1EFFECTS OF ACCEPTANCE & WHEN IS COMMUNICATION OF ACCEPTANCE AND REVOCATION COMPLETE SUBMITTED TO SUBMITTED BY MRS AMITA VERMA SCHEHERAZADE SANDHU 1 ST SEM 103/14- SECTION B BA.LLB 2 ACKNOWLEDGEMENT This project would be incomplete without expressing my gratitude towards the people who made it possible for me to finish it on time and with accuracy. Firstly, I would like to thank our Contracts Teacher, Mrs.Amita Verma for giving me the requisite guidelines and helping me in fulfilling the loopholes of my project. Secondly, I would like to thank my family members and friends who constantly gave me advice on the quality of information and for their encouragement. Lastly , I would like to thank our library staff for helping me in collecting the required material for the project. 3 TABLE OF CONTENTS 1. List of Abbreviations 2. List of Cases 3. Introduction 4. Effect of Acceptance 5. Completion of Communication of Acceptance 6. Revocation of Offer 7. Modes of Revocation of Offer 8. Bibliography 4 LIST OF ABBREVIATIONS V. VERSUS A.I.R ALL INDIA REPORTER SC SUPREME COURT Bom. BOMBAY Ahmd. AHMEDABAD 5 LIST OF CASES 1. Gajendra Singh v. Nagarpalika Nigam, Gwalior ----------------------------------- 7 2. J.K Enterprises v. State of M.P ----------------------------------------------------------- 8 3. Household Fire and Carriage Accident Insurance Co. v. Grant -------------------- 9 4. Bhagwandas v. Girdhari Lal & Co ----------------------------------------------------------- 10 5. Qaudricon Pvt. Ltd. v. Bajarang Alloys Ltd----------------------------------------------- 10 6. Managing Committee , S.G.A .High School v. State of Bihar and others----------- 11 6 INTRODUCTION In order to understand Acceptance, we must know what is a contract . According to Section 2(h) of the Indian Contract Act 1872, “An agreement enforceable by law is a contract.” 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. Thus , when there is a proposal from one side and the acceptance of the proposal by the other side ,it results in a promise. This promise from the two parties to one another is known as an agreement. Hence we know that a proposal when accepted results in an agreement and it is ONLY after the acceptance of the proposal that a contract between the two parties can arise. When the proposal or acceptance is made in words, the promise is said to be express. When the proposal or acceptance is made otherwise than in words, the promise is said to be implied. 7 EFFECT OF ACCEPTANCE A contract is made only after it is accepted. Before the acceptance is made neither party is bound thereby. At that stage the offeror is free to revoke or withdraw his offer, and the offeree is free to not accept the offer or to reject the same. After the offer has been accepted, it becomes a promise which, if other conditions of a valid contract are satisfied , binds both the parties to the promise. After acceptance , each party becomes legally bound by the promise made by him through the medium of offer and acceptance of it. The effect of acceptance of an offer has been explained by Anson in the following words: Acceptance is to an offer what a lighted match is to a train of gunpowder. It produces something which cannot be recalled or undone. But the powder may have lain until it has become damp, or the man who laid the train may remove it before the match is applied. So an offer may lapse for want of acceptance or be revoked before acceptance. Also the offeree may decide to reject the offer. Until an offer is accepted , it creates no legal rights and it may be terminated at any time. Just as when the lighted match stick comes in contact with the gun powder , there would be an explosion and then it will not be possible to bring the things back to the original position , similarly, after the offer is accepted , it creates a contract where by both the parties become bound and none of them can go back. What happens after explosion or after acceptance cannot be undone. There is a possibility that in the course of time the powder may have become damp or the train of gunpowder may have been removed , and in the event the damp powder or the one which has been removed , will not create an explosion. In the same way, the offer lapses if the same is not accepted within the prescribed time or, if no time is prescribed , by remaining unaccepted until the expiry of the reasonable time, or else the offer could be revoked by notice of revocation by the offeree. Once the offer lapses or is revoked, it is incapable of being converted into a contract by being accepted. Thus the acceptance of the offer , while the same is still alive, would result in a contract creating obligations for both the parties. In Gajendra Singh v. Nagarpalika Nigam, Gwalior 1 , it has been held by the M.P High Court , that if an authority calling tenders decided not to go 1 A.I.R 1966 M.P .10. 8 ahead and accept the tender , the tenderers 2 , or even the highest tenderer , could not force the authority to accept the tender and enter into a contract with him. No right accrues to a tenderer until his tender has been accepted. Similarly , a person inviting tenders may reserve a right to reject any tender or even the highest tender. In such a case a tenderer has no cause of action if his tender is not accepted. WHEN IS COMMUNICATION OFACCEPTANCE COMPLETE As soon as the communication of acceptance is complete, a contract comes into being , whereby both the parties become bound. In case the parties to the contract are present at the same place, one making the offer and the other communicating the acceptance , both the parties become bound immediately . The problem arises when the parties are at different places and the communication of offer and acceptance is made by post, or telephone, etc. Acceptance by Post/Telegram Section 4 of The Indian Contract Act 1872, explains the following rules as to when the communication of acceptance is made by post/telegram: 1. The communication of acceptance is complete as against the proposer, when it is put in the course of transmission to him so as to be out of power of the acceptor. 2. The communication of acceptance is complete as against the acceptor , when it comes to the knowledge of the proposer. For example: 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. Offeror bound when letter of acceptance is posted to him It has been noted above that the communication of acceptance is complete as against the proposer when the letter of acceptance is posted to him. The moment the letter of acceptance is posted, the offeror becomes bound . He becomes bound immediately on the posting of the letter to him and it makes no 2 a person or company that estimates the cost of a proposed project or someone who presents a payment to another. 9 difference that the letter is delayed in transit 3 , or it is even lost in the post and the offeror never receives it. In J.K Enterprises v. State of M.P 4 ., the petitioner submitted a tender to purchase Tendu leaves on 11-1-93 . The respondents sent communication of acceptance by registered cover dated 12-9-93 on the address given by the petitioner . The said letter of acceptance was, however , returned to the respondents . It was held that dispatch of letter acceptance had amounted to acceptance and completion of the contract. In Household Fire and Carriage Accident Insurance Co. v. Grant 5 , Grant offered to buy 100 shares in the Household Fire and Carriage Accident Insurance Co. The letter of allotment of shares was sent to Grant by post but he never received the same. The shares were partly paid. The company brought an action against Grant to recover the balance of the amount due on the shares , on the ground that the contract for the sale of the shares had become complete when the letter of allotment of shares was posted to Grant. It was held by the Court of Appeal that Grant had become bound by the contract when the letter of acceptance of his offer was posted to him , and therefore, he was bound to pay for those shares. In Progressive Constructions Ltd. v. Bharat Hydro Power Corp. Ltd., it has been held that when the parties enter into contract by correspondence by post, the contract would be deemed to be complete where the offer was received and the acceptance was posted. The place of delivery of letter was irrelevant and, therefore, the cause of action does not arise where the letter is delivered. Acceptor bound when his letter reaches the offeror It has been noted that though the offeror becomes bound when the letter of acceptance is posted to him, the acceptor himself does not become bound thereby. In India an acceptor becomes bound by his acceptance when his letter of acceptance comes to the knowledge of the offeror. Acceptance by Telephone Section 4 and 5 , which make provisions about the communication of offer and acceptance and the revocation thereof, do not make a mention whether these provisions relate to communication made with the help of telephone and telex also. The illustrations to both the Sections make it clear that these provisions relate only to communications through post rather than through telephone or telex. 3 the carrying of people or things from one place to another. 4 A.I.R 1997 M.P . 68 5 (1879) 4 Ex. D. 216. 10 In Bhagwandas v. Girdhari Lal & Co 6 . The Supreme Court has held that in the case of telephonic conversation , the position was the same as in the case where the parties were in presence of each other , and the rule of a contract through post did not apply to such contracts. In case of acceptance sent by post, the contract is concluded when the letter of acceptance is posted , whereas in the case of acceptance by phone, the contract is deemed to be complete when the offeror hears the acceptance at his end rather than when the acceptor speaks the words of acceptance. In Bhagwandas case, the plaintiffs made an offer on phone from Ahmedabad for the purchase of cotton seed cake from the defendants . the defendants accepted this offer on phone from Khamgaon. The defendants having failed to supply the cake were sued by the plaintiffs to pay compensation amounting to Rs. 31,150 for the breach of contract . The suit was filed at Ahmedabad . The defendants contended that the Ahmd. Court had no jurisdiction because the contract was completed by the acceptance of offer on telephone , at Khamgaon. On the other hand, the plaintiffs pleaded that the contract was struck when the acceptance was communicated to him at Ahmedabad and, therefore, the suit was within the jurisdiction of the Ahmedabad Court. It was held that the contract was made at Ahmedabad where the acceptance was communicated and the part of cause of action for an action for the breach of contract in this case had arisen within the jurisdiction of Ahmedabad Court. Explaining the nature of contract entered into on the phone, the Apex Court observed: In the case of a telephonic conversation, in a sense the parties are in the presence of each other: each party is able to hear the voice of the other. There is instantaneous communication of speech intimating offer and acceptance, rejection of counter offer. Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph. Communication of Acceptance by Telex/Fax Communication by fax is also instantaneous and is infact through, by means of a telephone connection. The Supreme Court in Bhagwandas v. Girdharilal, has held that in case of communication by telex, the normal rule would apply and the contract would be accepted only when the acceptance was received by the offeror. Accordingly, in case of communication by fax, the Bombay High Court in Qaudricon Pvt. Ltd. v. Bajarang Alloys Ltd 7 ., ruled that the normal rule would apply and the contract would be completed only when the acceptance was received by the offeror. In the instant case , the plaintiff has stated that the defendant accepted the purchase order by “its letter” , indicating thereby that the documents had been sent by post. The plaintiff however pleaded that acceptance was communicated by the defendants by fax sent from Raipur to the plaintiff at Mumbai. The 6 A.I.R 1966 S.C .543. 7 A.I.R 2008 Bom. 88. 11 plaintiff having failed to prove his averment 8 , the contract could not be said to have been concluded at Mumbai , the Court held. If it was found that the letter of acceptance was communicated by fax, it would have led to the conclusion that the contract was completed and formed in Mumbai where the communication of acceptance was received, the Court explained. REVOCATION OF OFFER It is only after the acceptance of an offer that there arises a contract and then both the parties become bound by their respective promises. Before the offer has been accepted, it can be revoked . After an offer has been accepted it ripens into a contract and then it cannot be revoked. According to Section 5: “A proposal may be revoked at any time , before the communication of its acceptance is complete as against the proposer , but not afterwards.” A “prospective” resignation is an offer to quit a post and the same can be withdrawn before the offer is accepted by a competent authority. The general principal governing resignation is that in the absence of a legal contractual, or constitutional bar , a “prospective” resignation can be withdrawn at any time before it becomes effective , and it becomes effective when it operates to terminate the employment or the office of the resignor. In Managing Committee , S.G.A .High School v. State of Bihar and others 9 , Dr. Parmanand , The Secretary of the Managing Committee of a school, sent his letter of resignation on 9.7.1980 , requesting the Manaiging Committee to accept the same. He sent another letter dated 9.8.1980 withdrawing his resignation. The Managing Committee , which met on 11.8.1980 considered the letter of resignation of Dr. Parmanand but ignored his subsequent withdrawal of resignation, and decided to accept the resignation. . The que4stion before the court was whether the resignor could withdraw the resignation submitted by him. It was held that it was clear from the letter of resignation that the resignor intended his resignation to be prospective in the sense that he wanted it to be accepted by the Managing Committee , and therefore, he was free to withdraw the same before it became effective by acceptance . It was observed that in view of the withdrawal of the resignation, the resolution of the Managing Committee accepting the resignation in its meeting held on 11.8.80, was invalid. MODES OF REVOCATION OF OFFER Section 6 mentions various modes of revocation of offer. The Section is as under:- 8 an affirmation or allegation 9 A.I.R 1981 Pat. 271. 12 “A proposal is revoked— (1) By the communication of notice of revocation by the proposer to the other party An offer ripens into a contract after it is accepted. Before it has been accepted it creates no legal obligation and, therefore, it may be revoked at any time before it is accepted. A proposal may be revoked by the communication of the notice of revocation by the proposer to the other party. To be effective the notice of revocation has to be communicated by the proposer and not by anybody else. (2) By lapse of time A proposal is revoked by the lapse of the time prescribed in such proposal of its acceptance , or , if no time is prescribed, by the lapse of a reasonable time , without communication of the acceptance. Sometimes the party may expressly fix the time up to which the offer will remain open. For example, it may be stated that the offer is open till 15 th January , 5:00pm. Such an offer lapses automatically if it remains unaccepted until the stipulated time and the same cannot be accepted further thereafter. Non acceptance , within a reasonable time means an implied refusal by the oferree to accept the offer. (3)By failure to fulfill a condition precedent When the offer is subject to some condition precedent, such a condition has got to be fulfilled by the acceptor before making the acceptance. If the acceptor fails to fulfill the condition precedent to acceptance , the offer stands revoked. For example, if the offer requires the deposit of some earnest money, or the execution of some document, etc., these conditions must be fulfilled. (4) By death or insanity of the offeror An offer is revoked 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. In India, the death or insanity of the offeror does not automatically make the offer to lapse. The offer stands revoked if the fact of death or insanity 10 comes to the knowledge of the acceptor before acceptance. 10 mental illness of such a severe nature that a person cannot distinguish fantasy from reality 13 BIBLIOGRAPHY Books Referred to: 1. Indian Contract Act by Dr. R.K Bangia 2. INDIAN CONTRACT ACT, 1872 by Pollock & Mulla, revised & edited by Nilima Bhadbhade 3. The Indian CONTRACT Act, 1872 and Tenders (in single Volume) by Sanjiva Row