Contract Law

Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation

[1979] 1 WLR 401 (CA)

Facts

Butler offered to sell a machine to Ex-Cell-O for approximately £75,000.
Butler’s quotation contained its standard terms.
One term was a price-variation clause, allowing Butler to increase the price if manufacturing costs rose before delivery.
The quotation also stated that Butler’s terms would prevail over any terms in the buyer’s order.
Ex-Cell-O responded by placing an order on its own standard terms.
Ex-Cell-O’s terms did not contain a price-variation clause.
The order included an acknowledgment slip stating that the order was accepted on Ex-Cell-O’s terms.
Butler signed and returned the acknowledgment slip.
Butler’s accompanying letter referred to its earlier quotation.
When the machine was delivered, Butler demanded an additional amount under its price-variation clause.
Ex-Cell-O refused, arguing that the contract was governed by its own terms.

An acceptance must correspond with the offer.
A purported acceptance that introduces different terms is generally a counter-offer.
A counter-offer rejects the original offer and becomes a new offer capable of acceptance.
In a “battle of forms,” courts traditionally apply the last-shot rule:
the last set of terms sent before performance will govern if the other party accepts those terms, expressly or by conduct.
The documents must also be read objectively to determine whether the parties reached agreement on essential terms.

Butler’s quotation was the original offer and included the price-variation clause.
Ex-Cell-O did not accept that offer unchanged.
Instead, its purchase order introduced its own terms and excluded Butler’s price-variation clause.
The purchase order was therefore a counter-offer.
The acknowledgment slip made the position particularly clear because it required Butler to accept the order on Ex-Cell-O’s terms.
Butler signed and returned that slip.
This amounted to acceptance of Ex-Cell-O’s counter-offer.
Butler argued that its accompanying letter referred back to its original quotation and therefore preserved its terms.
The Court rejected this because the signed acknowledgment objectively showed acceptance of the buyer’s terms.
A general reference to the earlier quotation was not strong enough to override the express acceptance contained in the signed slip.
Therefore, the final contractual document before performance was Ex-Cell-O’s order and acknowledgment form.
Lord Denning suggested that courts should consider all documents together and identify the terms on which the parties objectively agreed, rather than mechanically applying offer and counter-offer analysis.
However, even under this broader approach, the documents showed that Ex-Cell-O’s terms prevailed.
Since the price-variation clause appeared only in Butler’s rejected quotation, Butler could not claim the increased price.

The Court of Appeal held that the contract was formed on Ex-Cell-O’s terms.
Butler’s price-variation clause was not incorporated.
Butler was therefore entitled only to the original fixed price.
Use this case for: in a battle of forms, a response containing different terms is a counter-offer, and the last accepted set of terms ordinarily governs.