The Mirror Image Rule

The author is Rohan Mehta, first year student at National Law School of India University.

In Vinayak Builders and Developers v. State of Maharashtra, for the first time, the court explicitly mentioned the ‘mirror image rule’. Despite being mentioned for the first time, it forms the base of our understanding of contracts. It means that acceptance should be the same as, or mirror, the offer.[1] It is something that we intuitively understand. But there are concerns about whether this approach is adequate to deal with modern transactions. In such transactions it is difficult to find a clear acceptance or offer, this goes against the mirror image where acceptance must be absolute and unqualified. We need to rethink the concept of acceptance in contracts, especially in cases of ‘battle of forms’.

CRACKS IN THE MIRROR IMAGE RULE

The mirror image rule is not codified but the notion of acceptance which must be absolute and unqualified is based on it. Variation between the offer and acceptance does not result in the formation of a legal contract. In the modern marketplace, this rule appears to be anachronistic. To prove this, I highlight some of its deficiencies.

BATTLE OF FORMS

The modern marketplace refers to scenarios where parties use standard forms of contract, usually for commercial transactions. These are contracts that contain boilerplate terms, which are standardized text that can be used in multiple contracts without making changes. In commercial agreements, agents exchange these forms, with unread boilerplate. In such contracts, there may be agreement on material terms but not on other terms. This often leads to disputes that are termed ‘battle of forms’. When parties exchange these forms with different standard terms and perform their duties, a question arises as to whether they have a contract and if yes, then on what terms.

The mirror image rule would say that there is no contract due to the difference in offer and acceptance. When there is a breach of contract the Court won’t be able to help even though the parties performed the duties believing they were contractually obligated. There have been multiple decided cases where courts have refused to uphold the validity of the contract.

On the flip side, the application of the mirror image rule may bind parties to a contract despite no agreement on some terms. This is a lacuna of the mirror image rule as it does not account for the difference in boilerplate terms. It leads to another problem of the mirror image rule in commercial contracts: the determination of acceptance and offers in modern contracts.

DIFFICULTY IN DETERMINING

In modern markets, an exchange of emails may be enough to constitute a contract in absence of a formal agreement. Therefore, in such scenarios of prolonged communication with multiple rounds of discussions, it may be hard to determine a final offer. The mirror image rule would be difficult to apply in such scenarios.

Offer sometimes may not contain all the parts of the decided agreement. However, in acceptance by the other party, these parts which were implied before may be merely written down. But in this scenario, the mirror image rule won’t be satisfied as the offer and acceptance are not on the same terms. A way to determine offer and acceptance in common law has been by the use of the last shot rule.

Last Shot Rule

The last shot rule means that the last party decides the terms of the contract. The mirror image rule logically leads to the last shot rule. Consider this: the seller offers the goods, and the buyer accepts. This leads to a contract, and the buyer agrees to the terms of the offer. The contract was agreed on the terms of the seller. Therefore, the party who sends the last offer dictates the terms governing the transaction.

The last shot rule is the common law solution to the battle of forms. But this approach encourages parties to make offers and counter offers with the hope to have the last shot and induce acceptance. This approach uses a lot of time due to continuous offers and counters and may affect the viability of the deal.

Different approaches have been taken to resolve these problems of the mirror image rule throughout the globe. The United States uses the ‘knockout rule’. It means in a contract, conflicting terms knock out each other. The contract will be completed based on terms that both offer and acceptance have in common and conflicting terms will be removed.

But the knockout rule by itself is not adequate. Suppose the terms contrast in their choice of arbitration, the result from the knockout rule would be that there is no arbitration agreement. This means that parties will not have the option to arbitrate. This rule also makes the entire process of contract formation antagonistic; parties do not care for other parties as the worst thing that can happen is that the terms get removed in their entirety.

Therefore, contracts in India should use the UNIDROIT principles to resolve the defects of the mirror image rule. They are called Principles on International Commercial Contracts [UPICC].

It uses a mixed approach; it combines the mirror image rule and the knockout rule. It is beneficial as despite both approaches having flaws when used on their own, their combined application helps to resolve most of this. In this approach, the terms which do not materially change the contract are allowed in the acceptance. The list of these terms is not provided, this allows for a wider scope of modified acceptance.

An argument against the UPICC is that determination of which terms are material is not purely objective. It is subjective in the application as this determination depends on the facts of every case. Though this is attempted to be remedied by saying that anything that is standard practice is not a material clause. This is illustrated by the UPICC, as if party A orders some wheat from party B and in its acceptance party B, adds an arbitration clause as the standard practice in the industry, then it will not be a material term. But this task of determining what is a standard practice in an industry is also inherently subjective in its application.

But despite this, UPICC is better than the mirror image rule, simply because of the advantages it offers compared to the mirror image rule.

It resolves most of the issues related to the mirror image rule. To deal with the battle of forms it contains specific provisions which give it an advantage over the mirror image rule. For instance, it first uses the last shot rule only if it is made clear that terms of the last form will apply. This avoids the flaw of favoring the last offer, as it needs to explicitly state that the last terms will apply. If the last shot rule is not applicable, it uses the knockout rule.

The flaws of the knock-out rule are also dealt with by this approach as the parties have the option of backing out of the knock-out rule if they don’t like its consequences. Therefore, an explicit exclusion of the knock-out rule can prevent the contract from being bound by it. Thus, scenarios like the above example, where one party may be adversely affected by the application of the knockout rule can be avoided by its exclusion.

For the mirror image rule, one needs to determine acceptance and offer, to determine the contract. This is often a very challenging task even more so in modern contracts. This approach does not require finding a final and definite acceptance and offer, which makes entering into contracts easier. It also saves a lot of time which would have been lost due to continuous offers and counter offers.

A benefit of the mirror image is its certainty in forming a contract and consensus ad idem (meeting of minds) during contract formation. But even under UNDROIT principles, there is consensus ad idem and certainty, but on material terms that are essential to the contract.

The main benefit of this approach is the autonomy it grants to the parties to choose which approach they would prefer their contract to be decided. They can opt for the last shot rule(in essence mirror image rule) or knockout rule if they prefer it. Therefore, UPICC should be utilized for determining acceptance in contracts instead of just the mirror image rule.

CONCLUSION

This piece argued that the mirror image rule is not fit to match the requirements of a modern marketplace. For this, it gave reasons like inadequacy to deal with the battle of forms, last shot rule, and difficulty in determining acceptance in the modern contract. Therefore, India should rethink its approach to contracts. The most plausible suggestion is the usage of the UNIDROIT rules and highlighted the reasons for this.

[1] Pollock & Mulla, On Indian Contract and Specific Relief Acts: with a Commentary, Critical and Explanatory. Bombay: N.M. Tripathi, 13th Edition.