This article has been written by Adv. Sanjay Pandey, practising in District & Sessions Court, Varanasi and having more than 10 years of experience in teaching Law of Contract. He also completed a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho in November, 2023.

This article has been edited and published by Shashwat Kaushik.

Introduction

A contract, in a civilised society, is a tool to create relationships. Unlike blood relations or relationships by marriage, a contractual relationship has its own principles and provisions, which are outlined in the Indian Contract Act, 1872.

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A contract is fundamentally a promise between two parties backed by the power of enforceability in a court of law.

The recourse of the court to enforce an agreement is only desirable when a dispute arises in the agreement. Neither a person can enter into an agreement nor be in dispute with himself. Relationships or disputes between a person and himself may be the subject-matter of psychology, spiritual science or self-help. A contractual relationship requires two persons, one of whom makes an offer and the other to accept that offer. These two persons may be two natural persons, two legal persons or one natural and the other a legal person.

It would not be an exaggeration to say that ‘acceptance’ is the core foundation of a contractual relationship.

Definition of acceptance

The definition of acceptance, given in the Indian Contract Act ensures that the parties entering into a contractual relationship must be on the same page regarding the terms of their agreement.

The term acceptance is defined under Section 2(b) of the Act. The section is reproduced here, ”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”.

The definition has three aspects:

  1. First, the phrase ‘the person’ clearly mentions that an offer made to a specific person shall be accepted only by that person and by no one else.
  2. Second, ‘the proposal’ means an offer is made to be accepted in totality.
  3. Third, ‘assent’ means to give approval to something after careful consideration.

When the individual to whom the proposal is directed accepts the terms outlined in the proposal and communicates his clear, absolute and unambiguous acceptance to the proposer, the proposal now transforms into a binding promise. Now the offer is not an offer anymore. The acceptance of the offer changes its legal status to a contractual obligation wherein both parties are bound by the terms mutually agreed upon.

Essential requirements of a valid acceptance

In order to convert a proposal into a promise, the acceptance must possess the following essentials:

Acceptance must be absolute and unqualified

Absolute acceptance means that the whole of the offer should be accepted. If the offeree accepts a part of the offer that is favourable to him and rejects the rest, it would be an invalid acceptance.

Example: ‘A’ offers to sell 2 plots of land at a certain price. ‘B’ accepts the offer for one plot only. Acceptance is invalid.

Again, the acceptance must be unqualified. It means the offeree shall accept the offer as it is. Neither can he change any of the terms of the contract nor add one from his side. An acceptance with a variation is no acceptance. Similarly, an offer accepted with some condition is invalid. It is simply a counter-offer. It’s essentially a counter-offer that terminates the original offer and makes it impossible to revive through subsequent acceptance

Example:

Hyde v. Wrench (1840) 2 Beav 334

‘A’. offers to sell a farm to ‘B’ for £ 1000 and ‘B’ offers £ 950.

It is a counteroffer by ‘B’ & if again he agrees to pay £ 1000, will not arise a valid contract.

However, when a counter-offer is accepted, whether expressly or by subsequent conduct on the part of the offeror, a contract arises in terms of the counter-offer and not in terms of the original offer.

Acceptance must adhere to the prescribed manner

Where a mode of acceptance is prescribed or a time limit is indicated by the offeror, the acceptance has to be made in that mode only and within the fixed time limit.

Where no mode is prescribed, acceptance must be given in some usual & reasonable manner and within a reasonable time, which would depend upon the facts & circumstances of each case.

If acceptance is not made in the mode prescribed within the fixed time limit, the offeror may reject the acceptance within a reasonable time. However, if he does not reject it within a reasonable time, the contract will be binding.

Acceptance must be conveyed to the offerer

Earlier, in the definition of ‘acceptance’, we saw that an offer can be accepted only by the person to whom it is made. Similarly, once the offer is accepted by the offeree, he shall inform his acceptance only to the offeror, as information given to any other person will be ineffective as if no information has been given.

Felt House v. Bindley (1863) 7LY 835: 

‘A’ wrote a letter to ‘B’ (his nephew), showing willingness to purchase his horse at a stipulated price. The letter clearly read, “If I hear no more about the horse, I shall consider the horse mine at £ 33.15”. ‘B’ didn’t reply to this letter but accepted the offer in his mind and also instructed ‘C’, an auctioneer, not to sell the horse as it was already sold to ‘A’, his uncle. The horse was sold by ‘C’ in an auction.

‘A’ filed a suit against ‘C’ on the ground that under the contract with ‘B’,’ the horse had become his property, & ‘C’ is liable for the conversion of his property. But his action failed. Held, that the offeree had not communicated his acceptance to the offeror.

The acceptance must be conveyed by the offeree:

It is the offeree who has the authority to accept the offer and therefore only he can communicate the acceptance.

In Powel v. Lee (1908), 24 TLR 606:

‘A’, the plaintiff applied for the headmastership of a school. He was selected but the school’s decision on his appointment was not officially communicated to him. However, he learned about this from one of the board members of the school. Afterwards, the school cancelled his appointment. ‘A’ sued the school for breach of contract. His action was rejected by the court. Held, information by an unauthorised person is as insufficient as one hearing from behind the door.

No communication of acceptance is required where the offerer specifies a particular mode of acceptance.

e.g., an announcement to pay a reward for discovering a lost thing.

Kinds of acceptance

From the ongoing discussion, it is evident that acceptance cannot be presumed from silence; it has to be communicated to the offeror.

Thus, to convert an offer into a promise, acceptance must either be expressed or implied.

When acceptance is expressed orally or in writing, it is called express acceptance.

When acceptance is inferred from the conduct of the offeree, it is called implied acceptance.

Apart from these, the offer can also be accepted by performing the conditions of the offer or by accepting any consideration.

Carlill v. Carbolic Smoke Ball Co. (1893), 1 QB 256.

It was held that where an offer is made to the public at large, there is no need to communicate the acceptance by an individual, performing the conditions associated with the offer is sufficient.

Communication of acceptance

It is obligatory on the part of the acceptor of a proposal to communicate his acceptance to the person who made the proposal.

Sometimes the acceptor revokes his acceptance. In such a case, the revocation of acceptance of the proposal shall also be communicated to the offeror in the same manner as the communication of acceptance of the proposal was first made.

When the acceptor of a proposal, either himself or by his representative, intimates the offeror of his intention and the offeror comes to know about the same, the communication of acceptance of the proposal is said to be complete.

This is the case of accepting a proposal directly.

But when the offeree uses some other means of communication, like postal service for accepting an offer or revoking his acceptance of an offer, the question arises as to when such acceptance or revocation shall be considered complete.

Section 4 outlines two situations as to when an acceptance is considered complete.

First, a proposer becomes bound by the acceptance of his proposal or it is considered complete against him, when the acceptor initiates the process of conveying his acceptance to the proposer, i.e., he puts his acceptance in some track of transmission and it goes beyond the acceptor’s power to take it back. In such a scenario, the proposer cannot say that his proposal has not been accepted.

Second, from the acceptor’s perspective, acceptance is deemed complete, i.e., the acceptor becomes bound by his acceptance when it becomes known to the proposer.

Furthermore, Section 4 also provides two clear guidelines for the completion of communication of revocation.

First, as against the person revoking, it is considered complete once the revocation is transmitted to the intended recipient and goes out of his ability to retract. Second, once the person to whom the revocation is addressed becomes aware of its content, the revocation is considered complete as against him.

Place of acceptance: In cases where the acceptance is made by letter, the place of acceptance is the place where the letter of acceptance is posted.

In Hairoon Bibi v. United Life India Insurance Co. (1947), it was held that the policy had been revived from the date of the money order and not from the date of its receipt by the company.

Acceptance by telephone: The acceptance of a proposal is complete only when the words of acceptance are clearly heard and understood by the proposer.

As per Section 5, the acceptor may revoke his acceptance at any point of time but before his communication of the acceptance is complete, as against him. That is, the acceptor cannot revoke his acceptance once it reaches the proposer and the proposer becomes aware of the acceptor’s communication of acceptance.

Acceptance in other parts of Indian Contract Act, 1872

The term ‘acceptance’ also appears in the following three sections of the Indian Contract Act:

  1. Section 41: Generally, a contract is meant to be performed by the parties to it. An obligation under a contract can only be fulfilled by the party who made the promise to perform or by his representatives/agents. A person who is not a party to a contract cannot enter into it.

As per Section 40 of the Act, when personal skill or expertise is required to fulfil a contractual obligation, the promisor must perform it personally. However, in other situations where personal skill is not explicitly required, he or his agents may delegate the task to another competent person

Section 41 introduces an exception to Section 40. It says, if the promisee (the individual to whom the promise is made) accepts the performance of the contract from a third party, they lose the right to later enforce the contract against the original promisor.

  1. Section 59: This section applies when a debtor owes several debts to a single creditor. When such a creditor accepts a payment from the debtor with an express instruction or an implied suggestion that the payment made is intended to discharge a specific debt, the creditor must allocate the payment accordingly under the rule of appropriation.
  2. Section 63: Another instance where the term ‘acceptance appears in the Contract Act is Section 63. It is certain that parties to a contract must perform their obligations; otherwise, it would result in a breach of contract.

However, as per Section 63, every person who accepts a promise may, at his  discretion, choose not to insist upon the original terms of the contract

The section clothes the acceptor of a promise with four types of powers or abilities so that he can adjust the terms of the contract either wholly or partially in varying circumstances.

Under this section, the person who is under a duty to perform a contract need not to perform it on the exact terms in cases where the person who has right to demand the performance, either:

  • remit the contract, i.e., accept a smaller sum of money where more is due, or
  • ‘dispense with the contract’, i.e., waive or give up his right to claim performance, or
  • extend the time for performance, or
  • accept any other satisfaction for performance

Important provisions of Indian Contract Act, 1872

The Indian Contract Act, 1872, is a landmark piece of legislation that governs the formation, interpretation, and enforcement of contracts in India. It is a comprehensive law that covers a wide range of topics, including the following:

Offer and acceptance:

Offer: An offer is a proposal to enter into a contract, made by one party to another. It must be clear, definite, and communicated to the offeree.

Acceptance: Acceptance is the unconditional assent to the terms of an offer, made by the offeree to the offeror. It must be communicated to the offeror.

Consideration:

Consideration is the price paid or promised for a promise. It can be anything of value, such as money, goods, services, or a forbearance to act.

Capacity to contract:

Only people who have the capacity to contract can enter into legally binding contracts. Minors, persons of unsound mind, and persons who are intoxicated are generally not considered to have the capacity to contract.

Free consent:

A contract is voidable if the consent of one of the parties was obtained by fraud, misrepresentation, coercion, undue influence, or mistake.

Legality of object:

A contract is void if its object is unlawful, immoral, or opposed to public policy.

Discharge of contracts:

A contract may be discharged by performance, agreement, frustration, breach, or operation of law.

Remedies for breach of contract:

If a contract is breached, the innocent party may be entitled to remedies such as damages, specific performance, an injunction, or rescission.

Limitation of liability:

Parties to a contract may limit their liability for breach of contract by including an exclusion or limitation clause in the contract.

Arbitration:

The Indian Contract Act of 1872, a landmark piece of legislation, provides a comprehensive framework for resolving disputes arising from contracts. It recognises arbitration as an alternative dispute resolution (ADR) mechanism, offering a fair and impartial process for settling disagreements without resorting to lengthy and expensive litigation.

Arbitration, as envisaged by the Indian Contract Act, involves the appointment of a neutral third party, known as an arbitrator. The arbitrator, typically a legal professional or an expert in the subject matter of the dispute, is entrusted with the responsibility of hearing both sides of the dispute and making a binding decision.

The arbitration process is usually initiated by one party to the contract, who files an arbitration notice with the other party. The notice typically outlines the nature of the dispute, the relief sought, and the grounds for seeking arbitration. Once the arbitration notice is received, the parties jointly appoint an arbitrator or follow a procedure agreed upon in the contract to select one.

The arbitration proceedings are conducted in a relatively informal manner compared to traditional court proceedings. The parties present their cases, submit evidence, and make arguments before the arbitrator. The arbitrator has the authority to determine the admissibility of evidence, examine witnesses, and control the course of the proceedings.

One of the key benefits of arbitration is its flexibility. The parties can agree on the rules and procedures to be followed during the arbitration, such as the number of arbitrators, the language to be used, and the applicable law. This flexibility allows the parties to tailor the arbitration process to suit their specific needs and circumstances.

The arbitrator’s decision, known as an arbitration award, is final and binding on both parties. The award is typically a written document that sets out the arbitrator’s findings of fact, conclusions of law, and the remedies granted. The parties are legally obligated to comply with the terms of the arbitration award, and it can be enforced through the courts if necessary.

Overall, the Indian Contract Act’s provisions on arbitration offer a valuable and effective means of resolving disputes arising from contracts. By providing a fair, impartial, and flexible process, arbitration helps to promote the efficient and amicable settlement of disputes, thereby facilitating commerce and protecting the rights of contracting parties.

Unjust enrichment:

The Indian Contract Act provides for the recovery of unjust enrichment. Unjust enrichment occurs when one party benefits from the performance of another party without providing adequate compensation in return.

Conclusion

In conclusion, the study related to acceptance presented in this article underscores its importance in the formation of a valid contract. Acceptance is nothing but the linchpin of contract formation, as it ensures consensus between the parties. Once an offer is accepted with consideration on both sides, an enforceable agreement comes into existence, and the parties become legally bound to perform their part of the obligation under the contract.

It is imperative that parties entering into a contract remain vigilant and proactive in their efforts to underpin the integrity and efficacy of contractual relationships.

References

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