SIGNIFICANCE OF TIME IN COMMUNICATING ACCEPTANCE AND REVOCATION IN CONTRACT
Author: Sadhana Tiwari
Student, NLIU, Bhopal
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Quick Takeaways
- Sequence Matters: A valid agreement requires a clear offer to be communicated before an acceptance can occur; you cannot accept an offer you do not know exists.
- The Power of Revocation: Under Section 5, a proposer can withdraw an offer at any time before the communication of its acceptance is complete against them.
- Communication is Key: For a contract to be legally enforceable, acceptance must be a clear signify of assent and cannot be inferred from mere silence.
Introduction
There was no recorded presence of agreements between parties during the ancient and medieval periods. In those days, people religiously obeyed principles derived from the Vedas, Smritis, Shastras, etc. As the modern era came into being, people started the widespread use of agreements backed by legal consequences to form contracts. Especially during the era when the British began colonizing India, they made extensive use of contracts for their economic and social relations. The law of contract was then codified by them in 1872 under the name of the Indian Contract Act. More than 150 years have passed, yet the law stands firm with amendments made to reflect present-day needs. The Indian Contract Act, 1872 lays down the essential elements of a valid contract, the rights and obligations arising from it, and the remedies available in case of breach.
In today’s time, contracts have become a common part of our daily lives. We enter into contracts several times a day, often without being fully aware of it. For instance, buying a packet of chips from a shop is also considered a contract. Contracts are not limited to such everyday transactions but also extend to important aspects of life such as employment. When a person asks a shopkeeper for a packet of chips and the shopkeeper agrees to sell it, a promise is made by both parties. The buyer pays the price, and the shopkeeper delivers the goods. Similarly, in an employment contract, the employee promises to work for the employer, and in return, the employer promises to pay a salary and other benefits. Therefore, when there is a mutual understanding between the parties on the same terms regarding their rights and obligations, it is called an agreement.
As defined under Section 2(e) of the Indian Contract Act, 1872, an agreement is “every promise and every set of promises forming the consideration for each other.”
Analysis
Such an arrangement by itself does not amount to a contract. For an agreement to become a legally binding contract, certain basic requirements must be fulfilled. First, there must be an offer made by one party and its acceptance by the other in the same sense meaning both parties must agree to the same thing in the same manner. Secondly, there must be something of value involved, known as consideration. This means that each party must either give something or promise to do something in return, and this must have value in the eyes of law. Further, the parties entering into the agreement must be legally capable of doing so that is, they should be of sound mind, of the required age, and not expressly disqualified by law. Another important requirement is that the consent of the parties must be free and genuine, not obtained by force, fraud, misrepresentation, or undue influence. Lastly, the terms of the agreement should be unambiguous and certain, and the agreement must not be one that is expressly declared void under Section 10 of the Indian Contract Act, 1872.
Only when all these conditions are satisfied does an agreement take the form of a valid and enforceable contract. In essence, a promise is a combination of an offer and its acceptance. When such a promise is made by one party and accepted by the other, it results in an agreement. A contract, whether valid or invalid, is essentially an agreement supported by consideration. However, when this agreement satisfies all the legal requirements laid down under the Indian Contract Act, 1872, it becomes a valid and legally enforceable contract.
A legally enforceable contract necessarily begins with a valid offer and a valid acceptance. An offer is the starting point or the foundation of a contract. In the absence of either an offer or acceptance, no agreement can come into existence. Therefore, every agreement starts with an offer. An offer refers to the willingness of one person to do or abstain from doing something, with the intention of obtaining the assent of the other party to such act or abstinence. In the absence of such intention, it is not considered an offer in the eyes of law.
Once an offer is made, it requires acceptance from the person to whom it is made. Acceptance simply means to agree to the promise made by the other party. It is to be noted that this acceptance has to be in the same sense and about the same thing as the offer, which is called consensus ad idem. As defined in the Act, “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.”
Another associated term in this context is revocation. Revocation means to withdraw the offer or the acceptance before it reaches the concerned party. As per Section 5 of the Indian Contract Act, 1872, a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Similarly, an acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor, but not afterwards.
At what time does an offer become capable of being accepted? Why is the timing of communication crucial in determining the existence of an agreement? These questions were answered in the well-known case of Lalman Shukla v. Gauri Dutt(1913).
In this case, Lalman Shukla was a servant under Gauri Dutt. One day, Gauri Dutt’s nephew went missing, and Lalman Shukla was sent by his master to find the boy. While Lalman was already searching, Gauri Dutt later published a newspaper notice announcing a reward to anyone who found the missing boy. Lalman had no information about this announcement when he was searching for the nephew. He eventually found and brought the boy back. Later, upon learning about the reward, Lalman demanded payment, claiming he had performed the act mentioned in the offer. Gauri Dutt refused, stating that Lalman had acted without knowledge of the offer and therefore could not be said to have accepted it.
The court held that the plaintiff, Lalman Shukla, was not entitled to the reward as the offer was unknown to him when it was made, and when an offer is not known, it cannot be accepted.
From this case, certain principles emerge: a person cannot accept an offer without knowing that it exists. Acceptance has legal value only if it follows communication of the offer. Performance of an act cannot amount to acceptance if the offer was not known when the act was performed. Thus, time plays a crucial role in determining contract formation. The servant searched for the boy before the advertisement was known to him; hence, the time lag between the advertisement and the action disentitled him to claim the reward.
If he had known of the advertisement before starting the search, he would have been entitled to the reward.
The case of Lalman Shukla v. Gauri Dutt explains a situation where a person did some work without knowing an offer had been made. But there are also cases where things happen in the opposite way — where work is done first and the promise to pay is made later. One such case is Durga Prasad v. Baldeo.
In this case, Durga Prasad was instructed by the Collector to build some shops. He complied and built them. At that time, no one promised him any payment or benefit. After the shops were built, the shopkeepers who occupied them later promised to pay Durga Prasad a commission. When the matter went to court, the court held that when Durga Prasad built the shops, there was no offer made by the shopkeepers. The promise to pay came only after the work was completed. Since the work was done before any offer was made, it could not amount to acceptance, and no contract was formed.
From both cases, it is clear that the order of events is very important. Only when the offer is communicated can acceptance be made. The offeree cannot accept before the offer reaches them. No action arises where there is no successful communication of offer. This shows that time plays a very important role in the communication of an offer.
Cases related to acceptance further show that time is crucial in the formation of a contract. In Brogden v. Metropolitan Railway Co., Brogden accepted the offer of the Railway Company to supply coal by signing and sending back the document, although the company never formally signed it. When disputes arose, the question was whether acceptance had occurred. The court held that the contract was complete when the parties began acting on the promises. Thus, the time of acceptance was the moment they took steps toward fulfilling their obligations.
In Felthouse v. Bindley (1862), it was observed that silence cannot be considered a form of acceptance, emphasizing the principle of clear communication of acceptance. These cases show that acceptance must occur at the correct time and in the proper manner. If acceptance is delayed, not communicated promptly, or not made in accordance with the offer, the law does not recognize it as valid. Acceptance must be communicated (expressly or impliedly) for a contract to arise.
Similarly, cases related to revocation of contracts illustrate how timing governs revocation. In Union of India v. Gopal Chandra Misra, a judge sent his resignation letter, which required acceptance to take effect. Before any action was taken, he withdrew the letter. The Supreme Court held that the withdrawal was valid because, as per Section 5 of the Indian Contract Act, 1872, a proposal can be withdrawn before communication of acceptance is complete. The Court clarified that communication of acceptance is complete only when it comes to the knowledge of the offeror, and until then, the acceptor can revoke acceptance. This case strongly highlights the importance of time and communication in revocation.
Postal communications pose another challenge. They are not explicitly detailed in the Act but are derived from Sections 4 and 5, which define when acceptance and revocation become complete as against the proposer and acceptor. In Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas, an offer was made from one city and acceptance was communicated from another via telephone. Issues arose about the place and time of acceptance. While most judges held that the contract is complete where acceptance is heard, Justice Hidayatullah opined that communication is complete when it is put in the course of transmission. The Court also held that if the communication is not properly heard due to technical faults, no contract arises as there is no free consent.
Taking the example of a purchaser and shopkeeper:
- When the purchaser asks for a product, it amounts to an offer. Communication of the offer is complete when the shopkeeper comes to know about it (Section 4).
- The purchaser, as proposer, can revoke his offer before the shopkeeper communicates his acceptance (Section 5).
- The shopkeeper, as acceptor, can accept or reject the offer. If he accepts, the agreement is complete.
The shopkeeper becomes bound when his acceptance comes to the knowledge of the proposer (Section 4). He can revoke his acceptance provided it is made before the acceptance reaches the proposer and before the proposer acts in furtherance of the contract (Section 5).
When the agreement is formed, consideration comes into play, the purchaser’s payment is consideration for the shopkeeper, and vice versa. A contract is thus formed between the parties.
Conclusion
Analysing all these case laws, certain rules become clear. Time plays a decisive role in the formation of a valid contract. Offer, acceptance, and communication must all occur at the proper time. An offer must be made before acceptance; the reverse is not valid. Acceptance becomes complete only when it reaches the offeror and comes to their knowledge. Revocation must occur before the other party takes steps toward forming a valid contract.
** Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of The Lawscape.
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