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Rules of Contracts

Rules of Contracts

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Published by: elizabeth1234 on Aug 28, 2009
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Offer and acceptance
 
From Wikipedia, the free encyclopedia
Offer and acceptance
analysis is a traditional approach incontract lawused todetermine whether an agreement exists between two parties. As a contract is anagreement, an offer is an indication by one person (the "offeror") to another (the"offeree") of the offeror's willingness to enter into a contract on certain terms withoutfurther negotiations. Acontractis said to come into existence when acceptance of anoffer (agreement to the terms in it) has been communicated to the offeror by the offeree.The offer and acceptance formula, developed in the 19th century, identifies a moment of formation when the parties are of one mind. This classical approach to contract formationhas been weakened by developments in the law of estoppel, misleading conduct,
 
misrepresentationandunjust enrichment.
 
Offer
 
An
offer
is defined by Treitel as "an expression of willingness to contract on certainterms, made with the intention that it shall become binding as soon as it is accepted bythe person to whom it is addressed", the "offeree".
[1]
An offer is a statement of the termson which the offeror is willing to be bound.The "expression" referred to in the definition may take different forms, such as a letter,newspaper, fax, email and even conduct, as long as it communicates the basis on whichthe offeror is prepared to contract.Whether two parties have an agreement or a valid offer is an issue which is determinedby the court using the Objective test (Smith v. Hughes). Therefore the "intention" referredto in the definition is objectively judged by the courts. In the English case of 
Smith v. Hughes
 
[2]
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 senseas each party would not wish to breach his side of the contract if it would make him orher culpable to damages, it would especially be contrary to the principle of certainty andclarity in commercial contract and the topic of mistake and how it affects the contract.
Unilateral 
 
contract 
 
The contract in
Carlill v. Carbolic Smoke Ball Co
[3]
was of a kind known as aunilateral
 
contract, one in which the offeree accepts the offer by performing his or her side of thebargain. It can be contrasted with abilateral contract, where there is an exchange of promises between two parties. In
 Australian Woollen Mills Pty Ltd v. The Commonwealth
 
 
(1954), theHigh Court of Australiaheld that, for a unilateral contract to arise, the
 
promise must be made "in return for" the doing of the act. The court distinguishedbetween a unilateral contract and aconditional gift. The case is generally seen to
 
demonstrate the connection between the requirements of offer and acceptance,considerationand intention to create legal relations.
Invitations
 
to
 
treat 
 
Aninvitation to treatis not an offer, but an indication of a person's willingness tonegotiate a contract. In
 Harvey v. Facey
[4]
, an indication by the owner of property that he
 
or she might be interested in selling at a certain price, for example, has been regarded asan invitation to treat. Similarly in
Gibson v Manchester City Council
[5]
the words "may be
 
prepared to sell" were held to be a notification of price and therefore not a distinct offer,though in another case concerning the same change of policy (Manchester City Councilunderwent a change of political control and stopped the sale of council houses to theirtenants)
Storer v. Manchester City Council
[6]
, the court held that an agreement wascompleted by the tenant's signing and returning the agreement to purchase, as thelanguage of the agreement had been sufficiently explicity and the signature on behalf of the council a mere formality to be completed.The courts have tended to take a consistent approach to the identification of invitations totreat, as compared with offer and acceptance, in common transactions. The display of goods for sale, whether in a shop window or on the shelves of a self-service store, isordinarily treated as an invitation to treat and not an offer.
[7]
 The holding of a publicauctionwill also usually be regarded as an invitation to treat.Auctions are, however, a special case generally. The rule is that the bidder is making anoffer to buy and the auctioneer accepts this in whatever manner is customary, usually thefall of the hammer.
[8]
A bidder may withdraw his or her bid at any time before the fall of the hammer, but any bid in any event lapses as an offer on the making of a higher bid, sothat if a higher bid is made, then withdrawn before the fall of the hammer, the auctioneercannot then purport to accept the previous highest bid. If an auction is without reservethen whilst there is no contract of sale between the owner of the goods and the highestbidder (because the placing of goods in the auction is an invitation to treat) there is acollateral contract between the auctioneer and the highest bidder that the auction will beheld without reserve (i.e., that the highest bid, however low, will be accepted).
[9]
The U.S.
 
Uniform Commercial Code provides that in an auction without reserve the goods may notbe withdreawn once they have been put up.
[10]
 
Revocation
 
of 
 
offer
 
An offeror may revoke an offer before it has been accepted, but the revocation must becommunicated to the offeree, although not necessarily by the offeror. If the offer wasmade to the entire world, such as in Carlill's case, the revocation must take a form that issimilar to the offer. However, an offer may not be revoked if it has been encapsulated inanoption(see alsooption contract
 
).
 
If the offer is one that leads to a unilateral contract, then unless there was an ancillarycontract entered into that guaranteed that the main contract would not be withdrawn, thecontract may be revoked at any time:
 Acceptance
 
Test 
 
of 
 
acceptance
 
Acceptance
is a final and unqualified expression of assent to the terms of an offer.
[11]
It is
 
nodefenseto an action based on a contract for the defendant to claim that he neverintended to be bound by the agreement if under all the circumstances it is shown at trialthat his conduct was such that it communicated to the other party or parties that thedefendant had in fact agreed. Signing of a contract is one way a party may show hisassent. Alternatively, an offer consisting of a promise to pay someone if the latterperforms certain acts which the latter would not otherwise do (such as paint a house) maybe accepted by the requested conduct instead of a promise to do the act. The performanceof the requested act indicates objectively the party's assent to the terms of the offer.The essential requirement is that there must be evidence that the parties had each from anobjective perspective engaged in conduct manifesting their assent. This manifestation of assenttheory of contract formation may be contrasted with older theories, in which it wassometimes argued that a contract required the parties to have a truemeeting of the minds 
 
between the parties. Under the "meeting of the minds" theory of contract, a party couldresist a claim of breach by proving that although it may have appeared objectively that heintended to be bound by the agreement, he had never truly intended to be bound. This isunsatisfactory, as the other parties have no means of knowing their counterparts'undisclosed intentions or understandings. They can only act upon what a party revealsobjectively to be his intent. Hence, an actual meeting of the minds is not required. Indeed,it has been argued that the "meeting of the minds" idea is entirely a modern error: 19thcentury judges spoke of "consensus ad idem" which modern teachers have wronglytranslated as "meeting of minds" but actually means "agreement to the [same] thing".
[12]
 
 
This requirement of an objective perspective is important in cases where a party claimsthat an offer was not accepted, taking advantage of the performance of the other party.Here, we can apply the test of whether a reasonable bystander (a "fly on the wall") wouldhave perceived that the party has impliedly accepted the offer by conduct.
Rules
 
of 
 
acceptance
 
Communication
 
of 
 
acceptance
 
There are several rules dealing with the communication of acceptance:

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