Communication in contract law

August 4, 2021

COMMUNICATION IN CONTRACT LAW

Abstract

Communication refers to the transfer or sharing of thoughts, information, facts between two or more persons. Communication is important for existence and survival of humans. Man being a social animal expresses himself by way of communication. We cannot believe our life without communication. As communication has become important part of one’s life. Communication helps us in resolving our problems and makes our life easier. Without communication we cannot perform our tasks. Even for the smallest of the work communication is required.

Introduction

Just as communication has importance in our social lives similarly it plays a vital role in the Indian Contract Act. Contract is defined as an agreement enforceable by law. For a contract to exist there has to be proposal or offer then this proposal has to accepted by the person to whom the proposal or offer is made. Proposal and acceptance can be made or conveyed through the mode of communication. Without communication neither proposal nor acceptance is possible. Communication is an important constituent of contract.

Importance of Communication in Contract Law

Communication is the essence of contract. Contract cannot be entered without communication. For a contract to establish there has to be an offer made by the offeror, for this making of offer communication is required. After making of offer the offeree i.e., person to whom an offer is made gives acceptance to the offer by communicating with the offeror. If the offeree wants to revoke the contract still, he has to communicate with the offeror. For every act in contract communication is the foundation. Without communication a contract cannot be enforced by law. Someone may wish to complete a task with another party. You can do this too. The challenge is not prohibited by law, but how to proceed until it is directed to the other end. Communication is the basis of the contract. We all know that reaching an agreement requires consensus ad idem, because this meeting can only be held if there is no interruption in communication.

Sec 3-Communication, acceptance and revocation of proposals.

Communication of proposal

The first part of the definition of “proposal” lays emphasis upon the requirement that the willingness to make a proposal should be “signified”. To signify means to indicate or declare. In the traditional language of the law of contract, it means that the proposal should be communicated to the other party. The process of making a proposal is completed by the act of communicating it to the other party.[1]

Section 3 -The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, 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.[2] Thus, a proposal may be communicated in any way which has the effect of laying before the offeree the willingness to do or abstain.” It may, for example, be done by words of mouth, or by writing, or even by conduct.[3] An offer is valid only when it is communicated to the offeree. Without communication of the proposal, it cannot be accepted.

Communication of Acceptance

Communication of acceptance by an overt act or by conduct. (words spoken or written or by conduct).

In the case of Brogden v. Metropolitan Railway & Company [4] The plaintiff was the coal supplier of the defendant railway company. For several years, they have been negotiating informally without a written contract. Both parties agree that it is best to sign a formal written contract. The plaintiff made some minor changes, filled some blanks, and then returned it to the defendant. The defendant only submitted the documents but never approved the contract that is did not communicate Then there was a dispute and the question of whether the written agreement was valid. It was held that written contract was tenable despite no communication of the acceptance.

Communication must be to the offeror.
In the case of Felthouse v. Bindley[5] The plaintiff Felthouse told his nephew that he would buy the horses owned by his nephew. He replied to his nephew that if he did not hear from his nephew, he would become the owner of the horse. The nephew is busy auctioning off his other belongings. Mr. Bindley told the auctioneer not to auction the horse. Mr. Bindley accidentally auctioned the horse. Felthouse sued Bindley to appear in court. The court ruled that because the nephew did not accept the offer, the contract between the plaintiff and his nephew was not realized. The court pointed out that the offer must be clearly stated before it can constitute a contract. This is a historical case that highlights the importance of communication when it is to be regarded as contract. Without proper communication, no contract comes into being.
Communication must be by the acceptor himself.

In the case of Powell v. Lee[6] The plaintiff Powell applied for position of a headmaster and his application was accepted by the school board. Before the formal appointment, a director introduced the decision to Powell, which was later withdrawn by the board of directors. The school violated the contract, and the court ruled that the acceptance was not communicated by the offeror, so there is no effective contract. In order for the acceptance to be considered effective, it is important that the recipient of the offer or a duly authorized person on its behalf should also communicate it to the provider. If the communication is made through unauthorized personnel, it will not become a contract.

Sec 4-Communication when complete.

The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

So, when the offeree (in case of a specific offer) or any member of the public (in case of a general offer) becomes aware of the offer, the communication of the offer is said to be complete. In the case of Lalman Sukla v. Gauri Dutt [7], ‘A’ is a servant of ‘B’. ‘A’ has lost his nephew and he sent his servant ‘B’ in search of the boy. ‘A’ published an advertisement that anyone who finds his nephew will be rewarded. ‘B’ found his nephew and later on, he came to know about the advertisement and he claimed the reward. But his claim failed because in order to constitute a contract, there must be an acceptance of the proposal and without knowledge of the proposal, acceptance cannot be done. It was held that since the offer was not communicated to the servant, he was not entitled to the reward.

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.

Household Fire & Accident Insurance Co v. Grant[8] The defendant, Mr Grant, applied for shares in the complainant’s company, the Household Fire Insurance. The complainants allotted shares to Mr Grant and they completed this contract by posting him a letter with notice of the allotment. However, this letter never reached Mr Grant and it was lost in the post. Mr Grant never paid for the shares as a consequence. When the Household Fire Insurance company went bankrupt, the liquidator asked the defendant for payment of the shares. Mr grant refused to pay, as he did not believe he was a shareholder nor was there a binding contract in his mind. The court held that the liquidator was entitled to recover this money, as there was a binding contract between Mr Grant and the Household Fire Insurance company. This decision was appealed. The issue in the appeal concerned whether there had been an acceptance of the share offer and if there was a legally binding contract. The appeal was dismissed and it was held that there was a valid contract between the parties for the shares. The postal rule was affirmed, which states that acceptance is effective when it is mailed, as long as the parties consider the post as an acceptable way of communicating. This rule is true even though the letter never arrived to Mr Grant. Lord Justice Thesiger stated that posting acceptance creates a ‘meeting of minds’, which created a binding contract. Lord Justice Bramwell dissented, arguing that the postal rule can hinder transactions and that acceptance should only be effective once the letter arrives.[9]

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;

A revokes his proposal by telegram.
- The revocation is complete as against A when the telegram is despatched.
- It is complete as against B when B receives it.
B revokes his acceptance by telegram.
- B‟s revocation is complete as against B when the telegram is despatched, and as against A when it reaches him.

When Communication is not necessary.

In certain cases, however, communication of acceptance is not necessary. The offeror may prescribe a particular mode of acceptance, then all that the acceptor has to do is to follow that mode.[10] Then, there may be an offer which impliedly indicates that acting on its terms will be a sufficient acceptance. Announcement to pay reward for discovering a lost thing is an offer of this kind.[11] Again, the offeror may have acquiesced in a certain conduct on the part of the acceptor as equivalent to acceptance.[12]

Communication of Acceptance in Direct Communication.

This rule, that the communication of an acceptance is complete as against the proposer when the letter is posted, is probably intended to apply only when the parties are at a distance and they communicate by post. In England also its operation has been confined only to cases where the post is used, and the illustration {b), appended to Section 4 also supposes communication by post. “Where, however, the parties are in each other’s presence or, though separated in space”, they are in direct communication, as, for example, by telephone, no contract will arise until the offeror receives the notification of acceptance.[13]

Entore Ltd v. Miles Far East Corporation[14] The plaintiff Entores was a London company and made an offer to the defendant Miles Far East Corp. to purchase 100 tons of copper cathode. Their company was located in Amsterdam and the proposal was made by Telex in the form of immediate communication. The Dutch company sent a notice of acceptance of the offer to the applicant by telex. When the contract was not performed, the plaintiff tried to sue the defendant for damages. In order to decide whether to claim damages under British or Dutch law, the court must decide when to accept the contract. If this is done when sending the contract acceptance, the loss will be paid in accordance with Dutch law. If accepted after receipt, English will be used. The court ruled that the contract and damages should be governed by English law. It was pointed out that the postal rules do not apply to instant messaging. Since Telex is a form of instant messaging, the usual mail receiving rules do not apply. Conversely, when a mail is received by telex, the mail is accepted. Therefore, the contract was drafted in London. It is generally accepted that the general principles of acceptance apply. Conduct various forms of instant messaging. Before entering into a contract, it must be clearly accepted through these communication methods.

Bhagwandas Giverdhandas Kedia v. Girdharilal Parshottamdas & Co[15] On July 22^nd 1959, Kedia Ginning Factory and Oil Mills (appellant) of Khamgaon entered into a contract over telephone to supply cotton seed cakes to M/s. Girdharilal Parshottamdas and Co. (respondents) of Ahmedabad. The respondents commenced an action against the appellant in the City Civil Court of Ahmedabad for failing to supply cotton seed cakes as per the aforementioned agreement. The respondents contended that the cause of action for the suit arose at Ahmedabad as the appellant’s offer to sell was accepted at Ahmedabad and the appellant was to be paid for the goods through a bank in Ahmedabad. The appellant contended that the respondents’ offer to purchase was accepted at Khamgaon; the delivery and payment of the goods were also agreed to be made in Khamgaon and the City Civil Court of Ahmedabad did not have jurisdiction to try the suit. The City Civil Court of Ahmedabad held that it had jurisdiction as the acceptance of the offer was intimated to the offeree at Ahmedabad and that is where the contract was made. The appellants filed a revision application in the High Court of Gujarat which was rejected. Then, the appellants preferred an appeal to the Supreme Court with special leave. In the case of a contract by telephone, only the court within whose territorial jurisdiction the acceptance of offer is spoken into telephone has jurisdiction to try any suit regarding the contract. The contract is formed where the acceptance of offer is intimated to the offerree. Hence, the court in whose territorial jurisdiction such acceptance of offer was intimated can try such suit. The court held that the contract act does not expressly deal with the place where a contract has been made. As against cases of correspondence by post or telegram, in the present case of correspondence by a telephone, a contract was formed when acceptance was duly communicated to the offeror and hence at Ahmedabad.[16]

Mode of Communication of Acceptance.

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.[17]

Communication of Acceptance by words: Communication is initiated through words oral or written. It can be through telephone calls, e-mails, telegram etc.

Communication of Acceptance by conduct: Conduct or through the action the offeree communicates his acceptance. Boarding a bus can be an example for communication of acceptance by conduct.

In Byomesh Banerjee v. Nani Gopal Banik[18] case Company claimed that the letter of allotment of shares was posted but the applicant denied to have received it. The court ordered that sec 4 and sec 5 that a notice of allotment, which is treated as acceptance of offer to purchase shares, is communicated to the allottee when it is dispatched. From the very moment it is treated as the contract has been complete. Whether or not he receives the letter is absolutely immaterial.

Communication of notice of revocation.

Section – 5 Revocation of proposals and acceptances-

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

Conclusion.

Currently, Section 4 of the 1872 Contract Act is inconsistent with the modern world. Changes/reforms are needed to include and amend a clause that allows for the unobstructed conclusion of contracts, which is proven in court cases and judgments. The Supreme Court in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., following the English decision in Entores Ltd. v. Miles Far East Corpn. has held that Section 4 of the Contract Act is only applicable in cases of non-instantaneous forms of communication and would not apply when instantaneous forms of communication are used. The court held that the drafters of the contract law did not consider using instant messaging. Communication methods, so suggestions and adoption are done through instant communication methods such as telephone and telex. The postal rules do not apply, and the contract is signed at the receiving place of the acceptance letter. Therefore, the predefined rules explained above may only be relevant to non-immediate types of contracts. Although there are some in the email correspondence. However, this is a decentralized process involving many steps. The email is divided into several packets and sent in different ways. Contrary to the immediate exchange of forms, the sender does not know whether the e-mail transmission was successful, because although he has a delivery record, it only means delivery to the mailbox, and does not mean that the other party knows the receipt. As a result, e-mail is a form of non-immediate communication. The above standard rules apply to email contracts. It is obvious from the legal cases and examples explained above based on the Indian Contract Law of 1872 that if information is not exchanged, no contract will be concluded. In this case, the parties will face legal consequences. A consensus needs to be reached in the contract, and this can only be achieved through effective communication.

References

Avtar Singh, Contract and Specific Relief, Eastern Book Company, Lucknow, 12^th edition, 141, 2020.
Definition Section 3, Indian Contract Act,1872
Brogden v. Metropolitan Railway & Company (1877) 2 App Cas 66 HL.
Felthouse v. Bindley (1863) 7 LT 835.
Powell v. Lee (1908) 24 TLR 606.
Lalman v. Gauri Dutt, (1913),11, ALL, LJ,489.
Household Fire & Accident Insurance Co v. Grant (1879) LR 4 Ex Div 26 (CA).
All Answers ltd, ‘Household Fire Insurance v Grant – 1879’ (Lawteacher.net, May 2021) <https://www.lawteacher.net/cases/household-fire-insurance-v-grant.php?vref=1> accessed 14 May 2021.
State of Bihar v Bengal Chemical & Pharmaceutical Works Ltd, AIR 1954 Pat 14.
Carlill v Carbolic Smoke Ball Co, (1893) 1 QB 256 (CA); Har Bhajan Lai v Har Charan Lai, AIR 1925 All 539.
Malraju Lakshmi Venhayyamma v Venkata Narasimha Appa Rao, (1915-16) 43 lA 138.
Entore Ltd v. Miles Far East Corporation (1955) 2 QB 327.
Bhagwandas Giverdhandas Kedia v. Girdharilal Parshottamdas & Co AIR 1966 SC 543.
Rushikesh Patil, Lex Bulletin, Jun 24,2020.
Definition Section 7, Indian Contract Act,1872.
Byomesh Banerjee v. Nani Gopal Banik, AIR 1947, Mad 122.

[1] Avtar Singh, Contract and Specific Relief, Eastern Book Company, Lucknow, 12^th edition, 141, 2020.

[2] Definition Section 3, Indian Contract Act,1872.

[3] Supra Note 1.

[4] Brogden v. Metropolitan Railway & Company (1877) 2 App Cas 66 HL.

[5] Felthouse v. Bindley (1863) 7 LT 835.

[6] Powell v. Lee (1908) 24 TLR 606.

[7] Lalman v. Gauri Dutt, (1913),11, ALL,LJ,489.

[8] Household Fire & Accident Insurance Co v. Grant (1879) LR 4 Ex Div 26 (CA).

[9] All Answers ltd, ‘Household Fire Insurance v Grant – 1879’ (Lawteacher.net, May 2021) <https://www.lawteacher.net/cases/household-fire-insurance-v-grant.php?vref=1> accessed 14 May 2021

[10] State of Bihar v Bengal Chemical & Pharmaceutical Works Ltd, AIR 1954 Pat 14.

[11] Carlill v Carbolic Smoke Ball Co, (1893) 1 QB 256 (CA); Har Bhajan Lai v Har Charan Lai, AIR 1925 All 539.

[12] Malraju Lakshmi Venhayyamma v Venkata Narasimha Appa Rao, (1915-16) 43 lA 138.

[13] Supra note 1.

[14] Entore Ltd v. Miles Far East Corporation (1955) 2 QB 327.

[15] Bhagwandas Giverdhandas Kedia v. Girdharilal Parshottamdas & Co AIR 1966 SC 543.

[16] Rushikesh Patil, Lex Bulletin, Jun 24,2020.

[17] Definition Section 7, Indian Contract Act,1872.

[18] Byomesh Banerjee v. Nani Gopal Banik, AIR 1947, Mad 122.

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August 4, 2021