Communication of Proposal, Acceptance and Revocation

Section 3 supplies the meaning of communicating, by any act or omission intended to communicate, or which has the effect of communicating.

Broken down: the table the whole topic reduces to

Three observations that turn this table into marks.

The proposal has one rule, not two. A proposal is communicated when it reaches the knowledge of the offeree, and never before. So an offer posted and lost in the post was never communicated at all, and an offer cannot be accepted by someone who does not know it exists.

Acceptance has two different moments, and they are the heart of the section. Posting binds the proposer. Arrival binds the acceptor. Between posting and arrival, therefore, the proposer is bound and the acceptor is not. That is not an accident or a drafting slip; it is the policy in paragraph 1 made concrete, and it is what section 5 then builds on.

Revocation follows the ordinary pattern, and the same asymmetry: despatch binds the sender, receipt binds the recipient.

The Act's own illustrations

Section 4 comes with illustrations, and they are the cleanest possible revision aid because they are the statute itself:

• A proposes by letter to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.
• B accepts A's proposal by a letter sent by post. The communication of the acceptance is complete as against A when the letter is posted, and as against B when the letter is received by A.
• A revokes his proposal by telegram. The revocation is complete as against A when the telegram is despatched, and as against B when B receives it. B revokes his acceptance by telegram: complete as against B when despatched, and as against A when it reaches him.

A worked example

On 1 June A posts a letter from Mumbai offering to sell his car to B in Pune for three lakh rupees. B receives it on 3 June and posts an acceptance the same day. The letter reaches A on 5 June. On 4 June, before the acceptance arrives, A posts a letter revoking the offer, which reaches B on 6 June.

Work it moment by moment:

• 1 June. Nothing has happened. The proposal is not communicated merely by posting.
• 3 June. The proposal is communicated: it came to B's knowledge, section 4 first paragraph.
• 3 June, on posting. The acceptance is complete as against A, because it was put in a course of transmission out of B's power. A is now bound.
• 4 June. A posts a revocation. Under section 5 a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. That moment passed on 3 June. A's revocation is too late and is ineffective.
• 5 June. The acceptance is complete as against B, so B is bound too.
• 6 June. The revocation reaches B and does nothing.

There is a contract, made on 3 June, and A is in breach if he does not deliver.

Now reverse one fact. A posts his revocation on 2 June and it reaches B on the morning of 3 June, before B posts. The revocation is complete as against B when it comes to his knowledge, which is before he accepted. There is no contract, because the offer no longer existed when B purported to accept it.

What it does NOT mean

"A contract is made when the acceptance is posted." Only as against the proposer. As against the acceptor the acceptance is complete on arrival, which is why the acceptor may revoke in the meantime under section 5. Saying flatly that the contract is complete on posting loses the whole of the acceptor's position.

"Section 4 applies to all forms of communication." It applies where there is a gap between despatch and receipt. Where communication is instantaneous, as on a telephone, the reasoning breaks down and the contract is made where the acceptance is heard. That is [Contracts Between Absent Parties: the Post, the Telephone and the Inbox], and for electronic records the question is answered by section 13 of the Information Technology Act 2000.

"A proposal is communicated when it is sent." It is not. It is communicated when it comes to the knowledge of the offeree, and that is the one moment in the section with no second limb.

"Mental acceptance is enough." It is not. Section 3 requires an act or omission by which the party intends to communicate, or which has the effect of communicating. A decision to accept, kept to oneself, is nothing. Silence is dealt with in [Acceptance Must Be Absolute and Unqualified].

Limits and criticism

Two criticisms are worth naming.

The rule favours the acceptor at the offeror's expense. An offeror can be bound by an acceptance he has never seen, and indeed by one that never arrives at all, since the section fixes completion at posting and does not require delivery. The answer is that he chose the medium and can protect himself by stipulating that acceptance takes effect only on receipt, which parties routinely do.

The section is silent on the loss of the letter. It says the acceptance is complete as against the proposer on posting, and does not qualify that by arrival. So on the language, a lost acceptance still binds the proposer while never binding the acceptor, which is an uncomfortable result and one reason commercial contracts displace the rule expressly.

Quick revision

• Proposal: complete when it comes to the knowledge of the offeree. One rule only.
• Acceptance: complete against the proposer on being put in course of transmission out of the acceptor's power; against the acceptor when it reaches the proposer's knowledge.
• Revocation: complete against the sender on despatch; against the recipient on receipt.
• Between posting and arrival: the proposer is bound, the acceptor is not.
• Section 3: communication by any act or omission intended to communicate or having that effect.
• The rule exists to protect the acceptor and to place the risk of the post on the party who chose it.
• Parties may and often do contract out of it.

Test yourself

1. When is the communication of a proposal complete? When it comes to the knowledge of the person to whom it is made, section 4.

2. B posts an acceptance on Monday; it reaches A on Thursday. When is A bound, and when is B? A is bound on Monday, when the letter was put in course of transmission out of B's power. B is bound on Thursday, when it came to A's knowledge.

3. A posts a revocation after B has posted the acceptance but before it arrives. Effective? No. Section 5 permits revocation only before the communication of the acceptance is complete as against the proposer, and that was complete on posting.

4. Can the acceptor revoke his acceptance? Yes, at any time before the communication of the acceptance is complete as against him, that is, before the letter reaches the proposer, section 5. A faster medium must overtake the letter.

5. Why does the Act give acceptance two moments of completion? To place the risk of delay or loss in transmission on the offeror, who chose to negotiate at a distance, while leaving the acceptor free to withdraw until the offeror actually learns of the acceptance.