No Obligation without Acceptance
In general, a contract is not formed until there is communication of acceptance.
Carmichael v. Bank of Montreal (1972), established that the offerer must be available to receive the acceptance for the contract to be valid.
There are no contract and no obligation until the acceptance is received from the offeree.
However, there is an exception to this general principle, often called the Mailbox Rule.
The Mailbox Rule
The mailbox rule states that acceptance is provided as soon as it is posted. This means a contract is concluded before the offerer even knows that an offer has been accepted, in the interests of protecting the offeree.
Offerors can prevent this situation by stipulating a means of accceptance other than via mail in the offer. Based on Eliason v. Henshaw (1819), 4 Wheaton 225, 4 U.S. (L. Ed.) 556, the offeror has the right to dictate the terms of acceptance.
In cases where such stipulations are present, such as Holwell Securities v. Hughes, [1974] 1 W.L.R. 155, [1974] 1 All E.R. 161 (C.A.)., the mailbox rule may not be upheld.
An interesting twist to the mailbox rule is that it is still valid even if the offeror does not recieve the acceptance. In Household Fire & Carriage Accident Insurance v. Grant (1879), 4 Ex. D. 216 (C.A.)., the offeror did not even receive the notice, but was still held to the contract. Thesiger L. J. explained how the use of a caluse stipulating receipt of acceptance can further protect the offeror,
There is no doubt that the impliacitn of a complete, final, and absolutely binding contract being formed, as soon as the acceptance of an offer is posted, may in some cases lead to inconvenience and hardship…
It is impossible… to adjust conflicting rights between innocent parties.
…An offeror, if he chooses, may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance.
New Technologies in the Modern World
In general, the mailbox rule is still upheld with the use of instantaneous forms of communication. But changes in correspondences have also modified the rule as well.
Brinkibon Ltd. v. Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH, [1983], demonstrated in an international contracts case using telex that the location (and jurisdiction) of acceptance is the place where the acceptance is received by the offeror.
The Electronic Commerce Act further established that electronic contracts are still valid, with components of the contract (including acceptance) able to be demonstrated electronically.
Part 2 states,
Formation and operation of contracts
20. (1) Unless the parties agree otherwise, an offer or the acceptance of an offer, or any other matter that is material to the formation or operation of a contract, may be expressed
(a) by means of an electronic document; or
(b) by an action in electronic form, including touching or clicking on an appropriately designated icon or place on a computer screen or otherwise communicating electronically in a manner that is intended to express the offer, acceptance or other matter.
(2) A contract shall not be denied legal effect or enforceability solely by reason that an electronic document was used in its formation.
But as opposed to the typical mailbox rule, where acceptance is determined at the time of postage, electronic acceptance through formats such as e-mail are presumed to be received once it enters the offeror’s information system and is capable of being retrieved.
On-line Contracts
Law school students can be particularly litigous in ambiguous areas of the law.
In Rudder v. Microsoft Corp. (1999), two recent graduates brought a class action against Microsoft for charging credit cards of MSN users.
The users had apparently agreed to such charges by clicking on an “I Agree” button.
The court found that electronic contracts are still binding, even if they have not been read in their entirety, as long as they have been acknowledged and accepted.