SQE1 contract law · Lesson 3 of 12

Offer, acceptance and the postal rule

A contract is formed at one moment. This lesson teaches you to find that moment on a timeline: when the acceptance takes effect, and whether a withdrawal got there first.

An example lesson built by Chalkwork Labs from public sources, to show the shapes. Your course is drafted from your material and checked by you.

SQE1 FLK1 specification, Contract Law: Formation: offer and acceptance. Every case is linked in the Sources section. Where a case is not on BAILII, the page says which public report it used.

1. What has to happen for a contract to form

A contract needs two matching steps. One side proposes terms. The other agrees to them.

• An offer is a statement of terms that the maker is willing to be bound by as soon as the other side says yes.
• An acceptance is an unconditional yes to those terms.
• The offeror makes the offer. The offeree receives it and may accept it.

An acceptance is a message. A message has two moments: when it is sent and when it arrives. The law has to pick one of them as the moment the contract is formed. The general rule picks arrival: an acceptance takes effect only when it reaches the offeror.

Why does the moment matter? Because an offeror can change their mind. A revocation is the offeror withdrawing the offer before it has been accepted. After acceptance it is too late. So most exam questions on this topic are a race between two messages: the acceptance and the revocation. Whichever takes effect first wins.

2. The postal rule

In 1817, two wool dealers in St Ives wrote to manufacturers in Bromsgrove offering wool, "receiving your answer in course of post". They misdirected the letter. It arrived three days late, on the Friday evening. The manufacturers posted an acceptance that evening. On the Monday, having heard nothing, the dealers sold the wool to someone else. The acceptance arrived on the Tuesday.

The court's reason was practical. If the dealers were not bound until they received the answer, the manufacturers should not be bound until they heard that the dealers had received it, "and so it might go on ad infinitum". So the court treated the offer as repeated at every instant the letter was travelling, and the contract as complete when the acceptance was posted. That is the postal rule: an acceptance sent by post takes effect when it is posted.

Three later cases set its edges.

• The letter is lost. In Household Fire Insurance v Grant (1879) a company posted a letter allotting shares to Mr Grant. It never arrived. The Court of Appeal, by a majority, held the contract complete on posting. Thesiger LJ added that an offeror "may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance".
• The offer requires receipt. In Holwell Securities v Hughes (1974) an option to buy a house was exercisable "by notice in writing to the Intending Vendor". The buyer posted the notice. It never arrived. The Court of Appeal held the option was not exercised: "notice ... to" requires actual communication, and those words displace the postal rule. Lawton LJ added that the rule probably does not apply where it would produce "manifest inconvenience and absurdity".
• The post must have been contemplated. The rule applies where "it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance" (Lord Herschell in Henthorn v Fraser (1892), quoted in Holwell). The offer itself need not have come by post.

One more edge is the most tested. The postal rule is for acceptances only. A revocation takes effect when it reaches the offeree, not when it is posted. That is Byrne v Van Tienhoven (1880), which section 6 walks through.

3. Build the scenario

Set how the offer was made, how the acceptance was sent, and whether and when a revocation was sent. The page draws the messages on a timeline and states, with the governing case, whether a contract was formed and at what moment.

Things to try. Post both ways, then send a phone revocation 12 hours after the acceptance was posted: too late. Move it 12 hours before: the offer is gone. Now change the offer's terms to "must reach me" and watch the moment jump from posting to arrival. Tick "lost in the post" under each setting.

4. Instant messages: email, phone, face to face

In Entores v Miles Far East (1955) an offer went by telex from London to Amsterdam, and the acceptance came back by telex. The Court of Appeal had to say where the contract was made. Denning LJ said telephone and telex are "virtually instantaneous and stand on a different footing" from the post. If the line goes dead in the middle of the acceptance, there is no contract; the acceptor must get through again. So for instantaneous communication:

The Court of Appeal applied the same rule to a withdrawal in The Brimnes (1975). A telex withdrawing a ship from charter arrived in the charterers' office during business hours. Nobody read it until the next day. It took effect when it arrived, because the office could have been expected to read it then. The House of Lords approved Entores in Brinkibon v Stahag Stahl (1983), another telex case, but Lord Wilberforce warned that it is a general rule, not a universal one. Messages "may be sent out of office hours, or at night, with the intention, or upon the assumption, that they will be read at a later time". Such cases "must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie".

Email came before the court in Thomas v BPE Solicitors (2010). A solicitor sent an email at 18:00 on a Friday. The recipient had left the office at 17:45 and did not read it until Tuesday. Blair J held that the postal rule does not apply to email between parties dealing by email. He said the harder question, whether an email acceptance is effective when it arrives or when the offeror could reasonably be expected to read it, "does not appear to be settled by authority". On those facts, the parties were working to complete that evening, so 18:00 "was not outside working hours" and the email would have taken effect on receipt. (He said what he would have held; the email in the case was not in fact an acceptance.)

5. A case that branches

Work through one set of facts. Each step changes one thing. Pick an answer, read why each option is right or wrong, then go on. The next step always continues from the correct answer.

6. Worked example: Byrne v Van Tienhoven

Van Tienhoven in Cardiff posted an offer to Byrne in New York on 1 October, to sell 1,000 boxes of tinplates. On 8 October, before the offer had even arrived, they posted a withdrawal. Byrne received the offer on 11 October and accepted the same day by telegram, then confirmed by letter on 15 October. The withdrawal reached New York on 20 October.

Walk it through the two questions from section 1.

1. When did the acceptance take effect? Byrne replied to a posted offer by telegram on 11 October, and confirmed by letter on 15 October. A reply by post or telegram was contemplated, and nothing required receipt. Lindley J treated the telegram like a posted acceptance: it took effect on 11 October, on sending. Lindley J: "where an offer is made and accepted by letters sent through the post, the contract is completed the moment the letter accepting the offer is posted ... even although it never reaches its destination".
2. Did a revocation reach the offeree before that moment? No. The withdrawal was posted on 8 October but reached Byrne on 20 October. Lindley J found "no authority in fact given by the plaintiffs to the defendants to notify a withdrawal of their offer by merely posting a letter". The postal rule is for acceptances; a withdrawal takes effect when it is communicated.
3. Result. Contract formed on 11 October. Lindley J pointed to the injustice of the other view: an offeree who had accepted by post "would not know his position until he had waited such a time as to be quite sure that a letter withdrawing the offer had not been posted before his acceptance".

One refinement from Dickinson v Dodds (1876): the offeree need not hear of the withdrawal from the offeror. Mr Dickinson learnt from a third party that the houses had been sold to someone else, then tried to accept. Too late. Russell LJ in Holwell put the point in one line: an offeree "cannot accept a withdrawable offer after he has learnt, by whatever means, that it has been withdrawn".

Quick check

Two questions in SQE1 style: one scenario, five options, one best answer.

7. What to remember

• General rule: an acceptance takes effect when it reaches the offeror (Entores).
• Postal rule: an acceptance by post takes effect on posting, where a reply by post was contemplated (Adams v Lindsell; Henthorn v Fraser). It still does, even if the letter is lost (Household Fire Insurance v Grant).
• Displaced where the offer requires the acceptance to reach the offeror, and probably where it would produce manifest inconvenience and absurdity (Holwell Securities v Hughes).
• Not for instant messages: telephone, telex, face to face, and email take effect on receipt, meaning arrival in office hours, not reading (Entores; The Brimnes; Brinkibon; Thomas v BPE). What "receipt" means for an out-of-hours email is not settled; look to the parties' intentions, business practice and risk (Brinkibon).
• Not for revocation: a withdrawal takes effect only when it reaches the offeree (Byrne v Van Tienhoven), from the offeror or a reliable third party (Dickinson v Dodds).
• Method: find the moment the acceptance took effect. Then check whether a revocation reached the offeree before it. Then check the offer's own time limit.

Sources

Each holding on this page was checked against the report named here. "Primary" means the full report was read. "Secondary" means the page relied on a public reproduction of the judgment because the report is not on BAILII.