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 ground of convenience which has the merit not a 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 B & Ald. 681, 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 (1 B & Ald. 681), 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 1 B. & Ald. 681, was approved by the House of Lords in Dunlop and others v. Vincent Higgins and others 1 H.L.C. 381. 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. It would be futile however to enter upon an academic discussion, whether the exception is justifiable in strict theory, and acceptable in principle. 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 offerer : see Baroda Oil Cakes Traders' case MANU/MH/0130/1954 : AIR1954Bom491 , 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.
11. The defendants contend that the same rule applies in the case of contracts made by conversation on telephone. The plaintiffs contend that the rule which applies to those contracts is the ordinary rule which regards a contract as complete only when acceptance is intimated to the proposer. 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.
12. It is true that the Post and Telegraphs Department has general control over communication by telephone and especially long distance telephone, 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.
13. 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 IV 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 Court and elsewhere according to justice, equity and good conscience which expressions have been consistently interpreted to mean the rules of English common law, so far as they are application to the Indian society and circumstance.
14. In England the Court of Appeal has decided in Entores Ltd. v. Mills Far East Corporation 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."
15. In Entores Ltd.'s case (1955) 2 Q.B.D. 327 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 plaintiffs 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 a 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 is 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 on different stages, Denning L. J. observed that in the case of a telephone 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.
16. It appears that in a large majority of European countries the rule based on the theory of consensus add idem, is that a contract takes place where the acceptance of the offer is communicated to the offeror, and no distinction is made between contracts made by post or telegraph and by telephone or Telex. IN decisions of the State courts in the United States, conflicting views have been expressed, but the generally accepted view is that by the technical law of contracts the contract is made in the district where the acceptances is spoken. This is based on what is called the deeply rooted principal of common law that where the parties impliedly or expressly authorise a particular channel of communication, acceptance is effective when and where it enters that channel of communication. In the text books there is no reference to any decision of the Supreme Court of the United States of America on this question: America Jurisprudence, 2nd Edn. Vo. 17, Art. 54 p. 392 and Williston on Contracts, 3rd Edn Vo. No. 1 p.
17. Obviously the draftsman of the Indian contract Act did not envisage use of the telephone as a means of personal conversation between parties separated in space, and could not have intended to make any rule in that behalf. The question then is whether the ordinary rule which regards a contract as completed only when acceptance is intimated should apply, or whether the exception engrafted upon the rule in respect of offers and acceptances by post and by telegrams is to be accepted. If regard be had to the essential nature of conversation by telephone, it would be reasonable to hold that the parties being in a sense in the presence of each other, and negotiations are concluded by instantaneous communication of speech, communication of acceptance is a necessary part of the formation of contract, and the exception to the rule imposed on grounds of commercial expediency is inapplicable.
18. The trial Court was therefore right in the view which it has taken that a part of the cause of action arose within the jurisdiction of the Civil City Court. Ahmedabad, where acceptance was Communicated by telephone to the plaintiffs.
Plaintiff and defendant entered into contract made by telephonic conversation - defendant failed to perform contract - plaintiff filed suit in Ahmedabad - defendant contended Civil Court at Ahmedabad does not have territorial jurisdiction - Trial Court opined that contract made by conversation on telephone is completed at place where acceptance of offer is intimated to offeror - Civil Court at Ahmedabad had jurisdiction to try the suit - High Court rejected defendant’s appeal - appeal before Supreme Court - held, Trial Court right in holding that part of cause of action arose within jurisdiction of Civil Court at Ahmedabad where acceptance was communicated by telephone to plaintiffs.
IN THE SUPREME COURT OF INDIA
Civil Appeal No. 948 of 1964
Decided On: 30.08.1965
Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas and Co. and Ors.
Hon'ble Judges/Coram:
J.C. Shah, K.N. Wanchoo and M. Hidayatullah, JJ.
