The Operation Of, and Justifications For, the Postal Rule

TABLE OF CONTANTS

NO. CONTENTS PAGES
1 INTRODUCTION 2
2 DEFINITION 2
3 QUESTION: What reasons have been given by the courts for the postal acceptance rule? and in what circumstances will the postal acceptance rules not operate? 3
4 RELEVENT CASE 6
5 CONCLUSION 7
6 REFERANCES 8

INTRODUCTION An acceptance agreement strengthens a time draft by putting the acceptor under contractual obligation to pay. International trade is facilitated by banks enacting banker’s acceptances, thereby guaranteeing the payment for goods. Postal rule is a rule of contrac law which makes an exception to the general rule citing that an acceptance is only created when communicated directly to the offeror. An acceptance is binding and the contract is only said to be perfected when the acceptor places acceptance in the mail box for a return mail, even if it never reaches the offeror. The posting rule is an exception to the general rule of contract law in common law countries that acceptance takes place when communicated. The posting regulation states, by contrast, that acceptance takes effect when a letter is posted. One justification given for the rule is that the offer or nominates the post officeas implied agent and thus receipt of the acceptance by the post office is regarded as that of the offer0ee. However, if the offeree sends a rejection and then sends an acceptance whichever communication is received by the offeror first controls. DEFINITION OF ACCEPTENCE A contractual agreement on a time draft or sight draft to pay the amount due at a specified date. The party who is expected to pay the draft writes “accepted”, or similar wording indicating acceptance, next to his or her signature along with the date. This person then becomes the acceptor, and is obligated to make the payment by the maturity date. A banker’s acceptance is a time draft honored by a bank, and is typically used in international trade. A trade acceptance is a time draft drawn by the seller of goods on a buyer. In a trade acceptance, the buyer is the acceptor. The postalruleis a concept of contract law that is commonly referred to as the mailbox rule. It was formed at a time when contracting parties did much of their bargaining from a distance. Bargaining at a distance, typically through the mail, created a problem, because the parties could not know at the same time whether they had formed acontract. As a result, a generalruledictating the time of an effective acceptance was necessary. Thus, thepostalrulewas created and stands for the proposition that acceptance is effective on dispatch . Thepostalruleis an exception to the generalrule, which dictates that acceptance is effective on receipt. The rational behind thepostalruleis that it encourages contracting by parties at a distance by making the person in the position of giving an acceptance just as secure as if thecontractwas being made face to face. From a policy standpoint, it also fosters the creation of contracts at the earliest possible moment QUESTION: What reasons have been given by the courts for the postal acceptance rule? and in what circumstances will the postal acceptance rules not operate? Since the inception of the postal acceptance rule in 1818, numerous alternative methods of communication have been developed, including the telephone, telex, telegraph, facsimile and e-mail. This article examines whether the postal acceptance rule will be applied to acceptances communicated by e-mail. In resolving this issue the authors consider how an e-mail is transmitted, the ambit of the postal acceptance rule and its underlying policy considerations and how the Courts have resolved this issue in relation to other modern forms of communication. It is well established that the general rule governing the acceptance of an offer is that acceptance is not effective until it is communicated to the offeror.1 However, an equally well established exception to this general proposition is the postal acceptance rule. Although the postal acceptance rule is deeply entrenched within our legal system, the scope of the rule and its applicability to modern forms of communication are issues which have not been conclusively determined by the courts. Since the initial formulation of the postal acceptance rule, communication technology has dramatically changed. As each new method of communication has emerged, the courts have been compelled to determine the applicability of the postal acceptance rule. The development of e-mail means that this issue has once again arisen for consideration. Due to the increase in the use of e-mail as a tool of commerce, it is essential that this issue be resolved to enable contracting parties to utilize this new technology with a degree of certainty Acceptance is not effective as a general rule unless communicated to the offeror. However the postal acceptance rule is one important exception. The postal rule was first used inAdams v Linsellto mean that acceptance takes place once a letter of acceptance is posted by the offeree. The defendant’s argument was that once they did not hear from the plaintiffs they were not in consensus and therefore proceeded to sellthe wool. A number of cases proceeded along these linesDunlop v Higginsas well as HouseholdCarriage vFire Insuranceeven though the offeror sufferedhardshipas a result of the letters of acceptance being delayed orgetting lostin the post. The postal acceptance rule flies against the requirement in the law of contract that acceptance has to be communicated. More importantly it weakens the doctrine of consensus at idem (meeting of minds) for a contract to take place as well as the mirror theory that there must be a definite offer mirrored by a definite acceptance. Hardship is placed on the offeror but not on the offeree. Also various complications can occur because of this exception tothe generalrule that acceptance is not effective as a general rule unless communicated to the offeror. There have been several justifications according to Simon Gardner in his article “Trashing with Trollope” for this rule none of which have been satisfactory. The first one was that thepost officewas the agent of the offeror and so receipt of the letter by the agent is equivalent to receipt by the offeror. This is unacceptable as the post office is merely the conduit by which letters pass through. The post office cannot contract on behalf of the offeror. The second justification is that the offeror has chosen to start negotiations through the post and so the risk of delay or loss in the post should be on him. However this precludes situations where negotiations initiated by the offeror did not involve letters. The third justification is that it leads to businessefficiency and and enables the offeree to act on a binding contract the moment the acceptance letter is posted. This justification is advantageous to the offeree but not to the offeror. With such tenuous arguments it is was no wonder that the postal rule was circumscribed.Henthorn v Fraserdecided that the postal rule would only apply if it was within the contemplation of the parties to use the post or in the case ofByrne v Van Tienhovenwhich began to confine the postal rule within narrow limits. This particular case made the law even more confusing as there were now separate rules for the postal rule with regard to offers and revocation of offers. The justification was that making acceptance complete at posting rather than delivery minimizes the window within which such a revocation may take place. Conversely making the offeror’s revocation ineffective until communicated prolongs the window during which an offeree may accept. The cumulative effect made it additionally onerous on the offeror. The development of faster rules of communication at the time could have something to do with these particularly important developments. A situation could arise where the offeree who changes her mind: for example if after posting a letter of acceptance, she informs the offeror by telephone, before the letter arrives, that she rejects the offer. In the absence of English cases the Scottish case ofDunmore v Alexanderis quoted where it was decided that because of the additional cost of using speedier communication was used, the effect would be that there would be an effective revocation and that the original acceptance will cease to be effective. More confusion would follow with the decision in the case ofEntores v Miles Far East Corpwhere it was held that the postal rule did not apply to telexes and that it was confined to non instantaneous forms of communication. The same approach was taken with regard to faxes inBrinkibon v Stahag Stahl. The widest exception to the postal rule was recognised inHolwell Securities v Hugheswhere it was suggested that the postal rule ought not to apply where it would lead to manifest inconvenience and absurdity. With more instant forms of communication such as e-mail, correspondence by post is becoming an exception rather than the rule. It is important that the postal rule be confined to the museum and that the rules of acceptance be applied regardless of the mode of communication. Differences in application of the rule for other more instant means of communication would make it difficult to apply uniformity to the rules of offer and acceptance. It would seem that even with more modern technologies there is still proof of posting does not guarantee that there has been acceptance. Just because the message transmission ok on a fax machine or message sent in an email box does not necessarily mean that the receiver has received it. It would seem that in any form of communication proof of posting is not proof of receipt and that parties must ensure that there acceptance is communicated regardless. Where post is the requested form of communication between parties or where it is an appropriate and accepted means of communication between parties, acceptance is complete as soon as the letter is posted. Even if the letter was mislaid or lost and does not reach the offeror. It is a requirement that the letter of acceptance has been properly posted London andNorthern Bank(1900). It is found telegrams also fall under the postal rule. An issue that rises from the Postal rule is that there is a period of time, where person(s) are in the dark as to whether a contract is in existence or not. Courts have decided that the offeror assumes all the risk, as the offer is still open during the time the letter of acceptance is in the post Adams v Lindsell(1818). The decision was based on the fact that an acceptance of an offer could go on ad infinitum, back and forth between the parties. If one had to acknowledge the receipt and then the acknowledgment had to be acknowledged so on and so forth. Unless the offeror has clearly stated in the terms of the offer that acceptance must be communicated by other means the offer must be accepted through the terms of the postal rule. Such a situation arose in the case Holwell securities Ltd v Hughes (1974), where the in the terms of the offer it was clearly indicated acceptance had to be by “notice in writing”. The letter of acceptance was lost in the post; therefore Hughes did not receive a valid acceptance as he had not received a “notice in writing”. There are further cases highlighting the method of communication in relation to acceptance. Where a method of communication is stipulated by the offeror. Clear wording is required if the method of communication is to be mandatory. In Yates Building Co v RJ Pulleyn (1975) the acceptance was to be sent by “registered or recordeddelivery post”. The plaintiff sent his acceptance by through the standardpost service. The defendant refused to accept the bid as it was not sent to them by the methods as they had outlined in the offer. The courts found that there was a binding contract in place with the receipt of the acceptance by letter. This ruling was appealed and the court further outlined the findings by stating the offeror did not state that the only method of acceptance as outlined would be binding. Another area the postal rule was rigorously tested was where the original offer was withdrawn or revoked. When does the revocation come into effect under the postal rule? Under the postal rule, the letter of acceptance is relevant on posting. Letters communicating revocation come into effect only when the letter revoking the offer is delivered. Key case dealing with revocation under the postal rule is Byrne v Van Tienhoven (1880). The judges ruled in this case in favour of the plaintiff. The judges ruled it was proven by the plaintiff they had accepted the original offer by posting a response to the defendant. The letter of revocation was received after their letter of acceptance had been posted by the plaintiff. RELEVENT CASE LAW: ADAM VS LINDSELL: The case ofAdams v Lindsell (1818) 1 B & Ald 681is taught to university law students when studying offer and acceptance. It is often thought by students to have set a rather strange precedent. However, this is because modern students are viewing Adams v Lindsell in a modern context, rather than the somewhat different context of previous times. This piece will explain the facts which occurred in Adams v Lindsell and what the court decided. It will then go on to describe when the rule in Adams v Lindsell will be applicable. The facts of Adams v Lindsell are that: the defendants wrote to the plaintiffs on 2 September, offering to sell them some wool and requested that the plaintiffs reply ‘in course of post’. The letter which contained the offer was wrongly addressed and therefore the plaintiffs did not receive it until 5 September. As a result of this delay, the letter of acceptance was not received until 9 September by the defendants, and this was two days later than the defendants would have expected to receive it. Because of this, on 8 September the defendants had sold the wool to a third person. The question for the court in Adams v Lindsell was therefore whether a contract of sale had been entered into before 8 September when the wool was sold to the third party. If the acceptance was effective when it arrived at the address or when the defendant saw it, then no contract would have been made and the sale to the third party would amount to revocation of the offer. However, the court held that the offer had been accepted as soon as the letter had been posted. Thus, in Adams v Lindsell there was indeed a contract in existence before the sale of the wool to the third party, even though the letter had not actually been received by the defendant. The defendant was therefore liable in breach of contrack The ‘postal rule’ inAdams v Lindsellhas since been confirmed in Household Fire and CarriageAccident InsuranceCo v Grant (1879) 4 EX D 216 where the defendant applied for some shares in a company. These were then allotted to him but he never received the letter of allotment. It was held that a contract existed. More recently, Adams v Lindsell has been reinforced by Brinkibon Ltd v Stahag Stahl and Stahlwarenhandelsgesellschaft GmbH [1983] 2 AC 34 where it was held that acceptance is effective when it is placed in the control of the Post Office, ie. placed in a post box or handed to an officer of the post. There are several theories about the rule in Adams v Lindsell. One such theory is that the rule prevents an offeree from accepting by post but then nullifying this acceptance by rejecting the offer by a quicker means of communication. Another theory is that without the rule an offeree would not be able to know for certain whether they had actually entered into a contract or not. It can be seen that in all cases one of the parties is going to suffer hardship, and the rule in Adams v Lindsell results in this party being the offeror rather than the offeree. This can perhaps be justified because when an offeror chooses to start negotiations by post he takes the risk of delay and accidents in the post. Furthermore, the offeror can avoid the rule in Adams v Lindsell by expressly stipulating that he is not to be bound until actual receipt of the acceptance. A further theory for the existence of the postal rule as adopted in Adams v Lindsell is that if the offeror, either expressly or impliedly, indicates that postal acceptance is sufficient then they should bear the consequences of the postal rule, as the defendant did in Adams v Lindsell. Moreover, Adams v Lindsell could be considered support for the idea that the offeror should be considered as making the offer all the time that the offer is in the post, and that therefore the agreement between the two parties is complete at the moment that acceptance is posted. In Adams v Lindsell itself it was suggested (at 683) that if the rule did not exist “no contract could ever be completed by the post. For if the [offerors] were not bound by their offer when accepted by the [offerees] till the answer was received, then the [offerees] ought not to be bound till after they had received the notification that the [offerors] had received their answer and assented to it. And so it might go on ad infinitum”. One further reason for the existence of the rule in Adams v Lindsell is that the post office can be considered to be the common agent of both parties, and therefore communication to this agent immediately completes the contract. However, where the letter is not addressed then this will not be enough. Therefore, mere delivery of the acceptance to the agent does not of itself complete a contract for the purpose of the rule in Adams v Lindsell. The Adams v Lindsell postal rule only applies when it is reasonable to use the post as a means of communicating acceptance. So, an offer made in a letter sent by post could be accepted by post. Yet at other times postal acceptance may be reasonable. For example in Henthorn v Fraser [1892] 2 Ch 27 it was held to be reasonable to post acceptance in response to an oral offer because the parties lived some distance away from each other. However, Adams v Lindsell will not normally apply where acceptance is made by post in response to an offer made by telex, email or telephone. Furthermore, Adams v Lindsell will not apply if the acceptor knew that the postal service was at that time disrupted. Adams v Lindselltherefore has three consequences in English law. Firstly, a posted acceptance prevails over a previously posted withdrawal of the offer which had not yet reached the offeree when the acceptance was posted. Secondly, acceptance takes effect on posting even where it never reaches the offeror or only does so after delay. Finally, the contract is taken to have been made at the time of posting so as to take priority over another contract made after the original acceptance was posted CONCLUSION It is evident that the arguments relating to retention or desertion of the general rule are advanced; it is also clear from the aforementioned that in order to provide the valid conclusion the legislators have to consider many aspects of communication that is conducted by electronic means. In writer’s view it is essential to also asses the rule applicable to revocation of contract as the technology development has changed the way how and when the acceptance takes place and therefore it can be often discriminatory to bind offeror and leave alternatives largely open for the offeree. REFERENCE

  1. https://libromeo.blogspot.com/2012/02/postal-rule.html
  2. https://www.bitsoflaw.org/contract/formation/study-note/degree/acceptance-postal-rule
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