Acceptance Of A Conditional Offer With A Further Condition Does Not Result In A Concluded Contract: Supreme Court

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 Supreme Court observed while setting aside a High Court judgment on Tuesday.

The bench comprising Justices Navin Sinha and Indira Banerjee observed that the High Court overlooked Section 7 of the Contract Act while upholding dismissal of a suit filed by a tenderer for refund of earnest deposit.

Visakhapatnam Port Trust floated a tender for supply of Wooden Sleepers.  M/s. Padia Timber Company submitted an offer, in which it placed a condition that inspection of the Sleepers, as per the requirement of the Port Trust, would have to be conducted only at the depot of the Company. In accordance with the terms and conditions of the tender, the Company deposited Rs.75,000/- towards earnest deposit, along with its quotation. Port Trust, in its reply, said that it had accepted the offer of the Appellant for supply of wooden sleepers at the rate quoted by the Company. It added that the Port Trust agreed that the Inspection Committee would inspect the Wooden Sleepers at the site of the Company, it imposed the further condition that the Appellant would have to transport the Wooden Sleepers to the General Stores of the Port Trust by road, at the cost of the Company and the final inspection would be made at the General Stores of the Port Trust. The company rejected the proposal of the Port Trust and requested that the earnest money deposited by it be returned. 

The Port Trust, thereafter, filed a suit seeking damages for breach of contract to the tune of Rs.33,19,991/-. The Company also filed a suit claiming refund of earnest money deposited by it with the -Port Trust along with interest @ 24% per annum. The Trial Court found that acceptance of the purchase order was completed as against the Company, when the letter of intent cum purchase order was dispatched from the end of the Port Trust. It was held that the company committed breach of its obligations under a concluded contract with the Port Trust, and thus the Port Trust was entitled to damages. The High Court dismissed the appeals filed by the Company.

The issue before the Apex Court in appeal filed by the Company 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. Referring to some earlier judgments on the subject, the bench observed:

"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. 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, as held by this Court in Haridwar Singh v. Bagun Sumbrui and Ors. An acceptance with a variation is no acceptance. It is, in effect and substance, simply a counter proposal which must be accepted fully by the original proposer, before a contract is made."

The Court noted that, in Union of India v. Bhim Sen Walaiti Ram, it was held that If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place. While setting aside the High Court judgment, the bench further said:

However, in the facts and circumstances of that case, on a reading of the letter of acceptance as a whole, the Appellant's argument that the letter was intended to make a substantial variation in the contract, by making the deposit of security a condition precedent instead of a condition subsequent, was not accepted. The High Court also overlooked Section 7 of the Contract Act. Both the Trial Court and the High Court over-looked 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. 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.

Case: M/s. Padia Timber Company(P) Ltd. vs. Board of Trustees of Visakhapatnam Port Trust [CIVIL APPEAL NO.7469 OF 2008 ]

Coram: Justices Navin Sinha and Indira Banerjee

Citation: LL 2021 SC 5

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