⚖️ Case study 3 – Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas 1966 SC

In this case, a party at Ahmedabad made a proposal to buy cotton seed cakes to the other party at Khamgaon in Maharashtra. The proposal was made on telephone. It was accepted on telephone. A contract was thus formed between the two parties.

Genesis of the case

Girdharilal Parshottamdas, the proposer, the party at Ahmedabad commenced an action at Ahmedabad against the acceptor, the other party, Kedia Ginning Factory of Khamgaon- “the defendants” for a decree for Rs. 31,150 on the plea that the defendants had failed to supply cotton seed cake which they had agreed to supply under an oral contract negotiated between the parties by conversation on long distance telephone.

General Rule

Acceptance and intimation of acceptance are both necessary to result in a binding contract.

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 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.

Exception

But on this rule is engrafted an exception:

• based on grounds of convenience
• which has the merit not of logic or principle
• but of long acceptance by judicial decisions

📌 Facts in Adams 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.

✅ Decision

The contract was complete as soon as the letter of acceptance was put into transmission.

💡 Reasoning

If the defendants 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.

🏛️ Approval by House of Lords

The rule in Adams case was approved by the House of Lords in Dunlop v. Vincent Higgins [1848].

This exception to the general rule [requiring intimation of acceptance] may be summarized as follows:

• When, by agreement 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

📞 When contract is made through telephone

Entores Ltd v. Miles Far East Corporation 1955 QB

Queen’s Bench decision..

“When a contract is made by post, 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.”

“…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… The contract is made at the place where the acceptance is received.”

⚖️ Decision of Supreme Court in Bhagwandas case

In case of conversation by telephone: Parties being in a sense in the presence of each other, Communication of acceptance is a necessary part of the formation of contract, the exception to the rule imposed on grounds of commercial expediency is inapplicable.

🔄 Revocation when complete? – Section 4

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 power of the person who makes it
• as against the person to whom it is made:
  • when it comes to his knowledge

Illustration

A revokes his proposal by telegram:

• Revocation is complete
  • as against A: when the telegram is despatched
  • as against B: when B receives it

B revokes his acceptance by telegram:

• B’s revocation is complete
  • as against B: when the telegram is despatched
  • as against A: when it reaches him

⏳ Time of revocation of Proposals – Section 5

A proposal may be revoked any time before communication of its acceptance is complete against proposer but not afterwards.

Illustration

A proposes, by a letter sent by post to sell his house to B. B accepts the proposal by a letter sent by post.

A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance but not afterwards.

⏳ Time of revocation of acceptance

An acceptance may be revoked any time before communication of acceptance is complete against acceptor but not afterwards.

Illustration

B may revoke his acceptance at any time before or at the moment when the letter reaches A, but not afterwards.

✏️ Revocation how made – Section 6

A proposal is revoked:

• by communication of revocation by proposer to the other party..
• by lapse of time prescribed in the proposal for acceptance
  • If no time is prescribed: by lapse of a reasonable time without communication of acceptance
• by failure of acceptor to fulfil a condition precedent to acceptance
• by death or insanity of proposer
  • if the fact of death or insanity comes to knowledge of acceptor before acceptance