RAJIV GANDHI NATIONAL UNIVERSITY

OF LAW, PATIALA, PUNJAB

LAW OF CONTRACT (1)

PROJECT REPORT ON

CASE COMMENT ON

Bhagwandas Goverdhandandas KediaV.

M/S Girdharilal Parshottamdas & Co. And Ors. [Air 1966 Sc 543]

Prepared by: Yashasvi Nain II Year, B.A.,LL.B(Hons.)

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ACKNOWLEDGEMENT

“God gives us life to decorate it with knowledge. Life without knowledge is

like river without water.”

On completion of this Project it is our present privilege to acknowledge our profound

gratitude and indebtedness towards our teachers for their valuable suggestion and

constructive criticism. Their precious guidance and unrelenting support kept us on the

right track through out the project. We gratefully acknowledge our deepest sense of

gratitude to our revered and intellectual guide Miss Sangeeta Taak who has provided us

great tips after the submission of first draft.

We heartly thankful of Ms. Updesh Kaur and other library staff for their able guidance

and support without which this project would not have been completed. We are also

thankful to Mr. Inderpreet and other computer staff who helped us in operating computer

and providing access to internet.

We would also like to thank for the painful and joint efforts of our group members, which helped us in bringing out this project.

We are thankful to our family members and friends for the affection and encouragement

with which doing this project became a pleasure.

Last but not least we would like to thank the ALMIGHTY whose blessings helped us in

making this project come out successfully with flying colures. 

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INDEX1. Introduction………………………………………………… .4

2. Facts of the Case……………………………………………. .6

3. Issues Raised………………………………………………….7

4. Arguments by the Plaintiffs………………………………...... 8

5. Arguments by the Defendants……………………………….. 9

6. Decision of the Courts…………………………………..…… 10

7. Grounds for the Judgement by the Supreme Court………….. 11

8. Personal Comment on the Judgement………………………...12

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INTRODUCTION The principles regarding the communication of proposals and acceptances as given in the

Indian Contracts Act, 1872 has to be interpreted with respect to the changing conditions.

With developments in science and technology, the means of communicating one’s

proposal or acceptance or revocation of any of the two has changed drastically as

compared to 1872. Thus it is necessary that one fully understands the rule about

communication as prescribed in Sec. 4.

According to Sec. 4 of the Indian Contract Act, 1872 the communication of acceptance

is complete, as against the proposer, when it is put in a course of transmission to him, so

as to be out of power of the acceptor, as against the acceptor, when it comes to the

knowledge of the proposer. Now it can be clearly seen that this section does not speak

about the completion of a contract, but only about the completion of communication.

Now the major point here is that this rule is very conveniently applicable only to

contracts by post, which was the usual means of communication in 1872. However,

application of this rule in cases of oral contracts especially those conducted through

telephone is a bit cumbersome.

The rule relating to completion of acceptance in oral contracts was laid down in the case

of Entores Ltd v Miles Far East Corporation1. The facts of the case were that an offer

was made from London by telex to a party in Holland and it was accepted through telex,

the only question being as to whether the contract was made on Holland or in England.

The court of appeal held that telex is a method of instantaneous communication and the

rule about instantaneous communication 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 made. Denning LJ

observed as follows:

1 (1955) 2 All ER 493: (1955) 2 QB 327: (1955) 3 WLR 48.

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Let me first consider a case where two people make a contract by word of mouth in

presence of one another. Suppose, for instance, that I shout an offer to a man across a

river but I do not hear his reply because it was drowned by an aircraft flying overhead.

There is no contract at that moment. If he wishes to make a contract, he must wait till the

aircraft is gone and then shout back his acceptance so that I can hear what he says….Now

take a case where two people make a contract by telephone. Suppose for instance, that I

make an offer to a man by telephone and, in the middle of his reply, the line goes ‘dead’

so that I do not hear his words of acceptance. There is no contract at that moment.2

This same rule is applicable in cases of oral contracts through telephone. In the instant

case we get a clear idea about the applications of this rule with respect to telephone

contracts with Sec. 4 being thoroughly examined and explained alongwith a dissenting

judgment by Justice Hidayatullah.

2 Avtar Singh, Law of Contract and Specific Relief, Eastern Book Company, Lucknow, 10th Edition, 2008, p .36.

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FACTS OF THE CASE

The defendants, a ginning and oil mills factory, negotiated an oral contract with the

plaintiffs on 22nd July 1959 for the supply of cotton seed cake by conversation on long

distance telephone. The defendants accepted the offer to sell the cotton seed cake at

Khamgoan whereas the offer was made by the plaintiffs from Ahmedabad. The

defendants believed that since they had accepted at Khamgoan the contract had been

completed at Khamgoan and the delivery of goods along with the payment had to be

made at Khamgoan. However on the non-supply of goods at Ahmedabad, the plaintiffs

filed a suit in the City Civil Court at Ahmedabad, believing that since the plaintiffs

accepted the offer by the defendants, to buy the goods, at Ahmedabad, the contract was

completed at the same place and the delivery of goods had to be made at Ahmedabad.

Thus, this case is mainly about the issue of jurisdiction of the court in which a suit could

be filed.

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ISSUES RAISED

1. When and where is the communication of a proposal, acceptance and revocation

complete?

2. Whether the rules of proposal and acceptance as given in Sec. 4 applicable to oral

contracts through telephone?

3. Where exactly is the contract between the two parties completed?

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ARGUMENTS BY THE PLAINTIFFS

1. The plaintiff contended that making of an offer was a part of the cause of action in

a suit for damages for breach of contract, and the suit lies in the court within the

jurisdiction of which the offeror has made the offer which on acceptance has

resulted into a contract. Alternatively, they contended that intimation of

acceptance of the offer being essential to the formation of a contract, the contract

takes place where such intimation was received by the offerer.

2. The second contention made by the plaintiff was about 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. So acceptance and

intimation of acceptance of offer are therefore both necessary to result in a

binding contract. According to them 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 and 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. They further argued that when the

Indian Contract Act,1872 was enacted then these new forms of communication

were not developed and language of Sec. 4 of the act doesn’t cover the case of

communication over the telephone. It only covers the offers and acceptances

made through post and telegraph. So the rule that contract is concluded at the

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place from where the proposal is accepted and communication of acceptance is

dispatched doesn’t apply here.

ARGUMENTS BY THE DEFENDANTS

The defendant contended that Sections 3 & 4 of Indian Contract Act,1872 applied

uniformly whatever the mode of acceptance, and since the words of acceptance were

spoken into the telephone at Khamgaon and thereby put into a course of transmission so

as to be out of the power of the defendant, the contract was concluded at Khamgaon, and

plaintiff’s suit was without jurisdiction. So in case of a contract by conversation on

telephone, the place where the offer is accepted is the place where the contract is

completed, and that court alone has the jurisdiction of which the offer is accepted and the

acceptance is spoken into the telephone instrument.

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DECISION OF THE COURTS

1) Trial Court

The Trial Court found that the Plaintiffs had made an offer form Ahmedabad by long

distance telephone to the defendants to purchase the goods and that the defendants had

accepted the offer at khamgaon, that the goods were under the contract to be delivered at

Khamgaon and that payment was also to be made at Khamgaon. The contract was in the

view of the court to be performed at Khamgaon, and because of the offer made from

Ahmedabad to purchase goods the court at Ahmedabad could not be invested with

jurisdiction to entertain the suit. But the court held that when a contract is made by

conversation on telephone, the place where acceptance of offer is intimated to the offeror,

is the place where the contract is made, and therefore the Civil Court at Ahmedabad had

jurisdiction to try the suit.

2) The High Court

A revised application was filed by defendants against the order of trial court in the High

Court of Gujarat. High Court rejected the application and directed the suit to proceed on

the merits.

3) The Supreme Court of India

a) The first contention raised by the plaintiff is without substance. It was held that mere

making of an offer did not form part of the cause of action for damages for breach of

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contract which resulted from acceptance of the offer. A court would not have jurisdiction

merely because an offer was transmitted from within its jurisdiction3.

b) Further the question was about the jurisdiction, whether the court at Ahmedabad had

the jurisdiction where acceptance was received ,or at Khamgaon where the acceptance

was spoken. The majority judgement of Wanchoo and Shah JJ concluded that a contract

made by instantaneous communication is complete when the acceptance is received by

the proposer.

Hidayatullah J gave a dissenting judgement, by which he was convinced that the

language of Sec. 4 of Indian Contract Act, 1872 is flexible enough to cover telephonic

communications. So according to him the rule of post should be followed here and the

court at Khamgaon had the jurisdiction where the acceptance was spoken.

Grounds for Judgement by the Supreme Court

1) First contention of the plaintiff was rejected by the Supreme Court on the ground

that mere making of an offer did not form part of the cause of action for damages.

A case can be filed where the contract is completed and mere making the offer

doesn’t make the contract complete. So the first contention raised by the plaintiff

is without substance. Making of an offer at a place which has been accepted

elsewhere does not form part of the cause of action in a suit for damages for

breach of contract. Ordinarily it is the acceptance of offer and intimation of that

acceptance which result in a contract.

2) The majority judgement of Wanchoo and Shah JJ applied the English Law 4

where a contract made by instantaneous communication is concluded when the

acceptance is received by the proposer. Both the judges have given this judgement

on the ground that language of Sec. 4 of Indian Contract Act, 1872 doesn’t speak

about the communicating modes like telephone, wireless etc. Indian Contract Act

3 Mulla and Pollock, Indian Contract and Specific Relief Acts, LexisNexis Butterworths, Vol.1, 13th Edition(Second Reprint), New Delhi, 2007, p.181.

4 Entores Ltd v Miles Far East Corporation (1955) 2 All ER 493.…where a contract is made by instantaneous communication, eg. telephone, the contract is complete only when the acceptance is received by the proposer, since generally an acceptance must be notified to the proposer to make a contract binding.

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was enacted at a time when these new form of communications were not invented.

So there is a need to develop new laws with the developments in science and

technology. The means of communicating one’s proposal or acceptance or

revocation of any of the two has changed drastically as compared to 1872. Thus it

is necessary that one fully understands the rule about communication as

prescribed in Sec. 4.

3) Hidayatullah J gave the dissenting judgement on the ground that though Indian

Contract Act, 1872 was enacted at a time when telephone, wireless etc. were not

enacted but still the language of Sec. 4 is flexible enough to cover telephonic

communication with post etc. When the words of acceptance are spoken into the

telephone, they are put into the course of transmission to the offerer so as to be

beyond the power of acceptor. The acceptor cannot recall them. The

communication being instantaneous the contract immediately arises5.

Personal Comment on the Judgement

The present case deals with the jurisdiction of case i.e. where exactly is the contract

between the two parties completed. Sec. 4 does not deal with the place where a contract

takes place, but with the completion of communication of a proposal, acceptance and

revocation. Generally the place where the contract is concluded, being a part of ‘cause of

action’ , determines the jurisdiction of the court in a case arising out of contract6. By the

second clause of Sec. 4 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. This implies that where communication of an acceptance is made and it is

put in a course of transmission to the proposer, the acceptance is complete as against the

proposer and as against the acceptor, it becomes complete when it comes to the

knowledge of the proposer. But Sec. 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

5 Avtar Singh, Law of Contract and Specific Relief, Eastern Book Company, Lucknow, 10th Edition, 2008, p .38.6 Mulla and Pollock, Indian Contract and Specific Relief Acts, LexisNexis Butterworths, Vol.1, 13th Edition(Second Reprint), New Delhi, 2007, p.180.

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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. But this rule has been followed

in case of communication by post and what about the rule by telephone where the parties

are in direct contact of each other although at far different places.

Being a common law country, Indian Contract Act is based on it. Right from 18th and 19th

century Court of King’s Bench has passed judgements by which acceptance of an offer is

completed as soon as it is put in the course of transmission by the acceptor. As in the case

of Adams v Lindsell7, 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 infinitum8.” The rule Adam's case, was approved by the House of Lords

in Dunlop and Others v Vincent Higgins and others9.

Whatever merit this rule may have from the point of view of the assured or the offeree, it

certainly makes the position of the offerer miserable. The current feeling is that even in

reference to postal communications the principle of consensus or meeting of minds

should be adhered to and there should be no contract till the acceptance is received10.

7 1 B & Ald. 681.8 Mulla and Pollock, Indian Contract and Specific Relief Acts, LexisNexis Butterworths, Vol.1, 13th Edition(Second Reprint), New Delhi, 2007, p.172.9 1 H.L.C. 381.10 Avtar Singh, Law of Contract and Specific Relief, Eastern Book Company, Lucknow, 10th Edition, 2008, p. 37.

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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 as in Baroda Oil Cakes Traders' case11. A similar rule has been adopted

when the offer and acceptance are by telegrams. 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.

The defendants contended that the same rule as above should be applied in the case of

contracts made by conversation on telephone. But the majority judgement of Wanchoo

and Shah JJ went in the favour of plaintiff whereby a contract made by instantaneous

communication is concluded when the acceptance is received by the proposer.

In this case, our view is that the judgement given by Supreme Court is correct as in case

of conversation by telephone there is direct contact between both the parties although

they are physically separated. Denning LJ also observed in the case of Entores Ltd v

Miles Far East Corporation that suppose, for instance, that I shout an offer to a man

across a river but I do not hear his reply because it was drowned by an aircraft flying

overhead. There is no contract at that moment. If he wishes to make a contract, he must

wait till the aircraft is gone and then shout back his acceptance so that I can hear what he

says. So here the contract is complete when the acceptance comes into the knowledge of

the offeror. Similarly in case of conversation by telephone, suppose for instance, that I

make an offer to a man by telephone and, in the middle of his reply, the line goes ‘dead’

so that I do not hear his words of acceptance. There is no contract at that moment. So

contract is complete when that acceptance reaches offeror and therefore in this case

although plaintiff knew about the acceptance and later on breach of contract is made by

the defendant but still Ahmedabad is the place where contract is completed. So

jurisdiction of this case lies in Ahmedabad.

Thus the decision of Supreme Court is completely justified and correct.

11 AIR 1954 Bom 491.

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Bibliography

Mulla and Pollock, Indian Contract and Specific Relief Acts, LexisNexis Butterworths,

Vol.1, 13th Edition(Second Reprint), New Delhi, 2007.

Singh, Avtar , Law of Contract and Specific Relief, Eastern Book Company, Lucknow,

10th Edition, 2008.

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