A contract is formed when an offer is accepted. Acceptance indicates the willingness of the party to whom the offer has been made to agree to the terms of the offer. When the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted. An offer when accepted becomes a promise.
Legal Rules regarding Acceptance :
An acceptance to be legally binding must satisfy the following conditions:
1. “Acceptance should be conveyed “or” accepted by the person to whom the offer is made:
ADVERTISEMENTS:
Where a specific offer has been made, it can be accepted by the person to whom it has been made. Where a general offer has been made it can be accepted by any person who has the knowledge of the offer.”
Where a reward of Rs. 100 is offered to do a certain thing, any person can accepted the offer by doing the act required.
2. Acceptance may be express or implied:
ADVERTISEMENTS:
It is express, when it is expressed by words spoken or written.
A offered his scooter by a letter for Rs. 5,000 to B. B through a letter, accept the offer of A. It is an example of express acceptance.
Acceptance is implied where the offer is accepted by act or conduct of the parties. This implied acceptance may be doing the act required or by taking benefit of the service offered.
ADVERTISEMENTS:
Example:
DTC in Delhi or MEST in Mumbai offers to carry passengers on a particular route for a certain amount of fare. A traveler enters the bus. He has accepted the offer of the bus company by taking the benefit of the transport service provided.
3. Acceptance must be absolute and unqualified:
An offer must be accepted in full, i.e., all the terms of the offer must be accepted. If any of the terms is not accepted, it will be a counter offer and will not be a valid acceptance.
ADVERTISEMENTS:
Example:
I offer you my watch for Rs. 200. You reply to buy the same for Rs. 150. It is not an acceptance of my offer but is a counter offer by you which I am not bound to accept. Hence, there is no contract between you and me.
4. Acceptance must be in the mode prescribed:
Where the offeror has prescribed any mode of acceptance, it must be accepted in that manner. Where however, no mode is prescribed, it is not reasonable manner. If it is not accepted in the mode prescribed, the offeror should intimate the offeree within a reasonable time that acceptance was not made in the prescribed manner. In case he does not inform the offeree, he is deemed to have accepted the acceptance.
ADVERTISEMENTS:
Where the offeror says, “Reply by telegram” and the acceptor replies by ordinary letter. The offeror is at liberty to refuse acceptance on the ground that it was not accepted in the prescribed manner provided he (offeror) informs the acceptor of his objection within a reasonable time. In case he (offeror) fails to inform, he (offeror) will be deemed to have accepted the acceptance by ordinary letter and a binding contract will result in the case.
5. Acceptance must be for an offer communicated:
There must be an offer first and then alone, it can be accepted. Unless an offer has been communicated, it cannot be accepted. In one case, the servant has traced the boy without knowing of the reward. Later on, he could not claim the reward as he was not aware of the reward. Therefore, acceptance without an offer is not a valid acceptance.
ADVERTISEMENTS:
6. Acceptance must be communicated:
It is an important rule of acceptance that it must be communicated. Unless the acceptance is communicated, there cannot be a binding contract.
P was appointed principal of a school. One of the members of the Governing Body privately informed P that he had been appointed Principal. But no official communication was sent by the Governing Body. Later, the Governing Body did not appoint P as the Principal. P filed a suit against the Governing Body to claim damages. Held, he could not do so as there was no communication of acceptance and as such, there was no contract.
7. Mental Acceptance is no acceptance:
Making one’s mind is not enough but one should make up one’s mind and inform the offeror that he has done so, otherwise there will be no contract.
The manager of a railway company accepted a draft agreement for the supply of coal by writing the word “Approved” but kept it in his drawer. With the result, it could not be sent to the supplier. It was held by the Court that there was no contract as the acceptance was not communicated.
8. Silence cannot be a mode of acceptance:
We have seen that an offer should not impose an unnecessary burden on the offeree to communicate his non-acceptance. In other words, silence cannot amount to acceptance.
Example:
A writes to B, “I offer you my car for Rs. 10,000. If I do not hear from you by Sunday next, I shall presume that you have accepted my offer.” Even if B does not reply, there cannot be binding contract as law does not allow unnecessary burden on the acceptor to communicate his non-acceptance in case he does not want to accept the offer.
9. An offer must be accepted within the time fixed:
An offer must be accepted within the fixed time or within a reasonable time if no time is fixed.
Example:
A offers his scooter for Rs. 5,000 to B upto Sunday next by 4 p.m. B does not accept the offer upto Sunday next by 4 p.m. There is no acceptance.
On the other hand, where no time is fixed, an acceptance must be made within a reasonable time, otherwise it will lapse. What is reasonable time, will depend upon facts and circumstances of each and every case.
Example:
M applied for the shares of a company in the month of June but the allotment of shares was made by the company in the month of November. M refused to accept the shares. The Court held that M was not liable as the acceptance by the company was not within a reasonable time and as such, it was not valid. It should be noted that an offer cannot be kept open indefinitely.
10. Acceptance must be made before the offer lapses or is revoked:
It is very important that the offer should be accepted before it lapses or is revoked or withdrawn by the party making the offer. After the offer lapses or is revoked, it cannot be accepted as there is nothing to be accepted.
It should be noted that once an offer has lapsed, it lapses forever unless it has been revived again by the offeror. It is an important rules that once an offer lapses, it lapses for ever.
Example:
A made an offer to B on Monday which was to be accepted within the next two days, i.e., by Wednesday, B accepted the offer on Friday. There is not a valid acceptance as the offer had lapsed after Wednesday.
11. Acceptance must be made with an intention to fulfill the terms:
Acceptance must be made in such circumstances as to show an intention on the part of the acceptor to fulfill the terms of the promise. If a person has no intention to perform such promise, its acceptance is not valid.
12. Acceptance subject to formal contract:
Acceptance subject to formal contract will be valid only on the formal contract being signed by both the parties. In such a case the contract remains open and the parties, if they so like, can refuse to sign the contract before the formal contract is signed.
A agreed to purchase B’s house subject to a formal contract. B signed the contract but in the meantime, A changed his mind and refused to sign the contract. Held that agreement was conditional hence there was no contract.
13. An agreement to enter into an agreement is no contract:
An agreement to enter into an agreement in future does not create obligations. Obligation arises only when there is an agreement whose terms have been settled or finalized or machinery for ascertaining it is provided in the document itself.
Observations made by Lord Maugham are interesting, “Unless all material terms of the contract are agreed, there is no binding obligation. An agreement to agree in future is not a contract nor is there a contract if a material term is neither settled nor implied by law and document contains no machinery for ascertaining it.”
Example:
An actress was engaged to give some performances. The agreement provided that if the play was performed in London, she would be engaged at a salary to be mutually agreed upon. Held, there was no contract.
Contracts through Post Office :
When the parties are face to face, there is no problem and a contract comes into existence as soon as the offer it unconditionally accepted by the acceptor. Where the parties are not face to face, some problems arise and the parties may take the help of either the Post Office or the Telephone. The law on the subject differs a little in India and England.
An offer through Post is made when the letter reaches the offeree. This rule is similar under English and Indian Law.
An acceptance through Post is made when the letter of acceptance duly stamped and addressed is posted in the letter box, whether it reaches the offeror or not. Thus the contract is made even if the letter is delayed or lost in transit.
Under English Law, once the letter of acceptance has been posted, acceptance is final and as such the acceptor cannot withdraw it. Under Indian Law acceptance against the offeror is final and it will bind the offeror. However, it will not bind the acceptor unless the letter of acceptance reaches the offeror. Consequently if the letter of acceptance is delayed or lost, the acceptor is not bound. Therefore, the acceptor, if he so desires, can withdraw his consent so long as the letter of acceptance does not reach the offeror. For detailed discussion, see Rules of Communication discussed later in this chapter.
Contracts over Telephone or Telex, Fax or E-Mail :
Contracts over telephone have the same effect as oral agreements entered into by the parties, when they are face to face. However, the offeror may not properly hear the acceptance on telephone because of some defect in communication. If the words of acceptance are inaudible and are not heard or understood by the offeror, then the acceptance is incomplete and no contract would be formed until the acceptor repeats his acceptance so that offeror can hear it.
Example:
A makes an offer from the first floor of his house to B who is standing on the roadside in the street. B replies back accepting A’s offer but because of the noise of a scooter passing nearby, B’s acceptance is not clearly heard by A. There is no contract at the moment. If B wants to make a contract, he should repeat his acceptance after the scooter has gone so that A can hear B’s acceptance. The contract will be complete only when A has clearly heard B’s reply.
Offers made over a telephone cannot be revoked as the same are accepted simultaneously. Once an offer is accepted, it becomes a contract which cannot be undone. In this respect the following remarks of William Anson are very interesting: “Acceptance is to offer what a lighted match is to a train of gun powder. It produces something which cannot be recalled or undone”. But the powder may have laid till it has become damp or the man who laid the train may remove it before the match is applied.
So an offer may lapse for want of acceptance, or be revoked before acceptance. Acceptance converts an offer into a promise, and then it is too late to recall. He has compared an offer with a train of gun powder and acceptance with a lighted match. As soon as a lighted match is applied to a train of gun powder, it will explode. Similarly, when an offer is accepted, it will become a contract which cannot be revoked. Of course, if the gun powder is wet or the lighted match is removed before being applied, there will be no explosion.
Similarly, before an offer is accepted, the offer may be withdrawn or it may be suffering from any defect and consequently, it may not be validly accepted. But once an offer is accepted, it becomes a binding contract which cannot be revoked.