Government of India
Bare Act As Per The Government of India

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.

Important Case Law

1. Carlill v. Carbolic Smoke Ball Co. (1893) 1 QB 256

Facts:
The Carbolic Smoke Ball Company advertised that anyone who used their smoke ball as directed and still caught influenza would be paid £100. Mrs. Carlill used the smoke ball as per the instructions but still contracted influenza. She claimed £100 from the company.

Issues:
Whether the advertisement constituted a valid offer leading to a binding contract when accepted by performance.

Analysis:
The court held that the company’s advertisement was a unilateral offer to the public, and anyone who performed the conditions (used the smoke ball and still got influenza) accepted the offer by conduct. The deposit of £1000 by the company showed their genuine intention to be bound.

Judgment:
It was held that a valid contract existed. Mrs. Carlill was entitled to the £100 reward. The case established that a general offer can be accepted by anyone who performs the required conditions and such performance amounts to acceptance.

2. Lalman Shukla v. Gauri Datt (1913) 11 All LJ 489

Facts:
The defendant’s nephew went missing, and the defendant sent his servant, Lalman Shukla, to search for the boy. Later, the defendant announced a reward for anyone who found the boy. Lalman Shukla found the boy but was unaware of the reward at that time. Later, he claimed the reward.

Issues:
Whether a person can claim a reward without knowledge of the offer at the time of performance.

Analysis:
The court observed that for a valid contract to exist, acceptance must be made with knowledge of the offer. Since Lalman Shukla was unaware of the offer when he found the boy, there was no meeting of minds (consensus ad idem).

Judgment:
The Allahabad High Court held that Lalman Shukla was not entitled to the reward, as he had no knowledge of the offer when he performed the act. This case established that knowledge of the offer is essential for valid acceptance.

3. Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas (1966 AIR 543, SC)

Facts:
The plaintiff (Girdharilal) from Ahmedabad made an offer to the defendant (Bhagwandas) in Khamgaon by telephone to buy cotton seed cake. The defendant accepted the offer during the call. Later, a dispute arose regarding the place where the contract was made — Ahmedabad or Khamgaon — for jurisdiction purposes.

Issues:
Where is a contract concluded in cases of telephonic communication — at the place where acceptance is spoken or where it is heard?

Analysis:
The Supreme Court observed that in instant communication (like telephone), the contract is complete where acceptance is heard by the offeror, not where it is spoken. This differs from postal rule cases.

Judgment:
The Court held that the contract was concluded at Ahmedabad, where the acceptance was heard. Hence, Ahmedabad courts had jurisdiction. This case clarified the place of contract formation in instantaneous communications under the Indian Contract Act.