How Communication of Acceptance is Completed by Telephone, Fax, Telex and Email.
By: Gabriel Bakilana 2009
ABSTRACT Generally a contract formed when acceptance is communicated to the offeror. In faceto-face negotiations this rule provides few problems. However, the development of methods of communicating over distance and the associated reliability problems, the case often arises when the offeree has dispatched an acceptance which is either never received by the offeror or arrives after expiry of the offer. The issue to be resolved in each case is whether the acceptance is communicated to the offeree when it is sent or when it arrives. Case law tends to distinguish between delayed forms of communication such as mail, telegram and virtually instantaneous forms of communication such as telephone, telex, fax machine and email. The question comes to “exactly when does communication of acceptance get completed, considering the se of telephone, fax, telex and email”?
Contract: An agreement which is a legally binding or enforceable by law is called a Contract. Due to this, it can be seen that not all agreements are enforceable by law. For an agreement to be legally binding, several ingredients have to be there. These ingredients are: Agreement: There should be two parties that have agreed to certain terms, the offeror and the offeree. Intention: The two parties to the contract must be willing to perform their duties under the contract. Capacity: The parties to he contract must have the legal capacity to perform or make good on their responsibilities under the contract. Consideration: There has to be a price for the promise to be performed under the contract. The consideration can, therefore, be in the form of interest, or a benefit to the promisor; or a loss, sufferance, detriment, etc. to the promisee; or both in due course of the contract performance. Consideration needs not be adequate. Nevertheless, it must be sufficient. In this respect, anything that has got economic value in the eye of the Law can be seen as to constitute sufficient consideration for contract purposes. Free consent: The parties must not be forced to enter into a contract; they must act out of their own free will and not out of compulsion. Not declared void by the Law of Contract Act: All terms of the contract must be legal, and they must therefore abide by the Laws of the Country (in Tanzania, we are governed by the Law of Contract Act, 2002).
Offer and Acceptance: These are two of the most vital elements of a contract.
An Offer An offer can be described as "an expression of willingness to contract on certain terms, made with the intention that it shall become legally binding as soon as it is accepted by the person to whom it is addressed", the "offeree". The "expression" referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even by conduct, as long as it communicates the basis on which the offeror is prepared to contract. Whether two parties have an agreement or a valid offer is an issue which is determined by the court using the Objective test. Therefore the "intention" referred to in the definition is objectively judged by the courts. In the English case of Smith v. Hughes (1871), the court emphasised that the important thing is not a party's real intentions but how a reasonable person would view the situation. This is due mainly to common sense as each party would not wish to breach his side of the contract if it would make him or her culpable to damages, it would especially be contrary to the principle of certainty and clarity in commercial contract and the topic of mistake and how it affects the contract. The classical principles are illustrated in the well-known case of Carlill v. Carbolic Smoke Ball Company (1893). Case facts: The defendants, Carbolic Smoke Ball Co. Ltd., inserted ads in various papers offering to pay £100 to any person who contracted influenza after using the smoke ball (their invention/product which was supposed to be a cure for influenza) three times a day for two weeks. In addition, the defendants had deposited £1000 at the Bank for that purpose. Carlill, a lady, used the ball as advertised, and was attacked by influenza during the course of treatment. She sued for £100. Defendant’s court defences, and the court decisions were: The company argued that the offer was not specific because no time limit was stipulated in which the user was to contract influenza. The court decided: that it
must have been the intention that the ball would protect its user during the period of its use. Carbolic Smoke Ball Co. claimed that there was no consideration. The court held that: using this inhalant three times a day for three weeks or more was sufficient consideration. The Company argued that the matter was an just an advert “puff” with no intention to create legal relations. The court ruled: that the deposit of £1000 at the bank was a clear evidence of an intention to pay claims. It was also argued that there was no communication of acceptance: To this the court held: that looking at reward cases, contracts of this kind, acceptance may be by conduct. It was further suggested that this was an attempt to contract the whole world and this was not possible in English law. To this the court held: that the advertisement was an offer to the whole world and that, by no analogy with the reward cases, it was possible to make an offer of this kind.
Acceptance Under the Law of Contract Act, 2002 s.2(1)(b) – Acceptance is defined as an assent to the proposal by the person to whom it was made. Literary, the section states that “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted, and a proposal, when accepted, becomes a promise”. For there to be a valid contract, the offer has to be proved and it must be satisfied that the offeree has accepted the offer.
General Rules of Acceptance
Acceptance must be firm and final:
The offeree must give a firm and final assent statement that will show his/her acceptance, willingness and commitment to the terms of the offer as they were presented to him/her.
The acceptance must be communicated:
Depending on the construction of the contract, the acceptance may not have to come until the notification of the performance of the conditions in the offer as in Carlill's case, but nonetheless the acceptance must be communicated. Prior to acceptance, an offer may be withdrawn.
An offer can only be accepted by the offeree:
An offer can only be accepted by the person to whom the offer was made. An offeree is not bound if another person accepts the offer on his behalf without his authorisation as per agency law.
An Offer must be in response to the proposal:
This means that the person accepting the offer must have knowledge of the proposal before accepting it. A person with no knowledge of offer cannot accept it. On top of that, acceptance must have been induced by the offer. For example, Bob advertises in the local radio that he has lost his passport and adequately gives the details (such as passport number, date of issue, place of issue, expiry date, etc.) and specifies that a person who finds and returns it shall get a reward of TShs. 200,000. Charlie, who did not know of the reward because he did not hear the advert, found the passport and returned it to the rightful owner. In this case there is no acceptance and Charlie cannot rightfully claim the reward.
Acceptance must be in the specified form:
It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance. If the offer specifies a method of acceptance (such as by post or fax), you must accept it using the method specified. Silence cannot be construed as acceptance.
Correspondence with offer:
The "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly how it is, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer. However, a mere request for information is not 6
a counter-offer. It may be possible to draft an enquiry such that it adds to the terms of the contract while keeping the original offer alive.
Revocation of an offer shoud be done before acceptance:
An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option in option contracts. If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract entered into that guaranteed that the main contract would not be withdrawn, the contract may be revoked at any time:
Why do we need the ‘general rules’ of acceptance? There have to be general rules of acceptance, mainly because: There might be substantial hardship on offeror if bound by terms without knowing if this offer was actually accepted by the offeree. It is practical – some outward sign of acceptance is needed if courts are to decide if contract really exists. It should be noted that acceptance has to be communicated AND received for there to be a contract. More discussions on this aspect are to be discussed later in this paper.
Communication of acceptance as per Tanzanian Law of Contract Act, 2002 Sec. 4 (1 – 2) of The Tanzanian Contract Law, the Law of Contract Act 2002, stipulates that “The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. It further states that, the communication of an acceptance is complete -
as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.
The above mentioned sections of the Act are vividly seen as being based on the mailbox rule, taking post as the main method of written communication. (the mailbox rule is discussed hereinafter). It can be seen that the Law of Contract Act, 2002, has left a lacuna as far as the instantaneous modes of communication are concerned.
Effective Acceptance Communication The process of contract formation is, essentially, a process of communication. A simple definition in social sciences is that "communication is the effective transmission of a message." From the perspective of electronic acceptance examples of failed communication may include email messages which have been corrupted, electronic documents which cannot be opened without specific software, and failure of an internet service provider (“ISP”) to deal properly with and route an electronic message. The courts have developed various strategies to allocate to the recipient the risk as to whether an acceptance is actually received (in relation to paper contracts), in order to give some protection to the sending party who will not be aware there is a problem with his message until it is too late. Perhaps the best known of these strategies is the “postal rule” whereby a posted acceptance will be deemed to have been communicated when it has been posted rather than when it is received. However, these strategies were developed in a world where instantaneous communication was not possible. As faster communication becomes the norm, the protection offered by the postal rules has been reduced for others forms of communication. For example, faxes are communicated when received rather than when sent, although they need not have been read, or even printed if the fax machine can save faxes to its memory, as it was in the case of Anson -v- Trump.
Dominance of the Mailbox rule (Postal acceptance rule) As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted. Posting binds the Offeror, and when the acceptance comes to the knowledge of the Offeror, the Offeree becomes bound by the terms of the contract. This rule only applies when, impliedly or explicitly, the parties have in contemplation post as a means of acceptance. The Common Law position is that both the Offeror and Offeree become irrevocably bound when the acceptance letter is posted in due course. The phrase “in due course” means that the letter must be properly addressed, adequately stamped, and posted. In case the letter gets lost while in transit, the parties continue to be bound by the terms of the contract. For quite a while, post has been regarded as the main form of written communication. This has been so for the time when other written communication methods, such as fax and email, have not been in existence. The Mailbox rule excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication, which is the main concern of this paper.
Instantaneous Communication With the development of Information and Communication Technology (ICT), here came new and faster modes of communication, such as telephones (land lines and mobile phones), fax, telex and email. Such methods have made the globe look like one village, enabling instant delivery of voice and data (text) communication. Generally, Instantaneous forms of communication do not fall under the mailbox rule. Acceptance by these methods is, therefore, only valid when the message is received. Reasoning with instantaneous communication is that people should consider the situation as if the parties are in each other’s presence.
Place of Contract The place of contract is governed by the place of acceptance of the offer; and acceptance takes place at the place where it is received. Where acceptance is communicated by letter it is regarded as received at the place of posting rather than at the place of actual receipt. This is because, once a letter has been posted, the Post Office holds it on behalf of the addressee. Where telephone communication is used the place of acceptance is the place where the recipient of the acceptance is. That is the general rule for instantaneous communication. It would apply also to an acceptance sent by telex or fax directly from the acceptor's office to the offeror's office. The general rule may need qualifying when a cable company's services are used. A telegram like a letter is regarded as received when put into the hands of the Post Office. Acceptance of an Offer by Fax: If you accept an offer by fax, it will probably be deemed to be accepted as it is printed out by the offeror's fax machine, whether or not there is anyone there to receive it. In NM Superannuation Pty Limited v. Hughes (1992), a decision of the New South Wales Supreme Court, Cohen J held that if a fax is left switched on its owner is indicating their preparedness to receive messages on it and in such circumstances it was sufficient for a notice to be communicated by fax, even though the document might arrive outside normal business hours. The same principles probably apply to other electronic means of communications, such as email but these have so far not been tested in a court. Basically, acceptance must be communicated effectively. Where timing is, or may be critical, you should agree on a method of acceptance and its timing at the beginning. Various complications can arise with regard to whether offer/acceptance sent during office hours. In the case of the Brimnes (1975), notice of withdrawal sent by fax during office hours but not seen by staff until the following Monday. The Court held that the contract became effective when the message was received. Possible factor was staff’s negligence. Conversely if sent outside office hours, acceptance will be effective from the first new day. Some problems might also arise if the fax machine that has run out of 10
paper and cannot store messages electronically? In this case, is there a contract? Acceptance will not have been effectively communicated, and therefore no contract!
Acceptance of an Offer by Telephone: In any contract, there has to be effective communication. Acceptance is, therefore, not communicated until such time as the acceptance actually comes to the attention of the party to whom it is directed. There are no real problems when acceptance is given verbally, face-to-face or by telephone. But what about acceptance by less direct means? If communication is `instantaneous' (e.g., telephone), then acceptance does not occur when the communication is made, but when it is received. Of course, these events are legally contemporaneous, but it is possible for communication to fail during acceptance, and no-one should have to be bound by an acceptance that he has not heard. Therefore, if a case occurs that acceptance is attempted by telephone but the line is very poor and the acceptance is not heard, it will be concluded that acceptance was not effectively communicated. Therefore, no enforceable agreement came into being.
Acceptance of an Offer by Telex: In the case of Entores v Miles Far East Corporation (1995), the defendants were in London, while the plaintiffs were in USA with agents in Amsterdam. Both parties had telex. Plaintiffs placed order by telex, agent accepted by telex. The dispute arose and plaintiffs sued for breach of contract. The Court held same as if in each other’s presence. Thus contract formed when acceptance received in London With regard to acceptance of a bilateral contract between two companies, a certain standard of conduct is expected from the offeror. As suggested in the Entores Case it was said that this principle could apply where an offer is accepted by telephone and the offeror did not catch the words of acceptance but did not ask for the words to be 11
repeated and in the BRIMNES case (1975) where acceptance is sent by Telex during business hours, but is simply not read by anyone in the Offeror’s office. As in the case of Brinkibon Ltd v SSUSM, a situation whereby an instantaneous mode of communication is used (e.g. telex sent from Tanzania to Kenya), the time and place of acceptance is the time and place of actual communication (in this case, Kenya). The Entores case is used as authority in this situation.
Acceptance of an Offer by email: The main question arising when considering acceptance through email is that “Does EMail Fall Under the Mailbox Rule?” The Tanzanian Law of Contact is silent on this matter, and the courts in other countries have not clearly decided whether an acceptance by e-mail becomes valid when successfully sent (i.e. when received). I concur with this suggestion: Chitty on Contracts suggest that emails should be dealt with in the same way as faxes as, like faxes, emails are a form of instantaneous communication. However, an email message is communicated when it is available to be read. In my experience this would be from the time it was transferred to the recipient’s Internet Service Provider (ISP), wherever that may be, wherever the server location may be. All in all, to form a binding contract, acceptance must be given unequivocally (i.e. clearly and without ambiguity) and it must be communicated to the person making the offer. In establishing whether electronic acceptance has been communicated unequivocally it is important to understand when acceptance will take place, the method of communication of acceptance, and what happens when electronic messages are sent. Emphasis is hereby put on acceptance by email, but other electronic messages (such as filling in an online form) will raise the same issues.
As noted earlier, instantaneous forms of communication such as email communications do not fall under the mailbox rule. Acceptance by email is, therefore, only valid when the message is received; or when the offeror, in whatever method, comes to the knowledge that the offer has been accepted. Article 24 of the United Nations Convention on Contracts for the International Sale of Goods (CISG), which was drafted back in 1980, defines a message to have "reached" the addressee if it has been made orally to him or delivered by any other means to him personally to his place of business or to his mailing address. As today's means of electronic communications did not exist at the time of the drafting of the CISG, the CISG does not contain a definition for the "reaching" requirement of e-mails and other electronic communications. The CISG-AC Opinion No. 1 clearly states that the "place" of an email has to be understood in a functional rather than a physical way. Therefore, the message could be on any server in the world and still have reached the addressee's place of business as long as he would have been able to retrieve it. Consequently, for an e-mail to "reach" the addressee, it is enough for the e-mail to enter the addressee's server. It is not important if the addressee has actually read it, or maybe even could not read it due to technical problems, as it is within the addressee's "sphere of influence" to provide for adequate means to ensure that his internal communication functions satisfactorily. However, according to the CISG-AC's opinion, the addressee of an electronic message has to have somehow consented to receiving such communications and, more specifically, to receiving them in that format and to that address. Explicit consent is not necessary and contract interpretation, as well as practices and usages, may help in determining the existence of such consent.
A further complication concerns whether the acceptance message can be read by the recipient in the same way as it was sent (a problem which applies equally to communicating acceptance and which I shall consider below).
Take, for example, a party to a dispute who sends an email to the claimant intending to make a counter-offer for TShs. 10,000 but the message is corrupted and states instead that he will settle for TShs. 1,000. Is the email in fact a counter-offer, as it was intended to be, or an acceptance giving rise to an enforceable agreement? In the case of Henkel -v- Pape in 1870 dealt with a garbled telegram message where a seller had offered 50 rifles and the buyer sent a telegram saying “send three rifles”. This arrived at the seller as “send the rifles”. The court held that the buyer was only liable to buy three rifles and that the risk of garbled messages lay with the seller as he had the risk of a lost acceptance. The principle should be the same for electronic communications but may be different if the party making the offer does not take the risk of communication by, for example, specifying when acceptance is communicated. In which case the respondent may be forced to take the risk in communication reversing the outcome in Henkel -vPape.
The notion of "Writing" Generally, the CISG, in Article 11, grants complete freedom of forms. For the conclusion of a contract, i.e. offer and acceptance, it contains no formal requirements. However, several countries have declared reservations to this provision and the CISG mentions the concept several times. Therefore, it is necessary to understand the concept, especially in regard to electronic communications. The Convention provides in Article 13 that "[f]or the purpose of this convention "writing" includes telegram and telex." At the time of its drafting, the Convention's notion of written communication was extended to cover the fastest means of document transmission then available: telegram and telex. No telefax was mentioned, and, of course, no e-mail. As has been briefly mentioned, e-mail and telefax, being means of instantaneous communication, could be compared to telex in this regard. Opinion No. 1 now extends the notion of "writing" as follows: "The term "writing" also includes any electronic communication retrievable in perceivable form." In its comment to Article 13, the Advisory Council says that the prerequisite of "writing" is fulfilled as 14
long as the electronic communication is able to fulfill the same function as a paper message, i.e., that it can be saved (retrieved) and understood (perceived).
Problems with Automated Responses There may occur problems that are related to automated reply to orders placed on their website which acted as acceptance. If the information on the website was incorrect and the automated response accepted an offer to sell goods at far below the intended price, would there be a valid contract? This is one of two problems raised by electronic acceptance which could come under the generic heading “computers being too clever for their own good”. The second problem is another form of automatic reply. Some email systems are set up such that they automatically return emails if they detect what they believe to be a virus/Trojan horse/spyware. The question is (in cases when the returned email was an acceptance) whether that acceptance had been communicated or not?
Concluding Remarks: Times have changed. The Law of Contract Act, 2002 does not cope with the requirements of the development in Information and Communication technology. It is advisable that the Law be revised to incorporate the needs of the modern-day life, especially in business relations and e-commerce. There are challenges to the successful incorporation of ICT elements in our legal system, but if we don’t many people might use the loophole to defraud others and possibly get away with it. It is now or never. We cannot rely on cases decided in foreign countries while we have our own Contract Law. We need to equip ourselves with the requisite knowledge on ICT, and amend our laws accordingly, not just the Law of Contract Act.
References 1. The Law of Contract Act, 2002 2. United Nations Convention on Contracts for the International Sale of Goods (CISG): 1980. 3. E-Commerce and Development Report 2001, the UNCTAD Secretariat. 4. Précis 1990 – 2002, Findings and Recommendations from OED Evaluations (Operations Evaluation Department of the World Bank). 5. Collins dictionary of business law, Collins, Glasgow, 1988 6. S. Kähkönen, Y. Lee, P. Meagher, and H. Semboja, Contracting Practices in an African Economy: Industrial Firms and Suppliers in Tanzania, Center for Institutional Reform and the Informal Sector, University of Maryland, College Park , 2001. 7. Keeping M., Communication of Acceptance in the wake of new technology, Oxford Brookes University, September 1996. 8. Ganmg, I.N. and H.A. Khan (1991), Contracts in the Modern Day Africa, Journal of Business Law, Vol. 24, pp. 355-369. 9. Kolah A., Offer and acceptance in the virtual world: An In depth analysis for the marcomms industry, Brand Republic, 2003. 10. Ben-Elijah G., Acceptance and communication of an offer, University of Cape Town, 2005. 11. Horne R., Electronic Acceptance, University of Maryland, College Park, 2002 12. McKendrick E., Contract Law. (Basingstoke: Macmillan, 2000) fourth edition [ISBN 0 3337 9427 3]. 13. Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition [ISBN 1 8417 4217 1]. 14. Hahnkamper W., Acceptance of an offer in light of Electronic Communications, Journal of Law and Commerce, Issue no. 06, 2005,
Web resources 15. http://en.wikipedia.org/wiki/ Instantaneous Communication 16. http://www.oecd.org/contracts