Place of institution of a contract
As per sec.4 of Indian Contracts Act 1872, until and unless the acceptance of the offer made, is duly communicated to the offeror, a contract cannot come into force. In the case Bhagwandas Gowedhandas Kedia v. Girdharilal Parshottamdas and Co. and Others, the defendant- Girdharilal Parshottamdas and co failed to supply cotton seed cake, agreed to supply under an oral contract with the plaintiff- Bhagwandas Kedia, communicated via telephone on 22nd July, 1959.
Plaintiff-
The plaintiff sued the defendant for breach of contract with a penalty of INR 31,150. The issue at hand is, whether the Ahmedabad city civil court holds jurisdiction over this case or not. As per the verdict of plaintiff, the contract arose at Ahmedabad as it was place of ‘acceptance’, goods were supposed to be supplied there and the payment was to be made using a local branch of bank, establishing Ahmedabad as the jurisdiction of contract. The version of defendant says otherwise.
Defendant-
Defendant claims that the communication was made via telephone, where purchase offer of cotton seed cakes was made. It was accepted at Khamgaon, from where the delivery was to be made and price was to be paid, thus Ahmedabad stands no jurisdiction. It was so held by the trial court that in a case where a contract came into force over telephone, the place of contract will be the place where acceptance stands conveyed, in this case being Ahmedabad thus, the court stands well within its rights to judge the case.
Judgement Analysis-
Indian contract law seeks its jurisprudence form common law, thereby would be applicable to contracts where existing law lacks defined statutory provisions. There existed no precedent or law in regards to contract via conversation over telephone as the drafters did not envisage such level of technological advancements. Hence Trial Court’s ruling to consider a part of contract to be made in Ahmedabad and hence within the jurisdiction of City Civil Court Ahmedabad.
It was ruled in Adams v. Lindsell,
“when parties aren’t in each other’s presence and communicate long distance either by post or telegram, both parties get bound by contract as and when the acceptor puts the letter of acceptance in the course of transmission to offeror so as to be out of his power to recall.”
This rule is opposed by the point of instantaneous communications that is absent in posts and telegraphs, the principle laid down in Entores v. Miles. Lord Denning observed that
“in case of instantaneous communications between the parties, i.e. where parties are in each other’s presence or though separated in space are in direct communication with each other as for example by telephone or telex, contract is complete when the acceptance of offer is duly received by the offeror and the contract is formed where such acceptance is received.”
It can thus be implied that the principles involved behind the contracts made over telegram are not similar to the contracts made over telephone. For telephone contracts, the rule applies that the contract is considered to have been concluded only if the purchaser consents. The intervention of electrical impulses leads to the immediate transmission of a message at a remote location, but does not change the nature of the conversation to make it an offer or acceptance by mail or telegram. Telephone participants cannot see each other. They are also spatially separated, but they are heard from each other by a mechanical device that can instantly hear one voice in the other, thereby eliminating the dependence of communication on an external agency. Therefore, there is no doubt that the rules for rapid communication between the parties are different from the rules for communication by mail. Therefore, the defendant was denied this defence.
The sections 3 and 4 of Indian Contract Act 1872, defines “Communication”, “acceptance” and “revocation” of proposals. According to S.4 of ICA, application of Postal Rule reads that acceptor is bound only when the acceptance “comes to the knowledge of the proposer” while proposer becomes bound much before when letter was “put in course of transmission to him as to be out of the power of acceptor to recall”. However it is not to mean that the contract is formed by the proposer at a different place than acceptor. Recipients can revoke the confirmation by sending a quicker notification prior to the confirmation, taking advantage of this time lag (S.5 of ICA). Therefore, unless a special intimidating method is used before acceptance is conveyed to the provider, the contract will be concluded as soon as the acceptor accepts. Therefore, in this case of being contacted by phone, the contract occurred when the acceptance was formally notified to the provider and therefore in Ahmedabad.
Conclusion-
Although conflicting views have been expressed in US state court decisions, the generally accepted rule is that under the Technical Contracts Act, contracts are made in the district where they are accepted. The contract cannot be concluded simply by the will to accept the offer. Acceptance is any external statement (speech, written, further negotiation or other explicit action) with communication with the provider (Brogden v. Metropoliton Rly Co.) Unless expressly waived or impliedly, during the course of negotiation to the contrary (Carlill v. Carbolic Smoke Ball) which in this case is not mentioned (as supposed to be oral) thus, making it a binding contract. The contract law does not specifically address where the contract is made. Telephone conversations are similar to conversations in front of the parties, and negotiations end with an immediate speech. Therefore, the notice of acceptance is a necessary part of the contract and the exception to the basic rules of commercial inconvenience is omitted. In the case of mail or telegram response, a third party will also intervene and will always be responsible for the effective transmission of the letter. However, for telephone conversations, no third party needs to send a communication between the parties once the connection is established. This proves that it does not comply with postal rules, so in this case no law other than common law applies. Hence concurring with the judgement.
Reference
- Bhagwandas Gowedhandas Kedia v. Girdharilal Parshottamdas and Co. and Others, 1966 AIR 543
- Adams v. Lindsell, 106 ER 250
- Entores Ltd v Miles Far East Corporation [1955] 3 WLR 48
- Section 4, ICA- Communication when complete.—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.
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