The Classical Doctrine on Communication of Acceptance - Essay Example

Critically analyse the extent to which the ical doctrine on communication of acceptance is relevant in modern contractual relations? Introduction The elements of a contract are mainly offer and acceptance, consideration and intention to create legal relationship. For formation of a commercial contract, these elements must be present subject to there being no fraud, undue influence, misrepresentation etc. First and foremost is ‘agreement’ which emerges when an offer is made and it is accepted without any change the terms of the offer. As such, an agreement between two or more persons is a necessary ingredient of a contract. The offer should be accepted like mirror image in order to form an agreement.1 The acceptance of an offer is crucial to formation of contract and question arises how and why an offer must be accepted to become a contract. Because there should be meeting of minds. An agreement can be verbal or in writing and in both cases how the acceptance reaches the offeror is important. The doctrine of communication of acceptance requires that it should be made within a reasonable time. In the following pages, the position relating to communication of acceptance is discussed. Classical doctrine of communication While dealing with acceptance, it is necessary to discuss the other ingredients of agreement. The objective test employed by the courts for an agreement having been reached is the presence of “offer and acceptance. 2 As is well-known, an offer is said to be made when one person proposes to another to do or abstain form doing some thing in order to get the consent of the other to the act or abstinence. An offer can be verbal, in writing, by conduct or by combination of these forms.3 An offer also can be made to an individual, a group of persons or to the world at large.4 An acceptance is made when the person to whom the proposal is made signifies his consent thereto and it should be absolute and unqualified. The acceptance must be communicated in the usual and reasonable manner except when the offeror stipulates a particular manner of acceptance.5 In other words, the acceptance of the offeree implies that the offeree has accepted the offer in the same terms and conditions of the offeror without any reservation.6 Thus, it follows that an agreement comes into existence only when acceptance is received by the offeror so as to ensure that the offeror is not bound by his offer without his knowledge. The place of receipt of acceptance is generally regarded as the place of conclusion of contract. This applies to instantaneous methods such as verbal, telephone, telex and facsimile.7 In such forms of messages, the sender is notified as to its receipt or otherwise by the recipient. He receives report of error in transmission or of bad telephone line so that he is aware of non-receipt of message at the other end and it becomes compulsory for him to resend the message. For instance, Lord Denning L.J. in Entores v Miles Far East Corporation [1955] has observed “where the word of two parties communicating across the river are drowned out by an aircraft, the word must be repeated to ensure they are heard for there to be a binding contract”8 Postal rule An exception to the above manner of receipt of acceptance is the postal rule. It provides that where the postal communication is the acceptance method for communication, the acceptance is deemed to have been made and contract is formed, the moment the acceptor posts the letter to the correct address of the offeror duly stamped as held in Adams v Lindsell (1818)9. The rationale behind this rule is that once the latter is posted, it goes out of control of the acceptor. And the offeror is bound by his offer even if delivery of the acceptance letter is delayed or lost. The acceptance of the offer cannot also be withdrawn by the offeree once the letter is posted even if he conveys his withdrawal to the offeror before the delivery of the acceptance letter.10 The above postal rule established in Adams v Lindsel [1818] was to ensure certainty in contractual obligations at the time when the only principal method of distance communication through postal service was very slow. If there had been alternatives to postal methods such as telephone, telex, postal rule would not been recognised. Postal rule came into existence twenty years before the advent of telegraph in 1837 and sixty years before invention of telephone in 1876. In the absence of the postal rule, parties to the contract relying on postal acceptance would be unsure of their acceptance being received. Law could have made it mandatory to notify receipt of acceptance. Had it been so, it would become an endless chain since receipt of notification of receipt of acceptance would again become necessary. This would not have been in the interest of efficient conduct of business transactions. Parties who have tied up resources relying on agreements likely to fail due to “acceptance uncertainty”, would also loose other business opportunities for the same subject matter of contract. Thus, postal rule was formulated to ensure faster conclusion of contract i.e they are created on posting the letter of acceptance.11 Now, in the light of modern communications such as email, question arises whether emails are subject to postal rule. Modern contractual relations are mostly through E-commerce characterised by emails and instantaneous communications. E mails have almost replaced the postal system now with some 550 millions of them having been and sent received in one month of January 2003 alone and majority of which must have involved business communications. The question is whether email acceptance is made when the email is sent or when it arrives at the offeree . The applicability or otherwise of postal rule for email can be examined as under. There are arguments both for and against application of postal rule for email. Majority view is that it should apply. Some argue this grey area should be left for court’s decision. In view of the rationale behind the application of postal rule, email should also be given the benefit of postal rule since it is not instantaneous. It can take hours or even days to reach the addressee. In Bruner v More [1904].12 the postal rule was applied to non-instantaneous forms of communications like telegrams. Another point in favour of postal rule for email is that of control. Just as delivery of letter is the responsibility of postal authority and beyond the control of the sender, email sender has no control over its delivery at the recipient’s inbox. In Household Fire Insurance Co ltd v Grant [1879]13, the presumption was in favour of the sender who trusted the post office. Email sender also has to rely on the service provider. On the other hand as said earlier, instantaneous forms of communication cannot have the benefit of postal rule as held in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels GmbH [1983]14 in conformity with the decision in Entores Ltd v Miles Far East Corp [1955].15. It is because of the similarities between post and email, applicability of postal rule is being advocated for the latter. However, it is also argued that postal rule need not extend to email because postal rule was mainly for the purpose of overcoming undue and unavoidable long delays whereas e mail will be delayed maximum by a day though it is not instantaneous. At the time when postal rule was introduced in 19th century, there was no way to check its receipt in distant communications. However, in modern conditions whether or not an email has been received can be confirmed quickly through telephone or fax or if it is not possible, email software can show whether it has been delivered or read. Further, in case of system failure or wrong address, the email itself is returned undelivered.16 This boils down to the logic whether the postal rule itself is valid because of improvements in postal services unlike in the 19th century. Before, discussing this aspect, it will be worthwhile to consider the government’s position in relation to E-Commerce. Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013). Regulations 11 (2) (b) states that in business contracts, an order and its acknowledgment are deemed received the moment they enter in the recipient’s mail box and not when they are actually read. Thus, an acceptance is said to be complete on its reaching mail box of the offeror and not when the offeror reads it. This is slightly different from the postal rule but it takes the middle ground of delivery at the offeror’s mail box. In postal rule, it is enough if the acceptance leaves the hands of the offeree. In the case of email, it should be actually delivered. Regulation 11(2) (b) implies acceptance by mere acknowledgement of the order. Thus, if on receipt of an order, the merchant acknowledges its receipt and states that the goods would be delivered within 4-7 working days, the acceptance is deemed to have been conveyed. It will therefore difficult to say later that no acceptance was made. In the U.S, the Uniform Computer Transactions Act 2000 also treats the acceptance as complete the moment the communication of acceptance embeds in the information processing system and when it is read alone. Thus, it can be logically concluded that postal rule does not apply to email.17 Instantaneous communication Until the decision in Entores v Miles Far East Corporation Ltd, it had been assumed that postal rule applied to them also. In this case, a telex was sent by the offeree from Amsterdam to the offeror in London. Lord Denning held the view that telex was instantaneous and therefore postal rule would not apply to them. In such case, “the receipt rule” would apply meaning that contract would come into existence when the acceptance is received.18. Just as Lord Macmillan’s dictum in Donoghue v Stevenson [1932]19 that categories of communications are never closed and Lord Wilberforce’s similar dictum in Esso Petroleum v Harper’s Garage (Stourport) ltd (1967)20 in respect of contracts in restraint of trade, categories of communication are never closed as held in Hastie & Jenkerson v McMahon (1991)21.In this Hastie’s case, plaintiffs were required to submit list of documents they had relied upon to the defendants within a certain period. Although, plaintiff complied with the order by sending the list through fax just 20 minutes before the deadline after receiving message that their earlier fax message sent 90 minutes before the deadline was not clear and complete and also through personal messenger the next day through document exchange system, defendants managed to obtain judgement since the court’s condition was that judgement would in defendant’s favour in case of plaintiff’s failure to furnish the list. This judgement was set aside for the reason that defendants received a clear list before the deadline. On defendant’s appeal, Woolf LJ of the Court of Appeal observed as long as the list was received, no ceremony was necessary since the purpose was already served i.e a clear and legible list and it was immaterial if it was received by fax or otherwise. This decision is significant in the light of provisions relating to transmission of documents to and by companies.22 An issue was raised in connection mandatory postal service of a document. Postal service of a statutory demand was opposed since a particular provision s123 of the Insolvency Act 1986 specified service at the registered office of the company and not by post. To this Morritt observed “The applicant accepts that the statutory demand was left at its registered office [but says] that there is no good service because of the way in which it was left . . . I cannot see any sense in a distinction which says that if it is proved that the document was left at the registered office it should not be deemed or treated as adequate service because it was left by the postman rather than by a creditor, his employee, agent or some perhaps independent third party. The draftsman of s 123 . . . has required the creditor seeking to rely on [a statutory demand] to prove that it was left at the office, not merely that he put it in the post box. But once it is accepted as having been left at the office, although transmitted by means of the Royal Mail, it seems to me that it is served within s 123 perfectly properly.”23 The above decision raises a query as to the validity of offeror’s condition in a contract to accept only in a particular mode. Going to back to basics, communication of acceptance to the offeror needs further discussion. It has been held in Felthouse v Bindley that silence would not amount to acceptance. That is, if the offeror states that if there is no response to his offer, it would be deemed to have been accepted by the offeree. But this would not apply where the promisee has the duty to speak due to conduct of parties or surrounding circumstances or when promisee’s act is implied from the conduct of the parties.24 The UNICITRAL Model Law on Electronic Commerce which came into force from June 1996 as a guide for the States to enact similar law has provisions for paperless communication and storage of information. As regards offer and acceptance, article 11 (2) provides for offer and acceptance being expressed by means of data messages. This article read with article 2(a) makes it clear that offer and acceptance can be expressed electronically without human intervention. As such, the offer and acceptance are deemed to originate from the party for whom the computer is used. In international law, the situation will be as follows. “a Scottish company accepts an offer from a U.S company situated in State X. both use a service provider for Internet access. The Scottish company has a German service provider; the U.S. company’s service provider has its place of business in State Y. If in this postal rule applies, the contract would be formed in Germany where message will be received for transmission to the U.S. Depending on the further circumstances of the case, the contract might therefore be subject to German law.” 25 But as this seems strange, such a situation has been avoided by the UNICITRAl Model law on Electronic Commerce through article 15 (4) which says that place of dispatch would be where the “enter” button is pressed. In this case, Scotland where the Scottish company is situated and where pressing the ‘enter’ button is done. Hence contract is deemed concluded in Scotland. Further, However, if the traditional postal rule applies, acceptance is deemed to be communicated only after the offeror takes notice of it and hence in this case the law of the U.S. and State X would be applicable. Thus, the UNICITRAL model law has avoided the likely controversy arising out of rule applicable to instantaneous communications.26 Conclusion In view of the foregoing analysis, postal rule has become a trite law as the uncertainties involving delivery of acceptance has been greatly reduced ever since its inception in the 18th century. In the present environment, the nomenclature “postal rule” is a misnomer since delay associated with postal service is no longer valid. Even if valid, there are means of communication available to confirm receipt of otherwise of the acceptance. It would therefore be desirable that the postal rule is abolished. 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