A contract unlike a tort is not unilateral. If there be no “meeting of minds” no contract may result. There should therefore be an offer by one party, express or implied, and acceptance of that offer by the other in the same sense in which it was made by the other. But an agreement does not result from a mere state of mind: intent to accept an offer or even a mental resolve to accept an offer does not give rise to a contract.
There must be intent to accept and some external manifestation of that intent by speech, writing or other act, and acceptance must be–communicated to the offeror, unless he has waived such intimation, or the course of negotiations implies an agreement to the contrary.
The Contract Act does not expressly deal with the place where a contract is made. Sections 3 & 4 of the Contract Act deal with the communication, acceptance and revocation of proposals. By s. 3 the communication of a proposal, acceptance of a proposal, and revocation of a proposal and acceptance, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.
Section 4 provides:
“The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete,- as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.
The communication of a revocation is complete- as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.”
In terms s. 4 deals not with the place where a contract takes place, but with the completion of communication of a proposal, acceptance and revocation.
In determining the place where a contract takes place, the interpretation clauses in s. 2 which largely incorporate the substantive law of contract must be taken into account. A person signifying to another his willingness to or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence is said to make a proposal: cl. (a).
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise: cl. (b), and
every promise and every set of promises, forming the consideration for each other is an agreement: cl. (e).
An agreement enforceable at law is a contract: cl. (k).
By the second clause of s. 4 the communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him, so a,, to be out of the power of the acceptor. This implies that where communication of an acceptance is made and it is put in a course if transmission to the proposer, the acceptance is complete as against the proposer: as against the acceptor, it becomes complete when it comes to the knowledge of the proposer.
In the matter of communication of revocation it is provided that as against the person who makes the revocation it becomes complete when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it, and as against the person to whom it is made when it comes to his knowledge.
Communication through Post
But s. 4 does not imply that the contract is made qua the proposer at one place and qua the acceptor at another place. The contract becomes complete as soon as the acceptance is made by the acceptor and unless otherwise agreed expressly or by necessary implication by the adoption of a special method of intimation, when the acceptance of offer is intimated to the offeror.
Acceptance and intimation of acceptance of offer are therefore both necessary to result in a binding contract. In the case of a contract which consists of mutual promises, the offeror must receive intimation that the offeree has accepted his offer and has signified his willingness to perform his promise. When parties are in the presence of each other, the method of communication will, depend upon the nature of the offer and the circumstances in which it is made.
When an offer is orally made, acceptance may be expected to be made by an oral reply, but even a nod or other act which indubitably intimates acceptance may suffice. If the offeror receives no such intimation even if the offeree has resolved to accept the offer, a contract may not result. But on this rule is engrafted an exception based on grounds of convenience which has the merit not of logic or principle in support, but of long acceptance by judicial decisions.
If the parties are not in the presence of each other, and the offeror has not prescribed a mode of communication of acceptance, insistence upon communication of acceptance of the offer by the offeree would be found to be inconvenient, when the contract is made by letters sent by post.
In Adams v. Lindsell[1] it was ruled as early as in 1818 by the Court of King’s Bench in England that the contract was complete as soon as it was put into transmission.
In Adams’s case the defendants wrote a letter to the plaintiff offering to sell a quantity of wool and requiring an answer by post. The plaintiff accepted the offer and posted a letter of acceptance, which was delivered to the defendants nearly a week after they had made their offer. The defendants however sold the goods to a third party, after the letter of acceptance was posted but before it was received by the defendants. The defendants were held liable in damages.
The Court in that case is reported to have observed that “if the defendants were not bound by their offer when accepted by the plaintiffs till the answer was received, they the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum. The rule Adam’s case was approved by the House of Lords in Dunlop and others v. Vincent Higgins and others[2]. The rule was based on commercial expediency, or what Cheshire calls “empirical grounds”. It makes a large inroad upon the concept of consensus, “a meeting of minds” which is the basis of formation of a contract. The exception has long been recognised in the United Kingdom and in other countries where the law of contracts is based on the common law of England.
Authorities in India also exhibit a fairly uniform trend that in case of negotiations by post the contract is complete when acceptance of the offer is put into a course of transmission to the offeror[3] and cases cited therein. A similar rule has been adopted when the offer and acceptance are by telegrams. The exception to the general rule requiring intimation of acceptance may be summarised as follows.
When by agreement, course of conduct, or usage of trade, acceptance by post or telegram is authorised, the bargain is struck and the contract is complete-when the acceptance is put into a course of transmission by the offeree by posting a letter or dispatching a telegram.
Communication through Telephonic Conversation
In the case of a telephonic conversation, in a sense the parties are in the presence of each other: each party is able to hear the voice of the other. There is instantaneous communication of speech intimating offer and acceptance, rejection or counter-offer. Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph.
It is true that the Posts & Telegraphs Department has general control over communication by telephone and especially long distance telephones, but that is not a ground for assuming that the analogy of a contract made by post will govern this mode of making contracts. In the case of correspondence by post or telegraphic communication, a third agency intervenes and without the effective intervention of that third agency, letters or messages cannot be transmitted.
In the case of a conversation by telephone, once a connection is established there is in the normal course no further intervention of another agency. Parties holding conversation on the telephone are unable to see each other: they are also physically separated in space, but they are in the hearing of each other by the aid of a mechanical contrivance which makes the voice of one heard by the other instantaneously, and communication does not depend upon an external agency.
In the administration of the law of contracts, the Courts in India have generally been guided by the rules of the English common law applicable to contracts, where no statutory provision to the contrary is in force.
The Courts in the former Presidency towns by the terms of their respective letters patents, and the courts outside the Presidency towns by Bengal Regulation III of 1793, Madras Regulation II of 1802 and Bombay Regulation TV of 1827 and by the diverse Civil Courts Act were enjoined in cases where no specific rule existed to act according to “law or equity” in the case of chartered High Courts and else, where according to justice, equity and good conscience-which expressions have been consistently interpreted to mean the rule, of English common law, so far as they are applicable to the Indian society and circumstances.
In England the Court of Appeal has decided in Entores Ltd. v. Miles Far East Corporation[4] that:
“where a contract is made by instantaneous communication, e.g. by telephone, the contract is complete only when the acceptance is received by the offeror, since generally an acceptance must be notified to the offeror to make a binding contract;”
In Entores Ltd’s case the plaintiff made an offer from London by Telex to the agents in Holland of the defendant Corporation, whose headquarters were in New York, for the purchase of certain goods, and the offer was accepted by a communication received on the plaintiff’s Telex machine in London. On the allegation that breach of contract was committed by the defendant Corporation, the plaintiff sought leave to serve notice of a writ on the defendant Corporation in New York claiming damages for breach of contract.
The defendant Corporation contended that the contract was made in Holland. Denning L. J., who delivered the principal judgment of the Court observed at p. 332,
“When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing.”,
and after examining the negotiations made in a contract arrived at by telephonic conversation in different stages, Denning L. J., observed that in the case of a telephonic conservation the contract is only complete when the answer accepting the offer was made and that the same rule applies in the case of a contract by communication by Telex. He recorded his conclusion as, follows:
“That the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.”
Reference
Bhagwandas Goverdhandas Kedia vs M/S. Girdharilal Parshottamdas: 1966 AIR 543, 1966 SCR (1) 656
[1] 1 B. & Ald. 681
[2] 1 H.L.C. 381.
[3] see Baroda Oil Cakes Traders’ case
[4] [1955] 2 Q.B.D. 327