Lapse of Offer Definition in Business
This article is written by Shivangi Tiwari , a second-year student pursuing B.A. LL.B. from Hidayatullah National Law University, Raipur. This is an exhaustive article dealing with Lapse of Offer.
Introduction
The Indian Contract Act defines the meaning of the term "contract" under Section 2(h) . According to the Section, a contract is an agreement enforceable by law. Thus there are two essentials to be fulfilled for the formation of a binding contract. Firstly, there should be an agreement between two or more contracting party and secondly, the agreement should have legal enforceability. The term "agreement" has been defined as every promise or every set of promises in exchange for each other which form a set of consideration for each other. Section 2(b) defines the term "promise" as a proposal or offer which is accepted by the offeree.
Every contract is an agreement but not every agreement is a contract. An agreement becomes a contract when the following conditions are fulfilled:
- There should be some consideration in exchange for both the offer and acceptance by the parties to the contract;
- The parties entering into a contract must be competent to enter into it. The competency of parties to enter into parties has been discussed under Section 11 and Section 12 ;
- The consent of the parties to the contract should be free and should not be vitiated by any of the vitiating factors mentioned under Section 19 ;
- The object of entering into the contract should be lawful.
The dictionary meaning of "Revocation" is annulling any work which was previously done. In the law of contract, a contract is entered into between two or more parties when one party makes an offer to another with a view to obtaining the assent of the other party to the offer and once the offer of the person is accepted a valid contract is entered. However, the parties to a contract are at the liberty of revoking both offer and acceptance at a later point of time. The procedure and the rules of revocation are laid down under Section 5 of the Contract Act. Revocation is a way of termination of the offer. There are three ways of termination of an offer, the three of them are mentioned below:
- Revocation;
- Rejection; or
- Lapse of the offer.
In this article different ways of termination of the contract have been dealt with in detail.
Notice of revocation
Section 5 of the Indian Contract Act, 1872 provides that any proposal can be revoked by the offeree at any time before the communication of acceptance is complete as against the offeror and not afterwards. The communication of acceptance is complete as against the offeror or the proposer when the acceptance is put in the course of transmission to him and it becomes out of the control of the acceptor. Therefore, in case of communication of acceptance by electronic mail, the communication of revocation to have the effect must reach the offeree before he mails his acceptance thus making it out of his control. It is important that the revocation in order to be effective should be brought into the notice of the person to whom it is made.
In Henthorn v. Fraser , Mr Fraser who was the defendant handed over a note to the complainant which detailed an option for the sale of the property at 750 euros with the condition that the acceptance should be conveyed within fourteen days of such offer. While this offer was considered another buyer approached the defendant and the defendant concluded the contract with him instead. The very next day the defendant informed the plaintiff about the withdrawal of the offer. The note reached the plaintiff after 5 pm and by that time Mr Henthorn had already responded positively to the offer unconditionally at the price which was offered by the defendant. However, the acceptance did not reach the defendant until the next morning and the defendant did not read the acceptance till the very next day when the acceptance reached the defendant. The court, in this case, held that the postal rule laid down by the court in Adam v. Lindsell will apply according to the rule it is reasonable for the offer to take place by post. However, this rule is inapplicable to revocation of the offer. The post was a way to communicate the offer to the offeree but the acceptance is completed at the moment it is posted so as to be out of the control of the offeree. Practically the rule was a reasonable one keeping in view the fact that the two parties stayed at different towns.
Thus, it is a settled principle that the notice of revocation by the offeror should reach the offeree before he has put the acceptance into the course of transmission which shall then become out of his power. The above principle is further clarified by the illustration which is attached to Section 5. 'A' by means of a letter proposes 'B' his house which was for sale. B accepts the proposal by the means of acceptance sent through a post. In this case, A can revoke his offer at any time before or at the time when B posts his letter of acceptance.
Section 4 and 5 contains the provisions related to the communication of proposal, acceptance and revocation. Section 4 of the Indian Contract Act states the following with respect to the time when communication is complete:
- The communication of a proposal is complete when the same comes to the notice of the person to whom it is addressed to;
- The communication of acceptance as against the proposer is complete when it is put in the course of transmission addressed to him;
- The communication of acceptance as against the acceptor or the offeree is complete when the acceptance comes to the knowledge of the offeror or proposer;
- The communication of revocation is complete as against the person who makes such revocation when it is out in the course of transmission to the person to whom it is addressed so as to be out of the power of the person making such revocation;
- The communication of revocation is complete as against the person to whom it is made when such communication comes to his knowledge.
Section 5 of the Indian Contract Act contains provisions regarding the revocation of proposals and acceptance. The Section states that the revocation of the proposal can be made at any time before the communication of acceptance is complete as against the proposer but not afterwards. While acceptance may be revoked anytime before the completion of communication of acceptance as against the acceptor but the same can not be done afterwards.
Withdrawal before the expiry of a fixed period
In a case where the offeror prescribes a certain time period to the offeree within which the offeree can accept the offer. The offeror has the authority to withdraw the offer even before the expiry of the prescribed time period. In Alfred Schonlank And Anr. vs A. Muthunayana Chetti , the defendant offered the plaintiff a proposal for sale of indigo and told the plaintiff that he can answer to his proposal within a period of eight days. However, on the fourth day from making the offer the defendant revoked the offer. The plaintiff, on the fifth day from the day when a proposal was made to him, accepted the offer. The Madras High Court held that the acceptance was of no use in the eyes of laws as it can be made clear both on principle and authority that in a case where there is no consideration for the promise to keep the offer open for a certain time period is nothing but nudum pactum or a bare promise.
When the notice of revocation reaches the offeree's address it is deemed to be complete. In Tenax Steamship Co v Owners of the Motor Vessel Brimnes , the defendant company owned a ship called Brimnes. The defendants agreed to sell the ship Brimnes to the complainants on the condition that a charter party agreement will take place between them. The hire payment was made a period later than which was agreed between the parties under the terms of the contract. On one fine day, the complainant during the normal office hours gave the defendant a notice for the withdrawal of the ship from services through telex. However, the defendant read the letter on a later period and by that time he had already made the payment for the ships. The question before the appellate court was whether notice of withdrawal of service had effect before the defendant made the payment of hire of ships. The court held that the withdrawal was effective when the telex message was received by the defendant and not when the defendant read the message. Therefore, this case became the authority for the reasoning that in the case where the revocation is sent through instantaneous means like telex, the revocation becomes effective from the time on which the revocation could have been read and not the time when it was actually read by the person to whom it was addressed to.
Acceptance of proposal under the voluntary retirement scheme
Under the Voluntary Retirement scheme, the employees were given the right to apply for voluntary retirement by requesting the same in writing to the authorities. However, the authorities in these cases had the complete discretion to accept or reject these requests. The requirement of the employee who requested under the scheme could take place only once the request has been accepted by the authorities in writing. The scheme was only an invitation to offer and the application made by the employee was an offer made to the authorities who were therefore offeree. The employee being the offeror could withdraw the offer anytime before the same is accepted by the offeree. The term in the scheme preventing the employee from the withdrawal of the proposal was held to be non-binding.
In Shashikala Parashar vs State Of Goa & Another , the employee first made the request for his voluntary transfer but later on, he requested that the request made by him should be suspended for some time. The Government, however, accepted the resignation. The employee aggrieved by the government's decision moved to the court and the court held that the request made by the employee was a mere assertion without having any backing of proof or an affidavit. The order of Government was like an acceptance which was made after the revocation of the proposal was made and the request to keep the proposal in suspension was not the same as withdrawal of the proposal.
In K. Appa Rao v. M/s Tungabhadra Steel Products Ltd. & Others , the plaintiff submitted his resignation which was accepted on 31 March 2003 the resignation was accepted. However, the resignation offer was to take effect from 23 June 2003 which is after the expiry of the three months of the notice period. The question before the court was that which date should be considered as the effective date of resignation. The court held that the effective date of resignation will be the date on which the employee will be released and not the date of acceptance of the request made by the employee. Meanwhile, the employee is free to withdraw his resignation.
The employer is under no obligation to accept the proposal of premature retirement and therefore no action could lie in any court of law where the employee has refused to accept such proposal. In Visakhapatnam Port Trust & Others v/s T.S.N. Raju & Another , a large number of employees in a company filed an application for voluntary retirement. However, the company decided that it would not entertain all the application as the number of retirements that the company could afford had already been exhausted. The Court held that the employer could not be necessarily bound to accept all the application for resignation.
In New India Assurance Co. Ltd vs Raghuvir Singh Narang & Anr , the general principles of contract provided that once an employee has made an application for the resignation under the voluntary retirement scheme he could not withdraw the same at any time afterwards. The court held that the terms of the statutory scheme guaranteeing voluntary retirement would prevail over the general principles of law.
Agreement to keep the offer open for a specified period
Where the offeror proposes an offer to be open for a specified period of time and it is accompanied by a consideration. The offeror has no discretion to withdraw the offer before the completion of the specified period. In Mountford and another v.Scott , the owner of the hou se who was the defendant is essential that the communication of revocation should be made by the offeror himself or any agent who is duly authorized by him. This rule does not apply in England. In England, Dickinson v. Dodds is the authority on this matter, in this case, the defendant made an offer to the plaintiff for the sale of the property at a fixed price and the terms of the proposal also made it clear that the offer could be accepted by the plaintiff within a specified time period. However, before the expiration of the specified time, the plaintiff was informed by a party that the offer has already been revoked as the defendant has already sold the property to some other person. Despite knowing the fact that the property which was offered to him the plaintiff before the expiration of the offer gave a letter of acceptance of an offer to the defendant. The court, In this case, the court held that the offer can be revoked anytime before the acceptance by the offeree is made and that the sale to the third party was already in knowledge of the plaintiff and so the plaintiff already knew that the defendant was not minded to sell the property to him and therefore the acceptance by the plaintiff at a later point of time when the property had already been transferred to the other party has no value in the eyes of law.
The defendant in the present case made an offer to the plaintiff for the sale of his house for ten thousand pound and the offer was made for specified time and was backed by consideration according to which the plaintiff had the option of paying one pound to keep the offer of the defendant open for a specified time period. The court, in this case, held that after the plaintiff deposited one pound to the defendant, the defendant was not allowed to revoke the offer before the expiry of the specified period as the effect of the offer made it irrevocable for the specified time and therefore the offeree is free to accept the offer within the specified time notwithstanding the offerors purported revocation.
In State Of Haryana & Ors vs M/S Malik Traders , the bid security was accompanied with a condition that the bid security can not be forfeited by the bidders in case of withdrawal of the bid before the expiry of its validity period. However, the court rejected the conditions put by the authorities organizing the bid by holding them to be invalid and held that the withdrawal of bid before the end of the validity period even before the acceptance did not put an end to the right of the offeree to forfeit the bid security.
Communication of revocation of the offer
In India, as suggested by Pollock and Mulla, this rule has no applicability and reason behind it is the Section 6(1) of the Indian Contract Act, 1872 which mandates that the revocation could be made only by the offeror and no other person.
Revocation of the general offer
In the case where the offer of general nature is made known to the people through any media, the withdrawal of the offer should be conveyed through the same media. The revocation so made would be effective even where any person in ignorance of the revocation subsequently performs the term of the offer which has already been withdrawn.
In Shuey v. United States , an announcement was published in the newspaper announcing reward for the person who reports certain criminals. However, this announcement was subsequently withdrawn by publishing a subsequent notification. The plaintiff in this case, after the notification was revoked reported the criminals in ignorance of the subsequent publication in the newspaper. The person reporting the crime was held not to be eligible for the reward price as the announcement was withdrawn through the same channel through which it was published.
Superseding proposal by a fresh proposal
In a case where the proposal is renewed not in entirety but in some parts before the acceptance is made to the original offer and the latter appears to supersede the earlier proposal. Then such a proposal will no longer be available for acceptance by the offeree. The acceptance could only be of the renewed part which has superseded the earlier or original proposal.
Cancellation of allotment of land
In Rochees Hotels Pvt. Ltd. And Anr. vs Jaipur Development Authority , under the order of a Development Authority, an allotment of land was made. The people to whom the allotment was made deposited the money and signed the agreement as a result of which a concluded came into effect between the allottees and the authorities who made the allotment of the land. The subsequent cancellation made by the authorities was challenged by the allottees in the court. The court held the subsequent cancellation of the allotment as improper and arbitrary. It was held that the authorities were bound by the obligation to approve building plans for the land. The pending criminal investigations regarding the allotment of land were irrelevant.
Revocation of bid
In a case where the agreement is entered into by auction. The acceptance to the agreement is signified by knocking down the hammer by the seller. A bid can be withdrawn before the hammer is knocked down by the seller. In The Rajah Of Bobbili vs Akella Suryanarayana Rao Garu , the petitioner at an auction made the highest bid. But before the hammer was knocked down he withdrew his bid on finding that the property was subject to a mortgage. But even after the retraction was made by the bidder the auctioneer knocked down the offer signifying the assent to the offer made by the plaintiff. Later on, the owner of the property sued the bidder. The court, in this case, held that the bid made by the plaintiff was nothing more than an offer and he had the discretion of withdrawing the same before his offer was accepted by the auctioneer.
The principle laid down in the above-mentioned case has been significantly extended by the High Courts in the subsequent cases which included even those cases where the bid was provisionally accepted and was subjected to further confirmation by the higher authorities.
In Union Of India & Ors vs M/S. Bhim Sen Walaiti Ram , in a public auction the highest bid was made by the plaintiff and therefore he got the liquor shop which was there for auction. The bid was subject to the consideration of the Chief Commissioner who had the duty to inquire into the financial condition of the bidder before granting him the license. According to the rules of the auction which was conducted the bidder was under the obligation to immediately pay the one-sixth price of the liquor shop immediately. If he defaults in paying the said amount, the Government had the power to can such bid and re-auction the shop. In this case, the plaintiff was unable to pay the amount which was specified and as a result of which the Chief Commissioner ordered the resale. The subsequent resale proved to be a loss for the Government since the price bidding realized in resale was much less than the original bidding. The authorities decided to make the defendant liable for making good the losses suffered by the authorities. The court, in this case, held that the defendant is not liable to make good of the losses suffered due to the resale of the shop as the Chief Commissioner had disapproved the bid made by the defendant.
In Haridwar Singh vs Bagun Sumbrui , a forest by way of the auction was given to the bidder even below its minimum price. The confirmation of the bill was still in the process while the bidder offered to pay the minimum value. The authorities who were holding the bill accepted it and by the way of telegram sent their acceptance to the forest officers for carrying on further transactions. The foreign officer due to some reasons never received the said telegram. Meanwhile, another person offered a higher price for the forest and the same was accepted by the authorities holding the auction. Later on, the authorities informed the forest officials about the acceptance. The acceptance reached the forest officer this time and he passed on the bid to the new bidder. The earlier bidder challenged the passing of bid. The court held that there was no concluded contract from the original bid since the acceptance which was made by the authorities on the earlier bill will be considered to be still present within the authorities as no communication as to their acceptance was ever made to the earlier bidder.
The auctioneer has the authority to specify the manner in which the bids can be revoked by the bidders.
In M. Lachia Setty & Sons Ltd. Etc. Etc vs The Coffee Board, Bangalore , one of the auction rules in the present case specified that any instructions or bids by means of telegraph will not be accepted. The defendant made his bid on the spot by filing the bid form. However, before the result of the bid were to announce the defendant revoked his bid by means of telegraphic communication. But the bid by the defendant was accepted by the auctioneer. The defendant later refused to perform the bid on the grounds that he had already communicated his revocation. The court, in this case, held that the express mentioning by the auctioneer of no entertainment of any telegraphic communication with respect to instruction or anything pertaining to bidding was wide enough to include within its ambit revocation as well. Therefore, the revocation made by the defendant is not a good revocation under law.
Lapse of time
Where time is prescribed
Where in a contract, a fixed time has been prescribed to the offeree to communicate the acceptance, the offeree is bound to accept the offer within the fixed time so prescribed because after the expiry of the fixed time the offer lapses. With regard to this facet of contract law, the Calcutta High Court has suggested that in a case where the offeree has to communicate his acceptance within a specified time and he posts his acceptance within the stipulated time period, a binding contract will be held to have taken place between the parties. The validity of the offer by the offeree would not be affected if the letter of acceptance so posted within the stipulated time reaches the offeror after the completion of the specified time.
In the case of Bruner v. Moore , the offer was stipulated to last till the end of March. The offeree posted his letter to the offeror on 28th March which reached the offeree on 30th March. The court, in this case, held that the acceptance was valid.
In R. Vinoth Kumar vs The Secretary , the institution invited the applications for admission into the institution for a prescribed time by sending the same either through post or in-person to the institution. The candidate sent the application through the post before four days of the last date of the stipulated date but the same reached the institute after the stipulated time period was over. The court, in this case, held that the candidate was too late in sending the application. The rationale of the majority of the two judges in the case was that where the mode of communication can be decided by the acceptor at his free will, the agency whom the acceptor chooses acts as the agent of the sender, whereas in cases where the delivery is made through the mode which has been prescribed by the person to whom the delivery is addressed to, then the agency so prescribed by the addressee acts as agent of the addressee. In the former case, the delivery to the agency does not tantamount to delivery to the addressee. But in the latter case the delivery to the agency tantamounts to the delivery to the addressee. The dissenting judge, in this case, upheld that when the candidate selects any of the mode prescribed by the addressee, then the agency which is prescribed by the addressee would act as the agent of the addressee.
Where no time is prescribed
In the contracts where no time is specified within which the offer should be accepted it is a settled principle that the offer must be accepted within a reasonable time. In Shree Jaya Mahal Co-operative Housing Society Ltd. v. Zenith Chemical Works Pvt. Ltd. and others , the court held that the determination as to what will be considered as a reasonable time would be decided by the courts on a case to case basis keeping in view the facts and circumstances of the case. The definition of "reasonable period" is a question of facts and it depends upon the circumstances and the situation in which the agreement was entered into.
Contracts which involve precious materials like gold and other precious metals which are prone to high fluctuating price then in those cases the reasonable period would be a very short span of time. However, in contracts involving land the reasonable time period will not be the same as the time period regarded reasonable in the contracts the precious metals.
By failure to accept a condition precedent
Where the offer is subject to conditions precedent that is some preconditions have to be complied with before the acceptance is made. If the acceptance is made without fulfilment of the condition precedent then the offer lapses then and there.
In the State of West Bengal v. Mahendra Chandra Das , a salt lake was offered by way of a lease with a condition precedent which mandated that the person accepting the lease has to deposit a certain sum of money within the specified time. The defendant who was the intended lessee, in this case, did not deposit the amount of money even after the expiration of the stipulated time. The court held that the conduct of the defendant clearly indicated that the allotment stood cancelled.
Conclusion
The Contract Act is the primary legislation in the country which deals with the contractual obligations between the parties. The Act not only contains the provisions related to entering into the contract but also the provisions related to the termination of the contract which is entered into by the parties. The parties to a contract are at the liberty of revoking both offer and acceptance at a later point of time. The procedure and the rules of revocation are laid down under Section 5 of the Contract Act. revocation is a way of termination of the offer. There are three ways of termination of an offer, the three of them are Revocation, Rejection or Lapse of the offer.
References
- https://blog.ipleaders.in/contract-postage-telephone/
- https://blog.ipleaders.in/rescission-of-a-contract/
- https://blog.ipleaders.in/contract-discharge/
- https://blog.ipleaders.in/forms-of-acceptance-to-an-offer/
- https://chestofbooks.com/business/law/Law-Of-Contracts-4-1/When-Communication-By-Mail-Or-Telegraph-Is-Proper-Theories-Continued.html
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Lapse of Offer Definition in Business
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