Postal Rule of Acceptance

The postal rule of acceptance of an offer became entrenched in the common law of contact in the English courts and therefore in the Australian courts during the nineteenth century. The postal rule continues to apply today. This is so despite the fact that many more efficient methods of communication have since emerged. Explain the postal rule and the reason for its creation and continued application.

Given that legislation overrides the common law, what impact (if any) do the Electronic Transactions Act 1999 (Cth) and the Electronic Transactions Act 2000 (Vic) have on the postal rule of acceptance.

The postal rule is a feature of contract law and as its name suggests, the rule relates to the acceptance of a contract via the post. But before the postal rule is explained in detail, the key features contracts are paraphrased from Monahan (2000): The basic elements of all contracts are the offer by one party, its acceptance by the other party, the intention to create a legal relationship, consideration (usually involving money) which must be paid for, the legal capacity of the parties, genuine consent of the parties and the legality of the agreement.

A contract is made by an offer from one party (the offeror) which is accepted by the other party (the offeree). This is not an offer to negotiate about price or terms, it is an offer to sell or provide a service as long as the exact terms of the offer are accepted by the offeree. The postal rule specifically relates to the acceptance part of a contract. Generally, an offeree accepts a contract when he or she communicates acceptance. Clarke & Gamble (1997:36) states "...it is not sufficient for the offeree merely to mentally decide to accept an offer--this decision must be actually communicated to the offeror." Generally, acceptance requires actual communication, but the postal rule provides an acceptance to this. The postal rule allows for constructive communication as opposed to actual communication.

Graw (2005:88) states that "...where the parties contemplate acceptance by mail, acceptance will be complete as soon as the letter is properly posted." It may be that actual communication does not occur because, on rare occasions, letters are lost in the mail. However, actual communication is not required because the postal rule allows for constructive communication. Correctly posting a letter is sufficient and the communication is constructed by the process of posting it; in other words, actual communication is deemed to have occurred, whether or not actual communication does occur.

This viewpoint is reiterated in Cusumano et al (1999:20): "The effect of the rule is that acceptance is complete as soon as the letter is properly posted and it is immaterial that it is later delayed or lost in the post..." One case which serves as a precedent for this viewpoint is Henthorn v Fraser [1892] 2 Ch 27 at 33 in which it is stated per Lord Herschell:

Where the circumstances are such that it must have been within the contemplation of the parties that...the post be used as a method of communicating the acceptance of the offer, the acceptance is complete as soon as it is posted."

Willmott et al (2001:65) traces the history of the postal rule to the case of Adams v Lindsell [1818] 106 ER 250 which was a very brief judgement. The reasoning behind Adams v Lindsell was that if the offeror should not be bound until actual receipt of acceptance, then the offeree should not be bound until actual receipt of advice that the offeror received the acceptance. But if the offeror sends confirmation of actual communication by post, how does the offeror know that the offeree received this? To avoid such impracticality the postal rule came into being. Importantly, it provides certainty for the offeree that a contract has been formed when the acceptance is posted. Some seventy-four years later in 1892, the aforementioned case of Henthorn v Fraser provided more detail on the exact operation of the postal rule. Thus the common law postal rule came into being.

Given that the Commonwealth of Australia resulted from the federation of several English colonies, Australia and its States and Territories have adapted the English common law. However with the passage of time, the world has changed. Willmott et al (2001:68) notes that:

When the postal acceptance rule was originally formulated and refined, alternative communication in the form of electronic communication such as e-mail was not in existence--or for that matter, even contemplated.

As more technologies have been invented, the courts have broadly attempted to classify communication into instantaneous and non-instantaneous communication. Communication which is instantaneous has properties similar to actual communication between parties in each other's presence. For instance, telephone communication allows the offeree to communicate acceptance to the offeror, the offeror to acknowledge receipt of actual communication and for both parties to then summarise that actual communication has occurred before ending the phone call. Since communication by telephone allows actual instantaneous communication, the general rule (requiring actual communication) applies and the exception provided by the postal rule does not.

The case of Entores Ltd v Miles Far East Corp [1955] 2 QB 327 involved both an offer and acceptance made by telex. Graw (2005: 91) states that: "The postal rule did not apply to telexes. Therefore, the acceptance was not effective until it had been actually communicated to the offeror." An important fact in the above case is the recognition in Willmott et al (2001:69) that: "...telex messages were not 'completely instantaneous'. Nevertheless, this form of communication was regarded in the same way as communication by telephone."

This raises an important point in relation to electronic communication. As with telexes, emails may also not be instantaneous. However, if communication between parties in each other's presence is to be regarded as instantaneous and if communication by post is to be regarded as non-instantaneous, then communication by email would arguably be