Legal Effects of Acceptance

Synopsis

Legal Effects of Acceptance

1. Creation of a Binding Agreement (Section 2(b))

Section 2(b) of The Indian Contract Act: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”

Key Effect: Acceptance establishes privity of contract between the parties regarding the terms of the proposal. The pomiser is now bound by their proposal.

Example: ‘A’ offers to sell his car to ‘B’ for ₹5,00,000. ‘B’ communicates his assent (acceptance) to ‘A’.

Legal Effect: The proposal is now a binding promise. ‘A’ is legally bound to sell the car to ‘B’ at ₹5,00,000, and ‘B’ is legally bound to purchase it at that price. This mutual obligation constitutes an agreement.

2. Irrevocability of Proposal (Section 5)

Section 5 of The Indian Contract Act:

“A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.”

Example: ‘C’ offers to lease his apartment to ‘D’ on Monday. ‘D’ posts a letter of acceptance on Tuesday. ‘C’ posts a letter of revocation (withdrawal of proposal) on Wednesday.

Legal Effect: If ‘D’s’ acceptance letter is received by ‘C’ before ‘C’s’ revocation letter is received by ‘D’, the acceptance is complete as against ‘C’, and ‘C’ cannot legally revoke the proposal. The proposal has converted into a promise.

3. Completion of Communication (Section 4)

Section 4 specifies when the legal effect of acceptance is complete, which dictates the points at which the parties become bound. The Act adopts different rules for the proposer and the acceptor.

Section 4 of The Indian Contract Act: “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 thepower of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer. “

Key Effect: The moment the acceptance is put into transmission (e.g., mailed, emailed, or spoken), the proposer becomes legally bound. The acceptor only becomes legally bound when their acceptance reaches the proposer’s knowledge.

Example: ‘X’ in Delhi offers to sell goods to ‘Y’ in Mumbai. ‘Y’ posts his letter of acceptance in Mumbai.

4. Creation of Legal Rights and Obligations

Acceptance creates legal rights and duties between the promisor and promisee, which can be enforced in a court of law.

Example: A contract to supply goods creates A’s duty to deliver and B’s right to receive them.