A Bench of Justices Navin Sinha and Indira Banerjee of Supreme Court has held that Contract acceptance with a variation is a counter proposal. It cannot be termed as acceptance. It must be accepted fully by the original proposer before concluding between the parties.
The judgment came in an appeal by Padia Timber Company (Padia/ appellant) against an order of the High Court of Judicature at Hyderabad.
The appellant company had not accepted the contract in which some variations were made by the respondent, Visakhapatnam Port Trust (Port Trust) and hence, there was no concluded contract. The court ruled in favour of the appellant.
“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 appellant company had sent a proposal as the Port Trust had invited tenders to supply wooden sleepers. The proposal was accepted. The appellant company stated condition 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 and Port Trust insisted on the supply of agreed upon wooden sleepers but appellant company asked for refund of earnest money of ? 75,000 as there was no concluded contract.
The Port Trust approached the trial court for recovery of damages to the tune of Rs. 33 lakh and hence trial court ruled in favour of the Port Trust .
The case of Contract acceptance was upheld in High court. The decision was uplead in Supreme court.
Court’s Observations and Order
Supreme Court observed that Section 7 of the Indian Contract lays down that acceptance of a proposal must be absolute and unqualified and it is a cardinal principle of law of contract.
SC said that both the trial and the high court had overlooked Section 7 of the Contract Act and 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” as the contact wasn’t concluded.
Hence, the Port Trust was ordered to refund the earnest deposit of Padia Timber company.