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Contract is not complete unless all conditions proposed by both/either parties are accepted by all

In M/s. Padia Timber Company(P) Ltd. vs The Board of Trustees of Visakhapatnam Port Trust Through its Secretary, the short question involved in this appeal is, 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.

In this matter, a tender was floated by the Respondents against which the Appellant had submitted its offer which some specific conditions. The Appellant did not accept Clauses 15 and 16 of the Tender and rather made a counter proposal. In accordance with the terms and conditions of the tender, the Appellant deposited Rs.75,000/- towards earnest deposit, along with its quotation. There were several rounds of correspondences between the parties primarily on the objection/condition raised by the Appellate which was inconclusive and finally the Appellant rejected the proposal of the Respondent and requested return of the earnest money. However, the Respondent with out resolving the dispute went ahead and placed the order with the Appellant, who refused. Finally the Respondent concluded the purchase through a third party at a higher price and filed suit seeking damages for breach of contract with interest.

The Trial court observed that the Appellant had placed their offer in response to the tender which was accepted by the Respondent which made it a concluded contract and the purchase order was issued within the validity period quoted by the Appellant. The Trial Court observed that, in order to determine whether or not there was a concluded contract between the Appellant and the Respondent-Port Trust, the crucial question was whether the tender submitted by the Appellant had been accepted by the Respondent- Port Trust within 31st October, 1990, being the stipulated period of validity of the quotation given by the Appellant. The Trial Court found that acceptance of the purchase order was completed as against the Appellant, when the letter of intent cum purchase order was dispatched from the end of the Respondent-Port Trust. Once it was proved that there was a concluded contract and the defendant that is, the Appellant before this Court, had admittedly not supplied the goods as per the terms of the purchase order, it had to be held that the defendant had committed breach of contract. The Trial Court, in effect, held that the fact that the Appellant had received the letter of intent and endorsed the receipt thereof within 31st October, 1990, established the case of the Respondent that the contract had been concluded.

The appeal before the High Court was also dismissed.

The Supreme Court observed that even though the High Court referred to the submission of the Appellant that the letter of intent was subject to ratification by the Board and and the only witness of the Respondent-Port Trust had admitted that no contract had been concluded, the High Court did not deal with the same. The Trial Court as well as the High Court relied on Section 4 of the of the Indian Contract Act, 1872 which establishes when the communication of a proposal is complete, but completely overlooked Section 7 which states that in order to convert a proposal into a promise the acceptance must be absolute.

Noting that very clearly, the Appellant had made their acceptance subject to confirmation of certain conditions which were not accepted by the Respondent unconditionally, the Supreme Court went on to hold that 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. In Union of India v. Bhim Sen Walaiti Ram, a three-Judge Bench of this Court held that 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. 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.


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