Forms of Acceptance to an Offer

This article has been written by Diva Rai, a student of Symbiosis Law School, Noida. The article discusses forms of acceptance to an offer by conduct or invitation to treat, the performance of conditions, promissory estoppel, and related case laws.

Introduction

Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with the proposal, is an acceptance of the proposal. Section 8 of the Indian Contract Act(ICA) provides the acceptance of the proposal by conduct as against other modes of acceptance that are written or verbal communication contemplated by subsection 7 and 9. Example-  A reward for the finder of lost goods.

The division of the subject matter of Section 8 is into two branches, “performance of the conditions of a proposal” and “acceptance of any consideration for reciprocal promise which may be offered with a proposal”, corresponds to the general division of proposals into those which offer a promise in exchange for an act or acts and those which offer a promise for exchange of  a promise.

Communication is Not Necessary

According to subsection 2(b), a proposal is said to be accepted when the person to whom it is made signifies his assent thereto. An acceptance is binding upon communication, and this section does not expressly dispense with this requirement. The section recognizes the fact that in the cases in which the offeror invites acceptance by the doing of an act, “it is sometimes impossible for the offeree to express his acceptance otherwise than by performing of his part of the contract”. Example- When a reward is publicly offered to any person who will recover a lost object, the party claiming the reward only needs to prove the performed conditions.

The general rule is that acceptance must be communicated to the offeror for the benefit of the offeror. The offeror may waive this requirement. In such cases, acceptance may be effective even before it comes to the notice of the offeror. Yet acceptance cannot be inferred from silence. There must be an expressed or implied intimation from the offeror indicating a mode other than communication, and there must be some overt act according to the prescribed mode showing an intention to accept.

The nature of acceptance required was considered by the English Court of Appeal in Carlill v Carbolic Smoke Ball Co. [1]. The court held that there was an offer to anyone who performed a condition on the faith of an advertisement and by such performance becomes a contract, not absolute, but subject to the further independent condition of the user.  

A proposal is in every case acted by the performance of its condition that means, by compliance with its terms. Communication by the acceptor to the proposer or his authorized agent is necessary when the terms consist or include a counter-promise. But, when only acts are required, the communication of their performance may or may not be added as a term to the offer at the will of the proposer. It may either be inferred or expressed from the nature and circumstances of the proposal as in LIC of India v R Vasireddy [2].

The mere performance of the act prescribed by the proposal is sufficient acceptance of such a proposal and converts it to a promise even without further communication of acceptance. This distinction is recognized in the Contract Act in State of Bihar vs Bengal Chemical and Pharmaceutical Works [3].

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Acceptance by Conduct and Invitation to Treat

In particular cases, questions arise whether there was a certain offer, or whether an offer was intended, or was the statement any offer at all. In the simple case of an offer for reward, the terms would be clear and its satisfaction by the claimant manifest. In Re Agra and Masterman’s Bank [4] an open letter for credit authorising the addressee to draw on the issuer to a specified extent, and requesting “parties to negotiating bills under it to endorse particulars”, has been held to amount to a general invitation or request to advance money for the faith of such bills being accepted. And also to constitute a contract with anyone so advancing money while the credit remained open. In Bharat Forge Ltd v Onil Gulati [5], it was held that even if there is no written contract, yet a suit can be maintained on the basis of invoices and bills. They must contain the terms of supply and other requisite terms which have been acted upon, accepted and also partly paid for.

On the other hand in Harris v Nickerson [6], performing acts in response to invitations do not result in any contract in a number of situations. When particular goods are advertised for sale by auction, the auctioneer does not contract with anyone who attends the sale intending to purchase those goods that they shall actually be put up for sale. An advertisement for tenders of goods to be sold is not a proposal capable of being a contract to sell the highest bidder, but a mere attempt to ascertain whether an offer can be obtained within such a margin as the sellers are willing to adopt. It is only an invitation for offers, which the offeree may or may not accept and he is not bound to accept the highest or the lowest tender.

Definite proposals must be distinguished from expression or undefined willingness, which only invites a proposal. Advancing money to the debtor at the request of surety and upon surety’s promise to make himself responsible, amounted to acceptance of the proposal to complete the contract of guarantee.

Performance of Conditions

‘A’ promised to leave a house to a relation with the arrangement that during the lifetime of the promisor, the relation will come and live with him and share the expenses. On the basis of the promise, the relation sold his cottage and came to live with the promisor who terminated the arrangement and asked the relation to quit. This arrangement was held to be a binding contract and not merely an unenforceable family arrangement. In Parker v Clark [7], the promisee was held entitled to damages for the loss of the benefits of living in a big house during the lifetime of the promisor and damages for the loss of prospect of inheriting the house under the promisor’s will. In Nalini v Somasundaram [8], a wife acted upon her husband’s letter to her mentioning the conditions, inter alia, as to residence and alimony on which he was prepared to allow his wife to divorce him, although the acceptance was not communicated to the husband. This was held a concluded contract supported by consideration because the wife acted upon it and invited the divorce court to act upon it.

A creditor cashed a cheque for a small amount in full and final payment of a bigger amount in Union of India v Rameshwarlal Bhagchand [9]. The debtor was not informed of the of his agreeing to the condition; the creditor must be taken to have thereby agreed to the proposal. His subsequent demand did not make any difference to the position. But if such a cheque is sent by the debtor which is accepted by the creditor in part payment, the creditor would be entitled to claim the balance. The real emphasis is not on the smaller sum of money when a larger sum is due, but on the acceptance of the debtor’s condition that if the tendered money to be all accepted, it must be done so in discharge of the entire debt. When the debtor attaches no such condition and the creditor also intimates that he accepts the amount without prejudice to the balance amount due, no question of accord and satisfaction arises.

In Hairoon Bibi v United India Life Insurance Co Ltd. [10], an insurance company offered to receive a lapsed policy if the assured remitted the premium amount by post. The policy stood revived as soon as the assured put the money into the post office though the assured could have recalled the money thereafter. The company had prescribed the manner of acceptance and the assured has so performed.

Promissory Estoppel

A representation that something will be done in the future may involve an existing intention to act in the future in the manner represented. If the representation is acted upon by another, it may, unless statute governing the person making representation otherwise provides, result in an agreement enforceable by law. If the law requires a form, no contract may result but the law is not powerless to compel performance as in Century Spinning & Manufacturing Co v Ulhasnagar Council [11]. Although the case does not use the term, the judgment has later been interpreted as applying promissory estoppel.

Place of Contract

Where the acceptance of the proposal consists of the performance of the condition of the proposal, the contract is made at the place where the condition is performed.

Accepting Consideration for Reciprocal Performance

The second branch of the Section dealing with acceptance of any consideration is rather obscure as it cannot be said with certainty which particular class or classes of transactions it covers. The word seems more appropriate for gifts or transfers to property than to contracts. It is a sound principle that what is offered on conditions must be taken as it is offered. The use of the word reciprocal does not fit the most obvious case of goods sent on approval where the receiver keeps them with the intention of buying them. Here, the seller need not and commonly does not offer any promise, and there is, therefore, no question of reciprocal promise as defined in the Contract Act.

There is no doubt that the acceptance of an offered consideration, as such, amounts to giving the promise for which it was offered, or else raises an equivalent obligation. But a thing which is offered in one right and for one purpose may be taken under a different claim of right and with a different intent. In that case, the legal result will not be a contract between the parties unless the party receiving the thing so conducts himself as to lead the proposer reasonably to conclude that there is an acceptance according to the offer. Then, the proposer can hold him liable on the universal principle that a man’s reasonably apparent intent is taken in law to be his real intent. It cannot be supposed that the present Section is intended to preclude all inquiries of this kind by making every receipt in fact of a thing offered by way of consideration a conclusive acceptance of the proposal.

It has been applied to the case of a bank’s customer receiving notice, which he did not answer, of an increase in the rate of interest on overdrafts, and afterward obtaining a further advance. It was held in Gaddarmal v Tata Industrial Bank [12] that a person who accepted a consideration offered by the bank within the terms of this Section and as a consideration for that reciprocal promise, the bank offered to desist from discontinuing the overdraft of form immediate recall of its debt. In Konakalla Venkata Stayanarayana v State Bank of India [13], where for several years a constituent availed of an overdraft at a bank, periodical statements of account were sent to him showing the charging of a compound interest and no objection was taken by him, he must be taken to have agreed to the rate of interest. A firm had a cash credit account with a bank and every month interest was calculated on the daily balance, which was added on the last day of the month of the account. This amounted to charging compound interest and was held to be contemplated by the agreement. The expression was- ‘shall be charged to such account or accounts’.

A contract between a bank issuing a credit card to its customer and the retailer who supplies the goods to the customer against the card would fall within the second branch of the Section. In R v Lambie [14], the bank that the retailer will be paid, and the retailer provides the consideration for this promise by supplying goods to the customer. The second branch of the section can be applied to a number of other situations like an offer to supply goods sent to the offeree may be accepted by using the goods and a new lease may be accepted by staying on the premises.

When is Acceptance Complete?

Where acceptance takes place by the performance of an act, the latter being the condition of the proposal, when does the acceptance become complete as to bind the offer? Does the word performance in this section mean complete or partial performance? Insisting on completion of performance for the formation of a contract would cause injustice, for it may be possible for the offeror to revoke the proposal even after the offeree has commenced the performance of the act. The Indian Law Commission including clarification has recommended in the Section to the effect that:

in the case of a promise made in consideration of the promisee’s performing an act, the promisee’s entering upon performing the act is an acceptance of the proposal, unless the promise contains an express or implied term that it can be revoked before the act had been completed.

References

  1. Q.B. 256 (Court of Appeal 1893)
  2. 1984 AIR 1014
  3. AIR 1954 Pat 14
  4. (1867) LR 2 Ch 391
  5. AIR 2005 Delhi 369
  6. (1872) LR 8 QB
  7. [1960] 1 WLR 286
  8. AIR 1964 Mad 52
  9. AIR 1973 Gau 111
  10. AIR 1947 Mad 122
  11. 1971 AIR 1021
  12. AIR 1927 All 407
  13. AIR 1975 AP 113
  14. [1981] UKHL 
Diva Rai :