Legal Aspects of BusinessAcceptance

PGDM (PT)- IIIrd Term February, 2009 IMT-Ghaziabad

Essentials-Valid Acceptance Acceptance must be absolute and unqualified: Acceptance of a proposal with conditions, variations and reservations is no acceptance at all; Why? Acceptance with variations is a counterproposal and there is no contract until this counter-proposal is accepted by the original proposer.

Case UP Rajkiya Nirman Nigam Ltd vs Indure Pvt Ltd (AIR 1956 SC 1873) The acceptor returned the agreement duly signed by him but after deleting and materially altering certain clauses unilaterally, thereby disowning material responsibilities. It was held that unless there is acceptance to those conditions, no concluded contract can be said to have emerged.

Essentials-Valid Acceptance-2 Acceptance must be expressed in some usual and reasonable manner-mode of acceptance. Acceptance may be either by words or by conduct. It may also be by expressed by post or by telegram. The proposer has the right to prescribe the manner in which the proposal can be accepted but not the manner in which it may be refused.

Essentials-Valid Acceptance-3 Mental acceptance is not sufficient in law: Silence cannot amount to acceptance Mere uncommunicated or mental acceptance is not enough; Acceptance to be complete must be communicated by words or conduct by the offeree to the proposer; E.g. A tells B that he intends to buy Cs office, but does not tell anything to C of his intention. This is no contract.

Essentials-Valid Acceptance-4 Acceptance must be communicated to the proposer. The acceptance and intimation of acceptance are both necessary to result in a binding contract; If the acceptance is not communicated to the proposer, no contract is created; E.g. A draft agreement relating to the supply of coal was sent to the manager of a railway company for his acceptance. The manager wrote the words approved on the agreement but by oversight, the document remained in the drawer. It was held that there was no contract. [Brogden vs Metropolitan Railway Co (1877 2 AC 666)]

Case B.G. Kedia vs. M/s G Purshottamdas & Co AIR 1966 SC 543 Acceptance and intimation of acceptance are both necessary to result in a binding contract. In the case of proposal and acceptance by telephonic conversation, contract is made at a place where acceptance is received.

Essentials-Valid Acceptance-5 Acceptance must be given within reasonable time and before the proposal lapses and / or revoked To be legally effective acceptance must be given within the specified time limit; if any; and if no time is stipulated, acceptance must be given within a reasonable time; Again, the acceptance must be given before the proposal is revoked or lapses by reason of proposees knowledge of death or insanity of the proposer;

Case Ramagate Victoria Hotel Co. vs. Maontefoire 1886 LRI Ex 109 M offered to take shares in a company on 8th June and received acceptance on 23rd November. M refused to take the shares. As the reasonable period of acceptance had elapsed, he was entitled to refuse to take the shares.

Essentials-Valid Acceptance-6 Acceptance of the proposal is the acceptance of all the terms even though the proposee is ignorant of some of the terms of the proposal, except where the terms are not apparent on the face and no reasonable caution is taken to draw attention of the acceptor E.g. a ticket issued by the Railways with the terms and conditions printed overleaf Even if the proposee does not read the terms and conditions of travel, provided the terms and conditions are legible and if reasonable notice thereof is given!

Essentials-Valid Acceptance-6 (contd.) E.g. A who travels by a ship sustains injury on account of the negligence of the crew. The shipping company raised the plea that the terms and conditions were printed overleaf and the liability of the company was limited in various ways. However, the clause limiting the liability of the Shipping Company was obscured by the words stamped across in red ink. The shipping company had thus not taken reasonable care to make the conditions legible and therefore , A was entitled to recover damages; If the terms and conditions had not been so obliterated, then the company would have been held liable.

Essentials-Valid Acceptance-6 (contd.) Mackillican vs. Campaigns des Messageries Maritimes de France 1880 C.W.N. 227 The plaintiff purchased from the defendant company a ticket to travel by steamer which was in French language and the terms and conditions were also in French language. During the voyage, the vessel was damaged and the plaintiffs baggage was lost. The plaintiff sued the defendant company for the damages. Held: Plaintiff had reasonable notice of the conditions and it was his own fault if he did not make himself acquainted with the terms and conditions. [Implication: The company is entitled to use the language as it deems fit and the persons travelling are assumed to know that language].

Essentials-Valid Acceptance-7 Acceptance of the proposal need not always be expressed in words: Performance of the conditions of a proposal is an acceptance of the proposal. E.g. Where the insurance company accepts the cheque as per the terms of the proposal towards the premium, encashment of cheque is a sufficient acceptance of the proposal. {Case: Hindustan Co-operative Insurance Society vs. Shyam Sunder [AIR 1952 Cal. 691]}

Essentials-Valid Acceptance-8 Acceptance must be by a certain person: A proposal may be made to an unascertained number or to the world at large [general offer] but no contract can arise until it has been accepted by a certain person who first gives information either by words or by conduct. E.g. A gives an advertisement in the newspaper offering Rs 10, 000/- to only one who gives information of his lost son. B gives the information. B is entitled to the reward of Rs 10,000/-

Essentials-Valid Acceptance-9 If the act is done in ignorance of the proposal, it is no acceptance of the proposal: Act done in ignorance of the proposal is no acceptance, because to an uncommunicated offer, there can be no consent or assent. E.g. A advertises a reward of Rs 10,000/- to anyone who gives information of his lost son: B gives the information but is ignorant of the reward. After some time, B claims the reward. It was held that B is not entitled to the reward as he gave the information without being aware of the offer.

Important Cases

Case-1 Kedarnath Bhattacharji v. Gorie Mohomed (1886) ILR 14 Cal 64 Held: Suit would lie for the recovery of a

Acceptance Section 7 [Acceptance must be absolute] In order to convert a proposal into a promise the acceptance must Be absolute and unqualified; 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, without 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.

Cases-Section 7 [1] Kilburn Engineering Ltd. vs. Oil and Natural Gas Corporation Ltd, AIR 2000 Bom 405

The cardinal principle in the light of section 7 of the Act is that the offer and acceptance of an offer must be absolute without giving any room of doubt. Offer and acceptance must be based or founded on three components-Certainty, commitment and communication. It any of the three components is lacking either in the offer or in the acceptance there cannot be a valid contract.

Cases-Section 7 [2] Haridwar Singh vs. Begum Sumbrui AIR 1972 SC 1942

When the acceptor puts in a new condition while accepting, the contract already signed by the proposer is not complete until the proposer accepted the condition.

Cases-Section 7 [3] Haji Mohd. Haji Jiva vs. E. Spinner (1900) 24 Bom 510

An acceptance with a variation is no acceptance; it is simply a counter proposal which must be accepted by the original promiser before a contract is made.

Implied Acceptance Rakesh Kumar Dinesh Kumar vs. U.G. Hotels and Resorts Ltd AIR 2006 HP 135

The acceptance of a promise can be in express terms and can be in implied terms. In the above case the conduct of the parties showed that plaintiff had impliedly accepted the offer and received part of the amount.

No second acceptance Dickinson vs. Dodds 1876 Ch. D 463 The rule of law is that a mere offer to sell property, which can be withdrawn at any time, and which is made dependent on the acceptance of the person to whom it is made, is a mere nudum pactum. The person to whom the offer has been made, cannot, by acceptance make a binding contract after he knows that the person who has made the offer has sold the property to someone else.

Acceptance-2 Section 8 [Acceptance by performing conditions, or receiving consideration] Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

Cases-Section 8 Carlill v Carbolic Smoke Ball Co (1893) 1 QBD 256

The defendant company advertised that they would pay pound 1, 000 to any person who used their carbolic smoke ball for a certain time and yet contracted influenza. It was held that the contract was accepted by being acted upon, that the defendant had not stipulated for any communication of acceptance and therefore the plaintiff was entitled to recover the amount.

Section 9 Promises, express or implied 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.

Case-Section 9 State of Maharashtra vs. Saifuddin Mujjaffarali Saifi AIR 1994 Bom 48

A contract can be implied and it is clear from section 9 of the Contract Act It is a fundamental principle of law that the court should not make a contract for the parties. A contract implied in fact requires meeting of the minds The court should refuse to read an implied term into a contract which is silent on the point or did not clearly indicate the nature of the term. However, when the stipulations are clear and in contemplation of the parties or which necessarily arise out of the contract between the parties, they will be implied.

Communication of Proposal, Acceptance and Revocation The communication of proposal and acceptance must be complete so as to bind the concerned parties because as soon as the communication is complete the parties lose the right of withdrawal or revocation.

Legal provisions related to communication of proposal, acceptance and revocation

Communication of proposal: The communication of proposal is complete when it comes to the knowledge of the person to whom it is made, i.e. when the letter containing the proposal reaches the proposee;

Legal provisions related to communication of proposal, acceptance and revocation Communication of an acceptance The communication of acceptance is complete at different times for the proposer and acceptor. As against the proposer, the communication of acceptance is complete when it is put in a course of transmission to him, so as to be out of the power of the acceptor-i.e. when the letter of acceptance is duly posted; As against the acceptor, when it comes to the knowledge of the proposer, i.e. when the letter of acceptance is received by the proposer;

Legal provisions related to communication of proposal, acceptance and revocation Communication of a revocation The term revocation means taking back the withdrawal. The communication of the 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 person revoking, i.e. when the letter of revocation is posted; As against the person to whom it is made, when it comes to his knowledge , i.e. when the letter of revocation is received by him.

Legal provisions related to communication of proposal, acceptance and revocation

Time during which an offer or acceptance can be revoked: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor but not afterwards.

Consideration

Consideration Consideration is one of the essential elements of a valid contract When a person promises to do something, he must get something in return. If he does not get something in return, the contract is not valid. This something in return is known as consideration.

Consideration-2 Example: A agrees to sell his house to B for Rs 5,00,000/- Here As promise to sell his house is for Bs consideration to pay Rs 5,00,000/- . Similarly, Bs promise to pay Rs 5,00,000/- is for As consideration to sell his house to B.

Consideration-3 Latin maxim ex nudo-pacto non-oritur actio [out of bare promise no cause of action arise] Therefore, a gratuitous promise such as a promise to make a gift or charity for no return is not supported by consideration. Hence it is unenforceable by the promise. The basis of consideration is that of reciprocity.

Consideration-4 Sir Frederick Pollock An act or forbearance of one party of the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable.

Blackstone the recompense given by the party contracting to the other.

Essentials of a valid consideration Consideration must move at the desire of the promiser Example: Amar sees Bhushans house on fire and helps in extinguishing it. Amar cannot demand payment for his services because Bhushan never asked him to come for help.

Thus, the act or abstinence forming the consideration must be done at the desire or request of the promiser. If it is done at the instance of the third party or without the desire of the promiser, it is not consideration.

Case Durgaprasad Vs. Baldeo 1880-3 All 221 D promised to pay B a commission on the articles sold through their agency in a bazar in which they occupied shops, in consideration of B having expended money for the construction of such bazar. Such money had been expended by B at the desire of the Collector of the District. Held: Such expenditure was not consideration since it was not made at the desire of D.

Essentials of a valid consideration-1 Consideration may move from the promisee or any other person The consideration need not move from the promisee alone but may proceed from any third person. Thus, as long as there is a consideration for a promise, it is immaterial who has furnished it. This means that even a stranger to the consideration can sue on a contract, provided he is a party to the contract.

Case Dunlop Pneumatic Tyre Co Ltd Vs Selfridge & Co Ltd 1915 AC 847 S bought tyres from the company on the condition that S will not sell below Companys sale price failing which S will pay damages. S sold tyres to B a sub-dealer who sold the tyres below the stipulated price. Company sued B for damages. Held: The Company was stranger to the contract and therefore, could not maintain the suit. [That is English law on this point]. In India a stranger to a consideration may enforce a contract but not a stranger to a contract.

Illustration A insures his life with an insurance company and appoints B, his wife a nominee. Now B is the beneficiary under the policy and, therefore, she can sue the Insurance Company to recover the consideration amount mentioned in the policy.

Essentials of a valid consideration-1A [Doctrine of Constructive Consideration] Example: X by a deed of gift transferred certain property to her daughter Y with a direction that Y should pay Z an annuity. Y executed a deed in writing in favor of Z, and agreed thereby to pay the annuity. Later Y refused to pay annuity on the plea that no consideration had moved from Z. Held: Z was entitled to maintain suit because a consideration need not necessarily move from the promise, it may move from any other person (i.e. from X in the present case).

Essentials of a valid consideration-2 Consideration may be past, present or future.

Case Sindhu vs Abraham 1895-20 Bom 755 A rendered services to B at his desire during his minority and continued those services at his request after he became a major. After attaining majority B promised to pay an annuity amount to A for the services rendered in the past. This is an example of a good consideration for a subsequent promise made by B.

Essentials of a valid consideration-3 Consideration must be something of value. The consideration need not be adequate to the promise but it must be of value in the eye of the law.

Essentials of a valid consideration-4 Consideration must be legal

Essentials of a valid consideration-5 Consideration may be doing something, or abstaining from doing something (positive or negative act) or a promise to do something.

Exceptions to No Consideration No Contract Agreement made on account of natural love and affection. An agreement made without consideration is enforceable if it is Made on account of natural love and affection. Between parties standing in a near relation to each other; Expressed in writing; Registered as per law.

Exceptions to No Consideration No Contract-1 Agreement to compensate for past voluntary service: Example: A finds a purse and gives it to B. B promises to give A Rs 100/-. This is a contract.

Exceptions to No Consideration No Contract-2 Agreement to pay a time barred debt Where there is an agreement, made in writing and signed by the debtor or his authorized agent, to pay wholly or in part a debt barred by the law of limitation, the agreement is valid even though it is not supported by any consideration.

Exceptions to No Consideration No Contract-3 Completed Gift A completed gift does not require consideration in order to be valid.

Exceptions to No Consideration No Contract-4 Contract of Agency No consideration is necessary to create an agency.

Exceptions to No Consideration No Contract-5 Remission by the promisee, of performance of the promise For compromising a due debt, i.e. agreeing to accept less than what is due, no consideration is necessary;

Exceptions to No Consideration No Contract-6 Contribution to Charity A promise to contribute to charity, though gratuitous, would be enforceable, if on the faith of the promised subscription, the promisee takes definite steps in furtherance of the object and undertakes a liability, to the extent of liability incurred, not exceeding the promised amount of subscription.

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