Household Fire Insurance Co v Grant (1879) 4 Ex D 216

Facts

• Mr. Grant, the defendant, applied for shares in Household Fire Insurance Co.
• The company allotted shares to Mr. Grant and posted a letter of allotment to his address.
• The letter of allotment, confirming acceptance, was lost in the mail and never reached Mr. Grant.
• Mr. Grant was unaware his application had been accepted.
• After Household Fire Insurance Co. went bankrupt, the liquidator sought payment from Mr. Grant for the shares.
• Mr. Grant refused, arguing no contract was formed as he never received notice of acceptance.
• The dispute centered on whether a binding contract existed when the letter was never received.

Issues

1. Whether a contract is formed when acceptance is posted but not received by the offeror, due to loss in the postal system.
2. Whether the postal rule constitutes an exception to the general requirement that acceptance must be communicated to the offeror.
3. Whether the risks of postal communication should fall on the offeror or the offeree when using post is reasonable.
4. The extent to which the postal rule applies in cases involving multiple offers or forms of communication.

Decision

• The Court of Appeal held that a binding contract was formed at the moment the letter of acceptance was properly posted, regardless of its non-receipt by Mr. Grant.
• The court affirmed that the postal rule applies where the use of post is reasonable, making acceptance effective upon posting.
• The risk of a lost letter rests with the offeror, not the offeree, once posting occurs.
• The judgment confirmed that the general rule of communication has an exception in the context of postal acceptance.
• The court noted the offeror can avoid the postal rule by expressly stating acceptance is only effective upon receipt.
• Bramwell LJ dissented, arguing that acceptance should only be effective when received, highlighting concerns with the rule's fairness and practicality.

Legal Principles

• The postal rule deems acceptance effective when posted, not received, provided use of the post is reasonable between the parties.
• The offeror bears the risk of loss or delay once acceptance is posted.
• The post office is treated as the common agent for both parties in transmitting acceptance.
• The postal rule is an exception to the general rule that acceptance must be communicated.
• The rule does not apply where the offeror has expressly required receipt of acceptance or where post is not a reasonable method.
• The rule generally does not extend to instantaneous modes of communication, such as email or fax.
• The postal rule can complicate contract formation in cases of multiple offers or delayed communication.

Conclusion

Household Fire Insurance Co v Grant (1879) confirms the postal rule as an exception in contract law: acceptance is effective upon posting, binding the offeror even if the acceptance is lost in transit. The case clarifies that risk shifts to the offeror upon posting and affirms the principle's limitations, dissent, and ongoing significance.