The emergence of modern modes of communication, such as telephone, e-mail, fax, etc., has changed how businesses interact, making the exchange of information more efficient. However, time and again, this paradigm shift has raised crucial questions about the applicability of traditional contract law principles related to communication of acceptance, its revocation, and the location of contract formation. The Postal Rule of the traditional rule of communication was developed in an era where postal mail and face-to-face communication were the dominant modes of contract formation. With advancements in technology, digital communication has become ubiquitous. This makes the examination of the relevance and applicability of traditional principles of contract law on the contemporary modes of communication and contract formation important. Let’s explore both the modes of communication and discuss a framework for effective application of the principles of communication for contract formation in the digital age.
Principles Applicable On Traditional Modes Of Communication Of Acceptance
As per Section 3 of the Indian Contract Act, 1872, “the communication of proposals, the acceptance, 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/she intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.”[1] As per Section 4 of the Indian Contract Act of 1872, “The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.”[2]
In traditional modes of communication, how acceptance is conveyed plays a crucial role in determining the agreement’s validity. Historically, oral and written communication were the primary means of expressing acceptance. Oral acceptance often conveyed through face-to-face conversation, allows both parties to confirm the mutual agreement in real-time. However, this mode carries the risk of ambiguity or misinterpretation, as no permanent record exists to verify the terms or the act of acceptance. See the following case-
E and F are in the process of negotiating a contract. At one point, E says, “The last price I can offer you is Rs. 300. Is that okay with you?”. F nods, and E considers the contract formulated. However, F calls E and says that his nod was not meant to be an assent to the offer, but he was shaking his head to drive away a nearby mosquito.
Written communication, such as letters or telegrams, has been widely used in scenarios where direct interaction is impossible. The Postal Rule states that acceptance is effective once the offeree dispatches it, not when the offeror receives it. This rule, established in Adams v. Lindsell (1818),[3] ensures that the offeree is not penalized for delays outside their control. However, the reliance on postal services introduces potential delays and risks of lost correspondence, which may complicate the process.
Other traditional methods include conduct or performance. For example, in unilateral contracts, acceptance is communicated through the performance of the “desired” act or any such omission, such as in the landmark case of Carlill v. Carbolic Smoke Ball Co. (1893).[4] This mode eliminates the need for verbal or written acknowledgement, relying instead on visible actions to signify agreement.
While these traditional modes have facilitated the formation of contracts for centuries, they have certain limitations such as lack of immediacy, potential miscommunication, and logistical challenges. Despite these challenges, traditional modes remain a foundation where digital communication is unavailable or impractical.
Principles Applicable On Modern Modes Of Communication Of Acceptance
The Indian Contract Act lays down only the Postal Rule of Communication of Acceptance due to its origin in 1872. This has led to several debates on the rule’s applicability in Modern modes of communication which have been resolved through case laws.
In Entores Ltd. v. Miles Far East Corporation,[5] Lord Denning, by giving 3 hypothetical examples of telephonic communications, explained the issue of completion of Acceptance (at which point of time is the acceptance complete). It was established that cases governing contracts via post have no implication on contracts formed via Telex communications. The three situations that he gives to explain the concept of valid is acceptance are:
First, consider a case where two people make a contract by word of mouth in the presence of one another. A shouts an offer to a man across a river but does not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If B wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that A can hear what he says. Not until A has his answer is he bound.
Second, when two parties form a contract via telephone, the agreement is only valid when the offeror hears the offeree’s acceptance. If the line goes dead mid-conversation, the offeree must re-establish contact to ensure the offeror hears the acceptance. Similarly, if the response is unclear and the offeror asks for repetition, the contract is formed only when the acceptance is clearly heard.
Third, in the context of telex communication, a contract forms only when the acceptance message is received. If technical issues interrupt or block the message, it should be resent and successfully received for the contract to be valid.
The locus classicus (binding precedent) for instantaneous communication in India is the Bhagwandas v. Girdharilal Case.[6] In this case, two businesses in different states in India communicated a contract by phone. The buyer accepted the offer over the phone, leading to a debate over where the contract was formed. It was held that in the case of instantaneous transmission, the jurisdiction lies at the site where the acceptance was heard, as the contract is complete when the acceptance is complete against the acceptor.
Therefore, the instantaneous rule of communication of acceptance is a principle that has emerged in the context of modern modes of communication, particularly with the advent of instantaneous communication technologies such as email, text messaging, and fax in which an acceptance is deemed to be effective as soon as it is sent, provided that the offeror has stipulated or impliedly agreed to receive electronic communications.
Proposed Framework for Communication of Acceptance in Modern Modes of Communication
In India, there has been an uneven application of the postal rule and the instantaneous rule of communication regarding modern modes of communication.
For example, in Trimex International FZE Ltd. v. Vedanta Aluminium Ltd. (2010),[7] the Supreme Court of India held that an email acceptance was effective as soon as it was sent, as the offeror had impliedly agreed to receive electronic communications. While email is an instantaneous mode of communication, the postal rule was applied in this case, and the receipt of an email confirming acceptance was deemed as the formation of a contract.
For instance, A sent his acceptance to B via E-mail but through his Business ID. Due to this, the e-mail was automatically sent to B’s Spam Folder, and B did not check it. Is the acceptance complete? It will be valid acceptance according to the Postal rule (which deems the contract complete upon acceptance). At the same time, it will be invalid under the Instantaneous Rule (which deems the contract as complete when the acceptance comes to the offeror’s knowledge.)
As seen in the case above and the situation presented, these two rules have been unevenly applied and have created much confusion. To address the challenges posed by modern modes of communication, a proposed framework for communication of acceptance should prioritize clarity, certainty, and flexibility. The following suggestions can be adopted to give clarity in this regard:
- Parties should explicitly agree on the mode of communication to be used for acceptance and ensure that the chosen mode can provide proof of transmission and receipt of acceptance.
- The framework should incorporate guidelines for determining the effective time and date of acceptance, considering factors such as time zones, technical glitches, and intentional delays.
- The two rules should be applied not based on traditional and modern modes of communication but based on the nature of these modes. For instance, the Postal rule should be applied to E-mail as it is an Electronic form of a letter that, once put into transmission, goes out of the power of the acceptor. On the other hand, the instantaneous rule should be applicable in telephonic conversations and text messaging where the acceptor is aware of the status of his acceptance being sent and seen/heard.
By adopting such a framework, parties can navigate the complexities of modern communication and ensure that contracts are formed efficiently and effectively.
In conclusion, the traditional rules of communication of acceptance in the Indian context have undergone significant transformations with the advent of modern modes of communication. The instantaneous rule, which deems acceptance effective as soon as it is sent, has added further ambiguity due to its uneven application. As technology continues to evolve, it is essential to adapt and refine the communication rules of acceptance to ensure they remain relevant and effective in the digital age. By doing so, we can promote greater certainty, clarity, and efficiency in contract formation, ultimately facilitating the growth of commerce and trade in India.
Author(s) Name: Ishika Tanwar (West Bengal National University of Juridical Sciences, Kolkata)
References
[1] Indian Contract Act 1872, s 3
[2] Indian Contract Act 1872, s 4
[3] Adams v Lindsell (1818) 106 ER 250 (KB)
[4] Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA)
[5] Entores Ltd. v. Miles Far East Corporation [1955] 2 QB 327 (CA)
[6] Bhagwandas v Girdharilal AIR 1966 SC 543
[7] Trimex International FZE Ltd. v. Vedanta Aluminium Ltd. (2010) INSC 57
