The Postal Acceptance Rule

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1.0 POSTAL ACCEPTANCE RULE The postal rule is first created in Adam v Lindsell 1818. The court had to decide the contract formation period by mail. Two parties will communicate by post which the acceptance time could not be determined. This is because that mailing often last for few days and both parties could not aware of the communication at the same time. This caused lots of problems and led to the creation of postal rule to help the problem to be guided and solved. The postal rule had stated ‘where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usage of mandkind the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as it is posted.’ The postal acceptance rule was formulated as an attempt to provide some degree of certainty to an offeree accepting an offer by post. In support of postal acceptance rule, the courts maintain that if the general rule relating to the acceptance of an offer is applied to the acceptance sent by post, then an offree will never truly be certain of the existence of a binding contract until the offeror communicated the fact of receipt of the letter of acceptance. The court will compelled to examine further policy consideration in order to determine whether the postal acceptance rule could be justified on the grounds of the agency. Post is the requested form of communication between parties or when it is an appropriate and accepted means of communication between parties, acceptance is complete as soon as the letter is posted or put in the mail box. Although if the letter is mislaid or lost and does not reach the offeror to notify them about the acceptance. It is requirement that the letter of acceptance has been properly posted after the acceptance is putted in the mail box. An issue that arised from Postal rule is that there is a period of time, where person are in confuse whether the contract existence or not. Courts have decide that the offeror assume all the risk, as the offer is still open during the time the letter of acceptance is in the post, Adam v Lindsell. The decision is based on the fact that an acceptance of an offer can go on ad infinitum, back or forth between the parties. If one had to acknowledge the receipt and then the acknowledgement had to be acknowledge so on and so forth. Unless the offeror has clearly stated in the terms of the offer that acceptance must be communicated by other means the offer must be accepted through the terms of the postal rule. Such the situation arose in the case Holwell Securities Ltd v Hughes 1974 where the in the terms of the offer it was clearly indicated acceptance had to be by ‘notice in writing’. The letter of the acceptance was lost in the post therefore Hughes did not receive a valid acceptance as he had not received a ‘notice in writing’. 2.0 LIMITATION OF POSTAL ACCEPTANCE RULE Firstly, the postal rule only applies to acceptance, not to other communication between contracting parties. Postal rule does not apply where not reasonable for acceptance to be sent by post. Quenerduaine v Cole (1883) The fact is the defendants made an offer by telegram which the plaintiff purported to accept by letter. The issue is was it be reasonable to accept by letter although the offer is made by telegram? The held is that postal rule did not apply, an offer made by telegram (instantaneous) implied that an equally quick acceptance was required. Secondly, postal rule did not apply if letter was not properly stamped, addressed and posted. Re London & Northern Bank EX P. Jones 1900 The facts is dr. Jones make an offer to the bank, at 7.00 letter of acceptance, addressed correctly but was handed to a postman , who only have authority to deliver letter but not to receive letter.. 9.30 Dr. Jones delivered letter to bank revoking his offer. 19.30 the bank’s acceptance delivered to Dr. Jones. The issue is was the postal rule invoked? The held is that postal ruli did not apply because of the posting is wrong which it is handed to a postman. A letter should be posted in a post box or to the post office which have authority to receive mail, Next is that postal rule can be displaced by the offeror. Holwell Securities Ltd v Hughes (1974) The fact is that defendant sent a grant to sell a property to the plaintiff, which contain clause stipulating option ‘be exercised by notice in writing to the intending vendor’ within six month. Plaintiff then send letter exercising the option, within the time limit, it was lost in the post and never received by defendants. The held is that postal rule did not apply. Post was suitable method of acceptance but language of offer implied defendants required receipt or written acceptance. Lawton LJ ; ‘ the requirement of ‘notice…to’, in my judgment, is language which should be taken expressly to assert the ordinary situation in law the acceptance requires to be communicated or notified to the offeror and it is inconsistent with the theory that acceptance can be constituted by the act of posting..’ Additionally, to allow the acceptance to be effective without communication would ‘produce manifest inconvenience and absurdity’. Lawton LJ ‘in my judgment the factors of inconvenience and absurdity are but illustration of a wider principle, namely that the rule does not apply if, having regard to all circumstances including the nature of the subject matter under consideration, the negotiating party cannot have intended that there should be a binding agreement until the party accepting the offer or exercising the option had in fact communicated the acceptance or exercise to the other. In my judgment when this principle is applied to the fact of this case it becomes clear that the party cannot have the intended that the posting of the letter should constitute the exercise of the option…’ 3.0 RELEVANT CASE LAW Adam v Lindsell (1818) The fact of Adam v Lindsell is that the defendants wrote to the plaintiff on September 2 which offering to sell the wool and requested that the plaintiff reply ‘in course of post’. The letter of offer is wrongly addressed and makes the letter delivered to plaintiff until September 5 and acceptance is then sent. Because of the delay, the letter of acceptance was not received until September 9 by the defendant and this is two days later than the defendant thought he will receive it. Because of this, on the September 8, the defendant had sold the wool to the third party. The court held that the contract is formed and the offer is accepted as soon as the letter of acceptance had been posted. Thus, in Adam v Lindsell there was indeed a contract in existence before the sale of wool to the third party, even though the letter had not actually been received by the defendants. Acceptance complete and binding contract form on September 5 when the letter of acceptance had been posted. The defendants therefore had been liable in breach of contract. Household Fire and Carriage Accident Company v Grant The fact is that Grant had negotiated to purchase shares in Household Fire which his application was accepted and his name was list in the registered shareholdersand the letter to inform him had been sent. However, the letter informing the appellant did not reached him and thus, Grant never paid for his shares because he did not aware of it. His earning of dividends was credited into his account as a registered shareholder. Eventually, Household Fire went into liquidation and liquidator applied money from appellant because he already listed as a shareholder. He refused to pay on the ground that he is not the shareholder because he had not received the notification on mail and he is not aware that he is listed and the application is accepted. The trial judge found that the appellant implied that the respondent was to sent him the notification that he had been issued the share in the mail by requesting them by the mail, and therefore they will not be penalized for sending the notification that way. The liquidator was thus successful at recovering the money which Grant appealed. Thesiger and Baggallay agree with the trial judge decision that the contract was formed when the acceptance was mailed or put into the mail box. They decide the pros and cons of the postal rule and decide the pros outweigh the cons. They state that the offeror can always choose to make the acceptance binding upon his receipt of the notification that it has been accepted in the original offer to make himaware. However, to state that this must happen in all cases will reduce the efficiency in the business world. The contract is complete and absolutely binding upon the transmission of acceptance through the mail as long as there is a medium of communication that the parties contemplated as at the time of mailing there is a meeting of the minds. HENTHORN V FRASER (1892) On 7th July, Henthorn from Brikenhead, called office of land society in Liverpool for buying property. Henthorn negotiated to buy some houses belonging to the land society. The secretary agree to sell to him and give him an option to purchase the property at 750 pounds in 14 days. On 8th July morning, another person called to purchase the property at 760 pounds and the offer accepted which is a better and higher purchase price from Henthorn. At the afternoon 12-1 pm the secretary withdraw the offer made to Henthorn by mail. However, at 3.50pm Henthorn sent a acceptance letter by mail but the letter arrive at 8.30pm after the office was closed. But, at 5pm the withdrawal offer arrived at Brikenhead. The secretary opened the letter on the next morning. Then Henthorn sued them for specific performance. The held is the specific performance granted, postal rule applies as acceptance occurred before when Henthorn sent the acceptance letter. Defendant was told to sell the property. Lord Herschell argued ‘where the circumstances are such that it must have been within the contemplation of the parties that according to the ordinary usage of mankind, the post must be used as mean of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted. ENTORRES V MILES FAR EAST (1955) Entorres is a London based trading company that sent an offer of the purchase of copper cathodes by telex from a company based in Armsterdam. Then, the Dutch company send an acceptance by telex. The contract was not fulfilled by the Dutch company and so Entorres attempt to sued the owner of the Dutch company for damages. The controlling company, Miles Far East Corp was based in UK and under English Law. Entorres could only bring the action in UK if it could prove that the contract was formed within the jurisdiction. Denning LJ delivered the leading of the judgment. He said that the postal rule could not apply to instantaneous telecommunication such as telex, if a phone line went dead before the just before the offeree said yes, it would be absurd to assume that the contract was formed and the parties would not have call each other back. The same applied to telex. Since the contract was formed when and where the telex is received and the place formation was London. In The telex is like a post in US. It becomes law and is subject to the rule of the country where the acceptance was made. In European Law, the telex contract becomes law where the acceptance was received. To determine where the contract was made, Justice Denning use same principle was those he used to decide when it was made. Applying Denning rule, the contract was made in London and therefore rightly in English jurisdiction. Denning thinks it may be that a contract is made at the place where it was first completed, not at the place where the variations are agreed. But luckily here this is a moot point since both the original contract and the variations where made in England. Also, this contract is by implication governed by English law because England is the place with which it has the closest connection. Appeal dismissed. BYRNE V VAN TIENHOVEN On October 1st, Van Tienhoven mailed a proposal in a fixed price to sell 1000 tin plates to Byrne. On October 8th, Van Tienhoven wanted to revoked and sent the letter to revoked but it delivered on October 20th. In the interim on October 11th, Byrne received the original offer and accepted by telegram and resold the merchandise to a third party on the 15th. Byrne was then brought the action for non-performance because the acceptance was made. The held is that the judgment for the plaintiff because Lindley held that the revocation is not effective until it had been communicated to Byrne and he aare about it. While the postal rule remain good law, for acceptance, he finds no support for the premise to revokes because the acceptance had put in mail box and the contract is formed As a result, the revocation was not communicated to Byrne until 20th October, at which the point of the contract was already formed and thus the revocation was not effective because Byrne is not communicated about the revocation. To rule otherwise would be impractical for commercial realities. DUNLOP V HIGGINS (1848) On Dunlop & co letter dated 22nd and 28th January, they offered to sell 200 tons of pig iron at 65sh per ton to Higgins & co but Higgins received the offer letter on 28th and 30th January. They replied on the same indicating their acceptance to purchase the pig iron in accordance to the offer from Dunlop & co. Due to problem of weather there was disruption in the train service and the letter of acceptance instead of reaching on 31st January had delayed, reached Dunlop & co. on 1st February. Dunlop & Co. refused to supply pig iron on the ground that the receipt of the letter of acceptance by them had been delayed although because of the frosty weather that affected the train service. It was held that Dunlop & Co. had become bound which the contract is formed when the letter of acceptance had already posted. YATES BUILDING COMPANY LTD V RJ PULLEYN & SONS Pulleyn gave Yates an option to purchase building land which the option read: ‘the option hereby granted shall be exercisable by notice in writing given by or on behalf of Yates to Pulleyn or Pulleyns’ solicitors at any time between April 6 1973 and May 6 1973 such notice to be sent by registered or recorded delivery post to the registered office of Pulleyn or the office of their said solicitors.’ On Monday April 30 1973 Yates’s solicitors posted a letter to Pulleyn’s solicitors to formally exercise the option, they enclosed a cheque for 1890 pounds for the deposit with the acceptance letter. Although the letter arrive well in time but the letter was sent by ordinary post and not by registered and recorded delivery post. It was open by Pulleyn’s solicitor, on some on or before Friday May 4 1973. On that Friday Pulleyn’s solicitors sent back to Yates and returning the cheque for the deposit and said: ‘we write to acknowledge receipt today of your letter of April 30 1973 with its enclosure. You will recall that clause 2 of the option agreement provides for the notice to be sent by the registered or recorded delivery post. Your letter was not so sent.’ Yates brought to proceedings for specific performance but the judge refused it because he did not followed the requirement of the offer. He held that his requirement that the letter had to be sent by registered or recorded delivery post was a requirement which must be complied with, and as it had not been complied it, there was no contract formed. Yates appealed. Lord Denning : ‘‘It seems to me that this depends on the construction of the option clause. The option is an offer: an irrevocable offer. When a person makes an offer, he does sometimes prescribe the method by which it is to be accepted. If he prescribes it in terms which are mandatory or obligatory, the acceptance is only good if it complies with the stated requirements. Thus in the present case the notice of acceptance must be in writing, and must be given to Pulleyns or to Pulleyns' solicitors, and must be given between April 6 1973 and May 6 1973. But the question is whether the words 'such notice to be sent by registered or recorded delivery post' are mandatory or directory. That test is used by lawyers in the construction of statutory instruments, but it can also be used in the construction of other documents. The distinction is this: a mandatory provision must be fulfilled exactly according to the letter, whereas a directory provision is satisfied if it is in substance according to the general intent (see Howard v Bodington). In applying this rule of construction, you must look to the subject-matter, consider the object to be fulfilled, and then see whether the provision must be fulfilled strictly to the letter or whether the substance of it is enough. So in the present case the question is whether the letter of acceptance must be sent by registered or recorded delivery post, else it is bad; or whether it is sufficient if it gets there in time, as, for instance, by ordinary post or by special messenger. Orr LJ gave this instance in the course of the argument. Suppose there were a postal strike during the last week, and the buyer, to make sure it was in time, sent the letter by special messenger, would this not be sufficient? Looking at the object of this provision, it seems to be this. It is inserted for the benefit of the buyer so that he can be sure of his position. So long as he sends the letter by registered or recorded delivery post, he has clear proof of postage and of the time of posting. But if the buyer sends it by ordinary post, he will have no sufficient proof of posting, or of the time of posting. In that case, if the seller proves that he never received it, or received it too late, the buyer fails. None of those reasons apply, however, when the seller does receive it in time. So long as he gets the letter in time, he should be bound. So I would hold, simply as a matter of interpretation, that if the letter did reach the sellers in time, it was a valid exercise of the option.’’ 4.0 CONCLUSION This assignment addressed on the issue of postal acceptance rule, its creation, definition, limitation and the relevant case law. Postal rule was created on 19th century to solve distance business conflict and continued to be applied into current business situation. The justification is using postal rule in the age of mailing may be regarded the same as the new communication method email. The amendments in postal rule allow supervisions on online business. This would facilitate the online business communication and benefit both parties. Postal rule had become complete and mature after more 200 years application. I believe that it is valid in modern business world and continue to guide healthy business performance. In my recommendation also, that postal rule is good because it help to get justice when the acceptance or revocation had been taken in an offer for a party. So, postal rule should be always be the guide for business performance which it help a party to aware on the offer they made to the other party and in the other hand the other party also aware on the acceptance they made to the other party. 1
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