ACCEPTANCE

Definition

Section 2(b) defines acceptance as follows:

“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.”

Communication of Acceptance

Acceptance by external manifestation or overt act

The definition clearly requires that the assent should be signified. It may be
signified or expressed by an act or omission by which the party accepting intends
to communicate his assent or which has the effect of communicating it. A very
common instance of an act amounting to acceptance is the fall of the hammer in
the case of an auction sale. The principle is that there should be some external
manifestation (overt sale) of acceptance. A mere mental determination to accept
unaccompanied by any external indication will not be sufficient. In the words of
Justice Shah: “An agreement does not result from a mere state of mind: intent to
accept an offer or even a mental resolve to accept an offer does not give rise to a
contract. There must be some external manifestation of that intent by speech,
writing or other act.”

Case Law

1. Brogden v. Metropolitan Railway Co., 1877

‘B’ had been supplying coal to a railway company without any formal agreement.
‘B’ suggested that a formal agreement should be drawn up. The agents of both the
parties met and drew up a draft agreement. It had some blanks when it was sent to
‘B’ for his approval. He filled up the blanks including the name of an arbitrator and
then returned it to the company. The agent of the company put the draft in his
drawer and it remained there without final approval having been signified. ‘B’ kept
up his supply of coals but on the new terms and also received payment on the new
terms. A dispute having arisen ‘B’ refused to be bound by the agreement.
The conduct of the company’s agent in keeping the agreement in his drawer was an
evidence of the fact that he had mentally accepted it. But he has not expressed his
mental determination and retention of the agreement was not a sufficient
acceptance. But the subsequent conduct of the parties in supplying and accepting
coal on the basis of proposed agreement was a conduct that manifested their
intention.

Acceptance by Conduct

Another common example of acceptance by conduct is an action in terms of the

offer. All cases of general offers, which are a kind of unilateral contract, demand
some act in return for the promise to pay. In express recognition of this principle
Section 8 provides that “performance of the conditions of a proposal, of the
acceptance of any consideration for a reciprocal promise which may be offered
with a proposal, is an acceptance of the proposal.” Such proposals demand
acceptance by performance.”

Position under Indian Law:

We will require help from the decision of the Calcutta High Court in Hindustan
Coop Insurance Society v. Shyam Sunder, 1952.

After an oral understanding to insure and the completion of the medical

examination, the company informed the proposer that if he submitted the proposal
form and deposited the half-yearly premium, his proposal would be accepted. The
company encashed the cheque but had not yet replied to him their acceptance of
proposal that the proposer died. The question was whether by encashing the cheque
the company had accepted the proposal without there being the formal acceptance.
HARRIS CJ referred to the English authorities and said:

Mere mental assent to an offer does not conclude a contract either under the Indian
Contract Act or in English Law. The offeror may, however, indicate the mode of
communicating acceptance either expressly or by implication both in Indian and
English Law. The deceased indicated clearly the mode of acceptance of his
proposal. The deceased indicated clearly that if the appellant accepted his proposal
the cheque should be appropriated towards the first premium and that such
appropriation would conclude the bargain. The cheque was received on that
implied understanding.

Where, on the other hand, the insurer had received the proposal form along with
the first premium and it was still awaiting acceptance when the proposer died, no
liability to pay arose. It was immaterial that the groundwork for acceptance was
under preparation and the agent had assured that the proposal would be accepted.
Acceptance is completed only when communicated to the offeror.

Whether expressly or impliedly, the fact remains that acceptance has to be

signified. In the other words of BOWEN LJ: “One cannot doubt that, as an
ordinary rule of law, an acceptance of an offer made ought to be notified to the
person who makes the offer in order that the two minds may come together. Unless
this is done the two minds may be apart, and there is not that consensus which is
necessary according to the English Law to make a contract.”

Comunication to offeror himself

Further, acceptance must be communicated to the offeror himself. A

communication to any other pers0on is as ineffectual as if no communication has
been made.

Case law: Felthouse v. Bindley, 1863

The plaintiff offered by means of a letter to purchase his nephew’s horse. The letter
said: “If I hear no more about the horse, I consider the horse mine at 33.15
Pounds.” To this letter no reply was sent. But the nephew told the defendant, his
auctioneer, not to sell the horse as it was already sold to his uncle. The auctioneer
by mistake put up the horse for auction and sold it. The plaintiff sued the
auctioneer on the ground that under the contract the horse had become his
property, and therefore, defendant’s unauthorised sale amounted to conversion. But
the action failed.

The court said: “It is clear that the nephew in his own mind intended the uncle to
have the horse, but he had not communicated his intention to the uncle.” The case
is also an authority for two further propositions. One of them is that the acceptance
of an offer made should be communicated to the offeror himself or to the person he
has authorised to receive the acceptance. A communication to a stranger, like the
auctioneer in this case, will not do.

Offer cannot Impose Burden of Refusal

Secondly, an offeror cannot impose upon the offeree the burden of refusal. The
offeror cannot say that if no answer is received within a certain time, the same
shall be deemed to have accepted. “It is not open to an offeror to stipulate against
an unwilling offeree that the latter’s silence will be regarded as equivalent to
acceptance. He cannot force him to take a positive course of action under penalty
of being contractually bound if he does not.”

Communication by acceptor himself

The natural corollary of this principle is that the communication of acceptance
should be from a person who has the authority to accept. Information received
from an unauthorised person is ineffective.

Case law: Powell v. Lee, 1908

The plaintiff was an applicant for the headmastership of a school. The managers
passed a resolution appointing him, but the decision was not communicated to him.
One of the members, however, in his individual capacity informed him. The
managers cancelled their resolution and the plaintiff sued for breach of contract.

Rejecting the action the court observed: “There must be notice of acceptance from
the contracting party in some way. Information by an unauthorised person is as
insufficient as overhearing from behind the door.”

When communication not necessary

There may be an offer which impliedly indicates that acting on its terms will be a
sufficient acceptance. Announcement to pay reward for discovering a lost thing is
an offer of this kind. Again, the offeror may have acquiesced in a certain conduct
on the part of the acceptor as equivalent to acceptance. In such a case also no
formal communication of acceptance is necessary.

In a unilateral contract the offer demands an action, e.g., a reward for swimming
across a river. The other party has only to perform the act and not to give a promise
in return. Where the other party has to promise or undertake to do something, the
requirement of the notification of his acceptance should not be allowed to be
dispensed with.

Mode of Communication

Acceptance Should be Made in Prescribed Manner

Acceptance has to be made in the manner prescribed or indicated by the offeror.

An acceptance given in any other manner may not be effective, particularly where
the offeror clearly insists that the acceptance shall be made in the prescribed
manner. An American case illustrates this:

Eliason v. Henshaw, 1819

‘A’ offered to buy flour from ‘B’ requesting that acceptance should be sent by the
wagon which brought the offer. ‘B’ sent his acceptance by post, thinking that this
would reach the offeror more speedily. But the letter arrived after the time of the
wagon. ‘A’ was held to be not bound by the acceptance.

What would have been the result if the mail had reached earlier than the wagon?
According to Winfield and Cheshire and Fifoot, in that case the offeror would have
been bound unless “he had an exclusive preference for reply by wagon.” A minor
departure from the prescribed mode of communication should not upset the fact of
acceptance provided that the communication is made in an equally expeditious
way, “for, in a case where the offeree was told to reply ‘by return of post’ it was
said by the Court of Exchequer Chamber that a reply sent by some other method
equally expeditious would constitute a valid acceptance.”

Where the notice to exercise an option to purchase a building land was required to
be sent by registered or recorded delivery post but it was sent by ordinary post and
received within time, the court was of the opinion that the letter amounted to
binding contract even though it was sent by ordinary post.

Note: This Anglo-American rule has, however, not been strictly followed in the
Indian Contract Act. Section 7 deals with this matter.

7. Acceptance must be absolute – In order to convert a proposal into a promise,

the acceptance must – (1) be absolute and unqualified, (2) be expressed in some
usual and reasonable manner, unless the proposal prescribes the manner in which it
is to be accepted. If the proposal prescribes a manner in which it is to be accepted,
and the acceptance is not made in such manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his
proposal shall be accepted in the prescribed manner, and not otherwise; but, if he
fails to do so, he accepts the acceptance.

Effect of Departure from Prescribed Manner

The section no doubt requires that acceptance should be made in the manner
prescribed in the proposal. But a departure from that manner does not of itself
invalidate the acceptance. A duty is cast on the offeror to reject such acceptance
within reasonable time and if he fails to do so, the contract is clinched on him and
he becomes bound by the acceptance. The section thus marks a visible departure
from the English Law and should, therefore, be read without reference to the
English Law on the subject.

English law is also now coming partly in line with Section 7. It contains the
following provisions:

1. An acceptance containing additions, limitations, or other modifications shall be

rejection of the offer and shall constitute a counter-offer.

2. However, a reply to an offer which purports to be an acceptance but which

contains additional or different terms which donot materially after the terms of the
offer shall constitute the acceptance unless the offeror promptly objects to the
discrepancy; if he doesnot object, the terms of the contract shall be the terms of the
offer with the modifications contained in the acceptance.

It has been held by the Calcutta High Court in the case of Surendra Nath Roy v.
Kedar Nath Bose, 1936 that where an offeror requires that the acceptance should
be sent to a particular person, it “has to be read in a reasonable and in a sensible
manner” and there was no violation of Section 7 when the offeree, instead of
writing to the particular person, met him personally to communicate his
acceptance. The defendant was bound by the acceptance.

There is however, one advantage to the acceptor in following the prescribed mode.
By giving his acceptance in that mode, he has done all that the offeror required him
to do and he is entitled to the contract, even if the acceptance does not reach the
offeror.

Where no Manner Prescribed: Reasonable and Usual Manner

Where no mode of acceptance is prescribed, acceptance must “be expressed in

some usual and reasonable manner”. Mail is, of course, a very reasonable manner
in such cases. In England the rule is that where an offer is received through post,
acceptance may also be communicated by the post. But in India, in view of the
language of Section 7, post may be used as a mode of communication in all cases
where it is reasonable, except when the offer requires a particular form of
communication.

When contract concluded (Postal Communication)

When the parties are at a distance and are contracting through post or by
messengers, the question arises when is the contract concluded? Does the contract
arise when the acceptance is posted or when it is received. The question first arose
in the case of Adams v. Lindsell, 1818.

On September 2, 1817, the defendants sent a letter offering to sell quantity of wool
to the plaintiffs. The letter added “receiving your answer in course of post”. The
letter reached the plaintiffs on September 5. On that evening the plaintiffs wrote an
answer agreeing to accept the wool. This was received by the defendants on
September 9. The defendants waited for the acceptance up to September 8 and not
having received it, sold the wool to other parties on that date. They were sued for
the breach of contract.

The court held that then according to the actions of defendants, no contract can
ever be completed by post. For if the defendants were not bound by their offer
when accepted by the plaintiffs till the answer was received, then the plaintiffs
ought not to be bound till after they had received the notification that the
defendants had received their answer and assented to it. And so it might go on ad
infinitum (endlessly).

This rule was affirmed by the Court of Appeal in Household Fire & Accident
Insurance Co v. Grant, 1879.
The defendant in this case had applied for the allotment of 100 shares in the
plaintiff company. A letter of allotment addressed to the defendant at his residence
was posted in due time, but it never reached the defendant. Nevertheless he was
held bound by the acceptance.

Thesiger LJ stated the rule thus: “The acceptor, in posting the letter has put it out
of his control and done an extraneous act which clinches the matter, and shows
beyond all doubt that each side is bound. How, then, can a casualty in the post
office, whether resulting in delay, which in commercial transactions is often as bad
as no delivery, or in non-delivery, unbind the party or unmake the contract.”

The Indian Contract Act, in Section 4 adopts a rather peculiar modification of the
rule. According to the section, when a letter of acceptance is posted and is out of
the power of the acceptor, the proposer becomes bound. But the acceptor will
become bound only when the letter is received by the proposer.

Section 4. Communication when complete – The communication of an

acceptance is complete, as against the proposer, when it is put in a course of
transmission to him, so as to be out of the power of the acceptor; as against the
acceptor, when it comes to the knowledge of the proposer.

Thus the provision makes no difference in the position of the offeror. The offeror
becomes bound when a properly addressed and adequately stamped letter of
acceptance is posted. This aspect was emphasised by the Allahabad High Court in
the case of Ram Das Chakarbarti v. Cotton Ginning Co Ltd., 1887.

A letter of allotment of shares was claimed to have been posted by a company, but
the applicant denied to have received it.

The high court said: “It follows from this (Sections 4 and 5) that a notice of
allotment, which is the acceptance of the offer to purchase shares, is communicated
to the allotee when it is dispatched, and from that moment there is a complete
contract for him. Whether or not he receives the letter is absolutely immaterial.”
However, the company failed to furnish any evidence of the posting of the notice
of allotment.

The contract is concluded at the place from where the proposal is accepted
and communication of acceptance is despatched, i.e., the address at which the
proposal was sent. The court at that place would have jurisdiction to entertain
a cause of action under the contract.

Difference between English and Indian Laws

In England when a letter of acceptance is posted, both the offeror and the acceptor
become irrevocably bound. But in India, the acceptor does not become bound by
merely posting his acceptance. He becomes bound only when his acceptance
“comes to the knowledge of the proposer.” The gap of time between the posting
and the delivery of the acceptance can be utilised by the acceptor for revoking his
acceptance by a speedier communication which will overtake the acceptance.

The peculiarity of this rule is that after an acceptance is posted and before it comes
to the knowledge of the offeror, only one party, that is, the offeror, is bound. The
acceptor still has the right to recede from the contract by revoking his acceptance.
A contract, on the other hand, means an agreement which binds both the parties to
it.

When Parties in Direct Communication

Where the parties are in each other’s presence or, though separated in space, they
are in direct communication, as, for example, by telephone, no contract will arise
until the offeror receives the notification of acceptance. Suppose, for , instance,
that I shout an offer to a man across a river or a courtyard but I do not hear his
reply because it is drowned by an aircraft flying overhead. There is no contract at
that moment. If he wishes to make a contract, he must wait till the aircraft is gone
and then shout back his acceptance so that I can hear what he says. Now take a
case where two people make a contract by telephone. Suppose, for instance, that I
make an offer to a man by telephone and, in the middle of his reply, the line goes
‘dead’ so that I do not hear his words of acceptance. There is no contract at the
moment.

CASE LAW: Entores Ltd v. Miles Far East Corporation, 1955

The facts of the case were that an offer was made from London by telex to a party
in Holland and it was duly accepted through the telex, the only question being as to
whether the contract was made in Holland or in England. The court of Appeal held
that telex is a method of instantaneous communication and “the rule about the
instantaneous communications between the parties is different from the rule about
the post. 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.”

Where, however, the proposal and acceptance are made by letters, the contract is
made at the place where the letter of acceptance is posted.

Where a premium due on a life insurance policy was sent by money order, it was
held that the policy had revived from the date of the money order and not from the
date of its receipt by the company. The assured having died in the meantime, his
widow recovers the proceeds.

Supreme Court Approval of Entores case

The principle of the Entores case has been endorsed by the Supreme Court in the
case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co.,
1966.

In this case, the plaintiffs made an offer via fax from Ahmedabad to the defendants
at Khamgaon to purchase certain goods and the defendants accepted the offer. The
question was whether the conversation resulted in a contract at Khamgaon or at
Ahmedabad.

It was held that communication by fax is similar to communication by telex.

Communication by fax is also instantaneous communication. If operates through
telephone connection, the normal rule applies. Fax communication, like telephonic
communication, becomes complete when the acceptance is received by the offeror.

Absolute and Unqualified

In order to convert a proposal into a promise, the acceptance must be absolute and
unqualified.

Partial Acceptance

Acceptance should be whole of the offer. The offeree cannot accept a part of its
terms which are favourable to him and reject the rest. Such an acceptance is
another kind of counter proposal and does not bind the offeror unless he agrees to
the qualified acceptance. Thus, in a case:

An application for certain shares in a company was made on the condition that the
applicant would be appointed cashier in a new branch of the company. The
company allotted him some shares without fulfilling the condition and claimed the
share money.

It was held “that the petitioner’s application for 100 shares was conditional and
that he had no intention to become a member of the company when he applied for
the shares until he was appointed a cashier in the branch office.”

Inquiry into terms of proposal

A mere inquiry into the terms of a proposal is not the same thing as a counter-
proposal. In a negotiation for the sale of a quantity of iron, the proposal was “I
would now sell for 40s. net cash, open till Monday.” The offeree inquired by wire
whether the offeror would accept 40s. for delivery over two months or less. The
offeror, treating this as a rejection, sold off the goods. He was held liable for the
breach. To seek an explanation of the terms is something different from
introducing new terms. An inquiry about the technical details of a proposal is not a
counter-proposal. On acceptance of the proposal, the contract will be created on
the basis of the terms and conditions of the original proposal including arbitration
clause.

Acceptance with condition subsequent

If an acceptance carries a condition subsequent, it may not have the effect of a

counter-proposal. Thus, where an acceptance said: “terms accepted, remit cash
down Rs 25,000/- by February 5, otherwise acceptance subject to withdrawal”, this
was not a counter-proposal, but an acceptance with a warning that if the money
was not sent the contract would be deemed to have been broken.

Acceptance of counter proposal

When a counter proposal is accepted, a contract arises in terms of the counter-

proposal, and not in terms of the original proposal.

Provisional acceptance
An acceptance is sometimes made subject to final approval. A provisional
acceptance of this kind does not ordinarily bind either party until the final approval
is given. Meanwhile the offeror is at liberty to cancel his offer. The decision of the
Punjab High Court in Union of India v. S. Narain Singh, 1953 is an illustration in
point. The court observed as follows:

Where the conditions of auction sale of liquor shop expressly provide that the
acceptance of the bid shall be subject to the confirmation of the Chief
Commissioner, there will be no complete contract till the acceptance of the highest
bid is confirmed by the Chief Commissioner and the person whose bid has been
provisionally accepted is entitled to withdraw his bid.

The bidder will have the right to withdraw his bid even where it is a condition of
the auction sale that a bid which has been provisionally accepted cannot be
withdrawn. “Such a prohibition against withdrawal does not have the force of law
unless there is some consideration to bind him down to the condition.”

When a provisional acceptance is subsequently confirmed, the fact should be

notified to the offeror, for it is only then that he becomes finally bound. An
acceptance is not complete till communicated. A mere noting of acceptance in the
auction file inside the office is not enough. Even if gthe bidder comes to know of
that fact of his own, that will not do.

Acceptance and withdrawal of tenders and bids

A tender is in the same category as a quotation of prices. It is not an offer. When a

tender is approved, it is converted into a standing offer. A contract arises only
when an order is placed on the basis of the tender.

Case law: Bengal Coal Co Ltd v. Homee Wadia & Co, 1899

The defendants signed an agreement which, among other terms, provided: “The
undersigned have this day made a contract with Messrs Homee Wadia for a period
of 12 months for the supply of a kind of coal from time to time as required by the
purchasers.” Certain orders were placed and were complied with by the defendants.
But before the expiry of 12 months they withdrew their offer and refused to
comply with further orders. They were accordingly sued for the breach of contract.
The court observed as follows:

“There is no contract, but simply a continuing offer, and that each successive order
given by the plaintiffs under it was an acceptance of the offer as to the quantity
ordered, and that thus the offer of the defendants and each successive order of the
plaintiff together constituted a series of contracts. The defendants could not revoke
their offer as to orders actually given, but except as to them, they had full power of
revocation.”

No Obligation to Accept Tender or Lowest Tender

A party inviting tenders is not bound to accept any tender, nor it is bound to accept
the lowest tender. But where the party is a Government or any of its agencies, it
should not arbitrarily pick and choose. It should have some rules and those rules
must require reasons for departure from the normal principle to be recorded in
writing. Accordingly, where an authority ignored the claim of the lowest tenderer
because of his bad history and awarded the contract to the next lowest tenderer,
their action is justified.

Case law: Cambatta Aviation Ltd v. Cochin International Airport Ltd., 1999

The evaluation authority considered all the aspects and found the appellant to be
the most competent tenderer to be awarded the contract. The board of Directors
selected another tenderer (the respondent). This decision was taken by the Board
even before taking a decision on the soundness of the other tenderers. The minutes
of the Board meeting did not give any reason as to why the Board decided to invite
the respondent. The respondent was then persuaded to make a matching offer with
that of the appellant. The court declared that the Board of Directors adopted a
procedure which was clearly violative of the principles of natural justice. The
award was accordingly held to be arbitrary and illegal.

Thus summing the Acceptance part, we came to the conclusion that acceptance has
the following essentials:

1. Communication of the acceptance.

2. Mode of acceptance.
3. Absolute and unconditional acceptance.

4. Acceptance before lapse of offer.