Acceptance is the next step to the offer that marks the beginning of a contractual relationship. It has to be absolute, unqualified and as per usual and reasonable manner. The mode can be as prescribed in the offer or as per the general practice. It can be revoked but under terms of the law.
Introduction
A gift comes to your house; you see it and don’t like so send back. Your friend gets hurt for you did not accept the gift that was sent. Well, in the social world, we accept and reject on the basis of our choice. But, in the commercial world, the tendency to make a profit is the important factor to accept an offer that strikes by.
To strike a deal that favours one’s position is what is taught in negotiation courses. Since, an offer and acceptance would together lead to a promise that later leads to a binding contract, a lot of care is required before accepting an offer.
In the coming article, the concept of acceptance would be examined from different angles.
Meaning
Indian Contract Act, 1872 (hereinafter “The Act”), defines the concept of acceptance:-
-
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;
Hence, the signification of the assent of a party is very important. As soon as this assent gets attached to an offer, a promise emerges. The promise associated with consideration is an agreement. When that agreement becomes enforceable by law, it is a contract.[1]
OFFER -> ACCEPTANCE->PROMISE->CONSIDERATION->AGREEMENT->CONTRACT
The above-mentioned flow chart indicates the unilateral mechanism of formation of the contract. If the bogey of acceptance is put out, the entire train would derail. Thus all the legal requirements of an “Acceptance” need to be fulfilled for a contract to be born.
Authors describe it as the final and unqualified expression of assent to the terms of an offer.[2] The objective test of an agreement applies to an acceptance no less than to an offer.[3]
The communication of the acceptance is a must and that too for the original offer. If the offer is subsequently changed, the changed offer should be accepted. Unless that happens, the binding contract won’t arise.[4]
Nature
The nature of acceptance is like that of a “mirror image” of the offer. It has to be unqualified and unequivocal so that the offer is accepted wholly.[5] The statutory requirements are that of being absolute and unqualified. Also, it has to be expressed in some usual and unqualified form or as per the prescribed format.[6]
Thus, on a variance between the offer and the acceptance even in respect of any material term, acceptance cannot be said to be absolute and unqualified.[7] On the other hand, if the assent to the offer so provided is being delivered in clear and unequivocal terms, an additional of a collateral term would not affect the absoluteness of the contract.[8]
Performance of conditions of Proposal is considered as acceptance of the proposal under the law.[9] Reading this provision along with others enunciate three methods in which acceptance can be presented without the usage of words-
- Following the prescribed method in the offer
- Performance of the condition of the proposal
- Acceptance of any consideration offered by a reciprocal promise[10]
Test of Acceptance
The correspondence that occurs between the parties has to be considered fully. All the letters have to be taken into consideration since only two letters of offer and acceptance respectively won’t always be the reality.[11]
Tender
Tender is merely an invitation for the contractors and builders etc for making offers. The quotation that is so sent the latter constitutes to be an offer. And, the response for such quotations in affirmative would be an acceptance.[12]
Such acceptances when done by the governments or by ministers usually land in controversies. Once, a minister refused to accept the bid for tender for supply of drugs. The court held that no mala fide could be so associated with such an act. The reason given was the recommendation so provided by the Tender Advisory Committee.[13]
The acceptance also needs to be absolute. The same rule would work in the case of tender. The highest bidder at an auction sale of commercial plots got the acceptance but with the confirmation. Hence, the court held that the acceptance not being absolute, no contract could be said to arise even if the bid amount is realised.[14]
This leads to another very important area of acceptance, namely, can the acceptance be non- binding.
Non- Binding Acceptance
As is evidenced from above, if the acceptance is not absolute, no contract can be said to take place. If an acceptance is given with prerequisites to be fulfilled, the parties cannot be termed to be at ad- idem, hence, there can be no complete contract.[15]
Thus, if the acceptance is conditional, the offeror can always withdraw the offer at any time.[16] There is always a condition precedent which has to be thus followed to enter into a contractual relationship. Since no approval lies, no concluded contract arises.[17]
The terms of a contract, also cannot be left in the hands of a third party. In one of the cases, when the parties settled for the terms up to a certain point but left the rest for submission to a solicitor, the court considered that no concluded contract has taken place.[18]
If the terms are essential to a contract and are left at the hands of a third party, there cannot be said to create any contractual relationship.[19] Also, the acceptance has to be clear and in tune with what the offer was.
If the response to a tender would not be including information related to price, it is not considered permissible. It is also considered a violation of the Mines and Minerals (Regulation and Development) Act.[20]
No Acceptance
In case there is no acceptance, or if present but not communicated, then also the contract cannot be formed. To avoid speculation, it is suggested that the contract must be reduced to writing. Otherwise, the course of negotiations would become confusing to put a track upon.[21]
After all, a one-sided offer cannot bind any party. Until the acceptance is not there, no right is said to accrue, suppose, to the tenderer, regarding the contract covered by the tender.[22]
Communication
A concluded contract would arise if the proposal made by the offeror is accepted and the acceptance made by the offeree is put out of control of the offeree.[23] The communication of the acceptance is deemed to be made by any act or omission of the party of the contract.[24] The completion process is explained as follows-
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 comes to the knowledge of the proposer.
Since the provision mentions the wide nature of acts that can come within the ambit of the communication of acceptance, it can be either oral or written. Further, it can be bifurcated into fax, telegram, telephone and over the internet.
The requirement under the law is for the acceptance to get communicated in perceptible forms. Since only a resolve to have a contract is not enough, some external manifestation is required. It can be in terms of speech, writing or other act.[25]
Acceptance can be either through express or implied implication, but it is required for the offer.[26] The latter can happen in the case, suppose, a landlord serves notice upon the tenant of enhancement in the rent. If the tenant does not leave and protest and continue to occupy the premises, he can be made liable for enhancement.[27]
The mode of acceptance can be as indicated by the offeror. Some overt act would have to be done towards the offer and if done within the stipulations so provided by the offeror, it would be seamless.[28]
To ascertain the effective date when the option of acceptance is being exercised by the party, the law has provided clarity. It is calculated from the date the letter is being put into the course of transmission or the same is posted.[29]
If the other party, therefore, wants a clarification before making an acceptance, the same cannot be understood as an acceptance. It neither amounts to any sort of acceptance nor to a counter- offer.[30] The theoretical reason is that a request for information cannot destroy the offer.[31]
The communication can be through the agreed manner so decided between the parties prior to the agreement. For example, if there is a prior agreement that the forward transactions contract form if not returned unsigned, would amount to acceptance, the court has held that the subsequent transactions have to be read in line with the said condition.[32]
No Communication
The classic case of Felthouse v. Bindley[33] clarifies the importance of communication. When A wrote to B, “If I hear no more about him, I consider the horse is mine at £ 30 15s”. To this, B did not respond but when selling the horse, he did instruct his auctioneer to not sell his horse.
The auctioneer, unfortunately, sold the horse for which A sought action against. The court held that A did not have the right at the first place to impose a contract on B through the latter’s silence. Though B can be said to have accepted the offer of A in his mind, the same was not communicated.
Since the acceptance did not get communicated to A, no concluded contract could be said to have arisen. This shows that silence to a letter or any other sort of offer cannot constitute to be an acceptance by the offeree.[34] It also shows how a unilateral assent in one’s own mind would not constitute to be an acceptance.
An example is that of a bank passing a resolution to sell land to “A”. But this information was not communicated to A. Hence, no contract could be concluded and “A” could not get the land.[35]
On the other hand, when the offer of a contractor gets accepted by the Government through a telegram, it is said to constitute an acceptance.[36]
In one of the cases, a person entered into a contract for the sale of a house with the Society. The Secretary did not communicate the resolution of the Society whereby the offer was accepted. The court concluded that the contract cannot be said to be concluded to entitle that person for specific performance.[37]
Similarly, an applicant was being appointed as being promoted to the post of the headmaster by the managers of a school. But, this decision of the management was not being communicated to the respective applicant. Hence, no contract could so arise.[38]
Thus, if, suppose, an offer requires the acceptance to be sent at a particular place, if the same is sent at another place, it would not constitute to be a valid acceptance.[39] On the other hand, the offeror can waive off the stipulated mode by acquiescing into the mode of acceptance so followed by the offeree.[40]
Revocation
The offeree is given the right to his/ her acceptance at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.[41] To illustrate this point, the Act uses the following illustration-
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.
Another possible way can be when the acceptance is not given within the specified conditions so mentioned in the terms of the offer. If no such time limit is specified, then the reasonable time is taken as a benchmark.
The practical example is the case of a person who applied for shares. He applied in the month of June but the shares got allotted in the month of November. The court held that the person was not bound by such allotment since it was not within a reasonable time period.[42]
As a contract is a result of both minds meeting together, it is understood that for the modification or revocation of the contract, alike consensus should be required.[43]
Conclusion
A mutual agreement where the minds of the parties meet, transforms into a contract. For this coveted “meet” to take place, acceptance is the key.
As we learnt that acceptance has many forms, it can express and implied. Important is the communication to the other party so as to bring to life the binding aspect of the contractual relationship.
[1] Ma Pwa Kywe v. Maung Hmat Gyi, AIR 1939 Rang 86.
[2] 1 Chitty on Contract, 28th Edn., ¶2.023, p. 100.
[3] Binani Metals Ltd. v. Union of India, 2005 (1) RAJ 30 (Del) 237; Delhi Development Authority v. Bhasin Associates, 1999 (4) AD (Del) 237.
[4] G.H. Trietel, Law of Contract, 7th Edn., p. 16.
[5] Anson’s Law of Contract, 7th Edn., p. 38.
[6] § 7, Indian Contract Act, 1872.
[7] Union of India v. Uttam Singh Duggal & Co., AIR 1972 Del 110.
[8] Dhulipudi Namayya v. Union of India, AIR 1958 AP 533.
[9] § 8, Indian Contract Act, 1872.
[10]Gaddar Mal v. Tata Industrial Bank Ltd., AIR 1927 All 407,
[11] Halsbury’s Laws Of England, 4th Edn, ¶ 262, p. 140.
[12] Nameirakpam Pishak Singh v. Forest Officer, Manipur Forest Department, AIR 1962 Manipur 47.
[13] Nester Pharmaceuticals Pvt. Ltd. v. Union of India, AIR 1995 Del 260.
[14] Veera Property Development Pvt. Ltd. v. T.N. Slum Clearance Board, AIR 1999 Mad 304.
[15] Henry Earnest Meaney v. E.C. Eyer Walker, AIR 1947 All 332.
[16] T. Linga Gowder v. State of Madras, AIR 1971 Mad 28.
[17] Abdul Rahim Khan v. Union of India, AIR 1968 Pat 433 (DB); Rajanagaram Village Co-Operative Society v. P. Veerasamy Mudaly, AIR 1951 Mad 322.
[18] Winn v. Bull, (1877) 7 Ch D 29.
[19] Ranu Huzur Ara Begum v. Deputy Commissioner, Gonda, AIR 1941 Oudh 529.
[20] Gorakh Nand Yadav v. District Magistrate, AIR 1992 All 340 (DB).
[21] Thawardas Pheruma v. Union of India, AIR 1955 SC 468.
[22] C. Jayasree v. Commissioner, M.C.H., AIR 1994 AP 312.
[23] Vipin Mehra v. Star India Pvt. Ltd., 2003 (3) Arb LR 178 (Del).
[24] §3, Indian Contract Act, 1872.
[25] Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas, AIR 1966 SC 543.
[26] Sultan Sadik v. Sanjay Raj Subba, AIR 2004 SC 1377.
[27] Kashi Prasad v. Sajjadi Begum, AIR 1940 Oudh 287.
[28] Hindustan Co-Op Insurance Society Ltd. v. Shyam Sunder, AIR 1952 Cal 691 (DB).
[29] Pratap Chandra Koyal v. Kali Charan Acharjya, AIR 1952 Cal 32.
[30] U.P. State Electricity Board v. Goel Electric Stores, AIR 1977 Cal 494 (Cal).
[31] Cheshire and Fifoot’s Law of Contract, 9th Edn., p. 34.
[32] Gaddar Mal Hiralal v. CHandrabhan Agrawal & Co., AIR 1968 All 292.
[33] Felthouse v. Bindley, (1862) 11 CB (NS) 869.
[34] S.M. Bholat v. Yokohama Specie Bank Ltd., AIR 1941 Rang 270.
[35] Central Bank v. Yeotmal Vyankatesh, (1949) A. Nag. 286.
[36] Chiranji Lal Multani R.B. (Pvt.) Ltd. v. Union of India, AIR 1963 Punj 372.
[37] Subramania Mudaliar v. Ammapet Co-Op, Weavers Production and Sales Society Ltd., AIR 1961 Mad 289.
[38] Powell v. Lee, (1908) 99 LT 284.
[39] Frank v. Knight, (1937) OPD 113; Walker v. Glass, (1979) N.I. 129.
[40] Financings Ltd. v. Stimson, (1962) 1 WLR 1184.
[41] §5, Indian Contract Act, 1872.
[42] Ramsgate Victoria Hotel Co. v. Montefiore, 1866 L.R.Z. Ex. 109.
[43] Y.A.J. Noorbhai v. S.P.L.K.R. Karuppan Chetty, AIR 1925 PC 232.
I cleared all of my confusion. Very helpful