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Communication and revocation of offer and acceptance

Contract I · Unit I · Topic 4 of 24 · 6 min read

When communication of a proposal, an acceptance and a revocation is complete under section 4, the postal rule, contracts by telephone and other instantaneous means after Bhagwandas Kedia, revocation under section 5 and lapse of offer under section 6.

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On this page
  1. 1. Section 3: how communication is made
  2. 2. Section 4: when communication is complete
  3. 3. The postal rule
  4. 4. Instantaneous communication
  5. 5. Revocation: section 5
  6. 6. Lapse of offer: section 6
  7. 7. Problem
  8. How this is examined
Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

Draw the timeline. Every question here is a question of timing: when did the acceptance become binding on each side, and was the revocation in time? Section 4 fixes the moments; section 5 says revocation is possible up to those moments and not after. A two-line timeline in the answer book makes the reasoning clear.

1. Section 3: how communication is made

The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances are deemed to be made by any act or omission of the party by which he intends to communicate them, or which has the effect of communicating them. Words, writing, conduct, email and electronic messages all qualify.

2. Section 4: when communication is complete

The statutory illustration: A proposes by letter to sell a house to B at a certain price. B accepts by a letter sent by post. The communication of acceptance is complete as against A when B’s letter is posted, and as against B when the letter is received by A.

3. The postal rule

The English source is Adams v. Lindsell (1818): an acceptance by post is complete the moment the letter is posted, even if it is delayed. In Household Fire and Carriage Accident Insurance Co. v. Grant (1879) the rule was carried to its end: a letter of allotment of shares was posted but never arrived; Grant was nevertheless held a shareholder. The justification is that the offeror, by choosing or impliedly authorising the post, takes the risk of delay and loss.

Section 4 adopts the rule with a difference. The proposer is bound when the letter is posted, but the acceptor is not bound until the letter reaches the proposer. Between those two moments the acceptor can still revoke his acceptance by a quicker means (s.5). On the Household Fire facts, Indian law would still bind the proposer from posting; whether the acceptor is bound when the letter never arrives is a point on which writers differ, and it is worth saying so.

4. Instantaneous communication

The postal rule does not apply where the parties are in instantaneous communication. In Entores Ltd. v. Miles Far East Corporation (1955, Court of Appeal), an offer was sent by telex from London to Amsterdam and accepted by telex from Amsterdam. Denning L.J. held that the contract was made in London, where the acceptance was received, because with instantaneous communication the acceptance must actually be heard by the offeror.

The Supreme Court adopted this in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., 1965 INSC 170, AIR 1966 SC 543. Girdharilal’s firm at Ahmedabad made an offer by telephone to the Kedia company at Khamgaon to buy cotton seed cake, and the offer was accepted over the telephone at Khamgaon. The firm sued at Ahmedabad. The question was whether the Ahmedabad court had jurisdiction, which depended on where the contract was made. The majority held that the contract was made at Ahmedabad, where the acceptance was heard. Section 4 assumes a gap between dispatch and receipt; with the telephone there is none, and the rule that acceptance must be communicated applies in full. Hidayatullah J. dissented, holding that the words of s.4 should be applied to telephone as to letters, which would place the contract at Khamgaon.

The same reasoning applies to fax and, broadly, to live chat. For email, section 13 of the Information Technology Act, 2000 now fixes the time and place of dispatch and receipt (see the note on e-contracts).

5. Revocation: section 5

The illustration continues the house example: A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards. So a telegram or phone call revoking the acceptance that overtakes the letter is effective in India; in England, where the acceptance is binding on posting, it would not be.

An offeror can withdraw even if he had promised to keep the offer open, unless the promise was supported by separate consideration (an “option”): Routledge v. Grant (1828).

6. Lapse of offer: section 6

A proposal is revoked:

To these the cases add rejection and counter-offer (Hyde v. Wrench), and destruction of the subject matter before acceptance.

Trap. Under s.6(4) death does not automatically end the offer. If the acceptor accepts without knowing that the proposer has died, the acceptance can still conclude a contract binding on the estate. Students who copy the English textbook rule lose this mark.

7. Problem

On 1 March A, at Mysuru, posts an offer to B at Belagavi. It reaches B on 3 March. On 4 March B posts his acceptance. On 5 March A sends B a message revoking the offer; it reaches B the same day. B’s letter reaches A on 6 March. Is there a contract?

Issue. Whether A’s revocation on 5 March was in time.

Law. Under s.4 acceptance is complete as against the proposer when it is put in course of transmission. Under s.5 a proposal may be revoked only before that moment.

Application. B posted his acceptance on 4 March. From that moment the acceptance was complete as against A and out of B’s power. A’s revocation on 5 March came after that point. (B, on the other hand, could have revoked his acceptance until 6 March, when his letter reached A.)

Conclusion. The revocation is ineffective. A binding contract exists, and A is liable if he refuses to perform.

How this is examined

As an essay: “When is communication of offer, acceptance and revocation complete? Explain with illustrations,” or “Discuss the law relating to contracts made over the telephone.” Quote s.4 in three parts, set out s.5 with its illustration, then Entores and Bhagwandas Kedia including the dissent. As short notes: lapse of offer, postal rule. Timing problems like the one above are common and reward a clear dated timeline.

Now try the real questions: Contract I past question papers.