Contracts Between Absent Parties: the Post, the Telephone and the Inbox
Chapter Eleven
Syllabus topic 1.2, "OFFER, ACCEPTANCE AND ITS COMMUNICATION"
Pages 46 to 49 of 462
In one line
Section 4 was written for the post, and the moment communication became instantaneous the Supreme Court had to decide whether the same rule applied: it held that it does not.
In the words a student can write in an exam: where parties contract at a distance by post or telegram, section 4 of the Indian Contract Act 1872 applies and the acceptance is complete as against the proposer when it is put in course of transmission. Where the communication is instantaneous, as on a telephone, the rule does not apply: the contract is made where and when the acceptance is heard by the proposer. For an electronic record, the time and place of despatch and receipt are fixed by section 13 of the Information Technology Act 2000.
This chapter matters twice over. It is examined as a question on the place of a contract, and it decides jurisdiction, because a suit for breach may be brought where the contract was made.
Why the question arises
Section 4's rule that acceptance is complete on posting is a rule about risk in transmission. A letter travels for days, out of the sight of both parties, and either the sender or the receiver has to bear the risk that it is delayed or lost. The Act puts that risk on the offeror.
Now take away the gap. On a telephone the acceptor speaks and the proposer hears in the same instant. There is no transmission period, no risk of loss, and if the line fails the acceptor knows at once and can repeat himself. The reason for the postal rule has vanished, so the question is whether the rule should follow it.
The Supreme Court answered that in 1965, and the answer has governed ever since.
The leading case
Bhagwandas Goverdhandas Kedia v. M/s Girdharilal Parshottamdas and Co., AIR 1966 SC 543.
Facts. The parties made a contract by long distance telephone. The offer was spoken by the respondents at Ahmedabad and the acceptance was spoken by the appellants at Khamgaon. Alleging breach, the respondents sued at Ahmedabad. The appellants objected that the Ahmedabad court had no jurisdiction, because on their argument the contract was made at Khamgaon, where the acceptance was spoken. The trial court held that it had jurisdiction and the High Court rejected the revision petition in limine, whereupon the appellants came to the Supreme Court by special leave.
Held. Making an offer at a place which is 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 the offer and the intimation of that acceptance which result in a contract, and the intimation must be by some external manifestation which the law regards as sufficient. On a telephone the acceptance is complete where it is heard. The contract was therefore made at Ahmedabad, where the acceptance was received, and the Ahmedabad court had jurisdiction.
Contracts Between Absent Parties: the Post, the Telephone and the Inbox
Why it matters here. The decision separates the Act's two regimes. Section 4's despatch rule is confined to communications with a transmission gap, chiefly post and telegram. Where communication is instantaneous, the general principle governs: a contract is made when and where the acceptance is brought to the knowledge of the proposer. It is also the direct authority on jurisdiction, which is what the case was actually about.
Note the date. The judgment was delivered on 30 August 1965 and is reported as AIR 1966 SC 543. The report year is not the decision year, and citing it as a 1966 decision of the Court is a small inaccuracy worth avoiding.
The two regimes side by side
| Post and telegram | Instantaneous communication | |
|---|---|---|
| Governing rule | section 4 | general principle, as applied in Kedia |
| Acceptance complete against the proposer | when posted | when heard |
| Where the contract is made | where the acceptance was posted | where the acceptance was heard, that is, the offeror's place |
| May the acceptor revoke? | yes, until the letter arrives, section 5 | no, there is no interval to revoke in |
| Risk of failure in transmission | on the offeror | on the acceptor, who knows at once and must repeat |
The last two rows are the practical consequences and are often what a problem question turns on. On a telephone there is no window for the acceptor to change his mind, because acceptance and its communication are simultaneous. And if the line goes dead in the middle of the words of acceptance, the acceptor has not been heard, so there is no contract until he says it again and is heard.
The third regime: electronic records
Neither section 4 nor Kedia answers the question for an email, a web form or a message on an application, because those are neither instantaneous in the telephone sense nor a course of transmission in the postal sense. A message may sit in a server for minutes or days.
Parliament answered it separately. Section 13 of the Information Technology Act 2000 fixes the time and place of despatch and receipt of an electronic record, and it is part of MU's syllabus for this very reason. In outline:
- Despatch occurs when the record enters a computer resource outside the control of the originator.
- Receipt, where the addressee has designated a computer resource for the purpose, occurs when the record enters that designated resource; if it is sent to a different resource of the addressee, receipt occurs when the addressee retrieves it. Where no resource is designated, receipt occurs when the record enters a computer resource of the addressee.
- Place is deemed to be the originator's place of business for despatch and the addressee's place of business for receipt, whatever the location of the machines.
Contracts Between Absent Parties: the Post, the Telephone and the Inbox
The last point is the important one. The location of the server is irrelevant. An email accepted on a server in another country is still despatched and received at the parties' places of business. Section 13 is worked in full in [Attribution, Acknowledgment and Despatch of Electronic Records].
So the paper contains three answers to one question, and a complete answer names all three:
- Post or telegram: section 4 of the Contract Act.
- Telephone or other instantaneous speech: the general principle, Kedia.
- Electronic record: section 13 of the Information Technology Act 2000.
A worked example
Anand, in Mumbai, offers by telephone to sell 500 bags of cement to Bhaskar in Nashik. Bhaskar says "I accept" and Anand hears him.
- The communication is instantaneous, so section 4's despatch rule does not apply. Following Kedia, the acceptance is complete where it is heard, so the contract is made in Mumbai, and a suit for breach may be brought there.
- Bhaskar cannot revoke his acceptance, because there was no interval between speaking and being heard.
Change the medium. Bhaskar posts a letter of acceptance from Nashik.
- Section 4 applies. The acceptance is complete against Anand when the letter is posted in Nashik, so the contract is made in Nashik.
- Bhaskar may revoke at any time before the letter reaches Anand, under section 5, provided his revocation gets there first.
Change it again. Bhaskar sends an email to the address Anand designated for orders.
- Section 13 of the Information Technology Act applies. Despatch is when the email leaves Bhaskar's control; receipt is when it enters Anand's designated computer resource. The place of receipt is deemed to be Anand's place of business in Mumbai, whatever server the message passed through.
Notice that the three media give three different answers on where the contract was made, on identical commercial facts. That is the point of the topic.
What it does NOT mean
"Kedia overruled section 4." It did not. Section 4 is untouched and continues to govern the post and the telegram. Kedia decided that its reasoning does not extend to instantaneous communication.
"The contract is always made where the acceptor is." That is true for the post and false for the telephone. On the telephone it is made where the acceptance is heard, which is the offeror's location.
"An email is instantaneous, so Kedia applies." The Act does not leave it to analogy. Section 13 of the Information Technology Act provides the rule, and it turns on designated computer resources and places of business, not on speed.
Contracts Between Absent Parties: the Post, the Telephone and the Inbox
"The location of the server decides where an electronic contract is made." Section 13 says the opposite in terms: despatch and receipt are deemed to occur at the parties' places of business.
Quick revision
- Post and telegram: section 4, acceptance complete against the proposer on posting; contract made where posted; acceptor may revoke until arrival.
- Telephone: Kedia, AIR 1966 SC 543, decided 30 August 1965. Acceptance complete where heard; contract made at the offeror's place; no window to revoke.
- Kedia was a jurisdiction case: the Ahmedabad court had jurisdiction because the acceptance was heard there.
- The Court's formula: it is the acceptance and the intimation of that acceptance that make the contract, by some external manifestation the law regards as sufficient.
- Electronic records: section 13 of the Information Technology Act 2000, turning on designated computer resources; place is the parties' places of business, not the server's.
Test yourself
1. Where is a contract made when the acceptance is spoken on a telephone? Where the acceptance is heard by the offeror, following Kedia. There is no transmission gap, so section 4's despatch rule does not apply.
2. Why was the point important in Kedia? Because it decided jurisdiction. The offer was spoken at Ahmedabad and the acceptance at Khamgaon, and the Court held the contract was made at Ahmedabad where the acceptance was heard, so the Ahmedabad court could try the suit.
3. Can an acceptor revoke an acceptance given on the telephone? No. Acceptance and its communication are simultaneous, so there is no interval in which section 5's window could operate.
4. Which provision governs the time and place of an electronic acceptance? Section 13 of the Information Technology Act 2000, which fixes despatch and receipt by reference to computer resources, and deems the place to be the parties' places of business.
5. The line drops midway through the words of acceptance. Contract? No. The acceptance must be heard, and an acceptance the offeror did not hear has not been communicated. The acceptor must repeat it.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.