Contract Does Not Stand Concluded Upon Acceptance Of Conditional Offer With Further Condition: Supreme Court

The Supreme Court has recently held that when there is no concluded contract, there arises no question of breach of contract or subsequent damages to be borne by either party.

A bench of Justices Indira Banerjee & Navin Sinha clarified whether acceptance of a Conditional Offer with a further condition results in a concluded contract, irrespective of the offeror accepting the further condition proposed. The bench went on to answer this in the negative and ruled,

“There being no concluded contract, there could be no question of any breach on the part of the Appellant or of damages or any risk purchase at the cost of the Appellant. The earnest deposit of the Appellant is liable to be refunded.”

Factual Matrix:

It was the case of appellant that the negotiations between appellant and respondent port trust did not materialise into a concluded contract as the respondent did not accept the conditions of the offer.

Further, it was contended that the appellant did not agree to the terms and conditions which the respondent port trust insisted upon and such, no question of breach and damages thereof arose.

Observations:

As against the findings of the Trial Court, it was held,

“The Trial Court relied on Section 4 of the Contract Act, but completely overlooked Section 7. 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."

Court further observed that offer and acceptance must be based or founded on three components, that is, certainty, commitment and communication.

In this context, it was propounded 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, as held by the Top Court in Haridwar Singh v. Bagun Sumbrui and Ors., AIR 1972 SC 1242.

Focussing on the facts and circumstances in the instant case, Court noted,

 “Both the Trial Court and the High Court overlooked the main point that, in the response to the tender floated by the Respondent-Port Trust, the Appellant had submitted its offer conditionally subject to inspection being held at the Depot of the Appellant. This condition was not accepted by the Respondent-Port Trust unconditionally. The Respondent-Port Trust agreed to inspection at the Depot of the Appellant, but imposed a further condition that the goods would be finally inspected at the showroom of the Respondent-Port Trust. This Condition was not accepted by the Appellant. It could not, therefore, be said that there was a concluded contract.”

Reliance was further placed on;

1. Union of India v. Bhim Sen Walaiti Ram, (1969) 3 SCC 146: “… acceptance of an offer may be either absolute or conditional. If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place.”
2. Jawahar Lal Burman v. Union of India, AIR 1962 SC 378: “… under Section 7 of the Contract Act acceptance of the offer must be absolute and unqualified and it cannot be conditional.”

Decision:

Allowing the present appeal, Court decided that the appellant was neither in breach of contract nor liable to pay any damages.

Further, it was directed that the respondent return earnest money put forth by the appellant, within four weeks of the present order, with an accrued interest of 6% per annum.

 

Relevant Provisions of Indian Contract Act, 1872:

Section 4 Communication when complete: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete, as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete, as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.”

Section 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.

Section 73 Compensation for loss or damage caused by breach of contract: When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

M/s. Padia Timber Company (P) Ltd. v. The Board of Trustees of Visakhapatnam Port Trust Through its Secretary |

Division Bench: Justice Indira Banerjee, Justice Navin Sinha | CIVIL APPEAL NO. 7469 of 2008 |

Pronounced on January 5, 2021 |

Statute/Law point involved: Indian Contract Act, 1872 (S.4, S.7, S.73) & Major Port Trust Act, 1963