Nature of Contracts (Part - 5) CA Foundation Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA Foundation : Nature of Contracts (Part - 5) CA Foundation Notes | EduRev

The document Nature of Contracts (Part - 5) CA Foundation Notes | EduRev is a part of the CA Foundation Course Business Laws for CA Foundation.
All you need of CA Foundation at this link: CA Foundation

COMMUNICATION OF OFFER AND ACCEPTANCE:

The importance of ‘offer’ and ‘acceptance’ in giving effect to a valid contract was explained in the previous paragraphs. One important common requirement for both ‘offer’ and ‘acceptance’ is their effective communication. Effective and proper communication prevents avoidable revocation and misunderstanding between parties.
When the contracting parties are face-to-face, there is no problem of communication because there  is instantaneous communication of offer and acceptance. In such a case the question of revocation does not arise since the offer and its acceptance are made instantly.
The difficulty arises when the contracting parties are at a distance from one another and they  utilise the services of the post office or telephone or email (internet). In such cases, it is very much relevant for us to  know the exact time when the offer or acceptance is made or complete.

The Indian Contract Act,1872 gives a lot of importance to “time” element in deciding when the offer and acceptance is complete.

Communication of offer: In terms of Section 4 of the Act, “the communication of offer is complete when it comes to the knowledge of the person to whom it is made”. This can be explained by an example. Where ‘A’ makes a proposal to ‘B’ by post to sell his house for Rs. 5 lakhs and if the letter containing the offer is posted on 10th March and if that letter reaches ‘B’ on 12th March the offer is said to have been communicated on 12th March when B received the letter. Thus it can be summed up that when a proposal is made by post, its communication will be complete when the letter containing the proposal reaches the person to whom it is made. Mere receiving of the letter is not sufficient, he must receive or read the message contained in the letter. He receives the letter on 12th March, but he reads it on 15th of March. In this case offer is communicated on 15th of March, and not 12th of March.

Communication of acceptance: There are two issues for discussion and understanding. They are: The modes of acceptance and when is acceptance complete?

Let us, first consider the modes of acceptance. Section 3 of the Act prescribes in general terms two modes of communication namely,
(a) by any act and
(b) by omission, intending thereby,
to communicate to the other or which has the effect of communicating it to the other.

Communication by act would include any expression of words whether written or oral. Written words will include letters, telegrams, faxes, emails and even advertisements. Oral words will include telephone messages. Again communication would include any conduct intended to communicate like positive acts or signs so that the other person understands what the person ‘acting ‘ or ‘making signs’ means to say or convey.

Communication of acceptance by ‘omission’ to do something. Such omission is conveyed by a conduct or by forbearance on the part of one person to convey his willingness or assent. However silence would not be treated as communication by ‘omission’.

Communication of acceptance by conduct. For instance, delivery of goods at a price by a seller to a willing buyer will be understood as a communication by conduct to convey acceptance. Similarly one need not explain why one boards a public bus or drop a coin in a weighing machine. The first act is a conduct of acceptance and its communication to the offer by the public transport authority to carry any passenger. The second act is again a conduct conveying acceptance to use the weighing machine kept by the vending company as an offer to render that service for a consideration.

The other issue in communication of acceptance is about the effect of act or omission or conduct. These indirect efforts must result in effectively communicating its acceptance or non acceptance. If it has no such effect, there is no communication regardless of which the acceptor thinks about the offer within himself. Thus a mere mental unilateral assent in one’s own mind would not amount to communication. Where a resolution passed by a bank to sell land to ‘A’ remained uncommunicated to ‘A’, it was held that there was no communication and hence no contract. [Central Bank YeotmalvsVyankatesh (1949) A. Nag. 286].

Let us now come to the issue of when communication of acceptance is complete. In terms of Section 4 of the Act, it is complete,
(i) As against the proposer, when it is put in the course of transmission to him so as to be out of the power of the acceptor to withdraw the same;
(ii) As against the acceptor, when it comes to the knowledge of the proposer.

Where a proposal is accepted by a letter sent by the post, the communication of acceptance will be complete as against the proposer when the letter of acceptance is posted and as against the acceptor when the letter reaches the proposer.
For instance in the above example, if ‘B’ accepts, A’s proposal and sends his acceptance by post on 14th, the communication of acceptance as against ‘A’ is complete on 14th, when the letter is posted. As against ‘B’ acceptance will be complete, when the letter reaches ‘A’. Here ‘A’ the proposer will be bound by B’s acceptance, even if the letter of acceptance is delayed in post or lost in transit. The golden rule is proposer becomes bound by the contract, the moment acceptor has posted the letter of acceptance. But it is necessary that the letter is correctly addressed, adequately stamped and duly posted. In such an event the loss of letter in transit, wrong delivery, non delivery etc., will not affect the validity of the contract. However, from the view point of acceptor, he will be bound by his acceptance only when the letter of acceptance has reached the proposer. So it is crucial in this case that the letter reaches the proposer. If there is no delivery of the letter, the acceptance could be treated as having been completed from the viewpoint of proposer but not from the viewpoint of acceptor. Of course this will give rise to an awkward situation of only one party to the contract, being treated as bound by the contract though no one would be sure as to where the letter of acceptance had gone.

Acceptance over telephone or telex or fax: When an offer is made of instantaneous communication like telex, telephone, fax or through e-mail, the contract is only complete when the acceptance is received by the offeree, and the contract is made at the place where the acceptance is received (Entores Ltd. v. Miles Far East Corporation). However, in case of a call drops and disturbances in the line, there may not be a valid contract.

Communication of special conditions: Sometimes there are situations where there are contracts with special conditions. These special conditions are conveyed tacitly and the acceptance of these conditions are also conveyed by the offeree again tacitly or without him even realizing it.

For instance where a passenger undertakes a travel, the conditions of travel are printed at the back of the tickets, sometimes these special conditions are brought to the notice of the passenger, sometimes not. In any event, the passenger is treated as having accepted the special condition the moment he bought his ticket.

When someone travels from one place to another by air, it could be seen that special conditions are printed at the back of the air ticket in small letters [in a non computerized train ticket even these are not printed] Sometimes these conditions are found to have been displayed at the notice board of the Air lines office, which passengers may not have cared to read. The question here is whether these conditions can be considered to have been communicated to the passengers of the Airlines and can the passengers be treated as having accepted the conditions. The answer to the question is in the affirmative and was so held in Mukul Datta vs. Indian Airlines [1962] AIR cal. 314 where the plaintiff had travelled from Delhi to Kolkata by air and the ticket bore conditions in fine print.

Yet another example is where a launderer gives his customer a receipt for clothes received for washing. The receipt carries special conditions and are to be treated as having been duly communicated to the customer and therein a tacit acceptance of these conditions is implied by the customer’s acceptance of the receipt [Lily White vs. R. Mannuswamy [1966] A. Mad. 13].

Case Law: Lilly White vs. Mannuswamy (1970)
Facts: P delivered some clothes to drycleaner for which she received a laundry receipt containing a condition that in case of loss, customer would be entitled to claim 15% of the market price of value of the article, P lost her new saree. Held, the terms were unreasonable and P was entitled to recover full value of the saree from the drycleaner.

In the cases referred above, the respective documents have been accepted without a protest and hence amounted to tacit acceptance.

Standard forms of contracts: It is well established that a standard form of contract may be enforced on another who is subjectively unaware of the contents of the document, provided the party wanting to enforce the contract has given notice which, in the circumstances of a case, is sufficiently reasonable. But the acceptor will not incur any contractual obligation, if the document is so printed and delivered to him in such a state that it does not give reasonable notice on its face that it contains certain special conditions. In this connection, let us consider a converse situation. A transport carrier accepted the goods for transport without any conditions. Subsequently, he issued a circular to the owners of goods limiting his liability for the goods. In such a case, since the special conditions were not communicated prior to the date of contract for transport, these were not binding on the owners of goods [Raipur transport Co. vs. Ghanshyam [1956] A. Nag.145].

COMMUNICATION OF PERFORMANCE:

We have already discussed that in terms of Section 4 of the Act, communication of a proposal is complete when it comes to the knowledge of the person to whom it is meant. As regards acceptance of the proposal, the same would be viewed from two angles.  These are: (i) from the viewpoint of proposer and
(ii) the other from the viewpoint of acceptor himself:

From the viewpoint of proposer, when the acceptance is put in to a course of transmission, when it would be out of the power of acceptor. From the viewpoint of acceptor, it would be complete when it comes to the knowledge of the proposer.

At times the offeree may be required to communicate the performance (or act) by way of acceptance.  In this case it is not enough if the offeree merely performs the act but he should also communicate his performance unless the offer includes a term that a mere performance will constitute acceptance.  The position was clearly explained in the famous case of Carlill Vs Carbolic & Smokeball Co. In this case the defendant a sole proprietary concern manufacturing  a medicine which was a carbolic  ball whose smoke could be inhaled through the nose to cure influenza, cold and other connected ailments issued an advertisement for sale of this medicine.  The advertisement also included a reward of $100 to any person who contracted influenza, after using the medicine (which was described as ‘carbolic smoke ball’). Mrs. Carlill bought these smoke balls and used them as directed but contracted influenza. It was held that Mrs. Carlill was entitled to a reward of $100 as she had performed the condition for acceptance. Further as the advertisement did not require any communication of compliance of the condition, it was not necessary to communicate the same. The court thus in the process laid down the following three important principles:
(i) an offer, to be capable of acceptance, must contain a definite promise by the offeror that he would  be bound provided the terms specified by him are accepted;
(ii) an offer may be made either to a particular person or to the public at large, and
(iii) if an offer is made in the form of a promise in return for an act, the performance of that act, even without any communication thereof, is to be treated as an acceptance of the offer.

Offer running on EduRev: Apply code STAYHOME200 to get INR 200 off on our premium plan EduRev Infinity!

Complete Syllabus of CA Foundation

Dynamic Test

Content Category

Related Searches

Nature of Contracts (Part - 5) CA Foundation Notes | EduRev

,

Previous Year Questions with Solutions

,

mock tests for examination

,

Sample Paper

,

Semester Notes

,

Summary

,

video lectures

,

MCQs

,

ppt

,

Viva Questions

,

past year papers

,

study material

,

Nature of Contracts (Part - 5) CA Foundation Notes | EduRev

,

Exam

,

Nature of Contracts (Part - 5) CA Foundation Notes | EduRev

,

Important questions

,

shortcuts and tricks

,

practice quizzes

,

pdf

,

Objective type Questions

,

Free

,

Extra Questions

;