A proposal when accepted, results in an agreement. It is only after the acceptance of the proposal that a contract between the two parties can arise. According to Anson, "Acceptance is to offer what a lighted match is to a train of gunpowder". An offer creates no legal rights or duties unless it has been accepted. It is an acceptance which converts an offer into a contract.
According to section 2(b): When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.
According to Cheshire and Fifoot: An invitation to accept or even a mental resolve to accept a proposal does not give rise to a contract. There must be some overt or mental manifestation of the intent by speech, writing or other Act.
Felthouse v. Bindley, (1863) 7 LT 835: The plaintiff wrote a letter to his nephew offering to buy his horse for œ 30, 15s. He also wrote in his letter. "If I hear no more about him, I shall consider the horse mine at œ 30, 15s." The nephew did not give any reply of his letter. However, he told the defendant, an auctioneer, not to sell the horse. Thus, he intended to reserve the horse for his uncle. But the defendant sold the horse by mistake. The plaintiff, thereupon, sued the defendant, the auctioneer for conversion of property.
The court dismissed this plea and held that since the nephew did not communicate his acceptance. No contract took place between the plaintiff and his nephew and consequently he had no right to complain of the sale. The Court also held that the communication of acceptance must be made to offerer himself or his agent. The communication of acceptance to stranger will not be a valid acceptance.
Powell v. Lee, (1908) 90 LT 234: The plaintiff was an applicant for the headmastership of a school. The managers passed a resolution appointing him, but the decision was not communicated to him. One of the members, however, in his individual capacity informed him. The managers cancelled their resolution an the plaintiff sued for breach of contract.
The court rejected the action and observed that there must be notice of acceptance from the contracting party in some way. Information by an unauthorised person is an insufficient as overhearing from behind the door.
Bhagwandas v. Girdharilal and Co., MANU/SC/0065/1965 : AIR 1966 SC 543: The principle is that there should be some external manifestation (Court Act) of acceptance. A mere mental determination to accept unaccompanied by any external indication will not be sufficient. An agreement does not result from a mere state of mind: Intent to accept an offer or even a mental resolve to accept an offer does not give rise to a contract. There must be external manifestation of that intent by speech, writing or other act.
In order that the acceptance can be treated as valid it is necessary that the same must be communicated to the offeror either by the offeree or by some duly authorised person on his behalf. If the communication is made by an unauthorised person, it does not result in a contract.
Powell v. Lee, (1908) 99 LT 284: A communication of acceptance to be valid, must be either by the offeree himself or by his authorised agent. A communication of acceptance by any other person will not be valid. In this case court held that no contract was concluded because a communication of acceptance to be valid must be made by the offeree himself or his unauthorised agent.
Karan Singh v. The Collector, Chattarapur, MANU/MP/0016/1980 : AIR 1980 MP 89: In an auction of the quarry lease, the petitioner bids of Rs. 1800 was the highest. In accordance with the auction conditions the petitioner deposited the security and earnest money of Rs. 540. The bid was not accepted at the auction. The bid was subsequently accepted by the collector, but instead of sending the communication of acceptance to the petitioner, the same was wrongly sent to somebody else. The officer concerned realized the mistake after the expiry of the period of lease. Then a demand notice was sent to the petitioner asking him to pay the lease money. The petitioner, on the other hand, demanded the refund of the security of Rs. 540.
It was held that the petitioner's bid which was an offer although accepted on file, did not result in a contract as no intimation was sent to the petitioner and received by him. The demand notice for recovering the lease money was quashed and the respondent were directed to refund the security deposit.
It is well-settled that an offer may be accepted by conduct. But conduct would only amount to acceptance if it is clear that the offeree did the act with the intention actual or apparent of accepting the offer.
Brogden v. Metropolitian Railway Co., (1877) LR 2 App Cas 666: The respondents were being supplied coal and coke for their locomotives by the appellants for sometime without any formal agreement for the same. The respondents sent a draft agreement to the appellant leaving some blanks to be filed and signed by the appellant.
The court held that mere silence does not constitute acceptance but it may be implied from the conduct of the parties. In this case the fact that the respondents had placed order for supply of coal and accepted the same, constituted their acceptance and the fact that the appellant supplied the coal on the terms of the agreement clearly showed that the parties had entered into the contractual relationship on the basis of the agreement signed by the appellant. The appellant was, therefore, held liable.
Rakesh Kumar Dinesh Kumar v. U.G. Hotels & Resorts Ltd., AIR 2001 HP 135 (138): In a contract for supply of goods by plaintiffs to defendant, there was default by defendant in making payment. Subsequently, the defendant made on offer, in writing to a certain amount in full and final settlement of dues. The conduct of the parties showed that the plaintiff had impliedly accepted the offer and received part of amount. Thereafter the plea that the said offer in writing cannot be termed as fresh concluded contract for time-barred debt and as such suit for recovery was not within limitation would be untenable.
The acceptance of an offer/promise can be in express terms and can also be in implied terms.
Ramji Dayawala & Sons (P) Ltd. v. Import, Invest, MANU/SC/0502/1980 : AIR 1981 SC 2085: The Supreme Court of India has also observed that in the fact of a given case acceptance of a suggestion may be sub silento reinforced by the subsequent conduct. True it is the general rule is that an offer is not accepted by mere silence on the part of the offeree. There may, however, further facts, which taken together with offeree's silence constitutes an acceptance.
Bharat Petroleum Corporation Ltd. v. Great Eastern Shipping Co. Ltd., AIR 2008 SC 257: There was an agreement called the time charter party in legal parlance entered into between the appellant and the respondent on 6th may, 1997, for letting on hire vessels for a period of two years, on terms and conditions set-out in the said agreement. The charter party was extended for further period. However, there had been correspondence with regard to the finalization of the hire rates. No new agreement was signed between the parties, however, the appellant continued to use the vessel on hire with them. Under the time charter dated 6th May, 1997. It was held by the Apex Court that the conduct of the parties, as evidenced in the said correspondence and, in particular appellant's silence on respondent letters. Coupled with the fact that they continued to use the vessel, manifestly went to show that they accepted the stand of the respondent sub silento and thus contained to bind themselves by the terms and conditions contained in the Charter Party dated 6th May, 1997.
As soon as the communication of acceptance is complete, a contract comes into being, whereby both the parties become bound in case the parties to the contract are present at the same place, one making the offer and the other communicating the acceptance, both the parties become bound immediately. The problem arises when the parties are at different places and the communication of offer and acceptance is made by post or telephone etc.
According to section 4: The communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him so as to be out of the power of the acceptor, as against the acceptor, when it comers to the knowledge of the proposal.
Illustration
B accepts A's proposal by a letter sent by post.
The communication of the acceptance is complete,
as against A when the letter is posted,
as against B when the letter is received by B.
Adam v. Lindsell, (1818) 106 ER 250: On September 2, 1817, the defendants sent a letter offering to sell quantity of wool to the plaintiffs. The letter added "receiving your answer in course of post". The letter reached the plaintiffs on September 5 on that evening the plaintiffs wrote an answer agreeing to accept the wool. This was received by the defendants on September 9. The defendants waited for acceptance upto September 8 and not having received it, sold the wool to other parties on that date. They were sued for breach of contract.
It was contended on their behalf that till the plaintiff's answer was actually received there could be no binding contract and therefore they were free to sell the wool on 8th. According to court, the complete contract arises on the date when the letter of acceptance is posted in due course.
Household Fire and Accidental Insurance Co. v. Grant, (1879) Ex D 216: In this case, the defendants made an application for the allotment of shares in the plaintiff's company. The plaintiff posted a letter of acceptance in due lime but the defendant never received this letter. Yet it was held that the contract was complete when the letter of acceptance was posted and hence the defendant was bound by the acceptance.
The siger L.J. stated that an acceptance "which only remains in the breast of the acceptor without being actually and by legal implication communicated to the offeror, is no binding agreement." The acceptor, in posting the letter has put it out of his contract and done an extraneous act which clinches the matter, and shows beyond all doubt that each side is bound.
Dunlop v. Higgins, (1848) 1 HLC 381: Dunlop & Co. offered to sell 200 tons of iron pigs at 65 shilling per ton to Higgons & Co. through their letters dated 22nd and 28 January, 1945. Higgins & Co. received the letters an 30th Jan and replied the same day, indicating their acceptance to purchase the iron pigs in accordance with the offer. Due to frosty weather there was disruption in the train service and the letter of acceptance instead of reaching on 31st January reached Dunlop & Co. on 1st February Dunlop & Co. refused to supply iron pigs on the ground that the receipt of the letter of acceptance by them had been delayed. It was held that Develop & Co. had become bound by the contract as soon as the letter of acceptance was posted to them, i.e., on 30th January, 1945.
Bhagwandas v. Girdharilal & Co., MANU/SC/0065/1965 : AIR 1966 SC 543: This rule was based on commercial expediency or watch which also called the 'empirical grounds'. It makes a large inroad upon the concept of consensus 'a meeting of minds' which is the basis of foundation of formation or contract.
Kulkuram Kesharwari v. State of Madhya Pradesh, MANU/MP/0047/1986 : AIR 1986 MP 204: The Madhya Pradesh High Court observed that the general rule is that it is the acceptance of offer by the offeree and intimation of that acceptance to the offerer which result in a contract.
Progreesive Construction Ltd. v. Bharat Hydro Power Corp. Ltd., AIR 1996 Del 92: It has been held that when the parties enter into contract by correspondence by post, the contract would be deemed to be complete, where the offer was received and the acceptance was posted. The place of delivery of letter is irrelevant and, therefore, the cause of action does not arise where the contract of letter is delivered.
Entares Ltd. v. Mills Far East Corporation, (1955) 2 QB 327: The plaintiff made an offer from London by telex to the agents in Holland of the defendant of the purchase of certain goods, and the offer was accepted by a communication received on the plaintiff's telex machine in London. On the allegation that breach of contract was committed by the defendant corporation, the plaintiff sought leave to serve notice of a writ on the defendant corporation claiming damages for the breach of contract. The defendant corporation contended that the contract was made in Holland.
Court of Appeal held that where a contract is made by instantaneous communication for example by telephone the contract is complete only when the acceptance is received by offerer, since generally an acceptance must be notified to the offerer to make a binding contract.
Denning L.J.: That the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offerer, and the contract is made at the place where the acceptance is received.
In the case of telephone conversation, in a sense the parties are in the presence of each other: each party is able to hear the voice of the other. There is instantaneous communication of speech intimating offer and acceptance, rejection or counter-offer. Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph.
Quadricon Pvt Ltd. v. Bajrang Alloys Ltd., MANU/MH/1379/2007 : AIR 2008 Bom 88: The plaintiff has stated that the defendant accepted the purchase order by "its letter", indicating thereby that the documents had been sent by post. The plaintiff however pleaded that acceptance was communicated by the defendants by fax sent from Raipur to the plaintiff at Mumbai. The plaintiff having failed to prove the averment, the contract could not be said to have been concluded at Mumbai, the court held. If it was found that the letter of acceptance was communicated by fax, it would have led to the conclusion that the contract was completed and formed in Mumbai where the communication of the acceptance was received.
Sapna Ganglani v. R.S. Enterprises, AIR 2008 Kar 178: The Karnataka High Court has observed that whether a contract in respect of immovable property, entered into through e-mail was enforceable, was a mixed question of facts and law. The question the court said could be decided by the trial Court after full-fledged trial.
Section 7: Acceptance must be absolute.-In order to convert a proposal into a promise the acceptance must,-
(1) be absolute and unqualified,
(2) be expressed in some usual and reasonable manner, unless the proposal prescribe the manner in which it is to be accepted, if the proposal prescribe a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner and not otherwise, but if he fails to do so, he accepts the acceptance.
(1) Aceeptor should be communicated by the offeree to the offeror.
(2) Acceptance should be absolute and unqualified.
(3) Acceptance should be made in some usual and reasonable manner, unless the proposal prescribes the manner of acceptance.
(4) Acceptance should be made while the offer is still subsisting.
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. It means that the offeree must signify his assent, or communicate the acceptance. The communication of acceptance is deemed to be made by any act or omission of the party accepting, by which he intends to communicate such acceptance or which has the effect of communicating it.
For a valid contract, the acceptance must be communicated and moreover, such communication should be made to the offeror. If I decide to accept your offer but do not communicate my acceptance to you or after having decided to accept your offer I tell my servant about my intention, that cannot give rise to a contract.
Illustration.-A law book seller, without any order from A sent by post a costly law book to him with the note that if he did not return the book, he would presume that the same has been accepted by him. A was of course ready to return the book but the book-seller was not agreeable to accept the same inasmuch as a new edition of the book had been published during this period. Is A in any way liable to the book-seller?
The court observed that the offeror cannot impose upon the offeree an obligation to accept nor proclaim that silence of the offeree shall be deemed acceptance. Therefore, A was not bound to return the book nor to communicate his refusal to accept. Since there was no concluded contract between A and the law book-seller, A was not in anyway liable to book-seller.
Acceptance means an acceptance without any deviation of any kind in the proposal or without any conditions. In other words, unconditional acceptance without seeking any modification in the proposal is regarded as absolute and unqualified acceptance. If conditions are imposed while communicating acceptance or any variation or modification are sought in the proposal, then such an acceptance cannot be regarded as valid acceptance as the same as not absolute and unqualified.
If I offer to sell my radio to you for Rs. 500 and you convey that you are willing to pay only Rs. 400 for the same, there is no contract in this case. Your willingness to pay Rs. 400 is not acceptance to my offer, it is counter-offer by you.
Claridges Infotech Pvt. Ltd. v. Surendra Kapur, MANU/MH/0318/2008 : AIR 2009 Bom 1: By your counter-offer you are willing to purchase the radio for Rs 400 instead of Rs. 500. A contract can arise if I unconditionally accept your offer (counter-offer). By conditional acceptance or the counter-offer, the original offer is deemed to be rejected. Once the original offer is destroyed by counter-offer, it is a dead offer and cannot be accepted unless renewed.
Technocom v. Railway Board, AIR 2009 Pat 15: Where acceptance is subject to any condition to be fulfilled by the acceptor on the spot, the acceptance cannot be treated as valid as the same not being absolute and unqualified.
Hyde v. Wrench, (1840) 3 Beave 334: There an offer was made by A to B for the sale of a form for 1000 pounds. B rejected this offer and said that he will pay only œ 950 to which A did not agree. Thereupon, B said that he was willing to pay 1000 pounds to which also A did not agree. B sued A and contended that there was a contract by which A was bound. It was held that B had once rejected A's offer by his counter-offer to pay 950 Pounds and this made the original offer to lapse, and therefore, no contract had resulted in this case.
Union of India v. Uttam Singh Duggal and Co. (Pvt) Ltd., AIR 1972 Del 110: Thus offer and acceptance must be identical to each other. The Delhi High Court observed-"When there is variance between the offer and acceptance even in respect of any material term, acceptance cannot be said to be absolute and unqualified and the same will not result in the formation of a legal contract."
Suraj Besan & Rice Mills v. Food Corporation of India, AIR 1988 Del 224: A composite offer, the court said could not be accepted in part unless the party agreed to that course. It was not open to the defendant, the court ruled, to accept only part of the plaintiff's counter-proposal and unilaterally style it as an "unconditional" acceptance. The only course was to reject the plaintiff's conditional counter-proposal in its entirely.
Stevenson, Jaques & Co. v. Mclean, (1880) 5 QBD 346: The offeror made an offer to sell iron at 40 shilling net cash per ton. After receiving the offer the offeree sent a telegram to the offeror to know about the terms of delivery and payment. It was held that this enquiry did not mean the rejection of the original offer or a counter-offer and therefore the offeree could still accept the offer. It was observed that in this case it was a "mere enquiry, which should have been answered and not treated as a rejection of the offer.
Acceptance must be in some usual and reasonable manner or in the manner communicated by the proposer. It is not usual to accept a business offer by a plaint in a suit for specific performance, nor it is usual to communicate acceptance by serving a copy of the plaint through the medium of the court.
According to section 7(2), the acceptance must be expressed in some usual and reasonable manner unless the proposal prescribed the manner in which it is to be accepted. It means that if the manner of acceptance has been prescribed by the proposal, the acceptance has to be in that prescribed manner, otherwise the same may be made in some usual or reasonable manner For example, if an offer is made by post and no mode is prescribed, the acceptance may also be made by post. But if A in Lucknow sends a proposal to B in Calcutta and B send a man with letter of acceptance of walk down from Calcutta to Lucknow to communicate it to A, it will not be usual and reasonable.
Life Insurance Corporation of India v. R. Vasireddy, AIR 1984 SC 1014: In the contract of Life Insurance, the Supreme Court held that mere encashment of a cheque of the first insurance premium or mere delay in conveying the acceptance of the proposal did not mean its acceptance. In case the formal internal procedure of approval of the proposal by the Divisional Manager has yet to be gone through, the contract does not arise untill the same is done. Therefore, if the proposer died before the needful was done his widow could not claim the assured amount of Rs. 50,000.
Chairman-cum M.D. T.N. Tea Plantation Corporation Ltd. v. Sriniwasa Timbers, MANU/TN/0052/1999 : AIR 1999 Mad 111: The respondents had made the highest bid for the grant of a forest contract by the appellant to them. The bid was accepted subject to the condition that the respondent would deposit the prescribed amount and execute the agreement. The respondent failed to fulfil this condition and the appellant cancelled the contract and returned the earnest money deposited by the respondent tenderer. The tenderer accepted the refund of earnest money without protest. The respondent then challenged the decision of the appellant to cancel the contract.
It was held that the contract was subject to conditions which were not fulfilled, and, therefore, the cancellation of the contract was valid. A conditional acceptance does not result in a concluded contract unless the said condition gets fulfilled.
To be legally effective acceptance must be given within the specified time limit, and if no time is stipulated, acceptance must be given within a reasonable time because an offer cannot be kept open indefinitely.
Shree Jaya Mahal Co-operative Housing Society v. Zenith Chemical Works Pvt. Ltd., MANU/MH/0038/1991 : AIR 1991 Bom 211: Where M applied for certain shares in a company in June but the allotment was made in November and he refused to accept the allotted shares, it was held that the offeror M could refuse to take shares as the offer stood withdrawn and could not be accepted because the reasonable period during which the offer could be accepted had elapsed.
Illustration
A revokes his proposal by telegram.
The revocation is complete as against A when the telegram is dispatched.
It is complete as against B when B receives it.
B revokes his acceptance by telegram. B's revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him.
Illustration
A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwords.
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwords.
(1) by the communication of notice of revocation by the proposer to the other party,
(2) by the lapse of 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,
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance,
(4) 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.
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