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When is acceptance valid under Contract Law

March 17, 2022
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This article is written by Shreya Pandey, pursuing LLM from RamSwaroop University, Lucknow. The article provides information regarding valid acceptance, its essentials, and rules of valid acceptance in the Contract.

This article has been published by Rachit Garg.

Introduction

“Acceptance is to offer what a lighted match is to a barrel of gunpowder.” 

The initial stage of a contract is when one person presents an offer before another and the other person gives their consent. Giving consent generally shows acceptance. Acceptance is an essential element of a contract. Without accepting an offer a contract cannot take place. To form a valid contract, there must be a valid offer and the offer must get accepted by the offeree. The acceptance should be valid, i.e., it must be with free will and the person giving consent should be capable of giving their consent.

Acceptance under Contract Law

Acceptance is defined under Section 2(b) of the Indian Contract Act, 1872 as “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.” This Section states that an offer is accepted when the offeree to whom the proposal is made accepts the offer without any condition. When the offer is accepted then the proposal becomes a promise and it is irrevocable. An offer does not have any legal obligation but as soon as the offer is accepted, it creates a legal obligation on the parties and therefore it cannot be revoked. The offer can be revoked only till the offer is not accepted and once the offer is accepted, it can’t be revoked or withdrawn. 

Example: X offers Y to buy his horse for 1 lakh rupees and Y agrees to the offer and gives his consent to sell his horse to X at 1 lakh rupees. This becomes a promise.

Valid acceptance: Section 7 and 8 of the Indian Contract Act, 1872

For a valid acceptance of a valid offer, there are certain essentials that are specified under the Indian Contract Act, 1872. Section 7 and Section 8 of the Indian Contract Act specify certain essentials that make an acceptance a valid acceptance. 

Section 7 talks about an acceptance to be absolute. This Section clarifies that an acceptance must be absolute, unqualified, and be expressed explicitly or impliedly, unless as specified in the proposal. If the manner of expression is already mentioned in the proposal then the offeree must express his consent in that manner.

Section 8 talks about when an offer can be accepted without communication of such acceptance. The Section says when the offeree performs the conditions mentioned in the offeror accepts the consideration for a reciprocal promise then the offer is said to be accepted.

Essentials of a valid acceptance

Following are the essentials of a valid acceptance:

  1. Acceptance should be absolute and unqualified: Section 7 talks about acceptance to be absolute and unqualified. There must neither be any condition in acceptance nor any variations to be made while accepting the offer. Any such variation or condition in the offer can constitute a counter-offer. 

Example: Mr. X offers Y to sell his house for 10 lakh rupees. Y accepts the offer and promises to pay the amount in installments. Here, the offer made by Mr. X ceases to exist because Y made variations in the offer. Therefore, it becomes a counter-offer.

In Trollope & Colls Ltd. v. Atomic Power Constructions Ltd., 1963 during the construction of Atomic Power Construction the parties decided to form a contract on the points they have agreed and continued to negotiate on which they did not agree. In this case, the question was raised whether such a contract is valid. The Court held that since the parties have not mutually agreed upon all the clauses of the contract and it can create problems in the future therefore it cannot be said to be a contract.

  1. Acceptor has an intention to fulfill the promise: For an acceptance to be valid, it is necessary that the offeree is able and willing to fulfill the promise. If the offeree has no intention to fulfill the promise then the acceptance is invalid.

Example: Mr. X agrees to sell his horse for 2 lakh rupees to Mr. Y. Later it was found that Mr. X does not own any horse. Therefore it was an invalid acceptance because Mr. X had no intention to fulfill the promise.

  1. Acceptance must be communicated: To constitute a valid acceptance, the offeree shall communicate his acceptance to the offerer. Mere mental acceptance cannot be a valid acceptance. The communication can be expressed or implied. However, if the offer is such that the offeree has to act upon then by mere acting upon the offer, the offer is said to be accepted.

In Brogden v. Metropolitan Rly. Co., 1877 the question was raised whether the contract between Brogden and Metropolitan Rly Co. was a valid contract. The facts of the case are that Brogden is the complainant who used to supply coal to Metropolitan Rly Co. (defendant). Earlier both the parties used to transact on an informal basis without any contract. Later, the defendant decided to form a formal contract. So the defendant drafted a contract and sent it to the complainant. The complainant made certain changes in the contract and forwarded the draft to the defendant who filed that agreement but never communicated the acceptance and continued the supply and purchase of coal. When a dispute arose between the parties the question of the validity of the contract. The Court held that there was a valid contract between the parties because even though the acceptance of the counteroffer was not communicated still the defendant accepted it by conduct and the coal was delivered and the payment was done according to the draft. Therefore, it was a valid contract.

  1. Acceptance must be in the mode prescribed: The mode of communication of acceptance shall be done in the manner prescribed in the offer. If in case the mode of acceptance is not specified then the acceptance can be communicated in a usual and reasonable manner. If the mode of acceptance is mentioned and the offeree communicates the acceptance in any other mode other than specified in the offer then the proposer can reject or intimate the offer and if there is no communication from the offeree then it is deemed to be accepted.

Example: Mr. Y makes an offer to Mr. X stating that the mode of communicating acceptance is through WhatsApp and Mr. X sends his acceptance through telegram then since it is not the mode specified in the offer therefore it is deemed to be not accepted. Mr. Y need not inform Mr. X that he did not communicate through the mode specified.

  1. Silence cannot be a mode of acceptance: Mere silence is not an acceptance. The offeror cannot mention silence as a mode of communication of acceptance. 

Example: Mr. Y makes an offer to Mr. X to buy his horse for 1 lakh rupees and mentions that if Mr. X does not respond to the offer within one month then it will be presumed that Mr. X has accepted the offer. If Mr. X does not respond to the offer within one month then it will not be considered as an acceptance because silence is not a mode of communication of acceptance. 

Felthouse v. Bindley, 1862: In this case, Felthouse, who is the complainant, had a discussion with his nephew regarding buying his horse. Later, he sent a letter to his nephew stating that if Mr. Bindley does not respond to the letter anymore then he will presume that he has accepted the offer and the horse will belong to Felthouse. Mr. Bindley did not respond to the letter because he was busy. Later Mr. Bindley sold his horse to someone else and Felthouse felt aggrieved and filed a suit in the tort of conversion against Mr. Bindley. The Court held that there was no contract between Felthouse and Mr. Bindley as silence cannot be a mode of acceptance. The Court held that the offer to be accepted must be clearly communicated and since in this case, Mr. Bindley did not respond to the letter therefore his silence cannot be presumed as acceptance. Therefore, there was no contract between Felthouse and Mr. Bindley.

  1. Communication must be communicated within the time prescribed or within a reasonable time if a time limit is not prescribed: The offeree must respond to the offer within the time prescribed in the offer and if the time limit is not prescribed then the offeree must respond within a reasonable time or before the offer lapses or the offer is withdrawn by the offeror.

Example: Mr. X offers to buy Mr. Y’s house in July. Mr. X accepts the offer in December. Mr. X refused to buy the house since it is beyond a reasonable time. 

  1. No acceptance before the communication of offer: Acceptance to an offer cannot precede the offer. An offer needs to be presented before an acceptance. A person without any knowledge cannot accept an offer just because he has acted in accordance with the offer.

Laksham Shukla v. Gauri Dutt, 1913: In this case, the respondent’s nephew was missing and he asked his servant (complainant) to search for the boy. After the complainant left the house to search for the boy, the respondent made an announcement that anybody who brings his nephew back home safely will be rewarded with Rs. 500. The complainant found the boy and brought him home. When he reached he got to know about the announcement and he asked for his reward from the respondent. The respondent refused to give him the money so the complainant filed a case against him. The Court held that since the complainant wasn’t aware of the offer therefore there was no contract between both of them. 

  1. Acceptance of the offer and its communication must be made by the offeree or his authorized agent: The communication of acceptance must be done only by the offeree or his authorized agent. Anyone other than the offeree or his authorized agent communicates the acceptance of the offer then there will not be any contract.

Powell v. Lee, 1908: In this case, Powell applied for the post of headmaster in a school which was accepted by the School Board. The acceptance of his application was informed to him by one of the members of the School Board. Later, the School Board rescinded his application. Powell filed a suit of breach of contract. It was held by the Court that since the communication was not made by someone who was authorized by the School Board therefore there was no valid acceptance and no valid contract.

  1. Acceptance subject to contract is no acceptance: Acceptance to an offer means acceptance to all terms of the offer. If the acceptance is made by the offeree by “subject to contract”, “subject to formal contract”, or “subject to contract to be approved by solicitors” then it means that the agreement is in the negotiation stage and the parties are not bound to the offer. If such acceptance is made then the parties are not legally bound to follow the obligations of the offer unless a formal agreement has been made and signed by both parties to the contract.
  2. If a proposal is made through an agent, it will be sufficient if the acceptance is communicated to him: If X sends the offer to buy Y’s house through an agent, Z, and Y accepts the offer and gives his acceptance to Z then there is a valid contract even if Z communicates the acceptance to X or not.

Rules regarding valid acceptance

Acceptance can be given by the person to whom the offer was made

In the case of a specific offer, the offer can be accepted by the person to whom the offer was made. No other third party without the knowledge of the offeree can accept the offer. The offeree or his authorized agent can accept the offer.

In the case of Boulten v. Jones, 1857, Boulten bought Brocklehurt’s business. Brocklehurt did not inform all his creditors about the same. Jones, one of the creditors of the Brocklehurt, placed an order with him. Boulten accepted and supplied the goods to jones. Later, Jones refused to pay the money since he had to settle debts with Brocklehurt. The Court held that since Jones never made an offer to Boulten therefore his acceptance is immaterial so there was not a valid contract between Boulten and Jones.

In the case of a general offer, anyone who has knowledge of the offer can accept the offer. 

Acceptance must be absolute and unqualified

The acceptance must be unconditional and unqualified. If there is any condition or any alterations made in the offer then the alterations make the acceptance a counter-offer and the original offer gets nullified. It is known as the mirror-image rule where acceptance reflects like a mirror to the terms of the offer.

Acceptance must be communicated

The offeree shall communicate the acceptance in a prescribed way and if the manner is not prescribed then the acceptance shall be communicated in a proper and reasonable way and within a reasonable time. Silence cannot be a mode of communication. For a proposal to be a contract, the acceptance shall be communicated to the offeror. Communication must be done within a time limit specified in the offer or if not specified then within a reasonable time. 

Acceptance must be made in the prescribed mode

Acceptance shall be made in the manner that is prescribed in the offer. The offer must be accepted by the offeree in the manner demanded by the offeror. If the offeror does not prescribe any manner of acceptance then it must be in a reasonable manner and during the normal course of business. 

Implied acceptance

Section 8 of the Indian Contract Act talks about acceptance by conduct of actions of the offeree. The Section states that if an offeree instead of communicating his acceptance, makes any conduct or actions through which makes it obvious that the offer has been accepted then the offeree need not communicate his acceptance. This will be deemed as an implied acceptance that is acceptable under this Section. 

Example: Y offers X to buy 200 pens at Rs. 2000 and X delivers 200 pens to Y. Then it is an implied acceptance.

What constitutes a valid acceptance

  1. Offer must be accepted without any condition. The offer must agree to all the terms of the contract. The offer must be accepted without any condition or without any alterations.
  2. Offer must be accepted by the one to whom the offer has been made. If someone else accepts the offer then it is invalid.
  3. The offer must be known to the offeree. Without conscious knowledge about the offer, the offeree cannot give acceptance.
  4. Acceptance can either be expressed or implied. In express acceptance, the communication is made through words, either written or spoken. In implied acceptance, merely by the conduct or action acceptance can be shown.
  5. Silence will not be presumed as an acceptance. If the offeree is silent about an offer that does not mean he has accepted the offer.
  6. There must be an intention to enter into the contract. Without an intention, there is no valid contract.
  7. Communication of acceptance is important. The offeror must be communicated that his offer has been accepted by the offeree.
  8. The offeror must receive the acceptance in an agreed-upon manner otherwise the offeror has an option to withdraw or reject his offer.
  9. If the mode of acceptance is already mentioned then the offeree must communicate his acceptance in the mode prescribed otherwise in a reasonable and usual manner the communication must be made.
  10. The offer must be accepted in the prescribed time limit if given. If the time limit is not mentioned then the offeree shall communicate his acceptance within a reasonable time. 

What is an invalid acceptance

When an offer is made and the offeree accepts the offer but it creates no legal obligations on both the parties to abide by the promise, it is an invalid acceptance. An invalid acceptance invalidates the entire contract. There are the following ways through which an acceptance becomes invalid acceptance:

Acceptance without communication

It is necessary that the offeree communicates its acceptance to the offeror. Unless the acceptance is communicated and received by the offeror the acceptance will not be considered as a valid acceptance. In Felthouse v. Bindley, the offer of buying the defendant’s horse was made. The defendant did not communicate his acceptance to the plaintiff therefore there was no legal contract between them.

Counter-offer

It happens when the offeree to whom the proposal is made brings any change in the original offer. The change might be bringing new terms in the proposal or making any extra conditions. Any alteration in the original proposal invalidates the entire proposal and thus it becomes a new offer. So now, it is upon the original offeror to accept or reject the counter-offer.

In General George Innih v. Ferado Agro Consortiums Ltd., 1990, the appellant made an offer to sell some of their properties to the plaintiff provided he communicated its acceptance within 3 days. The plaintiff accepted the offer but asked for an extension of 2 weeks. The appellant sold their property to a third person and the plaintiff filed a case of breach of contract. The Appellate Court held that mentioning a new term in the offer nullifies the original offer and becomes a counter-offer which the former offerer has liberty to either accept or reject.

Conditional acceptance

Conditional acceptance means accepting an offer but by keeping certain conditions to be fulfilled. An acceptance to be valid needs to be absolute and unqualified therefore if there is any condition put for an acceptance then that acceptance is an invalid acceptance.

In Winn v. Bull, 1877, the acceptance was made but with a condition “subject to a formal contract”. It was held that since the acceptance was not absolute and there was a condition in acceptance therefore it was an invalid acceptance.

In UBA v. Tejumola and Sons, 1988, the appellant requested a lease from the respondent but the request was made “subject to contract”. Both the parties agreed but later the appellant rescinded from the agreement. The respondent sued for breach of contract and they won in the High Court. The case was put on appeal before the Supreme Court who overturned the High Court’s judgement and held that the presence of the phrase “subject to contract” is a conditional acceptance so both the parties are still in the negotiation stage. Therefore neither of the parties are bound with a legal obligation and it’s their liberty to rescind the agreement.

Cross offer

When two offers are made by both the parties to each other having similar terms but “cross” at the post then it is a cross offer. 

In Tinn v. Hoffman & Co., 1873, there were two simultaneous offers by both the parties having identical terms but the offers crossed at the post. It was contended by one of the parties that it was a valid contract. It was held by the Court that since the parties were not consensus ad idem therefore there was no valid contract between the parties.

Acceptance in ignorance of offer

If an offer is made but the other party performs the actions asked in the offer without knowing that the offer is made then acceptance of the offer is not even possible. For an acceptance to be made, it is necessary that the offeree must have knowledge of the offer but if the offeree without knowing the offer performs certain actions that are prescribed in the offer then too it won’t constitute a valid acceptance. 

Who can give acceptance

In the case of a specific offer, the offer can be accepted by the person or his authorized agent to whom the offer has been made. Where the offer is a general offer then any person who has knowledge regarding the offer can accept the offer. This Section provides a way for the revocation after acceptance. The revocation must be done before the acceptance comes into the knowledge of the offeror. 

In Dick v. US, 1908, the acceptance of the offer was sent through the post and the revocation was sent through telegram. Since revocation reached earlier than acceptance therefore it was held that the acceptance is revoked and there is no valid contract between the parties.

Example: X offers to buy Y’s house for five lakh rupees. Here since it is a specific offer therefore either Y or Y’s authorized agents can accept the offer. 

X is a company that offers that whoever eats 100 packs of chips manufactured by them within 15 minutes will be given an award of 50 lakh rupees. Here since it is a general offer then anyone who has knowledge of the offer can accept the offer. 

In Carlil v. Carbolic Smoke Ball Co. 1893, the Court held that when an offer is made generally to the public at large then anyone who has the knowledge of the offer can come forward and accept the offer by performing what is required by the offer. Performing the requirements of a general offer would be a valid acceptance of that offer.

Revocation of acceptance

In English Contract law, an acceptance once made is irrevocable but in India an acceptance is revocable. Section 5 of the Indian Contract Act, deals with the revocation of offer and acceptance. According to this Section, an acceptance can be revoked if the acceptance is revoked at any time before the communication of acceptance is complete. Acceptance can be revoked if the revocation is received by the offeror before acceptance. 

Termination of an offer

There are certain ways through which the offer can be terminated and so the acceptance or rejection of the offer will be immaterial. Following are the ways when an offer can be terminated:

  1. If the offer prescribes a time limit and the offeree has not communicated the acceptance or rejection within the time limit stipulated then the offeror can terminate the offer.
  2. If the offeree makes certain alterations that bring or change the terms of the original offer and becomes a counter-offer then it terminates the original offer.
  3. If the offeree becomes incapable to fulfil the obligations of the offer then the offeror can terminate the offer. 
  4. The revocation of the offer shall be received by the offeree before the acceptance is sent by the offeree. This is a mailbox rule where it should be proved that the revocation of the offer is received by the offeree before he sends the acceptance. If the acceptance is sent before receiving the notification of revocation then the revocation becomes ineffective.
  5. A revocation can be expressed or implied. Express revocation is communicating revocation by words, either spoken or written. Implied revocation can be done by actions

Example: A offers to sell his house to B. Before accepting the offer if A sells the house to a third party then it is implied revocation.

  1. If the offeror terminates the offer, he forfeits the opportunity to accept it later.
  2. If either of the parties dies or becomes incapacitated then the offer automatically gets terminated.

Conclusion

For a valid contract, it is an important essential that the offer and acceptance must be valid. Invalid offer or invalid acceptance invalidates the entire contract. The Indian Contract Act provides for provisions relating to valid acceptance and when an offer or acceptance is revoked. So for a contract to be valid, it needs to be accepted. If the acceptance is not valid then neither of the parties are obliged to follow the terms of the contract and there will not be any breach of contract if anything is done which contradicts the terms of the contract. 

References

  1. https://thefactfactor.com/facts/law/civil_law/contract_laws/indian_contract_act/acceptance/377/#:~:text=Essentials%20of%20Valid%20Acceptance%3A%20It%20must%20be%20absolute,correspond%20with%20all%20the%20terms%20of%20the%20offer.
  2. https://djetlawyer.com/acceptance-contract-law/
  3. https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/acceptance/
  4. https://www.upcounsel.com/elements-of-acceptance-in-contract-law 
  5. https://lawcirca.com/revocation-of-proposals-and-acceptance-how-revocation-is-made-section-5-6-of-indian-contract-act-1857/#REVOCATION_OF_ACCEPTANCE_UNDER_INDIAN_CONTRACT_ACT 

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