Communication of Offer and Acceptance
Sections 3, 4 and 9 of the Indian Contract Act, 1872; section 13 of the Information Technology Act, 2000
In one minute
An offer or acceptance has legal effect only when communication of it is complete. Section 4 says when that moment arrives for a proposal, for an acceptance and for a revocation.
The key rule is the postal rule. An acceptance sent by post binds the proposer when it is posted. It binds the acceptor only when the proposer receives it.
Almost every exam problem with dates and letters tests this timing. In real life, it decides who is bound while a letter or email is on its way.
Exam focus
- Frequency: Rarely asked
- Usually asked as: Long answer (10 to 15 marks)
Legal provision
- Section 3: communication of a proposal, an acceptance or a revocation is made by any act or omission of the party by which that party intends to communicate it, or which has the effect of communicating it.
- Section 4, proposal: communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
- Section 4, acceptance: complete as against the proposer when it is put in a course of transmission to the proposer, so as to be out of the acceptor's power. Complete as against the acceptor when it comes to the proposer's knowledge.
- Section 4, revocation: complete as against the person who makes it when it is put into a course of transmission, out of that person's power. Complete as against the person to whom it is made when it comes to that person's knowledge.
- Section 9: a proposal or acceptance made in words is express. If made in any other way, it is implied.
Meaning and definition
Communication means more than words. Section 3 says any act, or any deliberate omission, that shows the party's intention to communicate is enough. So is any act that has the effect of communicating.
Section 4 then fixes the moment of completion. The law needs a fixed moment because until then either side may walk away. A fixed moment tells both parties when they are bound.
The rule has two sides for an acceptance. It is complete against the proposer on posting, and against the acceptor on receipt. This is the postal rule.
- A's letter reaches BThe proposal is complete when B receives the letter (section 4, illustration (a)).
- B posts the acceptanceComplete as against A. A is bound and can no longer revoke (sections 4, 5).
- A receives the acceptanceComplete as against B. B is now bound. B could revoke until this moment (section 5).
Detailed explanation
Section 4 gives three separate rules. Each is explained with an example.
1. Communication of a proposal
A proposal is complete when it comes to the knowledge of the person it is made to. Posting it is not enough. Knowledge is also why a person who does not know of an offer cannot accept it, as in Lalman Shukla v. Gauri Dutt.
Example. Priya posts a letter from Hyderabad on 1 August offering her law books to Arjun for Rs 3,000. The proposal is complete only when Arjun receives and reads the letter, not on 1 August.
2. Communication of an acceptance
Against the proposer, an acceptance is complete when it is put in a course of transmission (for example, dropped in a post box) so that it is out of the acceptor's power. Against the acceptor, it is complete when it comes to the proposer's knowledge.
Example. Arjun posts his acceptance on 5 August. From that moment Priya is bound, even if the letter is delayed. Arjun is not yet bound. He becomes bound when Priya receives the letter.
3. Communication of a revocation
Against the person who revokes, the revocation is complete when it is despatched and out of that person's power. Against the other party, it is complete when it comes to that party's knowledge. The effect of revocation on an offer is explained in the note on revocation.
Example. Priya sends a telegram on 6 August revoking her offer. It is complete against Priya when despatched. It is complete against Arjun only when he receives it. Arjun had already posted his acceptance on 5 August, so the revocation comes too late.
4. Why the rule is lopsided
Between posting and receipt the acceptor may revoke the acceptance, because the acceptor is not yet bound. A revocation reaching the proposer before or with the acceptance is effective (section 5). The proposer cannot revoke after the acceptance is posted.
Example. Arjun posts his acceptance on 5 August. He changes his mind and sends a faster courier revoking it. The courier reaches Priya on 6 August, before she receives his letter. The revocation is valid.
Instantaneous and electronic communication
The postal rule fits communication that passes through a middle step, such as the post. It does not fit instant talk, such as the telephone.
- Instantaneous communication. In Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co. (1966), the Supreme Court dealt with an acceptance given by telephone. The contract is complete where and when the acceptance is heard by the proposer, not where it is spoken.
- Electronic messages. Sections 4 to 6 of the Contract Act apply to emails and messages. Section 13 of the Information Technology Act, 2000 fixes when an electronic record is despatched and received, unless the parties agree otherwise.
- Despatch. It happens when the record enters a computer resource outside the control of the sender.
- Receipt. If the receiver has named a computer resource, receipt happens when the record enters it. If the record is sent to another resource of the receiver, receipt happens when the receiver retrieves it. If no resource is named, receipt happens when the record enters the receiver's computer resource.
Don't confuse: postal rule and instantaneous communication
Students often apply the postal rule to a phone call. It does not fit, because there is no gap between speaking and hearing.
| Point | Postal rule (post, telegram) | Instantaneous (telephone) |
|---|---|---|
| Acceptance binds the proposer | When posted | When heard by the proposer |
| Risk of delay in transit | On the proposer | No transit gap |
| Acceptor can revoke | Until the proposer receives the acceptance | Not in a meaningful way |
| Authority | Section 4 | Kedia (1966) |
Inside the concept. Hari in Warangal posts an acceptance of Gita's offer on Monday. Gita is bound from Monday, although the letter reaches her on Thursday.
Just outside the concept. Hari telephones Gita on Monday and says "I accept", but the line drops and Gita hears nothing. There is no contract yet, because Gita has not heard the acceptance.
Common mistakes
- Saying a proposal is complete when it is posted. It is complete when it reaches the knowledge of the offeree.
- Thinking the acceptor is bound at posting. The acceptor is bound only when the proposer receives the acceptance.
- Applying the postal rule to telephone calls.
- Forgetting that section 4 has a separate rule for revocation.
Apply it
Problem
Priya posts an offer to Arjun on 1 August and asks for a reply within a week. Arjun posts his acceptance on 5 August. On 6 August Priya telegraphs a revocation, which Arjun receives that day. Is there a contract?
Issue. Did Priya revoke before the acceptance was complete against her?
Rule. An acceptance is complete as against the proposer when posted (section 4). A proposal can be revoked only before that moment (section 5).
Application. Arjun posted on 5 August. The acceptance was complete against Priya that day. Her telegram of 6 August is late.
Conclusion. There is a contract from 5 August.
Leading case laws
- Lalman Shukla v. Gauri Dutt (1913)
Facts. Gauri Dutt's servant Lalman Shukla was sent to search for a missing boy. A reward of Rs 501 was announced by handbill after he had left. He found the boy without knowing of the reward.
Principle. An offer must come to the knowledge of the person who is said to have accepted it.
Why it matters. It shows why communication of a proposal is essential.
- Carlill v. Carbolic Smoke Ball Co. (1893)
Facts. A company advertised a reward of 100 pounds for anyone who used its smoke ball as directed and still caught influenza. Mrs Carlill used the ball, caught influenza, and sued.
Principle. A general offer made to the public was accepted by performing its conditions. No separate notice of acceptance was needed.
Why it matters. It is the standard example of acceptance by conduct, where communication takes the form of performance.
How to write this answer in the exam
5-mark answer
- Quote section 3 and state the three rules of section 4 briefly.
- Explain the postal rule.
- Give an example with dates.
10-mark answer
- Section 3 and section 4, with the Act's illustrations.
- The postal rule and why it is lopsided.
- Instantaneous communication: Kedia (1966).
- Electronic messages: section 13 of the Information Technology Act, 2000.
- Cases: Lalman Shukla v. Gauri Dutt, Carlill v. Carbolic Smoke Ball Co..
- A table of the postal rule and the instantaneous rule.
Key points to remember
- Communication can be by any act or omission that shows intention (section 3).
- A proposal is complete when it comes to the offeree's knowledge.
- An acceptance is complete against the proposer on posting, and against the acceptor on receipt.
- A revocation is complete against the person making it on despatch, and against the other party on knowledge.
- Telephone acceptance is complete where and when it is heard (Kedia, 1966).
- Section 13 of the Information Technology Act, 2000 fixes despatch and receipt of electronic records.
Quick self-test
1. When is an acceptance by post complete against the proposer?
When it is put in a course of transmission to the proposer, for example when posted.
2. When does the acceptor become bound?
When the acceptance comes to the knowledge of the proposer.
3. Does the postal rule apply to a telephone acceptance?
No. The contract is complete where and when the acceptance is heard (Kedia, 1966).