The postal rule is a principle in contract law. It is also known as the postal acceptance rule, the posting rule or the mailbox rule.
Over several hundred years, the postal acceptance rule has been the subject of significant legal debate and has been the cause of many contract disputes.
A contract is a legally binding agreement. For a contract to exist, certain things must be present, two of which are an offer and acceptance of the offer.
The others include intention to be bound and consideration (an exchange of value).
Many disputes arise over whether a contract was formed or not, and therefore whether the parties were legally obliged to each other to carry out their side of the agreement.
What is the postal acceptance rule?
The postal rule is that when an offer is accepted by post, the parties to the agreement are legally bound as soon as the letter accepting the offer is posted, regardless of whether the letter is later received by the offeror or not.
Evolution of the postal acceptance rule in contract law
The origins of the postal rule can be traced back to the 18th century when postal services were first established in the United Kingdom.
Before postal services existed, most legal transactions were conducted in person and contracts were formed immediately when the parties agreed on the terms.
With the arrival of postal services, parties could now enter into contracts remotely, and the question of when a contract was formed became more complicated. A general rule was needed.
The first major case that dealt with this issue was Adams v. Lindsell, which was decided in 1818. In this case, the court's ruling held that a contract was formed as soon as the letter of acceptance was posted, not when it was received by the offeror. This decision established the basic principle of the postal acceptance rule and has been followed in numerous cases since then.
A second significant case was Household Fire Insurance Co. v. Grant, which was decided in 1879. Here, and later in Byrne v. Van Tienhoven (1880), the court held that the rule applied even if the letter of acceptance was delayed or lost in the post. The court reasoned that the reason for the rule was to provide certainty and predictability in contract formation, and therefore that it was the responsibility of the offeror to take precautions to ensure that the letter of acceptance was received.
Another noteworthy case was Henthorn v. Fraser, which was decided in 1892. Here the court decided that the rule did not apply if the offeror specified in the offer a different mode of acceptance, such as by telegram or fax. A consequence of this case is that modern contracts now often specify the means through which they can be accepted, varied and terminated. However, such means must be communicated clearly (Yates Building Co. Ltd v. Pulleyn & Son (York) Ltd (1975)).
Application of the postal rule
The posting rule has three essential elements that must be present for it to apply:
the acceptance must be sent through the post or some other form of communication;
the acceptance must be properly addressed and stamped; and
the acceptance must be posted in a timely manner.
If all of these elements are present, then the acceptance is considered to be effective and the contract is deemed to have been formed at the moment of posting.
The main difficulty with enforcing the postal rule is proving when the acceptance letter was sent. When postal services were established, customers had to take their letter to a post office, which could provide a receipt as evidence of posting. As a network of post boxes sprung up, other evidence was needed, such as a witness. However, could witness know that what was being sent in the mail was indeed the acceptance, and not some other communication?
Exceptions to the posting rule
Exceptions to the mailbox rule exist when:
the offeror specifically states that the acceptance is not effective until it is received;
or the offeror receives notice of the revocation of the acceptance before it receives the acceptance itself.
Additionally, the postal rule does not apply to instantaneous forms of communication, such as telephone, where acceptance is deemed to occur upon communication (Entores Ltd v Miles Far East Corporation (1955)).
Criticisms of postal rules
One of the main arguments against the postal rule is that it was developed to protect parties who were sending contracts by post from the risk that the offer might be revoked before it was received.
In an age where communication is much faster (even instantaneous), the postal rule may be outdated.
The case of Re London v. Northern Bank (1900) established that a letter is regarded as posted only when it comes into the possession of the Post Office. The organisation that was the nationalised Post Office has now been split into two separate commercial businesses, and of course, competes not only with other similar delivery businesses, but also other forms of communication.
Another argument against the postal rule is that it can lead to unfair results because of the timing. As an example:
Two parties, Alf and Bertie, are interested in working together. Alf sends an offer to Bertie by mail on Monday. It arrives on Thursday and Bertie accepts by return mail on that same day. Bertie's acceptance arrives with Alf on the following Monday. The binding contract is formed (the offer is accepted) on Thursday.
However, on Wednesday Alf decided that he didn't want to make the original offer any more. Bertie hadn't replied by then, and Alf wasn't sure that he would accept anyway. So Alf sends a letter revoking (withdrawing) his offer. The letter arrives with Bertie on Friday, but by then, Bertie has accepted even though Alf won't be aware of the acceptance until after the weekend. The contract exists already.
Alternatives to the postal rule
Several alternatives to the postal rule have been proposed. One of these is the receipt rule, which is that an offer is accepted only when it is received by the offeror. This would eliminate the risk of revocation, as the offeror would know when the offeree had received the offer. The disadvantage to this rule is proof of receipt by the offeror. It can be hard, even with registered and tracked post, to prove that a particular person received the mail.
Another alternative is the dispatch rule, which provides that acceptance is effective when it is dispatched by the offeree. This would maintain the protection for offerees who send acceptances by post or other means of communication, while also recognizing that modern forms of communication are generally more reliable than they were in the past.