Explaining the Mailbox Rule
The mailbox rule is a legal doctrine dealing with the effective date of particular contractual documents. It arises, in general, when the parties are trying to determine when an acceptance of a written offer has taken effect. With acceptance of a proposed contract being a key requirement for formation of a binding agreement, application of the mailbox rule can be of key importance in a variety of different circumstances.
Under this doctrine, if the agreement is being reached through the use of the United States Postal Service, UPS, Fed Ex or other similar services, the mailbox rule generally dictates that the effective date of the acceptance is the date that the communication of acceptance is placed in one of these service’s mail receptacles. The rationale for this is about whether the communication of acceptance has been communicated effectively to the offeror. When the offeror sends the offer, logic mandates that the offeror is responsible for it getting to the other party. On the flip side , however, it would not be fair for the offeree to be bound by a contract with the offeror if the offeror did not actually know that the offeree was accepting.
A typical example of application of the mailbox rule is found with offers made by computers through internet auctions (e.g. eBay, Craigslist). Therefore, if a seller puts a piece of artwork up for sale on Craigslist with a statement that it will only be sold to the first person who got back to the seller and the buyer communicated acceptance 3 hours later via email, application of the mailbox rule would require the seller, to review the emails to find the acceptance because the offer was made via email and not traditional mail delivery services. The acceptor had to deliver via email as the offer never reached him/her. Therefore, for time frames involved, the acceptance had not occurred until the buyer’s acceptance was received by email and as such the buyer did not get the painting.
Introduction to the UCC
The Uniform Commercial Code (UCC) is a collection of laws governing various aspects of commercial transactions. Its uniform language and provisions make it easier to conduct business on a cross-jurisdictional basis, as it has been adopted, in some form, in every state except Louisiana and is often the authoritative law considered by courts deciding commercial cases. The UCC itself was first promulgated in 1941 and adopted largely in its current form in 1962. It has been revised periodically since then. Certain provisions of the UCC may also implicate provisions of the federal Bankruptcy Code.
The UCC seeks to comprehensively address the laws governing commercial transactions, and does so in parts. Specifically, the UCC addresses the following broad areas:
The creation, transfer, and termination of secured interests in both tangible and intangible property.
The sale of goods and the resulting performance, payment, risk of loss, and warranty obligations of the parties.
The transfer of documents of title by third parties, after initial purchase of the goods.
The installment sale of goods.
Negotiable instruments, including drafts and certificates of deposits.
Letters of credit.
Bulk sales and sales in any bulk of farm products.
And more.
Accordingly, it governs actions undertaken for the purpose of economic gain, such as the performance of contracts of both verbal and written agreements, the granting of security interests, and the creation of negotiable instruments.
Intersection of the Mailbox Rule and the UCC
The intersection of the mailbox rule and UCC
As noted above, the mailbox rule is typically considered to only apply when dealing with offer and acceptance. That said, the United States Uniform Commercial Code ("UCC") has two sections that may potentially affect the application of the mailbox rule. The first is found in UCC § 3-103(1)(a – d) and defines "Acceptance" as a "a manifestation of assent … by a drawee to pay a draft as presented". While the word assent is defined in UCC § 1-201(11) as a "manifestation of assent or intention, including any necessary Act", UCC §§ 3-302(1) and 2-204(2) eliminating the common law requirement for an "offer", making the assent to the instrument itself, which is acting as an offer, an acceptance. In short, under the UCC the menu has been simplified by eliminating the offer as a prerequisite. Instead, the manifestation of assent in the form of an instruction by the drawee (check writer) to pay a sum to the drawee is considered an offer and an acceptance. Therefore, since acceptance requires manifestation of such assent, the controlling language in the UCC is that of "pay," not "assent." Thus, the mailbox rule, being one of offer and acceptance, falls outside the UCC’s realm. However, the "assent" requirements for the drawee of a check are governed by the UCC.
The second section is UCC § 3-501 that deals with Presentment, which is defined as "the act of offering or showing a negotiable instrument as the means of proving that the instrument has been paid or accepted." Again, the word "assent" is avoided with use of the word "showing," which is defined in Black’s Law Dictionary as: "to make evident or manifest by furnishing evidence; to exhibit; to give proof, or a spect at a court proceeding or other tribunal to support a claim or charge; …; … to show up; to give an account for action taken." BLACK’S LAW DICTIONARY 1427 (6th ed. 1990). Based on the language of the UCC being absent the word "assent" and instead employing the word "show," it is reasonable for a court to find that there is no offer, no acceptance and no applicability of the mailbox rule to either the check writer or check drawee. The simple act of showing the check to the bank for payment accomplishes the requisite demonstration of assent.
Examples and Case Law
Given that the UCC has been in force for several years, there has been some judicial interpretation of the application of the mailbox rule to various transactions governed by the UCC.
For example, in P. M. Enterprises, Inc. v. Roan Co., LLC, the Court of Appeals of Georgia considered the application of the mailbox rule to a satisfaction of lien. This was a case involving an alleged satisfaction of lien and referenced the mailbox rule in its analysis but did not specifically apply the rule. The Court did note that the language of the statute clearly stated that delivery of a release of lien was not effective until it was recorded and that a lien was deemed to be released from the moment it is recorded.
In another case, Harris v. Green Tree Acceptance, Inc., the Court of Appeals of Georgia considered the application of the mailbox rule in a case involving the sale of mobile homes. Upon receiving a loan application from a borrower, Green Tree Acceptance, Inc. sent out a commitment letter that included a request for various documents. The letter further stated that if there was "no response in 48 hours, an inquiry will be made by telephone" and that "if you have not received a commitment order by the 14th day after the postmark date . . . you are entitled to cancel this transaction, or renegotiate the terms of the transaction." The borrower faxed the requested documents to Green Tree Acceptance, Inc. and that fax was transmitted to Plaid, a company with which Green Tree Acceptance, Inc. had contracted to receive and review faxed documents. Another fax of the same documents was faxed to Plaid on the next day. The first faxed documents were not reviewed by Plaid and the second set of documents was reviewed and accepted by Plaid. Plaid forwarded those documents to Green Tree Acceptance, Inc. and a commitment order was issued that same day. Harris contended that because there was no response within 48 hours that Green Tree Acceptance, Inc. should have treated the commitment letter as an invitation to renegotiate or as a request for a refund. That was not the case, stated the Court of Appeals of Georgia, and no rejection was made until a rejection email was sent a few months later. The court noted that Harris failed to respond to the request for documents. It found that where no response is given to the request for documents the commitment letter with the 48 hour clause would be construed as an offer. An order of commitment was issued prior Harris’ request for a refund and, therefore, it was proper.
Practical Considerations for Businesses
Because the mailbox rule remains a fixture of contract negotiations, it cannot be ignored as merely an academic consideration. In fact, the concept has significant and practical implications for businesses and practitioners that engage in contract negotiations and the ultimate formation of contracts under the UCC. The mailbox rule can have a major impact on an essential element of a contract: the formation of a contract under the UCC requires an offer, acceptance of that offer, and consideration.
For example, if buyer sends an offer and seller never answers, but is still obligated to perform on the agreement, then the contract has been formed, and buyer can demand performance from seller. On the other hand, if the seller had written back that she was rejecting the offer, and buyer had never sent an acceptance, then buyer never made an offer to which seller had responded with acceptance. Thus, no contract is formed, and seller is free to choose whether or not to perform on the non-offer that buyer had not sent to her.
Practitioners and companies that enter into UCC contracts should be mindful of this rule, especially when form contracts, such as purchase orders, are involved in the negotiation process. For example, assume that a seller and a buyer are discussing the terms of a contract for the sale of goods. Buyer makes an offer with specific terms. Seller, in a subsequent conversation, says that she does not like the price, but would like to work out a deal in person. Buyer agrees, and they both set a date for the next week. However, that same day, seller says that she had a better offer come through, and that she would need to refuse buyer if he did not immediately call her to agree to the original offer. Buyer wants to have the conversation in private, and never hears from seller again.
In this hypothetical, seller materially changed the offer price, and then refused to talk about it, making it mere chatter or an invitation to negotiate. Since buyer never accepted her offer, she cannot demand performance from buyer, even though she asked him to call to agree to the original offer. To be sure, if buyer would have accepted the original offer, he would have been obligated to perform. Since he did not send an acceptance, there is no obligation, and thus no contract, between the parties.
In Closing – What You Should Know
Discerning whether the mailbox rule applies to a UCC contract is not the type of inquiry that resolves itself easily. And this holds true , even between disputes within a single state. The takeaway is for parties to address this issue at the outset of any contract and to articulate when that contract is fully formed. For if there’s one thing to be taken from the rule’s name, it’s that your mailbox is not always the same as the other party’s.