Holwell Securities Ltd v. Hughes [1974] 1 WLR 155, Court of Appeal

Under a contract with the defendant, the plaintiffs were granted an option to purchase land. Clause 2 of the agreement provided:

‘THE said option shall be exercisable by notice in writing to the [defendant] at any time within six months from the date hereof . . . ’

The plaintiffs purported to exercise that option by a letter sent by their solicitors on 14 April 1972 but the defendant never received the letter. The defendant refused to accept that the option had been validly exercised. The plaintiffs sought specific performance of the option agreement. Their claim was rejected on the ground that the option had not been validly exercised. The plaintiffs had failed to comply with the requirements of clause 2 of the agreement in that they had failed to give the defendant notice that they were exercising the option.

Russell LJ

It is not disputed that the plaintiffs’ solicitors’ letter dated April 14, 1972, addressed to the defendant at his residence and place of work, the house which was the subject of the option to purchase, was posted by ordinary post in a proper way, enclosing a copy of the letter of the same date delivered by hand to the defendant’s solicitors. It is not disputed that the letter and enclosure somehow went astray and never reached the house nor the defendant. It is not disputed that the language of the letter and enclosure would have constituted notice of exercise of the option had they reached the defendant. It is not contended that the handing of the letter to the solicitor constituted an exercise of the option.

The plaintiffs’ main contention below and before this court has been that the option was exercised and the contract for sale and purchase was constituted at the moment that the letter addressed to the defendant with its enclosure was committed by the plaintiffs’ solicitors to the proper representative of the postal service, so that its failure to reach its destination is irrelevant.

It is the law in the first place that, prima facie, acceptance of an offer must be communicated to the offeror. Upon this principle the law has engrafted a doctrine that, if in any given case the true view is that the parties contemplated that the postal service might be used for the purpose of forwarding an acceptance of the offer, committal of the acceptance in a regular manner to the postal service will be acceptance of the offer so as to constitute a contract, even if the letter goes astray and is lost. Nor, as was once suggested, are such cases limited to cases in which the offer has been made by post. It suffices I think at this stage to refer to Henthorn v. Fraser [1892] 2 Ch 27. In the present case, as I read a passage in the judgment below [1973] 1 WLR 757, 764D, Templeman J concluded that the parties here contemplated that the postal service might be used to communicate acceptance of the offer (by exercise of the option); and I agree with that.

But that is not and cannot be the end of the matter. In any case, before one can find that the basic principle of the need for communication of acceptance to the offeror is displaced by this artificial concept of communication by the act of posting, it is necessary that the offer is in its terms consistent with such displacement and not one which by its terms points rather in the direction of actual communication. We were referred to Henthorn v. Fraser and to the obiter dicta of Farwell J in Bruner v. Moore [1904] 1 Ch 305, which latter was a case of an option to purchase patent rights. But in neither of those cases was there apparently any language in the offer directed to the manner of acceptance of the offer or exercise of the option.

The relevant language here is, ‘The said option shall be exercised by notice in writing to the intending vendor . . . ‘, a very common phrase in an option agreement. There is, of course, nothing in that phrase to suggest that the notification to the defendant could not be made by post. But the requirement of ‘notice . . . to’, in my judgment, is language which should be taken expressly to assert the ordinary situation in law that acceptance requires to be communicated or notified to the offeror, and is inconsistent with the theory that acceptance can be constituted by the act of posting, referred to by Anson’s Law of Contract, 23rd edn (1969), p. 47, as ‘acceptance without notification’.

It is of course true that the instrument could have been differently worded. An option to purchase within a period given for value has the characteristic of an offer that cannot be withdrawn. The instrument might have said ‘The offer constituted by this option may be accepted in writing within six months’: in which case no doubt the posting would have sufficed to form the contract. But that language was not used, and, as indicated, in my judgment, the language used prevents that legal outcome. Under this head of the case hypothetical problems were canvassed to suggest difficulties in the way of that conclusion. What if the letter had been delivered through the letter-box of the house in due time, but the defendant had either deliberately or fortuitously not been there to receive it before the option period expired? This does not persuade me that the artificial posting rule is here applicable. The answer might well be that in the circumstances the defendant had impliedly invited communication by use of an orifice in his front door designed to receive communications.

Lawton LJ

. . . I turn now to what I have called the roundabout path to the same result. [Counsel for] the plaintiffs submitted that the option was exercised when the letter was posted, as the rule relating to the acceptance of offers by post did apply. The foundation of his argument was that the parties to this agreement must have contemplated that the option might be, and probably would be, exercised by means of a letter sent through the post. I agree. This, submitted [counsel for the plaintiffs], was enough to bring the rule into operation. I do not agree. In Henthorn v. Fraser [1892] 2 Ch 27, Lord Herschell stated the rule as follows, at p. 33:

‘Where the circumstances are such that it must have been within the contemplation of the par[1]ties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.’

It was applied by Farwell J in Bruner v. Moore [1904] 1 Ch 305 to an option to purchase patent rights. The option agreement, which was in writing, was silent as to the manner in which it was to be exercised. The grantee purported to do so by a letter and a telegram.

Does the rule apply in all cases where one party makes an offer which both he and the person with whom he was dealing must have expected the post to be used as a means of accepting it? In my judgment, it does not. First, it does not apply when the express terms of the offer specify that the acceptance must reach the offeror. The public nowadays are familiar with this exception to the general rule through their handling of football pool coupons. Secondly, it probably does not operate if its application would produce manifest inconvenience and absurdity. This is the opinion set out in Cheshire and Fifoot, Law of Contract, 3rd edn (1952), p. 43. It was the opinion of Lord Bramwell as is seen by his judgment in British & American Telegraph Co v. Colson (1871) LR 6 Exch 108, and his opinion is worthy of consideration even though the decision in that case was overruled by this court in Household Fire and Carriage Accident Insurance Co v. Grant (1879) 4 Ex D 216. The illustrations of inconvenience and absurdity which Lord Bramwell gave are as apt today as they were then. Is a stockbroker who is holding shares to the orders of his client liable in damages because he did not sell in a falling market in accordance with the instructions in a letter which was posted but never received? Before the passing of the Law Reform (Miscellaneous Provisions) Act 1970 (which abolished actions for breach of promise of marriage), would a young soldier ordered overseas have been bound in contract to marry a girl to whom he had proposed by letter, asking her to let him have an answer before he left and she had replied affirmatively in good time but the letter had never reached him? In my judgment, the factors of inconvenience and absurdity are but illustrations of a wider principle, namely, that the rule does not apply if, having regard to all the circumstances, including the nature of the subject matter under consideration, the negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer or exercising an option had in fact communicated the acceptance or exercise to the other. In my judgment, when this principle is applied to the facts of this case it becomes clear that the parties cannot have intended that the posting of a letter should constitute the exercise of the option . . .

I would dismiss the appeal.

Buckley LJ agreed with the judgment of Russell LJ.