# Bar0<.la Oil Cakt·s Traders v. Purshouam Nara~'aJJdas mid Anr. I.L.R

- **Citation:** [1966] 1 S.C.R. 656
- **Court:** Supreme Court of India
- **Decided:** 1965-08-30
- **Bench:** K. N. WAl'CllOO, M. Hidayatullah Asd J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bar0-la-oil-cakt-s-traders-v-purshouam-nara-ajjdas-mid-anr-i-l-r-3572
- **Pages:** 27

## Headnote

lndUin (."ontract Act, 1872, ss. 2. 3, 4--Contract
when
completeOffer and Acceptance by telephone-Acceptance cornplete lvhert spoktn
or where heard'!
The respondents enlered inlo a contract with the appellants by loogdistancc telephone.
The offer was spoken by the respondent at Ahmedabad and the acceplarice was spoken by
the appellants at
Khamgaon.
Alleging breach of the said contract
the
respondents filed a ruit at
Ahmedabad.
On the i5'ue of jurisd1c1ion raised by the appellants, the
tnal court found that the Ahmedahad Court had jurisdiction to try the
suit. The High Court rejected the appellant's revLsion petition in /imine
whereupon by special leave, he came to this Coort.
B
c
HELD: (1) Making of an offer at a place which has been accepted
D
elsewhere doe') not form part of the cause of action in a suit for damages
for breach of conlract.
Ordinarily it is 1he acceptance of offer and intimation of that acceptance which result in a contract.
The intimation
must be by same external manifest;'ltion which the law regards as sufficient. [660 C-E]
Bar0<.la Oil Cakt·s Traders v. Purshouam Nara~'aJJdas mid Anr. I.L.R.
11954) llom. 1137 and Sepulechre Brothers v. Sait Khusha/ Das Ja1:jii'l1n
E
!Jas Mehta, 1.1..R. 11942] Mad. 243. referred to.
{ii} On the general rule that ;1 contract is concluded when an offer
ifl accepted and acceptance is intimated to the offerer. is engrafted
an
exception bas~d on grounds of convenience which has the merit not or
Jogic or principle in support, but of long acceplance by judicial decisioo.
The exception may be summarised as follows :
When
by
agreement.
course of contract or usage of trade. acceptance by post or telegram is
F
authorised, the bargain is struck and the contract
is complete when the
acceptance is put into a course of transmission the offeree by posting a
:etter or dispatching a telegram. 11>62 G-H]
(iii) The rnlc that applies 10 acceptance by post of telegram does not
however apply to contracts ma<le by telephone.
The rule which applies
to contracts by telephone is the ordinary rule which regards a contract
~s complete only \~·hen accepbnce i'> intimated to the purchaser. In the
..::ase of a telephonic conversation in a sense the parties are in the pri>
~ence of each other, each party is able to hear the voice of the other.
'l"here is an instantaneous communication of speech intimating offer alKI
acceptance, rejection and
counter-offer.
Intervention
of an electrical
:mpulse which results in the inslantancous communication of
messages
from a distance doc-. not alter the nature of the conversation so as to
make it analogous to that of an offl!r and acceptance through post or by
'elegram. [664 A-Bl
It is true 1h~1t rho Posts and 'l"clegr;iphc; Departmcnl has general control <>ver communication by telephone and especially over long distance
:clephones, but thilt is not a ground for assuming that the analogy of a
G
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G
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B. G. KEDIA v. GIRDHARILAL (Shah, /.)
657
contract made by post will govern this mode of making contract:>.
In
the case of correspondence by post or telegraphic
commurucation, a
third agency intervenes and without the effective intervention of
that
third agency, letters or messages cannot be transmitted .. In the cas~ ?f
a conversation by telephone, once connection is
estabbshed there is m
the normal course no further intervention of another
agency.
Parties
holding conversation on the telephone are unable to see each othe~; they
are also physically separated in SJ?ace,
bu.t they art? 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 on external agency. [664 D-E]
Entores Ltd. v. Miles Far Eastern Corp. [1955] 2 Q.B.D. 327 relied
on.
(iv) In the administration of the law of contracts the courts in India
have generally been guided by the rules of English common law applicable to contracts, when no statutory provision to the contra:ry is

## Text

_Characters 0–39,911 of 67,472. This is a partial read: ask again with offset=39911 for what follows._

656
BHAGWANDAS GOVERDHANDAS KEDIA
A
•
I'.
l\f/S. GIRDHARILAL PARSHOTfAMDAS AND CO. AND
OTHERS
"
August 30, 1965
[K. N. WAl'CllOO, M. HIDAYATULLAH ASD J. C. SHAH, JJ.)
lndUin (."ontract Act, 1872, ss. 2. 3, 4--Contract
when
completeOffer and Acceptance by telephone-Acceptance cornplete lvhert spoktn
or where heard'!
The respondents enlered inlo a contract with the appellants by loogdistancc telephone.
The offer was spoken by the respondent at Ahmedabad and the acceplarice was spoken by
the appellants at
Khamgaon.
Alleging breach of the said contract
the
respondents filed a ruit at
Ahmedabad.
On the i5'ue of jurisd1c1ion raised by the appellants, the
tnal court found that the Ahmedahad Court had jurisdiction to try the
suit. The High Court rejected the appellant's revLsion petition in /imine
whereupon by special leave, he came to this Coort.
B
c
HELD: (1) Making of an offer at a place which has been accepted
D
elsewhere doe') not form part of the cause of action in a suit for damages
for breach of conlract.
Ordinarily it is 1he acceptance of offer and intimation of that acceptance which result in a contract.
The intimation
must be by same external manifest;'ltion which the law regards as sufficient. [660 C-E]
Bar0<.la Oil Cakt·s Traders v. Purshouam Nara~'aJJdas mid Anr. I.L.R.
11954) llom. 1137 and Sepulechre Brothers v. Sait Khusha/ Das Ja1:jii'l1n
E
!Jas Mehta, 1.1..R. 11942] Mad. 243. referred to.
{ii} On the general rule that ;1 contract is concluded when an offer
ifl accepted and acceptance is intimated to the offerer. is engrafted
an
exception bas~d on grounds of convenience which has the merit not or
Jogic or principle in support, but of long acceplance by judicial decisioo.
The exception may be summarised as follows :
When
by
agreement.
course of contract or usage of trade. acceptance by post or telegram is
F
authorised, the bargain is struck and the contract
is complete when the
acceptance is put into a course of transmission the offeree by posting a
:etter or dispatching a telegram. 11>62 G-H]
(iii) The rnlc that applies 10 acceptance by post of telegram does not
however apply to contracts ma<le by telephone.
The rule which applies
to contracts by telephone is the ordinary rule which regards a contract
~s complete only \~·hen accepbnce i'> intimated to the purchaser. In the
..::ase of a telephonic conversation in a sense the parties are in the pri>
~ence of each other, each party is able to hear the voice of the other.
'l"here is an instantaneous communication of speech intimating offer alKI
acceptance, rejection and
counter-offer.
Intervention
of an electrical
:mpulse which results in the inslantancous communication of
messages
from a distance doc-. not alter the nature of the conversation so as to
make it analogous to that of an offl!r and acceptance through post or by
'elegram. [664 A-Bl
It is true 1h~1t rho Posts and 'l"clegr;iphc; Departmcnl has general control <>ver communication by telephone and especially over long distance
:clephones, but thilt is not a ground for assuming that the analogy of a
G
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A
B
c
D
'
E
•
F
G
•
H
B. G. KEDIA v. GIRDHARILAL (Shah, /.)
657
contract made by post will govern this mode of making contract:>.
In
the case of correspondence by post or telegraphic
commurucation, a
third agency intervenes and without the effective intervention of
that
third agency, letters or messages cannot be transmitted .. In the cas~ ?f
a conversation by telephone, once connection is
estabbshed there is m
the normal course no further intervention of another
agency.
Parties
holding conversation on the telephone are unable to see each othe~; they
are also physically separated in SJ?ace,
bu.t they art? 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 on external agency. [664 D-E]
Entores Ltd. v. Miles Far Eastern Corp. [1955] 2 Q.B.D. 327 relied
on.
(iv) In the administration of the law of contracts the courts in India
have generally been guided by the rules of English common law applicable to contracts, when no statutory provision to the contra:ry 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 Ill of 1793, Madras Regulation II of 1802 and Bombay Regulation IV of 1837, and by diverse Civil Courts Acts were enjoined in cases \Vhere no specific rule existed to act
according to 'law and
equity' in the case of chartered High Courts and elsewhere according tO·
'justice, equity and good conscience' which expressions have been consis·
tently interpreted to mean the rules of English common law, so far as
they are applicable to the Indian Society and circumstances. [664 G-H]
( v) The draftsmen of the Indian Contract Act did not envisage use
of the telephone as a means of conversation between parties separated
in space and could not have intended to make any
rule in that behalf.
The trial Court was right in the view which it took that a part of the
cause of action arose within the jurisdiction of the City Civil Court
Ahmedabad. where acceptance was communicated hy telephone to the
plaintiffs. [666 D-F]
Per Hidayatullah, J. (dissenting) (i) Jn the Entore.1· case Lord Denning no doubt held that acceptance given by telephone was governed by
the p'rinciples -applicable to oral acceptance where
the parties were in
the presence of each other and that the analogy of letters sent by post
could not be applied.
But the Court of Appeal was not called upon to
construe a \\Titten la'v which brings in the inflexibility of its own language.
It was not required to construe the words found in s. 4 of the
Indian Contract Act, namely, <IThe communication of an
acceptance is
complete as against the proposer when it is put in a course of transriJ.is ..
sion to him, so as to be out of the power of the acceptor." [667 C-F]
Entore.1· Ltd. v. Mi'/es Far East Corporation. [1955] 2 Q.B.D.
327,
distinguished.
(ii) The law under consideration
was framed at a time when telephone, wireless, Telstar and Early Bird were not contemplated. If time
has marched and inventions have made it easy to communicate instantaneously over long distance and the language of our law does not fit
~he: new cond_itions it can b_e modified to reject the old principles.
But
it 1s not possible to go against the language by accepting an interpretation given without considering the language of our Act. [681 HJ
{iii) The language of s. 4 of the Indian Contract Act covers a case·
of communication over the telephone.
Our Act does noi p·rovide separately for po..<;t, telegraph, telepohne. or wireless.
Some of ,these were
unknown in 1872 and no attempt has been made to modify the law. It
may be prc:-;umed that the language has been
considered adequate to,
~58
SUPREME
COURT
REPORTS
(1966) l S.C.R.
cover cases of these new inventions.
It is
possible today not only to
A
speak on 1he telephone hur to record the spoken word• on a tape and it
is CJ.!>Y to prO\iC that a particular conversation took plact:'.
Telephones
now have television added to them.
llle
rule about
Jo,t Ieuers
of
acceptance \\',,.., made out ot expediency hecause it ,..,·a.; easier in commercial circle.' to prove lhc <lcsp:1tch of letters but very <tifficult to dis.-
prove a staten1cnt that the 1ctrcr Y.'a!-o not received.
If the rule suggested on beh3Jf of 1he plain1iffs is acceplcd ii
would put a \'Cry powerful
defence m the hands of 1hc proposer it his denial
that he
heard
the
B
speech could take a\lo'ay the implication-; of our la\v that acceptance
;g
coo1pletc as S\'Un
a~ it i-; put in course of transmi-;..,ion h> 1he proposer.
{681 D-GJ
(iv) \Vhcrc the acceptance on telephone
i~ not heard on •1ccount of
mechanical defects rhere may he difficulty in determining \a.:hcthcr at all
a contract result.,.
But where the .;,pccch i' fully heard .1.nd undcn.tood
thL're is a binding contract. and in :-.uch a c;.i,c the only quc..,tinn is :t-. to
C
the plaL."'C where the contract can he said to have taken piace. 1678 G-HI
( v) In the present e<Lc;e both o;;idcs admitted that the acceptance was
clc:.irly heard at AhmcJahad.
-rhc
acceph1r v;a.; in a po.;,ition to say
that the communication ol the acceptance in so far as he \\'as concerned
v:as complete \vhcn he (the acceptor) put hi' acceptance in tran~mission
to him tthe proposer) as to be out of his (the acceptor'') po\\C:" of
recall in terms of s. 4 of the Contract Act.
It v.·as obvious that the \\'Ord
of acceptance was spoken at Khamgaon and the moment the
acceptor
spoke his acceptance he put it in course of transmis.c:.ion to the proposec
beyond his recall.
Ile could 1101 rri·oke his 11ccep:anc:e 1/ierc11/1er.
It may
be that the gap of time \\1as c;o .;,hort that one can c:.ay that 1hc speech
was heard instantancouslv. hut if \\:e are to put new invention'\ in10 the
frame of our sratutory Jav.1 we are bound 10 say that 1he
acceptor by
speaking into the tcleohonc out
his acc~ptance in th1· ro•1r_\'(' of rran.rmi.Jsion to th~ propv_rrr. (680 E-Hl
D
E
•
The contract \1.--;1.., ihcre!fore made at Kh<!n1gaon and fll~'. ;it .'\.h111r;.hh:1d,
•
Ca.se-laYr considered.
CIVIL APPE!.1.ATE JURISDICT!O" : Civil Appeal !'lo. 948 of
1964.
Appeal by special leave from the judgment and order dated
F
July 24, 1964 of the Gujarat High Court in Civil Revision Application No. 543 of 1964.
A. V. Virn'lllwtha Sasrri, Bisha11 Narain. S. M1mhr and B. P.
Mahesl11rari, for the appellant.
G. B. Pai, J. B. Dadachanji. 0. C. Mathur Jnd Ravinder
G
Narain, for the respondents.
The Judgment of Wanchoo and Shah. JJ. was delivered
by
Shah. J. Hidayatullah, J. delivered a dissenting Opin;on.
Shah, J.
Yks;rs Girdharilal Parshottamdas & Companyhereinafter c;tlled "the plaintiffs"-commenced an action in
the
City Civil Court at Ahmedahad against the Kedia Ginning Factory
& Oil !>-fills of Khamgaon-hercinafter called "the defendants" for
II •
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B. G. KEDIA v. GIRDHARILAL (Shah, J.)
65!}
•
A a decree for Rs. 31,150/- on the plea that the def.endants had
failed to supply cotton seed cake which they had agreed to supply
under an oral contract dated July 22, 1959 negotiated between
the parties by conversation on long distance telephone. The plaintiffs submitted that the cause of action for the suit arose at Ahrnedabad, because the defendants had offered to sell cotton seed cake
B which offer was accepted by the plaintiffs at Ahmedabad, and also
because the defendants were under the contract bound to supply
the goods at Ahmedabad, and the defendants were to receive payment for the goods through a Bank at Ahrnedabad. The defendants contended that the plaintiffs had by a message communicated
by telephone offered to purchase cotton seed cake, and they (the
C
defendants) had accepted the offer at Khamgaon, that under the
contract delivery of the goods contracted for was to be made at
Khmngaon, price was also to be paid at Khamgaon and that no
part of the cause of action for the suit had arisen ffithin the territorial jurisdiction of the City Civil Court Ahemedabad.
D
On the issue of jurisdiction, the Trial Court found that the
plaintiffs had made an offer from 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
'
E in the view of the Court to be performed at Khamgaon, and
because of the offer made from Al:unedabad 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
F made, and therefore the Civil Court at Ahmedabad had jurisdiction to try the suit. A revision application filed by-the defendants
against the order. directing the suif to proceed on the merits, was
rejected in limine by the High Court of Gujarat. Against the order
of the High Court of Gujarat, this appeal has been preferred with
G special leave.
H
The defendants contend that in the case of a contract by conversation on telephone, the place where the offer is accepted is the
place where the contract is made, and that Court alone has jurisdiction within the territorial jurisdiction of which the offer is
accepted and the acceptance is spoken into the telephone instrument. It is submitted that the rule which determines the place
where a contract is made is determined by ss. 3 & 4 of the Indian
Contract Act. and applies uniformly whatever may be the mode
'660
SUPREME COURT
REPORTS
[1966) I S.C.R.
employed for putting the acceptance into a course of trans11:i,.,ion,
and that the de.:isions of the Courts in the United Kingdom. dependent not upon express statutory provisions but upon the somewhat
elastic rules of common law, have no hearing in detennining this
question.
The plaintiffs on the other hand contend that making
of an offer is 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 ha' resulted into a contract.
Alternatively, they contend that intimation of acceptance of the offer being essential to
A
B
the fonnation of a contract, the contract takes place where such
intimation is received by the offeror.
The first contention r~ised
by the plaintiff is without <ubstance.
Making of an offor at a
C
place which has been accepted elsewhere does not fonn 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.
By intimating an offer,
when the parties arc not in the presence of each other, the offeror
0
is deemed to be making the offer continuously till
the offer
reaches the offercc.
The offeror thereby merely intimate, his
intention to enter into a contract on the terms of the offer. The
offcror cannot impose upon the offerce an c1bligation to Jcccpt,
nor proclaim that silence of the offeree shall be deemed coment.
A contract being the result of an offer made by one party and
acceptance of that very offer by the other, acceptance of the offer
and intimation of acceptance by some
external
manifcst1tion
which the law regards as sufficient is necessary.
E
By a long and uniform course of decisions the rule is wellsettled that mere making of an offer docs not form part of the
<:ausc of action for damages for breach of contract which
has
F
resulted from acceptance of the offer: sec Baroda Oil Cakes
Traders v. Purshottam Narayandas BaKulia and Anr(' ).
The
view to the contrary expressed by a single Judge of the Madras
High Court in Sepulchre Brothers v. Sait Klmsha! Das Ja11iivan
Das Mehta(') cannot be accepted as correct.
G
The principal contention raised by the defendants raise.'
a
problem of some complexity which must be approached in
the
light of the relevant principles of the common law and statutory
provisions contained in the Contract Act.
A contract unlike a
tort is not unilateral. If there be no
"meeting of minds" RO
contract may result.
There should therefore be an offer by one
H
party, express or implied. and acceptance of that offer by the
----- -···-
(!) l.L.R. [t95-ll Born. 1137.
(2) I.LR. [19421 Mad. 243.
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B. G. KEDIA V. G!RDHARILAL (Shah, J.)
661
A other in the same sense in which it was made by the other. But
an agreemenCdoes not result from a mere state of mind : intent
to accept an offer or even a mental resolve to accept an off.er does
not give rise to a contract.
There must be intent to accept and
some external manifestation of that intent by speech, writing or
other act, and acceptance must be _communicated to the offeror,
B
unless he has waived such intimation, or the course of negotiations implies an agreement to the contrary.
The Contract Act does not expressly deal with the place
where a contract is made.
Sections 3 & 4 of the Contract Act
deal with the communication, acceptance and revocation
of
c proposals. By s. 3 the communication of a proposal, acceptance
of a proposal, and revocation of a proposal and acceptance, 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
D
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G
has the effect of communicating it.
Section 4 provides :
"The communication of a proposal is
complete
when it comes to the knowledge of the person to whom
it is made.
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.
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;
as against the person to whom it is made, when it
comes to his knowledge."
"
H
In terms s. 4 deals not with the place where a contract takes
place, but with the completion of communication of a proposal.
acceptance and revocation.
In determining the place where a
contract takes place, the interpretation clauses in s. 2 which
largely incorporate the substantive law of contract must be taken
into account. A person signifying to another his willingness to
do or to abstain from doing anything, with a view to obtaining
66 2
SUPREME COURT REPORTS
[1966) l S.C.R.
the assent of tllat other to such act or abstinence is said to make
a proposal : cl. (a). When the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be accepted.
A
A proposal when accepted, becomes a promise: cl. (b),
and
every promise and every set of promi~cs. forming the consideration for each other is· an agreement: cl. (e). An agreement enforceable at law is a contract: cl. (k). By the second clause of
>. 4 the communication of an acceptance is complete as against the
proposer, when it is put in a course of transmission to him, so
B
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
<Jf transmission to the proposer, the acceptance is complete as
against the proposer : as against the acceptor, it becomes complete when it comes to the knowledge of the proposer. In the
matter of communication of revocation it is provided that
as
against the person who makes the revocation it becomes complete when it is put into a course of transmis.~ion to the person to
whom it is made, so as to be out of the power of the person who
makes it, and as against the person to whom it is mado when it
comes to his knowledge.
But s. 4 does not imply that the contract is made <Jlla the proposer at one place and q11a the acceptor
at another place.
The contract hecomes 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
:o the offcror.
Acceptance and intimation of acceptance of offer arc therefore both necessary to result in a binding contract.
In the case
c
u
E
of a contract which consists of mutual promises, the offeror must
receive intimation that the offeree has accepted his offer and bas
F
<ignified his willingness to perform his promise.
When pa¢es
arc 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.
Tf the offeror
G
receives no such intimation. even if the offeree has resolved to
accept the offer. a contract may not result.
But on this rule is
en_grafted an exception based on grounds of convenience which
has the merit not of logic or principle in support. but of long
acceptance by judicial decisions.
Tf tho parties arc not in
the
presence of each other, and the offerer has not prescribed a mode
11
of communication of acceptance. insistence upon communication
of acceptance of the offer hy the offcrcc would be found
•
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..
A
B. G. KEDIA v. GIRDHARILAL (Shah, J.)
663
to be inconvenient, when the contract is made by letters
sent by post. In Adams v. Lindsell(1) it was ruled as early as
in 1818 by the Court of King's Bench in England that the con·
tract 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
B 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 defen·
c
D
dants 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(')
was
approved by the
House of Lords in Dunlop and others v. Vincent Higgins and
others(').
The rule was based on commercial expediency, or
what Cheshire calls "empirical grounds". It makes a large mroad upon the concept of consensus, "a meeting of minds" which
is the basis of formation of a contract. It would be futile howE
ever to enter upon an academic discussion, whether the excep·
tion is justiflable 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 EnglanC!.
Authorities in India also exhibit a
fairly uniform trend that in case of negotiations by post the conF
tract is complete when acceptance of the offer is put into a course
of transmission to the offeror : see Baroda Oil Cakes Traders'
case(") 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
G
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 contend that the same rule applies in the case
,.
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of contracts made by conversation on telephone.
The plaintiffs
(1) 1 B. & Aid. 681.
(2) 1 H.L.C. 381.
L7Sup./65-14
(3) I.LR. [1954] Born. 1137.
664
SUPREME COURT REPORTS
[1966] l S.C.R.
contend that the rule which applies to those contracts is the
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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
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electrical impulse which results in the instantaneous communication of messages from a distance doe<; 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.
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It is true that the Posts & Telegraphs Department has general
control over communication by telephone and especially
long
distance telephones, but that is not a ground for assummg
that the analogy of a contract made by post will govern
this
mode of making contracts.
In the ca.>c of correspondence by
post or telegraphic communication, a third agency
intervenes D
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 sec
each
other : they arc 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 instanta·
neously, and communication docs not depend upon an external
agency.
In the administration of the law of contracts, the Courts m
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
Ill of 1793, Madras Regulation Il 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 Courts 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 applicable to the
Indian society and circumstances.
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B. G. KEDIA V. GIRDHARILAL (Shah,/.)
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In England the Court of Appeal has decided in Entores Ltd.
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v. Miles Far East Corporation(1 ) 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;"
In Entores Ltd's case(') 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
C received on the plaintiff's Telex machine in London. On the allegation that breach of contract was committed by the defendant
Corporation, the plaintiff sougbt 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
D principal judgment of the Court observed at p. 332 :
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"When a contract is made by post it is clear law
throughout the common law countries that the acceptance is 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 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 in different stages, Denning L. J.,
F observed that in the case of a telephonic 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:
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"
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."
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It appears that in a large majority of European countries the
rule based on the theory of consensus ad idem, is that a contract
(!) [!955] 2 Q.B.D. 327.
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( 1966] I S.C.R.
takes place where the acceptance of the offer is communi.:ated to
the oiferor, 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 th;: contract is made in the district where
the acceptance is spol-.en.,.
This is based on what is ca lied .. the
deeply rooted principle of common law that where the
parties
impliedly or expressly authorise a particular channel of
communication, acceptance i; effective y;hen and y;h;:re 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.,
Vol. 17, Art. 54 p. 392 and Williston on Contracts, 3rd Edn.
Vol. l p. 271.
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 aoply, or whether the
exception engrafted upon the rule in respect of offers and acceptances by post and by telegrams is to be accerted. 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 arc 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
The trial Court was therefs>re right in the view which it has
·taken that a part of the cause of act.ion arose within the jurisdiction
of the City Civil Court, Ahrnedabad, where
acceptance
was
.communicated by telephone to the plaintiffs.
The appeal therefore fails and is dismissed with costs.
Hidayatullah, J.
Where and when is the communication of
an acceptance complete under the Indian Contract Act.
when
parties complete their contract by long distance telephone ? On
the answer to this question depends the jurisdiction of the court
trying the suit giving rise to this appeal.
A contract was made
on the telephone and the proposer complains of its breach by
the acceptor. We are hardly concerned with the terms of the
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B. G. KEDIA v. GIRDHARILAL (Hidayatullah, /.)
667'
A contract and they need not be mentioned.
At the time of the
telephonic conversation the proposers who are plaintiffs in the
suit (respondents here) were at Ahmedabad and the acceptor,.
who is the defendant (appellant here), was at Khamgaon in·
Vidarbha.
The plaintiffs' suit has been instituted at Ahmedabad.
If the acceptance was complete and contract was made when the
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appellant spoke into the telephone at Khamgaon, the Ahmedabad
court would lack jurisdiction to try the suit. It would, of course,
be otherwise if the acceptance was complete only on the reception
of the speech at Ahmedabad and that was the place where the
contract was made.
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The rules to apply in our country are statutory but the Con·
tract Act was drafted in England and the English Common law
permeates it; however, it is obvious that every new development
of the Common law in England may not necessarily fit into the
scheme and the words of our statute. If the language of our
enactment creates a non-possumus adamant rule, which cannot
be made to yield to any new theories held in foreign courts our
clear duty will be to read the statute naturally and to follow it_
The Court of Appeal in England in Entores Ltd .. v. Miles Far
East Corporation(') held that a contract made by telephone is
complete only where the acceptance is heard by the proposer
(offeror in English Common law) because generally an acceptE
ance must be notified to the proposer to make a binding contract
and the contract emerges at the place where the acceptance is
received and not at the place where it is spoken into the telephone.
In so deciding, the Court of Appeal did not apply the rule obtaining in respect of contracts by correspondence or telegrams, namely,
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that acceptance is complete as soon as a letter of acceptance is
put into the post box or a telegram is handed in for despatch, and
the place of acceptance is also the place where the contract is
made. On reading the reasons given in support of the decision
and comparing them with the language of the Indian Contract
Act I am convinced that the Indian Contract Act does not admit
our accepting the view of the Court of Appeal.
Sir William Anson compared the proposal (offer in English
Common law) to a train of gun-powder and the acceptance to
a lighted match. This picturesque description shows that acceptance is the critical fact, even: if it may not explain the reason
underlying it.
It is, therefore, necessary to see why the rule about
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acceptance by post or by telegram was treated as a departure from
the general rule of law that acceptance must be communicated.
(I) [1955] 2 Q.B.D. 327.
668
SUPREME COURT REPORTS
[1966) l S.C.R.
The rule about acceptance by post or telegram is adopted in all
countries in which the English Common Jaw influence is felt and
in many others and, as will be shown later, the Indian Contract
Act gives statutory approval to it.
That rule is that a contract
is complete when a letter of acceptance, properly addressed and
stamped is posted, even if the letter docs not reach the destination
or having reached it is not read by the proposer. The same principle applies to telegrams.
Sec Cowan v. O'Connor('), Tinn v.
Hoffman & Co.(').
The first question is whether the general
rule or the special rule applies to contracts made on the telephone
and the second what is the position under the Indian Contract
Act.
The answer to the first question is that there is difference
of opinion in the countries of the world on that point and to the
second that the Indian Contract Act does not warrant the accept·
ance of the decision in the Entores case(3 ).
To explain the true
position, as I understand it, I may start from the beginning.
A contract is an agreement enforceable by law and
is the
result of a proposal and acceptance of the proposal. The proposal when accepted becomes a promise. Now it may be conceded.
that, as Bowen L. J. said in Carlill v. Carbolic Smoke Ball
Co.(') :
" ........ as an ordinary rule of law an acceptance
of an offer made ought to be notified to the person who
makes an offer, in order that the two minds may come
together".
or, as Anson puts it, acceptance means in general a communicated acceptance.
This is the English Common Jaw rule and is
also accepted in the United States, Germany and France.
The
communication must be to the proposer himself unless he expressly
or impliedly provides that someone else may receive it.
According to our law also (s. 7) in order to convert a proposal into
a promise the acceptance must be 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
of the party accepting.
It must not be a mental acceptancea proposit11m in menti retentum-tbough sometimes silence may
be treated as acceptance.
Section 3 of our Act says that the communication of acceptance is deemed to be made by an act or
omission of the party by which he intends to communicate such
acceptance or which has the effect of communicating it.
(1) 11888) :o Q.R.D. 640.
(3) (1955) 2 Q.B.D. 327.
(2) (1873) 29 L.T. 271, 274, 278.
(4) (1893) I Q.B.D. 256 at 269.
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B. G. KEDIA v. GIRDHARILAL (Hidayatullah, !.)
669
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The difficulty arises because proposals and acceptances may be
in praesentcis or inter absentes and it is obvious that the rules must
vary. In acceptance by word of mouth, when parties are face to
face, the rule gives hardly any trouble.
The acceptance may be
by speech, or sign sufficiently expressive and clear to form a
communication of the intention to accept.
The acceptance takes
B effect instantly and the contract is made at the same time and
place.
In the case of acceptance inter absentes the communication must be obviously by some agency.
Where the proposer
prescribes a mode of acceptance that mode must ~e followed. In
other cases a usual and reasonable manner must be adopted unless
the proposer waives notification. Cases in the last category are
C offers bf reward for some service (such as finding a lost purse
or a stray dog (Williams v. Carwardine) (') or fulfilling some
condition, such as trying a medicine (Carlill v. Carbolic Smoke
Ball Co.-supra). The offer being to the whole world, the
acceptance need not be notified and the contract is made when
the condition is fulfilled.
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Then come cases of acceptance by post, telegraph, telephone,
wireless and so on.
In cases of contracts by correspondence or
telegram, a different rule prevails and acceptance is complete as
soon as a Jetter of acceptance is posted or a telegram is handed
in for despatch.
One way to describe it is that acceptance is
E complete as soon as the acceptor puts his acceptance in the
course of transmission to the proposer so as to be beyond his
power to recall.
Acceptance by post or telegram is considered
a usual mode of communication and it certainly is the most often
followed.
But letters get lost or miscarried and telegrams get
garbled.
What should happen if the letter got lost in the post
F or the telegraphic message got mutilated or miscarried ? It was
held as early as 1813 in Adams v. Lindsel/( 2 ) that even in such
a contingency acceptance must be taken to be complete as soon
as the letter is posted and not when it is delivered. It was
observed:
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"For if the defendant were not bound by their offer
when accepted by the plaintiffs till the answer was
received, then 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".
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post, what more can the acceptor do than post the letter ? The
(I) 4 B & A 621.
(2) [1813) 106 E.R. 250.
670
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(1966] I S.C.R.
above question was asked by Lord Cottenham in Dunlop v.
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Higgins(') and the Lord Chancellor also asked the question :
How can he be responsible for that over which he had no
control?"
Dunlop v. Higgins(') is the leading case in English Common
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law and it was decided prior to 1872 when the Indian Contract
Act was enacted.
Till 1872 there was only one case in which
a contrary view was expressed (British and America11 Telegraph
Co. v. Colson){°) but it was disapproved in the following year
in Harris' case (') and the later cases have always taken a different
view to that in Co/son's case.
In Henthorn v. Fraser('), Lord C
Hescehell considered that Col,on's case must be considered to be
overruled.
Earlier in 1879 4 Ell. D. 216 (Household Fire /nsu·
ranee Co. v. Grant) Bramwell L.J. was assailed by doubts which
were answered by Thesiger L.J. in the same case :
"A contract complete on the acceptance of an offer
being posted but liable to being put an end to by any
accident in the post, would be more mischievous than
a contract only binding on the parties upon the acceptance actually reaching the offeror.
There is no doubt
that the implication of a complete, final and absolutely
binding contract being formed as soon as the acceptance
of an offer is posted may in some cases lead to hardship
but it is difficult
to adjust conflicting rights between
innocent parties.