The moment communication of an offer or acceptance becomes legally complete determines when parties are bound and when revocation is still possible. S.4 of the Indian Contract Act, 1872 fixes these moments differently depending on the mode of communication.
Legal Framework
| Section | Act | Scope |
|---|---|---|
| S.4 | Indian Contract Act, 1872 | Fixes completion of communication of proposal, acceptance, and revocation |
| S.3 | Indian Contract Act, 1872 | Communication may occur by act or omission intended to communicate |
| S.13, IT Act 2000 | Information Technology Act, 2000 | Time and place of dispatch and receipt of electronic records |
Rules Under S.4
1. Communication of Proposal. Complete when it comes to the knowledge of the person to whom it is made.
Why: An offeror cannot be said to have made a binding offer to someone unaware of it, since there is nothing for that person to accept.
2. Communication of Acceptance, as against the Proposer. Complete when it is put into a course of transmission to the proposer, out of the power of the acceptor.
Why: This is the postal rule: once the acceptor has done everything within their control to communicate, including posting a letter, they should not bear the risk of subsequent postal delay or loss. This rule places that risk on the offeror, who chose to invite acceptance by post.
3. Communication of Acceptance, as against the Acceptor. Complete when it comes to the knowledge of the proposer.
Why: The acceptor remains free to revoke their acceptance any time before the proposer actually learns of it, since until then, the proposer has suffered no reliance.
4. Communication of Revocation. As against the person who makes it, complete when put into a course of transmission out of their power. As against the person to whom it is made, complete when it comes to their knowledge.
The Postal Rule Gap
Because acceptance binds the proposer once posted, but binds the acceptor only once known to the proposer, a narrow window exists where the acceptor alone can revoke, after posting but before the letter's arrival, while the proposer is already bound. This asymmetry is deliberate: it protects the offeror's reliance on the acceptor's dispatch while still permitting the acceptor a limited window to change course before the proposer actually knows.
Instantaneous Communication: Telephone, Telex, Email
The postal rule applies only to non-instantaneous modes like ordinary post and telegram. For instantaneous modes such as telephone, telex, and by extension email and other electronic communication, the contract is formed at the place and time where and when the acceptance is received, not dispatched.
Why: With instantaneous communication, both parties can verify receipt in real time, removing the justification for shifting the risk of transmission failure onto the offeror.
Illustrations
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Postal rule application: A posts a letter offering to sell his shop to B. B posts a letter of acceptance on 5 July. The letter is delayed and reaches A only on 12 July. The contract is complete on 5 July, the date B posted the acceptance, not 12 July.
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Acceptor's window to revoke: In the same facts, if B sends a telegram on 6 July withdrawing the acceptance, and the telegram reaches A on 7 July, before the original letter arrives on 12 July, B's revocation is effective since it reached A's knowledge before A knew of the acceptance.
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Instantaneous mode, no postal rule: A calls B and offers to sell goods. B's phone call reply of acceptance is heard clearly by A. The contract is complete the moment A hears the acceptance, at A's location, since telephone communication is instantaneous.
Recall Check
- Why does the postal rule bind the proposer at the point of posting, but bind the acceptor only at the point of knowledge?
- Why does the postal rule not apply to telephone or email communication?
- Explain the narrow window in which an acceptor may revoke acceptance despite the proposer already being bound.
Key Cases
Adams v. Lindsell (1818) Adams-v-Lindsell-1818 Issue: Whether a contract was formed at the moment of posting the letter of acceptance, or only upon its receipt by the offeror. Rule: Acceptance by post is complete the moment the letter is posted, not when it is received. Held: The contract was formed on the date of posting; the offeror was bound despite the letter's delayed arrival.
Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas (1966) Bhagwandas-v-Girdharilal-1966 Issue: Where is a contract concluded when acceptance is communicated by telephone across two cities. Rule: For instantaneous communication, the contract is complete where and when the acceptance is received by the offeror, not where it is spoken. Held: The Supreme Court applied the Entores principle to India, holding the contract was formed at the offeror's location, where the acceptance was heard.
Distinctions
| Basis | Postal Rule (Non-Instantaneous) | Instantaneous Communication |
|---|---|---|
| Modes covered | Ordinary post, telegram | Telephone, telex, email |
| Contract complete when | Acceptance is posted | Acceptance is received |
| Place of contract | Where letter is posted | Where acceptance is received |
| Risk of transmission failure | Borne by offeror | Borne by acceptor, since receipt is verifiable |
Flashcards
Q: Under S.4, when is communication of a proposal complete? A: When it comes to the knowledge of the person to whom it is made.
Q: When is communication of acceptance complete as against the proposer? A: When the acceptance is put into a course of transmission, out of the acceptor's power.
Q: When is communication of acceptance complete as against the acceptor? A: When it comes to the knowledge of the proposer.
Q: Does the postal rule apply to email or telephone? A: No, instantaneous communication is complete only upon receipt, not dispatch.
Q: What Indian case applied the instantaneous communication rule to a telephone contract? A: Bhagwandas Goverdhandas Kedia v Girdharilal Parshottamdas (1966).
Exam Scenario
A in Delhi posts a letter to B in Mumbai offering to sell machinery. B posts an acceptance letter on 10 August. On 11 August, before A receives the letter, B sends an email withdrawing the acceptance, which A reads the same day. A's original letter reaches him only on 15 August. Advise A on whether a binding contract exists.
Approach: Apply S.4's bifurcated rule: acceptance bound A the moment B posted the letter on 10 August, but B remained free to revoke until A actually knew of the acceptance. Since B's revocation email reached A's knowledge on 11 August, before A had any knowledge of the original acceptance (which arrived only 15 August), determine whether B's revocation was effective within the permitted window, and conclude on whether the contract stands.
See Also
- Acceptance Definition and Essentials : the essentials that must precede any question of communication timing.
- Revocation of Offer and Acceptance : the substantive rules on when revocation itself is permitted.