What is the Postal Rule in Contract Law?

If you are entering into contracts or 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 helps to determine precisely when a contract is accepted. 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 specific 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 agreement.

Usually, it is easy to tell when an offer and acceptance exist. 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 and you exchange the £40 for the strawberries, this is clear communication with an offer and an acceptance.

However, sometimes, you may communicate via letter through the post office. The difference between offer and acceptance may be less apparent in these cases. 

What is the Postal Rule?

The postal rule is a contract principle that governs situations in which acceptance is not made in person and where the contract or offer does not specify the method and timing of acceptance. In summary, the postal rule dictates that acceptance of an offer made by letter and sent by post is effective upon postage of the letter. This can cause problems, as this position will be maintained even if the letter is delayed or lost in the post. 

Further, there is the ‘reception rule’. This rule states that acceptance occurs once the offeror receives the acceptance. This rule generally applies to instantaneous communication forms, such as a phone call or a telex. In these instances, the acceptance is effective when you have communicated it properly to the other party. 

It is important to note that if an offer or contract specifies the method and timing of acceptance of the offer, this will trump both the postal rule and the reception rule. This is important as many recent commercial offers will specify the means of acceptance, and this provision must be written and communicated clearly to avoid disputes.

The Postal Rule in Modern Practice

While the postal rule originated when letters were the primary method of communication, its relevance persists in specific circumstances. Today, businesses often rely on instantaneous communication methods, such as email, messaging apps, and video conferencing. In these cases, the general rule of communication applies: acceptance must be communicated to and received by the offeror to be effective. 

Where acceptance is by email, either the postal rule or the reception rule could be applicable because although email is generally instantaneous, there can be delays in some cases. This can call into question when acceptance arises.

Businesses should specify the acceptable methods and timing of acceptance in their contracts to reduce ambiguity. For instance, requiring acceptance to be effective only upon receipt (e.g., via email) ensures clarity, especially in cross-border or high-stakes transactions. By addressing these issues upfront, the parties can overrule the postal rule, avoid disputes and manage expectations effectively.

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Why Does it Matter?

It is essential to know when you have formed a valid contract. At this point, you are legally liable to the other party.

Key Takeaways

If you are a business entering into contracts, you should 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 the other party can take you to court if you breach any terms without realising, and you may need to compensate them.

In particular, if you are sending an offer or making an acceptance via post, you should be familiar with the postal rule. The postal rule states that an offer acceptance occurs upon posting a letter. Overall, you should let another party know in advance if you plan on making a formal written offer through the post office. This is because it can give you some backup if you end up in a dispute about when you have formed a valid contract.

Modern forms of communication, such as email, generally follow a different principle: acceptance is effective only when the offeror receives it. However, there may be exceptions to this principle. Specifying the acceptable methods and timing of acceptance in your contracts is crucial to avoid disputes, especially with international or electronic communications.

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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