INSTANTANEOUS CONTRACTS

Submitted By- Obhirup Ghosh(Roll No:40)

Parikshit Chandgothia(Roll No:41)

Akshay Singh (Roll No:6)

Submitted to- Ajit Kaushal

Course-BBA LLB

Year-Ist Year

Semester-I

University Of Petroleum and Energy Studies (UPES)

Mode of citation used: Indian Law Institute style

 What are contracts?

A contract is an agreement having a lawful object entered into voluntarily by two or more
parties, each of whom intends to create one or more legal obligations between them.
The elements of a contract are "offer" and "acceptance" by "competent persons" having
legal capacity to exchange "consideration" to create "mutuality of obligation."

Offer and Acceptance

Offer:

The Indian Contract Act (1872) section 2(a) defines offer as-

When one person signifies to another his willingness to do or to abstain 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.

Acceptance:

An express act or implication by conduct that manifests assent to the terms of an offer
in a manner invited or required by the offer so that a binding contract is formed. The
exercise of power conferred by an offer by performance of some act. The act of a
person to whom something is offered or tendered by another, whereby the offeree
demonstrates through an act invited by the offer an intention of retaining the subject of
the offer.1

1.Acceptance,available at: http://legal-dictionary.thefreedictionary.com/acceptance

 The Mailbox rule
The mail box rule is a judge made legal doctrine of contract law that finds the
acceptance of an offer is made as of the time the acceptance is placed in a mail box, as
long as mailing an accepting reply is a reasonable form of acceptance. The acceptance
is effective at the time of sending. However, the mail box rule does not apply to
revocations of an acceptance, which are only effective when received.

In order for the mailbox rule to apply, the acceptance must be dispatched within the time
in which the offer must be accepted, and will not apply if the offer requires acceptance
by personal delivery on or before the specified date. 2

Under the posting rule, performance is a means of acceptance. If A orders 1000 blue
coats and B ships them out, that shipment is considered to be a conveyance of
acceptance of A's offer to buy the coat hangers. Defective performance is also an
acceptance, unless accompanied by an explanation. For example, if A orders 1000 blue
coats, and B mistakenly ships 1000 red coats, this is still an acceptance of the contract.
However, if B ships the red coats with a note that they sent these because they had run
out of blue coats, this is not an acceptance, but rather an accommodation, which is a
form of counter-offer.

A letter is regarded as "posted" only when it is in the possession of the Post Office. A
letter of acceptance is not considered "posted" if it is handed to an agent to deliver, such
as a courier. An interesting implication of the operation of the posting rule is that an
acceptance is complete once the letter of acceptance is posted; it makes no difference
whether the offeror actually receives the letter. An interesting implication of the
operation of the posting rule is that an acceptance is complete once the letter of
acceptance is posted; it makes no difference whether the offeror actually receives the
letter.3

2. Mailbox rule, available at: http://definitions.uslegal.com/m/mail-box-rule/

Where is the rule displaced?

The rule is displaced if the court decides that it was not within the contemplation of the
parties that the post was an accepted method of communication. Whether the postal
rule is displaced turns the intention of the offeror. If the offeror says or implies that
actual notification is required before an agreement if formed the postal acceptance rule
will be displaced.

Cases Demonstrating the Mailbox rule:

1.Adams v Lindsell

Brief Fact Summary: The Defendants, wool dealers, sent a letter to Plaintiffs, wool
manufactures, offering to sell them fleeces, upon receipt of their acceptance in the
course of post.

Synopsis of Rule of Law: This is the landmark case from which the mailbox rule is
derived. The mailbox rule stands for the proposition that an offer is accepted upon
mailing of the offer.

Facts:

Defendants mailed their offer to sell on the 2nd of September, 1817. . The Defendants
letter was misdirected and did not reach the plaintiffs until 7:00 p.m., Friday the 5th.
That night, Plaintiffs accepted Defendants offer, and mailed it directly back in a timely
manner. It was received by Defendant on the 9th, but they expected to receive it on the
7th and, in the meanwhile, had offered and sold their wool to another person. Plaintiffs
brought suit for the losses they sustained by not receiving the fleeces.
Issue:

This case considers when mutual assent to an agreement occurs in the particular
circumstance of a mail contract.

Held:

The Court of Kings Bench upheld the rule of the trial court that, when forming contracts
by mail, acceptance is valid from the time of mailing a letter containing language of
same. Because Defendants, in their offer, notified the Plaintiffs of their terms, that they
would await acceptance in the course of post, they were bound by the terms of their
offer until it was accepted or until the terms of the offer had expired. Plaintiffs accepted
within the course of post, by mailing same, and therefore manifested a valid asset. 3

2. The Household Fire and Carriage Accident Insurance Company

(Limited) v Grant

Appellant: Grant

The Household Fire and

Carriage Accident
Respondent:
Insurance Company
(Limited)

Year: 1879

Court of Appeal of
Court:
England and Wales

Thesiger, Baggallay, and

Judges:
Bramwell LJJ
 Country: United Kingdom

Acceptance,
Area of law: Communication of
acceptance

Facts:

Grant had negotiated to purchase shares in Household Fire. His application was
accepted, and his name was added to the list of registered shareholders, however, the
letter informing the appellant of this never reached him and thus Grant never paid for
the shares. His earnings from dividends were credited to his account. Eventually
Household Fire went into liquidation and the liquidator applied for money from the
appellant. He refused to pay on the grounds that he was not a shareholder he had
never received the notification in the mail and was not aware.

The trial judge found that the appellant implied that the respondent was to send him the
notification that he had been issued the shares in the mail by requesting them by mail,
and therefore they were not to be penalized for sending the notification that way. The
liquidator was thus successful at recovering the money, which Grant appealed.

Issue:

When do acceptances becoming binding when they are sent via mail?

Decision

Appeal dismissed.

Reasons:
Thesiger and Baggallay agree with the trial judge's decision that the contract was
formed when the acceptance was mailed. They discuss the pros and cons of the postal
rule, and decide that the pros outweigh the cons. They state that the offeror can always
choose to make the acceptance binding only upon his receipt of the notification that it
has been accepted in the original offer. However, to state that this must happen in all
cases would reduce the efficiency in the business world. The contract is complete and
absolutely binding upon the transmission of acceptance through the mail as long as that
is a medium of communication that the parties contemplated as at the time of mailing
there is a meeting of the minds.

Bramwell, in the dissent, disagrees and gives several examples of situations where he
believes that the postal rule would hinder transactions. He says generally that the notice
of acceptance must reach the party who made the offer before it can be considered
binding. He says that if the rule proposed in the majority is accepted then it must be
adhered to in all instances of notices via mail. For example, if you mail money to
someone in an acceptance, then you have paid even if the money never reaches the
other party.

Ratio:

A contract becomes binding the instant that the acceptance is put in the mail, so long as
the parties have contemplated the mail as a viable means of communication in their
dealings (the postal rule).4

3. Adams v Lindsell, available at: http://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-

murphy/the-bargain-relationship/adams-v-lindsell/

4. The Household Fire and Carriage Accident Insurance Company (Limited) v Grant, available at:
http://casebrief.wikia.com/wiki/Household_Fire_and_Carriage_Accident_Insurance_Company_(Limited)_v
_Grant

Instantaneous Contract:

The postal rule was developed to overcome difficulties and uncertainty in contractual
timing when parties began communicating at distance by post. However, today it is
much more likely that offers are accepted by electronic methods such as email or fax.
The issue when acceptance is effective arises in this context too, although authority is
less well established.

In case of instantaneous mode of communication for example telephone, e-mail, fed-ex,

the offeror communicates his offer and at the same time the offeree gets to know about
the offer, so if the offeree accepts or rejects the contract the offeror simultaneously i.e.,
at the same time gets to know about the acceptance or the rejection. These types of
contracts where communication of offer and its acceptance/rejection happens
simultaneously are known as instantaneous contracts.

Communication:

Instantaneous electronic acceptance must be communicated to be effective.

ENTORES V MILES FAR EAST CORP. [1955] 2 QB 327

FACTS:

The plaintiff, based in London, sent an offer by telex (an instant, electronic method) to
purchase copper cathodes from the defendant, based in Amsterdam. The defendant
accepted by telex.

ISSUE:
A jurisdictional issue arose and it had to be established where the acceptance had
occurred.

HELD:

The postal rule does not apply to electronic forms of communication which are
instantaneous or virtually instantaneous. Therefore, acceptance must be
communicated. It provides no direct authority on the issue of when a telexed
acceptance takes effect.

Denning LJ (The Judge in the following case): .. the rule about instantaneous
communications between the parties is different from the rule about the post. The
contract is only complete when the acceptance is received by the offeror; and the
contract is made at the place where the acceptance is received....

The sender must ensure that his message is communicated. However, if the recipient
(offeror) has a problem receiving the message due to a faulty machine then he will still
be bound.

TIMING:

Instantaneous electronic acceptance may become effective at a time when it is

reasonable to expect the recipient to have read the message.

THE BRIMNES [1975] QB 929

FACTS:

The defendants hired a ship from the plaintiff. The plaintiff sent a message by Telex,
withdrawing the ship from service, during normal office hours, on 2 April. The
defendants did not read the telex until 3 April.

ISSUE:

When did the withdrawal occur?

HELD:

As the notice of withdrawal had been sent during ordinary business hours it could be
regarded as being communicated. Therefore, an effective revocation had occurred.

Megaw LJ(The Judge in the following case): I think the principle which is relevant is this:
if a notice arrives at the address of the person to be notified, at such a time and by such
a means of communication that it would in the normal course of business come to the
attention of that person on its arrival, that person cannot rely on some failure of himself
or his servants to act in a normal businesslike manner in respect of taking cognisance of
the communication, so as to postpone the effective time of the notice until some later
time when it in fact came to his attention....

Over the internet, there are various forms of communication (keystrokes, selecting and
clicking) these are likely to be regarded as instantaneous and analogous to telex or fax.
However, some forms of electronic communication are not so instantaneous, for
example email sent to an inbox (which may remain unopened or even not received) or a
message left on a voicemail (and not listened to). The question arises in these
situations when acceptance is actually communicated. Arguably, it could be either when
the recipient reads/ listens to the message or when the sender would reasonably expect
the acceptance to be communicated.
BRINKIBON LTD V STAHAG STAHL GMBH [1983] 2 AC 34

FACTS:

The defendant, in Vienna, telexed an offer to purchase steel from the plaintiff, in
London. The plaintiff telexed acceptance by return.

ISSUE:

A jurisdictional issue arose and the court had to establish where the contract was
formed.

HELD:

The contract was formed in Vienna, as that was where the communication of
acceptance was received.

Wilberforce LJ(The Judge in the following case): The message may not reach, or be
intended to reach, the designated recipient immediately: messages may be sent out of
office hours, or at night, with the intention, or upon the assumption, that they will be read
at a later time. There may be some error or default at the recipient's end which prevents
receipt at the time contemplated and believed in by the sender. The message may have
been sent and/or received through machines operated by third persons. And many other
variations may occur. No universal rule can cover all such cases; they must be resolved
by reference to the intentions of the parties, by sound business practice and in some
cases by a judgment where the risks should lie .... 5

5.Acceptance Electronic, available at: http://www.bitsoflaw.org/contract/formation/study-

note/degree/acceptance-electronic

Major Indian Case:

Bhagwandas Goverdhandas Kedia v Girdharilal Parsottamdas and co.
and others

The respondents entered into a contract with the appellants by long distance telephone.
The offer was spoken by the respondent at Ahmedabad and the acceptance was
spoken by the appellants at Khamgaon. Alleging breach of the said contract the
respondents Mod a suit at Ahmedabad. On the issue of jurisdiction raised by the
appellants, the trial court found that the Ahmedabad Court had jurisdiction to try the suit.
The High Court rejected the appellant's revision petition in liming whereupon by special
leave, he came to the Supreme Court.

HELD:

(i) 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 damage, for breach of contract.Ordinarily it is the
acceptance of offer and intimation of that acceptance which result in a contract.The
intimation must be by same external manifestation which the law regards as sufficient.
[660 C-E] Baroda Oil Cakes Traders v. Purshattam Naravandas and Anr. I.L.R.[1954]
Bom. 1137 and Sepulechre Brothers v. Sait Khushal Das Jagjivan Das Mehta, I.L.R.
[1942] Mad. 243, referred to. (ii) On the general rule that a contract is concluded
when an offer is accepted and acceptance is intimated. 6

6. BHAGWANDAS GOVERDHANDAS KEDIA V. RESPONDENT: M/S. GIRDHARILAL

PARSHOTTAMDAS AND CO. AND OTHERS, available at: http://legalplug.in/docfragment/1386912/?
big=2&formInput=bhagwandas%20doctypes:%20supremecourt%20fromdate:1-1-1965%20todate:31-12-
1965

Rome 1
The Rome I Regulation is a regulation which governs the choice of law in the European
Union. It is based upon and replaces the Convention on the Law Applicable to
Contractual Obligations 1980. The Rome I Regulation can be distinguished from the
Brussels Regime which determines which court can hear a given dispute, as opposed to
which law it should apply. The regulation applies to all EU member states except
Denmark. While the United Kingdom originally opted-out for the regulation they
subsequently decided to opt-in.

Article 8(2), which supersedes article 6(1) of the 1980 Convention, says,

To the extent that the law applicable to the individual employment contract has
not been chosen by the parties, the contract shall be governed by the law of the country
in which or, failing that, from which the employee habitually carries out his work in
performance of the contract. The country where the work is habitually carried out shall
not be deemed to have changed if he is temporarily employed in another country.

The significant change is that the applicable law is that of the country "from which the
employee habitually carries out" his or her work. It is intended to cover workers such as
airline pilots who might not work "in" any particular country, but work "from" a country.

For a temporary worker posted in another country from her home country, article 8(2)
makes the law of the home country apply. It would therefore appear that, for example,
the employer of a Greek posted worker in Germany could rely on the lesser protections
of Greek law. Article 7(2) of the 1980 Convention stated that 'Nothing in this Convention
shall restrict the application of the rules of the law of the forum in a situation where they
are mandatory irrespective of the law otherwise applicable to the contract'. Employment
law is mandatory. However, article 7(2) was not retained in the Rome I Regulation. The
replacement, article 9 defines mandatory provisions as,

provisions the respect for which is regarded as crucial by a country for

safeguarding its public interests, such as its political, social or economic organisation, to
such an extent that they are applicable to any situation falling within their scope,
irrespective of the law otherwise applicable to the contract under this Regulation.

It is clear that employment law is applicable in any situation to a contract falling within its
scope, though some have insisted, skeptically, that employment law may not be
"crucial" in this sense, following older case law of the ECJ. 7

Choice of Law in instantaneous contracts:

Choice of law is a procedural stage in the litigation of a case involving the conflict of
laws when it is necessary to reconcile the differences between the laws of different legal
jurisdictions, such as sovereign states, federated states (as in the US), or provinces.
The outcome of this process is potentially to require the courts of one jurisdiction to
apply the law of a different jurisdiction in lawsuits arising from, say, family law, tort or
contract. The law which is applied is sometimes referred to as the "proper law".

The choice of law rules for contracts are more complicated than the law affecting other
obligations because they depend on the express or implied intentions of the parties and
their personal circumstances. For example, questions as to whether a contract is valid
may depend on the capacity of the parties to enter into a contract. if the contract was
made electronically, where the contract was actually made must first be decided either
by the lex loci or the putative proper law depending on the forum rules. There may also
be problems if the parties selected the place where the contract was made in the hope
of evading the operation of some mandatory provisions in another relevant law. There
may also be problems if the parties selected the place where the contract was made in
the hope of evading the operation of some mandatory provisions in another relevant
law. Another unique characteristic of contracts is that the parties can decide which law
should apply for most purposes, and memorialize that decision into the contract itself
although not every jurisdiction will enforce such provisions.

The Rome I Regulation constrains the choice of law for special types of contracts. With
a view to the weaker parties, such as consumers, employees and insurant, special
choice of law rules are laid down by articles 5-8. The most important rules for
companies, mostly closing contracts with consumers, are listed in Art. 6. Art. 6 (I)
defines the consumer contract as a contract where the consumer acts as a private
person whereas the businessman acts for his commercial purpose. This articles also
says that in absence of an explicit choice of law, a protected consumer contract is
governed by the law of the consumer's habitual residence. In Art. 6 (II) the involved
parties are given the possibility of a free choice of law. But the choice of law is legally
void, if the consumer protection is limited by this choice. 8

Choice of jurisdiction in instantaneous contracts:

A commercial contract is a legal relationship. This raises the immediate question: a

relationship under which laws? Different countries have different laws and the content
and effect of those laws can vary greatly.

It is therefore sensible to state in a contract which set of laws will govern it. Otherwise, if
the contract terms become relevant later in a dispute between the parties, there will be
a risk of a wasteful preliminary battle about which set of laws should be used to interpret
the parties' obligations.

This is a particularly important issue in an international context, where a contract may

be connected with several places. For example, the parties may be in different countries
and the place for performance may be a third country. In such cases there are several
legal systems with potential relevance to the contract, making it all the more necessary
to decide expressly what system of law will govern.

A governing law clause does this by setting out expressly the parties' choice of the law
that will apply.

Jurisdiction clauses:
It is inevitable that contracts will produce disputes from time to time. How will those
disputes be handled?

Sometimes parties choose to resolve disputes by arbitration, in which case they include
an arbitration clause in their contract (see our e-briefing of September 2007 for drafting
tips). On other occasions, however, parties are happy to rely on the courts to handle any
disputes. In which case the question arises: which courts? As with governing law, there
is otherwise a risk of costly, time-consuming and wasteful preliminary battles about
whether disputes should be handled in the courts of country A or country B, and also a
risk of multiple claims proceeding in parallel in several different jurisdictions
simultaneously.

A jurisdiction clause therefore states that the parties have agreed to the courts of a
named country taking jurisdiction over (in other words, having the right to hear) any
disputes that may arise.

Usually a jurisdiction clause will provide for either "exclusive" or "non-exclusive"

jurisdiction. The interpretation of these terms may vary across legal systems, but in
broad terms "exclusive jurisdiction" means that only the specified courts will have
jurisdiction to hear disputes; and "non-exclusive jurisdiction" means those courts can
hear disputes but the parties are not prevented from litigating in other courts as well or
instead if they think it is appropriate to do so.

The clarity between choice of jurisdiction and choice of law?

Jurisdiction Clauses:
People sometimes become confused between jurisdiction and choice of law clauses
and agreements sometimes deal with one issue, but fail to deal with the other. A
jurisdiction clause tells you which courts will hear any dispute between the parties
aboutthe terms of the agreement or its subject-matter. Jurisdiction clauses are typically
worded as follows:

"Each party agrees to submit to the exclusive jurisdiction of the [English] courts in
relation to any claim or matter arising under this Agreement" When negotiating a clause
of this sort, it can be helpful to understand what the legal position would be if the clause
were to be omitted altogether.9

What happens if there is no clause?

If you have no jurisdiction clause and the other party is not in a Brussels Regulation
country, whether or not you can sue them in England is a matter of English law; and you
may be able to persuade the court to hear the case. Equally, and perhaps more
worryingly, whether your US customer or licensee can sue you in the US, is a matter of
the law of the US state where they bring the case.

If you do not agree your jurisdiction in your agreement or license, its not obvious where
any legal proceedings may take place. This uncertainty only increases the legal costs of
taking any action in relation to the agreement or license. It may also give your opponent
the chance to go forum-shopping; choosing a jurisdiction in which he is more likely to
obtain a favorable decision, or which he knows you will find particularly inconvenient.

7. Rome 1, available at: http://en.wikipedia.org/wiki/Rome_I_Regulation

8. Choice of law, available at: http://en.wikipedia.org/wiki/Choice_of_law

9. Choice of jurisdiction, available at: http://en.wikipedia.org/wiki/Choice_of_jurisdiction

CONCLUSION
My conclusion is, that the rule about instantaneous communications between the parties
is different from the rule about the post. The contract is only complete when the
acceptance is received by the offeror: and the contract is made at the place where the
acceptance is received.

In a matter of this kind, however, it is very important that the countries of the world
should have the same rule. I find that most of the European countries have substantially
the same rule as that I have stated. Indeed, they apply it to contracts by post as well as
instantaneous communications. But in the United States of America it appears as if
instantaneous communications are treated in the same way as postal communications.
In view of this divergence, I think that we must consider the matter on principle

The Rome I Regulation constrains the choice of law for special types of contracts. With
a view to the weaker parties, such as consumers, employees and insurants, special
choice of law rules are laid down by articles 5-8. The most important rules for
companies, mostly closing contracts with consumers, are listed in Art. 6. Art. 6 (I)
defines the consumer contract as a contract where the consumer acts as a private
person whereas the businessman acts for his commercial purpose. This articles also
says that in absence of an explicit choice of law, a protected consumer contract is
governed by the law of the consumer's habitual residence. In Art. 6 (II) the involved
parties are given the possibility of a free choice of law. But the choice of law is legally
void, if the consumer protection is limited by this choice.
 BIBLOGRAPHY

1. Acceptance, available at: http://legal-dictionary.thefreedictionary.com/acceptance

2. Mailbox rule, available at: http://definitions.uslegal.com/m/mail-box-rule/
3. Adams v Lindsell, available at: http://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-
murphy/the-bargain-relationship/adams-v-lindsell/
4. The Household Fire and Carriage Accident Insurance Company (Limited) v Grant, available at:
http://casebrief.wikia.com/wiki/Household_Fire_and_Carriage_Accident_Insurance_Company_(Li
mited)_v_Grant
5. 5.Acceptance Electronic, available at: http://www.bitsoflaw.org/contract/formation/study-
note/degree/acceptance-electronic
6. BHAGWANDAS GOVERDHANDAS KEDIA V. RESPONDENT: M/S. GIRDHARILAL
PARSHOTTAMDAS AND CO. AND OTHERS, available at:
http://legalplug.in/docfragment/1386912/?big=2&formInput=bhagwandas%20doctypes:
%20supremecourt%20fromdate:1-1-1965%20todate:31-12-1965
7. Rome 1, available at: http://en.wikipedia.org/wiki/Rome_I_Regulation
8. Choice of law, available at: http://en.wikipedia.org/wiki/Choice_of_law
9. Choice of jurisdiction, available at: http://en.wikipedia.org/wiki/Choice_of_jurisdiction