3. Formation of Contracts - offer and acceptance

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Mind Map on 3. Formation of Contracts - offer and acceptance, created by jreube04 on 04/25/2015.

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3. Formation of Contracts - offer and acceptance
  1. 3. 1 Offer

    Annotations:

    • Almost all contracts are made through the process of offer and acceptance. One of the parties (the offeror) makes an offer by proposing a set of terms with the intention that these terms will form a legally binding agreement if they are accepted by the party to who they are proposed, the offeree. If the offeree accepts, by indicating that he too is willing to be bound by the terms proposed, a contract will result. The offer can be written or spoken, or it can be inferred from the conduct of the offerer.
    • The classical approach to the formation of contracts holds that every other type of contract is made when an offer is accepted. However, it is not always so easy to see what the offer and acceptance were. In exceptional circumstances a court may hold that a contract existed even though it is not possible to identify the definite offe and a definite acceptance. But this can only happen if the court is satisfied that the parties reached agreement on all material points.
    1. 3.1.1 Invitation to Treat

      Annotations:

      • The word treat has several meanings. In the context of the law relating to offer and acceptance it means to negotiate. An invitation to treat is therefore an invitation to negotiate, or an invitation to make a deal. The main significance of an invitation to treat is that it is not an offer.
      1. 3.1.2 Advertisements

        Annotations:

        • In order to describe whether or not a criminal offence has been committed it is often necessary to consider the civil law. This is particularly true of crimes which are committed by selling or offering for sale.
        • Sales puff is a statement which promotes a product in a way which is not intended to be taken to amount to a definite promise. Modern examples can be seen in the claims made by manufacturers of washing powders that their product washes whitest. The defendants reference to the £1000 having been deposited in the Regent Street Bank indicated to the court that the promise of the reward was not a mere sales puff.
        • A contract was made with the whole world was exposed as a fallacy by Bowen LJ. The offer was made to the whole world but this did not of course mean that a contract was made with the whole world. A contract was only made with that limited portion of the public who accepted the offer.
        1. 3.1.3 Offers of Unilateral Contracts

          Annotations:

          • Almost all contracts are bilateral (two-sided) because both sides make a contractual promise to the other.
          • A person who makes an offer of a unilateral contract agrees to be bound if the offeree promises to perform some act, rather thsb if the offeree promises to perform some act. Unilateral (one-sided) because only one of the parties, the offeror,makes a promise. The offeree cannot accept by promising to do theact requested, but only by actually doing it. A further peculiarity of unilateral contracts is that acceptance of the offer does not need to be communicated to the offeror
          • It is well established that the display of goods in a shop window amounts only to an invitation to treat and not to offer.
          1. 3.1.4 Goods in Shops
          2. 3.2 Acceptance

            Annotations:

            • As soon as an offer is accepted, a contract come into existence and both sides are legally bound. An acceptance can be made by words or conduct, or unless the postal rule applies, the acceptance must be communicated to the offeror.
            • COMMENT: (I) Lord Denning also explained that an acceptanxce by telephone would not be effective until it was heard by the offeror, but that this was only the case if the offeree knew that the acceptance had ont been heard. He suggested that if the offeror did not make it known that he had not heard the acceptance then a contract would come into existence because the offeror would be estopped (prevented) from saying that had not received the message. He also thought that this would be the case if the ink ran out on a printer receiving the acceptance and the offeror did not ask for the message to be repeated. (ii) The decision in Entores was appoved by the House of Lords in Brinkibon Ltd v Stahag und Stahlwarenhandelsgesellschaft GmbH [1983] 2 AC 34.
            • Section 2 of the unsolicited Goods and Services Act 1971 makes it criminal offence to demand payment for unsolicited goods sent to a business. (Goods are solicited if they are sent to a person who has not made a prior request for them. Furthermore, reg.24 of the Consumer Protection (Distance Selling) Regulations 2000 provides that a consumer recipient of unsoliciated goods may treat the goods as an unconditional gift if three conditions are met. First, the goods must have been sent with a view to the recipient acquiring them.Second, the recipient must have no reasonable cause to believe that the goods were sent with  view to their being acquired fot he pruposes of their business. Third, the recipient must have neither agreed to acquire them or return them. The Consumer Protection from Unfair Trading Regulations 2008 also make it a criminal offence to demand payment for such goods.
            1. 3.2.1 The Postal Rule

              Annotations:

              • COMMENT: (ii) In Househod Fire Insurance Co v Grant (1879) 4 Ex D 216 the Court of Appeal applied the postal rule in a case where the letter of acceptance was permanently lost in the post. The defendant's letter agreed to buy 100 shares in a company. He paid 5 per cent of the price of £100 shares in a company. A letter accepting his offer was posted but never received. The company went into liquidation. A good contract was formed when the letter was posted and the defendant was therefore obliged to pay the remaining £95.
              • The express terms of the offer (by notice in writing) indicated that the acceptance had to reach the offeror to be accepted, and so tis made the postal rule inappropriate. Lawton LJ also stated that the rule would not apply where it would not apply where it would produce manifest inconvenience and absurdity. The negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer or exercising an option had in fact communicated the acceptance or exercise to the other.
              1. 3.2.2 Counter Offer

                Annotations:

                • Acceptance of an offer must be unqualified and unconditional. A reponse which prposes a material alteration of the terms of the offer will amount to a counter offer. The effect of such a counter offer will be revoke the original offer.
                • Hyde v Wrench (1840) 3 Beav 334 On 6 June 1840 the defendant offered to sell his farm to the claimant for £1000. The defendant asked for a reply by return of post as he had another buyer in mind. The claimants agent called on the defendant and offered £950 for the farms on the claimants behalf. The defendant relpied that he would need to think about this and assured the agent that he was not carrying on negotiations with anyone else. On 27 June the defendant wrote to the lcaimant's agent declining the offer of £950. On 29June the claimant wrote back accepting the original offer to sell the farm at £1000. The seller refused to sell at this price. Held. There was no contract. The claimants counter offer of £950 had revoked the defendants original offer. COMMENT: It might seem strange that the counter offer was held to have revoked the original offer, but this must be the correct decision. If a business offers to sell an asset for a certain price and this ffer is rejected by the offeree making a counter offer, the business is likely to sell the asset to someone els. It would be very harsh if the offeree, having refused the original offer, could now accept it and make the offeror liable for breach of contract.
                1. 3.2.3 Auctions
                  1. 3.2.4 Tenders

                    Annotations:

                    • A tenderer who puts in a price at which the goods will be supplied for the whole period of time makes what is known as a standing order. Such an offer can be accepted many times, and each acceptance leads to a new contract. However, the offer is only accepted when the person who invited tenderers to actually order goods, and the offer can be withdrawn before any particular order is made.
                    • The defendant had made a contract to fill a particular order. He had made a standing offer and each time the claimants made an order they acceoted this offer. A revocation of a standing offer would be effective when it was received. Revocation would be allowed because the defendant had been given no consideration in return for keeping the offer open, that is to say he had been given no consideration in return for keeping the offer open, that us to say he had been given nothing of any value in return for doing so.
                    • In ceetain circumstances an invitation to tender could create binding obligations to consider conforming tenders. The circumstances of the case indicated that an offer of a unilateral contract had impliedly been made to the seven potential tendersers and promised that if they submitted their tender in the correct way then in return they would have their tenders opened and considered, along with any other tenders which were considered.
                  2. 3.3 Certainty

                    Annotations:

                    • In contracts to sell goods or to supply services a contract can exist even if the price has not been agreed. Section 8(1) of the Sale of Goods Act 1979 provides that the price in a contract of sale of goods may be fixed by contract, or may be left to be fixed in a manner agreed by contract, or may be determined by the course of dealing between the parties. Section 8(2) provides that where the price is not determined by any of these methods the buyer must pay a reasonable price. Section 15(1) of the Supply of Goods and Services Act 1982 makes a similar provision where the contract is for supply of a service. Once an agreement had started to be performed the courts are much more likely to hold tha there is a contract. It is not absolutely essential to do this because in the absence of a contract a party who has received valuable beneifts could be ordered to pay for them on a quantum meruit basis. This would mean that the person who had supplied the goods or services would be paid a reasonable price or remuneration. However, the fact of a agreement having been partly performed is a strong indication that the parties intended to create a contract.
                    1. 3.3.1 Meaningless Terms

                      Annotations:

                      • Denning LJ: 'In my opinion a distinction must be drawn between a clause which is meaningless and a clause which is yet to be agreed. A clause which is meaningless can often be ignored, whilst still leaving the contract good; whereas a clause which has yet to be agreed may mean that there is no contract at all, because the parties have not agreed on all the essential terms.
                      • It should be noted that in this tpe of case either the previous dealings of the parties or trade custom could have a strong influence on the court's decision. Neither side is contractually bound by a 'subject to contract' arrangemtn or understanding; and that each side is accordingly free to withdraw from the proposed transaction without incurring legal liability fro breach of contract.
                      • In general an obligation to use best endeavours, is not in itself regarded as too uncertain to be unenforceable, provided that the object of the endeavours can be ascertained with sufficient certainty. The most important part of the context would be the objective towards which the endeavours were to be directed. If they were to be be directed If they were to be directed towards an objective which could be identified with ceetaintythen it would be possible, if necessary with the help of expert evidence, to decide whether or not the endeavours used satisfied the obligation to use them. 
                      • An obligation to use best endeavours should usually be held to be an enforceable obligation unless: (I) the objective which the endeavours are meant to achieve is too vague or elusive to be a matter of legal obligation; or (ii) the parties have provided no criteria by which it is possible to access whether best endeavours have been, or can be used.
                      1. 3.3.2 Best or Reasonable Endevours
                      2. 3.4 Offer and Acceptance when dealing with Machines

                        Annotations:

                        • No universal rule can cover all such case; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie.
                        1. 3.4.1 Offer and Acceptance made over the Internet

                          Annotations:

                          • First, a contract could be made by exchange of emails. Second, a customer might visit a website and buy goods or services described there. The position where emails have been exchanged should be catered for by the common law rules already considered in this chapter. In general, websites which describe goods and services and the prices at which they are available will be making invitation to treat rater than offers. This would be particularly true if the material on the website makes it plain that it is the customer who makes the offer and that this offer might or might not be accepted.
                          • The Electronic Commerce (EC Directive) Regulation 2002 are concerned with the formalities which must be complied with when a contract is made with an internet service provider, and an acknowledgement of having received such an offer, are to be effective when the person to whom they are addressed can access them.
                        2. 3.5 Acceptance of an Offer of a Unilateral Contract
                          1. 3.6 Termination of Offers

                            Annotations:

                            • Before examining these moethods it must be borne in mind that we are not here concerned with whether or not the obligations imposed by contract have ceased to exist. if an offer cease to exist, before it has been accepted, then no contract will ever come into existence. the obligations imposed by a contract will cease to exist once the contract has been discharged.
                            1. 3.6.1 Revocation

                              Annotations:

                              • A revocation is only effective when it is received by the offeree. An acceptance of an offer is only effective when it is received by the offeror. So when an offeree claims to have accepted an offer which an offeror claims to have revoked, the court will need to discover whether or not acceptance was received befor the revolation was received.
                              • Once the offer has been made, if the offeror makes a subsequent inconsistent offer this will revoke the original offer. Pickfords Ltd v Celestica, considered earlier in this chapter at 3.2.2, provides an example, In that Case the Court of Appeal also stated that acting inconsistently with the original offer, to the knowledge of the offeree, could also revoke the original offereven if no words were used.
                              • The rule of revocation is effective only when it is communicatd to the offeree causes some difficulty in reward cases where the offer of a unilateral contract is made to the whole world. It must be possible to revoke such an offer and a legal position seems to be that this can be achieved by advertising the revocation in the same way as the offer was advertised.
                              1. 3.6.2 Rejection of Offer

                                Annotations:

                                • A request for more information about an offer does not terminate the offer as it does not imply rejection of it. It can therefore be important to distinguish a request for more information from a counter offer.
                                1. 3.6.3 Lapse of Time

                                  Annotations:

                                  • If an offer is stipulated as being open for a particular time it will be open for that length of time unless it is revoked.
                                  • It might be seen rather unfair that an offer which has been stipulated as being open for s psrticular time can then be revoked before the time limit has been expired. Revocation is allowed because the person to whom the pffer was made has provided no consideration in return for the offer being kept open.
                                  1. 3.6.4 Condition not Fulfilled

                                    Annotations:

                                    • It is implied that the offer is conditional on the goods remaining in the same condition as when the offer was made until the acceptance is made. If the goods are damaged before acceptance the the offer will cease to exist.
                                    1. 3.6.5 Death of Offeror or Offeree

                                      Annotations:

                                      • The fact that the offeror has died before the offer is accepted will not necessarily prevent the offeree from accepting the offer. If the offer was not to supply a personal service, perhaps as an offer to sell a car, then the legal position is less clear. In Bradbury v Morgan (1862) 1 H & C249 it was suggested that the offeree can accept the offer until he has notification of the offerer's death. If this point of view is correct then the offeror's death. If this point of view is correct then the offeror's personal representatives would need to perform the contract.
                                    2. 3.7 Battle of the Forms

                                      Annotations:

                                      • COMMENT: The decision in this case shows that generally the party who fires last wins, that is to say the person who submits the last counter offer wins as lng as the circumstances indicate that the other party accepted this counter offer. Lord Denning MR was critical of the classical offe, counter offer, and acceptance approach. He considered it ill-suited to the needs of modern business. If both sides insist on firing the last shot then a contract will not come into existence at all as agreement will never be reached. In tekdata interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209, [201] 1 Lloyd's Rep 357, the Court of Appeal held that in a 'battle of the forms'  case the party who fired the lat shot would probably win, but that this would always be the case. The question would always depend upon what the parties must be taken, objectively, to have intended when the parties must have taken, objectively, to have intended whent eh contract was made. This should be determined, objectively, on the basis of a proper interpretation of the documents. 
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