PADIA TIMBER COMPANY (P) LTD.

VERSUS.

VISAKHAPATNAM PORT TRUST

JUDGMENT PRONOUNCED ON: 05.01.2021

JUDGMENT PRONOUNCED BY: Justices Navin Sinha and Indira Banerjee

LAW POINT: 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.

FACTS: On 17-7-1990, the respondent floated a tender for supply of Wooden Sleepers. The main dispute was related to Clauses 15 and 16 of the tender, which are extracted herein below:

“15. The purchaser will not pay separately for transit insurance and the supplier will be responsible till the entire stores contracted for arrive in good condition at destination. The consignee will as soon as but not later than 30 days of the date of arrival of stores at destination notify the supplier of any loss, or damage to the stores that may have occurred during transit.

16. In the event of the supplies being found defective in any matter the right to reject such materials and return the same to the supplier and recover the freight by the Port is reserved.”

Pursuant to the aforesaid tender, the appellant submitted its offer with a specific condition of the offer that inspection of the Sleepers, contrary to the requirement of the respondent, had to be conducted only at the depot of the appellant, thereby making a counter proposal. The appellant deposited Rs.75,000/- towards earnest deposit, along with its quotation while reiterating that if the respondent required inspection at the site of the respondent, the appellant would charge 24% above the rate quoted by him for the supply of goods. Though the respondent agreed that the goods would be inspected at the site of the appellant, a further condition was imposed that the final inspection would be made at the General Stores of the respondent and the respondent also requested to extend the delivery period of the sleepers until 15-11-1990. The Appellant rejected the proposal of the Respondent and requested that the deposited earnest money be returned to it.

The respondent contended that, by reason of refusal of the appellant to discharge its obligation of supplying the requisite number of sleepers, it had been constrained to invoke the risk purchase clause as contained in Paragraph 16 of the Special Conditions of purchase and had to purchase the wooden sleepers at a higher rate from a third party, incurring losses, for which the respondent was entitled to claim damages.

The Trial Court and the High Court held that since the appellant had committed breach of its obligations under a concluded contract; the respondent was entitled to damages.

OBSERVATIONS OF THE SUPREME COURT:

Noticing that both the Trial Court and the High Court over-looked the question as to whether the acceptance of a conditional offer with a further condition results in a concluded contract, irrespective of whether the offeror accepts the further condition proposed by the acceptor, the Court observed that Section 7 of the Contract Act, 1872 which emphasises that acceptance must be absolute. 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. The Court cited Haridwar Singh v. Bagun Sumbrui (1973 SC) wherein it was held that 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.

The Court further relied on Union of India v. Bhim Sen Walaiti Ram (1969 SC) , where a three-Judge Bench of this Court had 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.

It was, hence, held that the Trial Court and the High Court over-looked the main point that, in response to the tender floated by the respondent, the appellant had submitted its offer conditionally subject to inspection being held at the Depot of the Appellant and the said condition was not accepted by the respondent unconditionally. The respondent had agreed to inspection at the Depot of the appellant, but it imposed a further condition that the goods would be finally inspected at the showroom of the respondent. This Condition was not accepted by the Appellant.

It could not, therefore, be said that there was a concluded contract. Therefore, 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.

DECISION: The Court, Thus, set aside impugned judgments and orders and held that the appellant was entitled to refund of earnest money deposited with the respondent within four weeks with interest at 6% per annum from the date of institution of suit till the date of refund.

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