Supreme Court on Law of Contract and Acceptance of a Conditional Offer

 

Introduction

 

In the case that we are going to discuss today, M/s Padia Timber Company (P) Ltd. v. The Board of Trustees of Vishakhapatnam Port through its Secretary, Civil Appeal No. 7469/2008, the Hon’ble Supreme Court of India answered the following question: - 

 

Whether the acceptance of a conditional offer with a further condition results in a concluded contract, irrespective of whether the offerer accepts the further condition proposed by the acceptor?

 

Important Provisions of Law

 

In order to answer the above, the Court first discussed Section 4 and Section 7 of the Indian Contract Act, 1872. The same have been reproduced as under: -

 

“4. Communication when complete.—The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

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.

The communication of a revocation is complete,—

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;

as against the person to whom it is made, when it comes to his knowledge.”

 

“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.”

 

Observations by the Court

 

Thus, the Court observed that existence of offer and acceptance of an offer must be absolute, and it must be founded on three components: -

 

1. Certainty

2. Commitment

3. Communication

 

In case, the acceptor puts in a new condition while accepting the contract that has already been signed by the offerer, the Contract will not get completed until the offerer accepts the new condition.

 

Important Cases Discussed

 

While explaining the jurisprudence behind acceptance of a contract, the Court started with the case of Raghunandhan Reddy v. The State of Hyderabad thr. The Secretary to Government Revenue Department, AIR 1963 AP 110, wherein the Court expounded in following terms: -

 

“8. It is a well-established principle of law that only when an offer is accepted that the contract is concluded and binds the parties. It is equally well-settled that before an offer is accepted, the offerer can withdraw his offer, but if the acceptance is conditional or is not final, then there is no concluded contract.”

 

In the case of Haridwar Singh v. Bagun Sumbrui and Ors., AIR 1972 SC 1242, it was observed by the Court that an acceptance with a variation is no acceptance and is simply a counter proposal that is required to be accepted in toto by the original proposer, before a contract is made.

 

Further, the Court cited the case of Union of India v. Bhim Sen Walaiti Ram, (1969) 3 SCC 146, wherein it was held that “acceptance of an offer may be either absolute or conditional. If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place.”

 

Concluding Remarks

 

The Court concluded by stating that in response to an offer, where there is conditional acceptance which is not agreed upon by the offerer unconditionally, then it could not be said that there was a concluded contract. And when there is no concluded contract, there is no question of any breach of that contract.

 

In find it to be a welcome judgment as in the business world, there are constant negotiations going on between the parties who wish to enter into a contract. Such parties must remain cautious as until there is a concluded contract, it cannot be enforced, and no question of any breach would arise.

 

It also gives an important lesson that acceptance of any offer has to be unconditional and till that happens, the parties must not assume that there exists a concluded contract. Hence, with respect to the question stated at the outset of this article is answered in negative and it could be said that the acceptance of a conditional offer with a further condition does not result in a concluded contract, irrespective of whether the offerer accepts the further condition proposed by the acceptor.