Case Facts
The defendant, McLean, held warrants for 3,800 tons of iron. He wrote to the plaintiffs, Stevenson, Jaques & Co, who were based in Middlesborough, offering to sell the iron at 40 shillings per ton, net cash, and stated that he would hold the offer open until the following Monday. The defendant was himself located in London.
On Monday morning at 9:42 AM, the plaintiffs sent a telegram to the defendant reading: "Please wire whether you would accept forty for delivery over two months, or if not, longest limit you would give." This telegram was received at Moorgate at 10:01 AM and delivered to the defendant's office in Old Jewry shortly afterwards. The iron market at Middlesborough was very unsettled at the time, and it was impossible to foresee, when the plaintiffs sent their telegram, how prices would range during the remainder of the day.
The defendant sent no reply to the 9:42 AM telegram. Instead, having received it, he sold all of the warrants through his broker, Fossick, at 40 shillings net cash. At 1:25 PM, he telegraphed the plaintiffs: "Have sold all my warrants here for forty nett to-day." This revocation telegram did not reach Middlesborough until 1:46 PM.
Before that revocation telegram arrived, the plaintiffs had found a purchaser — one Walker — willing to buy at 41 shillings and 6 pence. At 1:34 PM, therefore, before the defendant's revocation had been communicated to them, the plaintiffs telegraphed the defendant: "Have secured your price for payment next Monday — write you fully by post." By the usage of the iron market at Middlesborough, contracts made on a Monday for cash are payable on the following Monday, which explains the reference to "payment next Monday" in the acceptance telegram.
The plaintiffs subsequently had to buy in at a considerable advance on 40 shillings in order to fulfil their obligations to Walker, having sold to him at 41 shillings and 6 pence. The action was tried at the Leeds Assizes, where the jury found that the relationship between the parties was that of buyer and seller, not principal and agent. A verdict of £1,900 was given for the plaintiffs, subject to further consideration on whether the correspondence as a whole amounted to a binding contract. The matter came before the Queen's Bench Division as a Further Consideration. Argument was heard on 7 May 1880 and judgement was delivered on 25 May 1880.
Held
The court held that a binding contract had been formed between the parties, and that the defendant's refusal to deliver the iron constituted a breach of that contract. Two distinct questions fell to be determined: first, whether the plaintiffs' 9:42 AM telegram amounted to a rejection of the defendant's offer or a counter-offer; and secondly, whether the defendant's attempted revocation at 1:25 PM was effective before the plaintiffs' acceptance at 1:34 PM.
On the first question, the court held that the plaintiffs' telegram was not a rejection of the offer but merely an inquiry as to whether the defendant would be willing to modify its terms. The language of the telegram — "Please wire whether you would accept..." — was the language of inquiry, not of offer. It did not purport to propose new terms in substitution for those offered by the defendant; it simply asked whether different terms might be available. Hyde v Wrench [1840] was distinguished on this basis: in that case, the offeree had responded with a positive counter-proposal, stating a different price, which the court had held to operate as a rejection. The plaintiffs here had done no such thing. Moreover, the commercial context reinforced this conclusion: the iron market was unsettled and prices were uncertain throughout the day. It would have been wholly unreasonable to construe the telegram as a rejection when the plaintiffs still had the whole of the business hours of Monday remaining and could not yet know whether they would be able to find a buyer.
On the second question, the court held, following Byrne v Van Tienhoven [1880], that revocation of an offer is only effective upon actual communication to the offeree. The defendant dispatched his revocation telegram at 1:25 PM, but it did not arrive at Middlesborough until 1:46 PM. The plaintiffs had already telegraphed their acceptance at 1:34 PM. The offer was therefore still open and capable of acceptance at 1:34 PM, and the acceptance at that time formed a binding contract. The defendant's revocation, arriving twelve minutes later, was too late.
The action was accordingly maintainable, and the verdict of £1,900 in favour of the plaintiffs was upheld.
Ratio Decidendi
The ratio of the case rests on two closely related propositions, both of which were directly in issue and necessary to the decision.
First, a response to an offer that merely inquires whether the offeror would be willing to vary or modify the terms of that offer does not constitute a counter-offer and does not operate as a rejection of the original offer. The original offer therefore remains open. This proposition is sensitive to both the language used and the surrounding commercial context. A telegram phrased as "Please wire whether you would accept..." is a request for information, not a statement of new terms. Had the plaintiffs instead telegraphed "I offer forty for delivery over two months," the position would have been different, and Hyde v Wrench [1840] would have applied. The distinction between a request for information and a counter-offer is thus a question of construction, to be resolved by examining the words used and the circumstances in which they were used.
Secondly, the revocation of an offer is not effective until it has been actually communicated to the offeree. An offeror who has agreed to keep an offer open until a specified time remains bound by that promise in the sense that any purported revocation does not take effect until the offeree receives notice of it. Accordingly, if the offeree accepts before the revocation reaches them, a valid contract is formed, even if the offeror dispatched the revocation at an earlier point in time. This principle, followed from Byrne v Van Tienhoven [1880], confirms a fundamental asymmetry in the postal and telegraphic rules: while acceptance may in certain circumstances take effect on dispatch, revocation takes effect only on actual receipt.
Together, these two propositions mean that the plaintiffs' 1:34 PM acceptance was met with a valid, subsisting offer, and a contract was therefore concluded at that moment.
Obiter Dicta
Not applicable.