Contract Act, Section 5

Contract Act, Section 5: Revocation of Proposals and Acceptances

Section 5 of the Indian Contract Act, 1872 governs the revocation of proposals and acceptances by prescribing the stage up to which each may be legally withdrawn before becoming binding.

It also provides that where a proposal is agreed to remain open for a specified period, it cannot be revoked during that period, thereby promoting certainty and confidence in contractual dealings.

1. Purpose of Section 5

The primary purpose of Section 5 is to specify when a proposal or acceptance may be legally withdrawn before a binding contract is concluded.

It balances the freedom to reconsider with the need for certainty by preventing revocation after contractual obligations have come into existence.

2. Meaning of Revocation

Revocation means the withdrawal or cancellation of a proposal or acceptance before it becomes legally irrevocable under the Contract Act.

However, the right of revocation must be exercised within the time prescribed by law, after which the proposal or acceptance becomes binding and cannot be withdrawn.

3. Revocation of a Proposal

Section 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer.

Once the acceptance has been properly dispatched in the manner recognized by law, the proposer loses the right to revoke the proposal and becomes bound by the contract.

4. Time Limit for Revoking a Proposal

The right to revoke a proposal exists only until the communication of acceptance becomes complete as against the proposer, that is, when the acceptance is dispatched beyond the acceptor's control.

After the acceptance is properly dispatched through an authorized mode of communication, the proposer cannot withdraw the offer, even if the acceptance has not yet reached him.

5. Revocation of an Acceptance

Section 5 permits an acceptor to revoke the acceptance at any time before the communication of acceptance becomes complete as against the acceptor.

Since acceptance is complete against the acceptor only when it comes to the knowledge of the proposer, it cannot be withdrawn after that stage.

6. Time Limit for Revoking an Acceptance

The law allows the acceptor to revoke the acceptance before it comes to the knowledge of the proposer, and if the revocation reaches first or at the same time, the acceptance is effectively withdrawn.

However, once the proposer becomes aware of the acceptance, the contract becomes binding on both parties and the right of revocation comes to an end.

7. Explanation Regarding Invitations to Proposal

An important explanation to Section 5 provides that where a proposal is made on the condition that it will remain open for a specified period, it cannot be revoked during that agreed time.

This gives legal recognition to commitments regarding the duration of an offer and prevents its premature withdrawal contrary to the agreed terms.

8. Importance of the Amendment

The explanation strengthens commercial certainty by ensuring that parties honour their commitment to keep an offer open for the agreed period.

It prevents withdrawal contrary to the agreed terms, thereby promoting contractual discipline, good faith, and confidence in commercial transactions.