A major discussion point regarding whether or not the law on the formation of contract needs to be reformed due to modern communication is the postal rule. The postal rule declares that postal acceptance takes effect when the letter of acceptance is posted (in the control of the Post Office or its employees and as shown in Adams v Lindsell (1818); acceptance takes effect at the time of arrival. Also, Holwell Securities v Hughes (1974) shows that if the postal rules apply, acceptance takes place when the letter is posted regardless whether or not it arrives.
However, there is some confusion whether the postal rule applies to modern methods of communication such as text messages, emails etc. This point of law is ambiguous because there is case law but it does not cover all points. As witnessed in Entores Ltd v Miles Far East Co. (1955) it suggests that the postal rule does not apply to some methods of instantaneous communication such as telephone and this is supplemented with Brinkibon Ltd v Stahag Stahl GmbH (1982) as it stated: “…it would seem…that the communication should take effect at the time when the (offeree) could reasonably have expected it to be real. This implies that the courts appear to be reluctant to extend the postal rule to modern methods of communication.
The case of Mondial Shipping & Chartering BV v Astarte Shipping Ltd (1995) clarified elements regarding communication of acceptance. It established that; the postal rule does not apply to faxes and it should be noted that where items to which the postal rule do not apply arrive outside office hours, communication will not take place until office hours.
The modern methods of communication has affected the formation of contract on a European scale as under the EC Directive Regulations 2002; any company that sells products or services from a website must adhere to particular requirements for there to be a valid contract between the purchaser and the seller. The Regulations are aimed at protecting consumers.
The requirements are; the service provider must provide receipts for orders which are offers by the purchaser without delay, allow purchasers to amend orders (offers) easily before sending the order (offer) and to provide name and address (geographical and electronic) of the service provider.
These regulations do not alter the rules on offer and acceptance outlined above but do protect the consumer to some degree. It is the purchaser who makes the offer based on the invitation to treat provided on the website. However, to protect the consumer, the contract is voidable if the basic information described is not given in the invitation to treat.
An incident in 1999 indicated the application of the common law rules of offer and acceptance to an advertisement on a website. A large electronic retailer mistakenly advertised televisions for £30 when the actual price was £300. Many customers contacted the retailer ‘accepting the offer’ but it was concluded that the advertisement was an invitation to treat, the purchasers were making the offer and the retailer was entitled to reject those offers.
Moreover, the Consumer Protection (Distance Selling) Regulations 2000 state that if a commercial supplier is supplying goods or services to a consumer and the contract is made, for example by exchange of letters, faxes, emails, by teleshopping or by website trading then the consumer is entitled to a cooling off period in which the contract may be ended by the consumer.
The consumer has the right to cancel the contract within seven working days of the consumer’s receipt of the goods. The Regulations do not alter the common law rules of offer and acceptance but do allow the consumer some protection when having made a valid contract then having second thoughts.
When questioning whether the law on the formation of contract has to be reformed due to advancements in modern communication. It is visible that the rules of offer and acceptance can be interpreted as being unfair and the postal rule can become problematic. An offer may be stated to be open for acceptance for a set period, the offeree may rely on that statement and yet the offeror may withdraw the offer within the stated period- Routledge v Grant (1828). It may be argued that is grossly unfair on the offeree. The law could be reformed to ensure that an offer, expressed to be open for a set period, must remain open for acceptance for that whole time. A breach of that provison by an offeror would lead to a claim by the offeree for damages and/or specific performance.
The courts claim the law on formation of contracts will consider what the parties intended which is a subjective approach. However, what the courts actually consider is what the ‘reasonable’ person would think of the facts which is an objective test. The objective test could result in unfairness as in Felthouse v Bindley (1863); the offeror and the offeree both wished for there to be a contract and there was independence evidence to confirm this. The offeree had contacted the auctioneer holding the horse to remove the horse to remove the horse from the auction. However, the court held against the offeror and offeree as from an objective viewpoint, there was no evidence of an acceptance from the nephew. But this can be disputed as here was evidence of the offeree instructing the auctioneer to withdraw the horse from the auction.
The justification for this decision is that for the court to declare there to be a valid and legally enforceable contract there should be clear and identifiable evidence. For example, the offer has to be communicated so why not the acceptance? Silence as a form of acceptance could create problems which is partly why the Unsolicited Goods and Services Act 1971 states that, where goods are received without request there can be no contract unless the acceptance is communicated by the sender. This will be so even if the letter accompanying the unsolicited goods states that the receiver will be liable to pay for the goods unless they are returned within a certain period.
It should be noted that the need to communicate an acceptance may be waived as shown in the Carlill case but the uncle did not waive this need: he merely stated that the nephew’s silence would be acceptance which it cannot be.
Unless the contract involves the purchase of a simple item or service, most contracts involve some form of negotiation about the contractual terms. There is often a small distinction between a counter-offer and a request for information. The former terminates the offer while the latter leaves the offer open for acceptance; it is unlikely that a party to negotiations unless a commercial lawyer would be able to draw such a fine distinction between the two, but the difference is crucial.
To create consistency, the law could be altered so a counter offer could have no effect on the existence of the original offer and negotiations would then continue; both parties knowing the original offer still existed. In a simple negotiation this may prove a fair result but in a complicated negotiation, confusion would occur. Under the current law, the parties terminate offers by making counter offers so there is only one offer in existence from one party at any one time. If all offers stayed open for acceptance despite counter offers then a party could accept an offer that was made at the commencement of negotiations which may be minutes, hours or days before. An accurate record of all offers would be required to ensure there was no misunderstanding over what was being accepted. This would be an impractical way to run commercial life in the UK so the current law appears to be the only alternative.
The postal rule has always ensued dispute as to its fairness. The rule appears to be unfair on an offeror who may never receive the letter of acceptance or it is late. The offeror is a party to a legally binding contract without realising. The offeror may have contracted with another party in the meantime so the courts have to deal with three innocent parties and can make a decision that will only be satisfactory to two parties or perhaps even one party.
The postal rule is infact justified for the two reasons set out above. Moreover, the offeror is regarded as having the most power and ability to protect him/herself in this situation. If the offeror states the acceptance must, for example be received or must be by face-to-face communication then the postal rule can never apply. Therefore, the rule appears to be a fair compromise as far as it relates to the post.