Tarun offers to sell bicycle for Rs. 50,000, offer open till March 20. On March 18 at 3:50 pm Satish posts acceptance (reaches 8:30 pm). At 1:10 pm Tarun posted revocation (reaches 5:30 pm). Is there a binding contract?

The short answer is this: a binding contract has been concluded. Satish's acceptance by post was complete as against Tarun at the moment it was posted, i.e., at 3:50 p.m. on March 18. Tarun's revocation, though posted earlier at 1:10 p.m., did not reach Satish until 5:30 p.m. — well after the acceptance had already been posted. The revocation was therefore too late to be effective.

The Governing Law: Sections 4 and 5

Section 4 of the Indian Contract Act is the foundational provision on the completion of communication. It draws a crucial distinction — one that many students overlook — between the point at which communication of acceptance binds the proposer and the point at which it binds the acceptor.

As against the proposer, the communication of acceptance is complete when the letter is put in a course of transmission, so as to be out of the power of the acceptor. As against the acceptor, it is complete only when the letter reaches the proposer. This dual rule carries enormous practical consequences. The moment Satish dropped his acceptance into the post at 3:50 p.m. on March 18, the acceptance became complete as against Tarun. From that instant, Tarun was bound.

Section 5 then provides the rule on revocation: a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer — but not afterwards. That critical moment, as we have seen, was 3:50 p.m. when Satish posted the letter. Tarun's revocation, though posted at 1:10 p.m., only reached Satish at 5:30 p.m. — a full hour and forty minutes after the acceptance had already been posted.

The Controlling Authority: Henthorn v. Fraser (1892)

The facts of the problem before us are, with minor variation, precisely those of the English decision in Henthorn v. Fraser [(1892) 2 Ch 27]. In that case, the secretary of a building society handed the plaintiff an offer to sell certain property for £750, giving him fourteen days to accept. The plaintiff took the offer to another town where he resided. The next day, at about 3:50 p.m., he posted his letter of acceptance. Before that letter arrived, the society had posted a revocation at about 1:00 p.m. The revocation was received by the plaintiff at 5:30 p.m. — after he had already posted his acceptance. The Court of Appeal held that the revocation was ineffective and a binding contract had been formed at the moment of posting the acceptance.

Lord Herschell's reasoning is instructive: where it is within the reasonable contemplation of the parties that the post might be used as a means of communication, the acceptance is complete from the time of posting, regardless of when it is received. The revocation of an offer, on the other hand, takes effect only when it actually reaches the offeree. A revocation dispatched before acceptance is posted, but received after the posting, is simply too late.

Applying the Timeline

The critical point is that although the revocation was dispatched at 1:10 p.m. — earlier than the acceptance — this is irrelevant. What matters is when the revocation reached Satish. Under Section 4, the communication of a revocation is complete, as against the person to whom it is made, only when it comes to his knowledge. Satish came to know of the revocation only at 5:30 p.m., by which time his own acceptance had already been posted at 3:50 p.m. The contract was concluded at 3:50 p.m. itself. A revocation that arrives after the acceptance is posted cannot unravel what the law has already completed.

The Policy Rationale

There is a deep policy logic at work here. The postal rule — adopted in India through Section 4 — favours the offeree and is justified on the ground that the offeror can always protect himself by stipulating in his offer that acceptance must actually reach him before it shall be binding. Having made no such stipulation, Tarun took the risk that acceptance could be posted at any time before his revocation reached Satish. The offeror also bears the risk of an acceptance being lost or delayed in transit, and correspondingly cannot shelter behind his revocation if it arrives even one moment after the acceptance has been posted.

Therefore a binding contract exists between Tarun and Satish for the sale of the bicycle at Rs. 50,000. Tarun cannot escape it on the ground that he posted the revocation earlier. His revocation simply arrived too late in the eyes of the law.