Contract Law. Does the postal rule apply to email?

Contents

1. Introduction

2. Formation of a Contract
2.1 General Rule
2.2 Postal Rule

3. Email
3.1 Communications by Email
3.2 Discussion

4. Conclusion

II. Table of Cases

III. Bibliography

IV. Illustration

1. Introduction

“ What can be more palpably absurd than the prospect held out of locomotives travelling twice as fast as stagecoaches? Just as well, people could fire themselves with a firework. ”¹ In the early 19th century people believed the technological progress has arrived its maximum, but their predictions were wrong. Locomotives became high-speed trains and the stagecoaches disappeared from the post system. The post, which used to take several weeks, arrives after a few days and modern communication systems like fax, telephone and email were established. Yet the contract laws of this times and a rule such as the postal rule are still legally binding and therefore the modern systems and especially email have to be integrated into the legal system.

The purpose of this term paper is to critically discuss the arguments for and against the question, does the postal rule apply to email? In the first chapter the general formation of a contract is noted as well as the history and application of the postal rule are explained. Accordingly in the second chapter the process of communication by email is described and the different arguments for and against the main question are critically discussed. Finally the conclusion of the term paper is collectively assessed.

Because there exist modern communication systems like fax, telephone and email, the connection between the postal rule and these modern communication systems is frequently discussed in many scientific publications. The textbooks from Mindy Chen- Wishart (2012), Contract Law, and Richard Stone (2008), The modern Law of Contract, give a good overview of the topic. For the discussion i.a. the articles from Valerie Watnick (2004), The Electronic Formation of Contracts and the Common Law “ Mailbox Rule ” , and Sharon Christensen (2001), Formation of Contracts by Email - Is it Just the Same as the Post?, are significant.

2. Formation of a Contract

2.1 General Rule

The formation of a contract consists of two mutually corresponding declarations of intent. First the offeror makes an offer to the offeree. After verifying this offer the offeree accept it. Subsequently the contract is legally binding.

In the process the communication between the parties is fundamental. The communication does not take effect until the party, to whom the communication is addressed, receive and understand it. This is the rule that applies to offers. And this leads to the general rule of acceptance that the contract is only binding if the offeror has received the acceptance of the offeree.

However, there are many different forms of communication like face-to-face conversations, letters, telephone, faxes or email. In some of these there is a period of time between the sending of the acceptance and the receiving by the offeror. In relation to the post, this problem was solved by the introduction of the postal rule as an exception to the general rule.²

2.2 Postal Rule

In 1818, in Adams v Lindsell, the postal rule was first introduced, when the court had to decide the time of contract formation by post. The postal rule as accepted in the common law legal system:

“ Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages 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. ”³

In contrast to the general rule, the postal rule permits that the time of acceptance is the time of dispatch. Therefore the postal rule may be the best option in deciding the moment that the parties reach the declaration of intent at the time of posting the letter, than at the later time when the letter is received. So the acceptance is complete immediately the letter of acceptance is posted, even if the letter is delayed, destroyed or lost so that the offeror never receives it. The postal rule prevents that both parties have to wait for the confirmation of receipt of the last communication ad infinitum. In addition it only applies to acceptances, and not to any other kind of communication like offers, counter offers, etc. However, the offeror can stipulate in the contract that the postal rule is not applied.⁴

There are some problems in relation to the postal rule. On the one hand the offeror cannot know the offeree accept his offer and therefore he is bound to a contract. On the other hand the offeror bears the risk of failure of communication, even if it is not his fault.⁵ In the modern world new communication systems arose which had to be integrated into the common law. There were cases involving every new communication systems like telephone, fax and telex in relation to the formation of a contract. In these cases like Entores Ltd. v Miles Far East Corp.⁶, the type of communication of the new system was compared to the old-established systems and then it was decided, whether the general rule or the postal rule is applied. The court’s decisions have depended on whether this system is instantaneous (e.g. telephone) or non-instantaneous (e.g. letters).⁷ In the most countries all the modern communication systems like telephone, telex, fax and website were classified as instantaneous and the postal rule does not apply.⁸

So far there is no case involving email. This leads to the question, if the postal rule apply to email?⁹

3. Email

3.1 Communications by Email

First of all there are two ways of communication by email. On the one hand there is the way via the internet. The user presses the send button and transmits the email to the internet server provider (ISP). From the ISP the email travels through the internet where it may send on across the world until it reaches the receivers ISP. Then the receiver can download the email by logging onto his ISP. On the other hand there is the electronic data interchange (EDI). The EDI is a system which is established with a direct link between two parties and therefore a sent email reaches the receivers computer immediately. Because of this direct link between the two parties, the communication is instantaneous. In contrast, the way via the internet takes some time and therefore cannot be classified as instantaneous.¹⁰ In the following discussion, the main focus is on the email via the internet.

3.2 Discussion

There are several reasons why the postal rule should apply and why the postal rule should not apply to email communication via the internet.

The first reason is the type of communication. Email via internet is a non-instantaneous type of communication as shown above and can be described as the digital equivalent of the postal system. Except the speed of communication is similar to the instantaneous communication systems like telex.

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¹ cf., Quarterly Review (1825), March Vol. 31 Nr. 62.

² cf., Chen-Wishart, M. (2012): pp. 68; Stone, R. (2008): pp. 65; Queensland U. Tech. L. & Just. J. 22 (2001): pp. 29.

³ Adams v Lindsell¹⁸¹⁸ 1 B & Ald 681; Henthorn v Fraser¹⁸⁹² 2 Ch 27 at 33.

⁴ cf., Stone, R. (2008): pp. 67; 56 Baylor L. Rev. 175 (2004): pp. 179.

⁵ cf., Chen-Wishart, M. (2012): p. 71.

⁶ Entores Ltd. v Miles Far East Corp.¹⁹⁵⁵ 2 QB 327.

⁷ cf., Chen-Wishart, M. (2012): p. 68.

⁸ The USA is an exception. There telex is treated in the same manner as the regular post. cf., 56 Baylor L. Rev. 175 (2004): pp. 195; cf., Marin Motor Oil, Inc.¹⁹⁸⁴ 740 F.2d at 227-29.

⁹ cf., J. of Int. Com. L. and Tech. (2007): p. 48; Queensland U. Tech. L. & Just. J. 22 (2001): pp. 30.

¹⁰ cf., J. of Int. Com. L. and Tech. (2007): pp. 48; 56 Baylor L. Rev. 175 (2004): pp. 200; Queensland U. Tech. L. & Just. J. 22 (2001): pp. 32.