Indian Legal System > Civil Laws > Indian Contract Act, 1872 > Acceptance
In contract proposal and acceptance of proposal are important ingredient. In last few articles, we have discussed, proposal, types of proposal, revocation of proposal. In this article, we shall discuss another important ingredient of contract that is acceptance in details.
Section 2(h) of the Indian Contract Act , 1872, defines the term ‘Contract’ as “An agreement enforceable by law is a contract.” Section 2(e) of the Act defines the term “agreement’ as “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
The term ‘Proposal’ is defined under Section 2(a) of the Act as “When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”
Section 2(b) of the Act defines the term ‘Promise’ and and 2 (c) of the Act defines the terms ‘Promisor’ and ‘Promisee’. According to Section 2(b) of the Act, When a 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 Section 2(c) of the Act, the person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,
A contract comes into being from the acceptance of an offer. Section 2(b) of the Act defines acceptance as follows: “When the person to whom the offer is made signifies his assent thereto, the proposal is said to be accepted .” The acceptance of the offer must be absolute and unqualified i.e. it cannot be conditional. Sections 7 and 8 lay down criteria of valid acceptance.
Criteria of Valid Acceptance: Sections 7 and 8:
Section 7 lays down two essentials of a valid acceptance
Section 7 in The Indian Contract Act, 1872
Acceptance by performing conditions, or receiving consideration.—Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal. —Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.”
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 prescribes the manner in which it is to be accepted. If the proposal prescribes 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.
Section 8 in The Indian Contract Act, 1872.
Acceptance by performing conditions, or receiving consideration.—Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal. —Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.”
Essentials of Valid Acceptance:
Acceptance must be communicated:
Mere mental acceptance is no acceptance. It must be communicated to the offeror with a proper mode of communication. There is no requirement of its communication of the general offer. Similarly, for the offer to be acted upon, no communication to the offer is necessary. An acceptance can be communicated in any of the following modes by:
- Words Spoken
- Words Written
- Conduct
- Performance Of Conditions
- Acceptance Of Contribution
If the post is the correct method of acceptance, then acceptance takes place as soon as the letter is posted and not when it arrives. Provided the letter is properly stamped and addressed. Posted means put in control of post office, or one of its employees authorized to receive letters.
In Brogden V. Metropolitan Rly. Co. (1877) 2 App Cas 666 case The complainants, Brogden, were suppliers of coal to the defendant, Metropolitan Railway. They completed business dealings regarding the coal frequently for a number of years, on an informal basis. There was no written contract between the complainant and the defendant. However, the parties decided that it would be best for a formal contract to be written for their future business dealings. The Metropolitan Railway made a draft contract and sent this to Brogden to review. The complainant made some changes to this draft and filled in some blanks that were left. Brogden sent this amended document back to the defendant. Metropolitan Railway filed this document, but they never communicated their acceptance of this amended contract to the complainants. During this time, business deals continued and Brogden continued to supply coal to the Metropolitan Railway. When a dispute arose, the issue, in this case, was whether there was a contract between Brogden and the Metropolitan Railway and if the written agreement they had was valid. The Court held that there was a valid contract between suppliers, Brogden, and the Metropolitan Railway. The draft contract that was amended constituted a counter-offer, which was accepted by the conduct of the parties. The prices agreed in the draft contract were paid and coal was delivered. Although there had been no communication of acceptance, performing the contract without any objections was enough. It was the acceptance by the conduct.
In Carlill v Carbolic Smoke Ball Co. 1893 case the defendant company advertised that a reward would be given to any person who would suffer from influenza after using the medicine (Smoke balls) made by the company according to the printed directions. One lady, Mrs, Carlill (the plaintiff), purchased and used the medicine according to the printed directions of the company but suffered from influenza, She filed a suit to recover the reward. The defendant’s contention was that the plaintiff has not accepted the offer by communicated consent to the offer. The court held that there was a contract as she had accepted a general offer by using the medicine in the prescribed manner. Still, she suffered from influenza, hence she is liable for getting the reward from the company. Thus the general offer is not an invitation to offer.
In Tinn v. Hoffman & Co., (1873) 29 LT 271 case, the defendant wrote to the plaintiff offering to sell a certain quantity of iron at a certain price. On the same day without knowledge the plaintiff wrote to the defendant that he want to buy the same quantity of iron at the same price. The letters crossed in the Post. The plaintiff contended that there was a concluded contract. But the Court held that the defendant were not liable by the simultaneous offers, each made in ignorance of the other. Blackburn J. said “when contract is made between two parties, there is a promise by one in consideration of the promise made by the other, there are two assenting mind, the parties agreeing in opinion and one having promises in consideration of the promise made by the other- there is exchange of promise. But I do not think exchanging offers would , upon the principle, be at all the same thing….. The promise or offer made on each side in ignorance of the promise or offer made on the other side, neither of them can be construed as an acceptance of the other.”
In Entores Ltd v Miles Far East Corporation, [1955] 2 QB 327 case, the Plaintiffs (Entores) were an English Company and the Defendants (Miles Far East Co) were an American corporation with agents in various locations, including Amsterdam. An offer and acceptance in relation to a contract for Japanese cathodes was made between the companies in London and Amsterdam. Specifically:
- the Plaintiffs (in London) sent an offer by telex to the Defendants (in Amsterdam).
- the Defendants (in Amsterdam) sent an acceptance by telex to the Plaintiffs (in London)
The issue was when the contract entered into force, as this would determine whether Dutch or English law would apply to the contract. Specifically, the Court was required to determine whether the postal rule (providing that acceptance occurs when and where the letter is sent) applied to telex communications.
The court held that the contract and damages were to be decided by English law. It was stated that the postal rule did not apply for instantaneous communications. Since Telex was a form of instant messaging, the normal postal rule of acceptance would not apply and instead, acceptance would be when the message by Telex was received. Thus, the contract was created in London. This general principle on acceptance was held to apply to all forms of instantaneous communication methods. Acceptance via these forms of communication had to be clear before any contract is created.
It must be absolute and unqualified:
Section 7 of the Contract Act requires that the acceptance must be absolute and unqualified. It must correspond with all the terms of the offer. Conditional acceptance is no acceptance. If there is a variation in its terms, it is not an acceptance, then it constitutes a counter-offer, which the original proposer may or may not accept. A counter-offer destroys the original offer. Thereafter the offeree cannot rever to the original offer and purport to accept it.
Example: A offers to sell his car to B for Rs. two lakhs. B accepts the offer and promises to pay the price in five equal installments. In this case, there is a variation in the terms of the offer. Thus original offer is rejected and cease to exist. Actually, it is counter-offer by B.
In Trollope & Colls Ltd. v Atomic Power Constructions Ltd., [1962] 3 All ER 1035 case during atomic power station construction, parties negotiated for some time and agreed nearly everything, in order to get things moving, decided contract would start on the site and continued negotiating. They never reached agreement on outstanding points. The question for the Court was whether it is a contract. Court held that their agreement consisted of everything they had agreed on, what they had not agreed on, was blank and did not exist. Hence it is not a contract. This can cause problems if relied on, particularly if the ultimate agreement is not reached.
In Hyde v. Wrench, (1840) 49 ER 132 case, the defendant(offeror) offered to sell his farm for £1000 but the Plaintiff(offeree) offered him £950 and subsequently rejected the offer. So, the offeree filed the case as the offeror was bind by the contract but it was held that as soon as offeree put the condition the first offer becomes void which means that the offeror is not bounded by the contract as the original offer was rejected by the offeree.
In Jordan v. Norton, 150 E.R. 1382 case, Norton offered to buy Jordan’s mare if he guaranteed that the mare was ‘quite in harness.’ The Jordan wrote to the Norton that the mare was ‘quite in double harness.’ The Court held that it was not acceptance because condition of offer is changed.
In Sewak Ram And Ors. vs Municipal Board AIR 1937 All 328 case A and B agreed upon the terms of a contract of sale, and the writing concluded with the words “contract in due course”. The Court held that it is not concluded the contract.
The Acceptor must in indicate an intention to fulfill the promise.
Acceptance, in order to be valid, must be made under circumstances which would show that the acceptor is able and willing to fulfill the promise. If no such intent is present, the acceptance is not valid.
In Jones v Padavatton, [1968] EWCA Civ 4 case, Mrs. Violet Laglee Jones, the mother had asked her daughter, Mrs Padavatton to leave her job in the United States and come to the UK to study for the bar. The mother had further promised maintenance of 200 dollars per week. On this basis, the daughter in November 1962 came to the UK and started her education. The allowance agreed was insufficient for Mrs Padavatton. In 1964 the mother bought a house and varied the agreement by giving the daughter a part of the house to stay and a part to rent so as to cover her expenses and her maintenance. Mrs Padavatton failed to clear bar exam. In 1967 the parties had an argument and as a consequence, the mother brought an action for the possession of the house. The mother based her claim on the allegation that the agreement was not made with the intention of creating a legal relationship. The issues themselves primarily revolve around the validity of the contract and the intention to create a legally binding relationship. The Court held that there cannot be a legally valid contract if there was no intention to form one in the first place and there is a strong possibility that members of a family do not intend to get into legally binding agreements and the Court handed over possession of house to Mrs. Jones.
It must be in the mode prescribed:
The general rule says that the proposal must be accepted as per the manner prescribed by the offeror (according to its terms). If no mode is prescribed in which it can be accepted, then it must be in some usual and reasonable manner.
If the proposal lays down a mode of acceptance, then it must be according to the mode prescribed. If it is not given in the mode prescribed, the proposer may reject it and intimate the offeree within a reasonable time. But if he does not inform the offeree, he is deemed to have accepted it.
Example: If an offer is made to supply goods at certain consideration indicating that the acceptance is to be communicated by telegram. If the acceptance is sent by ordinary post then it is not an acceptance according to the mode prescribed and the offer will be deemed to be not accepted. The offeror need not inform the offeree that the acceptance is not according to the mode prescribed.
Silence cannot be prescribed as a mode of acceptance:
Mere silence is not an acceptance of the offer. The offeror can prescribe the mode of acceptance but not the mode of rejection. The offeror cannot frame his offer in such a way as to make the silence or inaction of the offeree to operate as acceptance.
Example: A offers to B to buy his house for Rs.5 lakhs and writes “If I hear no more about it within a week, I shall presume the house is mine for Rs.5 lakhs. “B does not respond. Here, no contract is concluded between A and B because there is no communication of acceptance.
In Felthouse V. Bindley [1862] EWHC CP J35 case, the complainant, Felthouse, had a conversation with his nephew, about buying his horse. After their discussion, Felthouse replied to a nephew by letter stating that if he didn’t hear any more from his nephew concerning the horse, he would consider acceptance of the offer done and he would own the horse. His nephew did not reply to this letter and was busy at auctions. The defendant, Mr. Bindley, ran the auctions and the nephew advised him not to sell the horse. However, by accident, he ended up selling the horse to someone else. Felthouse sued Mr. Bindley in the tort of conversion. The Court held that there was no contract for the horse between the complainant and his nephew. There had not been an acceptance of the offer; silence did not amount to acceptance and an obligation cannot be imposed by another. Any acceptance of an offer must be communicated clearly. Although the nephew had intended to sell the horse to the complainant and showed this interest, there was no contract of sale. Thus, the nephew’s failure to respond to the complainant did not amount to an acceptance of his offer.
It must be given within the time stipulated or within a reasonable time if time is not mentioned.
If the offer prescribes the time limit, it must be accepted within the specified time. If the offer does not prescribe the time limit, it must be accepted within a reasonable time. Further, acceptance must be given before the offer lapses or before it is withdrawn.
Example: A applied (offered) for shares in a company in early June. The allotment (Acceptance) was made in late November. A refused to take the shares. The Court held that A is entitled to do so as the reasonable time for acceptance had elapsed.
In Ramsgate Victoria Hotel v Montefiore, case, the defendant, Montefiore wanted to buy shares in the complainant’s hotel (Ramsgate Victoria Hotel). He communicated his offer to the complainant that he wanted to buy shares in the hotel at a certain price. After six months, the complainant accepted the offer. However, by this time, the value of shares had gone down and Mr. Montefiore was no longer interested in buying shares. The defendant did not formally revoke the offer, but he did not proceed with the sale. The Complainant brought an action against the defendant for specific performance of contract. The Court passed an order in favour of the defendant. The Court held the company’s claim for specific performance was not successful because the Company had sufficient time to accept the defendant’s offer. Six months was sufficient time to accept an offer. The company accepted the offer after six months so, it was no longer valid due to expiry / lapses of a reasonable period of time. The Court was of the view that an offer must be accepted within the prescribed time and if a time is not prescribed, then it must be accepted within a reasonable period of time.
In Dickinson v Dodds, case, on 10th June Dodds offered to sell house to Dickinson, stating: this offer to remain open until 9.00am on 12th June. Dickinson decided to accept on 11th June but did not advise Dodds immediately. Later on the 11th, Dickinson was informed by a third party that Dodds had sold to someone else. Dickinson then purported to accept the offer. Dodds replied that it was too late – the property had already been sold. The Court held that no particular form of revocation is required. All that is required is that the offeror in some way conveys (directly or indirectly) to the offeree that s/he had changed his or her mind about the offer. There was no question that this had occurred here – Dickinson knew Dodds was no longer prepared to sell before purporting to accept. The promise to keep the offer open was not binding because it was not supported by consideration.
There can be no acceptance before the communication of the offer.
Acceptance cannot precede an offer. A person who has no knowledge of an offer cannot be said to have accepted it merely because he happened to act just by chance in the manner prescribed by the offer.
In Lalman Shukla v. Gauri Datt (1913) All LJ 489 case A’s nephew has absconded from his home. He sent his servant to trace his missing
nephew. When the servant had left, A then announced that anybody who has discovered the missing boy would be given the reward of Rs.500. The servant discovered the missing boy without knowing the reward. When the servant came to know about the reward, he asked for the same from A. A refused to give the reward. The servant brought an action against A in the court of law to recover the same. But the court held that when the servant discovered the boy, he was not aware of the reward. Thus the offer was not communicated to him. Hence he is not liable to get the reward from A.
Acceptance and its communication must be made by the offeree or his authorized agent.
Acceptance and communication of acceptance must be made by the offeree or his authorized agent. If not done so it will not be a contract.
In Powell v. Lee (1908 24 TLR 606) case the plaintiff Powell applied for the post of a headmaster and his application was accepted by the School Board. Before the formal appointment, one of the Board members had informed Powell of the decision which was later rescinded by the Board. Powell sued the School for breach of contract. The court held that the acceptance was not communicated by someone authorized by the School Board and thus there was no valid contract.
Acceptance subject to the contract is no acceptance.
Acceptance of the proposal will mean acceptance of all the terms of the offer. When an offer is accepted by an offeree by “subject to contract” or subject to formal contract” or “subject to contract to be approved by solicitors,” the matter is known to be at the negotiation stage and it means the parties do not intend to be bound until a formal contract is made and signed by them. In such cases, acceptance will not create a binding contract until a formal contract is prepared and signed by all the parties
If the proposal is made through an agent, it is sufficient if the acceptance is communicated to him.
If A sends the offer to B by an agent C, and B give his acceptance to C, the acceptance is complete resulting in a valid contract. It is immaterial whether C communications the acceptance of B to his principal A or not.
Who can Give Acceptance?
When an offer is made to a particular person or to a group of persons, it can be accepted only by that person or member of the group. If it is accepted by any other persons, there is no valid acceptance.
Example: B sold his business to P without disclosing the fact to his customers. J, who had a running account with B, placed an order with B for the supply of certain goods. The new owner without disclosing the fact of himself having purchased the business executed the order. J refused to pay P for the goods because he, by entering into a contract with B intended to set off his debt against B. Held, the new owner of could not recover the price. “The rule of law is that if you promise to make a contract with A, then B cannot substitute himself for A without your consent and to your disadvantage, securing to himself all the benefits of the contract”.
In Powell v. Lee (1908 24 TLR 606) case the plaintiff Powell applied for the post of a headmaster and his application was accepted by the School Board. Before the formal appointment, one of the Board members had informed Powell of the decision which was later rescinded by the Board. Powell sued the School for breach of contract. The court held that the acceptance was not communicated by someone authorized by the School Board and thus there was no valid contract.
When an offer is made generally to the public at large, any person or persons who have the notice of the offer, may come forward and accept the offer. By doing what is required to be done under the offer, the offer is said to be as accepted and there will be a valid contract, (Carlill V. Carbolic Smoke Ball Co. 1893).
Notes:
- Agreement to agree in the future. If the parties have failed to agree upon the terms of the contract but have made an agreement to agree in the future, there is no contract,
- Example: An actress was engaged by a theatrical company for a certain period. One of the terms of the agreement was that if the party was, shown in London, she would be engaged at a salary to be mutually agreed upon. Held, there was no contract. (Luftus V. Roberts, (1902) 18 T.L.R. 532).
Conclusion:
The communication of an offer is complete when it comes to the knowledge of the person to whom the offer is made and the communication of an acceptance is complete when the acceptance is put in a course of transmission to the offeror. Therefore, Offer and acceptance is the essential elements of a contract and in either case, it should be done out of one’s free will and with an intention to enter into a legally binding agreement. Acceptance must be communicated and it should be absolute without any condition with intention to fulfill the promise.