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A 21st Century ‘Postal Rule’: Can Contract Law Deliver?

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About The Author

Keir Baker (Consulting Editor)

Keir is a Trainee Solicitor currently sitting in the Finance department at a major US law firm. A law graduate from Selwyn College, Cambridge University, his main areas of interest are Employment, Discrimination and Competition law. Outside the law, Keir is an accomplished goalkeeper in both football and hockey, as well as a keen actor and pianist. He is a long-suffering supporter of Middlesbrough FC.

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Letters are something from you. It's a different kind of intention than writing an e-mail.

Keanu Reeves

Instant communication services available are taking over as the primary means by which people interact. Contractual negotiations are – like many other interactions between commercial entities – being increasingly conducted online or over the phone, and the postal service is being consequently neglected. Indeed, the use of instant messaging services by businesses to engage with customers is being permitted in some contexts, such that the way in which goods and services are bought and sold is changing.

This article seeks to examine how the law of contract has adapted to these developments in relation to one of its most fundamental aspects: the formation of a contract. For this purpose, its uses the offer and acceptance principle as its basis, paying close regard to one of its key and oft-discussed doctrines: the postal rule.

The Offer and Acceptance Principle

One of the most fundamental concepts of the law of contract is that of offer and acceptance. In essence, the principle states that, for a contract to be formed, there must have been an offer by one party (the offeror) which must have been accepted by the other party (the offeree). An offer is usually defined as an indication of the offeror’s willingness to enter into a contract with the party to the offeree upon the acceptance of terms. It follows that an acceptance can be defined as an agreement to the terms of that offer.

Whether an offer and acceptance is always required to form a contract is up for debate. Certainly, as a requirement, it is a useful means of determining whether the intention of the parties was indeed to form a contract on identifiable terms. However, there is no conceptual reason why an offer and acceptance should always be required.

Certainly, whilst it may appear to be a prima facie principle of a sacrosanct nature, it is often tough to identify offers and acceptances. Therefore, in many instances, the law’s focus is usually not even placed on the intentions of the parties. Indeed, the laying down of a rigid offer and acceptance principle would therefore represent an incorrect view of the typical contract. After all, it is rare that parties sit down and discuss legal niceties, meaning the only solution would be to artificially imply an offer and acceptance. Furthermore, there are cases – such as The Satanita [1897] AC 59 – which show how people often unintentionally and unconsciously make contracts in a way that lacks any obvious sequential offer and acceptance.

With courts often taking into account other factors and implying terms that bear no relevance to the intentions of the parties, it should be concluded that the idea of offer and acceptance is actually a mere legal concept, created to help explain and analyse the law.

Indeed, the principle’s capacity to help explain complex legal scenarios is demonstrated by the contents of this article, which (to aid its analysis) proceeds on the assumption that the offer and acceptance principle is an unavoidable requirement for the formation of the contract.

Communicating an Acceptance of an Offer

In Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34, Lord Wilberforce confirmed that:

[A] contract is formed when the acceptance of an offer is communicated by the offeree to the offeror.

The rationale for this rule is based primarily on protecting the offeror from uncertainty. If they are unaware of the acceptance of the terms of the offer, they are unable to proceed with whatever transaction they intend to carry out. Furthermore, on the basis of having no confirmation of an acceptance, they may enter into contractual obligations with other parties that may overstretch their capacity and their resources.

As a result, English law requires the offeree to take all reasonable steps – using the mode of communication specified by the offer, if any – to ensure their acceptance is brought to the attention of the offeror. However, the idea of what constitutes taking all reasonable steps for the wide variety of telecommunications devices available to parties is hotly debated. This dilemma is no more evident than in the cases of acceptances communicated by post.

The Postal Rule – An Overview

The general rule for communicating acceptances by post was outlined back in the Georgian case of Adams v Linsell [1818]: in cases where the offeree accepts by post, they are viewed as having taken all reasonable steps upon their posting of the letter i.e. placing it in the post-box. This is for two reasons: firstly, by doing so, the offeree has done all that they possibly can and the letter is now in the hands of the postal service; and, secondly, if the offeror has problems or concerns about an acceptance being communicated by post, they are able to stipulate as such within the initial offer.

This latter reason constitutes one of the main exceptions as to when the postal rule does not apply. The other exceptions include:

  • Where the envelope containing the acceptance was wrongly addressed or incorrectly posted, the offeree is deemed to have forfeited the rule (The Alexia M [2005] EWHC 1345).
  • Where the circumstances are such that using the postal service to communicate the acceptance was outside the contemplation of the parties (Henthorn v Fraser [1892] 2 Ch 27). This could apply when the distance between the two parties may render using the post impractical, where the remote location of one of the parties may leave it improbable that the post will arrive, or where the subject matter of the acceptance could be considered too private and personal to risk the post being intercepted.
  • Where the offer stipulated that the acceptance must be communicated by a certain time, the courts may not accept the postal rule if, by using the postal service, the offeree has effectively ensured either a) that the acceptance would not reach the offeror in time, or b) inconvenient or absurd circumstances will be created (Holwell Securities Ltd v Hughes [1973]).

The Postal Rule – An Assessment

The continued existence of the postal rule is a vexed issue; evaluative essays outlining its relative merits and flaws are typically expected from law students come exam season. Yet this poses a difficult test, particularly when academics and the judiciary alike are yet to decide what to make of it.

There are advantages: the rule renders fraudulent claims for either party about the arrival of the letter of acceptance impossible. The offeror cannot lie about not receiving it because this is irrelevant, and the offeree can rarely lie about never posting it because letters typically arrive at their destination, eventually. Furthermore, Thesiger LJ described in Household Fire and Carriage Accident Insurance Co Ltd v Grant (1878) LR 4 Ex D 216 how, if needed, an offeror can always inquire of the offeree about whether or not he communicated his acceptance. In addition, based on the strength of this rule, the offeree can begin to perform his obligations immediately after posting his acceptance which means that the principle facilitates the speeding up of commerce.

However, this overlooks the fact that the offeror cannot begin performing his obligations; the line of reasoning concerning uncertainty which lay behind Lord Wilberforce’s initial statement in Brinkibon does not apply to the postal rule until the letter actually arrives on the offeror’s doorstep. In cases of obligations, the performance of which are time-sensitive, the postal rule is weighted in favour of the offeree with no justification as to why. Indeed, the judgements in Holwell Securities Ltd v Hughes [1973] show an open dislike for the postal rule, with Russell LJ describing it as 'artificial'. Clearly too, it is increasingly out of date in this age of instantaneous communication, as discussed below.

However, this last point leads to the strongest argument and justification in favour of the postal rule: necessity. Unless and until the public stop using the postal system, a rule will be required to govern contracts formed therewith. It removes a costly dilemma and prevents long, drawn-out, and costly disputes. At present, no academic or judge has conceived of a more effective and efficient rule than the current postal rule: it is no better or worse than any other solution.

In short, the postal rule has for the most part being getting the job done since 1818. Lawyers and the courts are all familiar with its imperfect use, and to initiate a change would be to embroil English contract law in a complex debate unlikely to produce any meaningful results.

The Postal Rule and Modern Technology

It has been disputed as to whether the postal rule should apply to modern technology. For example, Marwan Al Ibrahim et al. have argued that it should be applied to email – and presumably texts by the same logic – on the grounds that email is not an instantaneous method of communication, but a digital version of the normal post. Referencing dictum of Rajah JC in the Singaporean case of Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR(R) 502, they argue that, as emails are processed through servers, routers, and internet service providers, an email is placed into the hands of a third party upon sending.

It follows that, as in the normal postal rule, an email acceptance should be considered as having been sent at the time the acceptance went out of the possession of the offeree and into the possession of the third party allowed to receive it. The third party, of course, in the situation of email, is the ISP, and for texts, the network carrier.

But this argument does not follow. The rationale behind the postal rule is not that, because something is taken into the hands of a third party, the offeree has taken all the reasonable steps he can to bring his acceptance to the attention of the offeror. Instead, the main reason for existence for the postal rule is that, following postage, there is no procedure for notifying when the letter has failed to arrive. This is not the case with emails for which instantaneous error messages will be sent upon failed delivery.

Indeed, the more preferable view is that which was applied in the English courts in Entores Ltd v Miles Far East Corporation [1955]: that the postal rule does not apply. As was confirmed in Brinkibon by Lord Wilberforce:

[N]o 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 a judgment where the risks should lie.

So, as pointed out above, because many of these forms of communication generate instantaneous error messages indicating success or failure, the acceptance must be communicated to the offeror; the offeree will not have taken all reasonable steps until they receive confirmation of successful sending. There is no risk or major detriment to the offeree to ensure that they repress send until successful delivery – here, sound business practice and common sense prevails.

Separate issues do arise with answerphone messages and faxes. But the law here, unlike that which governs the postal rule, strikes a nice balance between favouring the offeree and the offeror. As it is not expected that a businessman (unlike a solicitor) is to spend his life in the office, the law does not impose upon the offeree an obligation to confirm success in this respect; rather, the acceptance is deemed to take effect where it was reasonable for the offeror to check his messages or his answering machine.

But it is also noticeable that the law here is quite generous to the offeror. Lord Denning confirmed in Entores that, if the offeror’s fault prevents an acceptance coming through – for example, if they break their computer or do not renew their phone contract – this has no effect on the validity of the acceptance.

It is worth remembering too that, if either party is aware that specific problems might arise due to one form of communication, he can stipulate for its non-use in his offer. As Frank v Knight [1937] O.P.D 113 confirmed, where an offeror stipulates a form of communication, it is the only one which is valid, subject to the exception from Tinn v Hoffmann [1873] 29 LT 271, whereby the offeree uses a form of communication that similarly satisfies the offeror’s requirements.

Conclusion

Despite its flaws, the postal rule offers a tried-and-tested method whereby cases can be resolved in which the relevant issues arise. However, its application should be confined exclusively to the context of the postal service where the offerree, upon posting of their acceptance, has no means by which they can ascertain the successful sending of the communication until its arrival.

This is not the case with modern forms of communication – such as email, text, and fax – as such forms all generate notifications of failure; it follows that separate rules taking this into account should apply here. Producing a rule which helps the law to negotiate this tricky interim period is only necessary when this interim period actually exists.

The development of the postal rule here would be overly-complex and erroneous. Given the increasing importance of modern technology in the commercial sphere, it is crucial that the law of contract gets the message.

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Tagged: Commercial Law, Contract Law

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