The Postal Rule in Contract Law PDF

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Summary

Analysis of the postal rule, as it applies in contract law...

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GRIFFITH COLLEGE DUBLIN Assignment Cover Sheet Result Awarded: ____ % Late Penalty: ____ % Overall Result: ____ %

Student name:

Estelle Varney

Student number:

3020749

Course:

Diploma in Legal Studies and Practice Stage/year: 2019/2020

Subject:

Professional Ethics and Skills for Practice

Study Mode:

Part time

Lecturer Name:

Rory O’Connor

Assignment Title:

Explain and describe the postal rule (within the wider context of offer and acceptance) as it applies to contract law.

No. of pages:

8 (including Cover Sheet and Bibliography)

Additional Information:

N/A

Date due:

27 October 2019

Date submitted:

27 October 2019

Academic Misconduct:

I understand that I will be subject to the penalties imposed for the breaches of academic conduct as defined in the College’s Academic Misconduct Procedure (QA J4).

Signed:

Date: 27 October 2019

LATE ASSIGNMENTS:Penalisation for late assignments is 5% per day. Any assignment submitted after the designated hours on the submission day will be considered a late assignment and will be penalised at 5%. It will therefore be 10% if the assignment is handed in the day after the submission date. If assignments are more than 1 week late, they are not accepted and will be recorded as not having been presented

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The Postal Rule as it applies to Contract Law

The Postal Rule specifies that a contract exchanged by post, is deemed as binding when notification of acceptance is placed in the post box. This rule has been applied to establish the time when a contract becomes binding, and the place where it becomes binding for purposes of jurisdiction. Questions related to such matters as offers being rescinded, or acceptances not received by post, have tested the Postal Rule.

The development of

telecommunications and information technology, which has largely replaced postal communications, has brought questions regarding the application (or not) of the Postal Rule to contracts within a contemporary communications and legal paradigm.

A contract relates to a legally enforceable agreement between parties. In order for a contract to exist, it requires three basic elements: An ‘offer’, ‘acceptance’ and ‘consideration’. An offer relates to that which is made available for acceptance, and specifies what is required in return. The terms of the offer need to be clear and unambiguous, and the offeror must be entitled to make the offer, i.e. must hold personal claim to that which is being offered. Acceptance has to mirror the offer made, thus taking that which is offered, and giving that which is required, exactly as stated in the offer. If new terms are introduced, the offer is regarded as rejected, and the potential accepting party becomes the offering party, with the initial offering party then being placed in a position to accept or reject the offer. Only when both parties are in complete agreement, is a contract formed.

The third element,

consideration, relates to that which is being exchanged. It can take the form of money, an object, an action or even abstaining from an action (forbearance). Consideration has to pass both from the offering to the accepting party, and from the accepting party to the offering party. A fourth element, namely an ‘intention to form legal relations’ is also regarded as essential for agreements to become a matter of law, governed by and enforceable under legislation and by the judiciary, as a contract.The law is not interested in regulating casual interactions between parties. Contracts can be established in writing, orally, or by action. Provided that all four elements are present, a contract is formed.

An important aspect concerning the implementation of contracts, or legal recourse in relation thereto, relates to when the contract becomes binding. It is accepted that a contract is established when acceptance is communicated to the offeror. Determining when acceptance is received is simple enough when both parties are present at the time of acceptance, either by orally communicating acceptance of by signing a contract in each other’s presence. 2

Establishing exactly when a contract came to be accepted, when this is done by post, was brought to question in Adams v Lindsell1. In this instance, the defendant offered to sell fleeces of wool to the plaintiff, and required an answer by post. The letter of offer was however, misdirected, and only reached the plaintiff on 5 September. The plaintiff sent a response on the same day, accepting the offer, which reached the plaintiff on 9 September. The defendant however, who expected an answer by 7 September, sold the wool to someone else on 8 September. The plaintiff held that the defendant was bound to the contract and had to supply the wool. The defendant however, argued that they were only bound once acceptance was received, and was thus entitled to sell the wool prior to that. Law J held that - where parties contract by post – acceptance is effective from the day that it is posted, rather than the day of receipt. He argued that to do otherwise, would imply that the acceptor would only be bound once receipt of the acceptance by the offeror was then communicated to the offeree. This established precedent for the ‘Postal Rule’, a concept which has become well entrenched in common law.

It is further suggested that there was a practical foundation for the

establishment of this precedent, as it was the custom in the nineteenth century to keep an office ledger, specifying the date when letters were issued. It was thus possible to verify when letters were sent, but not necessarily when these were received2.

The rationale for the Postal Rule was further held in an instance where an offer was rescinded, in the matter of Henthorn v Fraser3. The plaintiff sent acceptance of an offer by post, before receiving a letter from the defendant withdrawing the offer. It was held that the defendant was bound to the terms of the offer. In his judgement, Lord Herschell specified that “Where the circumstances are such that it must have been within the contemplation of the parties that, according to ordinary usage of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted”. This added that there must be an overt or inferred understanding between the contracting parties, that communication would be conducted by post.

The Postal Rule has also been applied in establishing jurisdiction, where parties contracted by post. It is commonly held that – as the contract is established at the time of acceptance – any litigation related thereto falls under the jurisdiction of where the contracted was accepted. This can relate both to parties that contract domestically, as well as internationally. The

1Adams v Lindsell (1818)1 B. & Ald. 681 2 R Clarke, Contract Law in Ireland (8thedn Thomson Reuters Ireland Limited, Dublin 2016) 1-57. 3 [1892] 2 CH 27

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former was illustrated in Dooley v Egan4 when the Cork based defendant wrote to the Dublin based plaintiff enquiring about medical cabinets. The plaintiff responded with a quote, listing goods and prices. The defendant placed an order, to which the plaintiff responded confirming the order. Meredith J ruled that the order placed by the Cork based defendants was the final offer, and the confirmation from the Dublin based plaintiff qualified as acceptance. The contract was thus formed in Dublin from where the acceptance was posted, and fell under the jurisdiction of the Dublin courts. The case of Declan Kelly v Cruise Catering Ltd and Kloster Cruise Ltd.5 is an instance where the applicability of the postal rule was tested across national borders. Kelly accepted a work offer from Kloster Cruise Ltd, incorporated in Norway, through their agent Cruise Catering Ltd, incorporated in the Bahamas.

An

employment contract, signed in triplicate in Oslo, was sent from the first defendant to the plaintiff, who resided in Dublin. The plaintiff signed and returned two copies of the contract to Oslo. Following injury in the course of executing his duties, the plaintiff wanted to sue the defendants for breach of contract, and wished to serve plenary summons in Ireland. The defendants attempted to argue for jurisdiction in Norway (although jurisdiction in this instance was also on the basis of forum non convenience). The Supreme Court (Blayney J, O’Flaherty and Egan JJ concurring) held that Ireland had jurisdiction, based on the Postal Rule, as the contract was formed when Kelly signed and posted same in Dublin.

As no system is infallible, the question has been raised as to the validity of a contract when the acceptance posted was not received by the offeror. In Household Fire and Carriage Accident Insurance Co Ltd v Grant6the unfortunate defendant applied for shares (offer) in the plaintiff company. Shares were allotted to him, and notice of the allotment was posted to him (acceptance). Mr Grant however, never received this notice. When the company went bankrupt, outstanding payments for the shares were requested from the plaintiff. He denied the existence of a contract, as he had not received this notice, and was thus unaware of his obligations. It was held, as per the Postal Rule, that the contract became binding when the acceptance was posted, and that Mr Grant was thus committed to payment for shares. Thesiger LJ in ratio stated that it would cause more hardship not to have a consistent rule. He acknowledged that inconvenience and hardship may in some cases result from the rule, but maintained that this is a possibility in the application of all laws. He offered a solution to this potential predicament, noting that the offeror “may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the 4(1938) 72 I.L T.R.155. 5[1994] 2 I.L.R.M. 394. 6(1897) L.R. 4 Ex. 216.

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acceptance”. This was applied in the matter of Holwell Securities v Hughes7where the defendant offered the plaintiff the right to purchase property, but specified that this was to be done “by notice in writing” within six months of the offer. The plaintiff sent a letter indicating acceptance of the offer, but which was not received by Dr Hughes. Lawton LJ held that the postal rule did not apply in this instance, as the terms of the contract clearly indicated that acceptance was conditional to the defendant’s receipt thereof. It was thus established that appropriate wording of a contract can ensure that the contract only becomes binding once the offeror has received notification of acceptance. The jurisdiction established by the postal rule as the place of acceptance, can also be varied if the contract specifies jurisdiction as a notional locus contractus8.

The Postal Rule however, only applies in terms of acceptance, and when communications have been agreed to be conducted by post. In other matters related to contract formation, such as offers, revocation or rejection, the ‘receipt rule’ applies, in which the acceptance of the offer must be received by the offeror, before it becomes binding. Offers that are not accepted by post, even if done in writing through a different communication system, are also not bound by the postal rule. The formation of contract on receipt of acceptance, in instantaneous communications, was firmly established in Entores Ltd v Miles Far East Corp9. In this instance, the parties contracted through telex. The offer was sent from London to Amsterdam, where it was accepted and confirmation thereof telexed in return to London. The legal question related to where the contract was formed, to establish whether it was subject to English law or Dutch law. Denning MR directly referenced the postal rule in ratio, stating that “When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing.” He concludes that “…the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.” Thus, only once the information has been received by the party to whom the information is communicated,will it become binding in the course of law. In matters where the postal rule applies, the possibility that the offeree/acceptor can revoke acceptance prior to the arrival of such notification by post, has not yet been tested in 7[1974] 1 W.L.R. 155. 8 A. V Gill, ‘Contracts, jurisdiction and the E.E.C Judgments Convention’ (1987) ILT, 5,194 – 199. 9[1955] 2 Q.B. 327.

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Irish courts10. It is suggested that, as per Lawton LJ’s dictum in Holwell Securities v Hughes, it would be worth establishing whether there has been any proof of loss to the offeror as a result of the revocation.

The validity of the Postal Rule, or at least the principles thereof in determining the time and place that a contract is deemed as binding, has been raised in other contexts of nonpostal distance communications. This has become increasingly relevant in a society that relies on online communication and commerce. The Electronic Commerce Act, 2000 aimed to “provide for the legal recognition of electronic contracts”. At Dáil Committee Stage, on June 29, 2000, Deputy O’Shea proposed that the Act should specify that the contract is “deemed to have been made where and when the said acceptance was sent” 11, thus paralleling the Postal Rule. The minister however, argued that the purpose of the Bill was not to establish new rules for contract, and that the Bill had to allow for equivalence between written and electronic communication. He conceded that although such an inclusion to the Act would seem to add finality and clarity, it could also cause difficulties in a number of situations, creating rules which do not exist for off-line contracts12. As such, this was not included in the Act. Section 21 (2) of the act does specify that “Where the addressee of an electronic communication has designated an information system for the purpose of receiving electronic communications, then, unless otherwise agreed between the originator and the addressee or the law otherwise provides, the electronic communication is taken to have been received when it enters that information system.” This emulates the Postal Rule. Section 21 (3) however, notes that “Where the addressee of an electronic communication has not designated an information system for the purpose of receiving electronic communications, then, unless otherwise agreed between the originator and the addressee, the electronic communication is taken to have been received when it comes to the attention of the addressee”, thereby emulating the receipt rule.

It would however, be a gross over-simplification of online

communication and commerce to reduce the time of formation of contracts, and jurisdiction, simply to these two provisions. Legalising the internet is a vast and complex area, which has to take account of various specialised fields in domestic, European and international law13.

10R Clarke, Contract Law in Ireland (8thedn Thomson Reuters Ireland Limited, Dublin 2016) 1-61. 11522 Dáil Debates, Cols. 116 – 124 (Committee Stage). 12 522 Dáil Debates, Cols. 952 – 977. 13William McKechie, ‘Determining jurisdiction on the internet’ (2003) Commercial Law Practitioner 10(6), 155 – 161.

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The Postal Rule is an aspect of contract law narrowly defined to the acceptance of an offer, and under the specific circumstance of contracting conducted via the postal system, where it is overtly stated or inferred that the postal system is the means by which the parties will contract. When the written acceptance is placed in the post box, the time and place of acceptance is established, determining when the contract becomes binding, and the jurisdiction that governs the contract. It does not apply to other aspects or stages of contract formation, such as offer, revocation or rejection, or where acceptance is communicated in any way other than by post. Despite its very limited ‘sphere of governance’, it is a rule that has become well entrenched in the common law system, and which has been applied rigidly.

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BIBLIOGRAPHY

522 Dáil Debates, Cols. 952 – 977. 522 Dáil Debates, Cols. 116 – 124 (Committee Stage). Adams v Lindsell (1818)1 B. & Ald. 681 Clarken R, Contract Law in Ireland (8thedn Thomson Reuters Ireland Limited, Dublin 2016) Declan Kelly v Cruise Catering Ltd and Kloster Cruise Ltd. [1994] 2 I.L.R.M. 394. Doolin B, Principles of Irish Law (8th Edition, Gill & Macmillan, 2011). Dooley v Egan(1938) 72 I.L T.R.155. Entores Ltd v Miles Far East Corp [1955] 2 Q.B. 327. Gill AV, ‘Contracts, jurisdiction and the E.E.C Judgments Convention’ (1987) ILT, 5,194 – 199. Henthorn v Fraser[1892] 2 CH 27 Holwell Securities v Hughes[1974] 1 W.L.R. 155. Household Fire and Carriage Accident Insurance Co Ltd v Grant (1897) L.R. 4 Ex. 216. The Electronic Commerce Act, 2000 William McKechie, ‘Determining jurisdiction on the internet’ (2003) Commercial Law Practitioner 10(6), 155 – 161.

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