> (b) If an acceptor receives a prepare request with number n greater than that of any prepare request to which it has already responded, then it responds to the request with a promise not to accept any more proposals numbered less than n and with the highest-numbered proposal (if any) that it has accepted.
It says an acceptor must respond with the highest-numbered proposal (if any) that it has accepted.
How is acceptor C going to do that after step 9? That's where the bug is introduced, I think, not anywhere in the paper.