Cargill Commission Co. v. Mowery
99 Kan. 389 (1916)
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Rule of Law:
A binding contract is formed by clear telegraphic offer and acceptance, and a unilateral mistake by one party, unknown to the non-mistaken party, does not invalidate the contract; however, a party may assert a defense that the contract's terms were impossible to perform and that the other party knew of this impossibility.
Facts:
- Cargill Commission Co. (plaintiff) initiated a grain inquiry to Hutchinson Grain Co. (defendant) for No. 3 hard wheat, indicating it could pay $1.30 per bushel.
- Hutchinson Grain Co. offered 30,000 bushels of No. 3 hard wheat at $1.32 per bushel.
- Cargill Commission Co. counter-offered to buy 30,000 bushels of No. 3 hard wheat at $1.31 per bushel.
- Hutchinson Grain Co. sent a telegram stating, 'Book the 30,000 to 35,000 bushels No. 3 hard wheat $1.31 Minneapolis, wire if booked.'
- Cargill Commission Co. replied, 'We book 30,000 to 35,000 No. 3 hard wheat $1.31 basis Minneapolis, five days shipment.'
- Immediately after receiving Hutchinson's acceptance, Cargill Commission Co. sold 35,000 bushels of wheat to another party in reliance on the contract.
- On the same day, Hutchinson Grain Co. sent a written confirmation referring to '3,000 to 3,500 bus.' (using code words 'abstain to abstained'), and Cargill Commission Co. sent its own confirmation for '30 to 35 M bus.'
- Hutchinson Grain Co. subsequently informed Cargill Commission Co. that its confirmation was 'wrong,' claiming a clerical error in the code word and asserting it was impossible to procure 30,000 bushels of old wheat for five days shipment, refusing to deliver more than 3,000 to 3,500 bushels.
Procedural Posture:
- Cargill Commission Co. (plaintiff) sued Hutchinson Grain Co. (defendant) in a trial court.
- Hutchinson Grain Co. (defendant) filed a demurrer to Cargill Commission Co.'s (plaintiff's) evidence in the trial court.
- Cargill Commission Co. (plaintiff) filed a motion for judgment on the pleadings in the trial court.
- The trial court denied Cargill Commission Co.'s motion for judgment on the pleadings.
- The trial court sustained Hutchinson Grain Co.'s demurrer to Cargill Commission Co.'s evidence.
- Cargill Commission Co. (appellant) appealed the trial court's orders (denying its motion for judgment on the pleadings and sustaining the demurrer to its evidence) to the Kansas Supreme Court.
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Issue:
Does a unilateral mistake in a telegraphic offer about the quantity of goods, unknown to the offeree, prevent the formation of a binding contract when the offeree accepts by telegraph and acts in reliance, or does a defense of known impossibility of performance require a trial on the facts?
Opinions:
Majority - West, J.
No, a unilateral mistake by one party, unknown to the other, does not prevent the formation of a binding contract where the terms are clear and the other party acts in reliance; however, a defense asserting that performance was impossible and the other party knew of this impossibility presents an issue of fact for trial. The court holds that clear and unambiguous telegrams exchanged between parties in a commercial transaction form a binding contract immediately upon acceptance, and subsequent written confirmations serve merely to verify or check for errors, not to form or alter the agreement. Trade customs or usages are not admissible to contradict or explain contract terms that are already clear. Hutchinson Grain Co.'s unilateral mistake in using a code word, not known to Cargill Commission Co. at the time of contract formation, does not invalidate the contract, especially since Cargill acted in good faith reliance by immediately reselling the wheat. A party is generally bound by the terms they express, even if mistaken, unless the mistake is mutual or known to the other party. While the original opinion found the contract binding for the minimum amount (30,000 bushels) and directed judgment for Cargill, a motion to modify brought to light Hutchinson's defense that it would have been impossible to purchase and ship 30,000 to 35,000 bushels of wheat within five days and that Cargill knew of this impossibility. The court finds these allegations form a critical issue of fact requiring a jury trial, specifically regarding Cargill's knowledge of the alleged impossibility, and thus reverses the order for judgment on the pleadings and remands for a new trial on this specific factual question.
Dissenting - Porter, J.
The original opinion should stand, as there is nothing extraordinary about a grain merchant in Kansas being able to fulfill an order for 30,000 bushels of wheat. Justice Porter dissents from the majority's decision to remand for a new trial on the issue of impossibility and the plaintiff's knowledge. He is unwilling to accept the premise that it would have been extraordinary or impossible for a grain merchant in the heart of the Kansas wheat belt in 1915 to secure 30,000 bushels of wheat, thereby implicitly challenging the factual basis for the majority's decision to allow that defense to proceed to trial.
Analysis:
This case is significant for solidifying the principle that in rapidly moving commercial transactions, such as grain trading, clear telegraphic communications constitute immediate and binding contracts. It underscores that subsequent formal 'confirmations' are generally evidentiary and not contract-forming, thereby limiting their power to alter or create contractual obligations where offer and acceptance have already occurred by wire. The ruling emphasizes the legal implications of unilateral mistake, holding that a party is generally bound by clear terms expressed, especially when the other party relies on them without knowledge of the mistake. The modification, however, adds a crucial nuance, indicating that even where a contract is clearly formed, a defense centered on the impossibility of performance (and the other party's knowledge thereof) can be a valid factual issue for trial, balancing the principles of contract finality with potential equitable considerations in extreme circumstances.
