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Ramsgate Victoria Hotel Co. Ltd. v. Montefiore

In the Court of Exchequer
Name of the CaseRamsgate Victoria Hotel Co. Ltd. v. Montefiore
Citations(1866) LR 1 Exch 109
Year of the Case1866
AppellantRamsgate Victoria Hotel Co. Ltd.
RespondentMontefiore and Anr.
Bench/JudgesPollock CB, Channell B, Martin B, Pigott B
Acts Involved (in Indian Context)Indian Contract Act, 1872
Important Section (relevant to the Indian Act)Section 6 Clause 2

The case focuses on the aspect of a reasonable time. It highlights that once a reasonable period has passed without the acceptance being communicated, no acceptance thereafter can be considered to be valid. It also explains that even if the withdrawal is not communicated before the acceptance is received, the proposal will still be considered to have been revoked if the reasonable time has passed.

Introduction

Time is of the essence in cases of contracts. A proposal or an offer may be revoked after the completion of a specific time, if not accepted till then. This specific time may be given in the proposal or in a subsequent agreement itself. However, in case a specific period is not decided it does not mean that the proposal or the offer is open indefinitely.  In such a case, the acceptance must be communicated within a reasonable time. However, what is a reasonable time, is for the court to decide.

Background of the Case

The cause was entered for trial at the sittings in London after Hilary Term 1865 when by consent the record was withdrawn, and it was agreed between the parties that a special case in all the actions should be prepared for the opinion of the court.[1]

Facts

The Ramsgate Victoria Hotel Company Ltd. was registered on the 6th of June, 1864. As per its prospectus, a deposit of £ 1 for a share was to be made on the application, and on the allotment, a deposit of £4 was to be made.  Moreover, in the case of non-allotment, the deposit was to be given back. Therefore, on the 8th of June, 1864 Montefiore (defendant in the case) applied for the shares by paying £ 50, with a request to be allotted 50 shares in the Ramsgate Victoria Hotel Company Ltd. On the said payment he received an acknowledgment receipt by the bankers.

In the next six months, from June to November of 1864, as many as 17 meetings took place. In one such meeting held on the 17th of August, 1864, a list of applicants till that time was made and submitted by the Secretary to the board. A similar list was submitted by the Secretary later, which contained the name of the applicants, the requested number of shares, and the number of shares allotted to them. In both these lists, the name of the Montefiore was written. However, between the time of his application in June and November 23rd, he did not receive any notice or reply regarding his application and allotment subsequently.

He also did not have any communication or receive any information from the agent, Secretary, or even the Directors of the Company. Therefore, on the 8th of November 1864, Montefiore wrote a letter to the Ramsgate Victoria Hotel Company Ltd. withdrawing his application for allotment of shares and requesting the deposit back. In the said letter he also declined to take any shares if allotted by the Company and to sign the Articles of Association of the Company. The letter was accordingly received by the Company.

Later on the 23rd of November 1864, the directors of the Company passed a resolution, making the first call for shares of £4 due on the allotment of shares. And on the same day, the Secretary’s Department sent a letter to Montefiore that his requested 50 shares were allotted to him and he was requested to pay the amount of the first call on or before the 15th of December 1864.

Montefiore declined to take the shares and pay the due amount on the first call. Subsequently, the Company brought a case against him to recover the amount due to the first call. Another case, with similar facts, was also clubbed with this case. In that case also the plaintiff, Ramsgate Victoria Hotel Company Ltd. had asked the defendant, Goldsmid to pay the amount due on the first call. Goldsmid like Montefiore had declined to pay the due amount. However, the difference between the two cases was that Goldsmid, unlike Montefiore, had not sent any letter to withdraw his application.

Issue Involved

The main issue in the case was the revocation of an offer by the lapse of a reasonable time. That is to say that, can an offer be said to have been revoked after a lapse of a reasonable period in case no certain or specific period has been mentioned for the acceptance.

Arguments of the Parties

The court had to deal with the question of whether the plaintiff was entitled to any amount and if any, to how much amount.

Plaintiff’s Arguments-

  • In the given circumstances the company is entitled to recover the amount due on the first call. A binding agreement exists between the company and the said defendants. Therefore, they are bound to take the allotted shares and pay the amount due.
  • The lists and registers made and submitted by the Secretary before the notice of withdrawal by the defendant are to be deemed as a proper register of shares under the Companies Act of 1862. So, the list made on the 23rd of November 1864 can not be ignored.
  • The shares were allotted within a reasonable period and even if no allotment was made till 23rd November 1864 the reasonable time had not passed.
  • The defendant, in the given circumstances, had no right to ignore the binding agreement that existed between him and the company. And therefore, the Company is not liable to give back the deposits made by the defendants.
  • In any case, Goldsmid has to pay the amount due on the first call as neither did he give the notice to withdraw his request for share allotment nor did he show any intention of the same.

Defendants’ Arguments

  • No agreement to take the shares existed and even if it existed it was not binding since the request for allotment was withdrawn much before the allotment made by the directors or any notice of allotment received by the defendant.
  • No agreement to take the share existed and even if it existed was not binding since the allotment was not made or notifies to the defendant in a reasonable period.
  • The withdrawal of requests took place before the names of applicants were mentioned in any document fulfilling the statutory requirements of a company’s register.
  • Due to several reasons, the defendants can not be considered to be a member of the Ramsgate Victoria Hotel Company Ltd.  And so, the company’s Articles of Association is not binding on them.
  • The request for the allotment was made considering the things mentioned in the prospectus. The prospectus stated that in case of non-allotment the deposit money would be given back. So, the defendants are entitled to receive the return.

Related Provisions

The related provision under the Indian legislation is Section 6 Clause 2 of the Indian Contract Act, 1872.

“6. Revocation how made – A proposal is revoked –

  1. by the communication of notice of revocation by the proposer to the other party;
  2. by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
  3. by the failure of the acceptor to fulfill a condition precedent to acceptance; or
  4. by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.”[2]

As per Section 6 Clause 2 of the Act, a proposal is considered revoked either on the lapse of a given certain period or when no time is specified after a reasonable period. In the former case, if a person states that ‘let me know your acceptance by Thursday’, then it is the specified time. And if the acceptance is not communicated before or on Thursday the proposal will be said to have been revoked. As per the latter case, if no specified time is mentioned in the proposal for acceptance, then it must be accepted within a reasonable period to create a contract. The reason behind it is that the proposal can not be kept open indefinitely. An undertaking to keep a proposal open indefinitely would mean a promise without any consideration and such a promise would be unenforceable. It is, therefore, considered an implied term of a proposal in which no specific time is mentioned that if it is not accepted within a reasonable time, then it will be considered as withdrawn or refused.

What is to be considered as a reasonable period depends on the facts, circumstances, subject-matter, method of communication involved in each case. As a proposal/offer to sell a perishable good or an article having price fluctuations or a proposal made using telegram would terminate in a short period. It should be noted here that a proposal will lapse after a reasonable period even if the person is unable to accept it due to reasons beyond his control.

Related Cases

The case was followed and referred to in several cases such as Baily and Co[3]., Ex parte Wallis[4], Ex parte Harwood[5], Re Universal Non-Tariff Fire Insurance[6], Ex parte Badman[7] , etc. Some cases similar to the present case are as follows:

Ramlal Sao Gupta v. M.E.R Malak[8]

In this case, several applicants applied for shares in Central India Press Ltd., Nagpur in the years 1933 and 1934 respectively. However, they were allotted the shares on the 26th of August 1935. Then later on the 12th of September 1935, the Company made a call for the payment of the amount due. The applicants did not make the required payment and opposed the suit filed against them on the ground of revocation of the proposal under Section 6 Clause 2 of the Indian Contract Act, 1872.

The court thought that since the allotment was made at such a later date. The reasonable period had lapsed and therefore, the applicants are not bound to make the payments.

LJ Kobetis v. Transgrain Shipping BV[9]

In the given case, the plaintiff in April 2004 sent a fax to the defendant accepting one of the three arbitrators suggested by the defendant.  When the plaintiff did not receive any response to the first fax, they sent another one in August 2004. Later in December 2004, the plaintiff realized that the fax was sent to the wrong number. Therefore, they sent acceptance to the correct number and appointed the arbitrator.

The plaintiff argued that the acceptance took place in April 2004, when the first fax was sent. Whereas, the defendant contended that the acceptance was received very late and therefore the arbitrator can not be appointed.

The court, in this case, held that the postal rule would not apply as the acceptance was sent at the wrong number. And since the acceptance was received by the defendant after a reasonable time had passed. The proposal has lapsed.

Judgment

The Court, in this case, held that the Company’s claim for making the defendants bound to pay the amount due on the first call was unsuccessful. As the proposal/offer made by the defendant was no longer valid due to the lapse of time.

There can either be a specified time or a reasonable time, beyond which the proposal gets revoked. In this case, since no specific time was given, the company should have communicated the acceptance within a reasonable time. Since the company did not do so the proposal lapsed.

The defendants won the case. They were not liable to pay any sum and were also entitled to get their deposits back.

Concepts Highlighted

The case highlights the importance of clarifying the time for which a proposal remains open for acceptance. A proposal can lapse due to the passage of time as it can not remain open indefinitely.

Revocation by lapse of time can be in two ways. Firstly, by the lapse of a certain specified time and Secondly by the lapse of a reasonable time. In the first case, a proposal may provide a specific date beyond which no acceptance will be valid. It can state a time limit after which the proposal can not be accepted. The time limit may not necessarily be in the proposal itself, but in any later stage to a said contract.

Whereas in the second case, when no specific time is suggested then the proposal is said to be withdrawn or refused after the passing of a reasonable period. What is a reasonable time depends totally on the circumstances, facts, the method used to communicate, and the nature of the subject in each case particularly. A proposal/offer of sale of a perishable good; a thing with violent price fluctuations; or communication through telegram or fax, terminate after a short period as compared to other things or methods.

Conclusion

The present case is among the oldest cases that deal with the concept of revocation of offer due to lapse of reasonable time. The case explains that unless the acceptance is communicated within a reasonable time, it can not be held to be valid. This concept is of utmost importance and now finds its place under Section 6 Clause 2 of the Indian Contract Act, 1872, and also in the Contract law of the United Kingdom.

However, the case did not specify what exactly is to be considered a reasonable period. The answer to this question, even after more than 150 years is still not concrete, as it depends totally upon the facts and circumstances of a given case. And the discretion of the court.

Reference

Published by Saksham Srivastava

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