M/S Padia Timber Company (P) Ltd Vs The Board Of Trustees Of Vishakhapatnam Port: Whether 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 Which Is Usually Overlooked U/S 7 Of The Indian Contract Act, 1872

Date:
5th January 2021

Coram:
Hon’ble Dr. Chandrachud, Hon’ble Ms. Banerjee, Hon’ble Sanjiv Khanna

Parties:
Appellant: M/s. Padia Timber Company(P) Ltd.
Respondent: The Board of Trustees of Visakhapatnam Port Trust

Subject

Whether the receiving of a conditional offer with some further condition results in a settled or determined contract, notwithstanding of whether the offeror accepts or declines the further condition proposed by the acceptor.

Issues

1. Whether Section 4 of Indian Contract Act is applicable here or not?
2. Whether Section 7 of Indian Contract Act fits here or not?

Overview

1. A tender was floated by the Port Trust for the wooden sleeper.
2. They put a condition for the inspection of the wooden sleepers that it can be inspected only if they come and examine after coming into their depots of the respondent’s showroom.
3. The Port Trust demanded that the inspection to be commenced should be only after the Padia Timber Co. Pvt. Had bear the brunt of the transportation and the heavy charges commenced under the transportation as well all other expenses.
4. The company did not accept this offer and demanded their deposit back as the Trust had changed the facts of the offer.
5. A suit was filled by the Trust on the account of breach of contract.
6. But the Padia Timber company replied that there was no contract in the first place since they did not accept the offer but altered and gave a counter offer.

Relevant Provisions

The Court first discussed Section 4 and Section 7 of the Indian Contract Act, 1872. The same have been produced as under: -

“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.”

“7. Acceptance must be absolute. —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.”

Judgement Analysis

1. The judges held that there was no contract as the acceptance is supposed to be absolute and any alterations will amount to counter offer.
2. The other party, Padia Timber was supposed to accept the offer. But they did not accept the counter offer.
3. Hence, there was no contract. Therefore, not enforceable as binding contract and the money is supposed to be returned back to the respondent.
4. The Trial Court found that the contract was enforceable till its completion or its abandonment.
5. The rescission of the contract and consequential forfeiture of security deposit was proper and within the terms of the contract.
6. In Rajasthan State Electricity Board and others v. Dayal Woods Works (supra), cited on behalf of the Appellant before the Trial Court, the High Court had found on facts that there was no concluded contract for supply of sleepers and consequently the plaintiff was entitled to refund of security deposit.
7. Where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture.
8. 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.
9. 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.
10. The offer and acceptance must be based or founded on three components, that is, certainty, commitment and communication.
11. However, when the accept or 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.

Conclusion

Whenever an offer is accepted, then it becomes a promise and when consideration is added then it becomes an agreement which should fulfil Section 10 of Contract Act. But until an offer is not accepted, it has no value. When it is accepted, it becomes binding only if the acceptance is accepted as it is, without any chances or else it becomes a counter offer. And if it becomes a counter offer, then it in the other party’s wish to accept or not.

Click here to download the original copy of the judgement