📜 Basics of a Contract – Part 16
Key Questions:
- ❓ When do we consider a contract to be complete?
- ❓ How to determine the place of contract?
- ❓ Which court has jurisdiction in case of breach of a contract?
Answer: All these questions can be found in the Supreme Court Judgment Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas [1966 SC].
⚖️ Case Background: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas [1966 SC]
Facts:
Girdharilal Parshottamdas and Company – “the plaintiffs” – commenced an action in the City Civil Court at Ahmedabad against the Kedia Ginning Factory and Oil Mills of Khamgaon – “the defendants” – for a decree of Rs. 31,150.
The allegation was that the defendants failed to supply cotton seed cake as agreed under an oral contract (July 22, 1959), negotiated by conversation over long distance telephone.
📝 Formation of a Contract
The plaintiffs contended that intimation of acceptance of the offer is essential to contract formation, and that the contract is complete where such intimation is received by the offeror.
A contract, unlike a tort, is not unilateral. Without a “meeting of minds,” no contract arises. There must be:
- ➡️ An offer (express or implied).
- ➡️ Acceptance of the offer in the same sense in which it was made.
Agreement does not arise from a mere state of mind. Intent to accept must be externally manifested—through speech, writing, or acts—and communicated to the offeror, unless waived or otherwise implied.
📌 Sections 3 and 4 of the Indian Contract Act
The Contract Act does not directly deal with the place where a contract is made.
Section 3 and 4 deal with communication, acceptance, and revocation of proposals.
Section 4 deals with completion of communication, not the place of contract.
By Section 4 (clause 2):
- ✔️ Communication of acceptance is complete as against the proposer, when put in transmission, out of acceptor’s power.
- ✔️ As against the acceptor, it is complete when it comes to the proposer’s knowledge.
Thus, acceptance and intimation of acceptance are both necessary for a binding contract.
📮 Postal Rule & Exceptions
The general rule: acceptance must be communicated.
Exception (for convenience): where contracts are made by letters sent by post.
In such cases, contract is deemed complete once acceptance is posted.
📌 Case Reference: Adams v. Lindsell [1818 KB]
The defendants offered to sell wool, requiring reply by post. Plaintiff accepted by posting a letter, which reached defendants after they had sold to a third party.
Held: Defendants liable in damages. Contract complete upon posting acceptance.
“If the defendants were not bound until receipt of acceptance, plaintiffs also should not be bound till defendants acknowledged receipt. This could go on ad infinitum.”
📌 Case Reference: Entores Ltd. v. Miles Far East Corporation [1955 QB]
For contracts made by instantaneous communication (e.g. telephone): contract is complete only when acceptance is received by the offeror.
Denning L.J. observed:
“When made by post, acceptance is complete as soon as letter is posted.
But in instantaneous communication, contract completes only when acceptance is received, at the place where it is received.”
📞 Telephone Conversations & Indian Context
The Indian Contract Act did not envisage telephone use at the time.
The issue: Should the postal rule exception apply to telephone contracts?
The Court held: Telephone is akin to being in presence of each other. Negotiations conclude by instantaneous communication. Hence, acceptance must be communicated to result in a valid contract.
✅ The Trial Court held: A part of the cause of action arose within Ahmedabad jurisdiction, where acceptance was communicated by telephone to the plaintiffs.
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💡 Frequently Asked Questions on Contracts
📍 Where is a contract considered complete under Indian law?
A contract is complete when acceptance of the offer is communicated to the offeror. In postal contracts, it is complete when the letter is posted. In instantaneous communications like telephone, it is complete when acceptance is received by the offeror.
📮 What is the postal rule in contract law?
The postal rule states that a contract is formed the moment the letter of acceptance is posted, not when it reaches the proposer. This ensures certainty in contracts formed by post.
📞 How is a contract by telephone different from a postal contract?
In telephone contracts, communication is instantaneous. Hence, acceptance must be actually received by the offeror for the contract to be valid, unlike postal contracts where posting is sufficient.
⚖️ Which court has jurisdiction in case of a contract breach?
The court within whose territorial jurisdiction the acceptance was communicated (e.g., Ahmedabad in this case) will have jurisdiction to hear the dispute.
📝 What does Section 4 of the Indian Contract Act state?
Section 4 clarifies when communication of acceptance and revocation is complete: as against the proposer, it is complete when acceptance is posted; as against the acceptor, it is complete when it reaches the proposer.
🌍 Does the Indian Contract Act apply to modern digital communication?
Though the Act was drafted before digital methods, courts apply the principle of instantaneous communication (like telephone) to emails, chats, and online contracts: acceptance is valid only when received.
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