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Acceptance of Proposals

(1) Offer and Acceptance must correspond

The intention of the offeree to accept must be expressed without leaving room for doubt
as to the fact of acceptance, or as to the coincidence of the terms of the acceptance
with those of the offer. These requirements may be summed up in the general rule,
sometimes called the mirror image rule that the acceptance must be absolute, and must
correspond with the terms of the offer.

The Contract Act in Section 2(b) defines acceptance as follows:

When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.

Thus acceptance is the assent given to proposal and it has the effect of converting the
proposal into promise. In determining whether or not an acceptance is conclusive, an
alleged acceptance must be distinguished from

a) A counter-offer and rejection;

b) An acceptance with some variation or addition of terms;

c) An acceptance which is equivocal, or which is qualified by reference to the

subsequent arrangement of terms.

(a) Counter offer and rejection

A counter-offer amounts to a rejection of the offer, and so operates to bring it to an end.

In Hyde v Wrench, for example: ‘W’ offered to sell a farm to ‘H’ for £1,000. ‘H’ said that
he would give £950. ‘W’ refused, and ‘H’ then said he would give £1,000, and when ‘W’
declined to adhere to his original offer, ‘H’ tried to obtain specific performance of the
alleged contract.
The Court held that an offer to buy at £950 in response to an offer to sell for £1,000 was

a refusal followed by a counter-offer, and that no contract had come into existence. But
making express what would otherwise be implied65or inquiring whether the offeror will
modify his terms does not necessarily amount to a counter-offer.

(b) Change of terms

A purported acceptance of an offer may introduce terms at variance with or not

comprised in the offer. Although, exceptionally in such a situation the response may be

regarded as an acceptance with an offer to enter a further contract, generally, in such

cases no contract is made, for the offeree in effect rejects the offer and makes a
counter-offer

In the case of Jones v Daniel: A offered £1,450 for a property belonging to B. In

accepting the offer B enclosed with the letter of acceptance a contract for the signature
of A. Tis document contained various terms as to payment of deposit, date of
completion, and requirement of title, which had never been suggested in the offer. The

Court held that there was no contract; B had not accepted A’s offer but made a counter-
offer of his own, which was never accepted by A.

(c) “Battle of the forms”

In modern commercial practice, a particular problem has arisen which is that of the
battle of the forms‘. A firm may, for example, offer to buy goods from another on a form,

which contains or refers to its standard conditions of trade. The seller accepts‘ the offer
by a confirmation on a form which contains or refers to its (the seller‘s) standard
conditions of trade. These may differ materially from those of the buyer. It may then
deliver the goods. Two questions typically arise; is there a contract and, if there is, do
the buyer‘s or the seller‘s conditions prevail?
One possible solution to this problem is by what might be called the first shot‘ approach.
Under this the seller-offeree, by purporting to accept the buyer-offeror‘s offer, is said to
have waived its own conditions of trade, so that the contract is concluded subject to the
buyer‘s conditions.

In Butler Machine Tool Co Ltd v Ex-cell-o Corporation (England) Ltd, however, a

majority of the Court of Appeal (Lawton and Bridge LJJ) applied the mirror image‘ rule
and stated that the seller‘s confirmation amounts to a counter-offer. This is capable of

acceptance by the buyer. The buyer may indicate that it accepts the counter-offer made
to it by some act or performance; e.g. the receipt and acceptance of the goods or by, for
instance, the return of an acknowledgement‘ form containing the seller‘s conditions.
This can be called the last shot‘ approach.

In our example such an acceptance would conclude a contract subject to the seller‘s
conditions, since it was the seller who fired the last shot‘ in the battle of the forms.

The difficulty is, however, that the operation of the last shot‘ approach depends upon
chance and can be arbitrary. Furthermore, unless and until the counter-offer is
accepted, there is no contract, even though both buyer and seller may firmly believe
that a contract has been made. Where they have acted on that basis and the
transaction is executed, it may be possible to treat a matter not finalized in negotiations
as inessential but this is not always so. The position, especially in relation to executory
transactions, is not satisfactory. The first shot‘ approach, however, can also be arbitrary.

It is suggested that, in these circumstances, the following solution, which reflects

business practice and international conventions and which only represents a minor
departure from the mirror image‘ rule should be adopted. If an offeror receives a reply to

an offer which purports to be an acceptance but which contains additional or different

terms which do not materially alter the terms of the offer, and does not promptly object

to the offeree about the discrepancy, the terms of the contract consist of the terms of

the offer subject to the modifications contained in the acceptance.76 In effect this

simply puts the burden on the offeror to object to such additional or different terms; the
requirement that they do not materially alter the terms of the offer substantially
preserves the requirement of objective agreement. Under the Convention on the
International Sale of Goods most non-trivial variations are likely to be regarded as
material‘. Article 19(3) provides that alterations relating, among other things, to the
price, quantity, and quality of the goods, place and time of delivery, extent of one party‘s
liability to the other, or to the settlement of disputes are material alterations.

In cases where there is no contract even though services have been rendered or goods
delivered, the rendering of services or delivery of goods may give rise to a restitutionary
non-contractual obligation in unjust enrichment to pay a reasonable sum.78 But in such
cases, while restitution may protect the performer by the award of the reasonable value
of the performance rendered, a recipient, who may have had certain requirements as to
the time of performance or its quality may be unprotected. This is because, in the
absence of a contract, the party rendering the services or delivering the goods will not
be liable in damages for delay or for defective performance.79 However, the better view
is that this can be satisfactorily dealt with, within the non-contractual law of unjust
enrichment, as going to the relevant enrichment of the recipient.80

(d) Equivocal and qualified acceptance

The acceptance must assent unequivocally and without qualification to the terms of the
offer. For example, the reply Your order is receiving our attention‘ is too indefinite to
amount to an acceptance.81 The acceptance may also be qualified by reference to the
preparation of a more formal contract or by reference to terms which have still to be
negotiated. In such a case the agreement is incomplete82 and there is no binding
contract.

(2) Acceptance must be absolute- Section 7.

According to Section 7 of the Contract Act:

In offer 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 an the acceptance is not made in such a manner, the proposer may,
within a reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner, and to otherwise; but, if he feel do
so, he accepts the acceptance.

(a) Certainty of Acceptance: The rule in the sub-section is based on the principle
that unless the parties have consensus ad idem i.e. are of one mind, there cannot be an
agreement between them. This is sometimes called the mirror rule‘, i.e., the acceptance
must match with the terms of the offer. The (mirror rule) rule is in itself obviously
necessary, for words of acceptance which don not correspond to the proposal actually
made are not really an acceptance of anything and therefore, can amount to nothing
more than a new proposal or, as it is frequently called, a counter-offer.

Immaterial additions or phrases in the acceptance letter may be ignored if they do not
impair reasonableness of contract as a whole. Such material or minor differences or
variances between the offer and acceptance will not prevent the formation of the
contract. An acceptance will have legal effect if the new terms are trivial, or the
acceptance is accompanied with the protest or grumble‘, or it requests the offeror for the
better terms.

A composite offer, each part whereof is dependent upon the other, if accepted in part
only, the acceptance would not be absolute and unqualified.

Annexing collateral terms along with an absolute acceptance may be said to convert an
absolute acceptance into a conditional or qualifies one. Until there absolute acceptance
of a proposal, the parties are still in the stage of negotiation an no legal obligations
attached to them, the issue whether negotiations between the parties is still open to buy
bargaining, or has resulted in the formation of a contract, will depend upon the facts and
circumstances of each case. The Court will review what the parties write and how they
act, and from that material infer whether parties are still negotiating or whether that have
reached an agreement, and if so on what terms. Where a contract was concluded but
subsequently fresh negotiations were started with regard to stamp duty on the transfer
deed and the said negotiation did not fructify, it was held that the concluded contract
was not affected.

(b) Acceptance subject to formalities: Although there can no contract with a

complete acceptance of the proposal, it is not universally true that complete acceptance
of the proposal makes a binding contract; for one may agree to all the terms of the
proposal, and yet decline to be bound until a formal agreement is signed, or some other
act is done. There may be an express reservation in such words as these: This
agreement is made subject to the preparation, execution of a formal contract. Where
there is no precise clause if reservation, but the acceptance is not obviously unqualified,
it becomes a question of construction whether the parties intended that the terms
agreed on should merely put into for, or whether they should be subjected to a new
agreement the terms of which are not expressed in detail and this must be determined
by examination of the whole of the continuous correspondence and negotiation. It will
not do to pick out this or that portion, which, if it stood, might be sufficient of evidence of
a contract.

(c) Modes of Acceptance: This sub-section in the first instance throws the burden
upon the offeror, or promisor to prescribe mode of acceptance. If he does not prescribe
any specific method, the acceptor has to follow usual and reasonable mode. The offeror
cannot impose upon the acceptor the penalty that in the event of his silence, he would
be deemed to have accepted the proposal.

(d) Acceptance in a prescribed manner: Under the common law, acceptance by

mode other than one prescribed by the offeror would amount to a counter-offer, and
would result into a contract when this is in return accepted. However, in applying the
role of acceptance in a prescribed manner, the Court may decide what object the offeror
had in view, an expression - Reply by letter sent by return of post may have been used
with a view to get a quick reply and hence acceptance by telegram may do. If, however,
the offeror expressly dislikes telegrams, an acceptance by telegram may not suffice.
The question whether the prescribed mode is mandatory or directory.
The Indian law differs from the common law position. Under S. 7(2) of the Act, if the
acceptor does not send the acceptance in the manner prescribed by the offeror, the
acceptance is nevertheless valid unless the offeror intimates to the acceptor that he
does not accept the acceptance‘. The present sub-section, throes on the proposer the
burden of notifying to the acceptor that the acceptance not in the prescribed manner
and form is insufficient, and he remains bound if fails to insist on a acceptance such as
he required.

(e) Usual and reasonable manner: This expression includes what must have been
within the contemplation of the parties according to the ordinary practice followed in a
particular trade or business or place. This may cover a case of acceptance ―by
beginning to performǁ95 or by opening a letter of credit or by actual forbearance or by
payment of earnest money or deposit, as the case may be. A personal message
through the acceptor‘s agent was deemed to be under this expression, the promisor
having not prescribed any mode.

In L.I.C of India v. Rajavasirreddy, the Supreme Court of India observed as, Contract of
insurance will be concluded only when as a party to whom an offer has been made
accepts it unconditionally and communicates his acceptance to the person making the
offer. Though in certain human relationships, silence to a proposal might convey
acceptance but in the case of insurance, proposal, silence does not denote consent and
contract arises when the person to whom an offer is made says or does something to
signify his acceptance mere delay in giving an answer cannot be construed as
acceptance as prima facie, acceptance must be communicated to the offeror. Similarly,
the mere receipt and retention of premium after the death of the applicant or the mere
preparation of the policy document is not acceptance.

4. Acknowledgement of electronic records: The provisions of the Information

Technology Act, 2000 laid down (defined) special rules for acknowledgement of
electronic records. A person sending a message by electronic record may require the
addressee to acknowledge its receipt in a particular form or by a particular method. If he
has not so stipulated, the acknowledgement may be given by any form of
communication or by conduct. Where the sender of electronic record has stipulated for
an acknowledgement failure to acknowledgement by the addressee may absolve the
sender of liability of the electronic record send. Whether or not sending an
acknowledgement amounts to accepting the offer is not dealt with by the Information
Technology Act, 2000, but by the substantive law of contract; and matter of establishing
the dispatch, receipt and acknowledgements by the law of evidence.

Section 8 provides that, Performance of conditions of a proposal, or the acceptance of

consideration for a reciprocal promise, which may be offered with the proposal, is an
acceptance of the proposal.

The object of this section is complementary to the preceding section. If a proposer has
not prescribed a mode, an acceptor has to adopt some usual or reasonable mode. This
section prescribes one of such methods in the form of an implied acceptance. This
recognizes the distinction between acceptance of an offer which asks for an promise
and an offer which asks for an act on condition of the offer becoming a promise. This is
implicit in the subject matter of the section into two branches performance of the
conditions of proposal‘ and acceptance of any consideration for a reciprocal promise
which may be offered with the proposal‘, which corresponds to the division of proposals
into those which offer a promise in exchange for an act or acts and those which offer a
promise in exchange for a promise.

(a) Acceptance by performance: Performance of the conditions of a proposalǁ

seems to be nothing else than doing the act requested by the proposer as the
consideration for the promise offered by him, as when a tradesman sends goods on
receiving an order from a customer The only previous definition of acceptance in the Act
is that a proposal is said to be accepted when the person to whom it is made ―signifies
his assent thereto [S. 2(b)]. This has to be read with the provisions as to the
communication in Sections. 4 and 7. The present section appears, in the first branch, to
recognize the fact that the cases in which the offeror invites the acceptance by doing an
act, it is impossible sometimes for offeree to express his acceptance otherwise than by
performance of his part of contract.
The most obvious example is where a reward is publicly offered to any person, or to the
first person, who will recover a lost object, procure certain evidence, or the like. Here,
the party claiming the reward has not to prove anything more than he performed the
conditions on which the reward was offered, which may or may not include
communication by him to the proposer. In a simple case of reward proposed for
something in which the proposer has an obvious interest, there is not likely to be any
other question than what the terms were, and whether they have been satisfied by the
claimant. There is some authority for construing the terms liberally in favour of a finder.

The acceptance of an offer by conduct would be effective only when such act is done
with the ―intention (actual or apparent) of accepting the offer. The nature of
acceptance required in such cases was considered by the English Court of Appeal in
Carlill v. Carbolic Smoke Ball Co. The defender company being the proprietor of the
carbolic smoke ballǁ, a device for treating nostrils and air passages with a kind of
carbolic acid snuff, issued an advertisement offering £100 reward to any person who
should contract influenza (or similar ailments as mentioned) after having used the ball
as directed. It was also stated that £1,000 was deposited with a named bank,
―showing our sincerity in the matter. The plaintiff bought one of the smoke balls by
retail, did use as directed, caught influenza while she was still using it. HAWKINS J, 103
held in a considered judgment that she was entitled to recover £100 as on a contract by
the company. The Court of Appeal confirmed that judgment.

It was objected in this case that the plaintiff had not communicated her acceptance of
the offer to the defendant company. But Bowen, LJ., said that notification of acceptance
is required for the benefit of the person who makes the offer, and he may dispense with
the notice to himself. When proposal is made in consideration of an act to be done,
dispensation of notice may be inferred from the nature and circumstances of the
proposal.

(b) Acceptance in Ignorance of offer: Does an act done by a person in ignorance

of the proposal amount to ―performance of the condition of the proposalǁ within the
meaning of this section? According to the High Court of Allahabad it does not. The
plaintiff in that case was in the service of defendant as a munib. The defendant‘s
nephew absconded, and the plaintiff volunteered his services to search for the missing
boy. In his absence the defendant issued handbills offering a reward of Rs. 501 to
anyone who might find out the boy. The plaintiff traced him and claimed the reward. The
plaintiff did not know of the handbills when he found out the boy. The Court held that the
plaintiff was not entitled to the reward.

A similar rule is also accepted in common law. If, however, the acceptor knows of the
offer, but is inspired by the motive other claiming the reward, such a motive is
immaterial. This was accepted in Williams v. Cowardine, where a reward was offered for
supply of information relating to a case of murder. The plaintiff had knowledge of the
reward but supplied the information only to ease his conscience. This was held
immaterial and she was entitled to claim the reward.

On the other hand, in an Australian case one Clarke who knew of the offer of reward
gave the information to clear himself of the suspicion of the charge against himself and
without any thought of claiming the reward. The claim for reward made by Clarke failed
because he did not give the information in exchange of the offer.

(c) Acceptance by receiving consideration: “The second section as to the

acceptance of any considerationǁ, etc. is rather obscure. It is generally sound principle;
no doubt, that what is offered on conditions must be taken as it is offered. The use of
the word reciprocal is curious, for it hardly fits most of the cases, as where goods are
sent on approval, and the receiver keeps them with the intention of buying them. Here
the seller need not and commonly does not offer any promise, and there is therefore no
question of reciprocal promise as defined in the Act [S. 2(f)]. Further a thing which is
offered in one right and for one purpose may be taken under a different claim of right
and with a different intent; and in that case, the legal result will not be a contract
between the parties unless the party receiving the thing conducts himself as to lead the
proposer reasonably to conclude that there is an acceptance according to the offer; and
then the proposer can hold him liable on the universal principle that a man‘s reasonably
apparent intent is taken in law to be his real intent. It cannot be that the present section
is intended to preclude all inquiries of this kind by making every receipt in fact of a thing
offered by way of consideration a conclusive acceptance of the proposal.

Following this, an offer to goods sent to the offeree may be accepted by using goods. A
new lease may be accepted by staying on the premises.

(d) When acceptance is complete: Where acceptance takes place by performance

of an act, the latter being the condition of the proposal, when does the acceptance
―become completeǁ as to bind the offeror? Does the word performance in this section
mean complete or partial performance? Insisting on completion of performance for
formation of contract would cause injustice; for it may be possible for the offeror to
revoke the proposal even after the offeree has commenced the performance of the act.
The section as it is presently drafted does not provide any guidance on this issue. The
Law Commission of India has recognized this ambiguity and recommended adding a
clarification in the section to the effect- ―in the case of the promise made in
consideration of the promisee‘s performing an act, the promisee‘s entering upon
performance of the act is an acceptance of the proposal, unless the promise contains
an express or implied term that it can be revoked before the act has been completed.

Express and tacit promises- Section 9

The Section 9 reads as follows, In so far as the proposal or acceptance of any promise
is made in words, the promise is said to be express. In so far as such proposal or
acceptance is made otherwise than in words, the promise is said to be implied.

(a) Express promises: This section assumes that both proposal and acceptances
may take place by words or without express words. The words may be spoken or
written between the parties. An implied promise, in the sense of the Act, is a real
promise, though not conveyed in words. An implied promise is therefore to be inferred
from certain facts such as a course of dealing between the parties. In other words,
where there is an express contract in existence, there is no question of an implied
contract.
It often depends on the true construction of an agreement whether it is a contract or not;
and for this purpose there is no difference between express and implied terms; Implied
contracts and express ones are both equally binding upon the parties. The difference
between them is confined to the manner of proving them.

(b) Tacit promises: A tacit promise may be implied from the continuing course of
conduct as well as from particular acts. Thus, an agreement between partners to vary
the terms of the partnership contract may ―either be expressed or be implied from a
uniform course of dealingǁ. Again, when a customer of a bank has not objected to a
charge of compound interest in accordance with the usual course of business, there is
an implied promise. Where parties have acted on the terms of an informal document
which has passed between them, but has never been executed as the written
agreement or expressly assented to by both, it is a question of fact whether their
conduct established an implied agreement to be bound by those terms. Questions may
arise whether all the terms of another document incorporated in a contract, when the
contract refers to that document. The terms of the document can be incorporated by
reference, when they are not inconsistent with the express terms of the incorporating
document, and are not repugnant to the transaction to the transaction which that
document represents.

Where a contract is partly oral and partly in writing it is necessary to consider the whole
of the negotiations for the purpose of determining whether the parties have truly agreed
on all the material points. Extrinsic evidence is admissible if there remains a doubt
about the effect and true meaning of the document. This is more appropriately studied
as branch of the law of evidence.

(c) Place of contract: Having regard to the provisions of S. 4, a question as to

where a contract can be said to take place. Determination of this question in its turn
helps in deciding jurisdiction of Courts. This issue has been discussed in earlier in this
article.
(d) Conflict of Law: Incidents of a contract are governed by the law of the state
where the contract is made. This applies to conflict of laws of different provinces or
states.