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Introduction and Background of the Case
When it comes to contracts, time is of the essence. If a request or bid is not approved within a certain amount of time, it can be withdrawn. This time period could be defined in the resolution or in a corresponding agreement. However, the absence of a fixed time limit does not imply that the proposal or deal is available forever. The approval must be conveyed within a fair time frame in this situation. What constitutes a fair time, however, is a matter for the court to determine. The issue was entered for judgement at the London sittings after Hilary Term 1865, when the evidence was removed by consensus, and the parties decided that a separate case in all the acts should be made for the court’s decision.[1]
Section 6(2) of the Indian Contract Act, 1872[2], is the relevant provision of Indian law.
“Revocation how made – A proposal is revoked:
- by the communication of notice of revocation by the proposer to the other party;
- by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
- by the failure of the acceptor to fulfill a condition precedent to acceptance; or
- by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.”
A plan is found repealed under Section 6(2) of the Act if it has not been followed for a suitable period of time or if it has not been followed for a reasonable period of time. When someone says, “Let me know your approval by Thursday,” it is the designated time in the first instance. The plan would be deemed revoked if the approval is not conveyed before or on Thursday. In the above case, if the proposal does not provide a time limit for approval, it must be approved within a sufficient time to form a contract. That the proposal cannot be left open forever, this is the reason. A decision to leave a plan open forever would be unenforceable because it would be a promise made without any thought. As a result, an implicit term of a plan having no clear time frame is that if it is not approved within a suitable time frame, it would be considered rejected or declined.
What constitutes a fair timeframe in each case is determined by the evidence, situations, subject matter, and mode of communication concerned. As an example, a proposal/offer to sell a perishable product or an article with price volatility, or a proposal sent by telegram, will expire quickly. A suggestion can expire for a fair amount of time, even if the individual is reluctant to approve it due to circumstances outside his control.
Facts
On the 6th of June, 1864, the Ramsgate Victoria Hotel Company Ltd. was established. A one-pound deposit is required to purchase a share. was required on the submission, and a deposit of £4 was required on the allotment, according to the prospectus. In addition, the deposit was to be refunded in the event of non-allotment. Montefiore (the complainant in the case) applied for the shares on the 8th of June 1864, offering £ 50 and requesting 50 shares of the Ramsgate Victoria Hotel Company Ltd. He got an acknowledgment receipt from the bankers for the payment in question.
During the next six months, from June to November 1864, 17 meetings were held. A list of applicants up to that time was made and forwarded by the Secretary to the board at one of these meetings, which took place on the 17th of August, 1864. Later, the Secretary sent a similar list, which included the applicants’ names, the desired number of shares, and the number of shares assigned to them. The Montefiore’s name was written in each of these lists. However, between the time he submitted his application in June and the 23rd of November, he received no note or response about his application or eventual allotment.
He also had no correspondence or information from the Company’s representative, secretary, or even the Board of Directors. As a result, Montefiore wrote a letter to the Ramsgate Victoria Hotel Company Ltd. on November 8, 1864, withdrawing his application for allotment of shares and demanding the return of his deposit. In the same letter, he also said that he would not accept any shares if they were offered by the Company and that he would not sign the Company’s Articles of Association. The Company got the letter in a timely manner.
The Company’s board then passed a motion on November 23, 1864, allowing the first call for shares of £4 due on the allotment of shares. The very day, the Secretary’s Department directed Montefiore a letter informing him that his requested 50 shares had been allocated to him, and that he was required to pay the balance of the first call by December 15th, 1864.
Montefiore turned down the shares and refused to pay the full sum owed on the first call. The Company then filed a lawsuit against him in order to recoup the money owed from the initial call. Another scenario of identical evidence was thrown in with this one as well. The appellant, Ramsgate Victoria Hotel Company Ltd., has also requested that the defendant, Goldsmid, pay the balance owed on the first call in that case. Montefiore, like Goldsmid, had refused to pay the due fee. The distinction between the two cases was that, unlike Montefiore, Goldsmid had not submitted any correspondence withdrawing his submission.
Issue
The biggest problem in the case was the revocation of a bid after a fair period of time had passed. That is, should an offer be claimed to have been withdrawn after a fair amount of time has passed if no clear period for acceptance has been specified?
Contention
Plaintiff-
- The corporation has the right to reclaim the balance owed on the first call under the circumstances. The corporation and the defendants have reached an understanding that is legally binding. As a result, they are obligated to accept the allotted shares and pay the required price.
- Under the Companies Act of 1862, the Secretary’s lists and registers made and issued prior to the defendant’s notice of withdrawal have to be considered a valid registry of shares. As a result, the list compiled on November 23rd, 1864, cannot be overlooked.
- The shares were allocated within a fair time frame, and even if no allotment was made until November 23rd, 1864, the time frame had not expired.
- In the circumstances, the defendant had no right to disregard the contractual deal that he and the corporation had reached. As a result, the Company is not obligated to return the defendants’ deposits.
- In any case, Goldsmith must pay the sum due on the first call because he did not give notice or show any intention of withdrawing his request for share allotment.
Defendants
- There was no deal to take the shares, even even though there was, it was not enforceable because the order for allotment was removed well before the directors’ allotment or the notice of allotment issued by the defendant.
- There was no decision to take the share, even even though there was, it was not binding because the allotment was not made or the defendant was not notified in a fair time.
- Before the names of applicants were listed in any record meeting the contractual provisions of a company’s registry, the petitions were withdrawn.
- The accused cannot be deemed members of the Ramsgate Victoria Hotel Company Ltd for a variety of reasons. As a result, they are not bound by the company’s Articles of Association.
- The proposal for the allotment was made in light of the prospectus’s contents. In the event of non-allotment, the deposit money must be returned, according to the prospectus. As a consequence, the accused have a right to the money back. .
Judgment
The Court found that the Company’s claim to bind the defendants to pay the sum owed on the first call was insufficient in this case. Owing to the passage of time, the defendant’s proposal/offer was no longer legitimate.
There could be a time limit or a fair time limit after which the plan is repealed. Since no clear period was specified in this situation, the corporation should have expressed its approval within a fair amount of time. The plan lapsed when the corporation did not comply.
The lawsuit was won by the defendants. They were not obligated to spend any money and were entitled to a refund of their deposits.
Analysis
The case emphasises the importance of specifying the length of time that a plan is available for acceptance. A initiative will expire as time passes so it cannot be kept open forever.
There are two methods for revocation by lapse of time. Firstly, by the passage of a predetermined amount of time, and secondly, by the passage of a fair amount of time. In the first situation, a proposal can specify a deadline beyond which no approval will be valid. It will set a deadline after which the plan will not be considered. The time limit will not be used in the proposal itself, but rather in any subsequent stage of the contract.
In the second example, if no particular time is provided, the request is said to be rejected or declined after a sufficient amount of time has passed. What constitutes a fair period depends entirely on the situation, evidence, communication process, and essence of the subject in each case. As opposed to other items or methods, a proposal/offer of sale of a perishable item, a thing with violent price swings, or contact by telegram or fax, any of these things or methods expire after a short period of time.
Conclusion
The current litigation is one of the first to address the principle of withdrawal of a bid prior to the passage of a fair period. The case explains that an approval cannot be considered binding until it is conveyed within a reasonable period. This definition is extremely important, and it is now codified in Section 6 Clause 2 of the Indian Contract Act, 1872, as well as in UK contract law.
However, the case did not define what constitutes a fair amount of time. Even after more than 150 years, the solution to this issue remains ambiguous, since it is entirely dependent on the specifics and circumstances of each situation. As well as the court’s discretion.
References:
[1] Ramsgate Victoria Hotel Company Ltd. v. Montefiore, (1866) LR 1 Ex 109.
[2] Indian Contract Act, 1872, s. 6.
