Ramsgate Victoria Hotel Co Ltd v Montefiore 17 Jan 1866 LR 1 Exch 109, Ex Ct

A man offered to buy shares in a company in June. The company only accepted the offer and allotted the shares in November. The court held the offer had lapsed due to the unreasonable delay, so no binding contract was formed.

Facts

On 8 June 1864, the defendant, Mr Montefiore, applied for shares in the plaintiff company, the Ramsgate Victoria Hotel Co Ltd. He paid a deposit into the company’s bank and was sent a receipt. For several months, he heard nothing from the company. On 23 November 1864, the company resolved to allot shares to him and sent him a letter of acceptance, requesting payment of the balance due. By this time, the value of the company’s shares had fallen. The defendant refused to accept the shares or pay the balance, stating that his offer had lapsed. The company brought an action against him for specific performance of the alleged contract.

Issues

The principal legal issue before the Court of Exchequer was whether a binding contract existed between the defendant and the plaintiff company. This central question depended on whether the defendant’s offer to purchase shares, made in June, was still open for acceptance by the company in late November. The court had to determine if an offer, made without a specified time limit for acceptance, remains open indefinitely or if it lapses after a ‘reasonable time’.

Judgment

The Court of Exchequer found in favour of the defendant, Montefiore. The court held that the company’s acceptance was not made within a reasonable time, and therefore the defendant’s offer had lapsed before the company purported to accept it. Consequently, there was no contract obliging the defendant to take the shares.

Reasoning of the Court

The judgment was delivered succinctly, with the court adopting the arguments presented by the defendant’s counsel. The core reasoning was that an offer to purchase a commodity with a fluctuating value, such as shares, cannot be presumed to remain open for an extended period. The period between the offer in June and the acceptance in November was deemed unreasonable.

Counsel for the defendant argued that a contract must be mutual and that the long interval between the offer and acceptance meant the offer had effectively been withdrawn or had expired by lapse of time. He contended:

The proposal was a mere offer, and was not a contract until it was accepted… The long delay which elapsed between the proposal and the acceptance is a ground for supposing that the proposal has been withdrawn. An offer of this kind, for the purchase of a thing of fluctuating value, is not like an offer for the purchase of an estate; it is an offer for a commercial adventure…

The court concurred with this line of reasoning. The judgment itself, as reported, is very brief, with the court stating it was of the opinion that the offer was made for a reasonable time and that this reasonable time had elapsed. The action for specific performance therefore failed, and the verdict was entered for the defendant.

Implications

The decision in Ramsgate Victoria Hotel Co Ltd v Montefiore is a foundational authority in the English law of contract concerning the termination of an offer. It establishes the crucial principle that an offer without a specified acceptance period does not remain open forever. Instead, it will terminate by lapse of a ‘reasonable time’.

The case clarifies that what constitutes a ‘reasonable time’ is a question of fact dependent on the specific circumstances of the case, and particularly on the nature of the subject matter. For items with a highly volatile price, such as shares, the reasonable time for acceptance will be relatively short. This prevents an offeree from speculating at the offeror’s expense by waiting to see if market conditions move in their favour before accepting. The case thus introduces an important element of fairness and certainty into commercial dealings.

Verdict: Rule absolute to enter a verdict for the defendant. Mr Montefiore was not bound to accept the shares.

Source: Ramsgate Victoria Hotel Co Ltd v Montefiore 17 Jan 1866 LR 1 Exch 109, Ex Ct