Introduction

• For any contract to come into existence the first step is proposal and acceptance.
• No valid contract can come into existence unless there is a valid acceptance of proposal.

Definition of Proposal and Acceptance

• Section 2 (a) of Indian Contract Act, 1872 (ICA) defines proposal as:
  • When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining assent of the other, he is said to make a proposal
• Section 2 (b) of ICA provides that when a person to whom the proposal is made signifies his assent thereto the proposal is accepted.
• A proposal when accepted becomes a promise.

Communication of Acceptance

• Section 3 of ICA provides for communication, acceptance and revocation of proposals.
  • As per this Section the communication of acceptance shall be deemed to have been made by an act or omission;
    • By which he intends to communicate.
    • Or which has the effect of communicating it.
• Postal Rule
  • Section 4 of ICA provides when the communication of acceptance is complete. The situation covered here is called postal rule i.e. when acceptance is communicated by post.
  • Communication of acceptance is complete

• • According to Anson “acceptance is to offer what a lighted match is to a train of gunpowder.”
  • However, the above would not be true in the Indian context with respect to postal rule. This is because the acceptance can indeed be revoked.
  • Adam v. Lindsell (1818):
    • The letter containing an offer to sell quantity of wool reached the plaintiff on 5th September.
    • The plaintiff posted a letter of acceptance which reached the defendant on 9th September.
    • The defendants waited for acceptance till 8th September and then sold the wool to other parties.
    • The defendant was sued for breach of contract, and they contended that unless acceptance is actually received it is not a binding contract.
    • The Court however, held that complete contract arises the moment the letter of acceptance is posted.
  • Household Fire and Accidental Insurance Co v. Grant (1879):
    • The defendants made an application for allotment of shares in the company of the plaintiff.
    • The plaintiff posted a letter of acceptance, but it did not reach in due time.
    • The Court held that the contract came into existence the moment the letter of acceptance was posted.
• Communication by Telephone or Telex
  • The ICA does not specify when acceptance is complete in case the communication is instantaneous and not by way of post.
  • Entores Ltd v. Miles Far East Corporation (1955):
    • The plaintiff made an offer from London to the defendant in Holland.
    • The offer was accepted by the telex machine of the plaintiff in London.
    • In this case, it was held that in the case of instantaneous communication the contract is only complete when the acceptance is received by the offeror and the contract is made at the place where the acceptance is received.
  • Bhagwandas v. Girdharilal (1966):
    • In this case the appellant Bhagwandas Goverdhandas Kedia Oil Mills had agreed to supply the seeds to the respondent M/s. Girdharilal Parshottamdas and Co. over a telephone.
    • The Supreme Court held that if the offer is made by telephone the place of acceptance will be the place where the communication of acceptance is received by the person who made the offer, or we can say the place where the offeror is present.

Essentials of a Valid Acceptance

• Section 7 of the ICA provides that the acceptance must be absolute.
  • Acceptance must be:
    • Absolute
    • Unqualified
  • Manner of Acceptance:
    • It must be expressed in some usual and reasonable manner.
    • If the proposal prescribes the manner of acceptance the same must be followed.
    • If the manner is prescribed and the acceptance is not made in that manner.
    • The proposer may within reasonable time insist that the proposal be accepted in prescribed manner
    • If he fails to do so he accepts the acceptance.

Types of Acceptance

• As per Section 8 of ICA, the acceptance can be by:
  • Performance of conditions, or
  • Acceptance of any consideration for reciprocal promise.
• Acceptance by performance of conditions:
  • Carllil v. Carbolic Smoke Ball Company (1983):
    • In this case there was a company that produced a new product called smoke ball to cure influenza.
    • There was an advertisement floated that said if anyone gets sick with influenza even after using the prescribed course they will be rewarded with 100 pounds.
    • A case was filed by the customer against the company on the ground that they contracted influenza.
    • The Court in this case held that anybody who performs the conditions in the advertisement accepts the offer. Thus, performance of conditions is acceptance to offer.
• Acceptance by any other person not valid:
  • Powell v. Lee (1908);
    • There was an opening for a post in school. The plaintiff applied for the same.
    • The application was referred to the Board members and they were having a discussion wherein they decided to hire the plaintiff.
    • There was no information regarding the same to the plaintiff. However, one of the board members went and communicated the same to the plaintiff.
    • Later on, his appointment was cancelled. The suit was brought by the plaintiff.
    • The Court held in this case that for a valid acceptance to come into existence there has to be some authorized person who conveys the same to plaintiff.
    • Here the communication was not made in an official capacity and hence it was not valid communication.
• Silence does not amount to Acceptance:
  • Felthouse v. Bindley (1862):
    • In this case an uncle said to his nephew “If I hear no more about him, I consider the horse mine.”
    • The nephew did not reply. However, later the horse was old by accident.
    • The uncle filed a suit against the nephew.
    • The Court held in this case that there was no contract as there was no acceptance.
    • The Court held that silence does not amount to acceptance.
• Counter offer does not amount to Acceptance:
  • Hyde v. Wrench (1840):
    • In this case Wrench offered to sell his land to Hyde for 1200 pounds.
    • Hyde, however, offered to buy the land at 950 pounds. Wrench refused to sell it at 950 pounds.
    • Thereafter, Hyde agreed to buy the land at 1200 pounds.
    • He later filed a suit for breach of contract.
    • The Court held that there was no contract as it was a counter offer and there was no acceptance.

Revocation of Acceptance

• Section 5 of ICA provides for revocation of both acceptance and proposal.
  • It provides that an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards

Conclusion

Acceptance is a very important component of a contract. No valid contract can come into existence without a valid acceptance. Acceptance must follow the rules as mentioned above.