Postal Contract and Law - Entores Ltd v Miles Far East Corporation - Case Study Example

Postal Contract and Law In Entores Ltd v Miles Far East Corporation, a London based company placed an order with another company that was located in Amsterdam. This was done by means of a teleprinter message. The Amsterdam based company indicated its acceptance by sending a teleprinter message. It was held that the contract was formed in London because it was the place where the offeror received acceptance (All England Law Reports). In instances of acceptance by post, the act of posting the letter of acceptance constitutes formation of the contract; whereas in respect of instantaneous acceptance of messages, the contract is formed, only when such acceptance is received by the offeror (Owens, 2001. P. 71). According to Lord Denning, there is vast difference between the rule of instantaneous communication and the postal rule. The offeror must receive acceptance of his offer for the contract to be complete. In instantaneous mode of communication of acceptance, the place of formation of the contract is the place at which the acceptance is received by the offeror (Davies, 2005. P. 158). In the present day corporate world, communication is chiefly by means of teleprinter, facsimile or electronic mail. Electronic communication is still surrounded by controversy with regard to its legality. The advanced technology utilised in such communication modes enables easy transmission of communications. Thus, electronic communication can be sent at any time to a destination, even after working hours. This raises the question about the point of time when the electronic communication had been legally effectual. The postal rule does not apply to instantaneous forms of communication (Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels GmbH). This was the ruling in Entores Ltd v Miles Far East Corp (Entores Ltd v Miles Far East Corp). Electronic mail is transmitted much faster than the mail sent by post. However, electronic mail cannot be deemed to be instantaneous communication between the parties. The reason for this is that the sending and receipt of electronic mail may take anything between a few hours to several days. Hence, it does not constitute instantaneous communication. Consequently, the postal rule applies to electronic mail. An offer is deemed to be properly communicated in instantaneous communication, if the addressee has notice of the offer. In non – instantaneous modes of communication, the offer is communicated through letters, telegrams or other methods. Such communication has to be dispatched to the addressee and received by the addressee. This is an area of considerable controversy. Time factor is essential in determining the formation of a contract. It deals with whether the contract had been formed or if notice had been given within the time specified in the contract. There were several cases that had dealt with the time factor, in order to assess the actual time of formation of the contract. However, the ruling in these cases failed to furnish clear guidance, in this regard (Contracting by electronic means, 1996). In Bruner v Moore, it was held that the postal rule can be extended to non – instantaneous means of communication (Bruner v Moore). Accordingly, the postal rule can be extended to transmission methods, such as telegrams and electronic mail (Youve got mail, 2003). The receipt rule applies to all modes of instantaneous communication. The postal rule cannot be applied to instantaneous communication. Electronic mail, despite its apparent speed, is not instantaneous communication; hence, the postal rule should be applicable to it (Bruner v Moore). Moreover, a letter after being posted comes under the sole control of the postal authorities. Thus, control is not in the hands of the sender of the letter. Similar considerations apply to electronic mail. The sender of email cannot control its transmission or delivery. It is trust that plays a major role in both instances. In post, the sender trusts the post office. Similarly, in electronic mail, the sender trusts the service provider. The law favours the sender in case of postal communication. In the same manner, it should support the sender of electronic mail (Mead, Sagar, & Bampton, 2007, P52). A contract will become binding only when the communication of acceptance reaches the offeror (Chandler & Brown, 2007. P. 17). However, in communication by post, communication of acceptance by the offeree becomes effective the moment the letter of acceptance is placed in a post box at the post office (Household Fire and Carriage Accident Insurance Company (Ltd) v. Grant ). In Thomson v James, it was held that the mere receipt of notice is sufficient for revocation of an offer (Thomson v James, 1855). This was on account of the fact that the offeree would have come to know about such revocation, in due course of time. Subsequent case law confirmed that the receipt of a teleprinter message was adequate for indicating the will of the offeror. In two cases, it was held that a teleprinter message reflected the will of the ship owners, who intended to withdraw their vessels from the charterers who operated them. Therefore, an offer would not become automatically effective at the time of its posting. This is because the offeree could not be aware at that point of time that an offer had been made. If actual knowledge is mandated, then the offeror is placed in uncertainty with regard to the value of his offer. For this reason, Scottish courts stipulate that communication of an offer is effective on delivery of the message. There is no requirement that the offeree should know as to what the offer contains. The rule of instantaneous communication between parties varies from the postal rule. The receipt of the acceptance by the offeror completes the contract, at the place of receipt of such communication by the offeror. This also applies to teleprinter messages. For instance, in the Entores case, it was held that that the contract was made in England, where acceptance of the offer was received by the offeror by teleprinter (Newcomb v De Roos, 1955). Acceptance becomes effective only upon receipt of the communication regarding acceptance by the offeree or his authorised agent. This stipulation constitutes the receipt rule. It was established in Entores Ltd v Myles Far East Corporation (Christou, 2005, P 212). The case of Brinkibon Ltd v Stahag Stahal and Stahlwar established that acceptance can be in any form, like teleprinter, telephonic conversation or fax or email. A recent discussion, regarding acceptance by means of instantaneous communication is to be found in Apple Corps Ltd. Apple Corps Ltd. EWHC (Apple Corps Limited v Apple Computer Inc). Although, the postal rule should be applied to electronic mail messages; at times, such communication is delayed or even lost in transit. However, as the technology gets more sophisticated, the delivery of electronic mail will be free of such errors and will take place in a timely manner. Consequently, there is a call for electronic mail to be treated as an instantaneous communication method (Stott). The sender of a message is exposed to considerable risk, because he will not be aware of any difficulties that had arisen in its transmission, till a much later stage (Horne). In order, to accord a measure of reasonable protection to such senders, the courts have established several practices that suitably allocate a portion of the risk to the recipient. Nevertheless, such strategies pertained to the period when there was no instantaneous communication (Anson v Trump). It seems to be equitable to subject electronic mail to the receipt rule. The postal rule was established by the courts, which were of the opinion that post offices were more reliable in delivering letters of acceptance. Electronic mail has not been deemed to be as reliable as the post offices. This is because electronic mail is prone to loss in transit and it can get rejected by firewalls at the point of delivery. Moreover, the sender of the acceptance will be in a position to know whether the mail has reached the offeror (Chissick & Kelman, 2002, P 88). This feature is not available in the case of the postal service. Electronic mails, if there any transmission errors, would be bounced back to the sender, who would receive a message stating that the addressee had not received the mail. Therefore, electronic mail is more reliable than the traditional postal service. The sender of electronic mail will be in a position to take immediate remedial action, if any transmission faults occur (Chissick & Kelman, 2002, P 88). The advantage of forming a contract over the telephone is that the parties to the contract can hear each other. Moreover, an offer can be communicated, which can be either accepted or rejected instantaneously. Furthermore, the offeree can make an instant counter offer. Consequently, the rule relating to contracts that are negotiated orally, and in each other’s presence; namely, that the receipt of acceptance is essential for completion of the contract, is also applicable to contracts concluded over the telephone (ACCEPTANCE OF AN OFFER). In some instances, the telephonic communication had failed, due to technical problems, prior to the communication of acceptance. In all these cases, it was construed that there had been no contract. Hence, it is essential for the offeree to ensure that his acceptance is received by the offeror. In the absence of such receipt there can be no binding contract between the parties (ACCEPTANCE OF AN OFFER). In the Brimnes case, a telex message indicating acceptance by the offeree, was held to be effective from the moment it was printed on the offeror’s teleprinter (Tenax Steamship Co v Brimnes, 1974). Such telex message was not held to be effective from the time that it was actually read by the offeror (Stone, 2005. P. 15). In Brinkibon Ltd v. Stahag Stahl und Stahlwarenhandels GmbH, the court ruled in a manner that constituted an exception to the postal rule. In this case it was held that wherever an instantaneous mode of communication was adopted, in order to convey the acceptance of an offer, such acceptance was deemed to be complete the instant that it was communicated to the offeror (Chen – Wishart, 2007. P. 87). Correspondence by post, regarding an offer and its acceptance, is perforce non – instantaneous. Moreover, the offeror and offeree are never proximate, during this process. However, in contracts employing instantaneous communication of an offer and its acceptance, the process takes place, as if both the parties are present. In addition, there is no delay between the making of an offer and its acceptance. On the few occasions that communication breaks down, such failure can be detected and corrected without any postponement (Agreement). If there is a delay on account of a communication failure that the offeree fails to detect and rectify, then his acceptance is held to be of no consequence. Hence, there will be no binding contract between the parties. On the other hand, if the offeror had detected and rectified the failure in communication, then acceptance is deemed to be effective and a valid contract is formed (Agreement). In Entores v. Miles Far East Corp, Denning LJ cited the following instances of communication failure. First, an aircraft flying overhead and creating sufficient noise to make the offeror and offeree inaudible to each other; the remedy was to reiterate acceptance, after the disturbance due to the aircraft had ceased (Agreement). Second, if the telephone ceased to function, before acceptance could be communicated; then it was incumbent upon the offeree to return the telephone call, so as to complete acceptance. Finally, if the offeror was unable to hear the acceptance message, or if the teleprinter was totally drained of its ink, and if the offeror failed to request a repetition of the message, then the offeror stands to be bound by the agreement (Agreement). In instances, wherein, neither of the parties to the contract is to be blamed; the offeror is favoured by the rule relating to the communication of acceptance. As Denning LJ had opined, if the offeror fails to receive intimation regarding acceptance from the offeree, and if such failure cannot be attributed to him, and if the sender of the acceptance message believes that the message had been delivered, despite the fact that the message had not been delivered; then there is no contract between the offeror and offeree (Agreement). An offer must be communicated to the offeree and the offeror must have the intention to provide legal effect to it. Hence, it is insufficient if an offeree becomes aware of the offer incidentally. The law provides a clear distinction between instantaneous and non – instantaneous modes of communication. Instantaneous communication transpires between the parties, either by direct conversation or by means of a telephonic conversation. Non – instantaneous communication includes letters, telegrams and electronic mail. Unlike the postal rule, in which acceptance is held to be complete, the moment the letter of acceptance is posted; acceptance in instantaneous communication systems, like teleprinter and facsimile is complete only when the communication of acceptance is received by the offeror. List of References ACCEPTANCE OF AN OFFER. (n.d.). Retrieved April 25, 2009, from Rai University: http://www.rocw.raifoundation.org/management/mba/legalaspectsofbusiness/lecture-notes/lecture-04.pdf Agreement. (n.d.). Retrieved April 25, 2009, from http://www.oup.com/uk/orc/bin/9780199268146/chapter03.pdf All England Law Reports. (n.d.). Entores Ltd v Miles Far East Corporation (1955) 2 All ER 493 . 1955/Volume 2. Anson v Trump, (1998) 1 WLR 1404. Apple Corps Limited v Apple Computer Inc, (2006) EWHC 996. Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels GmbH, (1983) 2 AC 34. Bruner v Moore, (1904) 1 Ch 305. Chandler, A., & Brown, I. (2007. P. 17). Q and A: Law of Contract 2007 – 2008. Oxford University Press. ISBN 0199299552. Chen – Wishart, M. (2007. P. 87). Contract Law. Oxford University Press. ISBN 0199207. Chissick, M., & Kelman, A. (2002, P 88). Electronic Commerce. Sweet & Maxwell. ISBN 0421764309 . Christou, R. (2005, P 212). Boilerplate: practical clauses. Edition: 4, revised. Published by Sweet & Maxwell, ISBN 0421898909, 9780421898905. Contracting by electronic means. (1996, April 19). The New Law Journal . 1996 Volume 146/Issue 6740, 146 NLJ 549 NEW LAW JOURNAL . Davies, I. (2005. P. 158). Issues in international commercial law. Ashgate Publishing, Ltd. ISBN 0754624625. Entores Ltd v Miles Far East Corp, (1955) 2 QB 327. Horne, R. (n.d.). Electronic Acceptance. Retrieved April 25, 2009, from http://www.arbitrate.org.uk/nvsep02/acceptance.htm Household Fire and Carriage Accident Insurance Company (Ltd) v. Grant , (1879) 4 Ex D 216 . Mead, L., Sagar, D., & Bampton, K. (2007, P52). CIMA Official Learning System Fundamentals of Ethics, Corporate Governance and Business Law. Edition 2. Elsevier, ISBN 0750684933; 9780750684934. Newcomb v De Roos, Case Analysis. Where Reported [1955] 2 Q.B. 327; [1955] 3 W.L.R. 48; [1955] 2 All E.R. 493; [1955]. 1 Lloyds Rep. 511; (1955) 99 S.J. 384 (Court of Appeal May 17, 1955). Owens, K. (2001. P. 71). Law for Non - Law Students. Routledge Cavendish. ISBN 1859416713. Stone, R. (2005. P. 15). Contract Law Q&A. Routledge Cavendish. ISBN 1859419607. Stott, D. (n.d.). Should The Postal Acceptance Rule be Applied to E-Mail? Retrieved April 25, 2009, from http://www.alsa.asn.au/files/acj/1996/stott.html Tenax Steamship Co v Brimnes, 3 All ER 88 (1974). Thomson v James, 18 D 1 (1855). Youve got mail. (2003, June 13). The New Law Journal . 153 NLJ 906 New Law Journal. Read More