. A personal message
through the acceptors agent was deemed to be under this expression, the promisor
having not prescribed any mode.

Acceptance can be communicated not just by expressing in words but also through
other means. Section 8 details this as below:

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Section 8: Acceptance by performing conditions, or receiving consideration
Performance of the conditions of a proposal, or the acceptance of any consideration
for a reciprocal promise which may be offered with a proposal, is an acceptance of
the proposal.

Scope and object: The object of this section is complimentary to the preceding
section. If a proposer has not prescribed a mode, an acceptor has to adopt some
usual and reasonable mode. This section prescribes one of such methods in the form
of an implied acceptance. This section recognizes a distinction between acceptance
of an offer, which asks for a promise and an offer, which asks for an act on condition
of the offer becoming a promise.

Acceptance by performance: Performance of the conditions of a proposal is nothing

else than doing the act requested by the proposer as the consideration for the
promise offered by him, as when a tradesman sends goods on receiving an order
from a customer. The only previous definition of acceptance in the Act is that a
proposal is said to be accepted when the person to whom it is made signifies his
assent thereto (S. 2 (b)). This has to be read with the provisions as to communication
in S. 4 and S. 7. The present section appears, in its first branch, to recognize the fact
that in the cases in which the offeror invites acceptance by the doing of an act, it is
sometimes impossible for the offeree to express his acceptance otherwise than by of
his part of the contract.

Case Law: The nature of acceptance required in such cases was considered by the
English Court of Appeal in Carlill v. Carbolic Smoke Ball Co. [1893 1 QBD 256]. The
defendant company, being the proprietor of the carbolic smoke ball, a device for
treating the nostrils and air passages with a kind of carbolic acid snuff, issued an
advertisement offering 100 reward to any person who would contract influenza (or
similar ailments as mentioned) after having used the ball as directed. It was also
stated that 1,000 was deposited with a named bank, showing our sincerity in the
matter. The plaintiff bought one of the smoke balls by retail, did use it as directed,
and caught influenza while she was still using it. Hawkins, J. held in a considered

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judgment that she was entitled to recover 100 as on a contract by the company.
The Court of Appeal confirmed that judgment.

It was objected in this case that the plaintiff had not communicated her acceptance
of the offer to the defendant company. It was held that the contract was accepted by
being acted upon, that the defendant had not stipulated for any communication of
acceptance and therefore the plaintiff was entitled to recover the amount.

Acceptance in ignorance of offer: Does an act by a person in ignorance of the

proposal amount to performance of the condition of the proposal within the
meaning of this section? According to the High Court of Allahabad it does not. The
plaintiff in that case was in the defendants service as a munib. The defendants
nephew absconded, and the plaintiff volunteered his services to search for the
missing boy. In his absence the defendant issued handbills offering a reward of Rs
501/- to anyone who might find out the boy. The plaintiff traced him and claimed the
reward. The plaintiff did not know of the handbills when he found out the boy. The
Court held that the plaintiff was not entitled to the reward.

Finally, contracts can be express or implied. Section 9 tells us the significance of both:

Section 9: Promises, express and implied

In so far as the proposal or acceptance of any promise is made in words, the promise
is said to be express. In so far as such proposal or acceptance is made otherwise than
in words, the promise is said to be implied.

This section assumes that both proposals and acceptances may take place by words
or without express words. The words may be spoken or written between the parties.
An implied promise, in the sense of the Act, is a real promise though not conveyed in
words. An implied promise is therefore to be inferred from certain facts such as a
course of dealings between the parties. In other words, where there is an express
contract in existence, there is no question of an implied contract.

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Implied contracts and express contracts are both equally binding upon the parties.
The difference between them is confined to the manner of proving them. A tacit
promise may be implied from a continuing course of conduct as well as from
particular acts. Thus, an agreement between partners to vary the terms of the
partnership contract may either be expressed or be implied from a uniform course of
dealing. Again, when a customer of a bank has not objected to a charge of
compound interest in accordance with the usual course of business, there is an
implied promise. Where parries have acted on the terms of an informal document
which has passed between them, but has never been executed as a written
agreement or expressly assented to by both, it is a question of fact whether their
conduct establishes an implied agreement to be bound by those terms.

Where a contract is partly oral and partly in writing, it is necessary to consider the
whole of the negotiations for the purpose of determining whether the parties have
truly agreed on all the material points.

Conclusion

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It has been noted above that an agreement between the parties is one of the
essentials for creating a contract. An agreement arises by an offer or proposal by
one of the parties and the acceptance of such offer by the other.

However, in order that the contract comes into force and is legally binds both the
parties there are certain rules that need to be followed. To summarise them:
1. The proposal, acceptance or revocation needs to be communicated
2. The communication has to be complete, leaving no scope for any ambiguity
3. If any of the parties desire to revoke their proposal or acceptance as the case
may be, it needs to be done in the specified manner and time limit for it to be
valid
4. On the other hand, the acceptance of the proposal should be absolute with
no conditions left to be fulfilled and should be communicated in the
prescribed manner either expressly, or by performing an act or by receiving
consideration

Bibliography

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Books:
1. The Indian Contract Act, 1872, Bare Act
2. The Indian Contract Act, 2006, H.S. Pathak
3. The Indian Contract Act, 2005, Dr R.K. Bangia

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