Contract - an acceptance with a variation is no acceptance

Introduction

The Supreme Court of India (“SC”) in the matter of M/s. Padia Timber Company(P) Ltd. vs. The Board of Trustees of Visakhapatnam Port Trust Through its Secretary (Civil Appeal No.7469 OF 2008) (“Case”) on January 5, 2021 reaffirmed the principle that ‘an acceptance with a variation is no acceptance’.

Issue involved

The main issue the SC was dealing with in the Case was whether the acceptance of a conditional offer with a further condition results in a concluded contract, irrespective of whether the offerer accepts the further condition proposed by the acceptor.

SC’s judgment

The SC in its judgment in the Case stated that it is a cardinal principle of the law of contract that the offer and acceptance of an offer must be absolute. Further, the SC also said that it can give no room for doubt as to offer and acceptance to be based or founded on three (3) components, that is – (i) certainty; (ii) commitment and; (iii) 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. The aforesaid principle was also held by the SC in the matter of Haridwar Singh v. Bagun Sumbrui and Ors. (1972 AIR 1242) wherein it was stated that ‘an acceptance with a variation is no acceptance’. In the present scenario, the appellant in the Case was entitled to refund of earnest money deposited with the respondent.

The SC held that the appellant in the Case was neither in breach nor liable to damages. Hence, it was not necessary to examine the questions of whether the compensation and/or damages claimed by the respondent in the Case was reasonable or excessive. The SC also did not embark upon the academic exercise of deciding whether prior approval of the respondents in the Case was ‘a condition precedent’ for creation of a valid contract for supply of goods, or whether ‘post facto ratification’ of the respondents in the Case was required.

Conclusion

Therefore, in effect and substance, SC simply stated that a counter proposal must be accepted fully by the original proposer, before a contract is concluded.

This update is by Rohitaashv Sinha, Advocate & Associate Partner at Agarwal Jetley & Co., Advocates & Solicitors. Contact: Email: rohitaashv.sinha@agarwaljetley.com or Mob: (+91) - 9999565393