Western Union Telegraph Co. v. Brown

Background

Two buyers agreed to purchase 625,000 shares of a mining company for $75,000 with staged payments. The sellers deposited stock certificates with the local bank to be held until final payment. The buyers mailed a draft for a scheduled payment, then learned the stock was essentially worthless and tried to stop the bank by telegraphing a message to return the draft before the bank opened on April 30, 1907. They paid extra for an immediate delivery promise from the telegraph office.

Reasoning

The telegraph company did not deliver the message promptly, and the bank paid the sellers on April 30. Lower courts treated the written sale agreement as a mere option that buyers could abandon by withholding later payments, and they held the telegraph company liable for the delay. The Supreme Court disagreed. It found the written instrument contained positive promises by the sellers to sell and by the buyers to buy, with the bank holding the certificates until payment. That made the agreement more than a cancelable option. Because the Court could not accept the lower courts’ view that the contract was only an option, it reversed the judgment that had allowed recovery on that theory. The Court did not decide whether the telegraph company was negligent or whether the oral promise to expedite was binding.

Real world impact

The decision changes who can recover when a carrier’s delay affects a deal if courts conclude the underlying agreement binds the parties to buy or sell. The case was sent back for further proceedings consistent with this ruling.