Contract Law

Entores Ltd. v. Miles Far East Corporation

[1955] 2 QB 327

Facts

Entores was an English company based in London.
It negotiated with Miles Far East Corporation, whose representatives were in Amsterdam.
The parties communicated through telex, an almost instantaneous form of communication.
Entores sent an offer from London.
The other party transmitted acceptance from Amsterdam, which was received on Entores’ telex machine in London.
A dispute later arose, and Entores wanted to bring proceedings in England.
To establish English jurisdiction, it had to show that the contract was formed in London.
The defendant argued that the contract was formed in Amsterdam, where the acceptance was sent.

Where and when is a contract formed when acceptance is communicated through an instantaneous method such as telex?
Whether the postal rule applies to such communications.

For instantaneous communications, acceptance is effective only when it is received by the offeror.
The contract is formed at the place where acceptance is received.
The postal rule does not apply to telex, telephone or similar substantially instantaneous communication.
If the acceptance is not received because of a communication failure known or reasonably apparent to the offeree, the offeree must repeat it.

The Court distinguished telex communication from postal communication.
A posted letter may travel for days, and the offeree loses control over it after dispatch.
Telex communication is much closer to a face-to-face or telephone conversation.
In a face-to-face conversation, an acceptance that is not heard does not create a contract.
Lord Denning gave the example of a person shouting acceptance across a river while an aircraft passes overhead.
If the offeror cannot hear the reply, the offeree must repeat it.
The same principle applies where a telex message fails to arrive or is illegible.
Therefore, sending the message alone was not enough.
Acceptance became effective only when it was received on Entores’ machine in London.
The Court acknowledged that difficult cases may arise where:
the message arrives outside business hours;
the offeror fails to read a message that was properly received;
the offeror’s own fault prevents receipt; or
the offeree reasonably believes the message was received.
Those questions depend on the circumstances.
But in the present case, acceptance was successfully received in London.
Therefore, the final act necessary for contract formation occurred there.
The postal rule was inappropriate because it would create unnecessary risk in a communication system where receipt could be confirmed almost immediately.

The Court held that the contract was formed in London, where the telex acceptance was received.
Acceptance by instantaneous communication is effective on receipt, not transmission.
Use this case for: the receipt rule governs telex and other instantaneous communications.