This article is written by Shivangi Tiwari, a 2nd-year student pursuing B.A.LL.B. from Hidayatullah National Law University, Raipur. This is an exhaustive article dealing with the concept of ‘acceptance’ under the law of Contracts.
Table of Contents
Section 2(h) of the Indian Contract Act, 1872, defines the term contract. According to the Section, a contract is an agreement enforceable by law. Therefore, according to the Section, there are two essentials for the formation of a contract.
- Firstly, there should be an agreement to do or abstain from doing an act; and
- Secondly, the agreement should be enforceable by law.
Therefore, the law of contracts is that branch of law which decides the circumstances in which the promise made by a person shall be legally binding on the person who makes the promise. While all the contracts are agreements but not all agreements are contracts. An agreement, in order to turn into a contract, should have its legal enforceability. The agreements which are not legally enforceable are not contracts but are mere void agreements which are not enforceable by law or are voidable at the option of one party.
Section 2(b) of the Indian Contract Act talks about the acceptance of an offer. According to the Section, the person to whom an offer is made to do or abstain from doing an act with a view to obtain the assent of such a person, if gives his assent thereto, is said to have accepted the offer. This article talks about acceptance, which is one of the essentials of a valid contract according to the Indian Contract Act, 1872.
Essentials of a valid contract
Section 10 of the Indian Contract Act enlists the conditions which are essential for a valid contract. The essential conditions for a valid contract are as follows:
- Offer: Section 2(a) of the Indian Contract Act defines the meaning of the term offer or proposal. According to the Section an offer or proposal is said to be made by a person who signifies to the other person his willingness to do or abstain from doing an act with a view to obtain the assent of the other person;
- Acceptance: Section 2(b) of the Indian Contract Act talks about “acceptance”. According to the Section, when the person to whom an offer is made gives his assent thereto is said to have accepted the offer;
- Consent: Section 13 of the Indian Contract Act defines the term consensus, as the agreement of the parties to the contract upon the same thing in the same sense. For the formation of a valid contract, it is essential that they should have “consensus ad idem” i.e. they should agree to the same thing in the same sense;
- Capacity to contract: Section 11 lays down the criteria for competency to contract. To enter into a valid contract, the parties entering into a contract should have the capacity to enter into a contract;
- Lawful consideration: Consideration essentially means ‘quid pro quo’ which means something done in the return of the other. It is the compensation for the act or omission committed by a person for the fulfilment of the terms of the contract;
- The agreement should not be expressly declared void: The agreement which is entered into by the parties should not be expressly declared as void or illegal by any law in force.
Mode of acceptance
The term “Acceptance” has been defined under Section 2(b) of the Indian Contract Act,1872. According to the Section, an offer or proposal is said to have accepted when the person to whom the proposal or offer to do or not to do an act is made if gives his assent to such an act or omission. Therefore, acceptance of the contract is said to have taken place when the person to whom the offer is made gives his assent or consent to the terms of the contract. Under the Indian Contract Act, acceptance can be by following two ways:
- Implied acceptance: Acceptance which is not explicitly made by means of speech or writing but, by the conduct of the person to whom an offer is made. The striking of hammer thrice by the auctioneer in order to show his acceptance to the offer made by a bidder is an example of implied acceptance to the offer made by the bidder at an auction to the auctioneer;
- Express acceptance: Acceptance which is made by means of words, oral or written is known as an express acceptance. For example, A offers B his watch for sale through a mail and A replies in positive to the offer by email.
Acceptance: absolute and unqualified
Acceptance to be legally enforceable must be absolute and unqualified. Section 7(1) of the Indian Contract Act provides that in order to turn an offer into an agreement the acceptance to the offer must be absolute and unqualified. The logic behind the principle that the acceptance to the offer must be absolute and unqualified is that when acceptance is not absolute and is qualified it results into a counter offer which leads to the rejection of the original offer made by the offeror to the offeree. If the offeree makes any variations in the original terms of the contract proposed to him and then accepts the contract, such an acceptance would result in the invalidity of the contract.
For example, if A offers to sell his bike to B for Rupees 10,000. But B persuades A to sell him the bike for 7,000 rupees to which A denies and if B at any later point of time agrees to buy the bike for 10,000 rupees. Then A is under no obligations to sell him the bike as the counteroffer made by B puts an end to the original offer.
It is also important that the acceptance made by the offeree should be in toto, i.e. acceptance should be given to all the terms and conditions of the offer as acceptance of only a part of the offer is not a good acceptance under the law. For example, A makes an offer to B of sale of 30 kg of wheat at Rupees 700 but B agrees to buy only 10 kg of wheat. Here the acceptance made by B is not in toto with respect to the terms of the contract and therefore, the acceptance made by B is no acceptance in the eyes of law and therefore, A is under no obligation to sell him wheat since there is no contract between them.
Section 2(a) of the Indian Contract Act defines the meaning of a proposal. According to the Section, a proposal is signifying of the willingness by a person to another person to do or abstain from doing an act with the view of obtaining the assent of another person to such an act or omission. The person who signifies his willingness to obtain the assent of the other person is said to be an “offeror” and the person to whom the offer is made is called “offeree”.
Counteroffer or proposal arises when the person to whom an offer is made instead of accepting it straightway imposes any condition which results in modification or alteration of the original terms of the contract. The person who makes such alterations or modifications is said to have made a counteroffer. Counteroffer results in a rejection of the original offer and as a result, the person who makes the original offer shall no longer remain bound by the terms of the contract.
It is a settled principle of law of contract that the offer which is put before the offeree should be accepted by him in entirety and he can not accept the offer partially by agreeing only to the terms of the contract which are favourable to him while rejecting the rest of the conditions under the offer as an incomplete acceptance of the offer would result into counter-proposal and therefore, it will not bind the offeror as there is no binding contract between him and the offeree.
In Ramanbhai M. Nilkanth vs Ghashiram Ladliprasad, an application was made in a company for certain shares was made on the condition that the applicant would be appointed as a cashier in the new branch of the company. The company without fulfilling the condition made an allocation of the shares to the applicant and demanded the share money from him. The court, in this case, held that the petitioner’s application for 100 shares was conditional and there was no intention on the part of the company to accept the terms of the contract in entirety where he applied for shares until he was appointed as a cashier by the company and therefore, there was only a partial acceptance of the offer.
Inquiry into terms of proposals
The “Mirror image” rule is the traditional contract law rule under common law. According to the Rule, the acceptance must be a mirror image of the offer. Attempts made by the offeree to change or alter the original terms of the offer are treated as counteroffers as they impliedly indicate the offeree not to be bound by the contract which is put before him. However, in recent times the attitude of the judiciary towards the application of the Rule has turned out to be more liberal by holding that only those variations which directly hit the material terms of the contract are to be regarded as counteroffer which is a result of the purported acceptance.
Even under the Mirror image rule, no rejection of the offer is considered to have taken place if the offeree merely inquires the terms of the contract without showing any intention of rejecting the offer. Practically, differentiating between a counteroffer and making an enquiry as to the terms of the contract. However, the fundamental issue which has to be considered while making the differentiation is whether the offeree objectively indicates his intention of not to abide by the terms of the contract.
Acceptance with subsequent condition
In the law of contract, the term “condition” is used in a loose sense and it is used synonymously as “terms”, ‘’condition” or ”clause”. In its proper sense, the term condition means some operative term subsequent to acceptance and prior to acceptance, it is a fact on which the rights and duties of the parties to the contract depend on. The fact can be any act or omission by any of the contracting parties, an act of the third party or happening or not happening of any natural event. Conditions are of three types, which are as follows:
- Express condition: In an express condition, certain facts can operate as condition as it has been expressly agreed upon by the parties to the contract;
- Implied condition: When certain facts which operate as a condition are not expressly mentioned by the parties but can be inferred by the conduct of the parties to contract is known as an implied condition;
- Constructive condition: When the court believes that the parties to a contract must have intended to operate certain conditions because the court believes that the Justice requires the presence of the condition. These conditions are known as constructive conditions.
A contract comes into force by the acts or conduct of one party to the other party. The acts or conduct of the party can be turned into a promise only by meeting of mind or an agreement between both the parties. An acceptance that carries a subsequent condition may not have the effect of counter-proposal. Thus, where a person ‘A’ accepted the terms of the contract for the sale of a good by accompanying the acceptance with the warning that if money was not delivered to him by a particular date then, the contract will remain repudiated. The acceptance of the offer would not be deemed to be a counter-proposal.
Acceptance of counter proposals
In certain cases, the person whose proposal or offer has not been accepted absolutely or unqualifiedly by the offeree as the offeree attaches a counter-proposal to the original proposal, the offeror becomes bound by the counter-proposal. If, by the conduct of the offeror, he indicates that he has accepted the terms of the counter-proposal laid down by the offeree.
In the case of Hargopal v. People’s Bank of Northern India Ltd., an application for shares was made with a conditional undertaking by the bank that the applicant would be appointed as a permanent director of the local branch. The shares were allotted to the applicant by the Bank without fulfilment of the condition and the applicant was given his shares and the applicant accepted the same without any protest regarding the non-fulfilment of the terms of the contract. When there arose a dispute between the parties in a court of law. The applicant contended that the allotment was void on the ground of non-fulfilment of the conditions which were stipulated in the original contract. The court rejected the contention from the applicant’s side by holding that the same can not be pleaded by him as he has waived the condition by his conduct.
In Bismi Abdullah and sons v. FCI, the court held that where tenders were invited subject to the deposit of money. It was open to the tenderers to waive the requirement and acceptance given to a tender without making the deposit is binding upon the tenderer.
In D.S. Constructions Ltd v. Rites Ltd, the court held the where the tenderer made variations to the terms of his tender within the permissible period, but the variations were only partly accepted by the other side without the tenderer’s consent lead to repudiation of the contract and so there was no contract at all. Therefore, the earnest money deposited by the party can not be forfeited.
Provisional acceptance is the type of acceptance by the offeree which is made subject to the final approval. A provisional acceptance does not ordinarily bind either party to the contract until the final approval is given to the provisional acceptance made by the offeree. Until the approval is given, the offeror is at liberty to cancel the offer made to the offeree.
In Union of India v. S. Narain Singh, the High Court of Punjab held that where the condition attached to the auction sale of the liquor was that the acceptance of the bid shall be subject to confirmation by the Chief Commissioner. The contract will not be complete till the highest bid is confirmed by the Chief Commissioner and till the confirmation is made the person whose bid is provisionally accepted is at liberty to withdraw the bid.
Similarly, in Mackenzie Lyall And Co. vs Chamroo Singh And Co., the bid at an auction was of provisional acceptance in nature ad the terms of the contract stated that the bid shall be referred to the owner of the goods for his approval and sanction.the court in this case also, allowed the person to revoke his bid whose bid was provisionally accepted.
In Somasundaram Pillai vs The Provincial Government Of Madras, the court held that the bidder would be at liberty to withdraw his will prior to the final approval of the provisional acceptance where the terms of the contract expressly mention that a bid which has been provisionally accepted can not be canceled subsequently.
When a provisional acceptance is subsequently ratified or accepted then it is the duty of the offeree to inform the same to the offeror, as it is then when the offeror becomes bound by the terms of the contract. Acceptance is not complete until it is communicated by the offeror.
Acceptance and withdrawal of tenders
A Tender is a legal offer or proposal to do or abstain from doing an act and it binds the party to performance to the party to whom the offer is made. A tender can be made with respect to money or specific articles. If the tender is not an offer than it falls in the same category as a quotation of price. When the tender is accepted it becomes a standing offer. A contract can arise only when an offer is made on the basis of the tender.
In Bengal Coal Co. v. Homee Wadia & Co., the defendant signed an agreement. One of the terms of the contract was that the undersigned from the day of signing the contract has to abide by the condition stipulated by the contract which provides that they shall be required to provide a certain quality of coal to the other party for a period of 12 months. The defendant abided by the terms of the contract for some time but before the expiry of the term of the contract, the defendants refused to comply with the conditions which were stipulated under the contract. The plaintiff subsequently sued the defendant for breach of contract. The court held that there was no contract between the parties and the terms stipulated thereof were just the part of a standing offer and the successive orders given by the plaintiff was an acceptance of the offers of the quantity offered by the defendant and therefore the order given by the plaintiff and the offer of the defendant together constituted a series of contract. The defendants, in this case, are not free to revoke the offers which were actually given by them. But barring those offers aside, the defendants had the complete power of revocation.
In Rajasthan State Electricity Board vs Dayal Wood Work, the purchase orders were issued in terms of an arrangement of supply. But the purchase offer itself contained the provision that the tenderer can refuse to supply the goods. The court, in this case, held that there was no concluded contract that came into force and therefore, the contractor was at liberty to refund his security deposit.
In a case where the tenderer has on some consideration promised not to withdraw the tender or where there is a statutory provision restraining the withdrawal of the tender, the tender becomes irrevocable. Just as the tenderer has the right to revoke his tender in the same way the acceptor of the tender also has the right to refuse to place any order.
In Madho Ram vs The Secretary Of State For India, the military authorities accepted a tender for the supply of certain goods but during the period of tender, no requisition was ever issued. In an action against the military authorities, the court held that the military authority was not bound whatsoever by the acceptance of their offer to purchase any or all the goods specified under the contract without any covenant to that issue. And so the party giving his assent to the offer may at any time declare to the tenderer that they no longer want to place an order for the purchase of goods.
Letter of intent to accept
A letter of intent to accept an offer is sometimes issued prior to the final acceptance of the offer. Letter of intent does not have any binding effect on any of the parties to the contract. In Dibakar Swain v. Cashew Development corp. The letter of acceptance issued by the company only indicated their intention to enter into the tender. The acceptance was not clearly reduced into writing. The court held that there was no binding contract entered into by the parties and no work order can be issued and so the amount which was deposited by the tenderer can not be forfeited.
Liability for failure to consider tender
If a valid tender is opened then it must be duly considered by the inviting authority because if the valid tender is not duly considered it would be unfairness on the part of the tenderer. In Vijai Kumar Ajay Kumar v. Steel Authority Of India Limited, the court of appeal observed that in certain circumstances, the invitation to tender can give rise to the binding contractual obligation on the part of the person who invited the tenders who conformed the conditions of the tender.
In A. K. Construction v. State of Jharkhand, the contract was awarded to a person who was not a qualified tenderer and he was chosen at the cost of a qualified tenderer who brought an action against the decision of granting the tender to the unqualified tenderer. The court, in this case, allowed the awardee of the tenderer to complete his work and also allowed the aggrieved party compensation of one lakh rupees to be recovered from the salary of the guilty officers who were guilty of awarding the tender unreasonably.
Non-compliance with requirements
In Vijay Fire Protection Systems v. Visakhapatnam Port Trust And Anr., the authorities inviting the tender made it clear to the tenderers that only one brand of pump sets would be accepted. The authorities even gave the last minute opportunity to the tenderers to change the quotations. The tenderer to whom the tender for the supply of goods was given refuted to comply with the terms of the contract. Subsequently, the authorities who invited the tender cancelled the contract between them and the tenderer thereof. The court held that the decision made by the authorities was not arbitrary and they were having the right to do so.
In Kesulal Mehta vs Rajasthan Tribal Areas, one of the conditions in the tender was that the tenderer should have at least one year of work experience in the work in question. The court, in this case, held that such conditions could be relaxed and any otherwise competent contractor could be given the tender and he could be at a later point of time be required to produce the certificate of work.
In KM Pareeth Labha v. Kerala Livestock Development Board, it was held that where a tender invited the quotations for disposal of trees. The tender should mention the approximate value of the trees which could be assessed by the tenderers who can quote their price.
Tender with concessional rate
In Kanhaiya Lal Agrawal vs Union Of India & Ors, in this case, tender offered firm rates, as well as concessional rate, provided the tender gets finalized within a shorter period of time than generally followed. The court held that it did not result in the formation of a conditional offer which hinges on the happening or non-happening of any event and the condition which was put forth was only meant for bringing about more expeditious acceptance.
Certainty of terms
An agreement regarding the sale of immovable property should identify the property with certainty. The agreement should be based on mutuality and should fix the price. In New Golden Bus Service vs State Of Punjab And Ors., the tender was made inviting the tender for hiring services for the vehicle but it did not stipulate any time period. The lowest tenderer was awarded the tenderer for a period of three years. The court, in this case, held that there was nothing wrong in it as an open-ended tender can not be regarded as void because of the reason for its vagueness. The tender, in this case, specified that the tender can not be issued for a vehicle that is more than six months old and the tenderer who was awarded the tender complies with the specified conditions specified under the tender. The acceptance of substitute vehicles which were of equal efficiency and cost by the authority inviting the tender was not arbitrary.
Preventing from tendering and blacklisting
In Utpal Mitra vs The Chief Executive Officer, a bidder was prevented by some elements inside the office from submitting the tender. The authorities carried on the enquiry confirming the allegations. The person who was so ruled out from the tender was later on permitted to submit his tender after two intervening holidays and his tender was later on accepted. The court held that no prejudice was caused to the other tenderers as the work issued to them was not interfered with.
In Merittrac Services Private v. Post Graduate Institute, it was held that the provision of blacklisting a contractor arises only when the contract is awarded and the tenderer fails to perform any conditions stipulated in the contract. For the purpose of seeking permission for making his proposal, some material facts may be required from the bidder about his experience.
The party allocating the contracts has the indispensable power of blacklisting the contractor. But when in cases where the party is the state, the decision to blacklist is open to judicial review to ensure proportionality and principle of natural justice.
Contracts have become an indispensable part of everyday life of the people so much so that most of the people enter into a contract without even realizing it. There are many essentials which are required for making a valid contract. After the formation of a valid contract, the ultimate object which is stipulated by both the parties in terms of consideration are sought after. Once the object for which the contract was entered into is achieved the parties to the contract as no longer bound by their respective contractual liability.
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