Author : Kritika Katoch, Student at Himachal Pradesh National Law University
The 21st century is a tech savvy century. Individuals use technology for every purpose. We have entered into cyber space. Now everything is available online and one gets what one desires in no time. Now even the contracts are made online, be it for business purposes or for the purchasing some clothing, food, or medicines. When a contract is formed, often legal issue arises as to when the completion of contract took place, for which Section 4 of the Indian Contract Act, 1870 is there. It states the general rule that for the completion of contract the acceptance must be within the knowledge of the offeror. But there is an exception for the same which is called the “Postal Rule”. According to the doctrine, in the case of acceptance by way of postal services, acceptance is said to take place as soon as the offeree posts his acceptance to the offer. With time, various other forms of communication emerged, which were instantaneous, such as telex, fax, internet and the question arose as to the application of rule which would determine the time of formation of contract. From various cases the rule emerged for the application of postal rule but in a modified form for instantaneous communication. According to the same, the contract is formed as soon as the acceptance reaches the offeror. Being instantaneous communication, postal rule was not applicable as such forms of communications are as such the two parties are communicating to each other in a single room. As they are fast form of communication, there is minimal time lap, hence the basic norm for the applicability of postal rule, is not present. But in section 13 of Information Technology Act, 2000, there is a provision which states that the time of receiving receipt when the information is sent to the resource which is not designated would be the one when it is retrieved by addressee; under this provision, the communication despite being instantaneous creates a time lag thus validating the application of postal rule on the same. Hence, it must be amended to give it a narrower perspective and not arbitrary.
Keywords- contract formation, postal rule, electronic contracts, receipt rule
In today’s scenario every person is encompassed by cyber space. Cyber space is a space where human interactions take place in virtual reality. Meaning thereby, the medium of interaction has changed. Nowadays people buy food, medicines, clothing and also pay bills, just by sitting at one place with the help of cyber space. Cyber space has always helped people in one way or the other and now when everyone is combating the global pandemic ‘corona’, the cyber space is acting as a boon. Students are studying, by staying in their home, with the help of internet are attending online lectures.
Technology had always a great impact in society. Technological advancements have increased from time to time. This new way of electronic communication has changed the traditional way of communication. People are using computers for electronic communication across the globe; one can see other person, even if that person is in another part of the globe. Now any information can be shared across the globe within seconds.
Due to technology there is advancement in every field. Technology has largely facilitated the formation of contract. A contract is formed, once the requirements laid down in the legislation regarding it is fulfilled. In the Indian context, section 10 of the Indian Contract Act, 1872, states as to when the agreement between two parties is termed as a binding contract. General principle for forming contract is that communication of acceptance with regards the offer to the offeror. But this rule is not applicable in all scenarios. In the case of acceptance by way of post, the acceptance is completed as soon as the offeree posts the same i.e., the postal rule, which is an exception to general rule. But in the case of instantaneous form of communication the acceptance is complete as soon as it comes to the knowledge of the offeror.
With the advent of technology, people started forming the contract through electronic communication. Electronic contracts came into existence due to the need of time as they were more convenient and speedier than other forms of communication. Being an instantaneous form of communication, the traditional postal rule was not applicable on the same, rather a modified form of the same, known as receipt rule, which is envisaged in section 13 of the Information Technology Act, 2000.
WHAT IS CONTRACT?
Contract is an agreement legally enforceable by law which is binding the parties legally to perform the contract agreed to. A contract can also be defined in terms of consensus ad idem, which means meeting of the minds in the same sense in which the parties are willing to perform the contract. In Indian Context, the essentials for the formation of a contract and all the laws regarding the same are envisaged under the Indian Contract Act, 1872. Section 10 of the Act states that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
There are various other fundamentals of contracts which have been construed over the years by various judicial decisions. To summarize the essentials of a contract, we can state that there are eight essentials of contract, which are, offer, acceptance, lawful consideration, and intention to create legal relation, competency of parties, free consent, lawful object and certainty and possibility of legal performance.
Aforementioned essentials must be there in a contract to enforce it legally but the issue arises as to the time of formation of contract. Rule behind the formation of contract which is generally followed is the communication of acceptance by offeree to the offeror and exception to the same is the ‘postal-rule’ or ‘mail-box rule’. English Courts have developed the law on contract formation on the model of offer and acceptance.
DOCTRINE OF POSTAL RULE
The first case regarding the postal rule is Adams v. Lindsell, which introduced the postal rule. In this case, there was a delay in offer by the defendants which further delayed the acceptance by the plaintiff through post. Before the plaintiff’s acceptance could reach the defendant, he sold the goods to third party. The question in issue was that whether there was any formation of contract between the plaintiff and defendant. The Court held that there was a formation of legally binding contract between the plaintiff and defendant and the acceptance was effective the moment the plaintiff posted his acceptance and by selling the goods to third party, the defendant committed breach of contract.
The doctrine of postal rule specifically applies to the formation of contract by way of posts. The rationale behind it being that there is an innate time lag in the case of postal communication as it takes time for the sent offer to reach the offeree and for the acceptance by the offeree to reach the offeror a lot of time is consumed. If in such a scenario if we consider the general rule of offer and acceptance then most of the offers would lapse. The postal rule was also affirmed in the case of Household Fire and Carriage Accident Insurance v. Grant and Brinkibon Ltd. v. Stahag Stahl und Stahlwarenhandelgesellschaft mbH, in which it was held that once a letter is posted and is in the control of Post Office then it would amount to binding acceptance. At that time postal rule was also necessary because primary form of communication was through posts.
In India, section 4 of Contract Act deals with the time of formation of contract which states that, the general rule is that the contract would be formed as and when the acceptance of the offer comes to the knowledge of the offeror. The exception of the rule would be with regard to postal communication, in which as soon as the offeree posts the letter of acceptance, the offeror is bound by that acceptance but not the offeree. Offeree is bound by the acceptance as soon as the acceptance comes to the knowledge of the offeror, and before that the offeree can revoke his acceptance by opting a faster mode of communication and communicating the revocation before the acceptance comes within the knowledge of offeror. The moment the letter of acceptance is posted, the offeror becomes bound immediately and it makes no difference that the letter is delayed in transit, or it is even lost in the post and the offeror never receives it. The same was held in J.K. Enterprises v. State of M.P.
EXCEPTION TO POSTAL RULE: INSTANTANEOUS COMMUNICATION
With time various forms of speedier communication were developed like telephone, fax, telex etc., thus not being limited to postal communication. These instantaneous forms of communication were an exception to postal rule. Due to these latest developments the dispatch time and receipt time of the message were almost same and the doctrine of postal rule with regard to such instantaneous communication was futile. By instantaneous communication we mean that the communication is such as both the parties are in the same room, so in such a case postal rule is obsolete, as the parties have the ability to ascertain whether the acceptance has been received or not.
In the case of Entores Ltd. v. Miles Far East Corporation, it was held that telex is a “virtually instantaneous” form of communication and for the completion of the contract, the acceptance must have reached the offeror. The Court observed that so far as telex messages are concerned, though the dispatch and receipt of the message is not completely instantaneous, the parties are to all intents and purposes in each other’s presence just as if they were in telephone communication, and I can see no reason for departing from the general rule that there is no binding contract until notice of the acceptance was received by the offeror.
Similarly in the case of Bhagwandas v. Girdhari Lal & Co., it was held that in telephonic conversations parties are considered to be in the presence of each other as they are able to hear each other’s voice, leading to instantaneous communication of speech thereby offer and acceptance tend to be intimidated at the same time and the same is with regard to rejection of the offer or counter offer. Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph.
ELECTRONIC CONTRACT OR E-CONTRACT
With the emergence of technology, the contracts were formed on internet and cyber space became the primary form of communication. So the question arises as to what is an electronic contract.
An e-contract is the computerized facilitation or where in a contract formation, the communication of proposal the acceptance of proposals, the revocation of proposals and acceptances, are expressed in electronic form or by means of an electronic record. In other words we can say that, e-contracts are the contracts formed electronically through email or by way of computer or software system. E-contracts are similar to paper based contract, the only difference is of medium of transaction. Even the fundamentals of e-contracts are same as that of paper based contract i.e., for the formation of electronic contract there must be offer, acceptance, lawful consideration, intention to create legal relation, competency of parties, free consent, lawful object and certainty and possibility of legal performance.
In today’s scenario everyone uses technology or internet for every purpose, like buying clothes or food or other accessories online via site. When an item is displayed on the webpage, it is an invitation to offer, afterwards the user or customer puts the items in their virtual basket and proceed to buy or checkout by entering credit card details which leads to offer to the seller of the product. This transaction is similar to one as stated in Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd. When one enters the card details, the website then displays a confirmation of order, and when the goods are dispatched it leads to acceptance of offer. In this way electronic contracts come into formation.
LAW GOVERNING E-CONTRACTS
UNICTRAL Model Law on Electronic Commerce (1996)
UNICTRAL Model Law on Electronic Commerce (1996) gives legitimacy to electronic commerce and electronic documents. Its purpose is to offer set of internationally acceptable rules and create more secure environment for electronic commerce. Article 15 of the same deals with time and place of dispatch and receipt of data messages which states that the dispatch of data occurs when it enters the information system of the addressee and is outside the control of originator. If the addressee has designated a particular information system for receiving message then the time of receipt is when it reaches the system or received by the addressee when not sent to designated information system. If no information system is designated the time of receipt is one when the message enters an information system of addressee.
Information Technology Act, 2000
In India, Information Technology Act, 2000 was enacted to provide laws for technological aspects. Section 13 of the Act deals with time and place of dispatch and receipt of electronic record which is based on Article 15 mentioned above.
From the above stated laws it can be inferred that, a contract is formed as soon as the electronic record dispatched by the offeree from his computer resource enters the computer resource of the offeror and this rule is known as receipt rule. Receipt Rule is more like an exception to Postal Rule. The above laws illustrate that rule held in Entores case is applicable even in electronic communication as they are virtually instantaneous forms of communication.
CRITICISM AND SUGGESTIONS
Commentators such as Dr. Marwan Al Ibrahim are of the view that e-mails are not instantaneous and therefore postal rule should apply on the e-mails as there is a time lap similar to that by way of post, thus e-mail not being instantaneous form of communication. This argument is baseless as the message which is required to be sent by way of internet, reaches the required server in no time. Comparing e-communication with postal communication is like stating that communication via telephone is similar to communication via post. In communication via post, acceptance is completed as soon as the offeree posts the letter, if the same is applicable to acceptance via telephone, it would be an absurd proposition. In the case of telephone, if one states his acceptance to the offer and the other person’s phone dies during the same and is not able to hear the acceptance then if postal rule is applicable, it would amount to acceptance; similar is the case of e-communication. Communication by way of posts take days to reach the required person which is not the same in case of e-mails, the time lap is less and in most of the cases the message reaches the required server in no time. Non application of postal rule to e-contracts is justified and inevitable. Postal Rule is adapted in digital arena in a modified form known as “Receipt Rule” and is completely appropriate.
On the other hand, Section 13(2)(a)(ii) states that:
(2)Save as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely-
(ii) if the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic record is retrieved by the addressee;
According to the abovementioned section when a designated computer resource is provided for the addressee to send the information into and if he sends to another computer resource then receipt occurs when the information is retrieved by the addressee. Here a computer resource is designated for a reason and when the information does not reach the same, it leads to a time lag thus against the principle of instantaneous communication. In such a scenario, it leads to the inference that postal rule is also applicable on such instantaneous form of communication. It is suggested that the section must be amended as it being arbitrary to construe it in strict sense, otherwise there won’t be reason for application of receipt rule on the same.
Fundamental principles of formation of contract as enshrined in contractual law continue to prevail in electronic contracts in the same way as they were applicable in paper based contracts, but all of the principles cannot be applied in the same manner. Though only the medium of communication has changed still the earlier principals of postal rule cannot be applicable on e-contracts. In the case of postal rule, the contract is said to be formed as soon as it is posted by offeree while in the case of instantaneous communication like telex, telephone, e-mail postal rule is not applicable, the contract is formed as soon as it reaches the offeror.
The Postal Rule is not applied for electronic communication because the medium of electronic communication is speedier and more effective as compared to postal services. There is vast difference in the two medium. Traditional paper based contracts take days to reach the person desired but not in the case of e-mail which reaches within seconds. In instantaneous communication one has the ability to ascertain whether acceptance has been received or not. When an electrical impulse intervenes in a communication it makes it an instantaneous communication irrespective of the fact that the offeror and offeree are at a distance thereby not making the communication analogous to one through post or by telegraph.Though e-mail may not be that instantaneous as compared to telephone, because at times due to technical issues it cannot be reached, still it is a virtually instantaneous form of communication and is not fit for application of postal rule for determining it’s time for formation of contract. Application of receipt rule rather than postal rule on e-contracts is completely justified and for the same reason section 13(2)(a)(ii) must be amended to give it a narrower perspective as it leads to creation of time lag in offer and acceptance thus approving the basis of postal rule despite it being an instantaneous form of communication.
 Information Technology Act 2000 § 13.
 Indian Contract Act 1872 § 2(h).
 Indian Contract Act 1872 § 13.
 Indian Contract Act 1872 § 10.
 Delphine Defossez, Acceptance sent through email; is the postal rule applicable?, 11 Law, State and Telecommunication Review 23, 25(2019).
 (1818) 106 ER 250 (Eng.).
 LR 4 Ex D 216 (Eng.).
 (1982) 2 WLR 264 (Eng.).
 Indian Contract Act 1870 § 4.
 DR.R.K. BANGIA, INDIAN CONTRACT ACT 31(15 ed. Allahabad Law Agency 2018).
 AIR 1997 MP 68.
 EWCA Civ 3, 2 QB 327 (Eng.)
 AIR 1966 SC 543.
 Information Technology Act, 2000 § 10 A
 Supra Note 5
 (1952) 2 QB 795 (Eng.).
 Supra Note 5
 UNICTRAL Model Law on Electronic Commerce 1966 article 15.
 Supra Note 12
 Dr. Marwan Al, Dr. Ala’eldin; Tahat, Mr. Hisham, The Postal Acceptance Rule in the Digital Age, 2 Journal of International Commercial Law and Technology 47 (2007).
 Information Technology Act 2000 § 13
 Supra Note 14
 Information Technology Act 2000 § 13.