What is the Postal Rule in Contract Law?

If you are entering into contracts, or you have found yourself potentially taking a dispute to court, you may come across the term ‘postal rule’. The postal rule is a rule about acceptance within contract law. Being familiar with the postal rule can help you prepare for a dispute that may be going to court, as it outlines exactly when you have entered into a contract with another party. This is important, as you may end up in complicated disputes if you are unaware of the rule. This article will explain the postal rule and advise on how you may enter contracts in the future.

How Do You Enter Into a Contract?

Contrary to what you may think, entering into a contract is not always so straightforward. It is not just an agreement between two parties; instead, there are certain rules on contract formation. These rules are that there must be a:

• offer;
• acceptance of the offer;
• consideration from both parties;
• serious intention to create a legally binding contract; and
• certainty of terms.

What is Offer and Acceptance?

An offer and acceptance is an integral part of forming a valid contract. An offer is a suggestion of terms with a serious intent to be legally bound by the offer. Acceptance is communication that the other party to the contract has agreed to the terms. Importantly, you need to exchange both an offer and an acceptance between yourself and the other party to the contract.

Usually, it is easy to tell when an offer and acceptance exists. For example, imagine that you suggest to another business owner in a face-to-face meeting that you will give her £40 for all of her strawberries. If the other business owner agrees, this is a clear communication with an offer and an acceptance.

However, sometimes you may communicate via a letter through the post office. In these cases, offer and acceptance may be less clear. Additionally, the postal rule may apply.

What is the Postal Rule?

The postal rule is a series of rules that govern the situations in which an offer and an acceptance are not made in person. These rules include that an offer made by post or by a letter is not effective until the other person has received it. Additionally, an acceptance made by post or by letter is effective upon postage. Finally, if you want to take back your offer (which you made by post), you must tell the other party that you want to take back your offer before your offer reaches them.

These rules are relevant to the modern day because you can still end up making contracts via letter and by post. Further, there is a general rule that acceptance occurs at the point of communication. Therefore, instantaneous communication of an acceptance, such as a phone call or a telex, will mean that the acceptance is effective when you have communicated it properly to the other party. For example, imagine that you are on a Zoom call with an unreliable internet connection. If you tell the other party that you accept their offer, but your internet drops out, you will only have a valid contract when your communication actually reaches the other party.

This is important as many recent commercial offers will specify the means of acceptance, and this provision must be written and communicated clearly in order to avoid disputes. Additionally, if you use an instantaneous form of communication, such as email, the contract will be formed once the offeror has received the offeree’s acceptance, regardless of when they physically read the email.

Why Does it Matter?

It is important to know when you have formed a valid contract. This is because it is the point at which you are legally liable to the other party. This means that if your contract has not yet formed, for example, if your letter in the post has not reached the other person yet, then you will be able to revoke your offer if you wish.

Further, you will be under no legal obligation to carry out your side of the agreement if there is no contract.

Key Takeaways

If you are a business and you are entering into contracts, you will want to be aware of when your contract forms. This is important because it is when you become legally liable for breaches of any contract terms. This means that the other party can take you to court if you breach any terms without realising, and you may need to pay compensation to them.

In particular, if you are sending an offer or making an acceptance via post, it is important that you are familiar with the postal rule. The postal rules state that an offer occurs when the other party receives it. Furthermore, acceptance occurs when it is posted. On the whole, you should let another party know in advance if you are planning on making a formal written offer through the post office. This is because it can give you some backup in the case that you end up in a dispute about when you have formed a valid contract.

If you need help with contract formation, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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