Great Northern Railway Co v Witham 06 Nov 1873 LR 9 CP 16, CP

A company accepted a tender to supply goods at fixed prices for a year. The tenderer later refused to fulfil a specific order. The court held the tender was a standing offer which was converted into a binding contract by each specific order.

Facts

The Great Northern Railway Co (the plaintiffs) advertised for tenders for the supply of various stores, including iron, for a period of twelve months from 1 November 1871. Mr Witham (the defendant) submitted a tender in which he offered to supply the company with specified articles, at specified prices, for the twelve-month period in “such quantities … as the company’s store-keeper may order from time to time.” The railway company accepted the tender. For some time, the company placed orders for iron which the defendant supplied. However, when the company placed a further order, the defendant refused to supply it, claiming he was not bound to do so.

Issues

The central legal issue was whether a binding contract existed between the parties. Specifically, the court had to determine:

1. Nature of the Agreement

Was the defendant’s tender, once accepted by the company, a contract that bound him to supply all goods ordered during the period, or was it merely a standing offer that could be accepted on a case-by-case basis?

2. Consideration and Mutuality

Did the agreement fail for want of mutuality? The defendant argued that since the railway company was not obliged to place any orders, there was no consideration from the company to support the defendant’s promise to supply the goods. Therefore, no valid contract existed.

Judgment

The Court of Common Pleas held unanimously that the defendant was liable to supply the goods that had been specifically ordered. The acceptance of the tender did not form a complete, binding contract for the entire period, but it did constitute a standing offer. Each specific order placed by the railway company acted as an acceptance of that standing offer, creating a new and binding contract for that particular quantity of goods.

Keating J

Keating J focused on the fact that an order had already been given, which distinguished the case. He stated that the question was whether the defendant was bound to deliver the goods upon receiving the order. He found that the order, having been given, created a binding obligation:

He has thereby given them the option of giving him an order to any extent, and he is bound to execute that order. It is not a question of want of mutuality; but the defendant has bound himself by his tender, and it could not be contended that the fact of the company’s not being bound to give an order was any answer when an order was given.

Brett J

Brett J provided the most influential analysis, clarifying the concept of a standing offer. He explained that there was no obligation on the company to place any order. However, the tender was a continuing offer to supply goods at the stipulated prices. When the company placed an order, it accepted the offer for that specific quantity, thereby creating a binding contract for that order.

I think the letter of the defendant is a standing offer… and that the order for the goods is an acceptance of the offer. This is a sufficient consideration for the defendant’s promise. The defendant has not revoked his offer at the time the order is given, and the company have done an act which is a consideration for the defendant’s promise. I think, therefore, that there is a good contract to supply the goods.

He further clarified that if the tender had been worded as an agreement to purchase “such goods as the company may require,” it would have been binding, as the company would be implicitly promising to buy exclusively from the defendant. However, as it was worded, it was a simple offer.

Implications

This case is a foundational authority on the law relating to tenders and ‘standing offers’. It establishes that a tender to supply goods as and when requested is not, upon its ‘acceptance’, a binding contract for the full term. Instead, it is a standing offer which the offeror can revoke at any time, provided the revocation is communicated before a new order is placed. Each order placed constitutes a separate acceptance, creating a distinct contract for the goods specified in that order. This decision provides critical commercial certainty, allowing entities to establish frameworks for supply without being locked into purchasing minimum quantities, while simultaneously binding suppliers to the terms of their offer for any orders that are actually made.

Verdict: The rule to enter a verdict for the defendant was discharged. The plaintiff (Great Northern Railway Co) was successful.

Source: Great Northern Railway Co v Witham 06 Nov 1873 LR 9 CP 16, CP