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DR.

RAM MANOHAR LOHIYA


NATIONAL LAW UNIVERSITY

2014-15
FINAL-DRAFT
Law of Contract-I

“Role and Importance of Communication and Completion of


Communication in India Contract Act”

Submitted to: Submitted by:

Dr. V. Vishalakshi Arnab Roy and Arpit Dwivedi

Assistant Professor (Law) Roll no.: 42 & 43

Section: A

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Acknowledgement

We would like to express our gratitude to all those who helped us in this topic. We extend our sincere
acknowledgements to Dr. V. Vishalakshi ma’am who gave us the opportunity to make a project on
“Role and Importance of Communication and Completion of Communication in India Contract Act”.
We are deeply indebted to her whose help and stimulating suggestion helped us in choosing this
topic.

We would also like to thank Hon’ble Vice Chancellor sir for providing our institute with all the
facilities which are required for the completion of this project.

We further extend our thanks to library staff of DR. RAM MANOHAR LOHIYA NATIONAL
LAW UNIVERSITY who helped us in getting all the materials necessary for the project.

Arnab Roy and Arpit Dwivedi

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Table of Contents

Contents
Table of authorities ......................................................................................................................... 4
Principles of Communication ......................................................................................................... 5
Legal Provisions.............................................................................................................................. 5
Communication of Acceptance ....................................................................................................... 6
Acceptance by conduct- .............................................................................................................. 6
Communication of acceptance to the proposer himself- ............................................................. 6
One cannot impose a burden of refusal-...................................................................................... 6
Communication by the acceptor himself- ................................................................................... 6
Communication when complete ..................................................................................................... 6
Modes of communication ............................................................................................................... 8
[A] Instantaneous Mode of Communication ............................................................................... 8
[B] Non-Instantaneous Mode of Communication ....................................................................... 9
Place of Contract and which court’s jurisdiction shall apply ...................................................... 9
Revocation of proposals and acceptances ..................................................................................... 10
Revocation of Acceptance ......................................................................................................... 11
Revocation in contracts by post ................................................................................................ 12
Lapse of offer ................................................................................................................................ 12
Communication of Revocation should be from Offeror Himself ............................................. 13
Absolute and Unqualified ............................................................................................................. 13
Counter Proposals ..................................................................................................................... 14
Partial acceptance ...................................................................................................................... 15
Inquiry into terms of proposal ................................................................................................... 15
Bibliography ................................................................................................................................. 16

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Table of authorities
Cases

(1830) 9 Shaw 190: (1830) 9 Court of Sessions 190. ................................................................... 11


(1840) 3 Beav 334. ........................................................................................................................ 14
(1863) 7 L.T. 835. ........................................................................................................................... 5
(1892) 2 Ch 27. ............................................................................................................................. 12
(1900) 24 Bom 510, 523. .............................................................................................................. 13
(1913) 11 All. L.J. 489. ................................................................................................................... 6
(1953) 2 Lloyd’s Rep 487. ............................................................................................................ 14
(2006) 5 Bom. C.R. 105. ................................................................................................................. 5
[1833] EWHC KB J44. ................................................................................................................... 7
AIR 1926 Lah 625. ....................................................................................................................... 14
Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas AIR 1966 SC 543..................... 8
Cole v. Cottingham, (1831) 173 E.R. 406....................................................................................... 4
Entores Ltd v Miles Far East Corporation [1955] EWCA............................................................. 8
ILR (1918) 42 Bom 595. ............................................................................................................... 15
JK Enterprises v State of Madhya Pradesh AIR 1997 MP 68. ....................................................... 7
Kilburn Engineering Ltd. v. Oil & Natural Corpn. Ltd., A.I.R. 2000 Bom. 405, 407. .................. 5
Lingo Raoji Kulkarni v Secretary of State AIR 1928 Bom 201 ..................................................... 9
Republic Medico Surgical Co v Union of India AIR 1980 Kant 168. ............................................ 9
UPSEB v. Goel Electric Stores, AIR 1977 All 494. ..................................................................... 15

Other Authorities

Avtar Singh, Contracts and Specific Relief 25(11th ed. Eastern Book Company).......................... 5

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Principles of Communication

The Communication between parties is an important step for the formation of a contract between
them. Among various factors, this one is important as it determines the time of coming in force of
a contract and the place. The mode of communication is also important and Indian Courts have
evolved a principle for the same, first in case of communication which takes place between parties
in each other presence and second when the communication is through telephone.

Legal Provisions
Section 3-7 of the Indian Contract Act deals with communication and the role it plays in the
formation of contracts in the same.

Every offer must be communicated: Unless the acceptor comes to know about an offer, there
cannot be the subsequent acceptance and consequently no contract. This is true both for specific
as well as of general offers.1 Offer and acceptance must be based on three components: certainty,
commitment and communication and if any of these three components missing either in offer or in
acceptance, there cannot be a valid contract.2

Section 3 says: The communication of proposals, the acceptance of proposals, 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 intends to communicate
such proposal, acceptance or revocation, or which has the effect of communicating it.

In this section, the communication as an element of contract has been introduced. It specifies that
this element in acceptance or revocation of proposals shall be done in a specified way. It can by
doing an act or abstaining from doing it and the condition precedent herein is that this performance
or abstain must be in consonance with the way in which someone intends to communicate it or
that such a performance or abstain must have the effect of communicating the same and whether
it had the effect of communicating it has to be decided by the court if in dispute.

1
Cole v. Cottingham, (1831) 173 E.R. 406.
2
Kilburn Engineering Ltd. v. Oil & Natural Corpn. Ltd., A.I.R. 2000 Bom. 405, 407.

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Communication of Acceptance
Acceptance by conduct- Acceptance does not have to done explicitly only. Acceptance can
even be done implicitly i.e., by conduct. Boarding a taxi after the driver has presented a rate is an
implied acceptance of paying the same. Acceptance of money after prior information that higher
rates of interest will be charged is an implied acceptance of paying it back with the increased rates
of interest. These are few examples of acceptance by conduct. This however, must be distinguished
from mental acceptance. Mere mental assent to an offer does not conclude a contract either under
the Indian Contract Act or in English Law.3

Communication of acceptance to the proposer himself- Acceptance has to made to the


proposer and proposer only if there is no other agent specified to the proposee. A communication
to any other person is as ineffectual as if there has been no communication at all.

One cannot impose a burden of refusal- Although in Felthouse v Bindley4, it was allowed to
happen, but in Cotton Corpn. Of India Ltd v. Bombay Dyeing & Mfg Co. Ltd5, the term in the
proposal that if not rejected upto a certain date, it would be deemed to have been accepted was
held to be of no effect. An offeror cannot say that if no answer is received within a certain time,
the same shall be deemed to have been accepted.

Communication by the acceptor himself- Acceptance has to be made by the acceptor himself
or an authorized person as he may choose. If however, any other person accepts an offer for the
proposee, it will have no effect and shall bring in no contract.

Communication when complete


Section 4 says: The communication of a proposal is complete when it comes to the knowledge
of the person to whom it is made.

The most important thing to be noted in this section lies in the first sentence. The communication
of a proposal is complete only when it comes to the knowledge of the person to whom it is made.
It means that for a valid offer, the only prerequisite is that the person to which the offer is made
should come to know about the existence of such offer. There is no requirement of the person who

3
Avtar Singh, Contracts and Specific Relief 25(11th ed. Eastern Book Company).
4
(1863) 7 L.T. 835.
5
(2006) 5 Bom. C.R. 105.

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proposes to actually come to know that the other party has received the offer. This has been done
to provide validity to general offers where it is not reasonably possible for the proposer to
anticipate its acceptance. Cross-offers, for that very reason do not make a contract, even though
their terms are identical.*

*However, in my personal opinion, I don’t think that cross offers should not be treated as contract.
When two parties agree upon the same thing at the same time and even communicate this to the
other party, the role of law should always be to ensure that the formalities are completed as soon
as possible and that the parties do not get into another set of offers and acceptance.

This principle has been dealt with in the Allahabad High Court in Lalmal Shukla v. Gauri Dutt.6
In this case, defendant’s nephew absconded from home. He sent his servant in search of the boy.
When the servant had left, the defendant by the hand bills offered to pay Rs. 501 to anybody
discovering the boy. The servant came to know of this offer only when he had already traced the
missing child. He, however, brought an action to recover the reward. It was said that to constitute
a contract, there must be acceptance of an offer and for acceptance, there has to be knowledge of
an offer.

However in Williams v. Carwardine7 the plaintiff who knew that the reward had been announced
to be given to anyone who gave information leading to the conviction of an assailant for murder,
gave the necessary information. While giving the information the plaintiff mentioned that she had
given the information to ease her conscience. At that time she did not intend to claim the reward.
It was held that since the offer had been accepted with its knowledge, there was a valid contract
and, therefore, she was entitled to claim the reward.

Subsequently, the principle entitled “If the plaintiff has the knowledge of the offer, his acting in
accordance with the terms thereof amounts to the acceptance of the same” came into being. In
such a case it is immaterial that at the time of accepting the offer the acceptor does not intend to
claim the reward mentioned in the offer.

6
(1913) 11 All. L.J. 489.
7
[1833] EWHC KB J44.

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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;

Logically speaking, the communication of acceptance should have been complete when it comes
to the knowledge of the proposer. However, this is not always the case in the law of contracts in
India. There are certain exceptions to this rule.

Firstly, if the acceptance is received but only due to the hesitance of the proposer, he does not find
it. (Ex. If he does not read the received letter or he does not ask for the words on the telephone to
be repeated although he does not hear them clearly.)

Secondly, if the acceptance is sent through post, it binds the proposer even if he does not know
about it.* A contract is concluded even if the acceptance gets lost in post and never reaches the
proposer, particularly when sent to the offeror on the address given by the offeror.8 This suggests
that communication of acceptance is complete when the letter is put in a course of transmission to
the proposer and the proposer is then bound. He cannot rescind back his offer. Neither can he
change any terms of the offer accepted.

*In my personal opinion, this should never be the case. One party will be unjustly asked to perform
the contract even if he has not received the acceptance following this rule.

Modes of communication
There are two modes of communication for parties at distance when it come to the law of contracts
in India. [A] Instantaneous Mode of Communication [B] Non-Instantaneous Mode of
Communication

[A] Instantaneous Mode of Communication

In cases of instantaneous mode of communication, the contract is formed only when the acceptance
is received by the proposer. The rule is rational because the oral acceptance may be drowned by
the noise of a flying aircraft, or the telephone may go dead or feeble and indistinct, and not be

8
JK Enterprises v State of Madhya Pradesh AIR 1997 MP 68.

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heard and it is easy to call back or ask the acceptor to repeat his words. This principle was dealt in
detail in the Entores case9 where the offer was made by telex in Amsterdam and notification of
the acceptance was received in London also by telex; it was held that “…in the case of oral
communication or by telex or telephone, an acceptance is communicated when it is actually
received by the proposer and the contract resulting thereupon was held to be made in London.”
In India, the Entores case has been upheld in Bhagwandas v Girdharlal10, where although J.
Hidyatullah was of the opinion that Section 4 was flexible enough to accommodate Telex
communication, the majority decided in favour of Entores case.

[B] Non-Instantaneous Mode of Communication

In case of non-instantaneous mode of communication like letters or telegram, the contract is


formed when the acceptance letter is posted or the telegram is given to the telegram officer. This
is a slight deviation from the English Law. In English Law, after the letter gets posted, both the
parties get bound and the contract is formed i.e., if any party does not go by the provisions of the
contract, it will result in a breach. Even if the acceptance letter has not been received by the
proposer, the proposer is bound both in Indian and in English Law.

Place of Contract and which court’s jurisdiction shall apply

The Indian Contract Act is silent about this aspect. Therefore there have been different approaches
to determine the place of the contract. In determining which court’s jurisdiction applies in cases of
breach, the fundamental question is where the contract was formed. A contract concluded by both
parties in the presence of each other is concluded at that place. So, where is the place where the
two parties come in consensus? It is the place where the acceptance was made in cases of postal
communication (The acceptor, keeping in mind the offer, accepted it here). But, in cases of
instantaneous communications, it is the place where the offeror has come to know about the
acceptor’s communication. The rationale behind coming up with this rule is “…The contract is
completed when a proposal made is accepted; it is therefore the acceptance that gives rise to the
‘cause of action’ and not merely the proposal.”11

9
Entores Ltd v Miles Far East Corporation [1955] EWCA
10
Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas AIR 1966 SC 543.
11
Republic Medico Surgical Co v Union of India AIR 1980 Kant 168.

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As against the acceptor, when it comes to the knowledge of the proposer.

This says that only when the offeror receives the acceptance, the acceptor is bound. That means,
after sending the acceptance letter, the acceptor if he wants to can rescind the acceptance with a
faster mode of communication such that his revocation reaches faster to the offeror.* If however,
by any chance, the acceptance letter reaches before the revocation letter, the contract shall be
deemed to be concluded and any breach from the terms can constitute breach. In this aspect, the
law of contracts in India and England are dissimilar12. In English law, after the acceptor accepts
the offer, the contract concludes then and there and but the acceptor and offeror becomes bound
unlike in Indian Law, where in the same circumstance, only the offeror gets bound. This, to me is
fairer as it provides sufficient room for reconsideration of offer after someone has accepted it. If,
in hindsight the acceptor thinks that it was not a good deal, if it is not too late, he always has that
option of rescinding the acceptance with a faster mode of communication.

*In my personal opinion, I think it would be better for the courts to accommodate another extension
to the provision. If the acceptance letter is posted and subsequently the acceptor wants to rescind
his acceptance and does the needful, even if the acceptance letter reaches the acceptor first and
before receiving the revocation letter, the offeror has not acted upon it, the law should allow the
acceptor to rescind back his acceptance as if there was no breach in doing so in the interest of
equity and justice.

Revocation of proposals and acceptances


Section 5 provides that: A proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards.

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.

An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.

12
Lingo Raoji Kulkarni v Secretary of State AIR 1928 Bom 201

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The communication of an acceptance is complete 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
in the 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 while it is complete as against the person to whom it is made, when it comes
to his knowledge.

Revocation of Acceptance
According to English law an acceptance once made is irrevocable. In the words of Anson:
“Acceptance is to offer what a lighted matches to a train of gunpowder. Both do something which
cannot be undone.” This rule is obviously confined in its operation only to postal acceptance. It is
suggested in Anson that in other cases “an acceptance can be revoked at any time before acceptance
is complete, provided, of course, that the revocation itself is communicated before the acceptance
arise”.

In India, on the other hand, acceptance is generally revocable. An acceptor may cancel his
acceptance by a speedier mode of communication which will reach earlier that the acceptance
itself. Section 5 is the relevant provision:

An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.

Thus the communication of revocation should reach earlier than the acceptance itself. What will
be the result if they reach together. The section does not make this point clear. But the only
illustration appended to the section seems to show that in such a case also the acceptance will be
deemed to have been revoked. The illustration is as follows:

“A proposes, by letter sent by post, to sell his house to B. B accepts the proposal by a letter sent
by post. B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.”

That this should be the principle is further borne out by Countess of Dunmore v. Alexander.13

13
(1830) 9 Shaw 190: (1830) 9 Court of Sessions 190.

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A proposal of service made by a letter was sent through an agent. The agent received the
acceptance and forwarded to the principal, but the principal was away that day. The next day the
agent received the revocation and forwarded it to the principal, who received the two letter
together.

The revocation was held to be effective, the court saying that “the admission that the two letters
were received puts an end to the case.”

Revocation in contracts by post


In contracts by posts, it has to be seen, as to at what time the communication of acceptance is
complete as against the offeror, because no revocation is possible after such communication is
completed. This may be made further clear by referring to the following illustration.14

A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent
by post. A may revoke his proposal at any time before or at the moment when B posts his letter of
acceptance, but not afterwards.

Lapse of offer
Acceptance should be made before the offer lapses. An offer lapses in the circumstance provided
for in Section 6.

A proposal is revoked-

(1) By the communication of notice of revocation by the proposer to the other party.

A revocation is effective only when it is brought to the mind of the person to whom the offer is
made. This was laid down in Henthorn v. Fraser.15

The secretary of a building society handed to the plaintiff in the office of society an offer to sell a
property at £ 750 giving him the right to accept within fourteen days. The plaintiff resided in a
different town and took away with him the offer to that town. The next day at about 3:50 PM he
sent by post his letter of acceptance. This letter was received at the society’s office at 8:30 PM.
But before that at about 1:00 PM the society had posted a letter revoking its offer. The revocation

14
Illustration to sec. 5.
15
(1892) 2 Ch 27.

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and the acceptance crossed in the course of post. The plaintiff received the letter of revocation at
5:30 PM. The revocation was held to be ineffective.
Explaining the principle, Lord Herschell observed: “If the acceptance by the plaintiff of the
defendants offer is to be treated as complete at the time the letter containing it was posted, I can
entertaining no doubt that the society’s attempted revocation of the offer must be considered as
continuously making it until he has brought to the knowledge of the person to whom it was made
that it is withdrawn.”
Thus the communication of revocation should reach the offeree before the acceptance is out of his
power.

Communication of Revocation should be from Offeror Himself


It is, of course, necessary that the communication of revocation should be from the offerer or from
his duly authorised agent. But it has been held in England in Dickinson v. Dodds16 that it is enough
if the offeree knows reliably that the offer been withdrawn. The facts were:

The defendant signed and delivered to the plaintiff an offer to sell a property at a price fixed and
added a post script saying: “This offer to be left open until Friday 9:00 AM, 12th June.” A day
before the expiry of this period the plaintiff was informed by third person that the property had
already been sold to another. However, the plaintif, before 9:00 AM of 12th June, found the
defendant entering a railway carriage and handed him the notice of acceptance.

The court held “that the document amounted only to an offer, which might be withdrawn at any
time before acceptance, and that a sale to a third person which came to the knowledge of the person
to whom the offer was made was an effectual withdrawal of the offer”. James LJ added: “In this
case, beyond all question, the plaintiff knew that Dodds was no longer minded to sell the property
to him as plainly and clearly as if Dodds had told him in so many words, ‘I withdraw the offer’.

Absolute and Unqualified


Section 7 provides:

In order to convert a proposal into a promise, the acceptance must be absolute and unqualified.

16
(1876) 2 Ch D 463 at p. 472.

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Counter Proposals
“Any departures from the terms of the offer or any qualification vitiates the acceptance unless it is
agreed to by the person from whom the offer comes. In other words, an acceptance with a variation
is no acceptance; it is simply a counter-proposal, which must be accepted by the original promisor
before a contract is made.”

This was laid down in Haji Mohamed Haji Jiva v. E. Spinner17. The facts of the case were as
follows:

Before accepting an offer the plaintiff introduced certain terms like ‘Free Bombay Harbour and
interest’, which were not there in the original offer. This, the defendant refused to accept.
Subsequently the plaintiff communicated his acceptance of the original offer, but the defendant
did not assent to this. Plaintiff’s action for breach of contract was dismissed.

Sir Jenkins CJ said: “Unless there is an absolute and unqualified acceptance, the stage of
negotiation has not yet passed, and no legal obligation is imposed.” The plaintiff’s first acceptance
with new terms was in fact a counter offer which implied the rejection of the original offer. A
counter offer puts an end to the original offer and it cannot be revived by subsequent acceptance.

In Nihal Chand v. Amar Nath,18A offered by a letter to sell certain claims to B at a specified rate.
B in turn offered to buy at a little less rate which A did not accept, but he did not withdraw his
original offer. Then B accepted the rate as originally offered. This also A did not accept and B
sued him for breach of contract. It was held that B by his counter-offer to buy at a reduced rate
impliedly rejected A’s original offer and there was no contract.

The court relied upon Hyde v. Wrench.19 In this case an offer to sell a farm for £ 1,000 was rejected
by the plaintiff, who offered £ 950 for it. This was turned down by the offeree and then the plaintiff
agreed to pay £ 1,000. Holding that the defendant was not bound by any such acceptance, the court
said: “The defendant offered to sell it for £ 1,000, and if that had been at once unconditionally
accepted, there would undoubtedly have been a perfect binding contract, instead of that, the
plaintiff made an offer of his own, to purchase a property for £ 950 and thereby rejected the offer

17
(1900) 24 Bom 510, 523.
18
AIR 1926 Lah 625.
19
(1840) 3 Beav 334.

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previously made by the defendant. It was not afterwards competent for him to revive the proposal
of the defendant by rendering an acceptance of it, and that, therefore, there exists no obligation of
any sort between the parties.”

In Compagnie de Commerce et Commission, SARL v. Parkinson Stove Company Ltd 20, it was
held, where the proposal carried an acceptance slip with certain conditions and said that the
acceptance should be signed on the slip and not in any manner and the offeree accepted by means
of a separate letter without signing the slip, it was held that the acceptance was good because the
offeror had to protest against such acceptance and he having not done so the condition on the slip
became waived.

Partial acceptance
Acceptance should be of the whole of the offer. The offeree cannot accept the part of its terms
which are favourable to him and reject the rest. Such an acceptance is another kind of counter-
proposal and does not bind the offeror unless he agrees to the qualified acceptance. In the case of
Ramanbhai v. Ghasiram21, an application for certain shares in a company was made on the
conditions that the applicant would be appointed cashier in a new branch of the company. The
company allotted him some shares without fulfilling the conditions and claimed the share money.

It was held “that the petitioner’s application for 100 shares was conditional and that he had no
intention to become a member of the company when he applied for the shares until he was
appointed a cashier in the branch office.”

Inquiry into terms of proposal


A mere inquiry into the terms of a proposal is not the same thing as a counter-proposal. In a
negotiation for the sale of quantity of iron, the proposal was “I would now sell for 40s. net cash,
open till Monday.” The offeree inquired by wire whether the offeror would accept 40s for
deliveries over two months or less. The offeree, treating this as a rejection, sold of the goods. He
was held liable for the breach. To seek an explanation of the terms is something different from
introducing new terms.22 An inquiry about the technical details of a proposal is not a counter-

20
(1953) 2 Lloyd’s Rep 487.
21
ILR (1918) 42 Bom 595.
22
UPSEB v. Goel Electric Stores, AIR 1977 All 494.

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proposal. Acceptance of the proposal, the contract will be created on the basis of terms and
conditions of the original proposal including arbitration clause.23

In Shri Ram Metal Works v. N.S.I. Corpn,24 a Government company drew out a scheme for
procuring machinery on a hire-purchase basis for small-scale firms. A firm requested the company
to arrange for the supply of a machine of a particular maker. The company requested the maker to
supply the machine to the firm along with agreement forms for signature. The firm received the
machine but did not sign the forms. Even so it was held that a complete agreement had already
arisen between the parties.

Bibliography
Books:

Law of Contracts and Specific Relief by Avtar Singh

The Law of Contracts by Anson

Indian Contracts Act by R.K. Bangia

The Indian Contract and Specific relief Acts by Pollock and Mulla.

Web Sources:

http://www.lexinexis.com

http://blog.contractdrafting.co.in/Blog/index.php/2010/03/03/communication-under-indian-
contract-act/

23
Fair Engineers P Ltd v. N.K.Modi, (1966) 6 SCC 385.
24
AIR 1977 Kant 24.

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