6 October 2011 | Simon Carrington

How the ‘postal rule’ was established

There are two key requirements of a binding contract. A valid ‘offer’ must be made by one party, which is accepted by the other. ‘Acceptance’ of an offer is only effective once it has been communicated to the offeror. But this case established an exception to this known as the ‘postal rule’.

On 2 September the defendants wrote to the claimants offering for sale a quantity of wool. They specifically requested the claimants reply by post.

The letter was incorrectly addressed and the claimants did not receive it until 5 September. The claimants decided to accept the offer and, as instructed, sent their acceptance by post. This acceptance was received by the defendants on 9 September.

But presuming the claimants had not decided to accept the offer, the defendants sold the wool to a third party the day before they received the acceptance letter.

The question was whether a valid contract had been formed prior to the wool being sold. The court concluded that it had as soon as the acceptance letter was posted and the defendants had therefore breached the contract by selling the wool to a third party.

The justification often given for the postal rule is if an offeror decides to conduct negotiations by post, they should accept the risks of delay. They can avoid this by stating in the offer letter a contract will only be formed once they receive an acceptance, so excluding the postal rule.

In 1955, the courts decided the postal rule would not apply for telex, which was “instantaneous”, and acceptance would be on the basis of receipt by the offeror. This decision was followed in 1983, but the courts recognised a telex may not reach the recipient immediately, for example if the message is received out of hours. Lord Wilberforce concluded: “No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, sound business practice and in some cases by a judgment where the risks should lie.”

The recent case of Thomas v BPE Solicitors concluded acceptance by email should be treated in the same way as other forms of instantaneous communication. The court recognised the difficulties that can arise and Lord Wilberforce’s comments when determining such cases.

☛ Simon Carrington is an associate in the IP and technology team at Squire Sanders Hammonds