Contract Law

Contract Formation Cases

Entores v Miles Far East Co [1955] 2 QB 327

Key Point

• In the case of instantaneous communication (e.g., telex), 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

• C in London made an offer by telex (a form of instantaneous communication) to D in Amsterdam. D accepted the offer, which was then received by C in London. C brought a claim against D for breach of contract, and argued that the English courts had jurisdiction. The key issue was whether the contract was formed when the offer was sent in the Netherlands, or received in London.

Held (Court of Appeal)

• The contract was formed when the acceptance was received in London. Therefore, the contract was formed in England, and the English courts had jurisdiction.

Denning LJ

The rule regarding instantaneous communication

Examples were used to illustrate that when an offer is made by instantaneous communication the rule is that the contract is made where and when the acceptance is received by the offeror:

• “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 [to communication by post].” (p. 332)
• “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.” (p. 332)
• “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… If he wishes to make a contract, he must therefore get through again so as to make sure that I heard.” (p. 332)
• “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… It is not until his message is received that the contract is complete.” (p. 333)

Exceptions to the rule

However, the rule does not apply when there is some fault on the part on offeror, which allowed the acceptor to reasonably believe their message was received:

• “Suppose that [the acceptor] 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 he did not get it.” (p. 333)

Commentary

• This approach gives greater certainty for the offeror, since he is only bound by unnotified acceptance where there is fault.