Where means of communication are deemed instantaneous
The postal rule is a historical ruling, which came about in a time where the main and quickest form of business communication was by post. Through the decades other forms of communication have been invented which are now much speedier – telex, phone , fax and now instant messaging and email. Central requisites to the forming of a contract are those of offer and acceptance. The general rule in law states that acceptance is communicated, and has been received by the offeror . The ruling applies where the means of communication are deemed instantaneous Entores Ltd v Miles Far East Corpn (1955).
The exception to this rule is the Postal Rule.
Where post is the requested form of communication between parties or where it is an appropriate and accepted means of communication between parties, acceptance is complete as soon as the letter is posted. Even if the letter was mislaid or lost and does not reach the offeror. It is a requirement that the letter of acceptance has been properly posted London and Northern Bank (1900). It is found telegrams also fall under the postal rule.
An issue that rises from the Postal rule is that there is a period of time, where person(s) are in the dark as to whether a contract is in existence or not. Courts have decided that the offeror assumes all the risk, as the offer is still open during the time the letter of acceptance is in the post Adams v Lindsell(1818).
The decision was based on the fact that an acceptance of an offer could go on ad infinitum, back and forth between the parties. If one had to acknowledge the receipt and then the acknowledgment had to be acknowledged 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 a 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 acceptance was lost in the post; therefore Hughes did not receive a valid acceptance as he had not received a “notice in writing".
There are further cases highlighting the method of communication in relation to acceptance. Where a method of communication is stipulated by the offeror. Clear wording is required if the method of communication is to be mandatory.
In Yates Building Co v RJ Pulleyn (1975) the acceptance was to be sent by “registered or recorded delivery post". The plaintiff sent his acceptance by through the standard post service. The defendant refused to accept the bid as it was not sent to them by the methods as they had outlined in the offer. The courts found that there was a binding contract in place with the receipt of the acceptance by letter. This ruling was appealed and the court further outlined the findings by stating the offeror did not state that the only method of acceptance as outlined would be binding.
Another area the postal rule was rigorously tested was where the original offer was withdrawn or revoked. When does the revocation come into effect under the postal rule?
Under the postal rule, the letter of acceptance is relevant on posting. Letters communicating revocation come into effect only when the letter revoking the offer is delivered. Key case dealing with revocation under the postal rule is Byrne v Van Tienhoven (1880). The judges ruled in this case in favour of the plaintiff. The judges ruled it was proven by the plaintiff they had accepted the original offer by posting a response to the defendant. The letter of revocation was received after their letter of acceptance had been posted by the plaintiff.
What are the main elements of a contract?
A contract is a legal binding agreement between two or more parties. It has been classed as the most important legal mechanism in business. When drawing up a contract, some of the main elements that contribute to that document being legally binding are:
intention to create legal relations
Courts could find that some contracts are invalid if any of the essential criteria that defines a contract are missing. The contracts can be deemed:
Void; the contract had no legal effect
Voidable; the contract is legal until such time it is made void by one of the parties
Unenforceable; cannot be enforced by the courts due to the lack of legal evidence a contract was agreed.
Contracts can be made through different forms of communication – orally, written or implied by conduct.
It is generally accepted that an offer starts the process of a contract coming into existence. An offer is a expression of willingness to do business on certain terms / conditions. Offers must be communicated person(s) need to know the existence of an offer in order to provide an acceptance. Offers can be specific or general. Specific denoting the offer is made to a specific person or persons, which can only be accepted by the person(s) it was addressed to. Boulton v Jones (1857). A general offer is made to the community at large, and anyone who feels they can fulfil the terms of the offer can submit an acceptance. Carlill v The Carbolic Smokeball Company (1893).
If an offer has been accepted, the offeree unconditionally agrees to the terms of the offer , and the basics of a contract can start being drawn up. The acceptance has to be communicated to the offeror. There are many forms of communicating acceptances, in today’s business environment instantaneous communication methods would be phone, fax or email, alternatively post or telegram could be used. The offeror can stiplulate in the terms of the offer the method the acceptance should be communicated and can also indicate a time limit for acceptances to be received. The acceptance can be deemed invalid if communicated in a different way than stipulated.
The person who made the offer must receive the acceptance. Silence cannot be deemed a format of communication even if agreed by the offeror, but acceptance by conduct is acknowledged by the courts if the offeror deems other forms of communication are waived ,Brogdan v Metropolitan Railway(1877), Trentham Ltd v Archital Luxfer(1993).
There is one rule when this does not apply, where post or telegram is used as the form of communication. Known as the postal rule. If the acceptance is communicated through post or telegram, it is deemed the offer has been accepted once the letter of acceptance has been posted Adams v Lindsell(1818), the letter or telegram must be correctly addressed and stamped and posted for this rule to be effective. The postal rule can be overturned where the offer stipulates that the acceptance must be received in a certain manner.
It can be ascertained as the price or value parties agree on for a promise on offer. If it is proved there is no consideration, then it is deemed that no contract exists. Consideration must exist for a contract to be valid. Consideration must be either executed or executory. Executed relates to the carrying out of a promise or payment for that promise in the present time. Executory relates to the carrying out of the promise or making payment for the promise in the future. Consideration must move from the promisee for the law to assume consideration had taken place. It must also be taken that the consideration is deemed sufficient that it is good and has a value. Under consideration the courts do not consider the value. If a party negotiates a bad deal, consideration does not have to be adequate. The courts role is to ensure that consideration was sufficient Chappel & Co v Nestle & Co (1960).
intention to create legal relations
It is assumed most commercial contracts are intended to be legally binding. If a party is not happy in an agreement and tries to get the contract annulled, the onus is on them to prove the contract has no legal standing. Some enter clauses to the effect that the agreement would not be binding in a court of law, instance where you find this today would be competitions in newspapers, with the inclusion of the clause “ editors decision is final". Key case relating to the issue of creating legal intentions is Rose & Frank Co v JR Crompton & Bros(1925 where a honour clause was written into an agreement. When a dispute arose the courts stated the defendants Rose had to honour the outstanding orders placed on them by the plaintiffs JR Crompton, as they had been accepted but did not have to continue with the agreement or accept any new orders.
A requirement for all enforceable contract’s with the exception of those made under deed or seal. Consideration is recognised as a value or price agreed between two parties that allows them to enter into a contract. In the case Currie v’s Misa(1875) the courts defined consideration as “some right, interest, profit or benefit accruing to the one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other.... “ where the words benefit accruing and detriment are in fact in return of a promise received or given. Therefore consideration has to be in every contract. If it is proved that there is no consideration then it is considered by the law that there is no contract between the parties.
Value or price does not imply payment by monies only. Money is not the only form of value to be recognised under consideration. Other forms of value that can be considered are, forbearance, agreeing to a right or goods/service. With forbearance a party gives up a specific right (waiver your right to sue). Agreeing to a right – could relate to a right of way or access to ones property.
Consideration can be classed in two ways:
Executed – relates to payment for promise in the present time.
E.G buying groceries in a shop, paying for them straight away.
Executory – relates to payment for a promise in the future.
Hiring equipment, payment happens in the future once equipment is delivered for use.
When discussing consideration there are general rules which relate to the subject.
A ) Consideration must move from the promisee;
The person who has provided consideration to the contract on offer can look to enforce the contract. A third party cannot enforce the contract, albeit they have an interest in the contract, as the agreement is between the promisee and promissor Tweedle v Atkinson(1861;) McCoubray v Thomson(1868). This aspect of consideration was widely disliked as in many cases third parties had significant interests in contracts yet could not legally challenge this aspect of consideration as it was deemed privity of contract. There was calls for amendment to this rule and in 1999 the Contracts (Rights of Third parties) Act was brought into law. In effect gave right to third parties to enforce contracts where they had a benefit, despite lack of consideration.
B) Past Consideration
Where a consideration relates to an action conducted in the past , before a promise was made. The law cannot enforce such a promise McArdle(1951) Roscorla v Thomas(1842). Exceptions to the rule of past consideration, is when action or deed was done at the request of the promissor Lampleigh v Braithwaite(1616) , where Lampleigh sued Braithwaite for monies owed. The court held that Lampleigh was due the monies as he had carried out work at the request of Braithwaite. Other exceptions are under Section 27 Bills of exchange Act 1882 and the Limitation Act 1957.
C) Consideration must be legal.
If an act was illegal and a person had full knowledge of this, costs cannot be recovered.Pearce v Brooks (1866)
D.) Consideration must be sufficient but does is not required to be adequate.
Adequate consideration relates to the approximate value of the consideration, the law will not assist because someone negotiated a bad deal. Sufficiency relates to whether the consideration is recognised by law as good and with value. Under this rule if two parties negotiate a deal and are in agreement to the value, but others may deem the valuation not adequate, due consideration was given and can be proved to be sufficient.
Key case law was Chappel & Co v Nestle & Co (1960). Nestle ran a promotion. To get a record the public had to submit three wrappers of a Nestle bar and a sum of money. Royalties are paid out on the ordinary retail price of the record. The plaintiff argued that the cost of the bars should be recognised as consideration. The court held for the plaintiff, where they deemed the wrappers were part of the consideration, persons had to purchase three bars at a monetary value, even though when they had no value to Nestle. Nestle dumped them on return.
Consideration cannot be considered sufficient in the eyes of the law
if obliged by law to carry out a duty. Glasbrook Brothers Ltd v Glamorgan CC(1925)
a pre-existing contract is in place . Stilk v Myrick (1809)
part payment of a outstanding debt. Pinnels Case
Additional reading material.
Concise Contract Law. Michael Farry Pheonix Press 2002.
Law for Purchasing and Supply. Margaret Griffiths and Ivor Griffiths. Third edition. Prentice Hall 2002
The law of Contract . Rayond J. Friel . Round Hall 2000
Essentials of Irish Business Law. A.Keenan Fifth edition. Gill and McMillan 2008