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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

CHAPTER 4 INDEFINITENESS AND MISTAKE IN EXPRESSION

1-4 Corbin on Contracts § 4.11

§ 4.11 Mistake in Transmission of Messages

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A misunderstanding as to the terms of an agreement has frequently been caused by an error in the transmission of a telegram. A telegraphic offer that has been correctly written out by the offeror is handed to the telegraph clerk. Because of the negligence of this clerk, or of the clerk who receives the message, the terms of the offer are changed so that a materially different offer is delivered to the offeree.

If the offeree knows or has reason to know that such a change has occurred, the offeree has no power to bind the offeror by an acceptance of the offer as delivered. The change may be such as to make it unintelligible, or it may be such that the proposal is one that no reasonable person would make. Thus, the price at which goods are offered for sale may be so greatly reduced that a reasonable receiver of the message would suspect error. The offeree is not permitted to ''snap up'' such an offer.n1

The troublesome case is the one in which the change is such that the offeree has no reason to know that it has been made. The offer as delivered is one that the offeree reasonably believes to be the one that the offeror intends to make. In one case, laths were offered for sale at $2.10 per thousand. The telegraph clerk left off the 10, and the offer as delivered read $2 per thousand. The court held that acceptance made a contract at $2, binding the offeror to deliver.n2 This is supported by a considerable number of cases in the United States,n3 but there are very well-considered cases to the contrary.n4

The reason for such a conflict in decision is that there are two innocent sufferers from the fault of another, and the courts have felt it necessary to choose one of them to bear the entire loss. The truth is that usually there is no convincing reason for making such a choice. Sometimes it is said that one of the parties has ''assumed the risk'' of telegraphic mistake, this one being either the one who sent the telegram in question, or the one who first used the telegraph, or the one who suggested that it be used.n5 More often than not, such a statement as this is a mere statement of the result reached rather than the reason for reaching it. Again, it may be said that the sender of the telegram has chosen the telegraph company as an agent, thus making it appear that some general rule of agency can be deductively applied. While it is true that the sender of a telegram knows that it must be translated by the clerks into a telegraphic code and back into words, with some possibility of error in the process, this is hardly enough to establish a relation of agency. Assuredly, the sender does not hold out the telegraph clerk as an agent with power to contract in the sender's behalf. Nor is the clerk the sender's servant. The telegraph company is an independent contractor, much like the post office (if not identical with it as in England), under compulsion to serve all comers and to bear the responsibility that accompanies public service.n6

Perhaps a reason for choosing the sender of the telegram instead of the receiver to take the first impact of the loss can be found in actual business practices and mores or in business convenience.n7 In some of the cases, it has appeared as a fact that the sender felt bound to supply the goods at the mistaken price, or at least made a settlement with the receiver of the telegram and then brought suit against the telegraph company. Even though the court held that the sender of the telegram was not bound by the incorrectly delivered offer, in one case it was further held that the settlement was a reasonable effort to avoid losses and that the telegraph company had reason to foresee that such a settlement would be made.n8

It should be remembered that whether the first impact of the loss is thrown upon one party or the other, the impacted party has a remedy over against the negligent telegraph company. As against the sender of the telegram, the company has committed a breach of contract. It is liable in damages for any harm that it had reason to foresee. Attempts have been made to limit the extent of liability for such negligent breach of contract, attempts that had often been held to be ineffective as against public policy, but today are generally effective as regulated by the federal government.n9 The receiver of the telegram has made no contract with the company, but if harmed, the sender should have a remedy in damages as for tortious negligence by a public servant,n10 again, however, limitations of liability approved by regulatory agencies may block all but small claims.

Cases in which the offeror is held bound by the offer as delivered are applications of the so-called ''objective theory'' of contract. It is clear that the offeror did not actually assent to the terms of the contract so formed. The offeree is given a contract right because of the expressions of the offeror as actually communicated to the offeree. The cases holding otherwise do not oppose this objective theory. They merely indicate that there is no sufficient reason for holding the offeror responsible for the mistake. It was not the offeror's mistake and the words were not the offeror's words. The objective theory should be applicable only when one party has reason to know that the other party is being misled.

It may be that the price fixed in a telegraphic offer is sometimes raised rather than lowered in transmission. The offeree is not very likely to accept at the higher price, but if the offeree does accept, this assent is not based upon a mistake, and no harm is suffered by the offeror.

The mistake dealt with in this section is one that is caused by the telegraph company, not one that the sender of the telegram causes. One who uses a telegraphic code word meaning 30,000 bushels intending to say only 3,000 bushels is bound by the offer as made.n11 This is for just the same reason that an offeror is bound when telephoning an order for 50 tons, forgetting that the antecedent estimate of needs was only 10 tons.n12 Even in such cases as these, the party making the mistake may be able to get relief from the contract, a matter that is considered herein in the chapter on Mistake.

The telegram seems to be going the way of the Pony Express. Except for cables from ships at sea, they are no longer widely used in commerce. Litigation involving mishaps with more modern means of electronic transmission of messages has been rare.n13

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawFormationAmbiguity & MistakeUnilateral MistakeContracts LawFormationDefinite TermsContracts LawFormationAmbiguity & MistakeGeneral OverviewContracts LawFormationMeeting of Minds

FOOTNOTES:

(n1)Footnote 1.

Cal. - Germain Fruit Co. v. Western Union Tel. Co., 137 Cal. 598, 70 P. 658 (1902) .

Mass. - Holtz v. Western Union Tel. Co., 294 Mass. 543, 3 N.E.2d 180 (1936) .

Mo. - J.L. Price Brokerage Co. v. Chicago, B. & Q.R. Co., 199 S.W. 732 (Mo.App.1917) , is contra and should be disapproved. An offer to sell potatoes at $1.35 per bushel was changed so as to read 35 cents per bushel.

(n2)Footnote 2.

Me. - Ayer v. Western Union Tel. Co., 79 Me. 493, 10 A. 495 (1887) .

(n3)Footnote 3.

Ark. - Des Arc Oil Mill v. Western Union Tel. Co., 132 Ark. 335, 201 S.W. 273, 6 A.L.R. 1081 (1918) .

Ga. - Western Union Tel. Co. v. Flint River Lumber Co., 114 Ga. 576, 40 S.E. 815 (1902) ; Western Union Tel. Co. v. Shotter, 71 Ga. 760 (1883) .

Ill. - Bowman & Bull Co. v. Postal Telegraph-Cable Co., 290 Ill. 155, 124 N.E. 851 (1919) , cert. denied, 251 U.S. 562, 40 S. Ct. 342, 64 L. Ed. 415 .

Mich. - Butler v. Foley, 211 Mich. 668, 179 N.W. 34 (1920) .

Mo. - Haubelt Bros. v. Rea & Page Mill Co., 77 Mo.App. 672 (1899) .

Vt. - Durkee v. Vermont C.R. Co., 29 Vt. 127 (1856) .

Wis. - Sherrerd v. Western Union Tel. Co., 146 Wis. 197, 131 N.W. 341 (1911) .

See also:

Conn. - Penobscot Fish Co. v. Western Union Tel. Co., 91 Conn. 35, 98 A. 341 (1916) .

Miss. - Postal Tel. & Cable Co. v. Wells, 82 Miss. 733, 35 So. 190 (1903) .

This section is cited in Estherwood Rice Mill, Inc. v. Western Union Telegraph Co., 127 So.2d 231 (La.App.1961) . The defendant transmitted plaintiff's bid on a certain contract erroneously, but on its repeat back message the error was not repeated. The bid as received was accepted. The parties had agreed that the bid as received should control the terms, and the acceptor (the Commodity Credit Corp.) insisted on and received performance. The error in transmission was not such that the offeree had reason to know of the error. The defendant was held bound to pay damages, measured by the loss caused by its error.

In Buchanan v. Thomas, 230 Ark. 31, 320 S.W.2d 650 (1959) , a subcontractor submitted his bid to the prime contractor by telegram. As delivered, the telegram read $2,723, instead of $3,723. The prime contractor at once submitted his general bid along with a performance bond, in reliance on the telegram. The next day, a confirmatory letter from the subcontractor expressed his bid as $3,723. Much later, the general bid was accepted and performance rendered in accordance. The subcontractor also rendered performance, along with various inconclusive conversations with the prime contractor. The court held that the subcontractor was entitled to only $2,723. There is no discussion of various factors that are of importance in determining the issue.

(n4)Footnote 4.

U.S. - Western Union Tel. Co. v. Cowin & Co., 20 F.2d 103, 54 A.L.R. 1362 (8th Cir.1927) .

Idaho - Strong v. Western Union Tel. Co., 18 Idaho 389, 109 P. 910 (1910) .

Ky. - McKee v. Western Union Tel. Co., 158 Ky. 143, 164 S.W. 348 (1914) .

Mass. - Holtz v. Western Union Tel. Co., 294 Mass. 543, 3 N.E.2d 180 (1936) .

Miss. - Shingleur v. Western Union Tel. Co., 72 Miss. 1030, 18 So. 425 (1895) .

N.C. - Mt. Gilead Cotton Oil Co. v. Western Union Tel. Co., 171 N.C. 705, 89 S.E. 21 (1916) .

S.C. - Harper v. Western Union Tel. Co., 133 S.C. 55, 130 S.E. 119, 42 A.L.R. 286 (1925) .

Tenn. - Pepper v. Western Union Tel. Co., 87 Tenn. 554, 11 S.W. 783 (1889) .

Eng. -Henkel v. Pape, L.R., 6 Ex. 7 (1870); Flynn v. Kelly, 12 Ont.L.R. 440; Verdin v. Robertson, 10 Ct.Sess.3d 35 (1871 Scot.).

(n5)Footnote 5. In Butler v. Foley, 211 Mich. 668, 179 N.W. 34 (1920) , a counter-offeror was held bound by his telegram as delivered even though the other party had been the first to use the telegraph.

In Western Union Tel. Co. v. Flint River Lumber Co., 114 Ga. 576, 40 S.E. 815 (1902) , one party made a telegraphic inquiry for prices. The other replied with a telegraphic offer. In transmitting this offer, the telegraph company made an error. It was held that the offeror was bound in accordance with the telegram as delivered.

(n6)Footnote 6. Western Union Tel. Co. v. Southwick, 214 S.W. 987 (Tex. Civ. App.1919), is a case in which the telegraphic error accompanied a real estate agency. The plaintiff authorized his agent by telegraph to sell land at $55 per acre. As delivered to the agent, the telegram read $50 per acre, and the agent contracted to sell the land at this price. The principal was bound by the contract so made with the purchaser. It should not be said that the plaintiff appointed the telegraph company as his agent to appoint another agent with power to sell. This was reversed, on the ground that a limitation of liability clause should have been given effect. 255 U.S. 565, 41 S. Ct. 446, 65 L. Ed. 788.

(n7)Footnote 7. In Ayer v. Western Union Tel. Co., 79 Me. 493, 10 A. 495 (1887) , the court said: ''It is evident that in case of an error in the transmission of a telegram either the sender or receiver must often suffer loss. As between the two, upon whom should the loss finally fall? We think the safer and more equitable rule, and the rule the public can most easily adapt itself to, is that, as between sender and receiver, the party who selects the telegraph as the means of communication shall bear the loss caused by the errors of the telegraph. The first proposer can select one of many modes of communication, both for the proposal and the answer. The receiver has no such choice, except as to his answer.''

(n8)Footnote 8.

Mass. - Holtz v. Western Union Tel. Co., 294 Mass. 543, 3 N.E.2d 180 (1936) .

(n9)Footnote 9. See Western Union Tel. Co. v. Priester, 276 U.S. 252, 48 S.Ct. 234, 72 L.Ed. 555 (1928) ; Annots., 20 A.L.R.2d 761 (1951), 94 A.L.R. 1056.

(n10)Footnote 10. In Barnett v. Western Union Tel. Co., 287 S.W. 1064 (Mo.App.1926) , coal was offered by X to plaintiff by telegram. The price was changed by error from $1.95 to $1.25. Plaintiff accepted in good faith (and seemingly reasonably), and made contracts of resale that could not be performed without getting the coal of X. X refused to perform for less than $1.95, so plaintiff paid that sum and performed the resale contracts. The plaintiff was given judgment for damages, even though he could have refused to purchase and held X for breach of contract. This seems to be a correct decision, because plaintiff's loss was suffered by reason of economic compulsion caused by defendant's negligence and was one that it had reason to foresee.

(n11)Footnote 11.

Kan. - Cargill Commission Co. v. Mowery, 99 Kan. 389, 161 P. 634 (1916) , modified, 99 Kan. 389, 162 P. 313 , questioned in Squires v. Woodbury, 5 Kan.App.2d 596, 621 P.2d 443 (1980) .

Ky. -In Whitaker v. Associated Credit Services, 946 F.2d 1222 (6th Cir.1991) , defendant made an offer of judgment. The written offer, by clerical error, read ''$500,000'' instead of the intended ''$500.'' Plaintiff accepted with alacrity. The judgment, however, was vacated pursuant to the Federal Rules and general principles of contract law.

(n12)Footnote 12.

N.J. - Carnegie Steel Co. v. Connelly, 89 N.J.L. 1, 97 A. 774 (1916) .

(n13)Footnote 13. A notable case involving a telex message that failed to arrive, perhaps because the addressee's machine was out of paper, is Evra Corp. v. Swiss Bank Corp., 673 F.2d 951 (7th Cir.1982) , cert. denied, 459 U.S. 1017 . In Afovos Shipping Co. SA v. Pagnan, 1 W.L.R. 195 (1983) , a telex message was sent to the wrong number. There are no known litigated cases where a message was garbled in transmission by the more modern electronic means. On this and other possible malfunctions, see John R. Thomas, Legal Responses to Commercial Transactions Employing Novel Communications Media, 90 Mich.L.Rev. 1145 (1992).