1. Acceptance
Contract law uses ‘the offer and acceptance analysis’ in order to establish whether an agreement, i.e. contract exists between the parties. The information on whether the contract is formed is important as it affects the right of the parties involved in contract.
An acceptance represents a final agreement concerning terms and conditions of an offer. In order to finalise a binding contract the acceptance must exactly match the offer. There is no contract if the buyer offers only to pay for 200 tons of wheat albeit the offer was originally for 300 tons. Furthermore, the offeree must accept all the terms of the offer, since the acceptance of an offer means unconditional agreement to all its terms. Subsequently, binding contract is formed once valid acceptance has effect. It is therefore important to make a note of what constitutes a valid acceptance with the intention of establishing if the parties are bound by the agreement. There are three prescribed mode of acceptance. First of all, the acceptance must be communicated to the offeree. Secondly, the terms of the acceptance must exactly match the terms of the offer and thirdly, the agreement must be certain (e-lawresources). These modes are is clearly are applied in layman’s terms in Entores LD v Miles Far East Corporation[1] (1955) when Denning L.J. held that “suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound”.
It is vital, that the offeror must receive the acceptance before it is effective and that silence will not amount to acceptance. However, courts held that acceptance can be through conduct. Acceptance may be express or implied Gaddarmal Hiralal & Anr. v Chandrabhan Agarwal & Co.[2] (1967)
2. Exceptions to the general rule: Postal rule
Postal rule applies and is accepted where it is decided that the parties to the contract will use the post as a means of communication and in such occasion the postal rule will apply.
Postal rule was firmly introduced Adams v Linsell (1818). This case is being considered as first offer and acceptance case in English law as until 1818 and until this case there was no rule that the acceptance must be communicated. (Suff, 1997: 11 and Connor, 2004: 207)
Koffman and Macdonald (2007) believe that decision in Adams v Linsell (1818) is defendable;
(…) on the basis that defendant was careless in addressing his offer and that it was fair for plaintiff’s action to succeed. The argument for choosing to favour the offeree is that it is easier to prove posting than receipt. It is also offeror who chooses to use the post and therefore it is he who should be at disadvantage. (Koffman and Macdonald, 2007: 31)
The decision held by the court was according to Tillotson (1995) based more on question of speed, early reliance (by the offeree) and convenience rather than logic. He further went onto state that court believed that idea of a posted acceptance reaching the offeror before it could be effective would, in the court’s view, be impractical and inefficient. (Tillotson, 1995: 69)
Evans (1966) discussed this problem and he believes that the problem in Adams v. Lindsell (1818) was that the offeror had specified “receiving your answer in course of post” but had misdirected his offer so that it was received late by the offeree, whose acceptance was in turn received late by the offeror. (Evans, 1966: 555)
Postal rule and its application remained to be complicated after its introduction when it comes to practical application of law and means of communication when reaching a valid contract. It was decided that acceptance remains binding upon the offeror even if it lost, destroyed, or never delivered. Connor (2004) explains on this point that;
(…) contract law accepts that the moments of circulation and communication of letters and acceptances are distinct and may be temporarily or permanently disconnected. If it happens, circulation takes precedence over the ‘meeting of minds’ and creates binding effects. This precedence is not just temporal. There is always possibility that the letter may not arrive. In this case, the principle of postal rule, according to which the circulation of letters and signs creates effects although there has been no communication or agreement between the parties, turns into the principle of the main rule with its demand for clear communication. (Connor, 2004: 207)
The case of Holwell Securities Ltd v Hughes[3] (1973) limited application of the postal rule. “In October 1971 the defendant granted the plaintiffs a six months' option to purchase certain property. The option was to be exercised “by notice in writing to” the defendant, and on April 14, 1972, the plaintiffs' solicitors sent a written notice exercising the option by ordinary post to the defendant. The notice never reached the defendant or his address”. Tillotson (1995) discussed the above case where it was held that there was no contract as the terms of the option required acceptance to be actually communicated. He confirms that the court went onto suppose that there was no general rule determining the effect of posted acceptance; the postal rule, bearing in mind all the circumstances of the case, (Tillotson, 1995: 70) and stated the following: “First, it does not apply when the express terms of the offer specify that the acceptance must reach the offeror. The public nowadays are familiar with this exception to the general rule through their handling of football pool coupons. Secondly, it probably does not operate if its application would produce manifest inconvenience and absurdity”. Suff (1997) correspondingly demonstrates that in Hollwell Securities Ltd v Hughes (1974) it was excluded by the offeror requiring notice in writing. It was also suggested by the court that the rule would not be used where it would lead to manifest inconvenience. (Suff, 1997: 11)
In Henthorn v Fraser[4] (1892) the Court of Appeal held that the postal rule would operate not only where the offer was sent by post but whenever it would reasonably be expected that an acceptance would be made by post. It was held that “(…) no doubt there is the seeming anomaly pointed out by Lord Bramwell that the same letter might contain an acceptance, and also such a notice or offer as to other property, and that when posted it would be effectual as to the acceptance, and not as to the notice or offer. But the anomaly, if it be one, arises from the different nature of the two communications. As to the acceptance, if it was contemplated that it might be sent by post, the acceptor, in Lord Cottenham's language, has done all that he was bound to do by posting the letter, but this cannot be said as to the notice of withdrawal. That was not a contemplated proceeding. The person withdrawing was bound to bring his change of purpose to the knowledge of the said party, and as this was not done in this case till after the letter of acceptance was posted, I am of opinion that it was too late”.
Another matter to consider when applying postal rule is that the letter of acceptance has to be adequately addressed as it was pointed out in London and Northern Bank, ex parte Jones[5] (1900) (Gillies, 1988). In this case, even though the letter was actually posted, the courts held that handing the letter to a postman was not accepted way of ‘posting’. They referred to the actual “Postal Guide” which clearly described instructions where postmen were allowed to take letters only from a post box. It is apparent that the courts wanted to prevent the situation where the postal rule would apply to any means of ‘posting’ or ‘sending’ letter and therefore restricted it only to Post Office and its guidelines. It is imperative to remember that the postal rule will also not be applicable where it would cause manifest inconvenience and absurdity. MacIntyre (2010) moreover emphasizes that it will not apply where the circumstances of the case indicate that the parties cannot have intended that there should be a binding contract until the acceptance was received. (MacIntyre, 2010: 99). Koffman and Macdonald (2007) reiterates that it is a general rule applicable in contract law that an acceptance must be brought to the offeror’s attention in order to be able to consider it as communicated. However communication through the post provides as an important exception to this rule (Koffman and Macdonald, 2007: 31). For this reason, courts will consider acceptance effective on posting, even when the letter is lost in the post. This was confirmed in House Fire Insurance Co Ltd v Grant[6] (1879). A letter of share was posted to the defendant but in never reached him. After Bramwell LJ asked “if the word “receipt” is relied on, is it really meant that that makes a difference?” it was held that the contract was completed when the letter was posted (Suff, 1997: 10).
Different, more rigid approach was held in the Australian case Tallerman & Co Pty Ltd v Nathan's Merchandise[7] (1957) where the court held that the general rule used in contract is that a contract is not completed until acceptance of an offer is actually communicated to the offeror and that the posted acceptance is not valid until the offeror is aware of it (Vaver, 1974).
From the aforementioned is evident that postal acceptance is effective on posting but will be subject to a test of rationality contained within the offer as it was demonstrated in Quenerduaine v Cole (1883)[8]. Moreover, according to Chandler and Brown (2007), where the postal rule applies there is preponderance of persuasive authority favouring the view that any withdrawal of the acceptance is ineffective after the acceptance has been posted as it was demonstrated in A to Z Bazaars Pty Ltd v Minister of Agriculture[9] (1974) (Chandler, Brown, 2007: 3) In this case the court held that according to the expedition theory, offeree was bound by his letter of acceptance and subsequent telegram advising of withdrawal in their view is ineffective (Tager, 1975).
3. issue of Revocation
It is clear from the abovementioned, that the application of the postal rule can have different variations and implications. When considering its function, it is essential to know when an acceptance becomes legally effective and also whether it can be revoked. The ‘arguable’ point when considering relevance of postal rule in 21st century is that in view of courts, before the acceptance is made the offeror can call the offer off, but once the acceptance has even made this is no longer possible. (MacIntyre, 2010: 84). Fundamentally, the offer may be revoked by the offeror only until that time it is being accepted and furthermore the revocation must be communicated to the offeree(s) otherwise desired revocation will be ineffective.
Form the case law it is unclear what position courts are holding with regards to issue of revocation and their ruling would show a great deal of modification. It was stated in Trans-Pacific Trading v. Rayonier Canada Ltd. (1998) once a contract has been made the offer and acceptances are binding and for that reason they cannot be revoked. This very straightforward and effortlessly applicable rule when considering instantaneous communication, however when the parties are using non-instantaneous means of communication and are separated by physical distance, this rule can cause great deal of vagueness and uncertainty. Especially, when there is still vagueness in connection with Internet transaction, which is still compounded by great deal of unreliability (Freedman, 2000: 13).
Suff (1997) is discussing the interplay between acceptance and revocation by post based on Byrne v Van-Tienhoven[10] (1880) where “by letter of the 1st of October the defendants wrote from Cardiff offering goods for sale to the plaintiffs at New York. The plaintiffs received the offer on the 11th and accepted it by telegram on the same day, and by letter on the 15th. On the 8th of October the defendants posted to the plaintiffs a letter withdrawing the offer. This letter reached the plaintiffs on the 20th”.
Lindley J held that “there is no doubt that an offer can be withdrawn before it is accepted, and it is immaterial whether the offer is expressed to be open for acceptance for a given time or not. For the
decision of the present case, however, it is necessary to consider two other questions, viz.: 1. Whether a withdrawal of an offer has any effect until it is communicated to the person to whom the offer has been sent? 2. Whether posting a letter of withdrawal is a communication to the person to whom the letter is sent?” Subsequently, according to Lindley J the revocation did not take place until the letter was actually received in 20 October, by which time the contract had been formed (Suff, 1997: 11).
From the above is evident that the actual problem of postal rule is question of revocation, i.e. ambiguity whether the letter of acceptance can be cancelled by an actual communication before the letter is delivered? Suff (1997) discussed that there is no direct English authority on this point (Suff, 1997: 11).
Revocation was either not accepted in New Zealand case Wenkheim v Arndt[11] (1861) where it was decided that there is no scope for revocation of an acceptance after it has been posted. Although Turpin (1975) believes that this decision is too is open to a different interpretation (Turpin, 1975: 25). In A to Z Bazaars (Pty.) Ltd. v Minister of Agriculture[12] (1974) the courts have applied the expedition doctrine of postal contracts since 1921 and accordingly the company's acceptance was complete when the letter was put in the post and basically held conclusion that the company's purported withdrawal of its acceptance by the telegram was ineffective (Turpin, 1975: 25).
Current status quo held by the courts is that once a letter is posted the offer is accepted; there is no provision in law for revoking an acceptance. Chandler and Brown (2007) argue that where the postal rule applies there is preponderance of persuasive authority favouring the view that any withdrawal of the acceptance is ineffective after the acceptance has been posted (Chandler and Brown, 2007: 3). Cheshire and Suff (1997) argues that conflicting part of the postal rule is its unfairness; that it is unfair to the offeror who would be bound as soon as the letter was posted, but would allow the offeree to keep his options open (Suff, 1997: 11).
Postal rule has according Douzinas et al. (1994) another, post-modern jurisprudence dimension and he believes that
there is support in the history of contract and particularly in the early formbooks such as West’s Symbolaeography, to support both the psychoanalysis and the deconstruction readings adverted to above. The earliest forms of contracts were written obligations adopted and adapted from precedent writings provided by means of the “notarial trade of the making of evidence, and terms thereof, which as they be most ancient, so without doubt are they the surest, and of most vailable effect, and a great danger it is for those not exactly learned in the laws to alter or vary from same.
The contract, is in legal principle immemorial and immutable: the language of law is in Coke’s terms vocabula artis, an ‘unknown grammar’, which circulates perpetually within its own professional genre. The postal rule , which recognizes precisely the priority of the signifier, of the letter, over the sense or context, directly express the logic of common law history (Douzinas et al., 1994: 122).
Suff (1997) argued that actual prior communication of rejection would not necessarily prejudice the offeror. Furthermore, Treitel (1991) put forward theories to support the existence of the rule and sees no reason why a rule setting out the relationship between revocation and acceptance and what happens when a letter is lost in the post should also govern cancellation of an acceptance by post (Richards, 2007: 40) .
For example, revocation was allowed in Scottish case of Countess of Dunmore v Alexander (1830) involving simultaneous arrival of the two messages and this case is often cited in support of the proposition that the acceptance may nevertheless be revoked by a letter reaching the offeror before the letter of acceptance (Aubrey, 1965: 1018). Based on this case;
the Scottish Law Commission in Report No 144 (1993) on ‘Formation of Contract: Scottish Law and the United Nations Convention on Contracts for the International Sale of Goods’, criticized the backward nature of the postal rule, and recommended that to be effective an acceptance must be received by the offeror. See pt IV, and Draft Bill, sch 1, cl 9(2). There has been no implementing legislation. An offer can be retracted at any time before posting of an acceptance. Where an offer and the retraction thereof arrived at the same time at the house of the offeree, the court in Scotland has held the retraction to be effective. (Crawford, 2005: 15)
Naturally, as pointed out by Suff (1997), it would correspondingly be absurd to insist on enforcing a contract when both parties had acted on the recall – this could be interpreted as an agreement to discharge (Suff, 1997: 12). Andrews (2011) believes that one of the solutions to complicated issue of revocation would be that acceptor should not abuse the capacity to retract (Andrews, 2011: 56). This means that the retraction will generally be allowed, but in the case of ‘playing market’ it will be disallowed.
There is ongoing and vigorous discussion relating to valid introduction of revocation into the current law as it would bring postal rule closer to 21st century and perhaps there are also historical ties and tradition that would be in favour of retaining postal rule in the legislation system. In the meantime, the offeror is put at risk to the extent that he is bound by a contract before he is aware of the fact. In order to avoid this risk, Tillotson (1995) recommends to follow the advice of Bramwell LJ in the Household Insurance Co v Grant (1879), clearly state that “Your answer by post is only to bind if it reaches me” (Tillotson, 1995: 69).
4. problems arising in Electronic Era
In Halsbury's Laws of England (page 13) it is explained that the postal rule does not apply to forms of communication which are instantaneous, i.e. made orally, as by telephone, or in writing, as by telex or telephoned facsimile (fax) however, it will generally apply to telegraphed communications.
Reason for this is that instantaneous communications between the parties is different from the rule about the post because it is considered as contract that was made face-to-face.
There are ongoing discussion if the postal rule should (in some from) be extended to electronic communication. Electronic Communication Act did not settle matter as it was probably initially desired.
In the United States it was Uniform Computer Transaction Act that deals with the matter and states that contract communicated by electronic means is formed when acceptance is received.
It is evident from the previous chapter that when assessing essential perspectives of the postal rule and its possible use in the electronic communication, these need to be understood in its historical context. Koffman and Macdonald (2007) argue that
there appear to be little enthusiasm for applying this rule to more modern modes of communication, especially when it is now a simpler matter to ascertain whether the acceptance has been received. Therefore it seems more likely that the courts will decide that, in contracts concluded via e-mail, the acceptance will be effective only when it is received. (Koffman and Macdonald, 2007: 33).
As a result of the aforementioned, postal communications must be distinguished from the instantaneous communications. Another reason to question validity and applicability of the rule, which holds that the acceptance of an offer by post is effective as soon as the letter of telegram is properly posted, originated in the early 19th century. Basically,
as an exception to the general ‘instantaneous rule’, an offer is regarded as effectively accepted, where the post is the recognised medium of communication, as soon as the letter of acceptance is properly put into the hands of the Post Office. (Tillotson, 1995: 69)
With regards to telex communication, Smith (2007) discussed that it was held in Brinkibon v Stalag Stabl[13] (1983), that there are not general rules applicable to all instantaneous communications, and the question of whether and when a contract is concluded by such means will depend on all the circumstances, including the interaction parties’ intentions. (Smith, 2007: 585) Lord Wilberforce in Brinkibon v Stalag Stabl (1983) commented that “In this situation, with a general rule covering instantaneous communication inter praesentes, or at a distance, with an exception applying to non-instantaneous communication at a distance, how should communications by telex be categorised?”
In addition to the above, it is important to recall judgement as held in Entores LD v Miles Far East Corporation (1955), that “when a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing”.
Taylor and Taylor’s (2007) discourse concerned with the postal rule concludes that the rule decrees that a posted acceptance is binding from the moment of posting without any communication to the offeror. He states that the choice made by the postal rule places uncertainty on the offeror and this is due to the fact that the offeree may knowingly accept any time after the offer has been made by posting his acceptance, but the offeror will not know that he is bound until actual receipt. (Taylor and Taylor, 2007: 41)
Another problem that arises during the discussion concerning electronic communication is in which jurisdiction was contract concluded. According to Smith (2007), this will be determined by consideration of the point at which the contract was concluded, in particular whether it was conducted upon the sending (the “postal rule”) or the receipt or deemed receipt (the “telex rule”). (Smith, 2007: 504)
The Electronic Act distinguishes between the deemed place of transmission and the actual place where the message is dispatched and/or received (Hill, 2001: 53).
Subsequently, in view of the speed of electronic communication, another issue that has to be considered and that is revocation of the contract concluded via means of Internet communication.
As Orpwood (2008: 461) already noted, imposing the traditional common law principles of jurisdiction to the borderless world of Internet transactions has proved to be extremely challenging for the courts and has resulted in the application of a myriad of different tests and principles. She also notes that the timing of contract formation is another area where technological developments have had an impact on the law. (Orpwood, 2008: 457)
This is also evident from the case Trans-Pacific Trading v. Rayonier Canada Ltd.[14] (1998) where the communication and formation of contract took place over the period of only 12 days (from August 25 until September 5). Nonetheless, the Court held that “it is not however for this Court, but for the Legislature or the Supreme Court of Canada to determine whether the ‘exception’ shall continue to have legal force or be determined to be obsolete”.
It is the elementary rule that a contract is made when and where the acceptance of an offer is received by the offeror with the exception of the postal rule as previously discussed. The US Uniform Computer Information Transaction Act of 1999 provides in s. 203(4) that a contract formed by exchange of e-mail is formed when the acceptance is received. That clearly excludes the postal acceptance exception. (Smith, 2007: 584). However, Smith (2007) recognises that the
problem with electronic contracting over the internet is to determine whether the rule as regards instantaneous communication should apply (so that receipt or deemed receipt by the offeror is the key) or whether the postal rule is the more appropriate analogy (so that despatch of the accepting e-mail or response form is effective). (Smith, 2007: 814)
5. Conclusion
It seems that despite the lack of convincing rationale, the postal rule is firmly established in the law of contract. (Koffman and Macdonald, 2007: 32)
It was already stated in Brinkibon v Stalag Stabl (1983) and Entores LD v Miles Far East Corporation (1955) that general notification rule places the risk of miscommunication, however as the court held in Brinkibon “no universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie”.
The UNCITRAL Model law is offering internationally acceptable rules designed to remove legal obstacles to the use of electronic communication (Christensen, 2001).
In Article 2 it defined that “delivery by electronic means such as facsimile or e-mail may only be made to an address so designated or authorized”. Article 3 further continues that “in the absence of such designation or authorization, a notice is: (a) Received if it is physically delivered to the addressee; or (b) Deemed to have been received if it is delivered at the place of business, habitual residence or mailing address of the addressee”. And Article 4 maintains that “if, after reasonable efforts, delivery cannot be effected in accordance with paragraphs 2 or 3, a notice is deemed to have been received if it is sent to the addressee’s last-known place of business, habitual residence or mailing address by registered letter or any other means that provides a record of delivery or of attempted delivery”. (UNCITRAL, 2010: 4)
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.
6. References
Andrews, N. (2011) Contract Law. Cambridge: Cambridge University Press
Aubrey, M. (1965) The Formation of International Contracts, with Reference to the Uniform Law on Formation. In: International and Comparative Law Quarterly 14 : pp 1011-1022, DOI: 10.1093/iclqaj/14.3.1011
Chandler, A., Brown, I. (2007) Law of contract: 2007 and 2008. Oxford: Oxford University Press
Connor, S. (2004) The Cambridge companion to postmodernism. Cambridge: Cambridge University Press
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Christensen, S. (2001) Formation of Contracts by Email - Is It Just the Same as the Post [article]
Queensland University of Technology Law and Justice Journal, Vol. 1, Issue 1 (2001), pp. 22-38 1 Queensland U. Tech. L. & Just. J. 22 (2001)
Queensland University of Technology Law and Justice Journal, Vol. 1, Issue 1 (2001), pp. 22-38 1 Queensland U. Tech. L. & Just. J. 22 (2001)
Douzinas, C. , Goodrich, P., Hachamovitch, Y. (1994) Politics, postmodernity, and critical legal studies: the legality of the content. London: Routlege
Evans, D.M. (1966) The Anglo-American Mailing Rule: Some Problems of Offer and Acceptance in Contracts by Correspondence. In: International and Comparative Law Quarterly (1966), 15 : pp 553-575, DOI: 10.1093/iclqaj/15.2-3.553
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We Should Be Going, International In-house Counsel Journal, Vol. 1, No. 3, Spring 2008, 455-466
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Taylor, R. and Taylor, D. (2007) Contract Law Directions. Oxford: Oxford University Press
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Turpin, C. (1975) Postal contracts: Attempted revocation of acceptance. In: The Cambridge Law Journal , 34 : pp 25-26, DOI: 10.1017/S0008197300091996
Vaver, D. (1974) Without Prejudice Communications--Their Admissibility and Effect [article]
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7. Internet References
http://www.insitelawmagazine.com/ch4acceptance.htm
http://www.lawteacher.net/contract-law/lecture-notes/agreement-lecture.php
[1] Entores LD v Miles Far East Corporation [1955] 2 Q.B. 327
[6] The Household Fire and Carriage Accident Insurance Company (Limited) v Grant (1878-79) LR 4 Ex D 216
[11] Wenkheim v Arndt (1873) IJR 73 (NZ)
[14] Trans-Pacific Trading v. Rayonier Canada Ltd. (1998), 107 B.C.A.C. 238 (C.A.)
[3] Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 155; [1974] 1 All E.R. 161; (1973) 26 P. & C.R. 544; (1973) 117 S.J. 912; Times, November 6, 1973
[5] London and Northern Bank, ex parte Jones [1900] 1 Ch 220, 224[6] The Household Fire and Carriage Accident Insurance Company (Limited) v Grant (1878-79) LR 4 Ex D 216
[11] Wenkheim v Arndt (1873) IJR 73 (NZ)
[14] Trans-Pacific Trading v. Rayonier Canada Ltd. (1998), 107 B.C.A.C. 238 (C.A.)
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