Law of Contract: Communication of Offer

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The use of digital contracts and electronic signatures has become the norm in this era of the worldwide pandemic. The Indian Contract Act, 1872 states that the term “Contract” under its definition clause of Section 2(h) as an agreement that can be enforced by law, or an agreement which intends to create a legal relationship. When we break down this definition, it has two significant parts to it: 1. agreement and 2. enforceable by law. Communication of offer is part of one of the most essential elements of a contract- “offer”. Only if offer is communicated, there can be acceptance, such that we can move onto other stages of formation of a contract, like capacity to contract and consideration.

With the outbreak of COVID-19, domestic and international trade has been put at a unpredicted pause, which resulted in the adverse effect on the domestic market and its network of supply chain. Even the Indian Supreme Court had invoked its absolute powers under Article 142 of the Constitution to extend the limitation period in all cases against the usual timeline, due to the possibility of non-performance as extrapolated under the Limitation Act, 1963.

Although the term “force majeure” is not expressly defined in Indian law, its interpretation of referral can be seen in Section 56 of the 1872 Act. This type of provision in a commercial contract is an exact set of circumstances in which performance under the contract will be delayed or dismissed for an unspecified time period, until the situation comes back to normal.

This French expression has a wider meaning than the “act of God”, though it may be unclear if this includes all “causes you cannot prevent”. Section 56 of the Act, allows for non-permanent release of obligations on grounds of impossibility in eg. any untoward event or changes in the situation that is totally contravenes the basis upon which the parties entered into agreement. The “sine qua non” or an essential condition for invoking such a clause is 1. an existence of a valid contract between the parties, 2. the contract is yet to be performed, during the period of temporary struggle, 3. the contract after it is entered into becomes, because of fact or law, impossible to perform.  

What is communication of offer?

Section 4 of the Indian Contract Act 1872 deals with the completion of a proposal, acceptance and revocation enumerates that the communication of the offer is completed when it has come to the knowledge of the person that it was supposed to have been made to. When the offeree (specific offer) or any member of the public (general offer) becomes aware/knows of the offer, the communication of the offer is said to be complete. When 2 people are talking, face-to-face or via telephone, etc.,  the communication will be complete as soon as the offer is made. Eg. A writes a letter to B offering to install plug points around A’s new home for Rs. 5,000. He mails it via the post office on 3rd July, 2020. The letter reaches B on 6th July, 2020. Thus, communication of offer is said to be done on 6th July, 2020.

Relevant legal provision(s)

The Specific Relief Act, 1963 and the Sales of Goods Act, 1860 is often related to this Act. Sections 3 to 9 of the Contract Act talk about communication of offers and acceptance, revocation of proposals and acceptance.

Section 3: Communication of offer, acceptance and revocation of proposals.

The types of communication etc., are said to be done by any act or omission, by which he intends to communicated such proposal, acceptance or revocation, or which has the effect/impact of communicating the offer. 

Section 4: Communication when complete.

The acceptance’s communication is done against the proposer, when it is put in a course of transmission to him outside the acceptor’s control; as against the acceptor, when it comes to the knowledge of the proposer. The communication of a proposal is fulfilled only when the person to whom it is made has the knowledge of it.  

Section 5. Revocation of proposals and acceptance.

An acceptance may be abrogated at any time before acceptance is communicated as against the acceptor, but not after it is communicated. Proposals can be repealed at any time before the acceptance is delivered against the proposer, but not afterwards. 

Section 6: How the revocation is made.

An offer can be taken back through communication via notice of revocation by the proposer to the other party for many reasons: 1. due to the death or insanity of the proposer, 2. if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance by the lapse of the time prescribed in such proposal for its acceptance, 3. by the negligence of the acceptor to fulfil a condition before acceptance, 4. if devoid of communication of acceptance in case there is no time limit prescribed, a reasonable standard will be applied.

Section 7: Acceptance must be absolute.

The transformation from a proposal to a promise should be accompanied by a absolute and unqualified assent. The acceptance should be shown in a rationale and prudent manner, unless the proposal specified in the contract decided the mode in which it is to be accepted. If the proposal explicitly states the method, but is not adhered to, the proposer may insist that his proposal shall be accepted in the prescribed manner, within a reasonable time after the acceptance is communicated to him and not otherwise. If he defaults on doing, he accepts the acceptance. 

Section 8: Acceptance through performing the terms of the contract or getting payment.

Performing the conditions of proposal/acceptance of any consideration for a bilateral promise along with the offer, is an acceptance of the proposal. 

Section 9: Express and implied promises.

If the proposal or acceptance of any promise is expressed on paper on words, it is said to be expressly/explicitly given. If it is not in words/documented, it is said to be an implied promise.

Case laws

  1. Lalman Shukla v. Gauri Dutt, 1913 40 ALJ 489.

The defendant’s nephew eloped from his house. The plaintiff (defendant’s servant) was sent to search for the missing boy. After the plaintiff had left in search of the boy, the defendant announced a reward to anyone who might find the boy. The plaintiff, who was unaware of this reward, was successful in getting the boy back. When he found about the reward declared by the defendant, he brought an action against the defendant to claim the compensation/prize money, as he had found the boy for no money in advance. The court held that because the plaintiff did not know of the reward offer, his act of finding the boy who was lost did not mean he accepted the offer as he only came to know after finding the boy. Thus, he was not entitled to claim the reward. An offer can be accepted only after the same has come to the knowledge of the offeree, as per contract law. It means that the offer has to be proposed by the offeror, so that there is acceptance by the other party, the offeree. This case law shows how communication of offer is essential.

2.      Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co. and Ors., AIR 1966 SC 543

The plaintiffs offered to buy cotton seed cake from the defendants, and the resultant contract was negotiated over long distance telephone on 22.07.1959 as an oral contract. The court claimed that the parties are in presence of each other, indirectly, assuming the callers are the parties, on telephones. The court placed reliance on the English case law of Entores Ltd. v. Mills Far East Corporation, (1955) 2 Q.B.D 327, in which it was held that in cases of instantaneous communication, the contract is only complete when the seller receives a “yes” and the contract is created according to the place at it is formed, to clear up jurisdictional issues in case of a breach.

The court contended that with regard to the essential nature of a telephonic conversation, the parties are in a sense in the presence of each other and negotiations are concluded by instantaneous communication. They opined that in cases where contract is to be concluded through instantaneous modes of communication, the contract will only be concluded when the acceptance of the offer reaches the offeree, and there will be non-application of exception for modes of communication that are not immeadiate. This case law shows the significance of instantaneous communication of offer.

Critical analysis

Lacunae in the specification of the modes of communication

  • The provisions governing digital communication have been delineated in the Information Technology Act, 2000, but it does not deal with using messaging tools to create contracts. There are 2 types of modern communication: instantaneously and non-instantaneously.
  • Although e-mail or Facebook communication is covered under the ambit of Section 4, no specific rule is constituted whether postal rule or rule of instantaneous communication will be considered same as “contracts” made through Facebook/e-mail/Instagram DMs, etc. If someone sends a message through Facebook or e-mail and opposite party replies instantly, it is considered as instantaneous communication; but if opposite party does not reply instantly, then it seems to be non-instantaneous communication in nature, but this is a rationale assumption, and isn’t verified. Therefore, social messaging tools are a mix of both forms of modern communication.

           Suggestion for application of the rule of communication

  • The transmission of an electronic record, under Section 13 of the Information Technology Act, 2000, happens when it gains access to a  computer resource outside originator’s control. In the case of e-mail when the message enters the offeree’s electronic mailbox, there would be a receipt of the offer, so the contract is formed when the message enters into the mailbox of the person to whom they are addressing.
  • In the Entores Ltd. case (supra)., the judge said that the postal rule cannot be applied to instantaneous mode of communications, such as telephone and telex. If a phone line got disconnected, just before the offeree accepted, it would be incorrect to assume that the contract was formed and the parties would not have to call each other back, which applied to telex. London was the place where the contract was created, since the contract was to be formed when and where the telex was received.
  • In N.M. Superannuation Pty. Ltd. vHughes, the New South Wales Supreme Court’s decision, the judge held that if a fax was left switched on, its owner shows, by this action, his preparedness to receive messages on it and was considered enoguh for a notice to be communicated by fax in this situation, even though the document might arrive outside normal business hours. Courts have not tested whether these principles apply to digital means of communication, so hopefully this will be done in the near future.
  • When the initiative of negotiation is of a non-delayed nature, the instantaneous communication should be applied, regardless of the completion of the negotiation’s nature is, and contract is  when acceptance comes to the knowledge of the proposer. When the nature of negotiation is not instant, there should be application of the postal rule, and the contract is complete when the acceptance is sent and gone beyond the control of the acceptor.

Conclusion

Thus, Section 4 of the Contract Act, 1872 lacks to keep pace with the modern world.

The Supreme Court in Bhagwandas case (supra) has held that Section 4 of the Contract Act is only applicable to forms of communication that are not instantaneous. Also, taking the example of the 2019 amendment of the Consumer Protection Act, we need to incorporate our digital lifestyle into legislations. Where social distancing has become the norm, we need to ratify international conventions governing e-contracts. Countries like Cayman Islands, Bahrain, USA, Thailand are paving the way for communication of offer, and are setting an example for India to keep up with this fast-changing digital world.

Author: Anjali Baskar from CHRIST (Deemed to be University).

Editor: Dhawal Srivastava from Rajiv Gandhi National University of Law, Patiala.

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