Acceptance under Indian Contract Act | Law Optional Notes for UPSC PDF Download

Acceptance in Contract Formation

• Acceptance is a crucial element in establishing a valid contract under the Indian Contract Act, 1872.
• It is vital to ensure that acceptance is given correctly and within the stipulated time to prevent future disputes.
• Under the Act, acceptance represents the final and unambiguous agreement to the terms of a proposal.
• The acceptance must align with the specified manner and time outlined in the proposal or, in the absence of a specified time, within a reasonable period.
• Acceptance is defined in Section 2(b) of the Act as the assent by the person to whom the proposal is made, turning the proposal into a promise upon acceptance.
• Key points for a valid acceptance:
  • Given by the individual to whom the proposal is addressed.
  • Complies with the manner specified by the proposer.
  • Provided within the time set by the proposer or within a reasonable timeframe.
  • Must be absolute and without conditions or qualifications.
• For instance, if Company A offers to sell 100 units of a product to Company B at a specified price and Company B agrees to purchase them under the exact terms within the specified timeframe, it constitutes a valid acceptance.
• If the acceptance does not align with the specified manner or timeframe, it is considered invalid, releasing the proposer from the obligations of the proposal.
• Furthermore, acceptance can be either expressed or implied. Express acceptance involves verbal or written confirmation, whereas implied acceptance is inferred from the actions of the offeree.

Acceptance Must Be Communicated

• Acceptance must be communicated is a crucial concept in contract law, emphasizing that for a contract to be legally binding, the offeree must communicate their acceptance of the offer to the offeror.
• When a party makes an offer, the other party must clearly communicate their acceptance for the contract to be valid. This communication can take various forms, such as written, oral, or through actions, but it must be clear, timely, and unconditional.
• Failure to communicate acceptance results in no contract being formed, and the offeror is not obligated by the offer. Therefore, timely and clear communication is essential for the legal validity of a contract.

Felthouse v Bindlley

• Felthouse v Bindley is a significant case in contract law that illustrates the importance of communication in contract formation.
• The case involved a dispute over the sale of a horse where the nephew communicated his desire to purchase the horse to his uncle, but the uncle did not respond.
• The court ruled that silence or inaction by the offeror does not constitute acceptance. In this case, the uncle's lack of response meant there was no binding contract.
• The nephew's letter was considered an offer, and without the uncle's acceptance, there was no contract between the parties.

Powell v Lee

• Powell v Lee is another significant case highlighting the necessity of communicating acceptance in contract formation.
• Here, an employer offered a job to an employee, but before receiving the acceptance letter, the employer had already hired someone else.
• The court emphasized that for a contract to exist, acceptance must be communicated to the offeror. Merely relying on the offer is not sufficient to establish a contract.
• In this case, the employee's acceptance was not communicated to the employer before they hired someone else, leading to the absence of a binding contract.

By understanding these cases, we grasp the fundamental principle that acceptance must be clearly communicated for a contract to be legally binding. Both cases underscore the significance of communication in contract law and highlight that silence or inaction cannot be considered as acceptance.

Acceptance by Conduct

• Definition: Acceptance by conduct is a form of acceptance in contract law where a contract is established through the actions or behaviors of the parties involved. It is also referred to as acceptance by performance or acceptance by behavior.
• Explanation: In acceptance by conduct, the offeror doesn't receive explicit acceptance from the offeree but infers acceptance from the offeree's actions.
• Example: For instance, when a person orders a product online and the seller delivers the product without explicitly receiving acceptance, the buyer's acceptance of the product through actions can be seen as acceptance of the offer.
• Conditions: Acceptance by conduct is considered valid when the offeree's behavior aligns with the offer's terms, clearly indicating acceptance.
• Requirement: This form of acceptance requires the offer to be communicated by the offeror, and there is no necessity for acceptance through communication. The offeree's actions must unambiguously demonstrate acceptance.
• Legal Precedent: In the case of Carlill v. Carbolic Smoke Ball Company, the court ruled that the plaintiff's conduct (using the smoke ball as directed) constituted acceptance of the offer by the defendant, leading to the formation of a contract.

When communication is considered complete

Communication of acceptance is deemed complete when the offeree properly communicates acceptance to the offeror.
Rules according to the Indian Contract Act, 1872:

As against the proposer (offeror)

• Acceptance is complete when it is in the course of transmission to the offeror, beyond the control of the offeree.
• Example: If an offeree sends acceptance by post, it is complete upon posting.

As against the acceptor (offeree) when it comes to the knowledge of the proposer (offeror)

• If acceptance is directly communicated to the offeror, acceptance is complete when the proposer becomes aware of it.
• Example: If the offeree personally informs the offeror of acceptance, it is complete upon the offeror's awareness.

Transmission through authorized means

• Communication is complete when the message is transmitted through recognized means like postal service, telegraph, or fax.
• Example: If acceptance is sent via fax, it is complete upon transmission of the message.

Acceptance by Post

• Acceptance by post is a common method of communicating acceptance in contract law, where communication is considered complete once the acceptance is posted according to Section 4 of the Indian Contract Act, 1872.
• When an offeree accepts an offer by post, the communication of acceptance is deemed complete upon posting, even if the acceptance is lost, delayed, or damaged, provided it is properly addressed, stamped, and sent.

Household Fire and Carriage Accident Insurance Company v Grant

• In this case, Mr. Grant applied for a fire insurance policy from Household Fire and Carriage Accident Insurance Company. The policy stated that it would commence upon payment of the first premium.
• Mr. Grant, however, accepted the policy by sending a letter before paying the premium, leading to a dispute with the company.
• The court ruled in favor of Mr. Grant, stating that his acceptance by post was valid under the postal rule, which deems acceptance effective upon posting.

Adams v Lindsell

• Here, Lindsell offered to sell wool to Adams, with the offer reaching Adams after a delay due to an addressing error.
• Adams accepted the offer by post, but the acceptance reached Lindsell after he had sold the wool to someone else.
• The court held that the contract was formed upon posting of the acceptance, not upon its receipt by the offeror, emphasizing the postal rule's principle.
• The postal rule establishes that acceptance by post is effective upon posting, not upon receipt by the offeror, as long as postal communication is a reasonable means accepted by both parties.

By following the postal rule, parties can ensure that their acceptances are legally binding once posted, even if they are not immediately received by the offeror. This principle underscores the significance of clear communication and understanding in contractual agreements.

Place of Acceptance

• Definition of Place of Acceptance: The place of acceptance refers to the location where the offeree communicates their acceptance of an offer to the offeror. In simpler terms, it is where the offeree is situated when they accept the offer. This aspect is crucial in contract law for determining the jurisdiction and applicable laws governing the contract.
• Importance in Contract Law: Identifying the place of acceptance is vital as it helps establish the legal framework within which the contract operates. Different jurisdictions may have varying laws that could impact the terms and enforcement of the agreement.
• Example: For instance, if Company A in New York offers a contract to Individual B in California, the place of acceptance would typically be California if Individual B communicates their acceptance from there. This choice could influence which state's laws govern the contract.

Acceptance by Telephone or Telex

• Acceptance by post usually implies completion when the acceptance letter is posted, not upon the offeror's receipt, known as the "postal rule" or "mailbox rule."
• Contrarily, acceptance via telephone or telex requires the offeror to receive the acceptance for communication to be deemed complete.
• The location of the proposer is crucial for determining the place of contract in cases of acceptance through telephone or telex.

Bhagwan Das v Girdgari Lal Case

• Case Overview:
  • The case of Bhagwan Das v Girdgari Lal revolves around a property sale where the plaintiff offered a house to the defendant.
• Acceptance by Telephone:
  • The defendant accepted the offer via telephone, leading to a dispute later when the defendant refused to proceed with the transaction.
  • The court ruled that acceptance through telephone was valid, emphasizing that the mode of acceptance was less important than clear and unambiguous communication.
• Written Confirmation:
  • The defendant did not request written confirmation from the plaintiff, and the court deemed this unnecessary for the validity of the acceptance.
  • The court clarified that the acceptance through telephone became binding once communicated, making the defendant obligated to the terms of the contract.

Acceptance in Contract Law

Absolute and Unqualified Acceptance

• Acceptance in a contract must be complete and without any changes to the terms of the offer.
• Any modifications or additions to the offer constitute a counter-offer and do not create a binding agreement.
• For instance, if an offer is made to sell a car for $10,000, the offeree cannot counter-offer to buy it for $9,000.
• The principle is based on the idea that the original offer sets the terms, and any changes create a new offer.
• One classic case illustrating this concept is Hyde v. Wrench, where a counter-offer led to no valid contract.

Acceptance Must be in the Manner Prescribed by the Proposer

• When the proposer specifies a particular way in which acceptance should be conveyed, the offeree must adhere to that method. This rule is known as the "acceptance must be in the manner prescribed by the proposer."
• The manner of acceptance can be explicitly stated by the proposer or inferred from their past practices. For instance, if the offer states that acceptance should be via email or fax, the offeree must comply with this requirement.
• By setting out the manner of acceptance, clarity is ensured for both parties regarding the acceptance process. Failure to accept in the specified manner renders the acceptance invalid, and no contract is formed as a result.

Examples:

• Scenario 1: If a company sends an offer letter to a candidate stating that acceptance must be via post, the candidate must send back the signed offer letter through postal mail for it to be considered valid.
• Scenario 2: In a real estate transaction, if the seller specifies that acceptance of the offer must be in person at their office, the buyer cannot simply email their acceptance but must physically go to the seller's office to accept the offer.

Importance of the Principle:

• By enforcing this principle, the Indian Contract Act ensures that parties are in agreement on the method of acceptance, minimizing misunderstandings and disputes.
• It protects the proposer's interests by ensuring that acceptance is communicated in a manner that is convenient or preferable to them, as stated in the offer.