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Offer And Acceptance Notes

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Contract reading session1 Chen-Wishart chapters 2-3

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Smith v Hughes established that the intentions of the contract are "objective" i.e. the terms are to be interpreted as what a "reasonable man" would understand them to mean, even if this isn't what one party actually did intend. This reduces the "voluntariness" of the contract (since one may misunderstand what the contract will do) but is necessary for (1) accessibility (it would be impossible to prove what is actually in someone's mind); (2) avoidance of fraud (so that people cannot escape/change terms of the contract by pretending that their intentions were X when in fact they were Y); (3) Certainty and protection of "reasonable expectation" (so that each party can be clear as to what will be enforced and their reasonable expectations based on the contract won't be frustrated).

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Formal objectivity is a literalist interpretation of the agreement. It says that the only types of conduct that can create a contract (in descending order of probative value) are signed fina writing; unsigned final writing; other writing or speech; nonverbal conduct e.g. a nod; silence or omissions.

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Contextual objectivity (growing in influence) is interpretation within the "social matrix/context" i.e. taking into account everything that would have affected what was to be reasonably understood from the agreement.

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In Hartog v Colin and Shields it was established that where the buyer knows that the seller has made a mistake as to price, there is no contract: the buyer is prevented from "snatching a bargain" that he must have known was not intended for him. Same interpretation put on Smith v Hughes. Mistakes as to terms known to the other party can void the contract (without the need for the mistaken term to be "fundamental"), whereas mistakes as to fact cannot (unless it is shared and is fundamental). This is NOT to be conceptualised as subjectivity over objectivity since the buyer can only "know" what the "correct" term of the contract is if there is an objectively correct "term" (albeit contradicted by a mistake in the contract). This should really be thought of as "contextual" objectivity (looking at negotiation process and custom) over "formal" objectivity (looking at purely what is written down).

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To vitiate a contract, CA in Chwee Kin Keong established that "actual knowledge" of the mistake was needed to vitiate the contract, but said that actual knowledge was established in cases where "P must have known" or by "circumstantial evidence" (in this case of mistakenly under-pricing goods on internet site, the contract was invalidated on the grounds that P must have known there to be a mistake) and where P adopted "wilful blindness".

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If X carelessly/intentionally misleads Y as to the object being sold and it was reasonable for the buyer to misunderstand what was being sold, the contract can be vitiated: Scriven Brothers & Co v Hindley and Co

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The objective approach has a bias towards just interpretation: it prevents misleading offers from being enforceable; it has been used in "contra proferentem" (against literal text interpretation) reasoning in the cases of ambiguous, onerous terms and refusing to enforce a misunderstood term where one party has contributed to the other's misunderstanding

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If latent ambiguity exists on an important term then there is no contract. Where there is no written contract/confusion over a contract, and neither side convinces the court that "on the balance of probabilities" their version of the contract is correct, then the contract is void.

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The mirror image/ "offer and acceptance" approach is to say that a contract exists where one party intentionally makes an offer, the other party accepts that offer and that the contract has force from the point when the acceptance is made. This is used by the courts to determine whether there is a contract, what is the content and when does it exist.

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An offer is a manifestation (by conduct, speech or writing) of a willingness to be bound by the terms proposed to the offeree from the point when the terms are accepted by the offeree. Once it is accepted, the offeror loses his ability to withdraw. People may deny validity of a contract on grounds that (1) the offer was mistakenly made, (2) it wasn't an offer (see carbolic smoke ball case) or (3) the offer was no longer valid at the time of acceptance. The test of the "honest and reasonable man in the observer's position" protects honest and reasonable expectations but not dishonest or unreasonable ones, so that the contract is invalid where one party has contributed to the other's mistake/employed latent ambiguity.

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There has to be a commitment to be bound or there is no offer: In Harvey v Facey P asked D what was the lowest price at which he would sell a pen and D replied with a price but later refused to sell the pen. Court found no contract because D had made no commitment/intention to be bound by P's terms, even if it did supply information relevant to a possible future sale. This requirement of a commitment to be bound is important to allow freedom from contract i.e. room for manoeuvre.

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Also the courts distinguish between invitation to treat (desire to embark on negotiations) and an actual offer. An offer only occurs where the offeror confers a power on the offeree to bind the offeror. In Storer v Manchester CC, where the council had said that once P signed the agreement posted to him to buy his council house, the council would also sign an agreement. P fulfilled his side but the council changed its mind and decided not to sell the house. CA held that there was a contract since the council intended to be bound once P had sent them a signed agreement and couldn't renege on this. In Gibson v Manchester CC the council sent G a letter stating a price at which it "may be prepared to sell the house" and following negotiations, put the house on a list of properties which could be purchased. HL said that the letter was

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