Introduction to Contracts - Offer and Acceptance PDF

Week 2 Jaime de Jesus Lima, LLM INTRODUCTION TO CONTRACTS – OFFER AND ACCEPTANCE Contract Law: Lecture 2  SECTION 1 WORKING ON CONTRACT LAW 2 Lecture 1  What Tools? Lectures (Jaime de Jesus...

Week 2 Jaime de Jesus Lima, LLM INTRODUCTION TO CONTRACTS – OFFER AND ACCEPTANCE Contract Law: Lecture 2  SECTION 1 WORKING ON CONTRACT LAW 2 Lecture 1  What Tools? Lectures (Jaime de Jesus Lima) Textbook Law Collection 2023 - Contract Law Workshops (Mr. Lima & Mr. Thyroff-Kohl) Recommended Reading (Articles) Brightspace 3 Lecture 1  SECTION 2 WHAT IS CONTRACT LAW? 4 Lecture 1 Why Contracts? A contract is a legally binding agreement that will be enforced by the law. A contract gives rise to obligations between the parties to the contract and the failure to perform these obligations gives the right to a remedy.  SECTION 3 WHY CONTRACT LAW? 6  Why Contract Law? The development of the Market Economy − Move from Agricultural to Industrial Economy − Liberalism (every individuals’ right to shape his/her own life) Contract Law ensures that society can function because agreements are enforceable. People make their own agreements (not the State) 7  Why Contract Law? 8  SECTION 4 TYPES OF CONTRACT 9 Types of Contract - Classification Type of Parties Reason for Performance Type of Performance B2B – Business to Business A promise in exchange for a promise Employment Contracts, Agency, Banking, Carriage Bilateral contract by Air, Carriage by Sea, e.g. the sale of a Bike Competition Law, B2C – Business to Consumer Construction Contracts, Credit & Security, A promise in exchange for an act. Employment, Intellectual C2C – Consumer to Consumer Property, IT & E-Commerce, Unilateral contract Insurance, International Sale e.g. the promise of a reward for of Goods, Sale of Securities, information about a crime Sale of Land, Landlord and Tenants, Marriage etc.  SECTION 5 SOURCES OF CONTRACT LAW 11  Party Standard form contracts Agreement General terms National law (e.g. civil/common law) Formal Default rules, facilitative rules, mandatory rules sources of law Regional Law (e.g. EU law) International Law (e.g. CISG) Non-state organisations Informal Academics sources of law Non-binding soft law e.g. Principles, Restatements 12 Examples - Supranational Contract Law European Law (Art 114 TFEU) International Law EU Directives on… United Nations Convention on Defective Products Contracts for the International Sale Self Employed Commercial Agents of Goods (Vienna, 1980) (CISG) Package Travel − Work of United Nations Unfair Terms Consumer Contracts Commission on International Sale Consumer Goods Trade Law Electronic Commerce − Applies whenever contracts for Distance Marketing the sale of goods are concluded Credit arrangements for between parties with a place of Consumers Timeshare business in Contracting States – Consumer rights (85 Parties) Examples – Soft Law - International /Regional Principles European International Institute for the Unification of Commission Draft Private Law (UNIDROIT) Principles of Common frame of International Commercial Contracts (PICC) Reference (DCFR) Commission on European Contract Organisation pour Law Principles of l’Harmonisation en European Contract Afrique du Droit Law des Affaires (PECL) (OHADA) Uniform Act Relating to General Commercial Law  In this Private Law - 1 Module Example of Common Law system ENGLAND Example of Civil Law system FRANCE, GERMANY 16  SECTION 6 GENERAL CONTRACT LAW PRINCIPLES 17 Fundamental Principles of Contract Law Freedom of Contract The autonomy of parties to make the choices they desire in contracting On Whatever terms (Freedom with regard to content) Whenever desired (Freedom to contract or not to contract) With Whomever (Freedom to choose the other party) BUT there are limits! Binding Force Agreements lawfully entered into have the force of law between the parties. Binding (i.e. there will be a consequence if the contract is breached) Party in default MUST compensate the party not in breach UNLESS terms are deemed unfair or prohibited by law Fundamental Principles of Contract Law Informality Contracts do not require any particular form. HOWEVER a particular may form be required by law for certain contacts to be valid Contractual fairness A contract should show procedural fairness. Procedural fairness = unequal position between the parties is remedied NOT Substantive fairness = The contents of the contract is up to the parties even if to anybody else the contract seems to be a ‘bad contract’ for example selling a mansion worth €5,000,000 for €50.  SECTION 7 FORMATION OF AN AGREEMENT 20  Contract Formation - Overview Offer Acceptance Intention Formality Capacity CONTRACT Lack of vitiating factor Agreement – Foundation of Contract Consensus ad idem - To have the same understanding of the terms of the agreement. Only where parties are of the same mind (mutual assent) will the courts hold them to their agreement.  The Importance of Agreement Mutual Assent − A contract is an agreement between parties − This agreement is evidence of consensus ad idem (agreement as to the same thing) − The promisor makes the offer (also known as the offeror) − The promisee is the person to whom offer is made (also known as the offeree) − Acceptance of offer creates an agreement, which if legally enforceable is a contract Effect of making the promise − Undertaking that certain state of affairs exists − Undertaking that something shall happen or not happen in the future − Failure (of the promisor to do or refrain from doing the action promised) = a breach − Breach creates legal right to remedy 23  French Law – Civil Code Art. 1101. – A contract is a concordance of wills of two or more persons intended to create, modify, transfer or extinguish obligations. Art. 1102. – Everyone is free to contract or not to contract, to choose the person with whom to contract, and to determine the content and form of the contract, within the limits imposed by legislation. Contractual freedom does not allow derogation from rules which are an expression of public policy. 24  German Law – Civil Code Section 241 Duties arising from an obligation (1) By virtue of an obligation [e.g., contract], an obligee is entitled to claim performance from the obligor. The performance may also consist of forbearance. (2) By its contents, an obligation may oblige each party to take account of the rights, legal interests and other interests of the other party. 25  SECTION 8 CREATION OF AN OFFER 26  What is an Offer? Is there an expression of willingness to contract on specified terms? Is there an intention that this expression of willingness is to be binding once accepted? Says who? The Reasonable Person (objective standard) 27  What is an Offer? France Germany England Art 1114 Section 145 Gibson Case Obligations Determinable / Sufficiently Defined / Intended to Be Binding 28  German Law – Civil Code Section 145 Binding effect of an offer Any person who offers to another to enter into a contract is bound by the offer, unless the person has ruled out the offer’s being binding upon them. 29 Offer and acceptenace  French Law – Civil Code Art. 1114. – An offer, whether made to a particular person or to persons generally, contains the essential elements of the envisaged contract, and expresses the will of the offeror to be bound in case of acceptance. Failing this, there is only an invitation to enter into negotiations. 30  English Law – Gibson Case What if it was not an offer but a start of negotiation… an invitation to treat? “there never was an offer by the corporation (…) of which by Mr. Gibson was capable in law of constituting a legally enforceable contract. It was but a step in the negotiations for a contract which, owing to the change in the political complexion of the council, never reached fruition.” ( page 34 our Law Collection 2023 – Contract Law) Obligations Determinable / Sufficiently Defined / Intended to Be Binding 31 Are these Offers?  Offer v. Invitation to treat An invitation to treat is not an offer but an indication that a person is willing to start a negotiation to enter into a contract: Depending on jurisdiction, there are legal presumptions regarding certain transactions, including: − Advertisements − Calls for tenders − Displays of good in shops − Price Lists − Brochures 33 Offer and acceptenace  Are advertisements an Offer? The same for goods on websites France Germany England Advertisement as Invitation to treat Invitation to treat a “regular/normal offer” Yes No No Invitation to treat “by a party to make an offer”. Thus, not a contractual offer. There is no intention to be legally binding. 34  Are goods on display in a shop an offer? France Germany England Pharmaceutical Society “customer seeing n At the till, a displayed Case item marked with item is both offered and price… puts in a accepted Fisher v. Bell (not in Law basket” Collection) Yes No No 35  Pharmaceutical Society of Great Britain v Boots Cash Chemists 1 QB 40 Goods taken from shelf and placed by customer in the basket. Section 18 Pharmacy and Poisons Act 1933, stated a registered pharmacist is needed for the sale of any goods on poisons list. Question was when did sale take place? [Read the case at home. Eating some popcorn… it is fun!] 36  English Law – Carlill Carbolic Smoke Ball If there is a condition or reward… YES it is an offer … “They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement (…) the performance of the conditions is the acceptance of the offer” ( page 2 our Law Collection 2023 – Contract Law) 37 Offer and acceptenace  Is there an Offer? – Ask yourself these questions Yes = Offer / No = Invitation to Treat YES: Sufficiently definite as to the relevant terms. NO: If there still room for negotiation or request for information. YES: Clear Intention to be bound by terms immediately upon acceptance. NO: There is invitation to negotiate the terms YES: There is certainty regarding substance contract (benefit conferred / subject matter/ time, place or manner of performance NO: There is a lack of certainty The terms of the offer = the terms of the Contract! 38 Offer and acceptenace  SECTION 9 TERMINATING AN OFFER 39 Offer and acceptenace  How can Offer End? Rejected Condition of Counter- acceptance offer not met Offer Death Lapsed of party Revoked = There cannot be an acceptance because there is no longer an offer to be accepted!  Revocation Is there a general rule? Does it need to be communicated? When can it be revoked? Are there limits on the type of offer that can be revoked? 41 Offer and acceptenace  Can an Offer be Revoked? France Germany England Art 1116 Section 145 Routledge v. Grant (as long as revocation (one may limit the offer Anytime before is NOT abusive, Mario! on time or make it acceptance as there is no Damages may due in “subject to change”) consideration such cases) Yes No Yes 42  French Law – Civil Code Art. 1115. – An offer may be withdrawn freely as long as it has not reached the person to whom it was addressed. Art. 1116. – An offer may not be withdrawn before the expiry of any period fixed by the offeror or, if no such period has been fixed, the end of a reasonable period. The withdrawal of an offer in contravention of this prohibition prevents the contract being concluded. The person who thus withdraws an offer incurs extra-contractual liability under the conditions set out by the general law, and has no obligation to compensate the loss of profits which were expected from the contract. 43 Offer and acceptenace  English Law – Case Routledge v Grant (1928) 4 Bing 653 Offer of house for sale to remain open for 6 weeks. Offeror took house off market before 6-week period. Held that action legitimate because at time of revocation there had been no acceptance.” ( page 34 our Law Collection 2023 – Contract Law) Offer may be withdrawn at any time before acceptance (no consideration). The general rule is that an offer can be revoked at any time before it is accepted, even if the offeror says he will leave it open for a defined time period. 44 Offer and acceptenace  Can an offer be rejected or lapse? France German England Art. 1118 &1120. Section 146-148 Hyde v. Wrench Acceptance that Acceptance that Acceptance that differs is a rejection differs is a rejection differs is a rejection and counter-offer and counter-offer and counter-offer 45  SECTION 10 ACCEPTANCE 46 Offer and acceptenace  Acceptance must be unconditional (unequivocal) An Acceptance must mirror the offer. The party accepting (offeree) tries to change anything about the offer this is NOT an acceptance but a COUNTER-OFFER! − The COUNTER-OFFER takes the place of the OFFER. − The COUNTER-OFFER becomes the OFFER 47 Offer and acceptenace  Mirror Image Rule France German England Art. 1118. Section 147 Hyde v. Wrench Acceptance that Acceptance that Acceptance that differs is a rejection differs is a rejection differs is a rejection and counter-offer and counter-offer and counter-offer 48  Communication Theories For Acceptance Externalisation Dispatch Receipt Actual Notice theory theory theory theory Moment it Moment it Moment it Moment it is written is sent is received is read 49 Offer and acceptenace  Receipt or Dispatch Rule? France Germany England Art. 1121 Section 130 Adams v. Lindsell Receipt Theory/Rule Receipt Theory/Rule Dispatch Theory/Rule Takes effect at the time the Takes effect at the time the Takes effect at the time the acceptance is received (we acceptance is received (we acceptance is sent or assume it was read). assume it was read). posted. 50  Instantaneous Communication? Postal rule does not in general apply to apply to other modes of communication. Acceptance in instantaneous methods of communication occurs at the moment it arrives (receipt rule) at the offerors’ end of the relevant communicative technology. If there is no receipt, then there is no effective communication. E.g you call (instantaneous) to accept offer, there is no pick-up and you and do not leave message on answering machine (no receipt). 51 THANK YOU!