Acceptance Of A Conditional Offer With A Further Condition Does Not Result In A Concluded Contract:
- shrey singh
- Jan 18, 2021
- 4 min read
M/s. Padia Timber Company(P) Ltd. vs. Board of Trustees of Visakhapatnam Port Trust
Civil Appeal No. 7469 of 2008 decided on 6th January, 2021.
Bench: Navin Sinha, Indira Banerjee, JJ.
Facts:
Visakhapatnam Port Trust floated a tender for supply of Wooden Sleepers. M/s. Padia Timber Company submitted an offer, in which it placed a condition that inspection of the Sleepers, as per the requirement of the Port Trust, would have to be conducted only at the depot of the Company. In accordance with the terms and conditions of the tender, the Company deposited Rs. 75,000/- towards earnest deposit, along with its quotation. Port Trust replied that it had accepted the offer of the Appellant for supply of wooden sleepers at the rate quoted by the Company. Furthermore, Port Trust agreed that the Inspection Committee would inspect the Wooden Sleepers at the site of the Company, it imposed the further condition that the Appellant would have to transport the Wooden Sleepers to the General Stores of the Port Trust by road, at the cost of the Company and the final inspection would be made at the General Stores of the Port Trust. The company rejected the proposal of the Port Trust and requested that the earnest money deposited by it be returned.The Port Trust, thereafter, filed a suit seeking damages for breach of contract to the tune of Rs.33,19,991/-. The Company filed a suit claiming refund of earnest money deposited by it with the Port Trust along with interest @ 24% per annum. The Trial Court found that acceptance of the purchase order was completed as against the Company, when the letter of intent cum purchase order was dispatched from the end of the Port Trust. The court held that the company committed breach of its obligations under a concluded contract with the Port Trust, and thus the Port Trust was entitled to damages. The High Court dismissed the appeals filed by the Company.Hence, this appeal was filed in the Supreme Court.
Issue:
The Supreme Court considered the following issue:
1. Whether the acceptance of a conditional offer with a further condition results in a concluded contract, irrespective of whether the offeror accepts the further condition proposed by the acceptor?
Arguments:
Appellant
Respondent
The petitioner submitted that:
1.The negotiations between the Appellant and the Respondent-Port Trust did not fructify into a concluded contract, since the Respondent-Port Trust did not accept the conditions of the offer of the Appellant fully and the Appellant did not agree to the terms and conditions on which the Respondent-Port Trust insisted, particularly the condition of final inspection at the General Stores of the Appellant.
The respondent submitted that:
1. by reason of refusal of the Appellant to discharge its obligation of supplying the requisite number of sleepers, as required by the Respondent-Port Trust, to the Respondent-Port Trust, in terms of the contract, at the rate quoted by the Appellant in its revised bid, the Respondent-Port Trust had been constrained to invoke the risk purchase clause as contained in Paragraph 16 of the Special Conditions of purchase, appended to the purchase order dated 31.10.1990 and purchase the wooden sleepers at a higher rate from a third party, incurring losses, for which the Respondent-Port Trust was entitled to claim damages. It is the case of the Respondent-Port Trust that the conditions stipulated in the purchase order, including the Special Conditions of Purchase constitute the terms of a binding contract.
Held:
The Supreme Court after due consideration of the facts and arguments submitted by both the parties held that when the acceptor puts in a new condition while accepting the contract already signed by the proposer, the contract is not complete until the proposer accepts that condition, the Supreme Court observed while setting aside a High Court judgment on Tuesday.The bench comprising Justices Navin Sinha and Indira Banerjee observed that the High Court overlooked Section 7 of the Contract Act while upholding dismissal of a suit filed by a tenderer for refund of earnest deposit.The bench observed:
“It is a cardinal principle of the law of contract that the offer and acceptance of an offer must be absolute. It can give no room for doubt. The offer and acceptance must be based or founded on three components, that is, certainty, commitment and communication. However, when the acceptor puts in a new condition while accepting the contract already signed by the proposer, the contract is not complete until the proposer accepts that condition, as held by this Court in Haridwar Singh v. BagunSumbrui and Ors. An acceptance with a variation is no acceptance. It is, in effect and substance, simply a counter proposal which must be accepted fully by the original proposer, before a contract is made.”
The Court noted that, in Union of India v. Bhim Sen Walaiti Ram, it was held that If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place. Hence, the appeal was allowed.
Section 7 of the Contracts Act
7. Acceptance must be absolute. —In order to convert a proposal into a promise the acceptance must— —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.
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