Contract Law: Postal Rule - Term Paper Example

Postal Rule Introduction Under the general terms of the contract law, a contract is formed when an offer is accepted by the offerree. The person who proposes an offer is known as the offerror, while the one to whom the offer is made is known as the offeree. This is one of the most important characteristics of framing a contract. A contract cannot be formed without an offer and the subsequent acceptance of the same offer, which needs to be understood in the same manner as in which the offer was made. This paper aims to explore the drawbacks of the Postal Rule, and will strive to analyze how the modern technology, especially the email system, has made this rule redundant. The Postal Rule The foremost instance of the Postal Rule was established in the case of Adams v Lindsell (1818), which established the following point: “ it would be impossible to complete any contract through the post; if the defendants were not bound by their offer until the answer was received, then the plaintiffs would not be bound until they had received word that the defendants had received their acceptance, and this could go on indefinitely” The judge gave his point, where he describes what a postal rule is. The Postal Rule is an exception to the common rule of offer and acceptance. Under the common practice of contract formation and application, the acceptance takes place only when it is communicated to the offerror. Until and unless the acceptance has not been communicated, a contract cannot be formed between the two parties. However, the Postal Rule has a different practice when it comes to the communication of the acceptance of the offerree. Under the Postal Rule, the acceptance takes place when the letter is posted, which is contrary to what is usually practiced under the Contract Law in Common Law countries. In the case of Dunlop v Higgins (1848), the law was laid down which confirmed the earlier judgment in the Adam’s case, where it was mentioned that “posting of a letter confirming the acceptance involves the binding of the contract, even if the letter never arrived to the offerror”. There are theories which go against this judgment, especially in the days of emailing when sending and receiving mail has become lightning fast, and therefore, this rule should stand to be invalid and obsolete, as we shall discuss later in this paper. Let us look at the philosophy of the Postal Rule, and try to gauge the reasons behind the implantation of such a rule as an exception to the most basic principles of contract law. The Postal Rule was established to ease the communication lags during the 19th century between the offerre and the offerror. A post mail used to take quite a lot of time in order to reach the other party, and in performance of time bound contracts, the general rule of acceptance only valid when communicated became difficult to enforce upon the parties, as it would take days and weeks to communicate the acceptance, and in such time the whole purpose of the contract would melt down and become impotent. (1879) Therefore, in order to curb the drawbacks of the post mail communication, the Postal Rule was established, which eased the general rule of acceptance, and allowed the parties, to enter into contracts without fulfilling the need to communicate the other of his/her acceptance by mail, which included the posting of the acceptance letter and the subsequent time attached to it in order for the acceptance to reach the offerror. The rule came into play to reduce the time taken to communicate the order of acceptance, and now by just mailing the acceptance, and not having to wait until the mail was received by the offerre, the contract had been formed. The rational behind the postal rule is that it encourages contracting by parties at a distance by making the person in the position of giving an acceptance just as secure as if the contract was being made face to face. Along with this proposition, another point which helped in the cause of its establishment was that it was a faster way of contracting between the parties who were at a distance from each other, and by posting the acceptance and the acceptance becoming valid, it also made the procedure of contract look as if it was formed face to face between the parties. (1892). Illustration: Following is an illustration to demonstrate the effects of the postal rule. A offers to sell 500 Quintals of rice to B. He sends the letter of offer to B, on Day 1, which reaches B on Day 5. Since rice is a perishable goods, B needs to make his mind soon as to whether he intends to buy rice from A or not, since A has stored the rice in his warehouse, and after a few days it would start rotting. B makes up his mind soon, since he is aware of the problem associated with the selling and purchase of perishable goods. On Day 6, one day after receiving the letter of offer, he agrees to purchase rice from A. Now we shall look at the scenarios at hand, both in the case of Postal Rule, and also the general rule of contract law. If we follow the general rule of contract law, the letter, which was posted by B on Day 6, would take atleast 5 days to reach A, by which the rice grain would have started to swell and it would have become extremely hard and dry, and not in a proper condition to be consumed by the consumers. However, if we apply the Postal Rule in this regard, the acceptance shall take place on Day 6 itself, and not on Day 11, as against the general principles of contract law. Not only will this enable A to dispatch the rice sooner, and thus save it in time, it would also save extra time, which would have gotten wasted in the usual course of practice of contract law. The Postal Rule does not apply to the revocation of contract. An individual cannot use this rule to revoke his offer of a contract with the other party. The Postal Rule applies only to the national carrier of mail of the respective country in which the offerror and the offerre reside. It does not apply to private mail departments, courier services, (1955) telex (1880) or other forms of communication, as envisaged in Re London & Northern Ban (1900). In the case of Byrne v Van Tienhoven (1880), it was held that under the principles of the Postal Rule, an acceptance was valid as soon as the letter was dispatched, irrespective of the fact whether the mail had actually reached the offeror or not. This was done to ease the redundancies involved in the communication of the acceptance. As soon as the acceptance was mailed to the offeror, the agreement came into existence for good between the two parties. Criticism of the Postal Rule: Why it should be abolished In the olden days, communication used to happen only through post mails, which were carried out by the national mail of the respective countries, and set out the route to carry on business agreements and other contracts which involved the trade between two or more parties. The process of sending mail through post was a tedious and time consuming process, which took days and sometimes even weeks for the post to reach the other party. In such circumstances, it became unanimous among the courts to lay down a rule which reduced the burden on the offeree, and to equate it with putting the responsibility on the offeror, who was in a better position to overrule this rule, and to carry out the contract with some other party. It also reduced the time between the offer and acceptance, and thus increased the speed with which the contract was formed. However, with the latest technology of communication which embarked upon the 21st century, this rule has now become obsolete, as the whole point of increasing the speed of the contract and distributing the burden equally on the parties has become redundant, and has been treated with efficiency with the usage of modern technology in communication. We shall look at the draw backs of the Postal Rule, adequate it with other forms of communication, such as Email, which has now become the most preferred form of communication. The potential for miscommunication and inefficient contracting, along with the relative ease and low cost of instantaneous communication has come to suggest that the Postal Rule should now be set aside. Implied Condition: In the case of Tallerman & Co Pty Ltd v Nathans Merchandise (1957), the judge held the following opinion: “The general rule is that a contract is not completed until acceptance of an offer is actually communicated to the offeror, and a finding that a contract is completed by the posting of a letter of acceptance cannot be justified unless it is to be inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act." The High Court included the element of intention.” According to the opinion stated by the judge in this landmark case, the postal rule was only valid in those circumstances where the offeror himself contemplated, and thought to have implied that the mere posting of the letter would amount to the acceptance of the offer. However, it had been extremely difficult to understand whether the offeror knew of the rule or now, and in such circumstances where the offeror was not under an implied condition to be aware of the acceptance from the offeree, this rule was considered to be invalid and inefficient. Delay in Delivery/Misplacing of Letter is no excuse: Another major drawback in the postal rule was that as soon as the letter was dispatched, the contract would be binding on the parties, even if the letter had not reached the mailbox of the offeror. (1974) If we analyze the core aspect of contract law, this proposition laid down in the postal rule completely goes against the spirit of the general rule of offer and acceptance. An acceptance can only be valid if it has been communicated to the parties, and without the knowledge of acceptance with the offeror, how can a contract be created? The answer to this question lies in the arbitrariness of the rule and the manner in which it was practiced. The risk that this rule places on the offeror is that the letter might get lost in the mail and never reach him, thus not communicating him of the acceptance of the offer. Since the letter is acceptance of his offer, then the offeror is bound to contract with the offeree despite him being ignorant of it. In this situation the offeror does not know whether his offer has been impliedly rejected through reasonable lapse of time, or whether it has been accepted but communication of that acceptance has not reached him. Under the general principle of contract law it is assumed that non-communication of acceptance is an implied rejection of their offer (thus leaving them free to sell to someone else). However, rule states that, despite this noncommunication, the acceptance is still valid and the contract is complete. This seems to have unevenly distributed the risk on to the offeror without any fault of his own. (1951) The rule is going on the wrong path, and it is impossible to contract with a party, and more importantly, it is impossible to bind yourself with the contract until and unless you are made aware of the acceptance by the offeree. (1970) Without having received the acceptance, it is not in the spirit of the law of contract to bind yourself with the other party for the same contract, but the postal rule, in its most arbitrary manner, seems to have placed this unnecessary risk on the offeror, thus making him responsible for a fault of someone else, and binding him to perform the contract, where according to his knowledge, the contract does now exist. This is a clear violation of the principle of consensus ad idem. The problem of longer duration not addressed properly: The postal rule tried to address the problem of time being consumed in the delivery of acceptance, and thus making the contract effective as it stood on the date of acceptance. Unfortunately, there are flaws within the rule, which shall be addressed by the means of an example: Let us suppose A wants to sell 50 tons of steel to B. In doing so, he communicated his intent to B on Day 1 by posting him a mail, which reached him on Day 5. On Day 5, B opened his mailbox, and found out the offer, and now intends to accept the proposal and wants to form the contract of sale with A. However, during the time of the letter reaching B, A had changed his intent and had decided to revoke his offer from B. On Day 5, A sends B another letter, this time revoking the offer from B. This letter reached B on Day 10. However, the turn of events took a dramatic change, and by the time A could revoke his offer, B had accepted the proposal, by posting the mail on the same day he had received the mail, which was Day 5. Therefore, due to the subsequent events taking place, A could not revoke the offer and had to comply with the contract against his will and interests. This is a common problem associated with the postal rule. Even though it is a shortcut way of communicating one’s acceptance, the judges and the jurists over the years have failed to understand that no matter what rule they introduce in order to make contracting faster, it still has to comply and move along with other principles of law, which have been laid down in a standardised form over the years, and the introduction of this rule tends to disharmonize the whole procedure of contracting between the parties. Modern forms of Technology: Let us now look at the modern forms of communication, and how they tend to dislodge the argument behind the existence of the postal rule. We have entered the 21st century, and are already one decade into it. Most of the communication now happens over emailing, which has now become the most preferred form of communication between businessmen, corporate giants, lawyers, doctors etc. It has revolutionised the manner in which communication takes place, and is the fastest mode of communication, at just a touch of a button. Emailing is the instance mode of mailing an individual, and happens at the speed of light, by clicking on a button. Once the email is sent, it takes less than 10 seconds for the other party to receive the mail, and is extremely fast and efficient, as emails do not get lost or misplaced, unlike the postal service which still relies on men to do the job of delivering a mail. In the age of electronic mail, the manner and method of sending mail through post and making contracts through postal mails have now become redundant. The postal rule does not apply to emails, and since most of the communication for the agreements to contract takes place on emails, it is wise to propose that the postal rule should now be abolished, since the gaping holes with regard to effective communication have now been met by the most modern forms of communication. Conclusion: The postal rule was a measure to correct the defects which were involved with the postal service in the effectuation and the performance of a contract. The royal mail and the national mail, used to effectuate the performance of contracts was extremely slow, and therefore, it required the establishment of the postal rule, which tried to reduce the risk of the offeree in relation to the acceptance of the offer. However, in the due process of formation of the postal rule in order to help the case of the offeree, courts all over the common law nations increased the risk of the offeror instead, by putting him in a compromising position with regard to the acceptance of his offer. This gave a rise to a lot of problems which put the offeror in a difficult position for the performance of the contract, since it is the offeror who has the obligation, after the communication of acceptance, to effectuate the contract at the earliest. With the introduction of modern ways of communication, it is pertinent to understand that the postal rule has now become obsolete. The reason for which the postal rule was established has now become redundant, since the advent of faster and more efficient modes of communication, especially the email system, which is the fastest way of communication and effectuates a promise in the shortest time possible. Therefore, understanding from the cases studied and the principles lay down, we should realise that the postal rule has now become impotent, and its benefits and advantages can no longer be realised, especially in the age of state of art communication services, and the drawbacks attached to the rule which have hindered its usage. Works Cited 1. Adams v Lindsell (1818) B & Ald 681 2. Dunlop v Higgins(1848) 1 HL Cas 381 3. Re London & Northern Bank [1900] 1 Ch 220 4. Byrne v Van Tienhoven (1880) 5 CPD 344 5. Henthorn v Fraser [1892] 2 Ch 27. 6. Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 7. Tallerman & Co Pty Ltd v Nathans Merchandise (1957) 98 CLR 93, 111-112 8. Holwell Securities v. Hughes (1974) 1 All ER 16 9. Manchester Diocesan Council for Education v. Commercial and General Investments Ltd. (1970) 1 WLR 241 10. Stevenson, Jacques & Co v. McLean (1880) 5 QBD 346 11. Household Fire Insurance Company v Grant (1879) 4 Ex D 21 12. Barrick v Clark (1951) SCR 177, [1950] 4 DLR 529 Read More