Today’s Postal Rule Application

It is usually said that not only the offer be accepted, but the acceptance must be communicated to the offeror. Where the parties are negotiating face to face, this present no problem since the acts or words which manifest acceptance will also communicate it. Where the parties are negotiating at a distance by post, telephone, telegram, telex, fax or messenger the principle obviously has important applications.

(Dudgale, 1992) However in the case of postal acceptance, perhaps numerically the most common case, the rule is subject to an exception (Dudgale, 1992). It was decided in Adams v Lindsell (1818) that a postal acceptance was effective as soon as it was posted even if the letter is delayed, destroyed or lost in the post and it never reaches the offeror. On 2nd September, the defendant wrote an offer selling goods to the plaintiff and asked a reply by post. On 5th September the plaintiff received the letter and sent his acceptance by post. 

However the defendant had sold the goods to a third party on the 8th September and received the letter of acceptance by the plaintiff on 9th September. It was held that a binding agreement was made and the postal rule noted that the date of sending is the date of acceptance.

(McKendrick, 2008) In Household Fire and Carriage Accident Insurance v Grant (1879), this rule was applied even when the letter of acceptance was inadequately stamped or wrongly addressed, and it is open to the offeror to say expressly that he will not be bound until he receive the acceptance. 

Moreover, in Holwell Securities v Hughes (1974), the Court of Appeal held that such a requirement could be implied from the nature of the contract (exercise of an option). Keenan, 2007) Meanwhile, modern forms of communication such as e-mail, telephones with answering machines and faxes do not follow the postal rule.

(Kelly, Holmes & Hayward, 2005). On the other hand the communication rule was applied to contracts of telex by the Court of appeal in Entores v Miles Far East Corpn (1955) and by the House of Lords in Brinkibon v Stahag Stahl (1982). In these cases generally, the telex machines were in the offices of the parties and messages were sent during the office hours. Communication, therefore, was practically instantaneous as it is on telephone, which is assumed to be covered by the same rule.

(Rose, 2008) 

The postal rule does not apply to the modern form of communication, also known as instantaneous communication because they occupy an intermediate position. This can be said that the time of acceptance is the time of receiving compared to the postal communication. However, courier service is still bound to the postal rule as the time of acceptance is the time of sending. Beale, Bishop & Furmston, 2008) There are criticisms existed for postal rule. One of the criticisms of the rule is that it favours the offeree.

The English case of Household Fire Insurance v. Grant (1879) is a prime example of the possible injustice which may result in the application of the postal rule. In this case, on receipt of an offer from Grant to take up an insurance policy, the company posted back their acceptance and the letter never arrived, so Grant was unaware of the acceptance from the company. It was held that a contract existed, and that he was liable to pay premiums.

(O’Brien, 2007) 

This example shows how, through application of the postal rule, a party may be bound by a contract without actual knowledge of its existence. If the rule stated that the contract would not be formed until receipt by the offeror, injustices like this could be avoided. According to Furmston (2001), it would also have been acceptable as a ruling in the Adams v. Lindsell case as “the defendants’ offer would not be revoked by their sale to third party on 8th September. This statement underpins the fact that the ruling was an arbitrary one, which was needed to make certain the law regarding acceptance by post at the time.

(O’Brien, 2007) Due to the high proportion of modern forms of communication, for example fax, registered post where receipt of acceptance is normally issued to the customer, and e-mail, the usage of the postal system in modern day business is waning. 

Electronic telecommunication, are the most common competition for the long established postal system. One of the earliest references of case law regarding electronic communications is Entores Ltd v.

Miles Far East Corporation (1955). This English case deals with an offer which was sent via the plaintiff’s telex machine to the defendants in Holland. The plaintiff sent a telex message from England offering to purchase 100 tons of Cathodes from the defendants in Holland. The defendant sent back a telex from Holland to the London office accepting that offer.

The question for the court was at what point the contract came into existence. If the acceptance was effective from the time the telex was sent the contract was made in Holland and Dutch law would apply. If the acceptance took place when the telex was received in London then the contract would be governed by English law. The English Court of Appeal held that the contract was concluded when the acceptance was received in London. This set a precedent which isolated electronic forms of communication from the authority of the postal rule.

(Poole, 2008) The principles of the Entores case were approved by the House of Lords in the case Brinkibon Ltd. v. Stahag Stahl und Stahlwarenhandelgesellschaft GmbH.

Lord Wilberforce declared that he would accept it as a “general rule … but not necessarily a universal rule. He believed that to avoid the injustice that might be caused by universal application of the rule, cases regarding instantaneous forms of communication must be resolved “by reference to the intention of the parties, by sound business practice and in some cases by a judgment where the risks should lie.

” This lack of an undeniable rule creates a margin for the types of cases which would otherwise be dealt with in an unjust manner. (Peel, 2007) Nonetheless, if an offeror provides an offer with an e-mail address for purposes of correspondence, the acceptance by the offeree is effective when it first becomes accessible by the offeror. This is a contemporary example of how the postal rule is being dispensed with in favour of the more liberal general rule as applied in Brinkibon. (Peel, 2007) 

Another criticism of postal rule is that the effects due to revocation of offer. Where an acceptance is posted after the offeror posts a revocation of the offer, however before that revocation has been received, the acceptance will be binding, as posted acceptance take effect on posting.

(Kelly, Holmes & Hayward, 2005) This point is illustrated in Byrne & Co. v.

Van Tienhoven & Co. (1880), where the courts confirmed the long-standing idea that any revocation of an offer must be communicated to the offeree; although again there are some exceptions to this rule. The offeror need to communicate this revocation to the offeree himself, however. It is not always practicable for a company, or even an individual, to communicate directly with the other contracting party and this is reflected in the decision in Dickinson v.

Dodds (1876) that revocation may be communicated by a reliable third party. Kelly, Holmes & Hayward, 2005) The question is then whether a revocation sent at the same time as an acceptance will nullify an offer. 

In Household Fire and Carriage Accident Insurance Co. v. Grant (1879), the court ruled that the postal rule only applies to acceptances. As a result, revocation is only effective if it can be received by the offeree before they post their acceptance.

(O’Brien, 2007) In contract law, the offeror is aware of the terms of an offer before the offeree and thus is in a better position to know when that a contract may be created. It would therefore unjustifiably prejudice the offeree if the offeror were able to withdraw their offer even after a letter of acceptance has been posted. The postal rule reflects this state of interaction and goes some way to balancing the power levels between the two parties. (Kelly, Holmes & Hayward, 2005) In a nutshell, judging by the criticism of the postal rule which it favours the offeree creating unbalance in justice and the effect after the offer being revocated, this postal rule of acceptance will not be applicable to modern forms of communication.

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