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Published : August 22, 2010 | Author : akshatasrinath
Category : Contracts laws | Total Views : 6043 | Unrated

  
akshatasrinath
Akshata Srinath, Law Student, Law School, Bangalore.
 

Hear- Say In Contracts: Communications Of Offers And Acceptances

Communication is the method in which any idea or thought can be communicated to another person. In contracts, it is through communication that a party can initiate an offer to which the other can either accept or simply reject, or can also place their offer. Section 3 and 4 of the Indian Contract Act, 1872 deals with the communication, acceptance and revocation of proposals and when the communication is complete respectively.

Communication can be of various types. An offer can be communicated orally or in written, discussed through telephones or even post. In return the acceptance can be made through the same mode or even through fax. Communication in a contract is an important aspect. As the technology grows and advances, even the method used to communicate will change and perhaps be more easy and clear. Communication plays an important role as the offer communicated must have an acceptance communicated back, then only it is said that a contract is made. If an offer is revoked then another offer is made it also has to be communicated and hence, acceptance of the 2nd offer leads to a contract.

I. Communication- Its Constitution And Types
Communication is defined as, “the expression or exchange of information by speech, writing, gestures or conduct, the process of bringing an idea to another perception; information to expressed or exchanged”. Communication is necessary to put forth the offer and acceptance. An acceptance must be communicated for it to be effective. This can be seen in the case of Felthouse v. Bindley,[ii] where this rule is applicable. But also sometimes acceptances need not to be communicated if the communication has been waived.[iii] In the case of Powell v. Lee,[iv] it was held that there was no official communication to the plaintiff by the committee therefore there was no contract. There also can be communication by the “postal rule”.[v]
An oral acceptance is communicated when the offeror hears and understands about the offer. For example A tells that I will pay $ 100 to C if she wears green shirt. Even if she does the act of wearing green she is not entitled of the money because it was not communicated to her. Now in this case the offer has to be communicated to C directly. Similarly, the communication of acceptance should also be communicated. Also there is prescribed method of acceptance which can be asked from the offeror. But there can be exception to this i.e. acceptance may be made by a different method until and unless it accomplishes the object of the prescribed method like speedy acceptance.[vi] It was said in one of the cases that the method of acceptance is valid and that this method was only to ensure the completion of the delivery that had happened.

Communication can be divided into two types i.e. oral communication and written communication. Oral communication can only occur when the offer and acceptance is done completely on the oral or verbal basis. For example: A tells B that he will sell B a pen costing Rs. 2, and B accepts the offer by paying him Rs. 2. A written communication happens only when the offeror and the offeree communicate the intention to offer or accept through a written form. For example: A mails a letter to B stating that he will sell the pen for Rs. 3 and B accepts the offer by writing back his acceptance. A written communication happens only when the offer and acceptance, both are in the written form, i.e. either through a mail or telefax. For example A writes a letter to B saying that he will sell the house to him for a decided sum of money. B accepts the offer by mailing him back saying that he is ready to pay the fixed price and buy the house.

Now oral communication can be further divided into two (1) personal communication and (2) telephonic conversation. A personal level communication can be done when the offeror and the offeree are sitting next to each other and hence communicating their offers and acceptances. For instance, A sitting at a coffee shop makes a proposal to B stating to sell the coffee shop owned by A to B, and therefore B accepts the same. In such types of communication, the offers and acceptances are made simultaneously while both the offeror and the offeree are sitting next to each other. In a telephonic type of oral communication, as the name suggests, the communication is completed through the telephone. For example, C calls up D and tells him that he will sell the book for Rs. 200 and D accepting it in the same telephonic conversation or accepting it some other time.

In a written communication, further subdivisions can be made into postal communication, fax or telefax and electronic mail. In a postal communication, offer is made through letters like, A writing letter to B for selling the house and B replying back through same mode for accepting it. In the same way, in fax or telefax offer and acceptance can be made. Electronic mail or e-mail is a latest and fastest form of system for communication where the mail reaches the offeror or the offeree in seconds provided they have a net facility and also an e-mail address in which the mails are send.

Instantaneous communications and non instantaneous communication: the types of communication can again be divided into instantaneous and non instantaneous. This classification is done according to their speed to propose an offer or accepting an offer. Telephonic conversation, fax, electronic mail, telex and oral communication can be said to be instantaneous form of communication whereas postal communication is said to be non instantaneous since it takes time in communicating the offer and acceptance.

II. Communications of Offers and Acceptances

“The communication of the proposal, or an acceptance, etc is made by an act which (1) is intended to communicate it; (2) has the effect of communicating it.”[vii] “An act or omission of the party proposing or accepting or revoking, as the case may be, would be communicated if, when objectively viewed from the position or view point of the addressee, would have the effect of communication.”[viii]

“In general an offer is effective when, and not until, it is communicated to the offeree”.[ix] It is very important that an offer must be communicated to the offeree by the offeror. Otherwise the offeree cannot accept even though knowledge of the offer has been indirectly acquired. Not only must the offer be communicated, but also it must be communicated by the offeror or the offeror’s direction.[x] In the case of the Carlill v. Carbolic Smoke Ball Company,[xi] it was held that the offer was a general one i.e. anyone buying and using the smoke ball will lead to acceptance of the offer made. Also the depositing of the money in the ball showed the intention of getting bound to the offer. Also in the case of Harvey v. Facey,[xii] it was said that there was no offer in the first place i.e. the defendants never agreed to sell the bumper hall pen, in none of the telegrams it was said “yes we will sell you bumper hall pens”. Therefore held that plaintiff’s second telegram did not amount to acceptance. [xiii]

In the case of Fisher v. Bell,[xiv] it was held that display of goods with the price tag attached to it is merely just an invitation to offer for the customers to make an offer to buy and not an offer.[xv] Also merely just having an offer and acceptance cannot lead to a contract; there should be an intention to create a legal relationship.[xvi] In Payne v. Cave,[xvii] it was said that in an auction, the auctioneer calls for bids which is an invitation to offer and making of the bid is the offer. Therefore before the auctioneer signifies acceptance by knocking down the hammer, the bidder is entitled to withdraw his or her offer. In the case of Karan Singh v. The Collector, Chhatarpur and Ors,

Mere acceptance of the petitioner's bid on the file by the Collector was not enough to convert the petitioner's bid into contract. It is well settled that the general rule is that it is the acceptance of offer by the offeree and intimation of that acceptance to the offeror which result in a contract. One of the exceptions to this general rule is that when by agreement, course of conduct 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.[xviii]
In another case the defendant offered to sell the farm house £ 1000 but the plaintiff refused to take it for £ 1000 but for £ 950. He refused to sell. On that plaintiff willingly wanted to buy it for £ 1000 but defendant refused. This did not amount to acceptance and hence no contract was made because there was a counter offer on the offer set the first place and then no acceptance.[xix]

Acceptance may be communicated either by words or by actions of the offeree. The acceptor has to in return do something to show the intention of acceptance. In case of Felthouse v Bindley,[xx] the court said that the intention should have been communicated to the defendant’s uncle or should have done something or the other to bind himself in a contract. The case also clearly tells that a person, who makes an offer to the other, cannot impose any sorts of bargain on the other just stating that silence indicates consent.[xxi] Regarding acceptance by silence, the § 69 of the American Restatement of Law of Contracts states that:

“Acceptance by silence or exercise of dominion (1) where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

1. where the offeree takes the benefit of the offered services with the reasonable opportunity to reject them and the reason to know that they were offered with the expectation of compensation;

2. where the offeror has stated or given the offeree the reason to understand that the assent may be manifested by silence or inaction, and the offeree in remaining silent or inactive intends to accept the offer;

3. where, because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.”[xxii]
Even in the § 3 of the Indian Contract Act, 1872[xxiii] states that communication should be done “by an act or omission of the party” giving rise to the offer or acceptance. The Unsolicited Goods and Services Acts 1971 and 1975, as amended by the Consumer Protection (Distance Selling) Regulations 2000, reinforces the common law principle that silence does not give an assent to the offer: “...the Acts are designed to counter a form of selling known as ‘inertia’ sales. Goods are dispatched to customers with a statement that if they are not wanted they should be returned, and that failure to return them within a specified period will be treated as acceptance. The Acts make demanding payment for such goods a criminal offence. After a period of thirty days, unsolicited goods may be kept by the recipient as though they were a gift if notice is given by the recipient or after six months if no notice is given...”[xxiv]

If X posts a letter to Y offering to sell his car for £1000 and simultaneously Y posts a letter offering to buy X’s car for £1000, can we call an agreement between the parties? The court decided that there was no contract.[xxv] It might be said that there is a consensus ad idem[xxvi] or meeting of minds but neither offer has been accepted

If the offeror makes an offer of a unilateral contract, communication of acceptance thus the act performed by the offeree with knowledge of offer, the said offer is accepted. If the contract is bilateral then the acceptance is not effective unless and until communicated. By an act the acceptance can be communicated as in the case of Felthouse v. Bindley,[xxvii] it can be said that there was an act of stopping the auctioneer from selling the horse did not amount to acceptance because his act of doing so was not communicated to the plaintiff.

As exception to the section 4 of the Indian Contract Act, the postal rule says that acceptance is made and the contract becomes binding when the accepter has put the mail in the transmission. The postal rule applies on only letters by post and telegrams[xxviii] which are basically non-instantaneous communication. For instantaneous communication the acceptance prevails only when the offeror has the knowledge about the offer and not binding if the acceptor has the knowledge of the acceptance as in postal rule[xxix].

when is communication of proposal and acceptance complete?
As § 4 of the Indian Contract Act, 1872[xxx] clearly states that communication of an offer can only be completed when ever it comes to the knowledge of the person it has been made. For example: A offers, by letter, to sell the horse to B at a given price. Here the communication of the offer or proposal is complete when B receives the letter. In the case of Lalman v. Gauri Dutt,[xxxi] Justice Banerji said, that there must be an acceptance of the offer stated hence making the knowledge of the offer important for acceptance. Therefore in communication of an offer, the knowledge of the offer has to communicated to the acceptor. Also in an Australian case R v. Clarke,[xxxii] it was held by the judge that even if the acceptor knows about the offer but completely forgets about it at the time of acceptance, he is in the same place as the person who has not al all heard about the offer. There was another case where it was said that when an offer is accepted with the knowledge of the reward, informer will get the reward even if he is influenced by other motives, these motives are basically immaterial. [xxxiii]
As the section states that acceptance for an offer is complete only when the acceptor has put it in the transmission i.e. it is out of his power or reach and when it comes to the knowledge of the proposer. And in instantaneous communication acceptance is complete only when the offeror has the knowledge of the acceptance. Example if A shouts his offer B accepts it by shouting back but due to over flying plane A doesn’t hear the acceptance it is the offeree that has to shout back the acceptance.[xxxiv] Similarly in a telephonic conversation, the acceptance is complete only when the offeror has the knowledge about it. [xxxv]

III. Jurisdiction of the court
It is the place of the acceptances, not the offer, which gives rises to the cause of action. That means it the place where the final agreement takes place, money is paid and the goods are supplied. Even if the offer is made from Bangalore, not even a part of the cause of action can be aroused from Bangalore.[xxxvi]

Contract through Post and Telegram
Where the contract came into force through post, the contract will only take place where acceptances have taken place. For example, in the case of American Pipe Co. v. State of Uttar Pradesh [xxxvii] it was said that just because the letter of acceptance was received in Calcutta, it did not mean that the court of Calcutta vested any jurisdiction to try out the case. When a contract is made by post, the acceptance becomes complete only when the letter is posted i.e. put in the letter box and hence making that place, the place of contract. The rule of the telegraph is the same as the case of the post letters that the acceptance is complete only when the telegram is given for dispatch to the telegraph office and hence the jurisdiction will lie of the place of acceptance [xxxviii].

Contract though Telephonic Conversation and Telefax
In a telephonic conversation the parties are opposite to each other and hence, sense the presence of each other. When a contract is made through telephone, the completion of the contract takes place only when, (1) the acceptance is received by the offeror, (2) the contract is concluded at the place where the acceptance is received.[xxxix] The place of the contract is made is the place of the acceptance received [xl] and also will be the same for telex or telefax. [xli]

Conclusion
To conclude, it is clear that offer and acceptance has to be communicated to the offeree and offeror respectively. In a unilateral contract the offer is made generally to all and the acceptance is made when the procedure in the offer is followed in the prescribed manner. In bilateral contracts, both offer and acceptance should be communicated i.e. confirmed with the offeror and offeree and therefore should come in the knowledge whether an offer or acceptance has been made. The postal acceptance rule only applies to the non-instantaneous communication i.e. the postal letters and the telegrams. Therefore here the acceptance is made when the acceptor has mailed the letter or in the way of transmission. The postal rule doesn’t apply to the instantaneous communication. Therefore the acceptance is complete only when (against the acceptor) when it reaches the offeror. Also an act done by an acceptor can signify acceptance to the offer made and silence doesn’t amount to acceptance.
--------------------------------------------------------------------------------
Black’s Law Dictionary (8th ed. 2004)

[ii] 31 L.J.C.P. 204, (1862) 11 C.B. (N.S.) 869; (1862) 142 E.R. 1037. (The plaintiff offered to buy a horse from his nephew for £30.15s. He had added in the letter that if he (plaintiff) got no reply from him, he shall consider the horse is sold to him at £30.15s. The defendant instead of writing back to his uncle writes to the auctioneer (defendant) stating not to sell the horse and reserve it. But the defendant sold the horse).

[iii] See Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256.

[iv] 1908 24 TLR 606. (Powell and Parker applied for the post of the headmaster of a school. So the committee decided that Powell will take the post and was told to Dismore by Lee to communicate it to Parker that he was not selected. But Dismore on the personal capacity congratulated Powell. But the next day the committee changed their idea. Powell sued Lee). See also Taylor v. Laird 25 L.J. Ex. 329 (where Taylor was in the job of commanding Laird’s ship. During voyage, the plaintiff decided to give up the command but still helped to bring back the ship home. He demanded wages for his services. It was held that Laird had no opportunity for the acceptance and rejection of the offer made by Taylor for working for the ship to the port and therefore defendant was not bound to pay).

[v] See Adams v. Lindsell (1818) 1 B. & Ald. 681; (1818) 106 E.R. 250. (The defendant wrote to the plaintiff offering to sell goods and asked to reply for post on 2nd September. On 5th September the plaintiff received the letter and sends the letter of acceptance. But it only received on 9th to the defendant as the goods were already sold on 8th). See also infra note 33.

[vi] See generally Tinn v. Hoffman (1873) 29 LT 271, (acceptance was requested to be done by post of the offer made. The judge said that it did not mean exclusive reply by letter or return of the post but reply can be send through telegraph or verbal message or an act but not latter than the time taken by the return of the post) [Hereinafter Tinn]. See also Yates co. v. Pulleyn ltd. (1975) 119 SJ 370.(where the defendant offered plaintiff to buy a piece of land; to notify by registered or recorded delivery post, but the plaintiff accepted through normal post and the defendants refused to sell land).

[vii] Pollock & Mulla, Indian Contract and Specific Relief Acts 150 (R.G. Padia ed., Lexis Nexis Butterworths 13th edition Volume I 2006).

[viii] Id.

[ix] J. Beatson, Anson’s Law of Contract (Oxford University Press 28th edition).

[x] Dr. Mustafa CAN, Contracts in the Turkish Law, available at http://turkaydanismanlik.com/en/docs/CONTRACTS_IN_THE_TURKISH LAW.pdf

[xi] Supra note 3. See also Har Bhajan Lal v. Harcharan Lal, AIR 1925 All 539. (A boy had run away from his house and father had issued handbills stating, “anybody who finds trace the boy, brings him home will get Rs. 500.” The plaintiff saw the boy near railway station. Therefore brings him to railway police station and then telegraphs the boy’s father. The father did not give the reward to the plaintiff. The court held that because the plaintiff had performed the condition and was entitled to the reward).

[xii] [1893] AC 552. (The plaintiff sent a telegram to defendant, “will you sell bumper hall pens? Telegraph lowest cash price.” It was replied lowest price £ 900. The plaintiff telegraphed saying agree to buy it for the price stated. But the defendants refused to sell it).

[xiii] See also Philip and co. v. Knoblanch (1907) S.C. 994. (A merchant wrote to the oil millers “offering today plate linseed for January-February shipment to Leith and have pleasure of quoting 100 tons at usual plate terms. Shall be waiting to hear if you buy”. Next day oil miller telegraphed saying accepted and confirmed it by letter. It was held that the merchant had a made an offer and not just quoted the price and hence the contract was concluded through a telegraph).

[xiv] [1968] 3 All ER 731. (A shopkeeper displayed a flick knife with the price tag in the window. The Restriction of Offensive Weapons Act 1959 made it an offence for the sale. At the magistrate level the shopkeeper was prosecuted. But the Court said that it is invitation to offer and not just offer).

[xv] See Pharmaceutical Society of Great Britain v. Boots Cash Chemist [1953] 1 QB 401. (The question aroused was whether the sale of certain drugs should be done under the supervision of registered pharmacist. The answer to this was affirmative. The customer can offer to buy the goods and the shopkeepers can then accept or reject it. A contract can only be complete when this happens). See also Lefkowitz v. Great Minneapolis Surplus Stores, 86 NW 2d 689 (1957) (where it was held that displays of goods in supermarkets are similarly constructed as invitations to offer).

[xvi] See Kalai Haldar v. Sheik, 23 W.R. 217. (The plaintiff sues the defendant when he failed to come to the family dinner after he had accepted the invitation. But the court ruled out saying that this offer and acceptance did not lead to a contract or intention of a legal relationship).

[xvii] (1789) 3 Term Rep 146. (The defendant made the highest bid for the plaintiff’s goods but withdrew out before the fall of the hammer). See also § 57(2) of Sales of Goods Act, 1979 (which states, “A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid.”).

[xviii] AIR 1980 MP 89. (The quarry lease was first auctioned on 27th February 1973. In this case Bhupat Singh was highest bidder. The quarry lease was reauctioned on 18th April, 1973. The petitioner's bid of Rs. 1,800 was the highest bid and so he deposited Rs. 540 as security and earnest money in accordance with the auction conditions. The bid was, however not accepted at the time of auction as in the first case. Then the bid was accepted by the Collector on the file but instead of communicating the acceptance to the petitioner, the intimation of acceptance was sent to Bhupat Singh who was the highest bidder in the first auction. The officer concerned realised the mistake after the expiry of the lease, But instead of returning the amount deposited by the petitioner to him, a demand notice for realising the lease money was issued to petitioner).

[xix] Hyde v. Wrench, 5 Bear. 334.

[xx] Supra note 2.

[xxi]Dr Robert N Moles, Contract Law lecture Acceptance and Unilateral Contracts, available at http://netk.net.au/Contract/03Acceptance.asp
[xxii]Explanatory note on proposed consumer protection (unfair trading) (Opt out practices) Regulations, available at, http://app.reach.gov.sg/Data/adm05c2p4583Explanatory Note - CPFT (Opt-Out Practices) Regulations.pdf. See also Michael Furmston, Cheshire, Fifoot and Furmston’s Law of Contract 62 (Oxford University Press ed. 15th ed., 2007).

[xxiii] See § 3 of the Indian Contract Act, 1872. (“Communication, acceptance and revocation of proposals. -The communications of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, 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 has the effect of communicating it.”).

[xxiv] Review: Law of Contract – Offer and Acceptance, available at http://www.sprconsilio.com/contractreview2.pdf

[xxv] Tinn, Supra note 6.

[xxvi] Supra note 1. (It is an agreement of parties to do the same things; meeting of minds).

[xxvii] Supra note 19.

[xxviii] Supra note 25. See also Henthrone v. Fraser [1891] All ER Rep 908.

[xxix] Supra note 25.

[xxx] “4. Communication when complete. -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...............”

[xxxi] (1913) 11 All LJ 489 at p. 492. (The defendant’s nephew absconded from home and therefore sends his servant to find the boy. After the servant left, the defendant announced by handbills ready to pay Rs. 501 to anyone who gets his nephew. The servant came to know about it only when he traced out the nephew who was missing. He brought an action to get his money or the reward but this failed).

[xxxii] (1927) 40 CLR 227. (The Australian government offered reward of £ 1000 to anyone giving information about the murderers. The offer also added that if any accomplice, not being the murderer himself, will get free pardon. The plaintiff saw the offer and being the accomplice, hoped for pardon, gave the information to save him while completely forgetting about reward. He fills a suit for recovering the reward). See also Fitch v. Snedkar, (1868) 38 NY 248.

[xxxiii] See generally Williams v. Carwardine (1833) 2 LJKB 101. (The defendant offered a reward for anyone who gives information about the murderer. The plaintiff knew about the reward and therefore gave the information and also to ease her conscience)

[xxxiv] Entores ltd. v. Miles Far East Corporation (1955) 2 All ER 493.

[xxxv] See Sadhana Arun Kothari, Aayush Arun Kothari and Arvind Son of Ganpatlal Kothari v. Mrs. Raj Bhalla wife of Shri D.N. Bhalla, 2007(4) Bom CR 61. (It was held that the agreement arrived at in the course of telephonic conversation stands concluded at the place of communication of the acceptance to the plaintiff by the defendant is well settled).

[xxxvi] Republic Medico Surgical Co. v. Union of India , AIR 1980 Kant 168.

[xxxvii] AIR 1983 Cal 186.

[xxxviii] Bhagwandas Raj Kedia v. Gitdharilal Parshottamdas, AIR 1966 SC 543. (There was an oral contract dated July 22, 1959. The defendants offered to sell cotton seed cakes to the plaintiff and the acceptance rook place in Ahmedabad. 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 of Ahmedabad) [Hereinafter Kedia]. See also Tinn supra note 29.

[xxxix] Kedia supra note 38. See also supra note 34.

[xl] Firm Kanhaiyalal v. Dineshchandra AIR 1959 MP 234. (The plaintiff made an offer to defendant on phone for the sale of five wagons of Makka at a certain rate that the goods were to be delivered at Asarwa and that subsequently the defendant failed to deliver the goods. The plaintiff further pleaded that the contract was concluded in Ratlam and the payment in respect of the goods was also to be made in Ratlam therefore, the Ratlam Court had jurisdiction to try the suit. According to the defendant, the offer was made by the plaintiff himself on phone that the offer was accepted by the firm in Ramganj and the payment was also to be made in Ramganj and that, therefore, the Ratlam Court had no jurisdiction to entertain the suit).

[xli] Supra note 34.

Authors contact info - articles The  author can be reached at: akshatasrinath@legalserviceindia.com




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