Contra proferentem
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This article has been written by Mohd Aman Khan Afghani, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. This article has been edited by Prashant Baviskar (Associate, Lawsikho) and Smriti Katiyar ( Associate, Lawsikho). 

Introduction

Starting with Section 2(b) of the Indian Contract Act, 1872; which talks about the acceptance of contract, according to which when the proposal is made to any person and that person signifies his assent back then that proposal is said to be accepted and that accepted proposal becomes a promise. Section 2(b) of the Contract Act, 1862 lays emphasis on the importance of communication of acceptance. Communication of acceptance is very important as without that, the agreement cannot be said to be made. Communication of acceptance can be made by various modes, i.e. by post, through a letter, through phone, etc. The rule of communication of acceptance is different when it is made through telephone or through any instant mode and it is different when it is made through the post. In the case of communications through post, an acceptance is complete when that post is put in the box and in the case of communication, through the phone. The communication of acceptance is complete when the acceptance is received by the person who has made the offer and the contract is said to be made. The law for the place of formation of contract which is made through telephonic conversation was laid down in Bhagwandas Goverdhan Das Kedia vs. Girdharilal Pashottam Das & Co. Here, in this article, the after effects of the above case law shall be discussed.

Statement of the facts of Bhagwandas Goverdhan Das Kedia vs. Girdharilal Parshottamdas & co.

M/S Girdharilal Parshottam Das & Company (“Plaintiffs”) has initiated an action against Kedia Ginning Factory Oil Mills of Khamgaon (“Defendants”) in the City Civil Court of Ahmedabad for a decree of Rs. 31,150/- and the Plaintiffs have taken the plea that the Defendants had failed to supply the cottonseed cake which they are supposed to supply by an oral contract between them dated 22.07.1959, made via a telephone call. In this case, the Plaintiff had contended that the Cause of Action had arisen in Ahmedabad as the offer of the Defendants was accepted by the Plaintiffs in Ahmedabad and also because the Defendants were supposed to supply the aforesaid goods in Ahmedabad, and because the Defendants were supposed to receive the payment for the goods which were to be supplied through a Bank situated in Ahmedabad. On the other hand, the Defendants contended that the Plaintiffs had, through telephone, communicated to purchase the cottonseed cake and the Defendants had accepted that offer in Khamgaon and also the delivery of goods had to be made at Khamgaon. The Defendants had also contended that the price for the supply of goods has to be paid at Khamgaon and therefore no part of the cause of action has arisen in Ahmedabad under the territorial jurisdiction of City Civil Court of Ahmedabad.

Procedural history

That on the issue of jurisdiction, the Trial Court’s findings were that the Plaintiff’s offer to the Defendants was made from Ahmedabad and that was made by a long-distance telephone to supply cottonseed cake and the offer was accepted by the Defendants in Khamgaon, that even the goods to be supplied under the contract were to be delivered at Khamgaon and the payment was also supposed to be made at Khamgaon. The court was of the view that the contract was to be performed at Khamgaon. The court held that in case of a contract which is made through Telephone, the place where the acceptance of the offer was communicated to the person, who had made the offer, is said to be the place where the contract is made and therefore the City Civil Court of Ahmedabad had the jurisdiction. After that, the Defendants filed a Revision Application against the Order of the City Civil Court which was rejected by the High Court of Gujarat. Then, the Appeal was preferred against the Order of the Gujarat High Court by way of Special Leave in the Supreme Court.

Contention of the parties in the case

In the above case, the Plaintiffs had contended that the making of an offer is part of the cause of action and that the court would have the jurisdiction under whose territorial jurisdiction the offer was made by the offeror, which after its acceptance had become a contract. Plaintiff had also contended that the communication of acceptance of the offer is an essential part of the contract formation and the contract is said to be made at the place where the communication of acceptance has been received by the offeror. On the other hand, the Defendants contended that in the cases where the contract is made through a conversation on the telephone, the place where the offer made by the offeror is accepted can be said to be the place where the contract is made or the place of contract and the court under whose territorial Jurisdiction that place comes had the jurisdiction.

Judgment

The Supreme Court held that the making of an offer at a place that has been accepted elsewhere does not form a part of the cause of action in a suit for breach of contract or in a suit for damages. It was held by the Supreme Court that ordinarily, it is an acceptance that gives rise to a contract. The communication must be indicated or demonstrated by some external manifestation which the law regards as sufficient. It was said that the draftsmen of the Indian Contract Act might not have predicted the use of telephone conversation for making contracts and therefore could not have intended to make any law on that behalf. The Supreme Court held that the Trial Court was right in taking the view that part of the cause of action arose where the acceptance of the offer was communicated to Plaintiff through telephone, i.e. Ahmedabad.  The Supreme Court had dismissed the appeal. So according to the Supreme Court, the contract is said to be made at a place where the communication of acceptance is made to the offeror. Justice Hidayatullah gave the dissenting opinion in the above case.

The after effects of the case

The case of Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottam Das &  Co. had clarified the position pertaining to the contracts which are made through telephonic conversations and also clarified the jurisdiction of the courts for that matter. It was clarified that when the parties are in the presence of each other then the communication will largely depend upon the nature of the offer and the surrounding circumstances under which it was formed. 

  • In Republic Medico Surgical Company vs. Union of India and Anr., Supreme Court relied upon Bhagwandas Goverdhan Das Kedia Case to conclude that by just making an offer, it does not become part of the cause of action for a suit for breach of contract and damages which is a result of an acceptance of an offer. In the above case, the tender was made to the defendant in Bhubaneswar, it was accepted by the defendant in Bhubaneswar, with the stipulatio that the goods would be delivered in Bhubaneswar and the money shall also be received at bhubaneswar. Hence, it was obvious that the cause of action arises in Bhubaneswar. In this case the findings of the Trial Court were upheld and the appeal was dismissed.
  • In Garware Nylons Limited vs. Swastik Yarns, the decision of Bhagwandas Goverdhan Kedia was relied upon and it was held that the contract can be said to be made through a telephonic conversation when acceptance is being received by the person who made the offer.
  • Sadhna Arun Kothari & Ors vs. Raj Bhalla, in this case the principles laid down in Bhagwandas Goverdhan Das Kedia were upheld by the court.
  • Quadricon Pvt. Ltd. vs. Bajrang Alloys Ltd., in this case the decision which was given in Bhagwandas Goverdhan Das Kedia was used in order to draw similarity between the communication done by telephone and fax. The court noted that the communication by Fax is also a type of instantaneous communication  and is similar to communication by telex. It is also said that communication by Fax is in fact made through telephone connection.
  • M/S Besant Raj International vs. M/S Vishwa Bharathi Textiles, in this case also the principle laid down in Bhagwandas Goverdhandas Kedia was relied upon by the court.

Conclusion

The rule pertaining to the place of formation of contract through a conversation on Telephone which was laid down in Bhagwandas Goverdhan Das Kedia vs. Girdharilal ParshottamDas & Co. has become a settled principle of law in India. In a contract which was concluded or made through a telephonic conversation or through a teleprinter, the parties to that contract will be said to enter into a contract in the presence of each other and the place of acceptance will be the place where the communication of acceptance is received by the person who made the offer or we can say the place where the offeror is present. It was also noted that the rule for communication through an instantaneous mode between the parties is different from the rule of communication through the post. In case of communication through the post, the communication is said to be complete when the letter of communication is put in the post box, i.e. when it is out of the control of the person who is making the communication of the acceptance and that is said to be the place of contract formation whereas, in case of telephone and other modes of instantaneous communication, the contract is said to be made when the communication of acceptance is received by the person who makes the offer (offeror) and the place of contract formation is the place where the offeror is present. The same rule is used in many European Countries and on the contrary in the US the rule for communication through post and telephone is the same.

References


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