An Offer and an Invitation to Treat - Coursework Example

Law of contract Name: University: Course: Date: Part 1 - An offer and an invitation to treat An offer An offer is an expression by a party or group made to another party for their willingness to enter into a binding contract on terms that are certain to be rendered certain1. The party accepting the offer can either be an individual, a group or the world at large. The offer can also be conveyed via words, through the conduct of the offeror, for example when a seller tenders the goods from a shop. Unlike invitation to offer, an offer can either be express or implied; both of which are characteristic of simple contracts. Simple contracts are defined as contracts that are not of records or made by deed and can either be implied, expressed or partly implied and partly expressed. Contracts considered express remain so to the extent that their terms are clearly elaborated in writing or by word of mouth. The terms are also implied to the extent to which their terms are a necessary inference from the conduct or words of the parties2. Besides the expressed terms, an express contract may contain additional terms that are implied; transforming it into a partly implied and a partly expressed contract. Both the expression of the terms or the existence of a contract must be entrenched on the intention of the parties as expressed in their words or actions3. In the law of contract, the expressed intention of the parties must exist for the implication in terms to occur according to the principle facit cessare tacitum. However, if the express terms regards unenforceable, the same principle asserts that a contract inconsistent with the terms cannot be implied. If a defendant through an express or implied request is to receive services from a plaintiff, such a contract through quantum meruit for the defendant to pay for the services. Such a contract may be imposed irrespective of the express intention by one of the parties that might be in contravention. According to Barnett, an offer must be communicated to the other party. Communication is necessary for the offer to constitute a contract4. For instance an unauthorized publication in the daily press of a company’s decision to pay a military service volunteering employee the difference between his salary and army pay, does not constitute communication. Contention has arose concerning communication by telegram or letter. But because acceptance is effective once communication is successful, acceptance letter have been acknowledged as means of acceptance from the time of posting. The same has been applied for inviting offers; but preferably contract formation has necessitated that an offer be made once the offeree receives the offer letter. As a requirement for both offers and invitations to treat, the contract has to be made between two parties; a promise and a promise. Thus, a contract between two branches or departments of a company does not constitute a contract, because an individual or entity cannot contract with the self. However, in a case where a person is in different capacities, he is entitled to enter into a contract in his representative capacity with the self as a different individual. Due to the separate legal personality of two registered companies in the same group of companies, contracts between them should be binding; and contracts between offices of two branches of the same firm have been valid as long as they acted as separate legal entities5. Enforcement of an agreement in contract law cannot take place unless it envinces an intention to create legal relations. Similarly, it is not enough that an agreement exists with the support of a consideration, but the parties should envince an intention to establish legal relations. An invitation to treat An invitation to treat involves the invitation by one party to other parties to make their own offer. Once a party acknowledges the invitation the stage is set for making a contractual offer, after which a binding contract is entered into6. Once a contract is established, the terms of the original offer cannot be negotiated further without the consent of both parties7. The tendering process is a clear example of an invitation to offer. Fruehwald believes that once a party submits a tender proposal, the tendering party is not obligated to immediately sign a contract; instead the contract will become binding when the highest bidder for the tender is selected8. Similarly, an auction presents an invitation to treat; though a bit ambiguous. As an invitation to treat, the property owner asks for offers of certain amount and finally selects the highest bidder. However, in case where there is no reserve price or the reserve price is exceeds the offers to be accepted, then the process will become a contractual offer only accepted by the highest bidder. Another example of an invitation to treat is a shopkeeper displaying goods for sale. Irrespective of whether a buyer is willing to pay for the displayed item or even higher than the indicated price, the shopkeeper is not obliged to sell the goods. This clarification was relevant legally as was held in Fisher v Bell (1961) QB 394 that displaying a flicknife for sale in a shop was not a contravention of the legislation that prohibited offering such a weapon for sale9. The clarification further asserts that if a shop mistakenly displays a good for sale a relatively low price, the willing buyer will not compel the shopkeeper to sale the good at the price; the shopkeeper is not obligated to sell at the indicated price; as it is not an offer but an invitation to tender10. Some offers that bear similarity to invitations to treat can sometimes be confused for offers. Such exchanges amounted to offers or invitation to treat under the context of tendering, ‘tickets’ contracts, sales of land, and auctions. a. An announcement that a scholarship examination would be conducted was not an offer of the prize to the participant who acquires the highest marks b. An announcement in a carrier’s schedule that a conveyance would run, was considered an offer c. A catalogue distributed to likely buyers amounted o an invitation to treat; as well as a personal quotation of a price of goods, except for services d. A display of goods for sale on a shop window with price tags attached is an invitation to offer; either on a shelf in a self-service store. However, deck-chairs displayed for hire on a beach amounted to an offer. e. The 15-day temporary cover note sent to the insured by the insurance company upon expiration of the policy amounted to an offer. f. An offer by a company listed in the stock exchange for the public to subscribe for its shares is an invitation to treat; but an invitation for an existing shareholder to absorb more shares in a rights issue or conversion, amounted to an offer11. Because invitations to treat occur in form of goods display, advertisement of an auction, and invitations for tenders, certain statutory and complementary obligations may necessitate consumer protection against misleading advertisements and auctions without reserve, where owner is tempted to sell to the highest bidder. However, unlike a contractual offer, an invitation to treat is not binding as the “inviter” is allowed to change his or her mind on the price and whether to sell or not. Part 2 - Discharge of the original contractual obligation A discharge occurs when a contract has no obligations outstanding under it. A contract can be discharged through performance, agreement, breach, or frustration. Discharge through performance can either be precision performance, time of performance or tender of performance12. First, precision of performance requires that the party must perform in exactness to the promised; in order for a discharge via precision to be valid. In the case Cutter V Powell (1795), a ship’s engineer died midway while on a voyage he had undertook to sail a ship from Jamaica to Liverpool. Because he had not fulfilled his obligation of getting the ship to Liverpool, it was held that nothing could be recovered in respect to his service. Similarly, in Bolton V Mahadeva (1972) a contractor having installed a boiler and pipes to heat a house ended up generating fumes in one room because the central heating system produced less heat than agreed. The verdict was that he could not claim any payment as the installation could not adequately heat the house13. Although the condition of performance is mandatory in order for payment to be made, exemptions in the law will allow payment on a quantum meruit, for incomplete performance in specific circumstances: a. For a divisible contract and recovery can be made for the completed part, such as goods delivered on instalments basis; b. The promise accepts partial performance. But payment was refused in Sumpter v Hedges (1898), because Hedges acquired a half-built house, and as well made to accept partial performance. c. The promise prevents complete performance d. The promisor has fulfilled majority obligations of the contract. In Hoenig v Isaacs (1952), the defendants flat, but had to pay 50 pounds to another firm to finish the painting because of faulty workmanship. It was held that the plaintiff was to be paid 100 pounds (150 minus 50 that was paid to the other firm). Already known as the doctrine of substantial performance, the claimant can only depend on it as long as failure to perform only results to non-fundamental breach of innominate term or breach of warranty. In case it results into a breach of condition or a fundamental breach, the claimant will not have a case14. Secondly, discharge of a contract can occur through agreement; which can either be via a new agreement or by a term in the original contract. This term can either be a method of terminating the contract or a condition subsequent. Because a contract is entered into by an agreement, an agreement will be vital for the discharge of the same. However, an agreement is made binding by the consideration transferred15. An executory contract has no consideration problems as both parties oblige and surrender their rights under the terms of the contract. However, for a partially executable contract, where one party has fulfilled his performance in the contract; the contract can only be made binding with the presence of new consideration (‘accord and satisfaction’), a deed (release), and doctrine of a waiver or estoppels16. Thirdly, Austen believes that a contract can be discharged through a breach; which despite itself not being able to discharge a contract, will allow one party to treat the contract as discharged17. This option means that one party has to terminate the contract depending on how serious the breach is. Discharge of contract through breach can either be a breach of condition or a fundamental breach of an innominate term. Evidently, a party might, during special problems, might repudiate a contract due to poor assumption that the option is his right. a. In Federal Commerse and Navigation v Molena Alpha (1979), instructions by the owners not to issue bills of lading meant the charters could not operate the ship. Which they wrongly assumed was a right entitled to them. It was held that their decision of wrongfully repudiating the contract allowed the other party to consider the contract discharged. b. In Woodar Investment Development v Wimpey Construction (1980), the purchaser wrongfully repudiated a contract for sale of land; which he wrongfully believed was his right. It was held that wrongful repudiation made in good faith will not, like any other wrongful repudiation, allow the other party to consider the contract as discharged. From the above features of a discharged contract, payment of a sum less than that due does not discharge the original contractual obligation. Effects of a terming a contract as discharged Upon a successful discharge of contract, the obligation of both parties will be discharged from the date of termination. In McGegor (1962), the contract was canceled immediately by the defendants it was signed. On the receiving end, the plaintiffs ignored the cancelation, proceeded with the contract and eventually sued for full contract price. It was held that the plaintiffs were to succeed as a mere repudiation does not in itself end a contract. A successful repudiation occurs when the innocent party affirms or terminates the contract. The exemption to this requirement is: a. The innocent alone cannot progress, and is in need of the other party b. The innocent party had no legitimate interest or financial interest in performing the contract, rather in claiming the damages. In The Alaskan Trader (1984), a ship chartered to the defendants was in need of extensive repairs after the first year; the defendants repudiated the contract. On their side, the plaintiffs ignored their repudiation, proceeded with the repair of the ship and readied it for use by the defendants. It was held that the plaintiffs had no special interest in keeping the contract on course; instead they should have accepted the repudiation and claimed for damages. The claimant’s duty to mitigate the loss is vitally important at this point18. However, when a party to a contract has affirmed the contract: a. The party will be responsible for the damages following any breach he commits; and he will not take blame or make excuses using the other party’s anticipatory breach. b. Frustration may occur if a supervening event frustrates the contract and clouds the innocent party’s right to be paid damages, as was held in Avery v Bowden (1855). Lastly, a contract can be discharged via frustration; when it becomes apparent that due to unexpected change in circumstances, the contract cannot be performed or deprived of its commercial purposes. This doctrine has been narrowed by business persons who have customized the doctrine under the force majeure clauses, and by courts that have required that the supervening event must destroy a fundamental assumption19. However, for a contract that is severable, frustration might occur on a part of the contract while the remaining portion is in force. Further more, a supervening event might cause the suspension of obligation to perform a contractual promise without ultimately discharging it. An example in a working environment is a sick employee that might cause his absence in the place of employment and not necessarily discharge his employment contract. Similarly, illegality might result in performance of a minor obligation without wholesome frustration of the contract, such as war-time building reservations might temporarily hamper performance of an agreement to build. This is the height of partial frustration doctrine beyond which an individual entering into numerous contracts that later reduces his supplies, will not be excused of performance. Bibliography Atiyah, PS, 'Consideration: A Restatement' in Essays on Contract, Oxford University Press, New York, 1986, p. 195. Atiyah, PS, The Rise and Fall of Freedom of Contract, Clarendon Press, Oxford, 1979. Austen, BR, 'Gilmore and the Strange Case of the Failure of Contract to Die After All', Journal of Contract Law 1, vol 18, 2008. Barnett, RE, Contracts, Aspen Publishers, New Zealand, 2003. Cavendish, Contract Law, 5 edn, Routledge, London, 2006. Evans, DA, Texas Business Law, 3rd edn, Pelican Publishing, Chicago, 1995. Fruehwald, S, "Reciprocal Altruism as the Basis for Contract," 47 University of Louisville Law Review, vol. 489, 2009. Hans, W, “Pacta Sunt Servanda”, The American Journal of International Law, vol. 53, no. 4, 1959, p. 775-799. Keenan, DJ, & S Riches, Business law, 7th edn, Pearson/Longman, Texas, 2005. Martin, E & J Law, Oxford Dictionary of Law, 6 edn, Oxford University Press, New York, 2006. McKendrick, E, Contract Law - Text, Cases and Materials, Oxford University Press, New York, 2005. Stark, TL, Negotiating and Drafting Contract Boilerplate, ALM Publishing, Chicago, 2003, pp. 5-17. Read More