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Communication In Law Of Contracts: Importance And Legal Consequences

Communication is no wonder, the most essential and integral part of a valid contract. Communication can be expressed in three ways, that is, through written and spoken mediums (Express promise) and through conduct (implied promise). Many of the times, implied contract becomes a source of valid contract and becomes easily enforceable in a court of law.
For example, stepping inside an omnibus or consuming delicacies in a self-service restaurant. Technically, one can't enjoy these benefits and claim no formation of any contract in a court of law.

If communication is this important it becomes essential for a democracy to form laws so as to make contract binding on parties whosoever, enters into it. In India, we follow the Indian Contract Act, 1872 which has been amended time to time to make it suit the requirements of the contemporary world. Unlike torts, it is highly codified making sections easily accessible.

In this research, I wish to throw some light on what makes communication this important in law of contract and what could be the legal consequences of an invalid contract and how miscommunication can make parties binding to compensate the aggrieved party.

The importance of Communication has been mentioned under the Indian Contract Act, 1872 under the following headings.

Section 4 of the Indian Contract Act, 1872 says that:

the communication of the offer is complete when it comes to the knowledge of the person to whom it has been made. So, when the offeree becomes aware of the offer by the offeror, the communication of the offer is said to be complete.

The Indian Contract Act, 1872 defines acceptance in Section 2 (b) as:

When the person to whom the proposal is made signifies his assent thereto, the offer is said to be accepted. Thus the proposal when accepted becomes a promise.

Acceptance of an Offer can be transmitted back to the Offeror in either written or implied(through conduct) way of communication.
Section 5 and 6 of the Indian Contract Act, 1872 states the Communication of Revocation. We will see later, what are the essentials of Revocation of an Offer and how Indian Laws in this case are more advanced than the English Laws.

What is Communication and Its Types

Communication comes from a Latin word communicatio which means to share. So anything that is shared through spoken, written or implied signs and symbols can be termed as Communication. Communication is the simple act of transmitting information from one place to another, one person or group to another person or group. Every communication involves (minimum of) one sender, a message and a recipient.

These communications may include our emotions, the cultural situation, the medium used to communicate, and even our location.

We are going to evaluate and analyse the importance of Communication in the Law of Contracts and what legal consequences has arisen till date by discussing the landmark judgements. Before proceeding to that, it is equally important to know that Communication and its importance has been discussed in the Indian Contract Act, 1872 under Section 3, 4, 5 and 6.
According to the statute mentioned above, there are three subcategories where communication finds its existence and discussion, which are as follows:
  • Communication of Offers
  • Communication of Acceptance
  • Communication of Revocation

Communication of Offers:

Proposal, Meeting of Minds:
The universally accepted and acknowledged source of contract formation is undoubtedly, through a proposal by the 'promisor' and acceptance of the said proposal by the 'promisee'. This brings us to the definition of proposal under, Section 2(A) of the Indian Contract Act, 1872.

"When any one person signifies to another his willingness to do or to obtain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal."

The definition has two important terms which should be noted well. 'Signifies' in the above definition means to indicate or declare (as in public offer). In simple terms, the proposal should be communicated to the other party. Proposal declared by the promisor in an uninhabited hall will make no binding contract.

Secondly, 'assent of that other' here 'that other' means that there should be at least two parties in the contract (also mentioned under Indian Partnership Act, 1932).

Thirdly, it is also to be noted that the two parties would require meeting of the minds on the same thing, in the same sense, (principle of Consensus Ad Idem) and when the proposal has been accepted by the party to whom it has been made, the proposal becomes a valid contract (with exceptions).

Proposal or acceptance of promises can be of two types: Express and Implied. Express promises include contracts formed either through written and oral mediums. Implied promises means promises that become binding through conduct. An example of implied contract could be of Upton-on-Severn Rural District Council v. Powell, where the court held that putting out the fire was implied as that, the defendant wanted the services from Upton and in response to that request, putting off the fire came under the banner of 'implied contract' and made the defendant liable to pay Upton for the services.

Communication When Gets Completed:
The communication becomes complete when it comes to the knowledge of the person to whom it is made. Honourable Allahabad High Court reiterated in the landmark case 'Lalman Shukla vs Gauri Datt' how lack of knowledge about the offer meant no valid contract. In the case above, the nephew of the defendant had absconded from his house.

The defendant sent all the servants in search of his nephew and while the plaintiff was looking for the nephew, in the meanwhile, the defendant announced a monetary reward of Rs500 if anyone found him and brought him back home. The plaintiff was successful in tracing the boy but was, denied reward as he had no knowledge of the reward before having traced the boy.

In Fitch vs Snedkar, New York Court of Appeals rightly pointed, "How can there be a consent from the other party, which has never heard of any such offer?"

Contracts Involving General Offers:

Before the old case of Weeks vs Tybald (1605), The King's bench had observed that proposal from the promisor must be made to a definite person only. However subsequently, the court brainstormed on the contracts of 'general offers' that is, offers made to the public at large.

However, Court soon came to the conclusion that offers made to the public at large does not bind many people with the promise, instead binds that one party who accepts and follows the terms and conditions of the contract. This is what the present scenario is, and has been repeated by Allahabad High Court and Court of Appeal.

Communication of Acceptance:

Implied Acceptance:
Section 2(b) of the Indian Contract Act, 1872 defines acceptance of a proposal. The definition clearly requires that the acceptance of the proposal should be signified and communicated to the proposer.

A mere mental assent/acceptance of the proposal and not communicating it to the proposer will not amount to the formation of a contract, as it happened, in the landmark case of Brodgen v. Metropolitan Railway Co. Another Indian case named Hindustan Co. Insurance Society v. Shyam Sunder in which Calcutta High Court reiterated the same that acceptance is complete only when communicated to the offeror.

In the case above the company had informed the offeree that if he is interested in buying the life insurance, he should submit a cheque and receipt of acceptance for the first premium. The offeree did so but soon died thereafter. In the meantime, the company had encashed the cheque however, Calcutta High Court inferred that mere encashing of the cheque did not amount to acceptance and it cannot be assumed that the insurer had assumed the risk. The heirs to the offeree failed to recover as the court denied liability on the side of the insurance company.

Communication to the Offeror:

In the landmark case, Felthouse v. Bindley, the court inferred that acceptance of a contract should be communicated to the offeror himself or to the one whom the offeror has authorised to receive acceptances else, no contract comes into being.

In this case, the plaintiff wrote a letter to his nephew expressing his desire to buy his horse, moreover, the letter also stated that if no reply is received, he would assume that his nephew has interests in selling the horse to him. His nephew however, communicated the auctioneer not to sell the horse as he wanted to sell the horse to his uncle.

However, the auctioneer, by mistake, sold the horse and in a suit against the auctioneer, the court said that his nephew should have communicated his acceptance to the plaintiff and since, no communication of acceptance was brought to the knowledge of the plaintiff, it did not lead to the contract formation between them.

Mode of Acceptance:

The acceptance to a proposal should be made in the same mode as prescribed by the offeror. In the American case named Eliason v. Henshaw, where the plaintiff was asked to supply the defendant with flour but the mode of communication should be the wagon itself from which the offer came.

The plaintiff however, sent the letter of acceptance through post assuming, it would reach the defendant much faster, in the twist and turn of events, the post reached later than the wagon and the defendant refused to be bound by the acceptance.

In cases, had the post reached earlier, Winfield states that the defendant would be liable and bound by the contract unless he proves in a court of law, his reasons for preference for that particular mode of communication. A minor change in mode of communication is not sufficient enough to frustrate the contract, provided the letter of acceptance is transmitted rather expeditiously.

In contrary to what Winfield says, Section 7 of Indian Contract Act, 1872 states that in cases where the mode of communication is different from the preferred one, the offeror may ask the acceptor to accept the proposal through the prescribed mode and if the offeror doesn't do that, he becomes bind by the acceptance of the contract.

Postal Communications:

Adams v. Lindsell, the landmark English case that brought into discussions, when does a contract become binding on the part of the offeror.

In the case above, the defendant sent a letter offering to sell good quality of wool on 2nd September 1817 to the plaintiff and the plaintiff received the letter on 5th September. He posted his letter of acceptance on the same day which was received by the defendant on 9th September however, he had sold his wool on 8th September. The court in this case, mentioned that such an act led to the breach of contract as the defendant should have waited for the letter of acceptance or denial. Court also pointed out that in such situations, contracts would never ever be completed by post.

As a result of this case, it was inferred that complete contract arises on the very date the letter of acceptance is posted by the acceptor as posting the letter brings the letter into transmission and brings the acceptor out of the purview of revoking it. This rule was upheld by The Court of Appeal in Household Fire and Accident Insurance Co. v. Grant, where the defendant desired to buy 100 shares in the plaintiff's company. The plaintiff having accepted the offer, posted a letter of acceptance but the defendant never received it. Since the contract came into being from the time the letter was put into transmission the court put the parties binding by the contract.

The same principle is also defined by the Indian Contract Act, 1872 under Section 4 which states that:

"The communication of an acceptance is complete, as against the proposer, when it is put in 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."

The same principle was followed by the Allahabad High Court in Ramdas Chakrabarti v. Cotton Ginni Co. Ltd.,.
In English laws however, both the parties become bound the very moment letter of acceptance is posted by the acceptor. However, Section 4 states that the offeror becomes bound by the contract the very moment the letter of acceptance is posted by the acceptor.

However, unlike the English laws the acceptor does not become bound by the contract unless it comes to the knowledge of the offeror. Under section 4, for the time gap between posting of the letter of acceptance and the delivery of the letter to the offeror, can be used by the acceptor to revoke his acceptance, provided the revocation letter reaches the offeror earlier than the letter of acceptance.

Putting in simple terms, posting the letter of acceptance binds only the offeror and not the acceptor as he still, has the option to revoke his acceptance. This anomaly was pointed out by the Madras High Court first in Kamisetti Subbiah v. Katha Venkatswami.

Communication of Revocation:

Notice of Revocation:
In Henthorn v. Fraser, the court observed that a revocation is effective only when the revocation of the offer is made to the knowledge of the person to whom it is made. In line with this case, to be read with Section 5 of Indian Contract Act, 1872 which states that:
"A proposal may be revoked at any time before the communication of its acceptance is complete, as against the proposer, but not afterwards."

In the case above, the secretary of a society offered the plaintiff to buy a property worth �750, however the plaintiff was in a hurry, he took the offer and went to some other town. The next day he posted his letter of acceptance at 3:15 p.m. which reached the society's office at 8:30 p.m. however, in the meantime the society office had sent a letter of revocation at 1 p.m. which reached the plaintiff at 5:30 p.m. The court held that revocation of letter should have been posted earlier to reach the plaintiff before posting his letter of acceptance. This made the secretary bound to sell the property to the plaintiff.

Revocation by Offeror Himself:

It is also to be noted that the revocation of offer should be posted by the offeror himself or through his agent. However, in Dickinson v. Dodds, the Court held that an offer is revoked even if the plaintiff has got to know about revocation from an authorised agent or third parties.

In this case, the defendant had made an offer to the plaintiff that if he wishes to buy a property he must communicate his acceptance before 12th June, Friday at 9 a.m. A day before the expiry of the contract he got to know that the property has already been sold to someone else. In a fit of revenge, the plaintiff met the defendant and communicated his acceptance of the offer before the deadline.

In a suit against the defendant, the court held that the revocation came into place the very moment he got to know about the property already been sold to someone else, irrespective of the fact whether the third party was the defendant's agent or not, as he already knew that the defendant can no longer sell the property.

However it is suggested in Pollock and Mulla, that the rule will not be applicable in India as under Section 6(1) requires the very fact that revocation of offer can only be made by the offeror to the offeree.

Revocation of General Offers:

A general offer that is published for the public at large should be revoked using the same mode through which it was brought to the knowledge of the public, and the revocation will remain effective even if a particular person went on with the terms of the offer unaware of the revocation.

For an example, in an American case, a declaration of a reward for people tracing criminals was published however, it was revoked in the subsequent notification and there was a person unaware of revocation went on to search for criminals. However, he was not rewarded later.

Death of the Offeror:

An offer lapses after the death of the offeror, provided the death of the offeror should be communicated to the offeree well in time, before he posts his letter of acceptance for the offer. In the landmark Dickinson v. Dodds case, an English court inferred that the offer ceases to exist after the death of the offeror however, if the letter of acceptance is posted first and the offeree comes to know about the death later, the heirs of the offeror will be bound by the contract unless the contract could have been fulfilled by the offeror only.

Contract has been used widely by many business organisations and entities, hence it becomes necessary for legislations to keep a thorough check on the amendments and upgradation that it needs from time to time. Offers initially, were transmitted through posts which was extremely time consuming however, with the advent of e-mails the process has become much faster and smoother. New ways means new laws to curb breach and bind people by the contract.

Communication in contract was and will always remain the most important criterion for courts to decide the validity of offers and contracts. Lack of communication or miscommunication can be a source of disputes which can only be kept robust by the frequent check and analysis of the act and its subsidiaries by the judiciary. The act and the rules mentioned therein, can only seem good if it is capable of meeting the demands of the contemporary world.

The Supreme Court in the Bhagwandas Goverdhandas Kedia vs M/S. Girdharilal Parshottamdas mentioned that Section 4 of the Indian Contract Act, 1872 is applicable only in forms of Communication that are not instantaneous and this reference is followed till date. Countries like Bahrain, UAE etc. are paving and teaching countries like India how to keep your statutes and Conventions into constant checks and upgrades. We need to learn a lot and present ourselves as more strong, not just in terms of statutes and Conventions but also, judicially and legislatively.

Thus, we can conclude that Communication has a great deal of importance in the Law of Contracts and if proper procedures are not followed for the same, legal consequences arise.

  • Communication of Acceptance in Contract Law: Upcounsel
  • Communication of Acceptance in Contract Law - Powell v/s Lee Case: Lawyered
  • Contract and Specific Relief: Avtar Singh (12th Edition)
  • Contract and Specific Relief: Dr. RK Bangia
  • Indian Contract Act, 1872: Bare Act and Illustrations- Law Literature Publications
  • Indian Contract Act, 1872: Top 10 Landmark Judgements of Law of Contracts: Lawnn
  • Law of Contract: Communication of Offer: Lexlife India

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