In the information age, with instantaneous modes of communication, we enter into and terminate numerous contracts on a daily basis. However, the need for a proper understanding of when the offer is initiated, how it is to be accepted, and when it is finally concluded, eludes most of the people even in the legal fraternity. This article aims to examine the scheme and essentials of offer, communication and acceptance provided for in the Indian Contract Act, 1872, which is the governing legislation on Contracts.
What is an offer?
The Indian Contract Act does not use the word ‘offer’. Instead, it uses the word ‘proposal’. Section 2(a) lays down that when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtain the assent of the other to such act or abstinence, he is said to make a proposal.
How is an offer communicated?
Section 3 deals with Communication, Acceptance and Revocation of Proposals and it reads as follows:
The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or 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.
Let us break down this Section bit by bit.
Say, you want to communicate an offer.
In order to do so, Section 3 says, that it will be deemed that you have communicated your offer if
a) You do some act or refrain from doing something (omission)
b) Through such act or omission, you intend to communicate your offer
c) Even if you do not intend so, your act or omission, has the effect of communicating such offer
Going by the language of the section, it is obvious that these same ingredients apply to acceptances and revocations of offer too.
When is the communication of offer complete?
For a person reading the Indian Contract Act in 2022, it would seem a bit odd as to why the statute lays down separate sections for communication and completion of communication. There is just a split-second difference in when I send an email and it is received in the inbox of the person to whom I sent it, provided the email address is correct. Same is the case with text messages, video calls and other similar modes of instantaneous communication.
However, one must remember that the Indian Contract Act was enacted in 1872 – a full 150 years ago. At that time, the instantaneous modes of communication did not exist, and yet, business was carried out and hence, it became necessary to specifically define when the communication of an offer would be complete so as to properly adjudicate the disputes that would arise.
Section 4 provides specific requirements of a communication to be complete. It reads as follows:
The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made…
This Section makes it clear that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
Illustration (a) to this Section is as follows:
A proposes, by letter, to sell a house to B at a certain price.
The communication of a proposal is complete when B receives the letter.
What is Acceptance?
Section 2(b) defines acceptance. 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.
Essentials of Acceptance
The acceptance of an offer is made in accordance with Section 3 (supra).
Section 7 lays down the most essential requirements of any sort of acceptance. It is as follows:
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 in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.
Thus, the essentials of a valid acceptance are:
a) It must be absolute
b) It must be unqualified
c) It must be made in some usual or reasonable manner or in a way specified, unless waived.
Acceptance can be express or implied. It can also be through conduct. Section 8 of the Indian Contract Act provides for situations where acceptance of an offer may be made by conduct. It reads as follows:
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.
In Carlill v. Carbolic Smoke Ball Co., the Respondent, believing Appellant’s advertisement that its product would prevent influenza, bought a Carbolic Smoke Ball and used it as directed from November 20, 1891 until January 17, 1892, when she caught the flu. The Respondent brought suit to recover the 100£, which the Court found her entitled to recover. The Appellant approached the court through appeal. It was held that An offer made to the public at large can ripen into a contract if anyone fulfils the conditions of the contract. The performance of the conditions implies their acceptance and also establishes the consideration. A specific Notification of acceptance is not required in such situations.
Judicial Precedents regarding Acceptance
Silence cannot be a mode of Acceptance - In Felthouse v. Bindley, Felthouse wrote a letter to his nephew to buy his horse stating that if he did not hear about his acceptance, he will consider the offer to be approved. The nephew did not reply but told his auctioneer about the same. The auctioneer sold the horse by mistake and the uncle sued him for conversion. The court decided that no contract is formed as acceptance was not communicated at all.
Exception - Agreement Sub Silentio - When silence, coupled with conduct, amounts to a positive act, it may be construed as valid acceptance. In Hindustan Coop Insurance Society v. Shyam Sunder [AIR 1952 Cal 691], an insurance company encashed the cheque of the premium given by the proposer. However, the proposer died after a few days. The dependents of the deceased then sued the company for their compensation. It was contended by the company that they never communicated their acceptance to the proposer and hence, no contract had come into being. The court held that the encashment of the cheque by the company was an acceptance on their part and therefore, no communication was required for it. This was an implied acceptance. Thus, the company was liable to pay the compensation.
Communication of acceptance must be made by the offeree or his duly authorized person - In Powell v. Lee, Powell was selected by Board of Managers for post of headmaster. One of the members of board unauthorizedly communicated this to him and later he wasn’t selected. The court adjudicated that there was no formal communication by any authorized person on behalf of Board which doesn’t give rise to any contract. When any acceptance is made to the wrong person or posted at wrong address, the offeror is held not liable.
Mere Mental Resolve to accept will not amount to acceptance - When A received an offer through a letter, and kept the letter in a drawer by mentally resolving to accept it, but did not communicate such acceptance, it was held that such mental resolve will not amount to an agreement.
How is an acceptance communicated?
Now, this is where things get a little technical, and it is not without cause. The famous quotation of Anson comes to the mind:
“An acceptance is to an offer, what a lighted match is to a train of gunpowder.”
What Anson is really trying to say, is that just as putting a lighted match to a train of gunpowder would result in an explosion, similarly, an acceptance made to an offer would result in an agreement. During the times that he lived in, there were no instantaneous modes of communication. So, he contended that just as an explosion is irreversible, similarly, an acceptance to an offer, once given, gives rise to an agreement and is irreversible. However, in today’s day and age, an acceptance can be revoked by using even faster modes of communication before the acceptance itself reaches the proposer.
We return to Section 4, where it is provided:
The communication of an 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.
Illustration (b) to the Section provides as follows:
B accepts A's 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.
Now, suppose B, instead of accepting A’s proposal, made certain minor changes to it, and said “I am willing to accept your proposal on these modified terms”. This would amount to a counter-offer, which is also known as conditional acceptance.
Suppose again, that A had mentioned in his letter, that “You must communicate the acceptance of this offer within 24 hours, otherwise it would lapse”. B would have to communicate the acceptance of the offer within 24 hours. This is subject to the condition that A does not revoke his offer before those 24 hours have lapsed.
Revocation
The revocation of an offer and acceptance is made in accordance with Section 3 (supra).
Now, Section 4 provides for communication of revocation as follows:
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.
Illustration (c) provides:
A revokes his proposal by telegram.
The revocation is complete as against A when the telegram is despatched. It is complete as against B when B receives it.
B revokes his acceptance by telegram. B’s revocation is complete as against B when the telegram is despatched, and as against A when it reaches him.
Section 5 lays down as to when revocation of offer and acceptances can be made. It reads as follows:
Section 5 - Revocation of proposals and acceptances — 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.
Illustrations
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.
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.
Section 6 provides as to how revocation is made. It lays down:
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 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.
An important distinction needs to be noted between Section 3 and Section 6. Section 3 refers to those scenarios where the revocation is deemed to be made either because the party intended to revoke, or its act or omission communicated such revocation. Section 6, on the other hand, is much wider in scope. It does not only deal with scenarios where revocation is intended or communicated, but also lists other scenarios which bring about revocation.
Conclusion
Offer and Acceptance forms the bedrock of common law understanding of agreements and contracts. The fact that the Indian Contract Act, 1872 has required little or no changes at all even after 150 years of its enactment is a testament to the soundness of the principles laid therein and their wide legal as well as commercial acceptability. A general awareness of the principles and concepts of the Indian Contract Act, 1872 would ensure the reduction of one sided contracts which give rise to disputes and ultimately end up in litigation.
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