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Analysis of the Postal Rule

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Mon, 15 Jan 2018

The purpose of this brief is to examine and evaluate the effectiveness and relevance of the Postal rule in the modern context of contract law. Generally, the Postal rule is used to resolve disputes where there is no formal communication received, or it is delayed by post. It is a set of principles that allow the courts to establish that a contract has or has not been formed at a particular point in time, despite the absence of the offeror receiving any formal communication of an offer. Specifically, this brief sets out to examine the aged precedents that the Postal rule relies upon to survive, and analyse them in conjunction with the changing face of communication on a global scale. Finally, it will attempt to recommend a conclusion based upon this discussion, and assess a way forward for the UK jurisdiction, given the increase of use of electronic communication, and the embracing of such means in the community worldwide.

The postal rule is an alternative means of accepting an offer. It is a set of rules that govern whenever communication of acceptance has been sent by post, and are used to resolve any disputes where there is doubt as to the effectiveness of the communication of the offer. The general rule that has been adopted under English law in regards to acceptance by post is given by the case of Adams v Lindsell.[1] This case involved the defendants offering to sell wool to the plaintiffs, and asking for a reply by post. The plaintiffs’ letter was delayed in the post, and hence the defendants sold the wool to someone else, believing that the plaintiffs were no longer interested in the deal. However, the court heard that the plaintiffs had sent a letter of reply on the same day they received the offer, and hence the court held that there was an enforceable contract. The principle behind this decision was that a communication of acceptance of an offer becomes valid once it is posted by the offeree, not when it is received and opened by the offeror. This principle allows for a party to still have rights to an enforceable contract even where the procedural matters are delayed beyond their control. It effectively exonerates the offeree from any liability once a letter of acceptance has been posted to the offeror, and places the onus on the offeror to satisfy the procedural requirements of the contract. As was seen in Adams v Lindsell if the offeror does not wait for a reasonable period of time for confirmation, and subsequently disposes of the goods or services, then they may be liable if it so happens that the confirmation arrives at a later stage.

Justifications for the Postal Rule

A number of justifications for the postal rule of Adams v Lindsell are discussed by Ewan McKendrick in his book, ‘Contract Law’. Firstly, it is argued that the Post Office acts as an agent of the offeree, and hence once the letter is received by an agent, this constitutes valid communication of acceptance.[2] McKendrick says that this is open to debate, given that the Post Office clearly has no express authority to contract on behalf of the offeree.[3] Secondly, it is argued that given the offeror has chosen to initiate negotiations by post, then the offeror must bear all responsibility associated with the postage of documents relating to the contract. However, this justification has been brought into question by the decision in Henthorn v Fraser,[4] where it was held that the postal rule only applies where it is reasonable to use the post. As McKendrick discusses, the issue of what exactly constitutes a reasonable situation to use the post is questionable, for example, where two parties live a significant distance from one another it may be reasonable to use the post, however it is not necessary to initiate negotiations through the post.[5] It would, therefore, be unlikely that such a justification could be relied upon; given there is uncertainty as to when it becomes reasonable to use the post. A more solid justification is that an offeree should be able to rely upon the fact that he or she has posted the acceptance, and hence has satisfied his or her procedural duties under the rules governing the formation of a contract. McKendrick says that a better way of viewing the postal rule in light of this justification is that, once the letter is posted, the offeror cannot revoke his offer, rather than the acceptance taking effect once the letter has been sent.[6] It places the onus squarely on the offeror, given that the offeree has complied with all reasonable requests required of him in accepting the offer. However, the general rule discussed in Adams was further elaborated upon and entrenched in the later case of Household Fire and Carriage Accident Insurance Co Ltd v Grant.[7] In this case, it was held that an acceptance of offer communicated by post becomes valid once it has been posted by the offeree, not when it is received and opened by the offeror. This further strengthens the justification that it is the responsibility of the offeror to allow for any delays or mishandlings by the Post Office in regards to any contractual negotiations conducted by post.

Adherence to Proper Postal Procedure

The Postal rule has been further refined since its inception by the English courts. In the case of Re London and Northern Bank,[8] it was held that a postal acceptance was not valid, as proper postal procedures were not adhered to. It emerged in the facts of the case that a party had allowed a postman to take a letter of acceptance (bundled with other letters) when he offered to post them for the party. The case affirmed the notion that an acceptance is deemed to be enforceable from the moment it is posted,[9] however it was discovered that postmen are prohibited, under the regulations of the Post Office, from taking charge of any post. This meant that the postman was not authorised to act as an agent of the Post Office in this regard, given he was specifically prohibited from handling any post that he was not charged with delivering. Therefore, the court held that the postal acceptance was not pasted correctly, and hence could not have been said to have complied with the implied terms of the Postal rule. Given that this case was decided over a century ago, it raises questions in the modern context. For example, can the postal rule extend to private courier services, where a document is picked up by a courier? One would imagine so, given that a courier acts as an agent of the courier service, which would be consistent with the principles set out in Re London and Northern Bank[10] and Harris Case,[11] regarding agency principles involving the Post Office.

Limitations on the Postal Rule

Instantaneous Communication

While the Postal rule has been refined over the last century by the courts, it is important to consider the consequences such an aged doctrine can have in the modern context. Especially in current times, where a large majority of communication takes place by telephone, email, facsimile and other ‘instantaneous’ means, it is important to consider what effects (if any) the Postal rule can have on these methods of communication. The leading authority on this issue is the case of Entores v Miles Far East Corporation,[12] where an acceptance of offer was communicated by telex. It was held by the court that the Postal rule did not apply to instantaneous forms of communication, and as such the contract was formed at the time the communication was received by the plaintiffs, not from the time it was communicated by the defendants. This decision was subsequently affirmed by the case of Brinkibon Ltd v Stahag-Stahl und Stahlwarenhandelsgesellschaft mbH GmbH,[13] where the facts between the two cases were similar in that an acceptance was communicated by telex, and as such the decision was the same. Again, when this is applied to the modern context, it would appear that means of communication, such as email, fax, telephone and similar are exempt from the Postal rule, and as such the contract is deemed to be formed with these means when the communication reaches the offeror, and not pursuant to the Postal rules.

Reasonableness

It has been established at English common law that it must be ‘reasonable’ for the offeror to accept that communication by post. The leading authority in this case is that of Henthorn v Fraser,[14] which involved the plaintiff handing the defendant a written offer to sell property to him, with which the defendant had fourteen days to reply. The plaintiff sought to revoke their offer by writing to the defendant, however this revocation arrived after the defendant had already posted their letter of acceptance. It was held by the court that there was still a valid contract as, given that the two parties resided in different and distant towns, it would have been reasonable to assume that the defendant was going to reply to the offer by post, hence it would have been in comprehension of the parties that the Postal rule would apply at the formation of the contract. In terms of practically applying this to the modern context, it would directly relate to any negotiations that were communicated by email, for example. If a negotiation was commenced by email, then it would be reasonable to assume that the acceptance would be replied by email. Modern technology would appear to not allow for a reasonable comprehension of the use of post, unless some form of the negotiation was conducted by post, or the offeror specifically requested the acceptance be communicated by post. While a great deal of communication still takes place by post in modern times, it would appear that the need for the use of post has decreased over the course of the last century, when the Postal rule was introduced, due to the increase in alternative (and instantaneous) means of communication available to modern individuals and businesses. This means that the reasonableness factor may prevent the Postal rule from taking effect in many contractual negotiations, given that it may not be reasonable (or necessary) to use the post in many circumstances.

Displacement by the Offeror

There are circumstances that exist in English common law where an offeror can ‘contract out’ of the application of the Postal rule, thus limiting or nullifying its effect on the communication of acceptance issue of the contract. For example, it was held in the case of Holwell Securities v Hughes[15] that the purpose of clause 2 of the contract in that case was to exclude the operation of the Postal rule. This was so even though the clause provided for notice in writing to be given, however it was the opinion of the court that this was to merely ascertain that a communication was required to the defendant, and posting of the letter was not necessary to constitute notice. This essentially ties in with the reasonableness argument, in the sense that it was not reasonable to assume that a reply would come by post, given that the party was only required to give notice in writing, and not post a letter of acceptance. What this example shows is that, while the Postal rule plays a fundamental role in cases where it has been held that it applies, it is not a necessary part of the formation of any contract by post. There are ways for parties to avoid using the Postal rule where the express or implied terms of the contract give leave to do so. This is further enhanced by the decision in Household Fire and Carriage Accident Insurance Co v Grant,[16] which also dealt with the ability of the offeror to displace the postal rule by way of ‘contracting around’ the use of such principles. The evidence in previous discussions have shown that the Postal rule can be an effective means of resolving a contractual dispute regarding acceptance, however it has been shown that cases do exist where the Postal rule does not apply, and hence does not form a necessary part of every written contract negotiated by post. This raises questions as to the protection of the offeree in situations where he or she has complied with all reasonable requests of the offeror in accepting the offer. Perhaps this needs to be addressed in future decisions or legislation, given the commercial and highly litigious tendencies that modern society has developed.

Specification of Mode of Communication of Acceptance

This limitation of the Postal rule does draw some similarities to the displacement limitation discussed above. However, rather than ‘contracting around’ the use of the Postal rule on implied terms, there are ways which a party can avoid the use of the rule on the basis of express terms included in the contract. The leading general authority on such a principle is the case of Holwell Securities Ltd v Hughes,[17] where it was suggested the Postal rule should not apply where it created “manifest inconvenience and absurdity”. Obviously, forcing the Postal rules upon a contract where they would clearly not apply, such as a contract where email or fax transmissions are used in the negotiations would create such absurdity, and hence the Hughes case recommends it not be applied in these circumstances. Other cases are used in this area to reinforce and specialise the principle laid down in Hughes. Most notably, the case of Tinn v Hoffman & Co asked for acceptance to be given by ‘return of post’, which was held to mean “telegram or by verbal message, or by any means not later than a letter written and sent by return of post”.[18] Obviously if the offeree in this case had chosen to reply by return of post, then Postal rules would have applied; however the enforcement of Postal rules in the event of a communication of acceptance by other, quicker means would create an ‘absurdity’ which the Hughes case expressly prohibits at common law. The view of Honeyman J in the Tinn case was later affirmed by Buckley J in Manchester Diocesan Council for Education v Commercial and General Investments Ltd, where it was held that an offer may be deemed to be accepted where the offeree does not adhere to the prescribed method of acceptance, provided that the use of such a method in no more disadvantageous to either party than it would be to use the prescribed method.[19] This impacts on the use of the postal rules because of the fact that it gives the offeree the ability to avoid being subject to them by using an alternative form of communication that is quicker than sending a letter by post (for example, email). It further shows that modern society is leaning towards not requiring the Postal rule as much as in times where post was a primary method of communication, which is when the Postal rule is introduced. The Postal rule appears not to cater for the more modern advances in technology that the last few decades have seen, and hence adds further weight to the argument that the Postal rule is an outdated doctrine, in need of some serious overhaul in order to be effective once more.

In the decades following the introduction of the Postal rule, many advances in technology were made that changed the way the people of the world were able to communicate with one another. First came the telex machine: a slow form of communication by today’s standards however, by comparison to the posting of a letter, it allowed the global community to communicate with one another virtually instantaneously. Next was the fax machine, an improvement on the telex, which allowed whole documents to be copied and transmitted long distances, as opposed to the typewriter-style of the telex machine. Now, in the modern times, we have seen the advent of technology such as e-commerce and email, which effectively links the world on an instantaneous basis virtually 24 hours a day. It has created a truly global market. But how do we regulate contracts in such an advanced technological world with, what seem to be, outdated and outmoded legal principles? The basic premise of Entores v Miles Far East Corporation Ltd still seems to give us basic guidance on the issue, in that the communication of acceptance must still be in such a form that is clear, concise and easily understandable to the offeror.[20] If anything, it would appear that technology has made the task of accepting an offer easier, both for the offeree and the law. Methods such as email have allowed for an offeree to communicate his or her acceptance of an offer by swift and efficient means, and in a way that benefits both parties due to the time and expense associated with posting a letter now seemingly made redundant. E-commerce has given rise to a new form of entering into a contract, and the use of electronic signatures, which are now recognised in English statutory law.[21] This allows for the acceptance of an electronic transaction to have the same effect as a hand-written signature, which allows for Internet contracting to boom and the global market to flourish. Additionally, the use of email to communicate the acceptance of an offer is also covered by statute,[22] which provides that certain information must be provided to the offeree before the contract is concluded, which serves to protect unsuspecting parties from being unduly entered into contractual arrangements. It also makes it easier to distinguish where a contract has been concluded, thus alleviating some of the confusion associated with such a new technology. However, by continuing to consider the Entores v Miles Far East Corporation[23] decision in conjunction with the case of Pretty Pictures v Quixote Films Ltd,[24] it would appear that the responsibility for getting the message through to the destination now lies with the sender, given that a sender now has an idea that the communication may not have sent properly.

Given the advances in technology, it is also important to have some idea as to the time of acceptance guidelines that would now apply. Under the Postal rules, it would be reasonable to assume that a posted letter would arrive at the offeror’s premises during a reasonable hour, if not business hours. However, given that technology such as email and faxes can be accessed 24 hours a day, 7 days a week, then it is important to understand what the law considers as a ‘reasonable time’ for such a communication to reach the offeror. If, for example, a person was to send an email in order to communicate and acceptance, then it would be reasonable to assume that a person monitors their business email during business hours. This could lead to a delay in the offeror reading the acceptance until the following business day, if it was sent after hours. This would turn an instantaneous communication into a non-instantaneous form, despite all the best efforts of the offeree. The leading authority on this principle is Brinkibon Ltd v Stahag-Stahl und Stahlwarenhandelsgesellschaft mbH GmbH,[25] and was further enforced by certain elements of The Brimnes[26] case. An offeree must be mindful of such possibilities, and must not take advantage of the highly instantaneous forms of communication that exist today, as they can easily cause delays and problems in the event of an acceptance not being communicated to the offeror properly.

European Directive on Electronic Commerce

The advent of e-commerce on a global scale had lead to the need for the laws of various countries to allow enough flexibility for the incorporation of electronic contracts, and electronic signatures. The idea of electronically signing a document has already been discussed in this brief at a statutory level in England, but what of the broad concept of electronic trade? The European Union has adopted the E-Commerce Directive,[27] which sets out certain requirements for Member States to comply with in order for the concept of electronic commerce to function effectively. Most significantly, the Directive requires that all Member States allow for the completion of contractual documents by electronic means, and thus have the required systematic arrangements in place in order to comply.[28] This demonstrates the importance of e-commerce to the European common market, allowing trade and other contracts to be completed in an easier, time-saving and more user friendly form. It would appear that England has already taken its first steps towards the embracing of electronic contracts, with legislation giving Ministers the authority to review any legislation that requires contractual documents to be in writing, and to amend them through secondary legislation “in such a manner as [the Minister] may think fit for the purpose of authorising or facilitating the use of electronic communications or electronic storage”.[29] This reflects an acknowledgment by the Government that electronic commerce is the way of the future, and thus the need to update an otherwise conservative and outdated system to adapt to some quite radical changes in the way contracts, and business in general, are done.

In a practical sense, United Kingdom legislation is showing a move towards the disuse of hardcopy contractual documents, in light of electronic means as given by the European Directive. The most classic example, perhaps, of a transaction requiring a hardcopy contractual document would be a contract for the conveyancing of property or land, which derives its requirements from sections 52 and 54 of the Law of Property Act 1924. These requirements were further amended by the Law of Property (Miscellaneous Provisions) Act 1989, such as the requirement for a proper signature, delivery and making clear that fact that the document intends to be a deed.[30] Normally this would require the use of a deed in order for the transaction to have complied with the legislative requirements under statute. However, under section 91 of the recently introduced Land Registration Act 2002, now allows an electronic document that meets the requirements of that section to “be regarded for the purposes of any enactment as a deed”.[31] This shows the willingness of the executive and judiciary to embrace the new technological advances that have been presented by the times. The Land Registration Act 2002 has also specified that electronic signatures are as valid as a hand-signed document in law, which essentially allows for all parts of a contract regarding the dispensation of land, or an interest in land, to be completed by electronic means. This may serves to allow for a faster method of processing contracts regarding land conveyancing, especially where parties live a significant distance from one another, and avoids the use of a slow (by today’s standards) postal service, and thus provides a way of escaping the use of the Postal rule. This may serve to benefit the offeror, or offeree, in the sense that it may eliminate a significant amount of doubt as to the formation of contracts, especially during the offer and acceptance phases, where the Postal rule features prominently. It may generate more certainty in regards to the acceptance, where principles such as those featuring in Brinkibon (above) may apply, regarding suitable time for acceptance. It eliminates the need for estimation by the courts in regards to when a contract is formed, and also allows each party to be more certain of when they have entered into contractual arrangements. The rules governing electronic contracts are clearer, and they do not call for any speculation by either party, or by the courts. It also ensures that both parties will have a record of any correspondence sent and received, due to the technology of electronic storage. Overall, it appears that e-commerce and electronic contracts can only benefit society, given the ambiguities and difficulties they help to overcome in the contractual domain.

It has been established, through the consideration of statutory and common law principles, that the current situation regarding the Postal rule creates a certain amount of ambiguity and doubt in the modern context. While the rule served a valid purpose when it was created in the late 19th and early 20th centuries, the advent of modern technology has lead to the Postal rule losing its value and relevance over time, given that a great deal of communication now occurs by electronic means. It would seem that the Postal rule may require a certain amount of updating, or even abolition in favour of the newly incorporated electronic rules. There seems to be a favouring in the English system for the incorporation of electronic signatures and e-commerce into law, thus recognising the fact that the times are changing. It has been established through analysis of precedent that the Postal rule is suffering considerable as a result of the advance in technology, given the fact that they cannot apply to electronic contracts in the same way they do with posted letters. In terms of a resolution to the problem of the Postal rule, it would appear that it best is abandoned, due to its redundancy, and a more technologically advanced set of protocols be adopted, that will cater for the future. It would appear that the general principles of electronic communication will not change drastically in the future, and thus it should be easy to cater for these in drafting legislation. The system is already in place to cater for electronic contracts in some areas of contract law, and it should be incumbent on the legislature to ensure that other areas of contract are explored and refined as necessary. Ministers of the Crown have the power to do this under certain legislative provisions,[32] and this power of discretion needs to be exercised in order to ensure that the community is ready to embrace the electronic commerce revolution to its fullest extent. The strategic framework has already been set in place by the legislature, and the onus now lies with the executive and judiciary to complete the separation of powers circle, and play their role in administering the e-commerce revolution. The Postal rule will always be there to be used as necessary; however it would be reasonable to assume that the use would be infrequent at best, especially in regards to contracts governing long distance trade and similar transactions. This would also allow for both parties to be certain that they have entered into a contractual agreement, and would reduce the ability for a party to enter into a contract without communicating formal acceptance, except in cases where silence or a similar conduct may amount to sufficient acceptance under the terms of the contract. All in all, the Postal rule has served the community well, however it appears that it is time for it to be retired in favour of a newer, and more promising, principle.

Books

Cited

  • McKendrick, E, Contract Law (2005, 6th ed), London: Palgrave MacMillan

Considered

 

  • Beale, H, Chitty on Contracts (2002, 28th ed), London: Oxford University Press
  • McKendrick, E, Contract Law: Text, Cases and Materials (2003), London: Oxford University Press
  • Poole, J, Textbook on Contract Law (2004, 7th ed), London: Oxford University Press
  • Stone, R, The Modern Law of Contract (2005, 6th ed), London: Cavendish

Legislation

  • Consumer Protection (Distance Selling) Regulations 2000, SI 2000/2334
  • Electronic Communications Act 2000
  • Land Registration Act 2002
  • Law of Property (Miscellaneous Provisions) Act 1989
  • Law of Property Act 1924

Cases

  • Adams v Lindsell (1818) 1 B & Ald 681
  • Brinkibon Ltd v Stahag-Stahl und Stahlwarenhandelsgesellschaft mbH GmbH[1983] 2 AC 34
  • Entores v Miles Far East Corporation[1955] 2 QB 327 (CA)
  • Harris Case (1872) 7 Ch 587
  • Henthorn v Fraser [1892] 2 Ch 27
  • Holwell Securities v Hughes [1974] 1 WLR 155 (CA)
  • Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 ExD 216
  • Manchester Diocesan Council for Education v Commercial and General Investments Ltd [1970] 1 WLR 242
  • Pretty Pictures v Quixote Films Ltd [2003] EWHC 311
  • Re London and Northern Bank [1900] 1 Ch 220
  • Tenax Steamship Co v Owners of the Motor Vessel Brimnes (The Brimnes) [1975] QB 929
  • Tinn v Hoffman & Co (1873) 29 LT 271

Journal Articles

Considered

 

  • Evans, ‘The Anglo-American Mailing Rule: Some Problems of Offer and Acceptance in Contracts by Correspondence’ (1966) 15 International and Comparative Law Quarterly 553
  • Gardner, S, ‘Trashing with Trollop: A Deconstruction of the Postal Rules in Contract’ (1992) Oxford Journal of Legal Studies 170
  • Hills, S, ‘Flogging a Dead Horse – The Postal Acceptance Rule and Email’ (2001) 17 Journal of Contract Law 151
  • Stone, R, ‘Making Electronic Contracts’ (2000) Student Law Review 15, Autumn
  • Stone, R, ‘The Postal Rule in the Electronic Age’ (1992) Student Law Review 15, Spring

European Union Documents

  • E-Commerce Directive 2000/31/EC [2000] OJ L176/1
  • Electronic Signatures Directive 1999/93/EC [2000] OJ L13/12

1


Footnotes

[1] (1818) 1 B & Ald 681.

[2] Ewan McKendrick, Contract Law (2005, 6th ed), 47.

[3] Ibid.

[4] [1892] 2 Ch 27.

[5] McKendrick, as above n 2, 48.

[6] McKendrick, as above n 5.

[7] (1879) 4 ExD 216.

[8] [1900] 1 Ch 220.

[9] Harris Case (1872) 7 Ch 587.

[10] [1900] 1 Ch 220.

[11] (1872) 7 Ch 587.

[12] [1955] 2 QB 327 (CA).

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