Today, we discuss timing issues in contract formation by examining an English contract case from the 19th century. Adams versus Lindsell was decided by the Court of King's Bench in 1818. The Court of King's Bench or Queen's Bench, was an English court of common law. While this might seem like an obsolete English case, it created an important common law rule, the Mailbox Rule. That's what it stands for which teaches us when a mailed acceptance forms a contract. In this case, the defendant, Lindsell, was a wool dealer looking to sell wool. He sent a letter to the plaintiff buyer, Adams offering to sell wool at a specified price to be delivered at Leicester, and to be paid for by two months bill in two months. However, the defendant misdirected this letter. In other words, he wrote down the wrong address and it took longer than expected for the letter to reach the plaintiff. By the time the plaintiff got the letter, and sent back his acceptance, it was two days after the expected deadline for acceptance. Unfortunately, by that time, the defendant had already sold that wool. The plaintiff sues the seller for non-delivery of wool. If you're still a bit confused, let's quickly review the chronology of events. On Tuesday, September 2nd, the seller sends the offer to the wrong address. It takes a whole three days before reaching the buyer. The buyer sends the acceptance on Friday September 5th, and it doesn't reach the seller until the following Tuesday. By that time the seller had already sold the wool. The trial court found for plaintiffs. Afterward, defendant wins a rule nisi order, that there is no binding contract. A rule nisi is an order in case you're wondering, that may or may not have forced depending on whether a particular condition is satisfied. It's from the Latin word, nisi that means unless. In this case, the condition is unless the plaintiff can show cause. The plaintiff's lawyers show cause and trial judgment for plaintiff is affirmed. The main issue, in this case is whether the plaintiff's acceptance is valid when it was mailed. The court held that yes, the acceptance is valid, the moment it was mailed. The court reasoned that if it opted for the other rule, that acceptance is valid when the offer, offeror receives it, then the plaintiff's acceptors ought not to be bound until after they had received notification that the defendant had received their answer and assented to it. So, it might go on ad infinitum. The court reasons that would be a bad result because it would lead to an infinite chain of correspondence confirming that the other person knew. The court realize that when contract is formed at a distance either the offeror or the acceptor will not be able to know precisely when the contract is formed. In this case, the defendant, offeror, was responsible for the misdirected letter, and hence for the predicament of contracting to sell the wool twice. The so called mailbox rule suggested by this case applies, however, even when there is no misdirected initial offer. The rule can be found and restatement of contract section 63a. That provision states that acceptance occurs as soon as it leaves the offeree's possession. In other words, the moment you put the acceptance in the mailbox and can't take it back, the contract takes effect. There are a few justifications for the mailbox rule. A key reason is that the rule is merely a default. The offeror can always stipulate that communication is required before a contract formation. You can see that from the first sentence of section 63a which specifies the rule is binding unless the offeror provides otherwise. Under the mailbox rule, the offeror is the last to know whether and when a contract is formed. But, any offeror who doesn't like the result is free as master of her offer, to say that the offer will only be accepted when notice of acceptance is received by the offeror. Section 63 sets the timing default against the party who is empowered to alter it. Another justification is that after posting, the seller is in the best position to know of a delay and to inquire. All of this is aimed at protecting an offeree who does what is reasonable to assent, and assuming there is a contract, relies on it. Furthermore, requiring more confirmation does not reduce mistake, it just shifts the burden to the other side. The last person to confirm will always be at an informational disadvantage because she will not know whether her confirmation got through. Requiring more confirmations is probably a waste of social resources. The finding of contract at time of dispatch, that formation occurs when it's sent, means the offeree may safely rely without inquiring as to whether there was a dispatched, but uncommunicated revocation. Thus as long as the offeree selects their reasonable method of communicating assent, he or she should be able to rely on the formation of a contract. Was the holding and Adams vs. Lindsell an exact iteration of the justifications of the mailbox rule? Well, not exactly, although this case is thought to be the origin of the so-called mailbox rule, the holding seems to be that because the seller misdirected the offer, he should be bound by the acceptance that would have arrived in due course of post. In short, the seller expected to hear from the buyer on September 7th. So, there was no need to discuss the effect of the posting of the letter. That question would be posed if the offer had not been misdirected. The buyer posted an acceptance and the seller sells the wool to a third party and then the acceptance is arrived. Let's take a look at the scope of the mailbox rule. First, what if the offeree acceptance is never received? Say, it gets stolen, or destroyed in a tragic mail delivery van fire. There's still a contract in that case. The offer bears the risk of non-delivery. If the offer doesn't want to bear that risk, she can again contract around it, and say that the contract is only formed, when the acceptance is received. Finally, what about other mediums of communication. The mailbox rule has been applied to telegrams, faxes, and other mediums of contractual communication. It's when they're sent, that the acceptance becomes effective. Nowadays, more and more contracting is done by electronic transmissions where communication is virtually instantaneous. The sending and receive happens almost simultaneously. Under such circumstances, there's a good reason for holding that an acceptance is only effective when received and not when transmitted. The authors of an influential study observed that an important premise upon which the mailbox rule is predicated, is the notion of some delayed medium of communication such as mailbox writings. They do not provide either party the ability to verify in a timely fashion that receipt of a message has occurred, and that the message as received is without error. Hence, these authors have maintained that electronic transmission should be governed by the same rules that apply when parties are in each other's presence. The acceptance should be deemed effective, only when received and confirmed. Acceptance is not the only act that causes timing issues, offers, counteroffers, and revocations also oppose timing issues. However, every other formation act becomes effective at the time it's received, not at the time that it is sent. Why are offers, counteroffers, and revocations treated differently? Well, maybe because these rules are also defaults that are set against the person who has the unilateral power to opt out. What about firm offers, that is option contracts. Restatement section 63 provides that, an acceptance under an option contract is not effective until received by the offeror. In the view of the drafters, since the option contract provides for irrevocability of the offer, the primary reason for the rule of Adams versus Lindsell and its progeny, is absent. The position suggests that, the mailbox rule is employed to protect the offeree's opportunity to make a sound decision against an unexpected revocation. In option contracts and firm offers, there is no threat of offeror revocation. So, the mailbox rule does not make sense in those contexts. So, let's imagine this, Robert offers to sell Sally a box of jewelry for $10,000. Sally accepts by sending a letter and putting it in the mail. While the letter is in the mail, Robert calls Sally to tell her the offer is revoked. Is there a contract? The answer is yes. Under Section 42, revocation is not effective until the offeree receives a manifestation of this revocation from the offeror. Interestingly, that this may not even be a default, might be a mandatory rule of timing. The Mailed acceptance creates a contract, and the revocation has no legal consequence because it was not manifested until after the acceptance became effective. It was only received after the contract was formed. Also note that Section 40, creates a limited exception to the mailbox rule, when the sending of an acceptance is preceded by a previous sending of a counteroffer or revocation. Section 40 in effect says, a letter or telegram of acceptance dispatched after the sending of an otherwise effective rejection, or counter offer, only operates as an acceptance if the acceptance is received by the offeror before she receives the rejection or counter offer. Or to put it even more simply, if an offeree has previously sent a counter offer or rejection, the acceptance will only take place if at all at the time of receipt. To see how this works imagine the following scenario. On day one B receives A's offer, on day two B sends a counter offer, and then on day three, B sends an acceptance. Now, if it weren't for Section 40, there would be an acceptance of a offer here because the counter offer only becomes effective when it's received, and the acceptance would have occurred here. But Section 40 complicates this analysis. There are two possibilities about when the counteroffer and acceptance will be received. If A receives the acceptance before the counter offer, then there is going to be a contract, because acceptance under this condition will occur when it is received. But under the second possibility, A receives the counter offer first, which blows up the offer, and renders ineffective the subsequent receipt of the acceptance. So, under the second possibility there would be no contract. Finally, let's discuss what constitutes reasonable acceptance. As we discussed earlier, the mailbox rule applies when the method of acceptance is a reasonable response under the circumstances. The next example will help us see what reasonable acceptance might mean. So imagine, in July 1990, Carol was hired as a special education teacher by the Huron school district for the 1990-91 school year. On August 15th 1990, Carol handed to Ed her supervisor, a letter of resignation effective on August 17th. You should think of this letter as an offer to end her employment. In the letter she requested that her final check be mailed to an address some 50 miles away, which was her parents home. Ed gave the letter to Mary the superintendent for the school, who had authority to hire and fire. On August 20th, that same day Mary prepared and mailed the letter properly addressed to Carol at her parents accepting the resignation. The next day Carol hand delivered a letter to Mary withdrawing her resignation. Mary told Carol that the resignation had been accepted and handed her a copy of the letter mailed the day before. That letter did not reach Carol's parents home until August 24th. Carol claims that the resignation had been withdrawn in time because the acceptance letter should have been handed to her. Let's first sink through some of the strongest arguments for the school district. In other words arguments for why Carol's resignation offer was properly accepted. The school district could argue that Carol handed her written offer to resign to a supervisor who forwarded to the person with the power to accept, and given the dates involve three days after when Carol said her resignation was effective, and the assumption that Carol would be at her parents, posting the acceptance would appear to be reasonable, and the mere posting under the mailbox rule should have been the time where the resignation offer was accepted. Here the manner in which the offer is communicated is not determinative, thus the resignation would be effective at the time they posted the letter. But what if Carol had sent a telegram of offering to resign, and Mary had merely sent a letter accepting that offer. Before the letter arrived Carol revoked the resignation by email. In that case, Carol's initial manner of communication, a telegram might signal what form a reasonable response might take. Mary arguably should have known that Carol was expecting a prompt reply. Sending a letter on these facts would not be reasonable, the reasonable response was to telegraph or email that the resignation was accepted. Finally, what if Carol had telephoned Mary and left the offer to resign on Mary's voicemail. What if Carol had used a fax? How should Mary accept in those cases. Well, the use of voice mail and telefax is common and suggests at least that Mary may use the same mode for acceptance. The response doesn't have to be faster, but at least there's an argument that the mode of acceptance shouldn't come through a slower mode of communication. It might mean that these attempts to accept by a slower mode are not effective because they're not reasonable, or that they wouldn't be effective until received. So, any overtaking revocation of the offer would render the acceptance ineffective. In summary, the mailbox rule states that acceptance takes effect when an acceptance is placed out of the offeree's possession. This is in contrast to offers, revocations, and counteroffers, which only take effect at the time they are received. However, while the mailbox rule has a fairly wide scope, it does not apply in cases where the method of acceptance is not reasonable such as responding to an email with snail mail.
