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Justin Santiago, BAppSc (Hons), MBA, LLB (Hons) comes from a journalism, market research, intellectual property and strategic communications consulting background. Now based in Melbourne he spends his time advising businesses on how to communicate to their customers as well as writing on various subjects of interest in this blog.

Sunday, February 1, 2009

Offer and Acceptance

What reasons have been given by the courts for the postal acceptance rule? Are they convincing? - Justin Santiago

Acceptance is not effective as a general rule unless communicated to the offeror. However the postal acceptance rule is one important exception.The postal rule was first used in Adams v Linsell to mean that acceptance takes place once a letter of acceptance is posted by the offeree. The defendant’s argument was that once they did not hear from the plaintiffs they were not in consensus and therefore proceeded to sell the wool. A number of cases proceeded along these lines Dunlop v Higgins as well as Household Carriage v Fire Insurance even though the offeror suffered hardship as a result of the letters of acceptance being delayed or getting lost in the post.

The postal acceptance rule flies against the requirement in the law of contract that acceptance has to be communicated. More importantly it weakens the doctrine of consensus at idem (meeting of minds) for a contract to take place as well as the mirror theory that there must be a definite offer mirrored by a definite acceptance. Hardship is placed on the offeror but not on the offeree. Also various complications can occur because of this exception to the general rule that acceptance is not effective as a general rule unless communicated to the offeror.

There have been several justifications according to Simon Gardner in his article "Trashing with Trollope" for this rule none of which have been satisfactory. The first one was that the post office was the agent of the offeror and so receipt of the letter by the agent is equivalent to receipt by the offeror. This is unacceptable as the post office is merely the conduit by which letters pass through. The post office cannot contract on behalf of the offeror. The second justification is that the offeror has chosen to start negotiations through the post and so the risk of delay or loss in the post should be on him. However this precludes situations where negotiations initiated by the offeror did not involve letters. The third justification is that it leads to business efficiency and and enables the offeree to act on a binding contract the moment the acceptance letter is posted. This justification is advantageous to the offeree but not to the offeror.

With such tenuous arguments it is was no wonder that the postal rule was circumscribed. Henthorn v Fraser decided that the postal rule would only apply if it was within the contemplation of the parties to use the post or in the case of Byrne v Van Tienhoven which began to confine the postal rule within narrow limits. This particular case made the law even more confusing as there were now separate rules for the postal rule with regard to offers and revocation of offers. The justification was that making acceptance complete at posting rather than delivery minimizes the window within which such a revocation may take place. Conversely making the offeror’s revocation ineffective until communicated prolongs the window during which an offeree may accept. The cumulative effect made it additionally onerous on the offeror.

The development of faster rules of communication at the time could have something to do with these particularly important developments. A situation could arise where the offeree who changes her mind: for example if after posting a letter of acceptance, she informs the offeror by telephone, before the letter arrives, that she rejects the offer. In the absence of English cases the Scottish case of Dunmore v Alexander is quoted where it was decided that because of the additional cost of using speedier communication was used, the effect would be that there would be an effective revocation and that the original acceptance will cease to be effective.

More confusion would follow with the decision in the case of Entores v Miles Far East Corp where it was held that the postal rule did not apply to telexes and that it was confined to non instantaneous forms of communication. The same approach was taken with regard to faxes in Brinkibon v Stahag Stahl.

The widest exception to the postal rule was recognised in Holwell Securities v Hughes where it was suggested that the postal rule ought not to apply where it would lead to manifest inconvenience and absurdity.

With more instant forms of communication such as e-mail, correspondence by post is becoming an exception rather than the rule. It is important that the postal rule be confined to the museum and that the rules of acceptance be applied regardless of the mode of communication. Differences in application of the rule for other more instant means of communication would make it difficult to apply uniformity to the rules of offer and acceptance.

It would seem that even with more modern technologies there is still proof of posting does not guarantee that there has been acceptance. Just because the message transmission ok on a fax machine or message sent in an email box does not necessarily mean that the receiver has received it.

It would seem that in any form of communication proof of posting is not proof of receipt and that parties must ensure that there acceptance is communicated regardless.

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