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CMA Foundation · Fundamentals of Business Laws and Business Communication · Essential Elements of a Contract, Offer and Acceptance

Gupta Textiles of Surat offers by post to sell 500 metres of silk to Rao Fabrics of Chennai. Rao Fabrics posts a letter of acceptance on Monday, and it reaches Gupta Textiles on Thursday. On Tuesday, Gupta Textiles sends a telegram revoking the offer, which reaches Rao Fabrics on Wednesday. Which statement is correct?

The revocation is invalid. As against the proposer, acceptance is complete when the letter is posted, which was Monday. A proposal can be revoked only up to that moment, so the Tuesday telegram came too late and a binding contract already exists.

  1. AThe revocation is valid because it was sent before the acceptance reached Gupta Textiles
  2. BThe revocation is valid because it reached Rao Fabrics before Rao Fabrics' acceptance reached Gupta Textiles
  3. CThe revocation is invalid because the proposal can be revoked only before acceptance is posted, and the acceptance was posted on MondayCorrect
  4. DThe revocation is invalid because a proposal cannot be revoked once it has been communicated

Explanation

Under Section 5, a proposal may be revoked only before communication of acceptance is complete as against the proposer. That happens when the acceptance is posted, here Monday. The Tuesday revocation came too late, so a contract already existed. Option B wrongly uses the date the acceptance reached the proposer.

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