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Entores Ltd v Miles Far East Corporation

[1955] 2 All ER 493; [1955] 2 QB 327; [1955] EWCA Civ 3

Overview

This case considered the application of the postal rule to instantaneous forms of communication (in this case Telex).

The court held the postal rule does not apply to instantaneous forms of communication. As a result, in the case of instantaneous communications (including by telex) acceptance occurs when and where received. The rule in relation to instantaneous communications is encapsulated in this passage by Lord Justice Denning:

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.


 

Facts

The Plaintiffs (Entores) were an English Company and the Defendants (Miles Far East Co) were an American corporation with agents in various locations, including Amsterdam.

UK Flag Dutch flag

An offer and acceptance in relation to a contract for Japanese cathodes was made between the companies in London and Amsterdam. Specificially:

  • the Plaintiffs (in London) sent an offer by telex to the Defendants (in Amsterdam).
  • the Defendants (in Amsterdam) sent an acceptance by telex to the Plaintiffs (in London)

 

Issue

The issue was when the contract entered into force, as this would determine whether Dutch or English law would apply to the contract. Specifically, the Court was required to determine whether the postal rule (providing that acceptance occurs when and where the letter is sent) applied to telex communications.

At the time of the case Telex communications were relatively new. Lord Justice Denning described the process as follows:

Each company has a teleprinter machine in its office; and each has a Telex number like a telephone number. When one company wishes to send a message to the other, it gets the Post Office to connect up the machines. Then a clerk at one end taps the message on to his machine just as if it were a typewriter and it is instantaneously passed to the machine at the other end which automatically types the message on to paper at that end.

Court of Appeal

Lord Justice Denning

Lord Justice Denning concluded that the postal rule does not apply to instantaneous forms of communication (including Telex) and offered the following succinct reasons [my emphasis added]:

When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing.

The problem can only be solved by going in stages. Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound. ....

Now take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes "dead" so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off: because people usually say something to signify the end of the conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I have his answer accepting the offer.

Lastly take the Telex. Suppose a clerk in a London office taps out on the teleprinter an offer which is immediately recorded on a teleprinter in a Manchester office, and a clerk at that end taps out an acceptance. If the line goes dead in the middle of the sentence of acceptance, the teleprinter motor will stop. There is then obviously no contract. The clerk at Manchester must get through again and send his complete sentence. But it may happen that the line does not go dead, yet the message does not get through to London. Thus the clerk at Manchester may tap out his message of acceptance and it will not be recorded in London because the ink at the London end fails or something of that kind. In that case the Manchester clerk will not know of the failure but the London clerk will know of it and will immediately send back a message "not receiving". Then, when the fault is rectified, the Manchester clerk will repeat his message. Only then is there a contract. If he does not repeat it, there is no contract. It is not until his message is received that the contract is complete.

In all the instances I have taken so far, the man who sends the message of acceptance knows that it has not been received or he has reason to know it. So he must repeat it. But suppose that he does not know that his message did not get home. He thinks it has. This may happen if the listener on the telephone does not catch the words of acceptance, but nevertheless does not trouble to ask for them to be repeated: or the ink on the teleprinter fails at the receiving end, but the clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that ho did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance - yet the sender of it reasonably believes it has got home when it has not - then I think there is no contract.

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.

...

Applying the principles which I have stated, I think that the contract in this case was made in London where the acceptance was received. ...

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Lord Justice Birkett

Agreed with Lord Justice Denning and noted [emphasis added]:

I am of opinion that in the case of Telex communications (which do not differ in principle from the cases where the parties negotiating a contract were actually in the presence of each other) there can be no binding contract until the offeror receives notice of the acceptance from the offeree.

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... the cases governing the making of contracts by letters passing through the post have no application to the making of contracts by Telex communications.

The ordinary rule of law, to which the special considerations governing contracts by post are exceptions, is that the acceptance of an offer must be communicated to the offeror and the place where the contract is made is the place where the offeror receives the notification of the acceptance by the offeree.

If a Telex instrument in Amsterdam is used to send to London the notification of the acceptance of an offer the contract is complete when the Telex instrument in London receives the notification of the acceptance (usually at the same moment that the message is being printed in Amsterdam) and the acceptance is then notified to the offeror, and the contract is made in London.

Such were the facts in this appeal, and I agree with the Judgment of Mr Justice Donovan and this appeal should be dismissed.

Lord Justice Parker

Reached the same conclusion as the other members of the Court and added:

... as a general rule, a binding contract is made at the place where the offeror receives notification of the acceptance, that is where the offeror is.

Since, however, the requirement as to actual notification of the acceptance is for the benefit of the offeror he may waive it and agree to the substitution for that requirement of some other conduct by the acceptor. He may do so expressly as in the advertisement cases by intimating that he is content with the performance of a condition. Again he may do so impliedly by indicating a contemplated method of acceptance, for example, by post or telegram. In such a case he does not expressly dispense with actual notification, but he is held to have done so impliedly on grounds of expediency. ...

Where, however, the parties are in each other's presence or, though separated in space, communication between them is in effect instantaneous there is no need for any such rule of convenience. To hold otherwise would leave no room for the operation of the general rule that notification of the acceptance must be received. An acceptor could say: "I spoke the words of acceptance in your presence, albeit softly, and it matters not that you did not hear me", or: "I telephoned to you and accepted and it matters not that the telephone went dead and you did not get my message". Though in both these cases the acceptor was using the contemplated or indeed the expressly indicated mode of communication there is no room for any implication that the offeror waived actual notification of the acceptance. ...

So far as Telex messages are concerned, though the despatch and receipt of a message is not completely instantaneous the parties' are to all intents and purposes in each others presence just as if they were in telephonic communication, and I can see no reason for departing from the general rule that there is no binding contract until notice of the acceptance is received by the offeror.

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