ACCEPTANCE AND MODES OF ACCEPTANCE UNDER INDIAN CONTRACT ACT 1872

ACCEPTANCE AND MODES OF ACCEPTANCE UNDER INDIAN CONTRACT ACT 1872

Share this

The primary legislation that governs the various aspects of the formation, acceptance, revocation or performance of contracts is the ‘Indian Contract Act 1872’. For a contract to come in force there are certain elements that need to be satisfied namely-

Proposal

Acceptance 

Consideration

Although the topic of proposal and consideration act as the cornerstones of the legislation for the sake of this paper we shall keep our attention limited to the topic of acceptance and the various intricacies involved in the topic.

A contract is started with the offer which means that ‘When one person signifies to another person his willingness to do or not to do something with a view to obtain the assent of another person then this is said to be offer or proposal. [1] And when this offer is accepted by another person then it is called acceptance. 

What is Acceptance under the Indian Contract Act 1872?

The word “acceptance” is broadly defined under our Indian Contract Act 1872 under article 2(b). Which states that ”When the person to whom the proposal is made signifies his assent to the proposal is said to be accepted”. [2] 

It is aptly said that “acceptance is to offer what is a lighted match to a train of gunpowder”

This statement is described by Anson which is related to the revocation of proposal & acceptance. The statement basically comes under English law. The segregated explanation is as under;

 Gunpowder = offer

 lighted matchstick = acceptance 

This means that when a matchstick is lighted to a train of gunpowder and it explodes then something has happened which destroyed everything. Similarly when an offer is accepted, so then it will not be revoked. But as we are concerned with a lighted matchstick is to show the gunpowder remains to insert and cannot be removed.

In short when the offer is accepted then the contract comes into legal existence, this ensures that once the acceptance is made it cannot be revoked. Because the offer is conditional but acceptance cannot be conditional. But in our Indian contract act, acceptance can be revoked by the quick means of communication. So that the offeree can learn something about before his/her acceptance.

When an offer is made to the other party (offeree) then for the contract to come in force there is a compulsion that that offer should be accepted by the offeree and he must communicate his acceptance to the offeror otherwise it would be assumed that there was no meeting of minds for the purpose of the contract to come in force. But at the same time, there is a condition attached to it that is that one can accept the offer only in its entirety and not conditionally. 

If ‘A’ makes an offer to ‘B’ then he must accept the offer made by the offeror in the same terms and conditions as mentioned and if he makes some alterations to the original offer then he is deemed to have made a counteroffer and then the onus is on ‘A’ to accept or reject that counter offer.

As mentioned above the offeree must communicate his acceptance of the offer to the offeror. Here it is meant that the offeree must make the offeror informed that he is accepting the offer by either some express communication or by conduct.

How acceptance of the contract is communicated to the offeror?

1. Communication of Acceptance by express communication

When communication is made by word of mouth, letters, telegram, advertisement or something of that sort.

2. Communication of Acceptance by Conduct

When communication is made by any kind of act that would convey a meaning that the offeree is willing to or is signifying his or her acceptance to the contract is deemed as acceptance of the contract by conduct. The act should be a positive one. Moreover, the acceptance must be communicated to the offeror himself otherwise it would be of no use. In the Indian Contract Act when the person signifies his assent to the proposal is made then it is said to be accepted and when the offer is accepted then it is said to be promising. But there is a certain legal rule which makes acceptance a valid acceptance: 

What are the Rules of Valid Acceptance 

1. Acceptance should be properly conveyed and should be accepted by the person to whom the offer is made

In this situation two conditions are applied in the case of SPECIAL OFFER it is necessary that the offer is only conveyed to the person to whom the offer is made, but in case of general offer, it can be conveyed and accepted to any person who has the knowledge of that offer. 

2. Acceptance can be expressed and implied

 Acceptance may be expressed when it is expressed verbally and nonverbally and it is implied where the offer by the parties by action or any conduct. 

3. Acceptance must be absolute and unqualified

 This legal rule of acceptance is said that the offer must be accepted after every term and conditions are accepted, if any of the term and condition is not accepted then it is known as a counteroffer, not a valid acceptance. Therefore it shows that offer is conditional but acceptance cannot be conditional. It can be better understood by the landmark case ‘Hyde v Wrench’ [1840]. [3]

4. Acceptance must be in the most prescribed mode

Section 7(2) of Indian Contract Act says that the offeror has to prescribe any mode of acceptance and it is accepted in that prescribed manner only, but when no mode of acceptance is prescribed by the offeror, it will not come under reasonable manner. Although it is not accepted in the prescribed mode then the offeror should inform the offeree that acceptance was not made in the prescribed manner within a reasonable time. In case the offeror may not be able to inform the offeree so the offeror is deemed to have accepted his acceptance.   

5. Silence cannot be a mode of acceptance

 Offer may be conditional but acceptance may not be conditional this shows that an offer should not impose any extra or unnecessary burden on the offeree to communicate his non-acceptance. This rule is better understood by the landmark case Felthouse vs. Bindley (1862) [4].   

6. Acceptance must be made before the offer is revoked or lapse

It is very important that acceptance is made before the revocation, lapse or withdrawal of the offer by the party who made it. But after the offer is a lapse or revoked it cannot be accepted as there is nothing in the offer to be accepted. So it is very important that once an offer lapses, it cannot be made again.  

7. Acceptance must be made within the intention to fulfil the terms

It is very important that the acceptance must be made in such circumstance which shows an intention on the part of acceptor to fulfil the terms of promise if there is no legal intention for the fulfilment of the promise so it will not be considered as a valid acceptance. 

8. Mental acceptance is not considered to be a valid acceptance

This rule of acceptance says that making one person get ready to accept the offer is not enough, but also convince the person to do the same act. If it does not happen, so it will not be considered as a valid contract, example-the manager of the airlines’ company accepted a draft agreement for seeking the supply of new seats in the craft, but the manager did not communicate his acceptance to the supplier and due to delay in the supply the matter has been taken up in court and court says that there was not a valid contract because there is no communication of acceptance by the airlines manager.  

9. For a valid acceptance, it must be communicated first to the party

It is very important that the acceptance must be communicated because without acceptance it cannot be considered as a binding contract.  

Understanding communication under The Indian Contract Act

The word communication is deeply described with a prescribed time period and its revocation of the contract. According to the Indian Contract Act 1872 communication can be defined in section 2(a)&(b) which says that promisor has to signify his willingness and a promisee has to signify his assent. It is, therefore, necessary to define what is meant by such significations and the mode of such signification, this is described as communication. The completion of communication is defined in section 4 which says that the proposal is said to be completed when the person to whom the proposal is made knows about the proposal or came into the knowledge of that person but sometimes this communication is revoked by any of the party and which leads to creating some conflict between two parties but our Indian Contract Act also give some resistance to remove this conflict and in section 5 of the Indian contract act speaks about the revocation of proposal and acceptance which says that the revocation of the proposal is made any time but before the communication of the acceptance is completed against the proposer but it cannot be entertained afterwards. It means that the party can revoke this proposal before the proposal is not come into the knowledge of the promisor but not afterwards and something happens in the case of promise a promisee can revoke his acceptance before his acceptance is not communicating to the promisor but not afterwards. 

For example, Mr A sent a proposal to Mr B to make the promise to sell his house for rupees 10,00,000 and sent a post on 5 July 2019. This post reaches on 7 July 2019 to Mr B and Mr B accepts his offer and sends a post to Mr A for his acceptance. Now neither Mr A nor Mr B cannot revoke his promise and acceptance. But they can be revoked only when the communication between both parties is not completed. 

Modes of Acceptance under the Indian Contract Act

With the advent of information technology in the 21st century, the modes of communication have changed over the period of time and people have moved on to the new modes of communication such as e-mails, fax, telephone, etc. Initially, offer and acceptance was mainly done in the form of postal communication but today, we have varied forms of communications which are much faster and more convenient like emails, and we term them as instantaneous modes of communication. Today, for the purpose of commercial contracts, email is the most prominent one. So, with the change in methods of communication, lots of issues are placed before the courts such as when a contract is computed and when a contract is concluded which is different in comparison to the postal mode of communication. Another mode that is prevalent and has been prevalent since the ’90s is the telephone and telex services. 

The Postal Rule Communication under Section 4 of the Indian Contract Act

Section 4 of the Indian Contract Act deals with the communication of proposals. It says that the communication of the proposal is complete when it comes to the knowledge of the person to whom it is made. When A makes a proposal to B through a letter, the communication of proposal against A is complete when he puts the letter into the transmission and against B, when it comes to his knowledge. Once B comes to know of the offer and wants to accept it, he will write a letter of acceptance and post it. 

Now, this acceptance has been completed against B, at the very point of time when the letter was posted but against A, the acceptance was completed when he came to know about the letter.

One of the most absurd but practical aspects of the postal rule is that if the acceptance letter sent by the offeree, here B, is delayed, lost or maybe destroyed during transmission the contract would be in effect as the acceptance has already come into the picture once the letter of acceptance was posted by the offeree. Hence, even without the knowledge of the acceptance of the contract, the offeror, here A, will be bound by the contractual liability.

This aspect of the postal rule can be clearly observed in the Adams v. Lindsell [5] case. In this case, the defendants sent a letter offering a certain quantity of wool to the plaintiff and in the letter; they stated “receiving your answer in the course of post.” This letter was sent by the defendants to the plaintiff on 2nd September 1817 and it reached the plaintiff on 5th September 1817. The acceptance of the offer was posted by the plaintiff on the very same day i.e. 5th September 1817. The letter of acceptance reached the defendants on 9th September 1817. 

On 8th September 1817 i.e. before the acceptance reached the defendants, the defendants sold the goods to another person. A suit was filed by the plaintiffs for breach of contract. The court held that as soon as the letter of acceptance was posted by the plaintiffs, the contract came into action and hence, the plaintiffs were held liable as they sold the goods to another person. The contention that the defendants had not received the acceptance letter and hence not bound to the agreement was rejected by the court. The court observed that if this contention is accepted then no contract can ever be made through the post.

A similar thing happened in Dunlop v Higgins [6] in which Dunlop, the plaintiff offered to sell a certain quantity of goods to Higgins, the defendants at a certain price. The letter of offer was posted and it reached the plaintiffs on 30th January. The letter of acceptance was posted on the very same day but due to bad weather, the acceptance reached the defendants on 1st February instead of 31st January. 

The defendants refused to sell their goods on the ground that there had been a delay in the acceptance and hence no contract had come into force. The court held that the contract was created as soon as the letter of acceptance was posted by the defendants and the fact that the acceptance was not communicated to the defendants will not be taken into consideration.

Therefore, the contract comes into force at the very moment the letter of acceptance is posted by the offeree.

What are the Exceptions to the Postal Rule of Communication?

The postal rule is essentially a rule of convenience and if the offeror chooses the post as a means of communication, then the offeror must accept the inherent risks that arise with the postal rule. But there are some instances where the postal rule will not be applied due to some error performed either on part of the offeror or offeree. The postal rule will not apply at the following instances:

  • Where the letter of acceptance has not been properly posted
  • Where the letter is not properly addressed.
  • Where the express terms of the offer exclude the postal rule i.e. 
  • if the offer specifies that the acceptance must reach the offeror.
  • Where it is unreasonable to use the post as a means of communication like replying by a second class post to a verbal offer.

When Contract is made through Telex or Telephone

Telex or telephone is an instantaneous mode of communication. It means that while the parties are making an offer or during the process of constituting a contract, it considered that they are direct contact to each other or we can say that they are face to face. Hence, the postal rule cannot be applied in the case of instantaneous communications. 

The features of the instantaneous modes of communication are as follows

  • The contract comes into force as soon as the offeror hears the acceptance from the offeree.
  • The place of contract is the place where the acceptance is heard by the offeror.
  • The time of the contract is when the acceptance is received by the offeror.
  • A distinctive feature of instantaneous (telex/telephone) mode of communication is if the offeror does not hear the acceptance due to a defect in the telephone line or the line goes dead, no contract will be formed.

In Entores Ltd. v. Miles Far East Corporation [7], 

the plaintiff in London made an offer to the defendants in Holland through telex and the acceptance was received by the plaintiff in London. The dispute arose as to where the contract was formed. The court held that the contract was formed in London i.e. where the acceptance was received. The court also made it very clear that the rule of postal communication cannot be applied to instantaneous modes of communication.

Bhagwandas v. Girdharilal and Co [8].

A similar view was expressed by the Supreme Court of India in Bhagwandas v. Girdharilal and Co [8]. The Court had made it clear that in case of telephonic conversations the parties are taken to be in presence of each other and in such conditions the rule of the contract through posts cannot be applied.

Postal Rule Communication versus Instantaneous Communication

The telephonic conversation is the same as a conversation between two people in the same room; hence, the receipt rule applies here. Receipt rule means that in order to constitute a contract the acceptance must reach to the offeror i.e. he must have the knowledge of the acceptance. This is in contrast to the postal rule where the contract comes into force at the very point of posting of the acceptance letter by the offeree. This is very much justifiable on the ground that telephonic conversations are an instantaneous mode of communication hence; it can be reasonably assumed that the acceptance has reached whereas, in case of postal communication, it takes some time for the acceptance to reach.

It is also argued that in case of an instantaneous mode of communication like telephone, once the line has been established between the parties there’s no involvement of a third party whereas in postal communication, the postal service company act as the third party.

Also, it is not possible to revoke a contract made through instantaneous mode unlike the contract made through the post. In the case of postal rule, most of the time the offeror becomes the sufferer. Therefore, I feel that the law regarding instantaneous mode seems to be more concise and fairer than the postal rule.

Email as a Mode of Communication

Most people have the perception that only those contracts can be enforced which are properly written on paper and signed by the respective parties. However, one must know that in today’s era of information technology, most of the contracts are not written, and do not need to be always signed. A contract is simply an agreement between two or more parties to do something (or refrain from doing something) in exchange for some form of consideration. So, with this thought, there is no reason why a contract entered through e-mail should not be enforceable by law.

Contracts can be made through emails as well. In order to do so, the basic contractual agreements of an offer and acceptance must be met as mentioned in the Indian Contract Act. Also, it must be shown to the court that through email exchanges and external conversation, both the parties had the intention to come into the contract and be bound by it. 

Vantage Systems Pty Ltd v. Priolo Corporation Pty Ltd [9],

it was held that a contract can arise as a result of an email exchange where both parties intend for there to be a concluded and binding agreement.  In cases of tenants agreeing to a revised rent agreement from the landlord through an email, the parties were immediately bound to that agreement as it is very much clear that both the parties had the intention of entering into such a contract. In fact, the conduct of the tenant i.e. him already living in the apartment proves his intention and he’s simply agreeing to the offer made by the landlord.

Issues with Email as Mode of Communication

  1. An issue can arise in cases of e-mail contractual liability. One can claim that someone else accessed or maybe hacked their email account and entered into the contract. But, this needs to be proved through some other evidence as well.
  2. Another issue that comes into light is the communication gap that can arise while entering into a contract through e-mails. Considering that email is an instantaneous mode of communication due to obvious reasons and as it has been clarified by the Supreme Court in Bhagwandas v. Girdharilal and Co. that in instantaneous modes of communication, the acceptance of the offer must reach the offeror, what if when an email of acceptance is sent to the offeror it does not reach him at that instant; will that be considered as a contract? This is the biggest question posed which has not been yet answered by the Indian Contract Act, 1872. Although the Information Technology Act, 2000 does satisfy some aspects of modern modes of communication it does not clarify what kind of laws will be followed for e-mails in terms of communication of offer and acceptance.

CONCLUSION

In conclusion, the word “acceptance” is broadly defined under our Indian Contract Act 1872 under article 2(b). Which states that ”When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted”. We have two types of modes of communication for the purpose of forming a contract: instantaneous modes and non-instantaneous modes. Instantaneous modes include telephone and telex in which it is considered that the parties are in direct contact i.e. face to face to each other. In such modes of communication, the acceptance has to be communicated to the offeror in order to form a contract. Non-instantaneous modes include post and telegraph. In this kind of mode, the acceptance need not be communicated to the offeror. 

The contract comes into force the very moment letter of acceptance is posted by the offeree. E-mail which is considered to be an instantaneous mode of communication is still in a growing phase as there are no particular laws that talk about contracts made through e-mails.

Endnotes

[1] Section 2(b) 0f the Indian Contract Act 

[2] Section 2(b) 0f the Indian Contract Act

[3] [ 1840 ] EWHC J90 (Ch) 

[4] (1863) 7 LT 835

[5] (1818) 106 ER 250

[6] (1948) 9 E.R. 805

[7] (1955) 2 Q.B.D. 327 

[8] AIR 1966 SC 543

[9] [2015] WASCA 21


Pratham Arya

Author

Pratham hails from Symbiosis Law School, Noida and spends most of his time researching, reading and debating. His Interest areas are law and policy. For any clarifications, feedback, and advice, you can reach us at editor@lawcirca.com

Leave a Reply