REVOCATION OF PROPOSAL
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This article is written by Shivalika Gupta, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.com.

Introduction

A contract is said to be complete when there is an offer and acceptance of that offer, and there are other basic requirements which need to be fulfilled such as free consent, lawful consideration and competency. Consensus ad idem meaning meeting of minds for the formation of contract is also a necessary element. But, there are certain important intermediary elements in between which are essential and can result in the change in course of events. The contract can terminate before attaining the finality between promisor and promise. This termination would take place in case certain stipulations were fulfilled. This is called revocation.

Revocation means act of annulment. Section 5 of the Indian Contract Act, 1872 lays down the rules of Revocation of Proposal. Section 5 says that a Contract can be revoked any time before the communication of acceptance is made to the proposer and not afterwards. Once the communication of acceptance is made then the contract cannot be revoked.

Section 6 of the Indian Contract Act, 1872 lays down the methods by which a revocation of proposal is made. This article deals with the methodologies that are prescribed by the Indian Contract Act, 1872 by which revocation can be put to practice. The following methodologies are mentioned below.

Notice of Revocation

First method is revocation of a proposal by communication of notice. A proposal/offer may be revoked by the proposer/offeror by giving notice to the offeree before it is accepted. Notice of revocation will take effect when it is in the knowledge of the offeree before the communication of acceptance.

For Example: Amit offers Balraj his car for INR 2,00,000 and communicates the same through letter. Before Balraj accepts the proposal and communicates its acceptance to Amit, Amit withdraws his offer by informing Balraj. There will be no contract as the proposal has been revoked by Amit before the acceptance of the proposal.

Lapse of Time

Second method is revocation of proposal by lapse of time period. If there is a time period prescribed for acceptance, then the proposal gets revoked if the acceptance is not communicated before expiry of the prescribed time period. 

For Example: Amish applied for shares on 1st September, 2019 but the shares were allotted to Amish on 1st of September, 2020. Amish therefore refused to take the shares allotted to him. The court held that Amish has the right to refuse to take the shares as the offer has lapsed the time period for acceptance.

Condition Precedent to Acceptance

A proposal can be revoked if the condition precedent to acceptance is not fulfilled. Sometimes, a proposer may ask the offeree to fulfil certain conditions before acceptance of the proposal, if the offeree fails to comply with those conditions prescribed in the communication of proposal, the proposal can revoke the offer. Thus, if these condition precedent to acceptance is not fulfilled, the proposal/offer lapses.

For Example: Jitesh offers to sell his Rolex watch to Kamlesh for INR 50,000. Jitesh put a condition to pay half of the amount with the acceptance letter. Kamlesh communicates the acceptance but fails to pay the amount. Jitesh has the right to revoke the proposal as the condition precedent is not satisfied by Kamlesh.

Death or Insanity of Proposer

Another method by which a proposal can be revoked is by the death or insanity of the proposer. A proposal can be revoked by the death or insanity of the proposer, if the fact of his death or insanity comes into the knowledge of the offeree before the communication of acceptance. 

Under English Law, a proposal can be revoked even after acceptance by the offeree if the acceptance is made in ignorance of fact about the proposer’s death or insanity. 

For Example: Zainul offers to rent his house for a period of 5 years to Gauri. Gauri came to know about the insanity of Zainul and revoked the proposal before acceptance.

Other Methods for Revocation of Proposal

Rejection of Proposal

Rejection of proposal is another method for revocation of proposal. A proposal can be rejected if it is not accepted by the offeree. Once the proposal is rejected it can be revived again by the offeree.

For Example: Ali by letter offers his car to Haider for INR 3,00,000. Haider rejects the offer of Ali, now Haider cannot revive it again as once the offer is rejected it cannot be revived again. 

Death of Offeree

Death of an offeree is also a way by which a proposal can be revoked. A proposal which is communicated for acceptance can be revoked if the offeree who has to communicate the acceptance is dead before the communication of acceptance of proposal.

For Example: Ajay by letter offers to sell his house to Vijay. Before the communication of acceptance Vijay dies, the proposal is revoked as there is no acceptance on the part of the offeree.

Counter Offer

A proposal is revoked if a counter offer is made to it. Offeree accepts the proposal after modifications and variations in the original offer, then the proposal made by the offeree is called a counter offer. The acceptance of counter offer amounts to rejection of original offer. 

For Example: Sonu offers his watch to Monu for INR 2,000. Monu said that he will buy this watch for INR 1,500. Sonu’s proposal is revoked as there is a counter offer for the same and therefore the original offer lapse.

Acceptance not being made in the mode prescribed

If the proposer prescribed a certain mode for the communication of acceptance then the communication of acceptance by the offeree should be done strictly in the mode prescribed by the proposal. In case, the proposal is not accepted in the prescribed mode, then the proposer can revoke the proposal.

For Example: Company selected a software engineer and sent him an offer letter by email and asked him to reply within 7 days through an email only. The software engineer communicates the acceptance by posting the letter through speed-post. The offer letter clearly mentioned that acceptance should be communicated through email only. Therefore, the offer is revoked. 

Subsequent illegality of the subject matter of a proposal

A proposal can be revoked if it becomes illegal before its acceptance by the offeree.

For Example: Manufacturer offers to wholesaler tobacco worth INR 50,000. Before the communication of acceptance, there was a State Government order declaring sale of Tobacco is illegal. Thus, the offer lapse as there is illegality of the subject matter of the proposal.

Subsequent destruction of subject matter of a proposal

A proposal can be revoked if the subject matter of the proposal is destroyed before the acceptance by the offeree.

For Example: Seller offers to sell firecrackers to the wholesaler and asks the wholesaler to communicate the acceptance within 5 days. On the 3rd day, the fire broke and all the firecrackers were burnt. As the subject matter of the proposal is destroyed, therefore the proposal lapse.

Case Laws

In the case Nutakki Sesharatnam v. Sub collector, AIR 1992 SC 131, the landowner offered land for acquisition if the lump sum amount for the land is paid. Plaintiff withdrew the offer before the Acquisition officer prepared the award of acceptance. The court held that the offer revoked is valid. Thus, the communication of revocation should reach the offeree before communication of acceptance.

In the case Airfred Schontank V. Muthurayna Chetty, (1892) 2 Mad LJ 57, the court held when an offer gives the offeror an option to accept within a fixed period, it may be withdrawn even before the expiry of that period unless there is some consideration for keeping it open.

In the case J.K. Enterprises v. The State of M.P., AIR 1997 MP 68, the court held communication of the revocation of proposal has to be crystal clear and to the correct address. In this case the revocation letter was being sent by fax message. Unfortunately, it reached the wrong address. The court considered it to be of no effect.

In the case of Asia Tech. Nagercoil V. D.G. Ministry of Road Transport and Highways, New Delhi, AIR 2010 Mad 54, the court held where the tenders submitted by bidders never opened as its opening stood postponed, the tenders cannot be said to have been accepted. The tenderers have the right to withdraw their proposal.

In the case Sadhoo Lal Motilal v. The State of M.P., AIR 1972 All 137, the tender that was presented by the party to the respective Government was accepted later. But, a telegram was subsequently sent to that respective Government withdrawing the acceptance. The court found the strong evidence of the conclusion of the contract and could not find any reason to revoke the contract. The reason is that as soon as the letter of acceptance was posted, the tender contract was concluded. Thus, revocation could not be made.

Conclusion

The contracts are considered closed when the acceptance is communicated. Putting letter of acceptance in course of transmission and the contract completes. That is the reason that even when the revocation of proposal has been communicated, the contract does not end as there was communication of acceptance before revocation of proposal by the proposer.

The courts sometimes interfere in such cases by modifying the contract between the parties. The courts are not supposed to modify the contractual term between the parties to the contract. It is not the duty of the courts to make the contracts for the parties. It is the duty of the parties to make their own contract and it is not for the courts to interfere in such commercial nature of business.

However, considering the interpretation of law involved, the courts are frequently asked to dig into the question of the validity of the revocation of a proposal. It is certainly evident from this article that the revocation is a statutorily provided right of both parties and moreover, revocation of proposal has an overriding effect over the accepted principles of communication of proposal and acceptance of proposal.

References

  • Section 5, Indian Contract Act, 1872
  • Section 6, Indian Contract Act, 1872
  • Nutakki Shesharatnam v. Sub collector, AIR 1992 SC 131
  • Airfred Schontank V. Muthurayna Chetty, (1892) 2 Mad LJ 57
  • J.K. Enterprises v. the State of M.P., AIR 1997 MP 68
  • Sadhoo Lal Motilal v. the State of M.P., AIR 1972 All 137

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