In contract law, it is essential to ascertain when and where a contract was concluded because this can affect the rights and liabilities of the parties, as well as the jurisdiction of the courts. A contract becomes binding when it is accepted, and the proposal cannot be revoked after this point[1]. The jurisdiction of the Court to hear a case relating to a contract is also determined by where the contract was accepted because the acceptance of the contract gives rise to a part of the cause of action[2].
According to Section 4 of the Indian Contract Act, 1872 the communication of an acceptance becomes binding on the acceptor when it is put in the course of transmission to the proposer and is out of the power of the acceptor[3].
This section seems to contemplate the communication of acceptances over a distance through a slower medium, such as traditional mail. There is a time lag between the acceptor dispatching the acceptance and the proposer receiving it. This is called the postal or mailbox rule, and it makes acceptances binding even if they never reach the proposer at all[4]. However, proposers can always stipulate a term which states that they will not be bound until they actually receive an acceptance, or they can stipulate a last date by which they must receive an acceptance[5].
For ascertaining the time and place of the conclusion of e-contracts, courts have devised different rules for instantaneous and non-instantaneous modes of electronic communication. Modes such as telephones, fax, and telex are considered instantaneous, while e-mails are considered non-instantaneous.
Entores Ltd. v. Miles Far East Corp[6] is an English case where the Court demarcated the categories of non-instantaneous and instantaneous modes of communication. The case dealt with an acceptance sent by telex, but the Court also included acceptances over the telephone in its judgement. The Court likened telex and telephony to instantaneous contracts made when two people are in the presence of each other and the acceptance is orally conveyed[7]. The Court reasoned that if a contract is being made over these modes, and the acceptance is not received due to a technical difficulty or a loud background noise, the proposer can immediately ask the acceptor to repeat what he said, and the contract would be completed upon repetition[8].
The Court held that the instantaneous nature of telex and telephones separated them from the post, therefore, the postal rule could not be applied to them, and the contract would be completed when the proposer actually receives the acceptance, and the contract is concluded at the place where acceptance is received[9]. One exception to this rule is when the proposer has not received the acceptance but he does not ask the acceptor to repeat it, and the acceptor has no reason to believe that his acceptance was not received. In this case, the proposer did not receive the acceptance due to his own fault, hence, he would still be bound by the contract[10].
In another English case, Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH[11], the House of Lords dealt with deciding the place of contract when acceptance was sent through telex. The Court observed that the general rule is that a contract is formed when the acceptance is received, at the place of receipt, and the postal rule is an exception which applies to non-instantaneous distant communication[12]. Therefore, the Court held that in a simple case of communication through telex, the general rule applies and the contract is formed upon receipt of acceptance[13].
In Bhagwandas Goverdhandas Kedia v M/s Girdharilal Parshottamdas & Co., the Supreme Court of India decided the issue of place of contract in case of contracts made over the telephone[14]. The Court followed the English decisions discussed above and held that in instantaneous modes of communication like the telephone, the general rule of receipt applies and the contract is formed when and where the acceptance is received by the proposer[15]. The Court also observed that the postal rule is an exception to the general rule which was created solely for the sake of convenience[16].
While fax, telex, and telephones have been held to be instantaneous modes of communication, contracts formed through e-mails find themselves in a peculiar position. There is a divergence of opinions on which rule should apply to them. Some commentators believe that e-mails are a non-instantaneous means of communication and the postal rule should apply to them, while others argue otherwise.
Those in favour of treating e-mails as non-instantaneous argue that they are just an electronic version of conventional mail, which is handled by Internet Service Providers (ISPs) and email services, just as mail services handle mail[17]. Also, just like normal mail can get lost, emails too can fail to reach their destination due to delays, network failures, hacking, incorrect addresses, etc.[18] It has also been argued that it can sometimes be difficult for the sender of an e-mail to find out if his e-mail has reached its destination. This can be done using transmission reports, but reports are sometimes delayed[19]. Lastly, e-mails are not considered instantaneous because they are split into packets and pass through multiple computers and ISPs[20].
Those in favour of treating e-mails as instantaneous and applying the general rule of receipt to them argue that, unlike mail, it is much easier to ascertain whether an e-mail has reached its destination. The sender can rely on transmission reports to alert him when an e-mail is not delivered[21]. Further, extending the reception rule to e-mails will bring them on par with fax and telex, and lead to media neutrality in e-contracting[22]. Also, the reason that the postal rule was adopted for mails in the first place was because mails are a slow and unreliable mode of communication, and were even more so in the 19th Century. E-mails are much more reliable and are virtually instantaneous[23].
Another argument is that just like emails, telexes and faxes can also suffer from network failures or technical difficulties, and those messages also go through exchanges, but they are considered instantaneous[24]. Lastly, e-commerce has opened up the world, e-contracts are made between parties in different countries. This requires some uniformity in laws, which cannot be achieved if the postal rule is extended to e-mail, as civil law countries do not recognise it[25].
Whether e-mails are instantaneous or not is not a settled issue, but when analysing arguments, it is important to keep the rapid pace of technological advancement in mind. Most of the discourse around this issue took place in the early 2000s when e-commerce was emerging. E-mail and the state of the internet as a whole have changed drastically since then. 12 billion e-mails were sent every day in the year 2000[26], compared to 306 billion daily e-mails in 2020[27]. On the other hand, faxes and telexes, which were once considered more reliable than e-mail, are rarely seen. When the arguments discussed above took place, it could take multiple days to send an e-mail[28].
This is no longer the case. Indian Courts have already held that telexes and faxes are instantaneous, and it does not seem logical to state that e-mails are not. In Bhagwandas Goverdhandas Kedia, the Court observed that the postal rule is not based on any logic, but exists only for the sake of convenience[29]. The rule was devised specifically because mail in the 19th Century was unreliable, and it was not possible for the parties to constantly acknowledge the receipt of letters. The nature of e-mail is different from conventional mail, and it is easier to determine the time when an e-mail is received, and it is also possible for the sender to find out if an e-mail is not delivered. For the sake of international uniformity and neutrality amongst the different modes of electronic communication, it would be better if the postal rule were not extended to e-mails.
Depending on whether one chooses to apply the postal rule to e-mails or not, the next important questions are, how should the time of dispatch or receipt of an e-mail be ascertained? In the postal rule, the time when an acceptance is dispatched is the time of contract formation. In the receipt rule, the time when an acceptance is received by the proposer is the time of contract formation.
According to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce, 1996, the dispatch of a data message occurs when it enters an information system out of the control of the originator or on a person who sent it on behalf of the originator unless otherwise agreed to by the originator and addressee[30]. Unless otherwise agreed by the originator and addressee, if the addressee has designated an information system for receiving messages, receipt occurs when the message enters the designated system, and if it is sent to an information system other than the designated one, receipt occurs when the addressee retrieves the message[31]. If the addressee has not designated an information system, receipt occurs when the message enters any information system of the addressee.
A data message is information generated, sent, receives, or stored by electronic means, including e-mail[32]. An information system is a system for generating, sending, receiving, storing, or otherwise processing data messages[33]. From the broad definition of information system, it can be surmised that an electronic inbox meant to receive e-mail or e-mail addresses can be an information system[34].
The provisions for time of dispatch and receipt in India are contained in section 13 of the Information Technology Act, 2000, and are virtually identical to article 15 of the Model Law[35]. The phrase, “information system” has been replaced by, “computer resource” which means any computer, computer network, computer system, or software[36]. Also, the phrase, “data messages” has been replaced by “electronic record”, which means data or record generated, image or sound stored, received, or sent in an electronic form or microfilm or computer-generated microfiche [37].
Eighth in the series of articles on E-contracts by Tanisha Agrawal and Aasil Singh, BA LLB students of Maharashtra National Law University, Mumbai
