Butler Machines v Ex-Cell-O Corp [1979] 1 WLR 401; [1979] 1 All ER 965

KEY POINTS

• Contract formation is a stage in the legal process where parties come together to establish the terms of their agreement.

  • It involves a series of steps, including offer, acceptance, and consideration, which collectively determine the validity and enforceability of the contract.

  • When sellers specify that orders must be accepted on their terms, they assert control over the contractual agreement.

  • This ensures that the terms and conditions set forth by the seller are applied to the transaction, providing clarity and consistency in business dealings.

• A price variation clause in a contract allows for adjustments to the contract price under specified circumstances.

  • This clause typically outlines the conditions under which price modifications can occur, providing flexibility to accommodate changes in market conditions or unforeseen expenses.

• The Uniform Laws on International Sales Act 1967 is a legislative framework that harmonizes international sales transactions.

  • Schedule 2, Article 7 of this Act addresses issues related to interpreting offers and acceptances in international sales contracts, providing clarity and consistency in cross-border trade.

FACTS

• On May 23, 1969, Butler Machine Tool Co. Ltd. (“Sellers”) offered to deliver a machine tool for £75,535, with delivery in 10 months, provided orders adhered to their terms.

  • The Sellers' terms included a price variation clause, while the buyers' order, submitted on May 27, 1969, had different terms without a price variation clause.

  • Sellers acknowledged receipt of the order on June 4, 1969, returning it completed on June 5, 1969, stating delivery would be as per their revised quotation.

  • The machine was ready in September 1970, but buyers accepted delivery in November 1970.

  • Sellers invoked the price increase clause, claiming £2,892 for cost increase until the expected delivery date.

• Thesiger J. ruled in favor of the sellers, awarding them £2,892 plus interest.

JUDGEMENT

• On the Ex-Cell-0 Corporation (England) Ltd (“Buyers”) appeal:

  • Upon allowing the appeal, the court held that the Buyers' order dated May 27, 1969, did not constitute an acceptance of the offer presented in the sellers' quotation of May 23. Instead, it was deemed a counteroffer, which the sellers subsequently accepted through their June 5, 1969 letter.

    • Consequently, the contract was finalized without any price limitation clause.

  • According to Lord Denning M.R., the documents exchanged between the parties must be considered whole when interpreting them. As a matter of construction, the June 5, 1969 letter emerged as the decisive document.

• Therefore, the judgment rendered by Thesiger J. is reversed.

COMMENTARY

• This case highlights the intricate contract formation process and its significance in legal agreements.

  • It begins by emphasizing the essential steps of contract formation: offer, acceptance, and consideration, which collectively determine the validity and enforceability of the contract.

  • This sets the stage for understanding the subsequent events in the case.

• The case then delves into the dynamics of contracts where sellers assert control over the terms of the agreement, ensuring clarity and consistency in business dealings.

  • The inclusion of a price variation clause is noted for its role in providing flexibility to accommodate changes in market conditions or unforeseen expenses, thus reflecting the adaptability required in commercial transactions.

  • The discussion extends to the international dimension of contract law, highlighting the Uniform Laws on International Sales Act 1967 as a framework for harmonizing cross-border trade. Specifically, Schedule 2, Article 7 of the Act is mentioned to clarify issues related to interpreting offers and acceptances in international sales contracts.

• Moving to the case's specifics, the case provides a concise summary of the events leading to the dispute between the sellers and buyers over the contract terms.

• It outlines how the sellers' offer, the buyers' order, and subsequent correspondence culminated in a disagreement over including a price limitation clause.

ORIGINAL ANALYSIS

• Butler Machines (B) offered to sell a machine to Ex-Cell-O Corp (E), sending him a standard order form of B, B*, to sign.

• E ordered a machine on its own standard order form, E*, with a slip for the supplier to sign, acknowledging the terms of E*. B signed and returned the form E* with a cover letter explicitly stating that they were agreeing to supply a machine on their own original terms.

• CA held that the terms of E* applied since B had signed it and that the cover letter was really just a means of identifying the order.   

Lord Denning

• The conduct and correspondence has to be viewed altogether etc. (see above) and on this view he says that the sellers had accepted E*’s terms.

  • Denning contradicts his own, sensible approach: looking at all the correspondence, the letter accompanying the signed E* showed that there was NO agreement to the terms and instead he sticks to a v. formalistic reliance on the signature on E*, which the cover letter rendered meaningless.

• He says that mirror image approach is outdated and a better way of testing if a contract exists “look at all the documents passing between the parties — and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points”.

  • NB in this case he says that this will lead us to view the last set of terms proposed, to which there is no objection, as the contract.

  • Here, he fails to apply his own test since there was objection on material terms to E*, namely price variation, even though the letter did not say so explicitly.

  • However, were this test to actually be applied, it would prevent voiding of contracts on “immaterial terms”.

• In terms of “content” he says “The terms and conditions of both parties are to be construed together. If they can be reconciled so as to give a harmonious result, all well and good. If differences are irreconcilable — so that they are mutually contradictory — then the conflicting terms may have to be scrapped and replaced by a reasonable implication”.

  • This would create a fair conclusion but would damage legal certainty.    

Lawton LJ

• If B’s letter was a counter offer that would mean that E’s conduct implied acceptance of it, which is impossible given that E had made clear from correspondence that they would only deal on their terms.

  • Wrong: the letter was a counter offer since it insisted on the original terms and therefore there was either no meeting of the minds and no contract OR E’s conduct must be taken to mean acceptance of B’s terms.

  • The letter said that delivery would be “in accordance with our revised quotation of May 23”- i.e. their terms, not just the identification of the order.