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 face-

to-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”?

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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.

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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

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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.

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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

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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 -

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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.

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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.

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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

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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

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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 E-

Mail 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.

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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).

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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 -v-

Pape.

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

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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.

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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,

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Web resources

15. http://en.wikipedia.org/wiki/ Instantaneous Communication

16. http://www.oecd.org/contracts

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