Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co.
Supreme Court of India · 30 August 1965 · 3 judges · 1966 AIR 543; 1966 SCR (1) 656
By majority, the Court held that a contract made by telephone is complete where the acceptance is heard by the offeror, so the Ahmedabad court, where acceptance was received, had jurisdiction over the suit.
Facts
The respondents, a firm at Ahmedabad, sued the appellants, Kedia Ginning Factory Oil Mills of Khamgaon, in the City Civil Court at Ahmedabad for Rs. 31,150 as damages for failure to supply cotton seed cake under an oral contract made by long distance telephone on 22 July 1959. The trial court found that the respondents made the offer from Ahmedabad and the appellants accepted it at Khamgaon, where delivery and payment were also to be made. It nevertheless held that, for a contract by telephone, the contract is made where acceptance is intimated to the offeror, so the Ahmedabad court had jurisdiction. The Gujarat High Court rejected the appellants' revision in limine, and they appealed by special leave.
Questions before the Court
- Whether the making of an offer at a place forms part of the cause of action in a suit for damages for breach of the contract that resulted from its acceptance elsewhere.
- Where a contract made by conversation on the telephone is concluded: where the acceptance is spoken or where it is heard by the offeror.
What the Court held
- Making an offer at one place which is accepted elsewhere does not form part of the cause of action in a suit for damages for breach of contract. Ordinarily the acceptance of the offer and its intimation result in a contract. The contrary view in Sepulchre Brothers was not accepted as correct.
- Section 4 of the Contract Act deals with when communication of a proposal, acceptance and revocation is complete, not with where a contract is made. It does not imply that the contract is made at one place for the proposer and another for the acceptor.
- Acceptance and its intimation are both necessary for a binding contract. The rule that acceptance by post or telegram is complete when put into transmission is an exception based on commercial expediency.
- In a telephone conversation the parties are in a sense in each other's presence and communication is instantaneous, with no third agency intervening. The postal exception does not apply; communication of acceptance is necessary, as in Entores Ltd. v. Miles Far East Corporation.
- Part of the cause of action therefore arose at Ahmedabad, where the acceptance was communicated by telephone to the plaintiffs, and the City Civil Court there had jurisdiction. The appeal was dismissed with costs.
Why it matters
The judgment decides where a contract made over the telephone is formed under the Indian Contract Act. The majority treats telephonic communication as instantaneous, like parties face to face, and holds that the contract is formed where the acceptance is heard by the offeror, declining to extend the postal rule. Hidayatullah J.'s dissent reads Section 4 as making acceptance complete against the proposer when spoken into the telephone at the acceptor's end.
In the Court's words
Copied from the official judgment; each passage links to its page.
“If regard be had to the essential nature of conversation by telephone, it would be reasonable to hold that the parties being in a sense in the presence of each other, and negotiations are concluded by instantaneous communication of speech, communication of acceptance is a necessary part of the formation of contract, and the exception to the rule imposed on grounds of commercial expediency is inapplicable”
“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.”
“But s. 4 does not imply that the contract is made qua the proposer at one place and qua the acceptor at another place. The contract becomes complete as soon as the acceptance is made by the acceptor and unless otherwise agreed expressly or by necessary implication by the adoption of a special method of intimation, when the acceptance of offer is intimated to the offeror.”
“Making of an offer at a place which has been accepted elsewhere does not form part of the cause of action in a suit for damages for breach of contract. Ordinarily it is the acceptance of offer and intimation of that acceptance which result in a contract.”
Provisions interpreted
Case and bench
- Parties
- Bhagwandas Goverdhandas Kedia v. M/s. Girdharilal Parshottamdas and Co.
- Case
- Civil Appeal No. 948 of 1964
- Decided
- 30 August 1965
- Bench
- J.C. Shah, K.N. Wanchoo, M. Hidayatullah
- Opinions
- Majority 2:1. Judgment of Wanchoo and Shah, JJ. delivered by J.C. Shah, J.; M. Hidayatullah, J. dissented, holding the contract was made at Khamgaon where the acceptance was spoken.
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