Is Section 4 of Contract Act, 1872 in pace with 21st century

Introduction

Section 4 of the Contract Act, 1872 deals with the completion of a proposal, acceptance and revocation and states:

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. The communication of a revocation is complete,— as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.[1]

The illustrations in this section mentions about the communication through the postal services and stays silent regarding the contracts through the modern means (instantaneous) of communication. Fax and e-mail fall into an intermediate position with respect to postal services in which the messages are transmitted immediately, have not been mentioned. Talking about the completion of offer, then it is different for postal and electronic modes. In the case of postal service the communication becomes complete when the letter is posted from the offeror and the offeree is bounded by it. But if electronic modes are taken into account then fax communications like telephonic communication, becomes complete when the acceptance is received by the offeror.[2]

In Entores Ltd. v. Miles Far East Corpn.[3], Denning L.J., said that the postal rule cannot be applied to instantaneous mode of communications, such as telephone and telex. If a phone line “went dead” just before the offeree said “yes”, it would be absurd to assume that the contract was formed and the parties would not have to call each other back. The same applied to telex. Since the contract was therefore only formed when and where the telex was received, the place of formation was London.

In N.M. Superannuation Pty. Ltd. v. Hughes[4], a decision of the New South Wales Supreme Court, Cohen, J. held that if a fax is left switched on its owner is indicating their preparedness to receive messages on it and in such circumstances it was sufficient for a notice to be communicated by fax, even though the document might arrive outside normal business hours. The same principles probably apply to other electronic means of communications, such as e-mail but these have so far not been tested in a court.

Major issues in Section 4

(i) Lack of information regarding the modes of communication in this section.

Dealing with the modern instantaneous mode of communication is major issue currently. The problem becomes more complicated when the communication is done by specific modern media like e-mails, telephone calls, fax and especially social media platforms on the internet. The communication of electronic messages have been described in the Information Technology Act, 2000 but it does not deal with the contracts made through these messages.

(ii) Modern communication modes can act both as instantaneously as well as non-instantaneously

Section 4 signifies that “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 and as against the acceptor, when it comes to the knowledge of the proposer”. Here it is said to put in a course of transmission but no specific transmission is mentioned; so it includes all kinds of transmissions even e-mail and Facebook. Though e-mail or Facebook communication is within the purview of Section 4, no specific rule is constituted whether postal rule or rule of instantaneous communication will be considered same as e-mail and Facebook contract. If someone sends a message through Facebook or e-mail and opposite party replies instantly it seems to be instantaneous communication. In contrast, if a person sends a message through e-mail or Facebook Chat Messenger but opposite party does not reply instantly; then it seems to be non-instantaneous communication in nature. Analysing the nature of e-mail and Facebook communication, it deems to be instantaneous as well as non-instantaneous communication.

(iii) What rule of communication should be applied

Justice Hidayatullah had said, “the law was framed at a time when telephones, wireless, Telstar and Early Bird were not contemplated”[5]. The Information Technology Act, 2000, follows no rule of instantaneous communication or postal rule. Pursuant to Section 13 of the Information Technology Act, 2000, the dispatch of an electronic record occurs when it enters a computer resource outside the control of the originator and the receipt would occur in the case of e-mail when the message enters the addressee’s electronic mailbox; so contract is complete when the message enters into the addressee’s mailbox. In pursuance of Entores Ltd. v. Miles Far East Corpn.[6], if we categorise e-mail or Facebook communication as instantaneous communication i.e. telex, telephone, fax; the contract is complete when it comes to the knowledge of the proposer. If the proposer does not hear the acceptance for chaos or noise the contract is not completed. Alternatively, if we follow postal rule in e-mail or Facebook contract the contract is complete as soon as the e-mail or message is sent.

Solving the issues

Keeping in mind the main elements which are essential for formation of a contract, some additions are required in Section 4 of the Contract Act, 1872. There should be information regarding the various modes of communication and which modes are instantaneous or non-instantaneous. Not only this, proper rules should be provided for these modes of communication.

Considering the nature of Facebook and e-mail communication we should apply rule of instantaneous communication as well as postal rule as it is mentioned earlier that nature of instantaneous communication and postal rule existed in these modern modes of communications. When the nature of initiation of negotiation is instant, the instantaneous communication should be applied whatever the nature of completion of the negotiation and contract is complete when acceptance comes to the knowledge of the proposer. But when the nature of negotiation is not instant, the postal rule should be applied and the contract is complete when the acceptance is sent and gone beyond the control of the acceptor. If it is instant nature the offeror has option to revoke the contract before the acceptance coming to his knowledge and in non-instant contract, the offeror has enough time to revoke the proposal before the acceptance is sent. In the case of fax and e-mail, the sender is unable to know at once about the success or failure of the communication. It is therefore submitted that the rules of postal communication must be applicable to communication by fax or e-mail, or messages sent by similar electronic means except where the sender can verify the proper communication of the message immediately.

Conclusion

Currently Section 4 of the Contract Act, 1872 lacks to keep pace with the modern world. Amendments/reforms are needed to include and rectify the section that will enable to form contracts without any difficulty. As it can be observed from the cases and judgments of the cases mentioned. The Supreme Court in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co.[7], following the English decision in Entores Ltd. v. Miles Far East Corpn.[8] has held that Section 4 of the Contract Act is only applicable in cases of non-instantaneous forms of communication and would not apply when instantaneous forms of communication are used. The Court observed that the draftsman of the Contract Act did not contemplate the use of instantaneous means of communications. Hence, where proposal and acceptance are made by instantaneous means of communications like telephone, telex, etc., and the postal rule does not apply and the contract is made where the acceptance is received. Therefore, the default rules elucidated above may have a relevance only in non-instantaneous forms of contract formation. “Though e-mail communication has some of the trappings of instantaneous communication, nevertheless, it is a fragmented process involving many stages. The e-mail message is split into various packets and sent via different routes. Further, unlike in instantaneous forms of communication, the sender does not know if the transmission of the e-mail is successful, for even though he gets a delivery receipt, it only signals delivery to the mailbox and does not indicate that the other party has the knowledge of the receipt. Thus, e-mail messages would come under the category of non-instantaneous form of communication. The default rules enunciated above would apply to e-mail contracts.”[9]

 

* Ayush Pandia, 1st year student, NUSRL, Ranchi

[1]  Avtar Singh, Contract and Specific Relief, (Eastern Book Company, Lucknow, 12th Edn., 2017).

[2]  Quadricon (P) Ltd. v. Shri Bajrang Alloys Ltd., 2007 SCC OnLine Bom 1091 : (2008) 3 Mah LJ 407.

[3]  (1955) 2 QB 327 : (1955) 3 WLR 48 : 1955 EWA Civ 3.

[4]  (1992) 10 ACLC 477.

[5]  Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., AIR 1966 SC 543 : (1966) 1  SCR 656.

[6]  (1955) 2 QB 327 : (1955) 3 WLR 48 : 1955 EWCA Civ 3.

[7]  AIR 1966 SC 543 : (1966) 1  SCR 656.

[8]  (1955) 2 QB 327 : (1955) 3 WLR 48 : 1955 EWCA Civ 3.

[9]  E-mails and contracts—communication and validity.

 

 

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