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5/5 Bitcoin and the connection to contracting

By Craig Wright | 21 Jun 2019 | Bitcoin & Blockchain Tech

The postal acceptance rule and non-RBF Bitcoin

The postal acceptance rule states that where an acceptance is to be sent by post, the contract associated with that acceptance is considered as concluded at the moment of posting the letter, not when the letter is received (or in fact if the letter is received). If the offeror does not wish to conclude, the contract through acceptance via the post, s/he may stipulate the form of acceptance. (The “postal acceptance rule” was introduced to present assurance to the “new” British penny post. It dates back to Adams v. Lindsell, 1 Barnewall and Alderson 681, In the King’s Bench (1818); See also Household Fire Insurance Co v Grant [1879] 4 Ex D 216).

Lim (2004) points out that there have been at least “twelve theories or explanations offered for the postal acceptance rule”. He further notes that two of these theories apply particularly well to Internet-based contractual transactions. The first theory hypothesises that the postal acceptance rule is applicable to Internet transactions as the communication proceeds through a third party. Next, an argument exists for the theory that the postal acceptance rule applies to Bitcoin Transactions, as it is a non-instantaneous means of communicating.

Contractual acceptance through Bitcoin remains unsettled by judicial review or decision. As such, there is still a high degree of uncertainty surrounding the issues of offer and acceptance related to the formation of contracts through peer to peer digital currency based communication. In the US, this issue has been determined through statutory intervention (Uniform Electronic Transactions Act, 1999; USA). In the UK, the issue remains unclear even following the ECA.

In cases concerning international transactions, the Sale of Goods (United Nations Convention) Act 1994 may be applied. This act overrides the concept of “postal acceptance” is and as an alternative presents the approach that acceptance “will become effective at the moment the indication of consent reaches the offeror”. In practice, the acceptance transpires at the instant that the communication arrives at the offeror’s computer or possibly when it is incorporated into a block if the user is offline. While no decided cases on this point are available as guidance, the courts have traditionally been disinclined to extend the application of the postal acceptance rule.

Although telex, e-mail and Bitcoin transactions are separate technologies, they share many features. In both Entores v. Miles Far East Corp ([1955] 2 QB 327) and Brinkibon Ltd v Stahag Stahl (1983), the courts declined to extend the application of the postal acceptance rules.

Lord Wilberforce (Brinkibon Ltd v Stahag Stahl [1983]) stated at 42, “where the condition of simultaneity is met, and where it appears to be within the mutual intention of the parties that contractual exchanges should take place in this way, I think it a sound rule, but not necessarily a universal rule”. The issue of “block confirmation” for Bitcoin Transactions could be an important factor in a future decision. Lord Fraser of Tullybelton (at 43) differs somewhat in his judgement from Lord Wilberforce, stating that:

“A party (the acceptor) who tries to send a message by telex can generally tell if his message has not been received on the other party’s (the offeror’s) machine, whereas the offeror, of course, will not know if an unsuccessful attempt has been made to send an acceptance to him. It is therefore convenient that the acceptor, being in the better position, should have the responsibility of ensuring that his message is received.”

From the above cases, we can see that technological differences such as the inclusion of read and sent receipts. Further, the arguable position of bitcoin transactions as to whether it is or is not “instantaneous” has created a level of uncertainty in contracting as “the question of the applicability of the postal acceptance rule to e-mail acceptances has not been judicially settled.” (Lim, 2002, p66).

The postal acceptance rule as a generally consideration does not to apply to Web-based communications. This is because most Web-based systems employee mechanisms such as check-sums to maintain constant communication between the client and server systems. The constant verification this communication channel provides for the implication that communications take place though an immediate send process. Thus, both parties receive communications instantaneously.

The UK Government has not adopted the Model Law (As contained in the Electronic Commerce (EC Directive) Regulations 2002, SI 2002/2013), which would have put to rest the postal rule argument concerning email. The regulations do however unmistakably declare the point at which an order is legally supposed to be communicated. Regulation 11(2)(a) states that where businesses contract, “the order and the acknowledgement of receipt will be deemed to be received when the parties to whom they are addressed are able to access them”. Where contracts complete by Bitcoin are concerned, the instant of completion would be the time when the transaction is presented to the person to whom it is addressed and not when the message is actually received by their wallet. Alternatively, the receipt of the transaction by mining servers (nodes) would also form evidence of acceptance.

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Cases

1. Adams v. Lindsell, 1 Barnewall and Alderson 681, In the King’s Bench (1818)

2. Apple Corps Limited v Apple Computer, Inc. [2004] EWHC 768

3. Brinkibon Ltd v Stahag Stahl (1983) 2 AC 34 (House of Lords, UK)

4. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256

5. Debenhams Retail Plc v Customs and Excise Commissioners [2004] EWHC 1540

6. Daulia v Four Millbank Nominees Ltd [1978] 2 All E R 557

7. Eliason v Henshaw, 17 US 225, 4 Wheat. 225 (1819)

8. Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 (Court of Appeal, United Kingdom)

9. Fisher v Bell [1961] 1 QB 394

10. Goodman v J Eban Ltd [1954] 1 QB 550

11. Hayes v. Brown [1920] 1 KB 250

12. Hill v. R. [1945] KB 329

13. Household Fire Insurance Co v Grant [1879] 4 Ex D 216

14. Hyde v Wrench (1840) 3 Beav 334

15. J. H. Tucker & Co.Ltd. v. Board Of Trade [1955] 2 All ER 522

16. L’Estrange v. Graucob [1934] 2 KB 394, 403 per Scrutton LJ

17. Lyell v. Kennedy (No 3) (1884) 27 Ch D 1

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25. Thornton v Shoe Lane Parking [1971] 1 All ER 686

Statues and Regulations

1. Art.1335 Italian Civil Code.

2. Germany: case RGZ 144, 292

3. Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures

4. Directive 2000/31/EC on Electronic Commerce OJ 2000 L 178/1 and Council Directive 94/44/EC on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees OJ I 171 7.7.99

5. Law of Property (Miscellaneous Provisions) Act 1989 (c. 34)

6. Resolution adopted by the General Assembly [on the report of the Sixth Committee (A/51/628)] 51/162 Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law.

7. Sale of Goods (United Nations Convention) Act 1994

8. Statutory Instrument 2000 №1798 (C. 46) ELECTRONIC COMMUNICATIONS Electronic Communications Act 2000 (Commencement №1) Order 2000; Electronic Communications Act 2000

9. Statutory Instrument 2002 №318; The Electronic Signatures Regulations 2002

10. Statutory Instrument 2003 №2431, The Land Registration Act 2002 (Transitional Provisions) (No 2) Order 2003

11. The Electronic Commerce Directive (00/31/EC) and the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 №2013). [Includes The Electronic Commerce Directive (00/31/EC) and the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 №2013); On the 21 August 2002 the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 №2013) transposed into UK law the majority of the provisions of the Electronic Commerce Directive (2000/31/EC)]

12. Uniform Electronic Transactions Act, 1999; USA

13. UNCITRAL Model Law on Electronic Commerce with Guide to Enactment (1996), with additional article 5 bis as adopted (United Nations Model Law on Electronic Commerce (1996))

14. US: Restatement 2d of Contracts, S 56 & The United States Framework for Global Electronic Commerce

[1]http://blog.cryptoiq.ca/?p=534

[2]http://www.coindesk.com/code-is-law-not-quite-yet/

[3]https://bitcoincore.org/en/faq/optin_rbf/

[4]https://en.bitcoin.it/wiki/Double-spending