Acceptance of a contract after putting in a new condition is no acceptance but only a counter proposal: Supreme Court [Read Judgment]

The top court noted that both trial and high court had overlooked Section 7 of the Contract Act which states that "acceptance must be absolute."
Acceptance of a contract after putting in a new condition is no acceptance but only a counter proposal: Supreme Court [Read Judgment]
Navin Sinha and Indira Banerjee

The Supreme Court has reaffirmed that acceptance of a contract with a variation is no acceptance but is simply a 'counter proposal' which must be accepted fully by the original proposer, before a contract can be said to have concluded between the parties.

The judgment rendered by a Bench of Justices Navin Sinha and Indira Banerjee came in an appeal by Padia Timber Company (Padia/ appellant) against an order of the High Court of Judicature at Hyderabad.

The Court ruled in favour of Padia holding that the appellant company had not accepted the contract which was varied by the respondent, Visakhapatnam Port Trust (Port Trust) and hence, there was no concluded contract.

"It is a cardinal principle of the law of contract that the offer and acceptance of an offer must be absolute..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 judgment said.

The Port Trust had invited tenders to supply wooden sleepers. The appellant company sent a proposal and it was accepted. However, the appellant company stated that the inspection of the delivered goods would take place at their own port.

The Port Trust accepted the offer but added a counter that it would be finally checked at their own port company. The appellant claimed that this counter proposal was not accepted by them.

However, the Port Trust insisted on the supply of agreed upon wooden sleepers to which the appellant company stated that their earnest money of ₹ 75,000 should be refunded as there was no concluded contract.

The Port Trust approached the trial court for recovery of damages to the tune of Rs. 33 lakh. The trial court ruled in favour of the Port Trust and the same was upheld by the High Court.

However, the Supreme Court placed reliance on Section 7 of the Indian Contract which lays down that acceptance of a proposal must be absolute and unqualified. This, the Court said, is a cardinal principle of law of contract.

"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," the top court held.

Further the top court noted that both the trial and the high court had overlooked Section 7 of the Contract Act

There being no concluded contract, the apex court held "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."

Thus, the Court ordered the Port Trust to refund the earnest deposit of Padia.

[Read judgment]

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