Revocation: Meaning and Modes, is very important to understand. We all know how consensus ad idem is must for the contract. But many a time, after expressing each of them, the parties want to retract from their earlier position. Hence, the law provides for such a facility in giving the option of revocation to either party. Introduction An… Read More »
Revocation: Meaning and Modes, is very important to understand. We all know how consensus ad idem is must for the contract. But many a time, after expressing each of them, the parties want to retract from their earlier position. Hence, the law provides for such a facility in giving the option of revocation to either party. Introduction An offer and acceptance make a contract complete. Other requirements constitute free consent, competency and lawful consideration.[1] A consensus ad idem or...
Revocation: Meaning and Modes, is very important to understand. We all know how consensus ad idem is must for the contract. But many a time, after expressing each of them, the parties want to retract from their earlier position. Hence, the law provides for such a facility in giving the option of revocation to either party.
Introduction
An offer and acceptance make a contract complete. Other requirements constitute free consent, competency and lawful consideration.[1] A consensus ad idem or a like-minded consensus is very important for the contract to fructify.[2] But, the intermediary actions in between can lead to the change in turn of the course of events.
Instead of attaining the finality of the relationship of a promisor and a promisee, the contract can come to an end in between only. The latter event would take place in the case of certain statutory stipulations are being fulfilled.
This action is called the revocation. The present article would examine what is revocation and what are the types of revocation.
Revocation under the Law
In simplest terminology, in the simplest terms means withdrawal[3]. It can lead to cancellation of the contract. The notice of revocation has to reach the other party since it cannot happen merely by showing inconsistent actions.[4]
Indian Contract Act, 1872 (hereinafter “The Act”), provides for the process of revocation. The promisee or the promisor can exercise this option at his/ her own will respectively.
Section 5 of the Act provides for the Option of Revocation of Proposals and Acceptances. The willingness so signified to do or abstain from doing something, is called a proposal.[5] If the assent to the same is being expressed, it becomes acceptance.[6]
Each of these is the two pillars on which the contractual relationship stands. If one of these would be shaken, the contract would fall. The process for each of these is provided in the following way-
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.
To make the person who makes the revocation, liable, the respective revocation has to be put in the course of transmission by the person who is revoking it.[7] But, more important is to make the person against whom revocation is being made. To make him or her liable, that person must come to know about the revocation.[8]
Revocation of Proposal
Before the acceptance is complete, the offer has to be revoked by the offeror or the proposer. There is no concluded contract in such cases.[9] The acceptance is completed when the communication is completed. This process of acceptance would be completed when the acceptance is being put into the course of transmission by the person who had to give the acceptance.[10]
On this ground, the letter of resignation of an employee was not considered to have any impact. It is because in that case, as the secretary offered his letter of resignation to the managing committee for acceptance. But soon after, that the letter was withdrawn.
Since the managing committee did not accept the letter by then, the court considered the secretary competent to revoke the letter of resignation.[11] Similarly at an auction, when the bidding happens, unless an offer is accepted, the offeror can anytime withdraw the offer.[12]
As mentioned there is no concluded contract, the other party is not expected as well as justified to invoke the bank guarantee that was being the subject matter of the contract.[13] Even if a bid is provisionally accepted, the bidder can withdraw the offer. In one case, there was an express stipulation of a confirmation by the authority before the acceptance of the contract.
Since the bid was not fully accepted, the court considered the revocation valid.[14] After all, the generally accepted reasoning is that bidding is merely an offer on one side, and it does not fructify until it is assented to.[15]
Once the revocation has taken effect, the proposer cannot be made to take up the liability of the offer. Hence, the person who bids, cannot be made to take up the liability of any deficiency in service.[16]
The question arises as to when the person can resile from the offer made earlier. It is very clear, suppose in the case of a special oath, before the completion of the same, no revocation can be permitted.[17] Sufficient cause would have to be shown before resiling[18] from the agreement.
Revocation of Acceptance
As the postal rule of the completion of the contract is very clear, the contract becomes final once the acceptance by the proposee has been put into the course of transmission.[19] Hence, this sounds really contradictory rather confusing that how can thus, a concluded contract would be revoked with a further communication of revocation.
In English law, there is mentioned no such authority that can show how such a contract can be rescinded or revoked by an act of communicating the revocation after sending the acceptance.[20]
There are multiple issues that arise from such a situation if allowed. The offeree can simply speculate and take multiple associations before finally agreeing to enter into a contract. Similarly, the offeror can also speculate and that too at the expense of the offeree.
If the retraction of the acceptance would be so openly allowed, the party would definitely become incentivised to say no to the already accepted transaction if some better consideration was found elsewhere. This would dismantle the very foundation of a contract.
Then, a contract would not exist at all. Only in a rare situation, would the contract be able to be fructified. The market situation could very well be tested and then, a decision could be taken as to how the contract has to be treated.
It has been, though, suggested that the offeror or the person who makes the offer, can take such risk of the revocation, like any other risk. There are, in business and daily transactions, many such kinds of risks involved, like- the risk of loss and delay.
But, the offeror can be allowed to bear the risk of the accident or an unknown circumstance in future, but this risk should not be completely dependent upon the action of the offeree.[21]
Instead of revoking the acceptance, the offeree can take the route of cancelling the offer made by the offeror only. It can happen at the stage when the acceptance is yet to be given. The best example can be that of bidding. The person who receives the tender, can at that point itself cancel the tender notice without accepting any of the tenders submitted and from calling for fresh tenders.[22]
Before accepting, the offeree can also consider forfeiting the earnest money, if any, so deposited. The only thing is that this forfeiture should not be in the nature of a penalty, rest the forfeiture is very reasonable and can definitely be exercisable by the party.[23]
Modes of revocation
Section 6 provides the ways in which revocation can be put to practise. The 4 methodologies that are so prescribed by the law specifically are-
(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 interesting aspect is a fact that this provision talks only about the revocation of the proposal. Thus, it would be relevant only for the side of the offeror, who had made the offer.
The easy classification of the abovementioned modes can be done on the basis of the perusal of these four ways. The first technique would fall under such a situation where the revocation has to be made before the acceptance. Otherwise, if the revocation is not done then, the lapse of time would be considered to be a revocation.[24]
In the first situation, the communication of the revocation has to be clear and to the correct address also. In one of the cases, the revocation letter was being sent by fax message. Unfortunately, it reached the wrong address. The court considered it to be of no effect.[25]
In the second situation, the question arises as to till when the revocation is allowed, in a situation where no time limit has been provided.
The courts have tried to answer that confusion and in the landmark verdict of Manchester Diocesan Council for Education v. Commercial & General Investment Ltd.[26], it was held in case of no prescription of time for acceptance being provided, the rule of reasonable time should be followed. Within a reasonable time, the offeree must respond to the offer so sent.
The third condition is also very crucial. It can be illustrated with the help of a practical example. In one of the cases, the highest bidder was being allotted the bid, but the acceptance was not being sent to that particular bidder for a whole period of six months.
Thus, the court held that the bidder is within his/ her full right to revoke the offer since the essential condition of the contract was not being fulfilled by the other party.[27]
Many a time, the contract emerges through such offers where the time limit has been provided. Thus, the court does consider that within that time frame should revoke the offer. The examples are as follows-
In one case, the party offered to sell his house. It was specifically stipulated that the offer was to be leftover till Friday. Thus, here, the court held that the offeree could revoke before Friday only.
But, in the other case, when the defendant offered to buy a house, a time period of six weeks was being given to the seller for a definite answer. Here the court took an adverse view and said that the defendant can withdraw anytime even when the period of six weeks had ended.[28]
The death of the insured party in a contract of insurance, before the revival of the lapsed policy, can lead to the re- revival of the policy. But that revival would only be possible when the new terms and conditions are accepted and complied with.[29]
The logic for the same is the contract for the consideration of insurance amount in return of a premium to be paid in the future date.[30] Hence, the death of the insured party could lead to the revival but also of the lapsed policy.
Conclusion
The contracts are considered concluded at the end of the postal rule. There is no doubt as to the putting of the acceptance in the course of transmission and the contract not completing. That is the reason that even when the revocation has been communicated, the contract has not been done away with.
This happened in the case of Sadhoo Lal Motilal v. the State of M.P.[31]Here, the tender that was submitted by the party to the respective Government got accepted later. But, a telegram was subsequently sent to the Government withdrawing the acceptance.
The court found the cogent 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 to be implemented.
The courts are not supposed to dismantle or create any sort of right by modifying the contractual term. It is not for the courts to make the contracts for the parties. It is only for the parties to make their own contract and not for the courts to interfere in such commercial nature of business.
But, considering the interpretation of law involved, the courts are frequently asked to delve into the question of the validity of the revocation As is evidenced from the above- mentioned discussion, the revocation is a statutorily provided right given to either party and it is having an overriding effect over the accepted principles of the communication of proposal and acceptance.
[1] §10, Indian Contract Act, 1872.
[2] Y.A.J. Noorbhai v. S.P.L.K.R. Karuppan Chetty, AIR 1925 PC 232.
[3] 1 Chitty on Contracts, 28th Edn., ¶ 2.081, pp. 125- 126.
[4] Id.
[5] §2(a), Indian Contract Act, 1872.
[6] §2 (b), Indian Contract Act, 1872.
[7] §4, Indian Contract Act, 1872.
[8] Id.
[9] Kirloskar Pneumatic Co. Ltd. v. NTPC Ltd., AIR 1987 Bom 308.
[10] § 4, Indian Contract Act, 1872.
[11] Managing Committee, Shree Ganesh Adarsh Sanskrit High School v. the State of Bihar, AIR 1981 Pat 271.
[12] Abdul Rahim Khan v. Union of India, AIR 1968 Pat 433 (DB).
[13] Om Prakash & Co. v. City and Industrial Development Corporation of Maharashtra Ltd., 1994 Bom CJ 303.
[14] Union of India v. Narain Singh, AIR 1953 Punj 274.
[15] Payne v. Cabve, (1989) 3 TR 148.
[16] National Highways Authorities of India v. Ganga Enterprises, AIR 2003 SC 3823.
[17] Mahadeo Prasad v. Srjug Prasad, AIR 1952 All 208 (DB).
[18] Gudla Venkatnamma v. Sindhri Satyanarayana, AIR 1957 Ori 226
[19] §3, Indian Contract Act, 1872.
[20] P.C. Markanda, The Law of Contract 187 (Wadhwa & Company2006).
[21] 1 Chitty on Contracts, 28th Edn., ¶ 2.005, pp. 114- 115.
[22] Nomeirpakpam Pishak Singh v. Forest Officer, Manipur Forest, AIR 1962 Manipur 47.
[23] Bali Ram Dhote v. Bhupendra Nath Banerjee, AIR 1978 Cal 559.
[24] Ramlalsao Gupta v. M.E.R. Malak, AIR 1939 Nag 225.
[25] J.K. Enterprises v. the State of M.P., AIR 1997 MP 68.
[26] 1969- 3 All ER 1593.
[27] Abdul Rahim Khan v. Union of India, AIR 1968 Pat 433 (DB).
[28] Routledge v. Grant, (1828) 4 Bing 653; Cooke v. Oxley, (1790) 3 TR 653.
[29] Ahmedunissa Begum v. Life Insurance Corporation of India, AIR 1981 AP 50.
[30] Pritchand v. Merchants and Tradesman’s Mutual Life Assurance, (1858) 140 ER 885.
[31] Sadhoo Lal Motilal v. the State of M.P., AIR 1972 All 137.
