Counter Offer and the Destruction of the Original Offer: Section 7 of the Indian Contract Act, 1872, the Mere Inquiry, Conditional Acceptance and the Battle of the Forms

A counter offer is a reply that purports to accept but changes the terms. Because Section 7 requires an acceptance to be absolute and unqualified, such a reply is not an acceptance at all. It is a fresh proposal, and its effect on the original offer is destructive: the original offer ceases to exist and cannot afterwards be accepted. That single consequence accounts for a great deal of commercial litigation, because parties who exchange documents without noticing the variations often discover much later that the contract they are arguing about was made on terms neither of them had in mind.

1. The Statutory Foundation

Section 7, Indian Contract Act, 1872

In order to convert a proposal into a promise, the acceptance must:

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

The requirement that acceptance be absolute and unqualified is sometimes called the mirror image rule: the acceptance must correspond exactly to the offer. Any departure, however small, prevents the reply from operating as an acceptance. The rule follows from Section 2(e), which requires the promises to form the consideration for each other. If the parties have assented to different things there is no set of promises answering to that description, and therefore no agreement.

2. The Destructive Effect

A counter offer does not merely fail as an acceptance; it kills the offer it responds to. The rule is that of Hyde v. Wrench, (1840) 3 Beav 334, where an offer to sell a farm for one thousand pounds was met with a counter proposal of nine hundred and fifty, and the plaintiff's later attempt to accept the original figure was held to be too late, there being nothing left in existence to accept.

Two reasons support so strict a rule. The first is consistency of assent: a party who has said the terms are unacceptable cannot at will treat them as acceptable again, since his own communication showed that he did not assent to them. The second is commercial certainty: an offeror who receives a counter proposal is entitled to treat his offer as at an end and to deal elsewhere, and he would be exposed to serious risk if the offeree could revive the original terms whenever the market moved against him.

The consequence is that the roles of the parties reverse. The original offeree becomes the offeror and the original offeror becomes the offeree, free to accept or reject as he pleases. Where the original offeror does accept, the contract is made on the counter-offeror's terms, and it is made at the time and place at which the original offeror's acceptance takes effect under Section 4.

3. What Is Not a Counter Offer

3.1 A mere inquiry

Everything turns on whether the new matter is introduced as a condition of being bound, or merely raised for information or as a request the offeror is free to refuse. A reply that explores the possibility of different terms while leaving the original offer standing is a mere inquiry, and the offeree may still accept the original terms afterwards.

📖 Stevenson, Jaques & Co. v. McLean, (1880) 5 QBD 346

Facts: The defendant offered to sell iron at a stated price, the offer to remain open until Monday. On Monday morning the plaintiffs telegraphed asking whether the defendant would accept delivery over two months, or, if not, what was the longest limit he would give. Receiving no reply, they telegraphed later that day accepting the original terms. In the meantime the defendant had sold the iron elsewhere and he contended that the first telegram was a counter offer that had destroyed his offer.

Held: The court held that a binding contract had been made by the second telegram. The first telegram was not a counter offer or a rejection. It was a mere inquiry, asking whether the defendant would modify the terms, and it should have been answered as such. It left the original offer intact and capable of acceptance.

Ratio: A request for information about possible variations, which does not itself propose new terms as a condition of agreement, is not a counter offer and does not destroy the original offer.

The distinction can be put shortly. Would you take nine hundred and fifty? is an inquiry. I accept at nine hundred and fifty is a counter offer. I accept at one thousand, and could you deliver by Friday? is an acceptance coupled with a request the offeror is free to refuse, and the contract is concluded on the original terms.

3.2 A request for confirmation or formal documentation

A reply accepting the terms and asking that a formal agreement be drawn up is usually an acceptance, the formal document being no more than a record of what has already been agreed. It is otherwise where the parties intended that they should not be bound until the formal document was executed, in which case the reply is not an acceptance and the negotiations remain open. The expression subject to contract ordinarily signals the second intention. The question is one of construction of what passed between the parties, not of the label used.

3.3 An acceptance in a manner other than that prescribed

Where the offer prescribes the manner of acceptance and the offeree accepts in some other usual and reasonable manner, the reply is still an acceptance in substance. The proviso to Section 7 gives the proposer a limited right to object: he may, within a reasonable time after the acceptance is communicated to him, insist that his proposal be accepted in the prescribed manner, and if he does not, he accepts the acceptance. Silence on his part therefore validates the departure, which is a materially more forgiving rule than treating the reply as a counter offer would be.

4. Conditional and Provisional Acceptance

An acceptance made subject to a condition that has yet to be satisfied is not absolute within Section 7 and does not conclude a contract. The offer remains open and revocable until the condition is met. That is the reasoning of Union of India v. Bhim Sen Walaiti Ram, AIR 1971 SC 2295, where a bid at an auction was accepted only provisionally and subject to confirmation by an authority that never confirmed it; the Supreme Court held that there was no concluded contract and that the bidder remained entitled to withdraw.

A conditional acceptance differs from a counter offer in one respect that is easy to overlook. A counter offer destroys the original offer. A conditional acceptance, where the condition is one the acceptor or a third party must still satisfy, does not necessarily destroy it; it simply fails to conclude a contract, leaving the offer alive until it is revoked or lapses. Whether a given reply does one or the other depends on whether it varies the terms proposed or merely postpones the moment of commitment.

5. The Battle of the Forms

The mirror image rule produces its most difficult problems where commercial parties exchange their own standard documents. A buyer sends a purchase order on his printed terms; the seller acknowledges on his printed terms, which differ; goods are delivered and paid for; and a dispute then arises about a clause that appears in one set of terms and not the other.

📖 Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd., [1979] 1 WLR 401 (CA)

Facts: Sellers quoted for a machine tool on their own terms, which included a price variation clause. The buyers replied with an order on their own terms, which contained no such clause, and which included a tear-off acknowledgment slip stating that the order was accepted on the buyers' terms. The sellers signed and returned the slip, adding a letter referring back to their original quotation. On delivery the sellers claimed an increase under the price variation clause.

Held: The Court of Appeal held that the contract was made on the buyers' terms and that no price increase was payable. The buyers' order was a counter offer which destroyed the sellers' quotation, and the sellers accepted that counter offer by signing and returning the acknowledgment slip. The covering letter referred to the quotation only to identify the machine and its price, and did not reintroduce the sellers' terms.

Ratio: In an exchange of conflicting standard forms, the traditional analysis applies: each document that varies the last is a counter offer, and the contract is made on the terms of the document that was last sent and then accepted, usually by performance. This is commonly called the last shot rule.

⚠ The last shot rule is a default, not an invariable rule

Lord Denning MR in the same case doubted whether the mechanical application of offer, counter offer and acceptance always produced a sensible answer, and suggested that the documents should sometimes be construed as a whole, with irreconcilable clauses cancelling out and being replaced by a reasonable implication. That approach has not displaced the orthodox analysis, which remains the starting point in India as in England, but it is a reminder that where the parties have plainly performed a contract the court will strive to find one rather than hold that there was never any agreement at all.

Six kinds of reply, and what each does to the offer

6. The Distinctions Compared

Type of reply	Effect on the original offer	Is a contract concluded?
Absolute and unqualified acceptance	Consumed by the acceptance	Yes, on the offeror's terms
Counter offer varying the terms	Destroyed; it cannot be accepted afterwards, per Hyde v. Wrench	No. The reply is a fresh proposal which the original offeror may accept
Mere inquiry about possible variations	Unaffected; it remains open, per Stevenson Jaques v. McLean	No, but the original terms may still be accepted
Acceptance coupled with a request the offeror may refuse	Consumed by the acceptance	Yes, on the original terms; the request is collateral
Conditional or provisional acceptance	Not destroyed; it remains open and revocable until the condition is satisfied	No, per Bhim Sen Walaiti Ram
Acceptance in a manner other than that prescribed	Consumed, unless the proposer objects within a reasonable time under the proviso to Section 7	Yes, unless the proposer insists on the prescribed manner

7. The Position Stated Shortly

Section 7 requires an acceptance to be absolute and unqualified, which is the mirror image rule.
A reply varying the terms is a counter offer: it is not an acceptance and it destroys the original offer, per Hyde v. Wrench.
The rule rests on consistency of assent and on the offeror's entitlement to treat his offer as at an end and deal elsewhere.
After a counter offer the roles reverse, and any contract that follows is on the counter-offeror's terms.
A mere inquiry does not destroy the offer, per Stevenson Jaques v. McLean; the test is whether the new matter is put forward as a condition of being bound.
An acceptance coupled with a request the offeror is free to refuse concludes a contract on the original terms.
A conditional or provisional acceptance concludes no contract but does not necessarily destroy the offer, which remains open until revoked or lapsed.
Acceptance in an unprescribed manner is saved by the proviso to Section 7 unless the proposer objects within a reasonable time.
In a battle of the forms the orthodox analysis applies and the last document sent and then accepted supplies the terms, per Butler Machine Tool.

8. Related Topics and Provisions

Topic or provision	Connection
Offer or Proposal under Section 2(a): Essentials and Kinds of Offer	Counter offers among the kinds of offer, and Hyde v. Wrench
Revocation of an Offer: Death or Insanity, Failure of a Condition Precedent, and Rejection	Counter offer as a mode of rejection
Invitation to Offer and Invitation to Treat	Identifying who is the offeror, which decides whose terms govern
Standard-Form Contract	Why conflicting printed terms are exchanged in the first place
Section 2(e), Indian Contract Act	Promises forming the consideration for each other
Section 4, Indian Contract Act	When and where the contract is made once the counter offer is accepted
Section 5, Indian Contract Act	Revocation, and why a destroyed offer needs no revocation
Section 7, Indian Contract Act	Acceptance absolute and unqualified; the prescribed manner
Section 9, Indian Contract Act	Acceptance of a counter offer by conduct