Contract | Formation
Acceptance: Postal Rule
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Introduction
Communication of acceptance by post raises issues of contractual timing and when the acceptance is complete. Clearly this occurs because there is a lapse of time between the posting of a letter and it arriving to the recipient. Therefore the postal rule
has been developed.
Definition
The postal rule creates an exemption to the principle that acceptance is not completed until it is communicated to the offeror. The postal rule states that acceptance is complete on posting.
Adams v Lindsell (1818) 1 B & A 681
Facts:
On 2 September, the defendant sent a letter offering to sell wool to the plaintiff, stating that they required a response in course of post
.
The letter was addressed insufficiently so it was not delivered to the plaintiff until 5 September.
On receiving the letter the plaintiff immediately accepted by post, the defendant did not receive this letter until the evening of 9 September.
On 8 September the defendant sold the wool to a third party because they considered that the offer had lapsed. In normal circumstances a response in course of post
would have arrived on 7 September.
Issue:
When was acceptance complete?
Held:
Acceptance was complete and the contract as binding form the evening of 5 September, when the letter was posted by the plaintiff. Therefore, the defendant was in breach of contract.
Today, revocation of the offer would only be effective once it had been communicated to the offeree. Therefore, selling the wool to a third party without notifying the plaintiff would not mean that the offer was revoked. However, the rules on revocation were less well defined in 1818.
Certainty
The postal rule provides certainty for the acceptor as he knows that there is a binding contract as soon as he posts his letter of acceptance.
The offeror can create certainty for himself by stipulating that he must receive acceptance before it is binding or setting other such limits. The offeror is in a position to effectively oust the postal rule and if he chooses not to then he is subject to the limitations of postal communication.
Household Fire & Carriage Accident Insurance Co. v Grant (1879) 4 Ex D 216
Facts:
The defendant offered to buy shares in the plaintiff's company.
The plaintiff allotted shares to the defendant and sent him a letter to confirm. The letter was lost in the post.
The plaintiff's company went bankrupt and the liquidator requested that the defendant make the outstanding payments on his shares. The defendant refused on the ground that there was no binding contract.
Issue:
Had the defendant's offer been accepted?
Held:
There was a binding contract. The postal rule applied, meaning that it was irrelevant that the letter of acceptance was lost in the post because a binding contract is formed once the letter was actually posted.
Thesiger LJ: .. if the post office be such common agent then it seems to me to follow that as soon as the letter of acceptance is delivered to the post office, the contract is made as complete and binding as if the acceptor had put his letter into the hands of a messenger sent by the offeror himself as his agent to deliver the offer and receive the acceptance...
.
Thesiger LJ noted that when communicating by post: ..it is impossible... to adjust conflicting rights between innocent parties, so as to make the consequences of mistake on the part of a mutual agent fall equally on the shoulders of both...
.
Bramwell LJ noted the offeror could avoid the postal rule by stating Your answer by post is only to bind if it reaches me...
.
Limitations
The postal rule only applies to acceptance and not to other communication between contracting parties.
The postal rule does not apply where it was not reasonable for the acceptance to be sent by post.
Quenerduaine v Cole (1883) 32 WR 185
Facts:
The defendant made an offer by telegram which the plaintiff purported to accept by letter.
Issue:
Was it reasonable to accept by letter when the offer was made by telegram?
Held:
The postal rule did not apply. The court found that an offer which was made by telegram (instantaneous), implied that an equally quick acceptance was required.
The postal rule does not apply if the letter was not properly stamped, addressed and posted.
Re London & Northern Bank, ex p. Jones [1900] 1 Ch 220
Facts:
Dr Jones makes an offer to the bank.
At 07.00 a letter of acceptance, addressed to Dr Jones, was handed to a postman in a post office foyer. The postman had no authority to receive letters only to deliver post.
At At 09.30 Dr Jones delivered a letter to the bank revoking his offer.
At 19.30 the bank's letter of acceptance was delivered to Dr Jones.
Issue:
Was the postal rule invoked?
Held:
The postal rule did not apply due to the incorrect posting. A letter must be put in a post box or handed to a post office employee who is authorised to receive mail.
The postal rule can be displaced by the offeror.
Holwell Securities Ltd v Hughes [1974] 1 WLR 155
Facts:
The defendant issued a grant to sell a property to the plaintiff. It contained a clause stipulating that the option must
be exercised by notice in writing to the Intending Vendor
within six months.The plaintiff sent a letter exercising the option, within the time limit. However, it was lost in the post and never received by the defendant.
Issue:
Did the postal rule apply?
Held:
The postal rule did not apply despite post being a suitable method of acceptance because language of the offer implied the defendant required receipt of written acceptance.
Lawton LJ:
The relevant language here is, 'The said option shall be exercised by notice in writing to the Intending Vendor...', a very common phrase in an option agreement. There is, of course, nothing in that phrase to suggest that the notification to the defendant could not be made by post. But the requirement of 'notice ... to', in my judgment, is language which should be taken expressly to assert the ordinary situation in law that acceptance requires to be communicated or notified to the offeror, and is inconsistent with the theory that acceptance can be constituted by the act of posting...
.Additionally, to allow the acceptance to be effective, without communication would
produce manifest inconvenience and absurdity
.Lawton LJ:
In my judgment, the factors of inconvenience and absurdity are but illustrations of a wider principle, namely, that the rule does not apply if, having regard to all the circumstances, including the nature of the subject-matter under consideration, the negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer or exercising an option had in fact communicated the acceptance or exercise to the other. In my judgment, when this principle is applied to the facts of this case it becomes clear that the parties cannot have intended that the posting of a letter should constitute the exercise of the option...
.
If the postal rule does not apply, then acceptance is only effective on communication (receipt of the letter).
Retraction
In cases where the postal rule applies and acceptance is effective on posting: is the acceptor able to retract the acceptance before it comes to the attention of the offeror?
Clearly strict application of the postal rule means that retraction of acceptance is not possible as there is a binding contract once a letter is sent. However, the postal rule has developed in order to benefit the acceptor so it can be argued that it should not be applied in a way which is disadvantageous to him. For example, if he wishes to change his mind after posting and the offeror has yet to receive his communication of acceptance to impose the postal rule would be to his detriment. It would not cause the offeror to suffer as the withdrawal of acceptance would occur prior to him realising it had been given, so he would not yet have been able to act upon it.
Allowing retraction can also be seen as creating an unfair bias in favour of the acceptor: who would benefit both from the certainty of the postal rule and be able to use retraction to speculate at the expense of the offeror. An imbalance would exist where a binding contract is formed by virtue of the postal rule and the acceptor could retract but an offeror is not permitted to revoke the offer.
There is no English authority on retraction so the situation is unclear. However, the issue has been considered in other jurisdictions.
Wenkheim v Arndt (1873) 1 JR 73
Facts:
A New Zealand case.
The plaintiff offered to marry the defendant, who sent an acceptance by letter. The defendant's mother purported to retract the acceptance by telegram (prior to the acceptance being received by the plaintiff).
Issue:
Was the acceptance retracted?
Held:
The retraction was invalid.
The case is cited to support the view that retraction is not possible. However, whether the third party was authorised was also an issue in this case.
Countess of Dunmore v Alexander (1830) 9 Shaw 190
Facts:
A Scottish case.
A dispute over whether correspondence between two potential employers had formed a contract to hire a servant.
Issue:
Whether a letter sent afterwards could retract a previous acceptance letter, if both letters arrived at the same time.
Held:
No contract was formed. Therefore, it appears that a postal acceptance could be withdrawn by a speedier means.
The case is cited to support the view that retraction may be possible. However, it was a majority decision and the reasoning is very unclear.