Basics of Contract Law

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Date added: 17-06-26

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Invitation to Treat Invitation to treat is a contract law term. However, it is not an offer. It is merely an invitation to others to make offers. It is a sort of preliminary negotiation to buy something and it follows that an invitation to treat cannot be accepted and there is no commitment to sell or offer which could be accepted. The court will always look at the language used or the inferred intention of the parties when deciding between an invitation to treat. Invitation to treat often appears in the shops display, tenders, advertisements, auctions, price list and catalogues, preliminary enquiries and supply of information. It is important that an offer must be distinguished from invitation to treat. Next, we will discuss about the cases which involves in invitation to treat.
  • Auctions
The display of goods at an auctioneer’s table and auctioneers calls for bids is an invitation to treat. The bids made by persons at the auction are offers, which the auctioneer can accept or reject as he chooses. The fall of hammer is the acceptance. Similarity, the bidder may retract his bid before the hammer falls and the bid is accepted. It becomes a contract when the hammer falls or the auctioneer bang the gable down.
  • Case 1 from UK
Auctioneer’s request for bids is an invitation to treat. The bid itself is an offer which the vendor can accept or reject. However, when the hammer falls, it became contract. Payne v Cave (1789) Fact: Mr.Cave made the highest bid for Mr.Payne’s goods at an auction. However, Mr.Cave changed his mind and he withdrew his bid before the auctioneer brought down his hammer. The auction was under standard conditions. Held: According to [Section 2 of the Contract Act], it was held that the defendant was not bound to purchase the goods. His bid amounted to an offer which he was entitled to withdraw at any time before the auctioneer signified acceptance by knocking down the hammer. In an auction, the auctioneer’s call for bids is an invitation to treat, a request for offers. The bidder may retract his bid up until the “fall of the hammer”.
  • Case 2 from UK
Advertisement stating a sale by auction “without reserve” is an offer. Warlow v Harrison (1859) Fact: In this case, a public auction of a horse, without reserve, was advertised by the defendant Harrison, an auctioneer. The Plaintiff, Warlow attended the sale and bid 60 guineas and the horse’s owner attended too and bid 61 guineas. The Plaintiff knew that it was the horse owner who bid 61 guineas, so he did not make any further bud. The auctioneer, Harrision, knocked down the hammer 3 times to the horse owner. The Plaintiff claimed that the horse was his since he was the highest bona fide purchaser at an unreserved sale. The issue of the case was whether there was a contract for sale. Held: According to [Section 2 of the Contract Act 1950], the court held that the sale should be without reserve, the auctioneer had made a definite order in his advertisement to this effect. The owner could not bid on its own property. The Plaintiff, by making his bid in reliance upon it had accepted the offer. So, the contract was formed. The court ruled that in a sale by auction “without reserve”, the vendor cannot bid at auction. There was a breach of contract between auctioneer and highest bona fide bidder, therefore the plaintiff has the right of action against the auctioneer.
  • Case 3 from Malaysia
In Malaysia, the general rule that applied in an auction is when the sale is concluded at the fall of hammer. M&J Frozen Food& Anor v Siland Sdn Bhd& Anor (1994) Fact: This case involved a sale of land in a public auction. It revolves around whether a sale was concluded at the fall of the auctioneers hammer relating to a sale of land at a public auction. The right to be heard where the purchasers of a judicial sale apply for an extension of time to pay the balance of the purchase price. Held: According to [Section 2 of the Contract Act 1950], the court held that at the fall of the hammer, an agreement is concluded between vendor and the highest bidder. Therefore, the vendor cannot offer the goods to other buyers and bidder cannot retract his acceptance. The Supreme Court per Wan Yahya SCJ, held that: A purchaser of land may fail to obtain good title in two distinct ways. First will be the title of the vendor is bad. Next, still if the vendor has a good title, there might be some invalidating defects in conveyance or transactions in which purchaser attempted to obtain title. Where the vendor's title is good but the instrument that was used by a purchaser for registration is void or voidable, the effect on such registration will only grant on the person in whose name the land is registered. The registration of the insufficient and void instrument can be set aside.” In addition, in the Federal Court stated that in s 340 of the NLC, the distinctive use of the words 'proprietor' and 'purchaser' did not consider. Summary: Based on the 3 cases above, there are different principles that apply in an auction. For the case of Payne v Cave (1789) and M&J Frozen Food& Anor v Siland Sdn Bhd& Anor (1994), the similarity for both of the cases is the sale is concluded at the fall of hammer. The auctioneer is the agent of the vendor and the assent of both parties is necessary to make the contract binding. Besides that, it is signified on the part of the seller by knocking down the hammer. Every of the bidding did nothing more than an offer on one side which is not binding on either side until it is assented to. However, for the case of Warlow v Harrison (1859), the principle is different from the other two cases above. According to [Section 2 of the Contract Act], the case apply that an advertisement stating a sale by auction “without reserve”, is an offer. Neither the vendor nor any person in his behalf shall bid at the auction, and that the property should be sold to the highest bidder, whether the bid is equivalent to the real value of property or not. Conclusion Contract law comes into play in almost every aspect of life. The study and the application of the contract law make up a core component of the learning and the practice of law. The significance of the role played by an individualist society in the development of modern English contract law can barely be left without. Nevertheless, contract law provides essential infrastructure for a market economy. There are certain contracting parties need protection of the law against economic exploitation and depression. Contract law is changing to reflect these changes in economic reality. This allows business world by making sure that if a party breaks his promise and persists with his rejection to act as agreed, the other parties may well wish to enforce performance. By allowing people to make their agreements legally binding, contract law increases certainty and predictability about the future. Lastly, with some amendment, it will benefit the minor with some guardian or guarantor from their parents. References Malaysia Law Journal
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