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Formation of Contract

Formation of Contract. Offer. How to make an effective contract? Relation between offer and “declaration of intention” Distinction between an offer and an “invitation to make an offer” Binding effect of an offer

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Formation of Contract

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  1. Formation of Contract

  2. Offer • How to make an effective contract? • Relation between offer and “declaration of intention” • Distinction between an offer and an “invitation to make an offer” • Binding effect of an offer • What is the binding effect of an offer? What is the differences between an binding effect of an offer and the effect of a contract made by this offer? Can offeror withdraw or revoke an offer made by him? • When does the binding effect start and extinguish?

  3. The manner to make a contract • A contract is mutual assent resulting from an exchange of reciprocal declarations of intention by two or more persons for the purpose of creating certain legal effects. • When the parties have reciprocally declared their concordant intent, either expressly or impliedly, a contract shall be constituted.(RCC153I) • A contract is concluded by the exchange of an offer and an acceptance.(PCL13)

  4. exchange of reciprocal declarations of intention • An offer and an acceptance • Offer: • Express or implied declarations of intention • Real offer: declarations of intention accompanied with a “thing”. • Acceptance: • Express or implied declarations of intention • Accomplishment of intention: performance, acceptance of the other party’s tender • Exchange of offers

  5. Invitation to make an offer • An invitation to offer is a party's manifestation of intention to invite the other party to make an offer thereto. (PCL art.15I) • A delivered price list (PCL15I); the sending of pricelists is not; deemed to be an offer.(RCC154II) • Exposing goods for sale with their selling price shall be deemed to be an offer. (RCC154II) • Announcement of auction • Call for tender • Prospectus • Commercial advertisement • A commercial advertisement is deemed an offer if its contents meet the requirementsof an offer. (PCL art.15II)  • An offer is a party's manifestation of intention (or declaration of intention) to enter into a contract with the other party, which shall comply with the following:(i) Its terms are specific and definite;(ii) It indicates that upon acceptance by the offeree, the offeror will be bound thereby. (PCL art.14)    

  6. Definition of Offer • An offer is a party's manifestation of intention to enter into a contract with the other party, which shall comply with the following: • (i) Its terms are specific and definite; • (ii) It indicates that upon acceptance by the offeree, the offeror will be bound thereby. (PCL art14) • Binding effect of contract, not binding effect offer.

  7. When offer effect? • An offer inter presents • A declaration of intentioninter presents becomes effective at the moment when the person to whom it is made understands it well. (RCC art 94) • An offer to enter into a contract, made during conversation, shall lapse if not immediately accepted by the offeree. (Japan commercial Code 507) • An offer inter absents • A declaration of intentioninter absents becomes effective at the moment when the notification of the expression reaches such other party, except when the withdrawal of the notification previously or simultaneously reaches such other party. (RCC art 95I) • An offer becomes effective when it reaches the offeree. (PCL art.16I) • When a contract is concluded by the exchange of electronic messages, if the recipient of an electronic message has designated a specific system to receive it, the time when the electronic message enters into such specific system is deemed its time of arrival; (PCL art.16II) • if no specific system has been designated, the time when the electronic message first enters into any of the recipient's systems is deemed its time of arrival. (PCL art.16II) • A declaration of intention made to a person at a distance shall be effective from the time notice of it has reached the other party.(PCC97I)

  8. Can an offer be withdrawn? • An offer may be withdrawn. (PCL17) • The notice of withdrawal shall reach the offeree before or at the same time as the offer. (PCL17) • If a notice of withdrawing an offer arrives after the arrival of the offer itself, though it should usually arrive before or simultaneously with the arrival of the offer within a reasonable time by its transmitting manner, and this might be known to the other party, • the other party so notified should notify the offeror immediately of such delay. (RCC162I) • If such other party delays the notice specified in the preceding paragraph, the notice of withdrawing the offer shall be deemed to have arrived without delay.(RCC162II)

  9. Withdrawal arrived after offer effected Effective offer Offer on the way to the offeree withdrawal Withdrawal arrived before offer effected Ineffective offer Offer on the way to the offeree withdrawal Delayed withdrawal arrived after it should have arrived Ineffective offer Effective offer Offer on the way to the offeree Notice of Delay withdrawal Offer dispatched Offer arrived

  10. Binding effect of an offer in RCC • Irrevocability (substantive binding power) • A person who offers to make a contract shall be bound by his offer. (RCC art 154) (German Civil Code 145 and Swiss Civil Code) • Exception • At the time of offer, the offeror has expressed he will not be bound by the offer; or • it may be presumed from the circumstances or the nature of affairs that he do not intend to be bound by the offer. • Acceptability • Substantive binding power. • An offer is acceptable if its acceptance by an offeree is suficent to establish a contract.

  11. Irrevocability of an offer in ROC Civil Code Binding offer Offer on the way to the offeree revocation Notice of acceptance Contract Formed Offer on the way to the offeree Binding offer revocation Notice of acceptance Contract Formed Expired day of Acceptability Offer arrived Offer dispatched

  12. Binding effect of an offer in PCL • Revocable in principle • An offer may be revoked. • The notice of revocation shall reach the offeree before it has dispatched a notice of acceptance. (art. 18)  • Exception of revocability • An offer may not be revoked: • if it expressly indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; • if the offeree has reason to regard the offer as irrevocable, and has undertaken preparation for performance. (art. 19)

  13. CISG art.16 • (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

  14. Revocation of an offer in PRC Contract Law Revocable offer Ineffective offer Offer on the way to the offeree revocation Notice of acceptance Offer on the way to the offeree Binding offer (irrevocable) revocation Notice of acceptance Contract Formed Binding offer (irrevocable) Offer on the way to the offeree revocation Notice of acceptance Contract Formed Offer dispatched Offer arrived Expired day of Acceptability

  15. Binding effect of an offer in JCC • Irrevocability • An offer specifying a period of acceptance • An offer specifying a period of time for acceptance may not be revoked. .(JCC521I) • If the offeror does not receive notice of acceptance within the period specified, the offer shall lapse.(JCC521II) • An offer without specifying a period of acceptance • An offer which has been made to a person at a distance without a time limit for acceptance may not be revokedbefore the expiration of such time as is reasonably necessary for the offeror to receive notice of acceptance.(JCC524) • Acceptability

  16. Revocation of an offer in Japan Civil Code Binding offer (irrevocable) Offer on the way to the offeree revocation Notice of acceptance Contract Formed Expiration of a specific period for acceptance Offer on the way to the offeree Binding offer (irrevocable) Notice of acceptance Expired day for reasonably receiving notice of acceptance Offer dispatched Offer arrived

  17. Extinction of an offer (An offer is extinguished in any of the following circumstances) • Termination • by offeree • The notice of rejectionreaches the offeror (PCL art 20); An offer ceases to be binding if it is refused.(RCC art.155) • The offeree makes a material change to the terms of the offer. (PCL art 20) • Counter offer • by offeror • The offeror lawfully revokes the offer (PCL art 20) • lapse of time • The offeree fails to dispatch its acceptance at the end of the period for acceptance (PCL art 20) • An offer made inter presentes ceases to be binding if it is not accepted at once.(RCC art.156) • An offer made inter absentes ceases to be binding if it is not accepted by the other party within the time during which notice of acceptance may be expected to arrive under ordinary circumstances. (RCC art.157) • If a period of time for the acceptance of the offer has been fixed, the offer ceases to be binding if it is not accepted within such period. (RCC art.158)

  18. If Offeror Dies • The fact that after the notification of the expression the expresser dies, or becomes no capacity to make juridical acts, or is limited in capacity to make juridical acts, shall not null the expression of intent. (RCC art 95) • If an expression of intent is made to a person with no capacity or limited in capacity to make juridical acts, it becomes effective when the notification of the expression reaches the guardian of the person.(RCC art 96)

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