Lapse of Offer

Lapse of Offer
14 September 2020

Lapse of Offer

The Indian Contract Act under section 2(h) defines the meaning of the term “contract”. As per the Section, a contract is an agreement enforceable by law. Therefore there are two essentials to be fulfilled for the formation of a binding contract. Firstly, there must be an agreement between two or more contracting parties and secondly, the agreement must have legal enforceability. The term “agreement” has been defined as every promise or every set of promises in exchange for each other which form a set of considerations for each other. Section 2(b) defines the term “promise” as a proposal or offer which is accepted by the offeree.

Every contract is an agreement but not every agreement is a contract. An agreement becomes a contract when the following conditions are fulfilled:

  1. There should be some consideration in exchange for both the offer and acceptance by the parties to the contract
  2. The parties entering into a contract must be competent to enter into it. The competency of parties to enter into parties has been discussed under Section 11 and Section 12
  3. The consent of the parties to the contract should be free and should not be vitiated by any of the vitiating factors mentioned under Section 19
  4. The object of entering into the contract should be lawful.

In contract law, a contract is entered into between two or more parties when one party makes an offer to another with a view to obtaining the approval of the other party to the offer and once the offer of the person is accepted a valid contract is entered. However, the parties to a contract are at the liberty of revoking both offer and acceptance at a later point of time. The rules and the procedure of revocation are laid down under Section 5 of the Contract Act. Revocation is a way of termination of the offer. There are three ways of termination of an offer, the three of them are mentioned below:

  1. Revocation
  2. Rejection
  3. Lapse of the offer

Notice of revocation: The Indian Contract Act, 1872 under section 5 provides that any proposal can be revoked by the offeree at any time before the communication of acceptance is complete as against the offeror and not afterward. The communication of acceptance is complete as against the offeror or the proposer when the acceptance is put in the course of transmission to him and it becomes out of the control of the acceptor. Thus, in case of communication of acceptance by electronic mail, the communication of revocation to have the effect must reach the offeree before he mails his acceptance thus making it out of his control. It is important that the revocation in order to be effective should be brought into the notice of the person to whom it is made.

Thus, it is a settled principle that the notice of revocation by the offeror should reach the offeree before he has put the acceptance into the course of transmission which shall then become out of his power. For example, ‘D’ by means of a letter proposes ‘E’ his house which was for sale. ‘E’ accepts the proposal by the means of acceptance sent through a post. In this case, ‘D’ can revoke his offer at any time before or at the time when ‘E’ posts his letter of acceptance.

Section 4 and 5 contain the provisions related to the communication of proposal, acceptance, and revocation. The Indian Contract Act under section 4 states the following with respect to the time when communication is complete:

  1. The communication of a proposal is complete when the same comes to the notice of the person to whom it is addressed to
  2. The communication of acceptance as against the proposer is complete when it is put in the course of transmission addressed to him
  3. The communication of acceptance as against the acceptor or the offeree is complete when the acceptance comes to the knowledge of the offeror or proposer
  4. The communication of revocation is complete as against the person who makes such revocation when it is out in the course of transmission to the person to whom it is addressed so as to be out of the power of the person making such revocation
  5. The communication of revocation is complete as against the person to whom it is made when such communication comes to his knowledge.

The Indian Contract Act under section 5 contains provisions in regard to the revocation of acceptance and proposals. The Section states that the revocation of the proposal can be made at any time before the communication of acceptance is complete as against the proposer but not afterward. While acceptance may be revoked anytime before the completion of communication of acceptance as against the acceptor but the same can not be done afterward.

Lapse of time: Where in a contract, a fixed time has been prescribed to the offeree to communicate the acceptance, the offeree is bound to accept the offer within the fixed time so prescribed because after the expiry of the fixed time the offer lapses. In a case where the offeree has to communicate his acceptance within a specified time and he posts his acceptance within the stipulated time period, a binding contract will be held to have taken place between the parties. The validity of the offer by the offeree would not be affected if the letter of acceptance so posted within the stipulated time reaches the offeror after the completion of the specified time.

In the contracts where no time is mentioned within which the offer should be accepted it is a settled principle that the offer must be accepted within a reasonable time.

Contracts which include precious materials like gold and other precious metals which are prone to high fluctuating price then in those cases a reasonable period would be a very short span of time. However, in contracts that involve land the reasonable time period will not be the same as the time period regarded reasonably in the contracts of the precious metals.

By failure to accept a condition precedent: Where the offer is subject to conditions precedent that is some preconditions have to be complied with before the acceptance is made. If the acceptance is made without fulfillment of the condition precedent then the offer lapses then and there.