When parties are not face-to-face (e.g., using post or email), when does a contract actually form? The Indian Contract Act, 1872 outlines specific rules under Sections 4 and 5.
1. Communication of Proposal (Section 4)
The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
2. Communication of Acceptance (The Unique Postal Rule)
Under Section 4, the rules for communication of acceptance are split to protect parties against postal delays:
- Against the Proposer (Offeror): Complete the moment the letter of acceptance is posted. The proposer is bound the second the letter leaves the acceptor's control.
- Against the Acceptor (Offeree): Complete only when the letter actually reaches the proposer. The acceptor is not bound until their letter is delivered.
3. Revocation of Offer and Acceptance (Section 5)
A party can withdraw their offer or acceptance, provided they do so within these strict timelines:
- When can an Offer be Revoked? At any time before the communication of its acceptance is complete as against the proposer (i.e., before the letter of acceptance is posted).
- When can an Acceptance be Revoked? At any time before the communication of the acceptance is complete as against the acceptor (i.e., before the letter actually reaches the proposer).
💡 Illustration:
A proposes by a letter sent by post to sell his house to B. B accepts by a letter sent by post.
A proposes by a letter sent by post to sell his house to B. B accepts by a letter sent by post.
- A can revoke his offer at any time before B posts his letter of acceptance.
- B can revoke his acceptance at any time before his letter reaches A. If B sends a telegram revoking his acceptance, and the telegram reaches A before or at the same time as the letter of acceptance, the acceptance is successfully revoked!