Bhagwandas Goverdhandas Kedia v. M/s. Girdharilal Parshottamdas and Co.

A buyer at Ahmedabad and a seller at Khamgaon made a contract by long distance telephone. The seller failed to supply cotton seed cake, and the buyer sued at Ahmedabad. The Supreme Court had to decide where such a contract is made, and so whether the Ahmedabad court had jurisdiction.

Quick Revision

Parties

• Bhagwandas Goverdhandas Kedia — appellant. He is described as the defendant (the Kedia Ginning Factory Oil Mills of Khamgaon) in the suit.
• M/s. Girdharilal Parshottamdas and Co. and others — respondents. They are the plaintiffs who sued at Ahmedabad for non-supply of goods.
• Shah, J. — delivered the judgment of the majority (Wanchoo and Shah, JJ.).
• Hidayatullah, J. — delivered a separate dissenting opinion.

Procedural History

1. The plaintiffs filed a suit in the City Civil Court at Ahmedabad against the Kedia Ginning Factory Oil Mills of Khamgaon for Rs. 31,150.
2. The defendants raised an issue on jurisdiction. They said no part of the cause of action arose within the territorial jurisdiction of the City Civil Court, Ahmedabad.
3. The Trial Court found that the plaintiffs made the offer from Ahmedabad by long distance telephone. It found that the defendants accepted at Khamgaon, and that delivery and payment were to be at Khamgaon.
4. The Trial Court held that the place where acceptance is intimated to the offeror is the place where a telephone contract is made. So the Ahmedabad court had jurisdiction.
5. The defendants filed a revision application (Civil Revision Application No. 543 of 1964) against the order directing the suit to proceed on the merits. The High Court of Gujarat rejected it in limine (at the threshold) by order dated 24 July 1964.
6. The defendants appealed to the Supreme Court by special leave (Civil Appeal No. 948 of 1964).

Facts

1. On 22 July 1959, the parties negotiated an oral contract by conversation on long distance telephone.
2. The defendants were to supply cotton seed cake. The plaintiffs alleged that the defendants failed to supply it.
3. The plaintiffs spoke the offer at Ahmedabad. The defendants spoke the acceptance at Khamgaon.
4. The plaintiffs sued for a decree of Rs. 31,150 as damages for breach.
5. The plaintiffs pleaded that the cause of action arose at Ahmedabad for three reasons. The defendants offered to sell and the plaintiffs accepted at Ahmedabad. The defendants were bound to supply the goods at Ahmedabad. The defendants were to receive payment through a Bank at Ahmedabad.
6. The defendants pleaded the opposite. The plaintiffs offered by telephone to purchase, and the defendants accepted at Khamgaon. Delivery and payment were both to be at Khamgaon.
7. At the time of the conversation the plaintiffs were at Ahmedabad and the defendant acceptor was at Khamgaon in Vidarbha.
8. Both sides admitted that the acceptance was clearly heard at Ahmedabad (as recorded by Hidayatullah, J.).

Issues Raised

1. Does making an offer at a place form part of the cause of action in a suit for damages for breach of the resulting contract?
2. Where a contract is made by conversation on long distance telephone, is the place of the contract the place where the acceptance is spoken or the place where it is heard by the offeror?
3. Does the rule for acceptance by post or telegram (section 4 of the Indian Contract Act) apply to a contract made by telephone?
4. Where and when is communication of an acceptance complete under the Indian Contract Act when the parties contract by long distance telephone (as Hidayatullah, J. framed it)?

Arguments Contended

For the appellant (defendants)

Counsel for the appellant were A.V. Viswanatha Sastri, Bishan Narain, S. Murthy and B.P. Maheshwari. The judgment records these contentions.

1. In a contract by conversation on telephone, the place where the offer is accepted is the place where the contract is made.
2. Only the court within whose territorial jurisdiction the offer is accepted and the acceptance is spoken into the telephone has jurisdiction.
3. The place of a contract is decided by sections 3 and 4 of the Indian Contract Act. The rule applies uniformly, whatever mode is used to put the acceptance into a course of transmission.
4. Decisions of courts in the United Kingdom depend on the elastic rules of common law, not on express statute. They have no bearing on this question.

For the respondents (plaintiffs)

Counsel for the respondents were G.B. Pai, J.B. Dadachanji, O.C. Mathur and Ravinder Narain. The judgment records these contentions.

1. Making an offer is a part of the cause of action in a suit for damages for breach of contract. So the suit lies in the court where the offeror made the offer that became a contract on acceptance.
2. In the alternative, intimation of acceptance is essential to form a contract. So the contract takes place where the offeror receives the intimation.
3. The rule for telephone contracts is the ordinary rule. A contract is complete only when acceptance is intimated to the proposer.

Court's Reasoning

The judgment has no numbered paragraphs. This page cites the opinion instead of paragraph numbers.

Shah, J. (for himself and Wanchoo, J.)

Offer is not part of the cause of action

1. Held: the plaintiffs' first contention is without substance. Making an offer at a place that has been accepted elsewhere does not form part of the cause of action in a suit for damages for breach of contract.
2. Why: ordinarily it is the acceptance and the intimation of acceptance that result in a contract.
3. Noted: when parties are not in each other's presence, the offeror is deemed to make the offer continuously until it reaches the offeree. He merely intimates his intention to contract on the terms.
4. Noted: the offeror cannot impose on the offeree an obligation to accept. He cannot proclaim that the offeree's silence is consent.
5. Noted: a contract is the result of an offer by one party and acceptance of that very offer by the other. Acceptance, and intimation of acceptance by some external manifestation the law regards as sufficient, is necessary.
6. Held: it is a well-settled rule, by a long and uniform course of decisions, that mere making of an offer is not part of the cause of action for damages. Baroda Oil Cakes Traders v. Purshottam Narayandas Bagulia is cited for this.
7. Held: the contrary view of a single Judge of the Madras High Court in Sepulchre Brothers v. Sait Khushal Das Jagjivan Das Mehta cannot be accepted as correct.

Formation of contract: general principles

8. Noted: the defendants' principal contention raises a problem of some complexity. It must be approached in the light of the common law principles and the provisions of the Contract Act.
9. Noted: a contract, unlike a tort, is not unilateral. If there is no meeting of minds, no contract may result.
10. Noted: there must be an offer, express or implied, and acceptance of it in the same sense in which it was made.
11. Noted: an agreement does not result from a mere state of mind. An intent to accept, or a mental resolve to accept, does not give rise to a contract.
12. Held: there must be intent to accept and some external manifestation of that intent by speech, writing or other act. The acceptance must be communicated to the offeror, unless he has waived intimation or the course of negotiations implies a contrary agreement.

Sections 2, 3 and 4 of the Contract Act

13. Noted: the Contract Act does not expressly deal with the place where a contract is made. Sections 3 and 4 deal with communication, acceptance and revocation of proposals.
14. Noted: under section 3, communication of a proposal, acceptance or revocation is deemed made by any act or omission by which the party intends to communicate it, or which has the effect of communicating it.
15. Noted: section 4 is set out in full. A proposal is complete when it comes to the knowledge of the person to whom it is made. An acceptance is complete against the proposer when put in a course of transmission to him, so as to be out of the acceptor's power. It is complete against the acceptor when it comes to the proposer's knowledge. A revocation follows the same two-stage rule.
16. Held: section 4 deals in terms not with the place where a contract takes place but with completion of communication of a proposal, acceptance and revocation.
17. Noted: to find the place of a contract, the interpretation clauses in section 2 must be taken into account. They largely incorporate the substantive law of contract.
18. Noted: section 2 says that a person signifying willingness to do or abstain, to obtain another's assent, makes a proposal (clause (a)). A proposal becomes accepted when the other signifies assent. An accepted proposal becomes a promise (clause (b)).
19. Noted: promises forming the consideration for each other are an agreement (clause (e)). An agreement enforceable at law is a contract (clause (k)).
20. Noted: the second clause of section 4 means that once acceptance is put in a course of transmission, it is complete as against the proposer. Against the acceptor it is complete when it comes to the proposer's knowledge. The same applies to revocation.
21. Held: section 4 does not imply that a contract is made at one place as regards the proposer and at another as regards the acceptor.
22. Held: the contract becomes complete as soon as the acceptance is made by the acceptor. Unless otherwise agreed, expressly or by necessary implication through a special method of intimation, it also requires that the acceptance be intimated to the offeror.

The general rule and the postal exception

22. Held: acceptance and intimation of acceptance are both necessary to result in a binding contract.
23. Noted: in a contract of mutual promises, the offeror must receive intimation that the offeree has accepted and is willing to perform.
24. Noted: when parties are in each other's presence, the method of communication depends on the nature of the offer and the circumstances. An oral offer expects an oral reply, but even a nod or other act that indubitably intimates acceptance may suffice.
25. Noted: if the offeror receives no intimation, a contract may not result even if the offeree has resolved to accept.
26. Noted: an exception is added to this rule based on grounds of convenience. It has the merit not of logic or principle, but of long acceptance by judicial decisions.
27. Why: if parties are not in each other's presence and the offeror has not prescribed a mode of acceptance, insisting on communication would be inconvenient when the contract is made by post.
28. Noted: in Adams v. Lindsell, decided in 1818 by the Court of King's Bench, the contract was held complete as soon as the acceptance was put into transmission. The facts were these.
    • The defendants wrote offering to sell wool and requiring an answer by post.
    • The plaintiff posted a letter of acceptance, which reached the defendants nearly a week after the offer.
    • The defendants sold the goods to a third party after the acceptance was posted but before it was received.
    • The defendants were held liable in damages.
29. Noted: the Court in Adams v. Lindsell reasoned that if the defendants were not bound until the answer was received, the plaintiffs could not be bound until they were told the defendants received the answer. The chain of notifications would go on without end (ad infinitum).
30. Noted: the House of Lords approved the rule in Dunlop v. Vincent Higgins. It was based on commercial expediency, or what Cheshire calls empirical grounds.
31. Noted: the rule makes a large inroad on the concept of consensus, the meeting of minds that is the basis of contract formation. It would be futile to debate whether the exception is justifiable in strict theory.
32. Noted: the exception has long been recognised in the United Kingdom and in countries whose contract law is based on English common law. Authorities in India show a fairly uniform trend for negotiations by post, as in Baroda Oil Cakes Traders and the cases cited there. A similar rule applies to telegrams.
33. Held: the exception may be summarised thus. When acceptance by post or telegram is authorised by agreement, course of conduct or usage of trade, the contract is complete when the offeree puts the acceptance into transmission by posting a letter or dispatching a telegram.

Telephone is different from post and telegram

33. Noted: the defendants say the same rule applies to contracts by telephone. The plaintiffs say the ordinary rule applies: a contract is complete only when acceptance is intimated to the proposer.
34. Held: the postal rule does not apply to telephone. In the Court's words: "In the case of a telephonic conversation, in a sense the parties are in the presence of each other".
35. Why: each party can hear the other's voice. Speech intimating offer, acceptance, rejection or counter-offer is communicated instantly.
36. Why: an electrical impulse that carries messages instantly over a distance does not make the conversation analogous to an offer and acceptance through post or telegraph.
37. Noted: the Posts and Telegraphs Department has general control over telephones, especially long distance telephones. That is no ground to assume that the analogy of a contract by post governs this mode.
38. Why: with post or telegraph, a third agency intervenes, and without it letters or messages cannot be transmitted. With a telephone, once the connection is made, no further agency intervenes in the normal course.
39. Noted: parties on the telephone cannot see each other and are physically separated. They hear each other through a mechanical contrivance that carries the voice instantly, and communication does not depend on an external agency.

English common law and the Indian courts

40. Noted: in administering the law of contracts, Indian courts have generally been guided by the rules of English common law, where no statutory provision to the contrary is in force.
41. Noted: the former Presidency town courts acted by their letters patent. Courts outside them acted under Bengal Regulation III of 1793, Madras Regulation II of 1802, Bombay Regulation IV of 1827 and diverse Civil Courts Acts.
42. Noted: where no specific rule existed, the chartered High Courts acted according to law or equity. Courts elsewhere acted according to justice, equity and good conscience. These expressions have been consistently read to mean the English common law rules, so far as applicable to Indian society and circumstances.

Entores Ltd. v. Miles Far East Corporation

43. Noted: the Court of Appeal in England held in Entores that where a contract is made by instantaneous communication, such as telephone, it is complete only when the offeror receives the acceptance. The Court stated that generally an acceptance must be notified to the offeror.
44. Noted: the facts of Entores were these.
    • The plaintiff offered from London by Telex to agents in Holland of a Corporation headquartered in New York.
    • The offer was accepted by a communication received on the plaintiff's Telex machine in London.
    • The plaintiff alleged breach and sought leave to serve notice of a writ on the Corporation in New York.
    • The Corporation said the contract was made in Holland.
45. Noted: Denning, L.J. observed at page 332 that a contract by post is complete when the letter is put in the post box. He said there was no clear rule for telephone or Telex, which are virtually instantaneous and on a different footing.
46. Noted: after examining a telephone contract negotiated in stages, Denning, L.J. held the contract complete only when the answer accepting the offer was made. The same rule applies to Telex.
47. Noted: his conclusion was that the rule for instantaneous communications differs from the rule for the post. The contract is made "at the place where the acceptance is received".

Comparative law and the Indian Contract Act

48. Noted: in a large majority of European countries the rule, based on the theory of consensus ad idem, is that a contract takes place where acceptance is communicated to the offeror. No distinction is made between post or telegraph and telephone or Telex.
49. Noted: State courts in the United States have expressed conflicting views. The generally accepted view is that by the technical law of contracts the contract is made where the acceptance is spoken. This rests on the principle that where a channel of communication is authorised, acceptance is effective when and where it enters that channel.
50. Noted: the text books (American Jurisprudence, 2nd Edn., Vol. 17, Art. 54, p. 392; Williston on Contracts, 3rd Edn., Vol. 1, p. 271) cite no decision of the Supreme Court of the United States on this question.
51. Held: the draftsman of the Indian Contract Act did not envisage the telephone as a means of personal conversation between parties separated in space. He could not have intended to make any rule on it.
52. Held: the question is whether the ordinary rule (contract complete only on intimation of acceptance) applies, or the exception for post and telegram. Given the essential nature of telephone conversation, it is reasonable to hold the ordinary rule applies.
53. Why: the parties are in a sense in each other's presence, and negotiations are concluded by instantaneous communication of speech. Communication of acceptance is a necessary part of formation. The exception imposed on grounds of commercial expediency is inapplicable.

Conclusion of the majority

54. Held: the Trial Court was right that a part of the cause of action arose within the jurisdiction of the City Civil Court, Ahmedabad, where the acceptance was communicated by telephone to the plaintiffs.
55. Held: the appeal fails and is dismissed with costs.

Hidayatullah, J. (dissenting)

The question and the approach

1. Noted: the question is where and when communication of an acceptance is complete under the Indian Contract Act when the parties contract by long distance telephone. The answer decides the jurisdiction of the court.
2. Noted: the terms of the contract are not in issue. The plaintiffs (proposers) were at Ahmedabad and the defendant (acceptor) at Khamgaon in Vidarbha. The suit was instituted at Ahmedabad.
3. Noted: if acceptance was complete when the appellant spoke at Khamgaon, the Ahmedabad court lacks jurisdiction. It would be otherwise if acceptance was complete only on reception of the speech at Ahmedabad.
4. Noted: the rules in India are statutory, but the Contract Act was drafted in England and English common law permeates it. Every new development of English common law may not fit the words of the Indian statute.
5. Held: if the statute's language creates a rigid rule that cannot yield to new theories in foreign courts, the clear duty is to read the statute naturally and follow it.
6. Noted: the Court of Appeal in Entores held a telephone contract complete only where the acceptance is heard by the proposer. It did not apply the rule for correspondence or telegrams that acceptance is complete when the letter is posted or telegram handed in.
7. Held: on reading the reasons for Entores and comparing them with the Indian Contract Act, the Act does not admit the Court of Appeal's view.

The general rule and the postal exception

8. Noted: Sir William Anson compared the proposal to a train of gun-powder and the acceptance to a lighted match. Acceptance is the critical fact. It is necessary to see why the rule for post and telegram departs from the general rule that acceptance must be communicated.
9. Noted: the postal rule is adopted in all countries influenced by English common law and in many others. The Indian Contract Act gives it statutory approval.
10. Noted: the rule is that a contract is complete when a properly addressed and stamped letter of acceptance is posted. It is complete even if the letter does not arrive or is not read. The same applies to telegrams (Cowan v. O'Conner; Tinn v. Hoffman & Co.).
11. Noted: there are two questions. First, whether the general rule or the special rule applies to telephone contracts. Second, what the position is under the Indian Contract Act.
12. Held: countries differ on the first question, and the Indian Contract Act does not warrant acceptance of Entores.
13. Noted: a contract is an agreement enforceable by law, the result of a proposal and its acceptance. A proposal when accepted becomes a promise.
14. Noted: as Bowen, L.J. said in Carlill v. Carbolic Smoke Ball Co., an acceptance ought as an ordinary rule to be notified to the person who makes the offer, so that the two minds may come together. Anson says acceptance means in general a communicated acceptance. This is the rule in English common law, the United States, Germany and France.
15. Noted: the communication must be to the proposer himself, unless he expressly or impliedly provides that someone else may receive it.
16. Noted: under section 7, a proposal becomes a promise only if the acceptance is absolute and unqualified, and in the manner prescribed or in some usual and reasonable manner. The intention to accept must be expressed by some act or omission. It must not be a mental acceptance, though silence may sometimes be treated as acceptance.
17. Noted: section 3 says communication of acceptance is deemed made by an act or omission by which the acceptor intends to communicate it, or which has the effect of communicating it.

In praesentes and inter absentes

17. Noted: difficulty arises because proposals and acceptances may be in praesentes (parties present) or inter absentes (parties absent), and the rules must vary.
18. Noted: face to face, acceptance may be by speech or a sign clear enough to communicate intention. It takes effect instantly, and the contract is made at the same time and place.
19. Noted: for acceptance inter absentes, communication must be through some agency. Where the proposer prescribes a mode, that mode must be followed. Otherwise a usual and reasonable manner must be used, unless the proposer waives notification.
20. Noted: the last category includes offers of reward for services or conditions, such as finding a lost purse or stray dog (Williams v. Carwardine) or trying a medicine (Carlill v. Carbolic Smoke Ball Co.). The offer is to the whole world, acceptance need not be notified, and the contract is made when the condition is fulfilled.
21. Noted: for post, telegraph, telephone and wireless, acceptance by post or telegram is a usual mode and most often allowed. One description is that acceptance is complete when the acceptor puts it in the course of transmission beyond his power to recall.
22. Noted: letters get lost and telegrams get garbled. It was held as early as 1813 in Adams v. Lindsell that acceptance is complete when the letter is posted, not when delivered. The Court there said that otherwise the chain of notifications would go on without end.
23. Noted: if acceptance is contemplated by post, the acceptor can do nothing more than post the letter. Lord Cottenham asked this question in Dunlop v. Higgins. The Lord Chancellor asked how he can be responsible for what he cannot control.
24. Noted: Dunlop v. Higgins is the leading English case, decided before the Indian Contract Act of 1872. Till 1872 only one contrary view existed, British and American Telegraph Co. v. Colson. It was disapproved the next year in Harris' case and later cases. In Henthorn v. Fraser, Lord Herschell considered Colson's case overruled.
25. Noted: in Household Fire Insurance Co. v. Grant (1879), Bramwell, L.J. had doubts, which Thesiger, L.J. answered. The point was that a contract binding only on actual receipt would be more mischievous. The offeror can make the contract depend on actual communication. If he trusts the post, he can enquire when no answer arrives. Otherwise the door would be open to fraud and commercial delay, and the acceptor could never safely act.
26. Noted: Lord Denning in Entores also observed that where a contract is made by post, the acceptance is complete when the letter is put in the post box, and that is where the contract is made.

Principles behind the postal rule

26. Noted: Lord Romilly, M.R. in Hebbs' case called the post office the common agent of both parties. In this special rule it is treated as the proposer's agent to convey the proposal and to receive the acceptance.
27. Noted: the principles behind the exceptional rule are these.
    • The post office is the offeror's agent to deliver the offer and receive the acceptance.
    • No contract by post would be possible, since each letter would need notification that it was delivered.
    • Satisfactory evidence of posting is generally available.
    • If the offeror denies receipt, it is very difficult to disprove his negative.
    • The carrier is a third person over whom the acceptor has no control.

Law in the United States and other countries

28. Noted: the law in the United States is the same. The American Restatement (Contract, section 74) says a contract is made at the time and place where the last act necessary for its formation is performed.
29. Noted: the Restatement (Conflict of Laws, section 326) says the place of contracting is the state where the agent delivers an acceptance sent by an agent. Otherwise it is the state from which the acceptance is sent. For mail, it is where the acceptance is mailed. For telegraph, it is where the telegraph company receives the message.
30. Noted: Professor Winfield (writing in 1939) said this rule prevailed in Canada, South Africa and New South Wales. For Europe he described three systems.
    • Information: the offeror must be notified. Belgium, Italy, Spain, Roumania, Bulgaria and Portugal follow it.
    • Declaration: the contract forms when the recipient declares acceptance, even without the offeror's knowledge. It has three theories: declaration stricto sensu, expedition (sending by post) and reception (the letter reaching the offeror, whether read or not). Reception is accepted in Germany, Austria, Czechoslovakia, Sweden, Norway, Denmark, Poland and the U.S.S.R.
    • Mixed or Electric system: the contract forms on receipt but relates back to the time of sending.
31. Noted: Winfield concluded that the greater majority of states accept declaration stricto sensu or expedition. Dr. de Visscher names Brazil, Egypt, Spain (Commercial Code), Japan, Morocco and Mexico. France decided for expedition in 1932.

The telephone: authorities and analogies

32. Noted: Professor Winfield expressed the opinion that the rule for letters and telegrams should not be extended to the telephone. He favoured the general rule that acceptance must be communicated.
33. Noted: he asked what happens if the line is so bad that the offeror hears nothing, the parties reconnect, and the offer is cancelled before acceptance. He answered that there is no communication until the reply comes to the offeror's knowledge. The telephone is much more like face to face conversation, and the risk of mistake is so great that businessmen expect written confirmation.
34. Noted: Winfield found support in the American Restatement (Contract, section 65). It says acceptance by telephone is governed by the principles for oral acceptance between parties present. He conceded that the decided American cases are to the contrary.
35. Noted: Williston (Contracts, p. 238) collects the American cases, which treat post and telegraph as analogous to telephone. The place where the acceptor speaks is the place of the contract. This means that the acceptor's speaking, not the offeror's hearing, completes the contract (Traders G. Co. v. Arnold P. Gin Co.).
36. Noted: these are State court decisions, but a decision from the Supreme Court of the United States would hardly be easily available. Article 4 of the Swiss Federal Code of Obligations regards contracts by telephone as made between parties present if they or their agents were personally in communication.
37. Noted: Williston (revised edition, 1939) said a telegram suggests analogies to correspondence, but a telephone contract is more like parties addressing each other in praesentes. If it is essential that the offeror hears the acceptance, the time and place of formation is when and where the offeror hears or ought to hear. He hoped the principles for parties present would be applied to telephone negotiations.
38. Noted: Entores fulfilled the hope of Williston and Winfield. Hidayatullah, J. quoted them at length because they lie beneath the Court of Appeal's reasons.
39. Noted: in Canada, Carrow Towing Co. v. The Ed McWilliams held that where a contract is proposed and accepted over the telephone, the place of acceptance is the place of the contract. Acceptance over the telephone has the same effect as acceptance by letter or telegram sent from that place.
40. Noted: the Restatement (Conflict of Laws, section 326) comments to the same effect: for acceptance by telephone, the place of contracting is where the acceptor speaks. For word of mouth across a state boundary line, it is where the acceptor speaks. This does not apply to an offer that requires actual communication of consent to the offeror, where the place is where the acceptance is received.
41. Noted: section 64 of the Restatement (Contract) says acceptance by any means the offeror authorised is operative once out of the offeree's possession, whether or not it reaches the offeror, unless the offer provides otherwise.
42. Noted: in an old English case, Newcomb v. De Roos, Hill, J. said that if the parties stood on different sides of a district boundary and the order was verbally given and accepted, the contract would be made in the district where the order was accepted. Entores expressly dissented from this case.

Hidayatullah, J. on Entores

41. Noted: the question in Entores was whether the contract was made within the jurisdiction under the Rules of the Supreme Court (Order 11, rule 1). Offer and acceptance were by telex, with the proposer in London and the acceptor in Amsterdam.
42. Noted: Donovan, J. held the contract was made in London. The Court of Appeal approved, saw no difference in principle between telex and telephone, and applied to both the rule for contracts by word of mouth. No leave to appeal to the House of Lords was possible because the matter was interlocutory.
43. Noted: Lord Denning gave the leading judgment, with Lord Birkett and Lord Parker agreeing. Lord Birkett said only that the ordinary rule of communicated acceptance applies to telephone. Lord Parker stressed that the rule is for the offeror's benefit, so he may waive it. He said the postal rule rests on expediency.
44. Noted: Lord Parker said that if telephone or telex acceptance became operative though not heard or received, no room would remain for the general proposition that acceptance must be communicated. He compared an acceptance spoken too softly to be heard face to face with a telephone going dead mid-conversation.
45. Noted: Lord Denning distinguished telephone and telex from post and telegraph because communication is instantaneous, as with word of mouth. If the line goes dead or the speech is indistinct, there is no contract until the acceptance is repeated and received. He gave the example of speech drowned by an aircraft.
46. Noted: Lord Denning added that if the acceptor does not know his message failed and the listener does not ask for repetition, the offeror is bound. He is estopped from saying he did not receive it, because it was his own fault.
47. Noted: Lord Denning added that if the offeror, without fault, does not receive the message and the sender reasonably believes it got home, there is no contract.
48. Noted: Hidayatullah, J. pointed out that Lord Denning does not say where the contract would be complete in the estoppel case. If nothing is heard, there is no communication at all. Making the contract at the offeror's end involves a fiction that he heard the acceptance, and the fiction rests on estoppel.
49. Noted: he asked why the contract should be held concluded where the offeror was, and not on the analogy of letter and telegram where the acceptor accepted. He asked why the expedition theory should not apply.
50. Noted: even for post, the rule is one of assumption of fact with little logic. It could equally be said that the proposal was made and accepted at the proposer's end. It is simpler to make the acceptor prove he put the acceptance in effective transmission than to investigate the proposer's denial.
51. Noted: he asked what happens if the proposer says he heard differently and the acceptor proves his words by a tape recording. He asked whether what the proposer heard would be the contract if it differs.
52. Noted: telegrams get garbled, but if the proposer asks for a telegram reply he bears the consequences. Ashurst, J. said in Lickbarrow v. Mason that where one of two innocent parties must suffer by a third's act, the one who enabled that act must bear the loss.
53. Noted: other difficulties may arise. A contract may be legal in one state and illegal in another. Williston reports Mullinix v. Hubbard, where cotton futures orders were telephoned from Arkansas (where illegal) to New York (where legal), and New York law governed. Mistaken identity of the proposer arose in Tideman & Co. v. McDonald, and law reviews discussed it (39 Harv. L.R. 388; (1926) 4 Tex. L. Rev. 252).

Four classes of telephone cases

54. Noted: four classes of cases may occur.
    • The acceptance is fully heard and understood.
    • The telephone fails and the proposer does not hear. The acceptor knows his acceptance was not transmitted.
    • Owing to a fault at the proposer's end the acceptance is not heard. He does not ask for repetition and the acceptor believes it was communicated.
    • The proposer does not hear and tells the acceptor so, asking him to repeat.
55. Held: where the speech is fully heard and understood, there is a binding contract. The only question is the place where the contract is completed. This case is of that kind.
56. Held: where the acceptance is not heard and the acceptor knows it, there is no contract at all. Communication must be effective or reasonable in the circumstances, and the parties are not ad idem. A man who shouts from too far to be heard cannot say he communicated under section 3.
57. Held: in the third class, logically the contract would be complete at the proposer's end, as nothing is received there. Estoppel does not solve the problem. Under section 3 the communication is good, because the acceptor intends to communicate, uses a usual and reasonable manner, and puts the acceptance in transmission without knowing it failed. The result is as with a lost letter, and the place is where the acceptance was put in transmission.
58. Held: in the fourth class, if the offeror tells the acceptor he cannot be heard, there is no contract. The act has not the effect of communication, and the acceptor cannot claim he acted reasonably.

Section 4 and section 5 applied

59. Noted: the Court is not concerned with a defective machine. The contract here was made with the machine working perfectly.
60. Held: since the proposer claims completion at his end, section 4 must be read, because it creates a special rule. It is a rather peculiar modification of the rule applicable to acceptance by post under the English common law. Fortunately its language covers acceptance by telephone and wireless.
61. Noted: section 4 is set out. A proposal is complete when it comes to the knowledge of the person to whom it is made. A different rule applies to acceptance. It is complete in two ways: against the proposer when put in transmission beyond the acceptor's power, and against the acceptor when it comes to the proposer's knowledge.
62. Held: the theory of expedition has been accepted by section 4.
63. Noted: section 5 allows a proposal to be revoked before communication of acceptance is complete against the proposer, and an acceptance before it is complete against the acceptor. In the third class of case this section would raise difficulties if the contract were complete only at the proposer's end.
64. Held: here the proposer claims the benefit of completion at Ahmedabad. The acceptor may reply that communication was complete, as against him, when he put his acceptance in transmission beyond his recall. The word of acceptance was spoken at Khamgaon, and he could not revoke it afterwards.
65. Held: the gap of time may be so short that the speech is heard instantly. Still, if new inventions are put into the frame of a statute, the acceptor by speaking into the telephone put his acceptance in the course of transmission, however quick.
66. Noted: what can be said in English common law, which judges can mould, cannot always be said under statutory law. The Court must be guided by the statute's language.
67. Noted: it is contended that communication is complete against the acceptor when it comes to the proposer's knowledge. That clause governs acceptance lost through the acceptor's fault. For example, he cannot say that he shouted and the communication was complete where aircraft noise drowned his words. He must communicate reasonably, but that is not the case here.
68. Held: both sides admit the acceptance was clearly heard at Ahmedabad. It was put in transmission at Khamgaon. Under the words of the statute it is difficult to say the contract was made at Ahmedabad and not at Khamgaon.
69. Noted: the law was framed when telephones, wireless, Telstar and Early Bird were not contemplated. If inventions make instant long distance communication easy and the language does not fit, the law can be modified to reject the old principles. But the Court cannot go against the language by accepting an interpretation given without considering the Indian Act.
70. Held: the language of section 4 covers communication over the telephone. The Act does not provide separately for post, telegraph, telephone or wireless. Some were unknown in 1872 and no attempt has been made to modify the law, so the language may be presumed adequate for these inventions.
71. Noted: even Entores is of 1955. Today the spoken word can be recorded on tape and a conversation easily proved. Telephones now have television added.
72. Noted: the rule on lost letters of acceptance was made out of expediency, because dispatch was easy to prove and non-receipt hard to disprove. If the proposer's rule were accepted, his denial that he heard the speech would be a very powerful defence, taking away the implication that acceptance is complete when put in transmission.
73. Noted: Lord Denning recommended a uniform rule, but the Court of Appeal was not called on to construe a written law with its own inflexible language. It did not construe the words of section 4 that an acceptance is complete against the proposer when put in a course of transmission to him, out of the acceptor's power.
74. Held: "Regard being had to the words of our statute I am compelled to hold that the contract was complete at Khamgaon."
75. Noted: the same result follows in the American conflict of laws, and countries such as Canada and France apply the rule he states even without compulsion of statute. So he had less hesitation in stating this view.
76. Held: he would allow the appeal with costs.

Order

1. Noted: in view of the opinion of the majority, the appeal is dismissed with costs.

Authorities

• Baroda Oil Cakes Traders v. Purshottam Narayandas Bagulia, I.L.R. [1954] Bom. 1137 — followed (Shah, J.). Mere making of an offer is not part of the cause of action. Also relied on for the Indian trend on post.
• Sepulchre Brothers v. Sait Khushal Das Jagjivan Das Mehta, I.L.R. [1942] Mad. 243 — contrary single-Judge view held not correct (Shah, J.).
• Adams v. Lindsell, 1 B. & Ald. 681 (cited by Shah, J. as 1818); 4 B. & A. 621 and [1813] 106 E.R. 250 (cited by Hidayatullah, J. as 1813) — acceptance by post is complete when put in transmission, on grounds of expediency.
• Dunlop and others v. Vincent Higgins and others, 1 H.L.C. 381; 9 E.R. 805 (year printed as 1948 in the judgment) — House of Lords approved the rule of Adams v. Lindsell. Hidayatullah, J. calls it the leading English case, decided before 1872.
• Entores Ltd. v. Miles Far East Corporation, [1955] 2 Q.B.D. 327 — relied on by the majority. Contracts by instantaneous communication are complete only when acceptance is received. Distinguished and not accepted by Hidayatullah, J. as inconsistent with section 4.
• Donovan, J. (first instance in Entores) — held the contract was made in London (Hidayatullah, J.).
• Cowan v. O'Conner, [1888] 20 Q.B.D. 640 — acceptance by telegram under the postal rule (Hidayatullah, J.).
• Tinn v. Hoffman & Co., (1873) 29 L.T. 271, 274, 278 — same (Hidayatullah, J.).
• Carlill v. Carbolic Smoke Ball Co., (1893) 1 Q.B.D. 256 at 269 — Bowen, L.J. on notification of acceptance; also reward and condition offers (Hidayatullah, J.).
• Williams v. Carwardine, 4 B. & A. 621 — offer of reward; acceptance need not be notified (Hidayatullah, J.).
• British and American Telegraph Co. v. Colson, (1871) 6 Ex. 108 — the one contrary view before 1872, later disapproved (Hidayatullah, J.).
• Harris' case, (1872) L.J.C. 625 — disapproved Colson's case (Hidayatullah, J.).
• Henthorn v. Fraser, (1892) 2 Ch. 27 — Lord Herschell considered Colson's case overruled (Hidayatullah, J.).
• Household Fire Insurance Co. v. Grant, (1879) 4 Ex. D. 216 — Thesiger, L.J. on why a posted acceptance binds (Hidayatullah, J.).
• Hebbs' case, (1857) L.R. 4 Eq. 9, 12 — Lord Romilly, M.R. on the post office as common agent (Hidayatullah, J.).
• Traders G. Co. v. Arnold P. Gin Co., Tex. Civ. App. 225 S.W. 2d 1011 — telephone contract made where acceptor speaks (Hidayatullah, J.).
• Carrow Towing Co. v. The Ed McWilliams, 46 D.L.R. 506 — Canadian authority for the same (Hidayatullah, J.).
• Newcomb v. De Roos, (1859) 2 B. & E. 271 — Hill, J. on a verbal order across a boundary; dissented from in Entores (Hidayatullah, J.).
• Lickbarrow v. Mason, (1787) 102 E.R. 1192 — Ashurst, J. on which innocent party must bear loss (Hidayatullah, J.).
• Mullinix v. Hubbard (reported at G.F. (2nd) 109 C.C.A. 8) — legality of cotton futures governed by New York law (Hidayatullah, J.).
• Tideman & Co. v. McDonald, 275 S.W. 70 (Tex. Civ. App.) — mistaken identity of proposer (Hidayatullah, J.).
• Textbooks —
  • Cheshire (empirical grounds) and Anson (gun-powder and match; communicated acceptance).
  • Winfield (1939) and Dr. de Visscher on the telephone and the European systems.
  • Williston on Contracts and American Jurisprudence, 2nd Edn., Vol. 17, Art. 54.
• Codes and rules —
  • American Restatement of Contract (sections 64, 65, 74) and of Conflict of Laws (section 326).
  • Swiss Federal Code of Obligations, Article 4.
  • Bengal Regulation III of 1793, Madras Regulation II of 1802 and Bombay Regulation IV of 1827.
  • Rules of the Supreme Court, Order 11, rule 1.

Provisions of the Indian Contract Act, 1872 discussed:

• Section 2 — clauses (a) proposal, (b) promise, (e) agreement and (k) contract (Shah, J.).
• Section 3 — communication, acceptance and revocation are deemed made by any act or omission that communicates, or intends to communicate, them.
• Section 4 — when communication of a proposal, acceptance and revocation is complete, against each party.
• Section 5 — a proposal may be revoked before acceptance is complete against the proposer; an acceptance before it is complete against the acceptor (Hidayatullah, J.).
• Section 7 — acceptance must be absolute and unqualified, in the prescribed or a usual and reasonable manner (Hidayatullah, J.).

Judgement

1. The appeal is dismissed with costs, in view of the opinion of the majority (Wanchoo and Shah, JJ.).
2. The Trial Court's view stands: a part of the cause of action arose within the jurisdiction of the City Civil Court, Ahmedabad, where the acceptance was communicated by telephone. The suit proceeds there.
3. Hidayatullah, J. dissented and would have allowed the appeal with costs. In his view the contract was made at Khamgaon.

Legal Principle / Ratio

The rule that a contract by post or telegram is complete when the acceptance is dispatched does not apply to a contract by telephone. A telephone contract is governed by the ordinary rule that acceptance must be intimated to the offeror. So it is made where the acceptance is heard.

Key holding: "In the case of a telephonic conversation, in a sense the parties are in the presence of each other".

Critical Analysis

Analysis based on the judgment text.

• The majority admits the postal exception has "the merit not of logic or principle" and rests on convenience. It does not interpret section 4 itself for the telephone. It says the draftsman could not have intended a rule on the telephone.
• The dissent reads the words of section 4 literally. It says the Court cannot go against the language, even if new inventions make the language fit poorly.
• The majority gives no ruling on the cases of a defective line or an unheard acceptance. Hidayatullah, J. sets out four classes and notes that the first class is the only one that arose on the facts.
• The two opinions cite Adams v. Lindsell with different years, 1818 and 1813.

Significance

• The case settles, by majority, that a telephone contract is not governed by the postal rule of acceptance.
• It decides the place of a telephone contract for jurisdiction: where the acceptance is heard.
• It shows the two approaches to adapting old statute language to new technology: follow the common law reasoning, or read the section's words.

Exam-Important Points

• Rule: a telephone contract is complete when acceptance is intimated to (heard by) the offeror. The place of contract is where acceptance is heard.
• Offer: making an offer at a place is not part of the cause of action for breach of the contract that results.
• Postal exception: acceptance by post or telegram is complete when put in transmission, if authorised by agreement, course of conduct or usage of trade. It rests on convenience, not logic.
• Section 4: deals with completion of communication, not with the place of contract (majority).
• Dissent: Hidayatullah, J. held section 4 covers the telephone, so the contract was made at Khamgaon.
• Trap: the result was by a 2:1 majority. Do not state the dissenting view as the holding.

Prepared from the full text of the judgment. The judgment has no numbered paragraphs, so no paragraph numbers are cited. The citation is printed in the judgment text.