Postal Rule - Rules And Processes For Various Legal Agreements And Terms PDF

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3.1 The postal rule Where it is agreed that the parties will use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box. The leading authority that established the postal rule is: Adams v Lindsell (1818) 106 ER 250 The defendant wrote to the claimant offering to sell them some wool and asking for a reply 'in the course of post'. The letter was delayed in the post. On receiving the letter the claimant posted a letter of acceptance the same day. However, due to the delay the defendant's had assumed the claimant was not interested in the wool and sold it on to a third party. The claimant sued for breach of contract. Held that there was a valid contract which came in to existence the moment the letter of acceptance was placed in the post box.

The terms of the acceptance must exactly match the terms of the offer. If the terms differ this will amount to a counter offer and no contract will exist: Hyde v Wrench (1840) 49 ER The agreement must be certain When viewed objectively it must be possible to determine exactly what the parties have agreed to. Compare the following two cases: Scammell & Nephew v. Ouston [1941] AC 251 and Sudbrook Trading Estate v. Eggleton [1983] AC AC Scammell & Nephew v. Ouston [1941] AC 251: The parties entered an agreement whereby Scammell were to supply a van for £286 on HP terms over 2 years and Ouston was to trade in his old van for £100. Scammel refused to supply the van. It was held that there was no certainty as to the terms of the agreement. Sudbrook Trading Estate v Eggleton [1983] AC AC 444 House of Lords A lease gave the tenant an option to purchase the freehold of the property at a price to be agreed by two surveyors one appointed by the tenant and one appointed by the landlord. The tenant sought to exercise the option but the landlord refused to appoint a surveyor. The landlord claimed that the clause was too vague to be enforceable as it did not specify a price. It was held that the clause was not too vague to be enforceable as it put in place a mechanism to ascertain the price. Also see: 

Household Fire Insurance Co Ltd v Grant (1879) 4 Ex D 217-There will be a contract even where the letter of acceptance is delayed in the post or even where the letter is lost in the post provided that it was properly addressed and stamped:

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Holwell Securities v Hughes [1974] 1 All ER 161 - The parties can oust the operation of the rule by demonstrating an intention to do so; in this case ‘notice in writing’ was interpreted as meaning being received and read by the offerror.

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Byrne & Co. v Van Tienhoven &Co. (1880) 5 CPD 344) - Furthermore it must be reasonable to use the post and its use must not lead to ‘manifest absurdity’.

The postal rule has been held to apply to telegrams as well as to letters. Taking into consideration other methods of distance communication such as; fax, telex, telephone answering machine, e-mail or interactive website.

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Chwee Kin Keong v Digiland Mall.com Pte Ltd [2004] SGHC 71 - which suggests that if you are to expand the use of the postal rule then web transactions have the characteristics of instantaneous transactions and internet communications share some characteristics of the post

3.2 The Receipt Rule This rule provides that acceptance and therefore a binding contract comes into effect when acceptance is received. The postal rule is an exception to this. 

Entores Ltd v Miles Far East Corp [1955] 2 QB 327 - Lord Denning’s judgement is key to understanding this point of law. He distinguishes between instantaneous and non instantaneous forms of communication.

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The Brimnes [1975] QB 929, Mondial Shipping [1995] Com LC 1011 - new technologies where there has been a delay in sending and actually reading/ hearing a communication.

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The Brinkibon [1983] 2 AC 34 - new emergent technologies by which communications of acceptance may not reach or be intended to reach the recipient immediately, or may be subject to delay in transmission by a third party

3.3 Battle of the Forms  Hyde v Wrench (1840) 3 Beav 334 - the second set of standard terms would amount to a counter offer which the original offeror would be free to accept or reject.  Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666 - Some performance has been rendered and as we know conduct can amount to acceptance.  Nicolene v Simmonds (1953) 1 QB 543 - situation the courts are willing to overlook inconsistencies in subsidiary matters.  Hillas v Arcos (1932) 43 LIL 359 - the courts were at pains to point out that the courts were not ‘the destroyer of bargains’ and would be unwilling to allow a party to escape from a contractual obligation on a technicality. However, courts have favoured a ‘last shot’ approach to the terms that formed the terms of the contract.

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Butler Machine Tools v Ex-Cell-O Corp (1979) 1 WLR 401

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Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd's Rep 357 - is a modern application of the last shot approach

3.4 Intention to create legal relations Not every agreement leads to a binding contract which can be enforced through the courts. For example you may have an agreement to meet a friend at a pub. You may have a moral duty to honour that agreement but not a legal duty to do so. This is because the parties to such agreements do not intend to be legally bound. In order to determine which agreements are legally binding and have an intention to create legal relations, the law distinguishes between social and domestic agreements and agreements made in a commercial context. 3.4.1 Intention to create legal relations in social and domestic agreements In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations: Jones v Padavatton [1969] 1 WLR 328: A mother promised to pay her daughter $200 per month if she gave up her job in the US and went to London to study for the bar. It was held that the agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption. Balfour v Balfour [1919] 2 KB 571 A husband worked overseas and agreed to send maintenance payments to his wife. At the time of the agreement the couple were happily married. The relationship deteriorated and the husband stopped making the payments. The wife sought to enforce the agreement. It was held that the agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound. 3.4.2 Rebutting the presumption in social and domestic agreements: This presumption may be rebutted by evidence to the contrary. This evidence may consist of: A written agreement as in Errington v Errington Woods [1952]: A father-in-law purchased a house for his son and daughter-in-law to live in. The house was put in the father's name alone. He paid the deposit as a wedding gift and promised the couple that if they paid the mortgage instalments, the father would transfer the house to them. The father then became ill and died. The mother inherited the house. The mother brought an action to remove the wife from the house. I was held that the wife was entitled to remain in the house. The father had made the couple a unilateral offer. The wife was in course of performing the acceptance of the offer by continuing to meet the mortgage payments. Under normal contract principles an offer may be revoked at any time before acceptance takes place, however, with unilateral contracts acceptance takes place only on full performance. 3.4.3 Where the parties have separated: Merritt v Merritt [1970] 1 WLR 1211:

A husband left his wife and went to live with another woman. There was £180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife £40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her. It was held that the agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound. 3.4.4 Where there is a 3rd party to the agreement: Simpkins v Pays [1955] 1 WLR 975 A Grandmother, granddaughter and a lodger entered into a weekly competition run by the Sunday Empire News. The coupon was sent in the Grandmothers name each week and all three made forecasts and they took it in turns to pay. They had agreed that if any of them won they would share the winnings between them. The grandmother received £250 in prize money and refused to share it with the other two. The lodger brought the action to claim one third of the prize money. It was held that there was a binding contract despite the family connection as the lodger was also party to the contract. This rebutted the presumption of no intention to create legal relations. 3.4.5 Intention to create legal relations in commercial agreements: Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to create legal relations by the agreement: Esso Petroleum v Commissioners of Customs & Excise [1976] 1 WLR 1: Esso ran a promotion whereby any person purchasing four gallons of petrol would get a free coin from their World Cup Coins Collection. The question for the court was whether these coins were 'produced in quantity for general resale' if so they would be subject to tax and Esso would be liable to pay £200,000. Esso argued that the coins were simply a free gift and the promotion was not intended to have legal effect and also that there was no resale. It was he that there was an intention to create legal relations. The coins were offered in a commercial context which raised a presumption that they did intend to be bound. However, the coins were not exchanged for a money consideration and therefore the coins were not for resale. Edwards v Skyways Ltd [1964] 1 WLR 349: The claimant was an airline pilot working for the defendant. He was to be made redundant. The defendants said that if he withdrew his contributions to the company pension fund, they would pay him the equivalent of company contributions in an ex gratia payment. The claimant agreed to this and withdrew his contributions. The company then ran into further financial difficulty and went back on their promise relating to the ex gratia payment. It was held that the agreement had been made in a business context which raised a strong presumption that the agreement is legally binding. 3.4.6 Rebutting the presumption in commercial agreements:

Binding in honour only clauses: Rose & Frank v Crompton Bros [1925] AC 445: The claimants and defendants entered an agreement for the supply of some carbonised tissue paper. Under the agreement the claimants were to be the defendant's sole agents in the US until March 1920. The contract contained an honourable pledge clause which stated the agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in neither England nor the US. The defendants terminated the agreement early and the claimants brought an action for breach. It was held that the honourable pledge clause rebutted the presumption which normally exists in commercial agreements that the parties intend to be legally bound by their agreements. The agreement therefore had no legal affect and was not enforceable by the courts. Comfort letters: Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 W.L.R. 379: Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned subsidiary of the defendant; MMC BHD. MMC Metals approached the claimant KB Bank for a loan. MMC Metals was a relatively newly formed company lacking in the size and resources of MMC BHD. The bank approached MMC BHD asking if they would act as guarantor for the loan. MMC refused to act as guarantor but stated they it was their company policy to ensure that their subsidiaries are always in a position to meet their debts. In reliance of this letter of comfort the bank advanced money to MMC Metals. MMC Metals subsequently went into administration having not paid the loan. KB brought an action against MMC BHD to recover their loss based on the assurance given in the comfort letter. It was held that the comfort letter had no legal effect. The fact that MMC BHD had refused to act as guarantor demonstrated they did not intend to be legally bound. The comfort letter referred to company policy at that time. There was nothing to stop the company changing its policy....