Postal Rule Of Acceptance In Contracts: Explanation, Creation, And Application

Explanation and creation of the postal rule

1.One of the most considerable area of concern in the law of contract is that of the postal rule of acceptance. The rules in relation to acceptance by post had been brought into the legal world in the year 1818. However there have been significant changes in the provisions ever since. The postal rule had been incorporated for the purpose of addressing doubts and conflicts which arise through the area of acceptance and communication in the law of contract. In order to be validly formed a contract requires the presence of elements like offer and acceptance. They are the fundamental building blocks of the contract as they set out the rights and obligations of the parties to the contract. it has to be noted that  acceptance in relation to the postal rule had been initiated as an exception to the common provisions related to offer and acceptance. An offer can be brought to an end through the process of revocation before it has been legally accepted.

There have been several issues however in relation to when an offer is eligible to be revoked.  A significant amount of confusion has been created in relation to the issue and a question arises that whether the offer had been ended by the person making the offer before or after it had been accepted. The purpose of inventing the postal rule was to address this confusion which came to light mainly because of the communication between the offeror and the offeree in relation to offer and acceptance. The initiation of the postal rule had been done through the landmark case of Adam v Lindsell. The court in this case had a difficult question to address in relation when the contract had actually been formed between the parties. In this landmark case it was provided by the judge that the contract had been formed between the parties to the contract as soon as the letter of acceptance had been posted by the offeree. There was intention on the part of both the parties to the contract towards forming the agreement via post. The time required for a mail to be delivered is inconsistent and long therefore it is difficult to determine the exact time when the party had accepted the offer. The postal rule was a result of the issue faced by the court in relation to deciding when the contract had been formed between the parties.

Application of the postal rule in common law

The application of the postal rule had been subsequently done on the case of Henthorn v Fraser. The provisions of the postal rule provide that an acceptance is deemed to have occurred in relation to an offer as soon as the letter of acceptance leaves the control of the person accepting the offer in case it is sent by post. However the postal rule is only applicable in situation where the letter has been addressed correctly by the offeree. The acceptance through post is even valid in case if the letter does not reach the offeror at all. In addition the parties to the agreement have to agree that they would be doing the communication in relation to the contract through post. Instant communication of acceptance is only possible where the parties to interact face to face as where there is no face to face interaction it is not possible for the acceptance to be instantaneous.

Therefore it would be unfair to expect that the parties were aware of a possible refusal of the offer after the letter of acceptance has been posted by the party. Thus the application of the postal rule is done in case of distant contracting. The provisions in relation to the postal rule has been analyzed and applied in the case of Household Fire Insurance v Grant  and with the case of Brinkibon Ltd v Stahag Stahl GmbH in order to determine when the contract between the parties was actually formed.

In the Brinkibon case the court held that a soon as the letter of acceptance is posted a binding contract is formed between the parties irrespective of the knowledge of the offeror. However it was also held by the court that the offeree and offeror must have agreed and understood the risk in relation to the postal rule when the select post as a mode of communication in relation to the contract. However there have been significant difficulties faced by the court in relation applying the postal rule on modern instantaneous communication modes. The creation of receipt in relation to the posted message creates a valid communication with respect to instantaneous communication modes. In the landmark case of Entores Ltd v Miles Far East Corporation it had been ruled by the court that only when the email reaches the mailbox of the offeror the communication of acceptance is complete.

2.As stated by Lindgren (2011) common law is always superseded  by legislations. The Electronic transactions Act 1999(Cth) and Electronic transactions Act 2000(Vic) have been enacted for the purpose of addressing the issue in relation to communication of acceptance in the contemporary period were several instantaneous modes of communication are available. Thus their provisions prevail over those which have been provided through common law. The government of Australia created The Electronic Commerce Expert Group so that it is able to identify and address concerns and conflicts arising out of E- commerce. As provided by the group the rules of the country in which the offeor resides will govern the contract which is to be formed between the parties.

Impact of Electronic Transactions Acts on the postal rule

In response to the above discussed report The Electronic Transactions Act was legislated. According to the ETA communication in relation to the acceptance is by electronic means can only take place where there is an agreement between the parties that they would accept electronic mediums as a mean of communication. The time when the information of acceptance enters the information system of the offeror is the time when the receipt is generated. The provision are in compliance to the common law provisions of acceptance through email. The contemporary common law system stipulates that until the information of acceptance reaches the system of the offeror a valid acceptance cannot be constituted.  In addition the provisions of the legislation are not applicable on telex machines and facsimile. Both the legislations provide an insight in towards the application of the postal rule on instantaneous communication modes.

As states through the provisions of subsection 14(3) of the ETA (Cth) once the electronic communication reaches the information system which was intended by the sender it is the time of receipt of the electronic communication. However it needs to be considered that the ETAs do not give any clarification in relation to what should ideally constitute designation of the information system. No clarification of the situation has been provided whether mere receipt of the email or opening it would be considered an correct time of receipt.  In case no system is designated, the time of the receipt information by the receiver will be considered as the time when it has been noticed by him as per section 14 of the ETA (Vic).

On the other hand the explanatory memorandum provided through the ETA (Vic) suggests that the receiver must read the information before it can be considered as being received. However in case the receiver chooses to intentionally ignore the received message it would be consider as complete communication.

3.The problems of distant communication have been reduced significantly with the advent of modern modes of instantaneous communication. Now days people are able to freely communicate with each other through the use modern communication methods such as SMS and E-mails. The most formal and popular method used for the purpose of communication is through E-mails. Thus in the given situation with the advent of new technology in relation to communication it has become difficult for the courts to appropriately apply the provisions of the traditional postal rule. The situation of communication through email is not the same as the situation of contracting through websites. In relation to website contracting an acceptance is said to be communicated at the time it actually takes place. However there is no legislation which determines clearly the time of revocation of offer or acceptance.  In relation to transfer of information through emails a message is deemed to be delivered when the offeror is online and the message is read by him.

Challenges in applying the postal rule to modern communication modes

In such situation the offeree may not receive relevant notice in relation to whether the message has been delivered to the offeror or not. Computers and servers of the receiver may take considerable amount of time to respond to the message or receive it. The issue of timing in relation to instantaneous communication is different in relation to website contracting, which is considered generally as the process of contracting through emails and instantaneous communication. The communication through email encounters several problems. Situations may occur where the delivery of the email is delayed or it does not get delivered at all due to some technical errors. Thus the delivery of email merely should not constitute complete communication required for a valid acceptance as the receiver may not know that he has received an email. In addition there is no guarantee in relation to the fact that the email will be accessed or read by the receiver once it has been delivered.

The problems identified above can be addressed through the appropriate application of the postal rule. However it had been provided by the court in the case of Nunin Holdings v Tullarmarine Estate, that the postal rule should not be applied in the situation which involves communication by emails. The court provided such decision based on fact that email is an instantaneous and virtual mode of communication and thus the postal rule must not be applied to such situation in the same way as it is not applicable on other mode of instantaneous communications. It was ruled by the court that it has the obligation to follow the precedent provided in the case of Asher v Goldman Sachs & Co , Entores Ltd v Miles Far East Corp  and and Reese Bros Plastics v Hamon-Sobelco Australia Pty Ltd.  Thus it can be stated that the application of the postal rule cannot be done in relation to communication by email and acceptance will be done once not when it is sent but when it is received.

Contracts which are entered upon over the internet are same as those contracts which involve a face to face transaction. An advertisement in relation to sale of a commodity or good over the use of internet is considered as an invitation to an offer.  When the order is placed by a person in relation to the invitation it constitutes an offer. When the confirmation of such order is shown by the website in from of a receipt the contract is said to be formed. Thus when it comes to internet contracting the rule of receipt is applicable rather than the postal rule.

However an argument has been provided that an email is not an instantaneous mode of communication as a direct link between the devices of the parties are not present. Emails are independent messages and a simultaneous end-to-end traffic path does not exist between the receiver and the sender. Thus the application of the postal rule is valid on contracts formed over emails.

Therefore the paper can be concluded by stating that the provisions of the postal rule have not been outdated completely in relation to contemporary methods of communication. However the courts restrain from applying such provisions to cases which include instantaneous communication methods. In addition there are no statutory provisions which clarify the application of the postal rule in diverse situation and the modern instantaneous form of communication are unaffected by its application.

Adam v Lindsell [1818] B & Ald 681

Asher v Goldman Sachs & Co [1991] 1 QB 129 and Reese Bros Plastics

Brinkibon Ltd v Stahag Stahl

Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34

Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34

Entores Ltd v Miles Far East Corp  (1955) 2 QBD 327

Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3

Fitzpatrick J, Symes C, Veljanovski A, Parker D. (2017) Business and Corporations Law, 3nd Ed., Lexis Nexis Butterworths.

Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis Butterworths, 2015.

Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11-106

Henthorn v Fraser [1892] 2 Ch 27

Household Fire Insurance v Grant [1879] 4 Ex D 216

Latimer, P, Australian Business Law CC, 2016 Edition.

 Lipton P, Herzberg A and Welsh, M, Understanding Company Law, 18th edition 2016

Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74

Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] EWCA Civ 6

Seddon, N; Bigwood, R; Ellinghaus, M, Cheshire & Fifoot Law of Contract, 2012 10th Australian Edition LexisNexis.

Stephen Graw, 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters.

Sweeney, O’Reilly & Coleman, 2013, Law in Commerce, 5th Ed., LexisNexis.

 Thomson Reuters. Harris, J. Hargovan, A. Adams, M. Australian Corporate Law LexisNexis Butterworths 5th edition, 2015.

Vermeesch,R B, Lindgren, K E, Business Law of Australia Butterworths, 12th Edition, 2011.

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