Revocation of Contract
A contract is said to be complete when there is an offer and acceptance of that offer, and there are other basic requirements which need to be fulfilled such as free consent, lawful consideration and competency. Consensus ad idem meaning meeting of minds for the formation of contract is also a necessary element. But, there are certain important intermediary elements in between which are essential and can result in the change in course of events. The contract can terminate before attaining the finality between promisor and promise. This termination would take place in case certain stipulations were fulfilled. This is called revocation.
According to section 5 of the Indian Contract Act, 1872 lays down the rules of Revocation of Proposal. Section 5 says that a Contract can be revoked any time before the communication of acceptance is made to the proposer and not afterwards. Once the communication of acceptance is made then the contract cannot be revoked.
According to section 6 of the Indian Contract Act, 1872 lays down Contract Act, 1872 by which revocation can be put to practice. The following methodologies are mentioned the methods by which a revocation of proposal is made. This article deals with the methodologies that are prescribed by the Indian below.
Notice of Revocation
First method is revocation of a proposal by communication of notice. A proposal/offer may be revoked by the proposer/offeror by giving notice to the offeree before it is accepted. Notice of revocation will take effect when it is in the knowledge of the offeree before the communication of acceptance.
For Example: Amit offers Balraj his car for INR 2,00,000 and communicates the same through letter. Before Balraj accepts the proposal and communicates its acceptance to Amit, Amit withdraws his offer by informing Balraj. There will be no contract as the proposal has been revoked by Amit before the acceptance of the proposal.
Lapse of Time
Second method is revocation of proposal by lapse of time period. If there is a time period prescribed for acceptance, then the proposal gets revoked if the acceptance is not communicated before expiry of the prescribed time period.
For Example: Amish applied for shares on 1st September, 2019 but the shares were allotted to Amish on 1st of September, 2020. Amish therefore refused to take the shares allotted to him. The court held that Amish has the right to refuse to take the shares as the offer has lapsed the time period for acceptance.
Other Methods for Revocation of Proposal
Rejection of Proposal
Rejection of proposal is another method for revocation of proposal. A proposal can be rejected if it is not accepted by the offeree. Once the proposal is rejected it can be revived again by the offeree.
For Example: Ali by letter offers his car to Haider for INR 3,00,000. Haider rejects the offer of Ali, now Haider cannot revive it again as once the offer is rejected it cannot be revived again.
Death of Offeree
Death of an offeree is also a way by which a proposal can be revoked. A proposal which is communicated for acceptance can be revoked if the offeree who has to communicate the acceptance is dead before the communication of acceptance of proposal.
For Example: Ajay by letter offers to sell his house to Vijay. Before the communication of acceptance Vijay dies, the proposal is revoked as there is no acceptance on the part of the offeree.
A proposal is revoked if a counter offer is made to it. Offeree accepts the proposal after modifications and variations in the original offer, then the proposal made by the offeree is called a counter offer. The acceptance of counter offer amounts to rejection of original offer.
For Example: Sonu offers his watch to Monu for INR 2,000. Monu said that he will buy this watch for INR 1,500. Sonu’s proposal is revoked as there is a counter offer for the same and therefore the original offer lapse
In the case J.K. Enterprises v. The State of M.P., AIR 1997 MP 68, the court held communication of the revocation of proposal has to be crystal clear and to the correct address. In this case the revocation letter was being sent by fax message. Unfortunately, it reached the wrong address. The court considered it to be of no effect.
In the case Sadhoo Lal Motilal v. The State of M.P., AIR 1972 All 137, the tender that was presented by the party to the respective Government was accepted later. But, a telegram was subsequently sent to that respective Government withdrawing the acceptance. The court found the strong 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.
The contracts are considered closed when the acceptance is communicated. Putting letter of acceptance in course of transmission and the contract completes. That is the reason that even when the revocation of proposal has been communicated, the contract does not end as there was communication of acceptance before revocation of proposal by the proposer.
The courts sometimes interfere in such cases by modifying the contract between the parties. The courts are not supposed to modify the contractual term between the parties to the contract. It is not the duty of the courts to make the contracts for the parties. It is the duty of the parties to make their own contract and it is not for the courts to interfere in such commercial nature of business.
However, considering the interpretation of law involved, the courts are frequently asked to dig into the question of the validity of the revocation of a proposal. It is certainly evident from this article that the revocation is a statutorily provided right of both parties and moreover, revocation of proposal has an overriding effect over the accepted principles of communication of proposal and acceptance of proposal