Introduction:
A wide range of contracts, from simple standard form purchase orders to detailed, negotiated long form contracts often include provisions where a party is considered to have accepted an order or a set of terms and conditions, unless they communicate non-acceptance within a stipulated timeframe. In such cases, the contract requires no overt act of acceptance by the offeree and is commonly referred to as 'deemed acceptance'.
In this article, we discuss the concept of 'deemed acceptance', its validity under Indian law, and the consequences of having such clauses in a contract.
Deemed acceptance under Indian Law:
The concept of 'deemed acceptance' under Indian contract law raises questions about whether an agreement can be formed without explicit or clear manifestation of assent by the offeree. Acceptance, as an integral element of a contract, necessitates clear communication of the intent to agree to the terms proposed by the offeror, and must be unconditional. If the response to an offer has any fetters/ conditionality associated with it, this would constitute a counter-offer, rather than an acceptance. This has been discussed in detail later in this article, with appropriate examples. In a number of judicial pronouncements, Indian courts have held that contracts and/ or agreements cannot be inferred to have been concluded by reference to a mere state of mind, and that it is necessary for an external manifestation (in the form of writing/ speech/ any other act) of intent to enter into an agreement/contract.
How 'Deemed Acceptance' clauses play out:
A 'deemed acceptance' clause typically provides that an offer is considered to have been accepted even in the absence of a positive act of acceptance by the offeree. In other words, unless the offeree actively rejects the offer, he is considered to have accepted it.
A typical 'deemed acceptance' clause will state "If these terms are acceptable to you, please convey your acceptance by returning a duly signed copy of this document to us within 7 days from its receipt. In the event no acceptance or objection is received by us from you within the above specified duration, these terms will be binding on you."
The table below sets out the ways in which a 'deemed acceptance' clause can play out:
|
Scenario |
Impact on Formation of Contract |
|
The offeree explicitly and unconditionally accepts the terms in writing within the stipulated time period. |
This results in the formation of a contract. |
|
The offeree does not expressly accept the terms of the contract, but does (by act or omission)something which constitutes unconditional acceptance, within the stipulated timeframe. |
This results in contract formation, the offeree's acceptance being implied by his action / omission. |
|
The offeree responds, but includes certain terms of their own. |
As discussed above, since the 'acceptance' is not unconditional, this would constitute a counter-offer and this counter-offer will in turn need to be 'accepted' by the original offeror in order to conclude contract formation. Till this happens, no valid contract is formed. |
|
The offeree does not accept/ reject/ propose any new terms and does not respond to the offeror at all. |
In such case, no valid contract has been formed, there is no acceptance of the contract, and the offeree is not obligated to perform under the contract. |
The following sections delve deeper into some of the circumstances discussed above.
Mute Consent: Can Silence Create Obligations?
The Supreme Court, in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. has held that the offeror cannot impose upon the offeree an obligation to accept, nor proclaim that the silence of the offeree constitutes consent, and therefore the acceptance of the terms of the contract.
A contract arises from the concurrence of an offer extended by one party and its corresponding acceptance by the other, which must be accompanied by an external manifestation considered sufficient by law to communicate the unconditional assent to the offer. Accordingly, conduct would only amount to acceptance if it is clear that the offeree undertook a certain act with the actual or apparent intention of accepting the offer. It is therefore a settled position of law that mere silence is not assent and that in order to confirm that a contract has been accepted, the offeree is required to undertake certain acts, or, if so stipulated in the contract, omit to do certain acts to convey its acceptance of the terms of the contract.
Can a Failure to Reject an Offer be Equated to Acceptance?
Indian law does not provide for a circumstance where acceptance is determined in case a party fails to reject an offer. The logic is similar to that of silence not constituting consent. Mere failure to reject an offer whether this is within a specified time period or not, does not constitute acceptance of the offer. An offeror cannot say that if an answer is not received within a certain time, the terms of a contract will be deemed to have been accepted. It is fairly clear from the law that an offeror cannot impose a 'burden of refusal' on an offeree. It flows from this, that a term in a contract, which sets out that failure to reject within a specified time will result in acceptance, holds no value in Indian law.
Conclusion:
While commercially, 'deemed acceptance' clauses are commonplace, if an offeror tries to enforce a contract purely on the basis of 'deemed acceptance' the court is likely to hold that there has been no explicit or implied, unconditional acceptance of the offer, and hence no binding contract exists. This creates a situation in which the offeror is put at a risk which could have been significantly avoided. It is therefore prudent to ensure that contracts provide for acceptance either explicitly or through specific conduct not amounting to silence; with silence on the part of the offeree being treated as 'deemed rejection' of the contract, as opposed to 'deemed acceptance'.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
