In my report I am going to look at the formation of contract issue in English Law. I am going to give a brief explanation of how a contract forms. The main body of the project will be about the Termination of Offer. After giving explanations to that matter I will give an example on the same subject under another country’s law jurisdiction.
DEFINITION OF CONTRACT IN ENGLISH LAW
A contract may be defined as an agreement enforceable by the law between two or more persons to do or abstain from doing same act or acts, their intention being to create legal relations and not merely to exchange mutual promises.
In order to decide whether a contract has become into being it is necessary to establish that there has been agreement between the parties. In consequences it must in general be shown that an offer was made by one party called the offeror which was accepted by the other party called the offeree.
An offer is an announcement of a persons willingness to enter into a contract. An offer may be made to a particular person or, in some cases, to the public at large. An offer to the public at large can only be made where the contract which eventually comes into being is an unilateral one, i.e. where there is a promise on one side for an act on the other.
TERMINATION OF OFFER
If an offer is not turned into a contract by acceptance, it may be ‘terminated’, that is it may loose its ability to be converted into a contract in a number of ways.
First, an offer may be rejected. This destroys the efficacy of the offer in so far as the particular offeree is concerned. The result is that it is no longer open to the offeree to change his mind, and accept the offer after all, unless indeed the offeror renews the offer. If it is asked why the offeree should not be able to change his mind, and have a second bite at the cherry, there are two possible answers. One is that it simply seems fair and right that if an acceptance is immediately binding when communicated, likewise a rejection should be immediately binding. But another possible reason is that if the offeree rejects the offer, the offeror may immediately act on this, for instance, by offering to make the same bargain with a third party. It would then obviously be unfair to allow the offeree to react his rejection. If the second of these was a chief reason for the rule, then the rule should perhaps not apply where the offer is rejected by mistake, and the offeree immediately withdraws the rejection before the offeror has acted on it, and seeks instead to accept it. But it has been held that an offeree may not do this, so perhaps the first of these reasons is the stronger.
The general rule is that an offer may be revoked, i.e. withdrawn, at any time before acceptance. If there is an option attached to the offer as where the offeror agrees to give seven days for acceptance, the offeror need to keep the offer open for seven days but can revoke it without incurring legal liability unless the offeree has given some consideration for the option. Where consideration, e.g. a payment of, or a promise to pay, money, has been given by the offeree the offeror may still revoke his offer and sell the property which was the subject-matter of the offer to someone else. He will, however, be liable to an action for damages for breach option. It was thought at one time that where the option to buy property was not supported by consideration, the offer could be revoked merely by its sale to another.
REJECTION OF OFFERS
Express rejection of an offer has the effect of terminating the offer. The offeree can not subsequently accept the original offer. A counter-offer, where the offeree tries to change the terms of the offer has the same effect.
In Hyde v Wrench (1840) Wrench offered to sell his farm foe 1,000. Hyde offered 950, which Wrench rejected. Hyde then informed Wrench that he accepted the original offer. It was held that there was no contract. Hyde’s counter-offer had effectively ended the original offer and it was no longer open to him to accept it.
A counter-offer must not be confused with a request of information. Such a request does not end the offer, which can still be accepted after the new information has elicited.
LAPSE OF TIME
If a time for acceptance has been stipulated than the offer lapses when the time has expired. If no time has been stipulated then acceptance must be within a reasonable time, and this is a matter of fact for the judge to decide on the circumstances of the case.
Death after an offer has been accepted cannot effect the validity of a contract. There are, however, cases where either the offeror or the offeree dies before the offer is accepted. If the offeror dies, the offer does not seem to terminate automatically (except where the offer is clearly of such a type that it must end on death). However, the offeree cannot accept the offer once he knows of death of the offeror.
The effects of the death of the offeree have not been decided conclusively but uncontradicted dicta suggest that the offer lapses. In Reynolds v Atherton, it was suggested that an offer, being made to a living person, cannot survive his death and be accepted by someone else. This may be an illustration of the basic rule that an offer made to A cannot be accepted by B. On the other hand, if an offer is made to A or B there seems no reason why the death of B should prevent A accepting it.
DEFINITION OF CONTRACT IN GERMAN LAW
A contract actually consists of two acts: the agreement or the conclusion of a contract of sale as the obligating act (Verpflichtungsgeschaft or Beschluss ), and the performance (Verfugungsgeschaft ), which consists of the transfer of ownership and delivery to the buyer. The letter thus fulfils the declarations of intent in the former. These different legal actions are separated by the principle of abstraction.
FORMATION OF A CONTRACT AND TERMINATION OF OFFER
The offer is a declaration of intent which must be received by the other party. An offer becomes effective only when received by the other party, if not made in the presence of the offeree. Offers made in the actual presence of the offeree or to those in direct contact, i.e. by telephone, must be accepted immediately to remain effective. Any delay will cause the offer to lapse automatically.
Whoever makes an offer capable of being accepted, is bound by the offer or if no time is specified, is bound to keep the offer open for a reasonable time.
An offer is open to immediate acceptance only by the person to whom it is made if that person is either present or in contact by telephone. The result is that most offer in Germany are not offers but, as with shop displays, would be regarded as ‘invitation to treat’. This is known in Germany under the Latin expression invitatio ad offerendum .
However, in keeping with ideas of contractual freedom, the offeror can avoid being bound to keep an offer open by including the words freibleibend ( ‘subject to change’ ) or widerruflich ( ‘revocable’ ) or ohne Obligo ( ‘without obligation’ ). Any enquiries as a result or offers made by the other party to the invitation to treat would be treated as an offer.
The offer is extinguished if it has been turned down, in which case this declaration must be received by the offeror, if the acceptance is not received in time, or if there is a counter-offer or there is a late acceptance which is treated as a new offer itself.
The rule is that acceptance, which is also a declaration of intent in the same way as an offer, is effective on arrival, i.e. on receipt. Acceptance must also be unreserved and unconditional. This is important where the offers are left open for a reasonable time or in respect of posting. Therefore, the German rule is that a posted acceptance is binding on receipt.
This is interpreted to mean, in a business context, within the sphere of the influence (Machtbereich) of the recipient and, in respect of letters, when it would reasonably be expected the letter would be collected from the mailbox.
An offer or acceptance will not be effective if a revocation reached the other party before or at the same time. Therefore, if an offer or acceptance is to be effectively revoked, the revocation must arrive sooner than, or at least simultaneously with, the original.
Unless an offer is accepted in a reasonable time it will be extinguished. Acceptance is only possible by those to whom an offer is made. A late acceptance is viewed as a new counter-offer, as are changes or additions.
1. Atiyah, P.S. (1995). An Introduction to The Law Of Contract. (4th Edition) Oxford: Clarendon Press
2. Card, R. and James, J. (1997). Law For Accountancy Students. (6th Edition) London: Butterworths
3. Foster N.G. (1994). German Legal System & Laws.
4. Mueller, R. (1978). Doing Business in Germany. ( 8th Edition) Frankfurt Am Main: Fritz Knapp Verlag.