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The Rise of the Mailbox Rule and Formation of Contracts in English, US and Canadian Law

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Abstract

The proper interpretation of offers and acceptances has, despite their undisputable role in the formation of contracts, received relatively little theoretical and comparative analysis in recent years. The notorious legal question of when a contract is considered to have been formed is a fundamental concept in all legal systems, yet its nature remains poorly understood and controversial. Moreover, recent doctrinal and jurisprudential developments in English, French, US, German, and Canadian law of contracts call for further systematic assessment of this fascinating topic. This paper seeks to provide a systematic comparative evaluation of the disparate doctrines governing offer and acceptance and the consequential formation of contracts in English, US, German, French, and Canadian law of contracts. While employing well-defined normative criteria of justice and wealth-maximization, it identifies the aspects of suboptimal reliance, rent-seeking, cost-avoidance, and opportunistic revocations and provides a set of economically inspired arguments for justification of the mailbox rule. The paper is an attempt to determine how much new light the comparative analysis of law can shed on the puzzling issues of offer and acceptance so as to help clarify them.

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Notes

  1. Related issues such as an offer of reward, mutual assent, the question of who bears the costs of proving, procedural & litigation issues, silence as acceptance, mass offers to the public will, due to space constraints, be left unaddressed.

  2. Performance of a contract under the offered terms would represent a pure waste of resources and be inefficient (Pareto inefficient).

  3. Market thickness is defined as an “increase in the effective number of market participants in a given market, in the sense that there is an increase in the probability that any given agent will be able to find in a given length of time an agent with whom it will be possible to realize gains from trade” (McLaren 2003; Hubbard 2001; Kranton 1996).

  4. Roth suggests that “an unravelling market typically involves transactions becoming earlier and more diffuse in time from year to year and also involves offers that are not only early, but are dispersed in time, and short in duration: exploding offers” (Roth 2013). Thus, as Roth and Niederle argue, “even when prices can move freely, unravelling can be a way for employers to create a small amount of monopoly power by forcing workers to consider only one offer at a time” (Niederle and Roth 2009, pp. 199–219).

  5. That is, take-it-or-leave-it offers of such a short duration that they do not leave enough time for another market actor to jump in and offer an alternative exchange (Roth 2002, p 67; Mongell and Roth 1991).

  6. Market participants cannot stop themselves from transacting early because, if they resist the urge, they will lose out to someone else (Roth 2015, p. 67; Roth and Xing 1994).

  7. Roth and Xing’s (1994) experimental research on exploding offers may also hold possible implications for acceptances and similar experiments might be worthwhile to bolster the sparse literature. Namely, the non-binding nature of the offer combined with the acceptance at the dispatch in the classic mailbox rule might come very close to Roth and Xing’s (1994) experimental findings.

  8. Prospect theory suggests that the disutility created by a loss is greater than the utility produced by a similar gain and such behavioural phenomena then result in general loss-aversion (Kahneman and Tversky 1979).

  9. In addition, contrary to the prevailing legal rules, most subjects did not view the communication of acceptance as the decisive moment. Their results also suggest that the mailbox rule is deeply unintuitive; “that moment is hardly a more popular choice (9%) than the offeree taking the contract home (2%) to think about it. As between sending and receipt, subjects clearly prefer receipt” (Wilkinson-Ryan and Hoffman 2015). However, what is perhaps more surprising is “how many subjects again identify the signing of the contract – the private signing – as the moment of formation (67%)” (Wilkinson-Ryan and Hoffman 2015; Macaulay 1963).

  10. Ordonnance no. 2016 − 131 portant réforme du droit des contracts, du regime general et de la preuve des obligations, 11 February 2016.

  11. Article 1116 Code Civil, Ordonnance n° 2016 − 131 of 10 February 2016; The Law of Contract, the general regime of obligations and proof of obligations. The new provisions of the Code civil created by Ordonnance n° 2016 − 131 of 10 February 2016, translated into English by John Cartwright, Bénédicte Fauvarque-Cosson and Simon Whittaker, available at: http://www.textes.justice.gouv.fr/art_pix/THE-LAW-OF-CONTRACT-2-5-16.pdf. Moreover, Article 1117 Code Civil states that “an offer lapses on the expiry of the period fixed by the offeror or, if no period is fixed, at the end of a reasonable period”.

  12. Cour de Cassation, Chambre Civile 1, N 558, 21 December 1960.

  13. Where the owner of a plot of land made an offer to sell it to an interested party and agreed that the premises might be viewed on a particular day, there was an implicit agreement that the offer would remain open until the day of viewing, and the previous withdrawal of the offer rendered the owner liable in damages; instead of monetary damages, there may be “reparation en nature,” which in such a case takes the form of requiring the offeror to perform the terms of the offer; Cour de Cassation, Chambre Civile, 10 May 1968, Bull. Civ. 1968. III. 162.

  14. Cour de Cassation, Chambre Civile, 17 December 1958, D. 1959, 33; Cour de Cassation, Chambre Civile, 10 May 1968, Bull. civ. 1968. III. 162.

  15. Cour de Cassation, Chambre Civile 3, 90-20.291, 20 Mai 1992.

  16. Cour de Cassation, Chambre Civile 3, 82-12.996, 9 November 1983.

  17. Commentators note that there has always been a lack of decisions on this issue and that it is due to the fact that “the date, as much as place, where a contract is formed has been ruled to be a question of pure fact to be solely determined by lower courts taking into account in each case of all particular circumstances, including the intention of parties” (Steiner 2018, p. 232). Zweigert and Kötz also suggest that such an attitude of the Cour de Cassation was quite incomprehensible to lawyers from countries where this matter is regulated by statue or by well-established case law (Zweigert and Kötz 1998, p. 361). See also Bell et al. 2008, p. 304, and Chomel v. Roqueta (1960) S. 1932.1.278.

  18. Ordonnance no. 2016 − 131 portant réforme du droit des contracts, du regime general et de la preuve des obligations, 11 February 2016.

  19. One may translate those two phrases as “subject to change” and “without obligation”.

  20. Article 130 BGB on the effectiveness of a declaration of intent to absent parties provides: “a) a declaration of intent that is to be made to another becomes effective, if made in his absence, at the point of time when this declaration reaches him. It does not become effective if a revocation reaches the other previously or at the same time; b) the effectiveness of a declaration of intent is not affected if the person declaring dies or loses capacity to contract after making a declaration; and c) these provisions apply even if the declaration of intent is to be made to a public authority”.

  21. For example, if a bird lover chooses not to empty the letter box in their garden for fear of frightening the song birds within it, the declaration is treated as having arrived (Zweigert and Kötz 1998, p. 362).

  22. Nor does the obligation of good faith under Article 242 BGB; BGH Nf 1998, 207 (Youngs 2014, p. 557).

  23. That is also so when an offer is made by one person to another by telephone.

  24. However, they also note that in practice differences between the German and English systems are slighter than may appear. Namely, even in “German law an offer may be withdrawn before it has reached the offeree and in English law an offer becomes irrevocable once the offeree has put his acceptance into the hands of the carrier” (Zweigert and Kötz 1998, p. 362). They argue that this means that in “English law the offeree bears the risk of revocation only for the extra period between the arrival of the offer and the dispatch of the acceptance, the period during which they are considering whether to accept or not – unless the offer is stated to be open for a certain time, this period is normally very short” (Zweigert and Kötz 1998, pp. 362–363).

  25. 1880 CPD 344.

  26. Dickinson v. Dodds (1876) 2 ChD 463.

  27. Furthermore, as comparatists note the Law Revision Committee proposed in 1937 that “an agreement to keep an offer open for a definite period of time or until the occurrence of some specified event shall not be unenforceable by reason of the absence of consideration” (Furmston 2012, p. 50).

  28. (1818) 1 B. & Ald. 681. Zweigert and Kotz note that the “mailbox rule was originally attributed to the view that the offeror had implicitly authorised the Post Office to act as their agent for the receipt of the acceptance, so that a contract was formed on posting just as if the declaration of acceptance had been handed to the offeror in person” (Zweigert and Kötz 1998, p. 358).

  29. (1879) 4 Ex. D.216. See also Byrne v. Van Tienhoven, (1880) 5 CPD 344 at 348.

  30. See also Robophone Ltd v. Blank (1966) 3 All ER 128, (1966) 1 WLR 1428.

  31. Holwell Securities Ltd. v. Hughes (1974) 1 W.L.R. 155. See also British and American Telegraph Co. v. Colson (1871) LR 6 Exch 108; Household Fire and Carriage Accident Insurance Co Ltd. v. Grant (1879) 4 Ex D 216; and (1974) 1 All ER 161 at 167, (1974) 1 WLR 155 at 108.

  32. Re Imperial Land Co. of Marseilles (1872) L.R. 7 Ch. App. 587, at p. 594.

  33. More recently, Lawton L.J. stated: “In my judgement, the factors of inconvenience and absurdity are but illustrations of a wider principle, namely, that the rule does not apply if, having regard to all circumstances, including the nature of the subject-matter under consideration, the negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer or exercising an option had in fact communicated the acceptance or exercise to the other” (1974) 1 All ER 161 at 167, (1974) 1 WLR 155 at 161.

  34. Sect. 63, the Restatement (Second) of Contracts. Section 66 of the Restatement (Second) of Contracts notes that the letter of acceptance must be properly addressed and “such other precautions taken as are ordinarily observed to ensure safe transmission” for the acceptance to be effective. See also Scott and Kraus 2002, p. 265.

  35. See also Household Fire & Carriage Acc. Ins. v Grant, 4 Ex.D. 216 (C.A. 1879).

  36. Adams v Lindsell (1818) 1 B & Ald 681.

  37. Mactier’s Adm’rs v. Frith, 6 Wend. 103 (N.Y. 1830).

  38. See also Dick v. United States, 82 F. Supp. 326, 329 − 30 (Ct. Cl. 1949).

  39. Uniform Computer Information Transactions Act (2002), available at http://www.law.upenn.edu/bll/archives/ulc/ ucita/2002final.pdf.

  40. University Emergency Medicine Foundation v. Rapier Investments Ltd., 197 F.3d 18, 1st Cir. 1999.

  41. Moreover, the court also stated that by sending the second letter to the proper address, the plaintiff was able to retain the benefit of the mailbox rule as concerned the original termination notice; University Emergency Medicine Foundation v. Rapier Investments Ltd., 197 F.3d 18, 1st Cir. 1999. See also Scott and Kraus, 2002, p. 267; and Ellefson v. Megadeth, Inc., 2005 WL 82,022 (S.D.N.Y. Jan. 12, 2005).

  42. Sheldon v. Metropolitan Property and Cas. Ins. Co., Not Reported in P.3d (2003), 118 Wash. App. 1025. This case involves mailed acceptance that never arrived (contract is formed upon posting the acceptance – classic mailbox rule), so long as the Sheldons could prove that they mailed it in an envelope that was properly addressed and with proper postage.

  43. United States Life Insurance Co. v. Wilson, 198 Md. App. 452, 18 A.3d 110 (Ct. Spec. App. 2011).

  44. The court found that the insurance policy was in force when the decedent died, based on an application of the mailbox rule and the plain language of the policy (United States Life Insurance Co. v. Wilson, 198 Md. App. 452, 18 A.3d 110 (Ct. Spec. App. 2011).

  45. UCC § 2-206(1)(a).

  46. UCC § 2-207.

  47. These include the “speed and reliability of the means used by the offeree, the nature of the transaction, the existence of any trade usage governing the transaction, and the existence of prior dealings between the parties (e.g., whether the offeree had previously used mail to accept telegraphed offers from the offeror)” (Murray 2001, p. 161). Thus, in proper circumstances, “a mailed response to a telegraphed offer or telegraphed response to a mailed offer might be considered reasonable and therefore effective on dispatch” (Murray 2001, p. 161).

  48. See supra 3.1.

  49. See e.g. Livingston v. Evans [1925]; and Household Fire & Carriage Accident Insurance Co. v. Grant (1879), 4 Ex. D. 216 (C.A.).

  50. In this case, Lord Herschell stated that “where the circumstances are such that it must have been within the contemplation of the parties, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted”; (1892) 2 Ch. 27, at 33.

  51. See e.g. Stevenson Jacques & Co. v. McLean (1880), 5 Q.B.D. 346; Carow Towing Co. v. The “Ed McWilliams” (1919), 46 D.L.R. 506 (Ex. Ct.); Melady v. Jenkins Steamship Co. (1909), 18 O.L.R. 251 (Div. Ct.); and E. v. Commercial Credit Corp. (1983), 4 D.L.R. (4th) 314 (N.S.S.C.A.D.).

  52. See e.g. Household Fire & Carriage Accident Insurance Co. v. Grant (1879), 4 Ex. D. 216 (C.A.); Moscovitch Estate v. South End Development Co. Ltd. (1968), 4 N.S.R. (1965-69) 182 (S.C.A.D.), aff’d (1968) S.C.R.; Pearce v. Transportation Fire & Casualty Co. (1977), 83 D.L.R. (3d) 259 (Ont. Dist. Ct.); Sibtac Corp. Ltd. v Soo; Lienster Investments Ltd., Third Party (1978), 83 D.L.R. (3d) 116 (Ont. H.C.J.).

  53. For example, to determine whether the common law of Canadian common law provinces or the civil law of Quebec is applicable to a certain transaction.

  54. See also Imperial Life Assurance Co. of Canada v. Colmenares, (1967) S.C.R. 443 at 447.

  55. See OTM Ltd. v. Hydranautics, (1981) 2 Lloyd’s Rep. 211 (Q.B.D.); Trollope & Colls Ltd. v Atomic Power Constructions Ltd., (1962) 3 All E.R. 1035; Cowan v. Boyd (1921), 61 D.L.R. 497 (Ont. S.C.A.D.); and Scanlon v. Standish (2002), 57 O.R. (3d) 767 (C.A.).

  56. Dickinson v. Dodds (1876), 2 Ch. D. 463 (C.A.).

  57. In Canadian common law, firm offers do not bind the offeror unless they meet the more general requirement of the Canadian common law concerning the enforceability of undertakings (McCamus 2005, p 82). See also Byrne v. Van Tienhoven (1880), 5 C.P.D. 344.

  58. Several mechanisms are employed to mitigate such opportunistic revocations: (a) if the language of an offer is ambiguous then courts may lean against the construction of the offer that renders it an offer of a unilateral rather than a bilateral contract; (b) courts employ careful construction of the definition in the offer of the act required by the offeror as an acceptance of the offer; and (c) courts may find that a collateral arrangement relating to the firmness of the offer is implicit in the relationship of the parties. See e.g. Errington v. Errington and Woods, (1952) 1 K.B. 290 (C.A.); Dawson v. Helicopter Exploration Co. (1955) S.C.R. 868; and Daulia Ltd. v. Four Millbank Nominees Ltd. (1978) Ch. 231, (1978) 2 All E.R. 557 (C.A.).

  59. See e.g. Felthouse v. Bindley [1862]; Household Fire Insurance v. Grant [1879]; Holwell Securities v. Hughes [1974]; Brinkibon v. Stahag Stahl [1983]. See also Swan et al. 2018.

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Kovac, M. The Rise of the Mailbox Rule and Formation of Contracts in English, US and Canadian Law. Liverpool Law Rev 43, 149–174 (2022). https://doi.org/10.1007/s10991-022-09301-x

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