Revocation and Lapse of Offer under the Indian Contract Act, 1872
An offer, known as a proposal under the Indian Contract Act, 1872, does not remain open indefinitely. Before acceptance, an offer may be withdrawn by the offeror or may come to an end because of the expiry of time, failure to fulfil a condition or other legally recognised circumstances.
The rules governing revocation and lapse of an offer determine whether a valid acceptance can still create a binding contract. Sections 3, 4, 5 and 6 of the Indian Contract Act, 1872 are particularly important for understanding these principles.
Revocation of an Offer
Revocation means withdrawing an offer before its acceptance becomes complete against the proposer. Sections 3, 4, 5 and 6(1) of the Indian Contract Act collectively explain how an offer may be revoked, when revocation becomes effective and the point beyond which an offer can no longer be withdrawn.
Section 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Section 6(1) provides that a proposal is revoked by communicating notice of revocation to the other party.
Communication of Revocation
A revocation generally becomes effective against the offeree only when it comes to their knowledge. Merely deciding to withdraw an offer or posting a letter of revocation does not, by itself, make the withdrawal effective against the offeree.
In Byrne & Co v Leon Van Tienhoven & Co (1880), the defendants sent an offer by post and subsequently posted a letter withdrawing it. Before the withdrawal reached them, the plaintiffs accepted the offer by telegram. The court held that a contract had been formed because the revocation had not reached the plaintiffs before their acceptance.
The case establishes that the postal rule governing acceptance does not automatically apply to revocation. Under Indian law, Section 4 similarly distinguishes between the point at which revocation is complete against the person making it and the point at which it becomes complete against the person receiving it.
Revocation through a Third Party
An offer may also come to an end when the offeree learns through a reliable third party that the offeror has acted inconsistently with the offer.
In Dickinson v Dodds (1876), Dodds offered to sell property to Dickinson and indicated that the offer would remain open until a specified time. Dickinson subsequently learned from a third party that Dodds had sold the property to someone else. Although Dickinson attempted to accept before the stated deadline, the court held that no contract had been formed.
The decision illustrates that a promise to keep an offer open does not necessarily make it irrevocable. The offeree’s knowledge that the offeror has changed position can be sufficient to establish that the offer is no longer available for acceptance.
Can an Offer Be Revoked During Its Stated Validity Period?
An offeror may generally revoke an offer before acceptance becomes complete against them, even if the offer states that it will remain open for a particular period. A promise to keep an offer open is ordinarily not binding unless supported by consideration or another recognised basis of enforceability.
In Routledge v Grant (1828), the court recognised the general principle that an offer specifying a period for acceptance could still be withdrawn before acceptance. Similarly, Dickinson v Dodds illustrates that a bare promise to keep an offer open does not necessarily prevent revocation.
The position changes where the offeree provides consideration in exchange for keeping the offer open. Such an arrangement may create an enforceable option contract. In Mountford v Scott (1975), the court considered the enforceability of an option supported by consideration.
Revocation of Unilateral Offers
A unilateral offer is one that invites acceptance through the performance of a specified act rather than a promise to perform it. A familiar example is a reward offered to anyone who performs a particular task.
In Carlill v Carbolic Smoke Ball Co (1893), the court recognised that a public offer could be accepted through performance in accordance with its terms.
The source material also discusses Errington v Errington (1952) and Daulia Ltd v Four Millbank Nominees Ltd (1978), which support the principle that an offeror may be restricted from revoking a unilateral offer once the offeree has begun the requested performance. The precise application of this doctrine under Indian law should be distinguished from the English authorities, as Indian courts have not developed it to the same extent.
Lapse of an Offer under Section 6
Lapse occurs when an offer comes to an end through the operation of law or the terms of the offer, rather than through an affirmative act of revocation by the offeror. Section 6 of the Indian Contract Act, 1872 identifies several grounds on which a proposal may be revoked or brought to an end.
Lapse through Expiry of Time
Under Section 6(2), an offer lapses when the time prescribed for acceptance expires. If no time is specified, the offer remains open only for a reasonable period, determined according to the circumstances and nature of the transaction.
In Ramsgate Victoria Hotel Co Ltd v Montefiore (1866), an application for shares was made in June, but the company allotted the shares in November. The court held that the offer had lapsed because an unreasonable amount of time had passed before acceptance.
Failure to Fulfil a Condition
Under Section 6(3), an offer may lapse when the offeree fails to fulfil a condition precedent that must be satisfied before acceptance.
For example, A may offer to sell a car to B on the condition that B pays a deposit by a specified date. If B fails to pay the deposit within the stipulated period, the offer may come to an end in accordance with its terms.
Death or Insanity of the Proposer
Under Section 6(4), the death or insanity of the proposer revokes the proposal if the fact comes to the knowledge of the acceptor before acceptance.
The provision therefore makes the acceptor’s knowledge relevant to determining whether the offer remains capable of acceptance. If the acceptor is unaware of the death or insanity and accepts before learning of it, the statutory rule must be considered when determining the legal effect of that acceptance.
Rejection and Counter-Offer
An offer may also come to an end when the offeree rejects it or makes a counter-offer. Although these grounds are not separately listed in Section 6, they are recognised principles of contract law.
In Hyde v Wrench (1840), Wrench offered to sell a farm for £1,000. Hyde proposed to purchase it for £950, which Wrench rejected. Hyde later attempted to accept the original offer of £1,000, but the court held that the counter-offer had terminated the original offer.
A mere request for clarification, however, does not necessarily terminate an offer. In Stevenson, Jacques & Co v McLean (1880), the distinction between a counter-offer and a request for information was recognised. Section 7 of the Indian Contract Act, which requires acceptance to be absolute and unqualified, is relevant to understanding this distinction.
Other Circumstances in Which an Offer May End
An offer may also cease to be capable of acceptance if its subject matter is destroyed or the proposed transaction becomes illegal before acceptance. These circumstances arise from general principles of contract law rather than from the express wording of Section 6.
The legal effect will depend on the facts, the terms of the offer and the applicable law.
Revocation vs Lapse of an Offer
| Basis | Revocation | Lapse |
|---|---|---|
| Meaning | Withdrawal of an offer by the offeror | An offer comes to an end through expiry or another recognised event |
| Communication | Generally must come to the offeree’s knowledge to take effect against them | A separate notice is not always required |
| Relevant provisions | Sections 3, 4, 5 and 6(1) | Sections 6(2), 6(3) and 6(4) |
| Examples | Notice withdrawing an offer | Expiry of time or failure to fulfil a condition |
References
Statute: The Indian Contract Act, 1872, Sections 3, 4, 5, 6 and 7.
Cases:
- Bhagwandas Goverdhandas Kedia v Girdharilal Parshottamdas & Co., AIR 1966 SC 543.
- Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344.
- Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
- Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231.
- Dickinson v Dodds (1876) 2 Ch D 463.
- Errington v Errington [1952] 1 KB 290.
- Hyde v Wrench (1840) 3 Beav 334.
- Mountford v Scott [1975] Ch 258.
- Payne v Cave (1789) 3 TR 148.
- Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Ex 109.
- Routledge v Grant (1828) 4 Bing 653.
- Stevenson, Jacques & Co v McLean (1880) 5 QBD 346.
Books and secondary sources: Pollock & Mulla, Indian Contract and Specific Relief Acts; Avtar Singh, Law of Contract and Specific Relief; Treitel, The Law of Contract; Chitty on Contracts; and iPleaders, Revocation of Proposal.
