Business and Company Law Report: Postal Rule in Contract Law

This report delves into the intricacies of business and company law, focusing on the postal rule of acceptance. It begins with an overview of the postal rule, tracing its origins and evolution, and examining its role in contract formation. The report then explores the impact of the Electronic Transactions Act on communication of acceptance, particularly in the context of modern instantaneous communication methods like email. It analyzes relevant case law, including Adam v Lindsell, Henthorn v Fraser, and Brinkibon Ltd v Stahag Stahl GmbH, to illustrate the application of the postal rule. Furthermore, the report discusses the challenges faced by courts in applying the postal rule to contemporary forms of communication, such as email and website contracting. The report concludes by assessing the relevance of the postal rule in the digital age, highlighting the shift from the postal rule to the rule of receipt in the context of email and internet-based contracts. The report underscores that while the postal rule has not been entirely outdated, courts often refrain from applying it to instantaneous communication methods, and the legislation is not clear about how to apply the postal rule in different situations.

Running Head: BUSINESS AND COMPANY LAW
Business and company law
Name of the Student:
Name of the University:
Author Note

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Question 1
One of the most considerable area of concern in the law of contract is that of the postal
rule of acceptance. The rules in relation to acceptance by post had been brought into the legal
world in the year 1818. However there have been significant changes in the provisions ever
since. The postal rule had been incorporated for the purpose of addressing doubts and conflicts
which arise through the area of acceptance and communication in the law of contract. In order to
be validly formed a contract requires the presence of elements like offer and acceptance. They
are the fundamental building blocks of the contract as they set out the rights and obligations of
the parties to the contract. it has to be noted that acceptance in relation to the postal rule had
been initiated as an exception to the common provisions related to offer and acceptance. An offer
can be brought to an end through the process of revocation before it has been legally accepted1.
There have been several issues however in relation to when an offer is eligible to be
revoked. A significant amount of confusion has been created in relation to the issue and a
question arises that whether the offer had been ended by the person making the offer before or
after it had been accepted. The purpose of inventing the postal rule was to address this confusion
which came to light mainly because of the communication between the offeror and the offeree in
relation to offer and acceptance. The initiation of the postal rule had been done through the
landmark case of Adam v Lindsell2. The court in this case had a difficult question to address in
relation when the contract had actually been formed between the parties3. In this landmark case it
was provided by the judge that the contract had been formed between the parties to the contract
as soon as the letter of acceptance had been posted by the offeree. There was intention on the
1 Fitzpatrick J, Symes C, Veljanovski A, Parker D. (2017) Business and Corporations Law, 3nd Ed., Lexis Nexis
Butterworths.
2 [1818] B & Ald 681
3 Stephen Graw, 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters.

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part of both the parties to the contract towards forming the agreement via post. The time required
for a mail to be delivered is inconsistent and long therefore it is difficult to determine the exact
time when the party had accepted the offer. The postal rule was a result of the issue faced by the
court in relation to deciding when the contract had been formed between the parties.
The application of the postal rule had been subsequently done on the case of Henthorn v
Fraser4. The provisions of the postal rule provide that an acceptance is deemed to have occurred
in relation to an offer as soon as the letter of acceptance leaves the control of the person
accepting the offer in case it is sent by post. However the postal rule is only applicable in
situation where the letter has been addressed correctly by the offeree. The acceptance through
post is even valid in case if the letter does not reach the offeror at all. In addition the parties to
the agreement have to agree that they would be doing the communication in relation to the
contract through post. Instant communication of acceptance is only possible where the parties to
interact face to face as where there is no face to face interaction it is not possible for the
acceptance to be instantaneous.
Therefore it would be unfair to expect that the parties were aware of a possible refusal of
the offer after the letter of acceptance has been posted by the party. Thus the application of the
postal rule is done in case of distant contracting. The provisions in relation to the postal rule has
been analyzed and applied in the case of Household Fire Insurance v Grant5 and with the case
of Brinkibon Ltd v Stahag Stahl GmbH6 in order to determine when the contract between the
parties was actually formed.
4 [1892] 2 Ch 27
5 [1879] 4 Ex D 216
6 [1983] 2 AC 34

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In the Brinkibon case the court held that a soon as the letter of acceptance is posted a
binding contract is formed between the parties irrespective of the knowledge of the offeror.
However it was also held by the court that the offeree and offeror must have agreed and
understood the risk in relation to the postal rule when the select post as a mode of
communication in relation to the contract7. However there have been significant difficulties faced
by the court in relation applying the postal rule on modern instantaneous communication modes.
The creation of receipt in relation to the posted message creates a valid communication with
respect to instantaneous communication modes. In the landmark case of Entores Ltd v Miles
Far East Corporation8 it had been ruled by the court that only when the email reaches the
mailbox of the offeror the communication of acceptance is complete.
Question 2
As stated by Lindgren (2011) common law is always superseded by legislations9. The
Electronic transactions Act 1999(Cth) and Electronic transactions Act 2000(Vic) have been
enacted for the purpose of addressing the issue in relation to communication of acceptance in the
contemporary period were several instantaneous modes of communication are available. Thus
their provisions prevail over those which have been provided through common law. The
government of Australia created The Electronic Commerce Expert Group so that it is able to
identify and address concerns and conflicts arising out of E- commerce. As provided by the
group the rules of the country in which the offeor resides will govern the contract which is to be
formed between the parties10.
7 Lipton P, Herzberg A and Welsh, M, Understanding Company Law, 18th edition 2016
8 [1955] EWCA Civ 3
9 Vermeesch,R B, Lindgren, K E, Business Law of Australia Butterworths, 12th Edition, 2011.
10 Seddon, N; Bigwood, R; Ellinghaus, M, Cheshire & Fifoot Law of Contract, 2012 10th Australian Edition
LexisNexis.

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In response to the above discussed report The Electronic Transactions Act11 was
legislated. According to the ETA communication in relation to the acceptance is by electronic
means can only take place where there is an agreement between the parties that they would
accept electronic mediums as a mean of communication. The time when the information of
acceptance enters the information system of the offeror is the time when the receipt is generated.
The provision are in compliance to the common law provisions of acceptance through email. The
contemporary common law system stipulates that until the information of acceptance reaches the
system of the offeror a valid acceptance cannot be constituted. In addition the provisions of the
legislation are not applicable on telex machines and facsimile. Both the legislations provide an
insight in towards the application of the postal rule on instantaneous communication modes.
As states through the provisions of subsection 14(3) of the ETA (Cth) once the electronic
communication reaches the information system which was intended by the sender it is the time
of receipt of the electronic communication. However it needs to be considered that the ETAs do
not give any clarification in relation to what should ideally constitute designation of the
information system. No clarification of the situation has been provided whether mere receipt of
the email or opening it would be considered an correct time of receipt. In case no system is
designated, the time of the receipt information by the receiver will be considered as the time
when it has been noticed by him as per section 14 of the ETA (Vic).
On the other hand the explanatory memorandum provided through the ETA (Vic) suggests that
the receiver must read the information before it can be considered as being received. However in
11 2000(Vic)

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case the receiver chooses to intentionally ignore the received message it would be consider as
complete communication12.
Question 3
The problems of distant communication have been reduced significantly with the advent
of modern modes of instantaneous communication. Now days people are able to freely
communicate with each other through the use modern communication methods such as SMS and
E-mails. The most formal and popular method used for the purpose of communication is through
E-mails. Thus in the given situation with the advent of new technology in relation to
communication it has become difficult for the courts to appropriately apply the provisions of the
traditional postal rule. The situation of communication through email is not the same as the
situation of contracting through websites. In relation to website contracting an acceptance is said
to be communicated at the time it actually takes place. However there is no legislation which
determines clearly the time of revocation of offer or acceptance. In relation to transfer of
information through emails a message is deemed to be delivered when the offeror is online and
the message is read by him13.
In such situation the offeree may not receive relevant notice in relation to whether the
message has been delivered to the offeror or not. Computers and servers of the receiver may take
considerable amount of time to respond to the message or receive it. The issue of timing in
relation to instantaneous communication is different in relation to website contracting, which is
considered generally as the process of contracting through emails and instantaneous
communication. The communication through email encounters several problems. Situations may
12 Sweeney, O’Reilly & Coleman, 2013, Law in Commerce, 5th Ed., LexisNexis.
13 Thomson Reuters. Harris, J. Hargovan, A. Adams, M. Australian Corporate Law LexisNexis Butterworths 5th
edition, 2015

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occur where the delivery of the email is delayed or it does not get delivered at all due to some
technical errors. Thus the delivery of email merely should not constitute complete
communication required for a valid acceptance as the receiver may not know that he has received
an email. In addition there is no guarantee in relation to the fact that the email will be accessed or
read by the receiver once it has been delivered.
The problems identified above can be addressed through the appropriate application of
the postal rule. However it had been provided by the court in the case of Nunin Holdings v
Tullarmarine Estate14, that the postal rule should not be applied in the situation which involves
communication by emails. The court provided such decision based on fact that email is an
instantaneous and virtual mode of communication and thus the postal rule must not be applied to
such situation in the same way as it is not applicable on other mode of instantaneous
communications. It was ruled by the court that it has the obligation to follow the precedent
provided in the case of Asher v Goldman Sachs & Co 15, Entores Ltd v Miles Far East Corp 16
and and Reese Bros Plastics v Hamon-Sobelco Australia Pty Ltd17. Thus it can be stated that
the application of the postal rule cannot be done in relation to communication by email and
acceptance will be done once not when it is sent but when it is received.
Contracts which are entered upon over the internet are same as those contracts which
involve a face to face transaction. An advertisement in relation to sale of a commodity or good
over the use of internet is considered as an invitation to an offer. When the order is placed by a
person in relation to the invitation it constitutes an offer. When the confirmation of such order is
14 [1994] 1 VR 74
15 [1991] 1 QB 129
16 (1955) 2 QBD 327
17 (1988) 5 BPR 11-106

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shown by the website in from of a receipt the contract is said to be formed. Thus when it comes
to internet contracting the rule of receipt is applicable rather than the postal rule.
However an argument has been provided that an email is not an instantaneous mode of
communication as a direct link between the devices of the parties are not present. Emails are
independent messages and a simultaneous end-to-end traffic path does not exist between the
receiver and the sender. Thus the application of the postal rule is valid on contracts formed over
emails.
Therefore the paper can be concluded by stating that the provisions of the postal rule
have not been outdated completely in relation to contemporary methods of communication.
However the courts restrain from applying such provisions to cases which include instantaneous
communication methods. In addition there are no statutory provisions which clarify the
application of the postal rule in diverse situation and the modern instantaneous form of
communication are unaffected by its application.

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Bibliography
Adam v Lindsell [1818] B & Ald 681
Asher v Goldman Sachs & Co [1991] 1 QB 129 and Reese Bros Plastics
Brinkibon Ltd v Stahag Stahl
Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34
Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34
Entores Ltd v Miles Far East Corp (1955) 2 QBD 327
Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3
Fitzpatrick J, Symes C, Veljanovski A, Parker D. (2017) Business and Corporations Law, 3nd
Ed., Lexis Nexis Butterworths.
Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis
Butterworths, 2015.
Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11-106
Henthorn v Fraser [1892] 2 Ch 27
Household Fire Insurance v Grant [1879] 4 Ex D 216
Latimer, P, Australian Business Law CC, 2016 Edition.
Lipton P, Herzberg A and Welsh, M, Understanding Company Law, 18th edition 2016
Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74

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Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] EWCA Civ 6
Seddon, N; Bigwood, R; Ellinghaus, M, Cheshire & Fifoot Law of Contract, 2012 10th
Australian Edition LexisNexis.
Stephen Graw, 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters.
Sweeney, O’Reilly & Coleman, 2013, Law in Commerce, 5th Ed., LexisNexis.
Thomson Reuters. Harris, J. Hargovan, A. Adams, M. Australian Corporate Law LexisNexis
Butterworths 5th edition, 2015.
Vermeesch,R B, Lindgren, K E, Business Law of Australia Butterworths, 12th Edition, 2011.