Principles of law - Economics and management

Difference between an offer and an invitation to negotiate

An invitation to negotiate is a statement that simply reflects the current negotiating position of the alleged offeror, not a final commitment to that position. It represents a step before the offer, so the answer does not lead to a contract.

In order to understand if a statement is an offer or an invitation to negotiate, we have to inquire the intention. It is important to make a distinction because the consequences change:

1. When the party meant to be bound by the terms proposed to the other party, the statement is an offer;
2. When the party did not mean to be bound by the terms proposed to the other party, the statement is not an offer but simply expresses the wish to negotiate on the terms proposed.

The article 2:102 says about the intention: The intention of a party to be legally bound by a contract is to be determined from the party's statements or conduct as they were reasonably understood by the other party.

Nevertheless,

The intention of the "alleged offeror" is not to be inquired in subjective terms; this intention will be considered as it appears to others: in objective terms. To inquire an intention objectively means that what really counts is the way the intention appears, it does not need any further inquire about the thoughts of the party. Therefore, we can understand the nature of the intention by the statement that the party does or by his behavior.

When I get on a train, my behavior shows the intention to be bound to the contract that involves a transportation service for money in returns. If I do not pay the ticket, I break the contract and I will have legal consequences. I cannot claim that I did not mean to enter into a contract, because my behavior had clearly shown the intention to be bound to the contract.

To inquire the intention of the "alleged offeror" (offer or invitation to treat), there are two ways:

1. Analyzing the specific case according to the general rules:

Give importance to the words, to the circumstances where he/she said the words. We have lots of examples in common law system. Mostly used in common law: leading case is Harvey vs Facey.

Prima facie rules of law for standard types of transactions: they regard advertisements, display of goods in shop, auction sales and tenders.

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Leading case for common law system:

Let's consider a case of the common law system: Harvey v. Facey 1893 Bumper Hall Pen

It was a case where there was the negotiation on some brand pen and the point was how the negotiation had been led. One party was saying to the other party which was the lowest price you will sell your pen to. The answer was: the lowest price is 900 £. Then the person number one "ok answered for this price" and then there is no answer anymore. We can consider this case in 3 parties: the first part is the inquiry on the terms of the negotiations (will u sell your person) and

thesecond part being the offer and the third statement being the acceptance. Ok we buy for this price isthe acceptance so the deal is closed. In that case the shop didn’t agree to sell the pen at the lowestprice, it objected that the answer was an invitation to treat, he just invited the other party to open thenegotiation, he didn’t say he would sell for the lowest price. In the second perspective, lowest priceis 900£ is an invitation to treat. So the debate is on the statement “the lowest price is “. If lowestanswer leads to the contract. If it is an invitation to treat then it’s a negotiation.price is the offer, theAccording to the law you have to analyze the specific case in order to know what are u talking of.In this case, because of all the circumstances, the court established it was an invitation to treat, thestatement dins’ show the desire to be bound tot the terms of the offer, but just to open a negotiation.So the answer of the first

person was not an acceptance.

Prima facie for codified law system

Prima facie give some rules for standard types of transactions. Prima facie, generally brought, are considered as being the solution of the case even if a deeper inquiry is always needed. There are for 4 types of transactions: about advertisements, display of goods in shops, auction sales, tenders:

Advertisement

As a general rule, they constitute an invitation to treat, rather than an offer. It is so to protect the party placing the advertisement from liability in case of running out of the goods.

• “while stocks last”.

This aim is also achievable by writing in the advertisement

Display of goods for sale in a shop

As a general rule, they constitute an invitation to treat, rather than an offer. It is so to protect the salesman/shop from the liability in case of running out of the goods (such as the size of a dress), but also in case of a required license to sell goods (for instance in a pharmacy).

Case of goods are

finished (ex. Size of a dress). Shop window is only invitation to negotiate. Offer:doctor receipts. Acceptance: desk o the pharmacy

Tenders

As a general rule, they constitute an invitation to treat, rather than an offer. It is so in order to not bind the employer to the first contractor. Negotiation between an employer and a contractor. If the tender is an invitation, the employer can still choose the best contractor.

Auction sales

As a general rule, they constitute an invitation to treat, rather than an offer. It is so in order to not bind the auctioneer to the highest bid. To be precise we have to distinguish between two types of action sale:

• Normal: an invitation to treat.
• Without a minimum price: the best offer is always an offer.

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ACCEPTANCE

Requirements of the acceptance

• The acceptance must comply with the offer.
• The acceptance must respect a hypothetical request form (written).
• The acceptance must be done within the terms fixed by the

Offer: Acceptance: final and unqualified expression of assent to the terms of the offer.

When we can consider an offer been accepted? Before that moment the parties are free to escape. General rules state acceptance must be:

1. Compliant to the offer
2. The acceptance should be communicated to the offeror (when receive the acceptance)

If the acceptance contains terms which differ from those of the offer, it could be taken as a counter-offer (or fresh offer) and the positions of the parties end up to be inverted.

Counter-offer: rejection of the terms of the original offer; fresh offer addressed to the original offeror.

There is no counter-offer when the recipient:

1. Is just inquiring on the terms of the offer.
2. Is seeking for information on those terms.

Summary of offer and acceptance

An agreement is a cardinal requirement for the conclusion of a contract. The agreement is settle when an offer and the acceptance match; therefore it is the correspondence and reciprocal willingness to be bound.

To the terms of the offer. Speaking about the offer, we have to distinguish between an offer and an invitation to treat, to do so we have to inquire objectively the intention of the offeror. Moreover, there are standard rules for codified law (Prima Facie) and a leading case for common law (Harvey vs Facey).

The acceptance, in order to be valid, must comply with the offer, must respect an hypothetical request form, must be done within the terms fixed by the offeror. If the acceptance contains terms which differ from those of the offer, it is considered a counteroffer.

Conformity between offer and acceptance. The meeting of the offer and the acceptance. A contract is considered closed, when the offeror is aware of the acceptance.

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When we consider a contract closed (has been entered into)? In order the contract to be entered into (so, to conclude the procedure), the acceptance must be communicated to the offeror. In fact, in order to have the consent of both parties,

it is necessary that both of them are aware of the deal settled. Therefore, the offeror must be aware of the outcome of his/her offer. The law generally applies here the cognizance principle.

The cognizance principle cannot be applied when the ignorance of the offeror on the outcome of his/her offer is up to his/her fault to malice.

Different rules are sometimes applied for communication sent by post.

To temper the cognizance principle and prevent the offeror from cheating on the recipient, an alleged knowledge is sometimes deemed as sufficient. The contract is closed when the offeror should be aware of the acceptance of the recipient, and his/her not being aware depends on his/her fault to malice. Alleged knowledge principle

In particular, according to the law of some countries (among which Italy), the acceptance is deemed as known by the offeror, when he/she has received the acceptance at his/her domicile, regardless to the fact that he/she did not open the letter. In this case, the rule

The principle of reception applies to temper the cognizance principle. Unless the offeror can prove that he/she couldn't be aware of the acceptance without any fault. In this latter case, the offeror is exempted from knowledge and the contract has not been entered into.

According to the law of some other countries (among which UK), instead, the contract is closed when the acceptance is posted, instead of when it has been received. In this case, the rule of shipping applies (when the acceptance has been sent).

Which form should an acceptance have to be effective?

When required by the offeror, the acceptance must respect the recommended form. The acceptance must be expressed within the due time established by the offeror, a late acceptance is generally ineffective.

Both parties should be aware: cognizance principle, offeror should be noticed of the acceptance of agreement and "start" the acceptor, in order to close the contract (start to be bound).

Pretend to not know and seen the

acceptance: ignorance does not count, the contract is closed. Knowledge is presumed, once the acceptance is received by the domicile (for codified law). Oneway to escape the contract: prove not to be aware of the acceptance for something that is not yourfault. Pag. 24

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Can silence amount to acceptance?

Remind: the acceptance is a statement, whether written or oral, in compliance with the offer, that reflects the willingness to be bound by the terms of the offer.

As a general rule, the silence of the recipient does not amount to an acceptance. The recipient has the burden to answer positively to the offer, in order to set the agreement.

Principles of European Contract Law says:

Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. Silence or inactivity does not in itself amount to acceptance.

In fact, the opposite, which means saying that the silence usually