NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

LAW OF CONTRACTS – I

COMMUNICATION OF ACCEPTANCE BY INSTANTANEOUS MODES

SUBMITTED BY: SUBMITTED TO:

SAKET KUMAR RAO NEHA SHARMA

ROLL NO. – 2017BALLB79 Assistant Professor

 ACKNOWLEDGEMENT

I take this opportunity to express a deep sense of gratitude to The National Law Institute
University (NLIU) for providing me with this excellent opportunity to make this project.

I extend my sincere thanks to everybody who helped with the completion of this project. I am
greatly obliged to our teacher for Law of Contract-I, Asst. Prof. Neha Sharma for her
exemplary guidance, monitoring and constant encouragement throughout the course of this
project. The blessing, help and guidance given by her from time to time shall carry us a long
way in the journey of life on which we are about to embark. I am also thankful to the Library
Administration for the provision of necessary books and texts needed for the completion of
this project. Finally, I would like to thank my seniors and friends for their support.
 REVIEW OF LITERATURE

 Mulla The Indian Contract Act in my view still stands as the classic textbook on
contract law and continues to provide clarity on what is an increasingly complex subject.
Corresponding developments in English law have also been discussed and thoroughly
analysed. Anyone involved with the law of contract can turn to Mulla secure in the
knowledge that it covers all the key areas of law by way of a detailed and in-depth
analysis.

 Contract and Specific Relief - Dr. Avtar Singh is according to me an authoritative and
most sought after book on the subject. The book deals with the intricacies of contract law
in a straightforward and lucid style. The book covers many new developing areas in
contract law which are of practical and academic importance. In my view

 Jill Poole's Textbook on Contract Law remains the foremost student text on contract
law. It is the perfect text for students undertaking contract law study for the first time and
also for continuing students as a point of reference. Poole has always proved dependable,
providing reasonable depth and breadth within a confined package. The subject is
introduced and developed in an authoritative yet accessible style. Students find the text
engaging and are encouraged to go further.
 TABLE OF CONTENTS

1. REVIEW OF LITERATURE .............................................................................................. 3

2. INTRODUCTION ............................................................................................................... 5
2.1. Section 4 of The Indian Contract Act, 1872 ................................................................. 7
2.2. Difference between Indian law and English Law ......................................................... 7
3. INSTANTANEOUS MODES OF COMMUNICATION ................................................... 8
3.1. Two way instantaneous................................................................................................. 8
3.2. One way instantaneous ................................................................................................. 8
4. CONTRACT THROUGH EMAIL .................................................................................... 10
5. ENTORES LTD V MILES FAR EAST CORPORATION [1955] 2 All ER 493 ............. 12
6. BHAGWANDAS GOVERDHANDAS KEDIA V. GIRDHARILAL
PARSHOTTAMDAS AND CO. AND ORS. AIR 1966 SC 543 ..................................... 14
7. DOMINO’S PIZZA OVERSEAS FRANCHISING B.V. AND ORS. Vs. STATE OF U.P.
AND ORS 2016 (11) ADJ 202 .......................................................................................... 15
8. CONCLUSION .................................................................................................................. 16
9. BIBLIOGRAPHY .............................................................................................................. 17
 INTRODUCTION

The first essential of a valid acceptance is that the acceptance must be communicated and
soon as the communication of acceptance is complete, a contract comes into being, whereby
the parties are bound to perform their contractual obligations.

Two practical problems are posed by the communication requirement:

 Timing: When there is a time lag between the sending and the receiving of the
acceptance, should the offeror’s revocation or the offeree’s rejection of the offer
which is communicated in the intervening period be effective.
 Failure of communication: Where the acceptance fails to reach the offeror
without either party’s fault, who bears the risk for this miscommunication?

The answer to these questions have traditionally depended on whether the method of
communicating the acceptance is classified as instantaneous or postal:

 Where it is instantaneous (as by telephone), acceptance takes effect when and

where it actually comes to the offeror’s attention; the offer can be rejected or
revoked before that time.
 Where it is postal, acceptance takes effect when the letter is posted; the offer
cannot be rejected or revoked between then and when it actually comes to the
offeror’s attention.

As a general rule, an acceptance has no effect unless and until it is communicated to the
offeror. This means that the fact of the acceptance must be brought to the notice of the
offeror.1 If the words of acceptance are ‘drowned by an aircraft flying overhead’, or spoken
into a telephone which has gone dead, there is no contract. The reason for this rule is that it
might be unjust to the offeror to hold him bound if he did not know that his offer had been
accepted. On the other hand, no injustice is normally caused to the offeree by holding that
there is no contract.

1
Brogden v Metropolitan Rly [1877] 2 App Cas 666
 In the cases put, he knows at once that there has been a failure of
communication, so that he can take steps to retrieve the situation by making a second attempt
to communicate the acceptance. For the purpose of the present rule, the acceptance need not
be communicated to the offeror personally. It is sufficient to communicate it to an agent
authorized to receive it, such as a company’s senior official. Obviously, leaving a message
with a porter would not be sufficient.

There are three exceptions to the general rule that an acceptance must actually be
communicated. The first is that there may be a contract when the failure in communication is
in some sense due to the fault, or at any rate to the act or omission, of the offeror himself.2
This would be the position if the offeror did not hear words of acceptance spoken into a
telephone simply because, at the crucial point, he had put the telephone down without telling
the about that he was doing this.

The second exception arise where the terms of the offer expressly, or by implication, dispense
with communication of acceptance. This is often the position where the offer invites
acceptance by conduct. For example, the contract which arises between the issuer of a credit
card and a retailer to whom the card is presented by a customer is made when the retailer
deals with the customer, even though the retailer has not at this stage communicated with the
issuer of the card.3 And where goods are ordered from a supplier, it may be that the offer to
buy can be accepted by simply despatching the goods.4 The third exception related to
acceptances sent through the post. This is a complex subject calling for separate treatment.

The acceptance of an offer can be accompanied by more or less obvious additional terms or
can be motivated by a different understanding of offered terms.

When the parties are present at the same place, both the parties become bound by the
contract. The problem arises when the parties are at different places and offer and acceptance
takes place by the parties.

2
Entores Ltd v Miles Far East Corporation [1955] 2QB 327
3
First Sport Ltd v Barclays Bankplc [1993] 3 All ER 789
4
The Kurnia Dewi [1997] 1 Lloyd’s Rep 553
Section 4 of The Indian Contract Act, 1872
Section 4 of The Indian Contract Act, 1872, explains the following rules as to when the
communication of acceptance is complete:

1. The communication of acceptance is complete as against the proposer, when it is

put in the course of transmission to him so as to be out of the power of the
acceptor.
2. The communication of acceptance is complete as against the acceptor, when it
comes to knowledge of the proposer.

Illustrations

(a) A proposes, by letter, to sell a house to B at a certain price." The communication of the
proposal is complete when B receives the letter. The communication of the proposal is
complete when B receives the letter."

(b) B accepts A’s proposal by a letter sent by post." The communication of the acceptance is
complete, "as against A when the letter is posted; as against A when the letter is posted;" as
against B, when the letter is received by A. as against B, when the letter is received by A."

Section 4 which deals with communication of acceptance does not make a mention whether
these provisions relate to communication made to with the help of telephone, telex and email.

Difference between Indian law and English Law

The English law says that the communication of acceptance is complete when it comes to the
knowledge of the proposer. The proposer and the acceptor are bound when the letter of
acceptance is posted. The Indian law in Section 4 of Indian Contract Act, 1872 makes the
proposer and the acceptor separately by explicitly mentioning it in the Section. It says that the
proposer is bound by the acceptance when the acceptor posts the acceptance and the acceptor
is bound only when the letter reaches the proposer. This can help us to understand the
concept of revocation of acceptance as the acceptor can revoke his acceptance before the
acceptance reaches the proposer.
 INSTANTANEOUS MODES OF COMMUNICATION

With the development of Information and Communication Technology (ICT), here came new
and faster modes of communication, such as telephones (land lines and mobiles), fax, telex
and email. Such methods have made the globe look like one village, enabling instant delivery
of voice and data (text) communication.

Generally, instantaneous forms of communication do not fall under the mailbox rule.
Acceptance by these methods is, therefore, only valid when the message is received.
Reasoning with instantaneous communication is that people should consider the situation as
if the parties are in each other’s presence.

Two way instantaneous

Brinkibon Limited v. Stahag Stahl Und Stahlwarenhandels GmbH5 held that in cases
instantaneous communication (specifically face-to-face conversion, and telephone)
acceptance takes effect when and where it is actually brought to the attention of the offeror.
Unlike the post (which is non-instantaneous), the assumption with instantaneous methods of
communication is that both parties are present; there is no time lag between the sending and
receiving of acceptance and any failure of communication is usually detectable and rectifiable
immediately.

Where the latter is not the case, fault determines; if the offeree should have detected and
rectified the communication failure, his acceptance is ineffective (there is no contract). If the
offeror should have detected and rectified the communication failure, the offeree’s
acceptance is effective (a valid contract is concluded).

One way instantaneous

In Brinkibon v. Stahag Stahl, Lord Wilberforce accepted the rule on instantaneous
communication ‘where the condition of simultaneity is met’. This allows the distinction to be
made between two-way instantaneous communications ‘where the condition of simultaneity

5
[1982] 1 All ER 293
is met’ (the telephone, face-to-face conversation), and one-way instantaneous
communications where the condition of simultaneity is not met. The latter include e-mails,
text messaging, answer-phone messages, faxes or telexes6, the message arrives almost
instantaneously, but the recipient is not necessarily at the other end to receive the message.
For example, an email is sent accepting an offer; it arrives almost instantaneously, but may
not be accessed by the offeror until a later time. When does the acceptance take effect? A
flexible approach is required. As Lord Wilberforce said, ‘No universal rule can cover all such
cases, they must resolved by reference to the intention of the parties, by sound business
practice and in some cases by a judgement where the risks should lie.

Three possibilities can be mooted:

(i) Acceptance takes place when it is sent. This is unreasonable to the offeror since he
may not know of it at that time.
(ii) Acceptance takes place when it actually comes to the offeror’s notice. This is
unreasonable to the offeree because the offeree because the offeror may try to revoke
his offer without reading the acceptance at all or only after an unreasonable delay. It
gives the offeror too much control over whether and when the contract is concluded
and is an incentive to behave badly.
(iii) Acceptance takes place when in a circumstances a reasonable offeror would access
the message received. This allows a court to balance the parties’ respective interests
on a case-by-case basis. Tenax SS Co Ltd v. The Brimnes7 is instructive. In
determining when a revocation of offer by telex was communicated, the Court of
Appeal held that, if the telex was sent to a place of business during ordinary business
hours, the revocation was effective when it was received on the telex machine, even
if it remained by any particular person.
This implies that a different result may follow if the result was sent out of office
hours or to non-business premises. If the mode of acceptance is permitted or invited
by the offeror, the offeror should be expected to act reasonably by regularly checking
the technology put into use (unless he indicates when he is otherwise likely to access
any messages left). This standard of reasonableness should also apply to acceptances
made by post where the postal acceptance rule is inapplicable.

6
Although the telex is classified as an instantaneous method of communication in Brinkibon, it is distinguishable from telephones and
face-to-face conversations in that both the parties are not necessarily present when the telex is used.
7
[1974] 3 All ER 88
 CONTRACT THROUGH EMAIL

As time has progressed the courts have had to decide whether to the scope of the postal rule
can be extended to modern developments in communication, namely instantaneous
communication. As electronic methods have progressed, the dispatch and receipt of a message
tends to coincide and any law that dealt with the delay between the two, such as the postal
rule, seems to be rendered useless or obsolete. It has been held that a telephone conversation is
the same as a conversation that is held between two people in the same room so the ‘receipt’
rule applies, this means that the offeror has to receive communication of acceptance before a
contract has been established, this is obviously different to the postal rule in the fact that
receipt has to be acknowledged by the offeror. However, there are some instances where the
dispatch doesn’t automatically mean acceptance has been communicated.

Though e-mail communication has some of the trappings of instantaneous communication,

nevertheless, it is a fragmented process involving many stages. The e-mail message is split
into various packets and sent via different routes. Further, unlike in instantaneous forms of
communication, the sender does not know if the transmission of the e-mail is successful, for
even though he gets a delivery receipt, it only signals delivery to the mailbox and does not
indicate that the other party has the knowledge of the receipt. Thus, e-mail messages would
come under the category of non-instantaneous form of communication. The default rules
enunciated above would apply to e-mail contracts.

Consequently, for an e-mail to “reach” the addressee, it is enough for the e-mail to enter the
addressee’s server. It is not important if the addressee has actually read it, or maybe even
could not read it due to technical problems, as it is within the addressee’s “sphere of
influence” to provide for adequate means to ensure that his internal communication functions
satisfactorily.

Contracts concluded through electronic modes is a subject which has been touched upon in
detail by western courts, but Indian courts have not had a clarity of opinion on this matter.

The Supreme Court in Trimex v Vedanta held that there was a contract between
Trimex and Vedanta when the email accepting the proposal of Trimex was complete,
 and a contract was formed when the said email was opened by the personnel of
Trimex.

In Thomas v BPE Solicitors,8 in obiter comments, Blair J. agreed, considering that where
contracts are made by exchange of email, the receipt rule applies. Responsibility for getting
the message through to its destination should lie with communicator.

Position in England

In Lindsay v O’Loughnane9 (2010) the judge suggested that an email needs to ‘include a
written indication of who is sending the email’. The more prevalent view, however, is that
there must be some voluntary intention to add the signature. The cases suggest that the courts
will interpret sufficiency of electronic signatures in the light of what the ordinary email user
would consider to be a signature – such as signing off with a name, title or informally with a
forename.

8
[2010] All ER (D) 306
9
[2010] All ER (D) 200
 ENTORES LTD V MILES FAR EAST CORPORATION [1955] 2 All ER 493

Brief Facts of the Case

The plaintiffs were a London company and the defendants were an American corporation
with agents in Amsterdam. Both the plaintiffs and the defendant’s agents in Amsterdam had
equipment known as ‘Telex Service’ whereby messages could be despatched by the tele
printer operated like a type writer in one country and almost instantaneously received and
typed in another. By this instrument the plaintiffs made an offer to the defendants’ agents to
buy goods from them, and the latter accepted the offer. The plaintiffs now alleged that the
defendants had broken their contract and wished to serve a writ upon them. This they could
do, although the defendants were an American corporation with no branch in England,
provided that the contract was made in England.

Concept of the Case

Communications by Telex are comparatively new. Each company has a tele printer machine
in its office; and each has a Telex number like a telephone number. When one company
wishes to send a message to the other, it gets the Post Office to connect up the machines.
Then a clerk at one end taps the message on to his machine just as if it were a typewriter and
it is instantaneously passed to the machine at the other end which automatically types the
message on to paper at that end.
In a telex, the parties connect to each other by dialing the telex number. The message typed at
one end is instantaneously printed on the paper at the other end. Thus, the parties can interact
with each other at the same time and generate a record of communication.

Judgement
It was held that in case of communications through telephone or telex, the contract is
complete only after the message of acceptance has been received by the acceptor, and
therefore, the contract in this case was deemed to have been made in England. The plaintiff’s
action was thus entertained.
“The rule about instantaneous communication between the parties”, observed Denning L.J.,
“is different form 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.”10

Emphasizing that the contract in the case of communication through telephone and telex is
complete only after the message of acceptance has been received by the offeror, Denning L.J.
observed11 :
“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. The other man may not know the precise moment when the line failed.
But he will know that the telephone conversation was abruptly broken off: because
people usually say something to signify the end of the conversation. If he wishes to
make a contract, he must therefore get through again so as to make sure that I heard.
Suppose next that the line does not go dead, but it is nevertheless so Indistinct that I do
not catch what he says and I ask him to repeat it. He then repeats it and I hear his
acceptance. The contract is made, not on the first time when I do not hear, but only the
second time when I do hear. If he does not repeat it, there is no contract. The contract
is only complete when I have his answer accepting the offer.”

Critical Analysis
The ratio that is the binding principle of the Entores case is that where the communication is
interactive and spontaneous, whether face-to-face or through telephone or telex, the ordinary
rule that the offeror must receive the acceptance would apply. The postal rule would apply
only in cases where post is used. Email is like a letter delivered to the other party. Thus, the
postal rule would apply to communication by email. The House of Lords approved the
position of Entores case decades later in Brinkibon Limited v. Stahag Stahl and
Stahlwarenhandelsgesellchaft mbH. Bhagwandas Goverdhandas Kedia v. Girdharilal
Parshottamdas and Co. case came before the Supreme Court of India to decide the place of
formation of contract when the parties communicate on phone.

10
Id., 333-334
11
Id, 332-333
 BHAGWANDAS GOVERDHANDAS KEDIA V. GIRDHARILAL
PARSHOTTAMDAS AND CO. AND ORS. AIR 1966 SC 543

Brief Facts of the Case

Plaintiff offered to get certain goods supplied at Ahmedabad to defendants who accepted the
offer at Khamgaon. On defendants’ failure to supply requisite goods, plaintiff sued them at
Ahmedabad. Dispute arose as to where was contract formed- at Khamgaon where acceptance
was given by defendants or at Ahmedabad where acceptance was received by plaintiffs.
Defendants contended that according to the section 2, 3 and 4 of ICA, the place where the
offer is accepted is the place where the contract is made and therefore Ahmedabad trial court
did not have the jurisdiction to try the suit.

Judgement

The court held that in case of telephonic conversation, the rule of a contract through post did
not apply to such contracts. In case of acceptance sent by post, the contract is concluded
when the letter of acceptance is posted, whereas in the case of acceptance by phone, the
contract is deemed to be complete when the offeror hears the acceptance at his end rather
than when the acceptor speaks the words of acceptance. It was held that the contract was
made at Ahmedabad where the acceptance was communicated and part of cause of action for
an action for the breach of contract in this case had arisen within the jurisdiction of
Ahmedabad court.

Explaining the nature of contract entered into on phone, the apex Court observed12 :

“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 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.”

12
Ibid, at 549
Critical Analysis

The ratio of the case is that when the parties make a contract on the phone, their position is
same as if they are in front of each other. It is hence important that the communication of
offer and acceptance should be clear and brought to the notice of the other. The
communication of acceptance is complete when the acceptance is received by the offeror.
The above proposition can be explained with the help of an illustration: Suppose a person
makes an offer an offer to a person on telephone of while he conveys the offer, the line goes
dead or the other party could not hear the offer, the offer has not been communicated.
Another instance where the offeree gives his acceptance on the phone but the offeror does not
receive the acceptance due to some noises outside, the communication of acceptance has not
taken place. Thus, communication of acceptance is complete only when the offeror receives
the acceptance and this is basically the ratio of the case.

DOMINO’S PIZZA OVERSEAS FRANCHISING B.V. AND ORS. Vs. STATE OF U.P.
AND ORS 2016 (11) ADJ 202

In this the court has referred to the judgment in Bhagwandas v. Girdharilal13 and said that it is
acceptance of offer and intimation of that acceptance which results in a contract. The court
held that by intimating an offer when the parties are not in presence of each other, the offeror
is deemed to be making offer continuously till the offer reaches the offeree. The offeror
thereby merely intimates his intention to enter into a contract on the terms of offer. Offeror
cannot impose upon the offeree, an obligation to accept, nor proclaim that silence of offeree
shall be deemed consent. A contract being the result of an offer made by one party and
acceptance of that very offer by other, acceptance of offer and intimation of acceptance by
some external manifestation which the law regards as sufficient, is necessary.

13
AIR 1966 SC 543
 CONCLUSION

The instantaneous modes of communication are today the modes through which people enter
into contracts. It is thus important for us to have a clear understanding of the position on
communication of acceptance through these modes. In case of telex/fax and telephones, the
communication of acceptance is complete when it is brought to the knowledge of the offeror.
The contracts through emails have a receipt rule to understand when the communication of
acceptance is complete. Generally, the position in emails is same as that of postal rule and the
communication of acceptance is complete when it is received by the offeror. In the Indian
context, the law separately makes the offeror and the offeree bound which is different from
the English law.
 BIBLIOGRAPHY

Websites
 racolblegal.com
 www.contractflooringjournal.co.uk
 https://parissmith.co.uk

Books
 Textbook on Contract Law 12th Edition - Jill Poole
 Contract Law - Mindy Chen-Wishart
 The Modern Law of Contract 8th Edition – Richard Stone
 Law of Contract 15th Edition - M.P. Furmston
 Casebook on Contract Law 12th Edition – Jill Poole
 Contract and Specific Relief 12th Edition - Dr. Avtar Singh
 Mulla’s Indian Contract Act 15th Edition Anirudh Wadhwa