LAW EXTENSION COMMITTEE

WINTER SESSION 2012

CONTRACTS

SAMPLE OF AN ANSWER TO A PROBLEM QUESTION

QUESTION

Alan is a tenant of a home unit owned by Bill. Ten days ago Alan received a letter from Bill in which Bill stated that he (Bill) was ‘interested in selling’ his flat and asking Alan to ‘let him know’ if he (Alan) was willing to buy the home unit for the price of $450,000. Three days later Alan posted a letter to Bill in which he agreed to buy the home unit for the price set out in Bill’s letter. After receiving Alan’s letter, Bill telephoned Alan and told him that he had decided that he did not want sell the home unit.

Alan seeks your advice as to whether he has a contract with Bill for the sale of the home unit.

ANSWER

Introduction

For a contract to arise in the circumstances of the question, one of the parties has to make and offer which is duly accepted by the other. If there is an offer followed by an acceptance there will be a contract between the parties.

Issue

The issue raised by the question is whether Bill’s letter constitutes an offer. If it does, Alan’s reply is an acceptance of the offer, with the consequence that a contract exists between the parties. However, if Bill’s letter is only an invitation to treat, no contract exists between the parties because Alan’s reply will not be the acceptance of an offer. In fact, Alan’s reply would constitute the making of an offer to purchase the unit from Bill, and it is clear that Bill rejected that offer, given that he told Alan that he had decided not to sell the unit.

The Law

An offer has been defined as follows:

An offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive.[1]

The American Restatement (2d) Contracts defines an offer as follows:

An offer is the manifestation of willingness to enter into a bargain, so as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

The critical aspect of the definition of an offer is the will or intent of the offeror to be bound in contract by the terms of the offer. A statement that lacks such will or intent is not an offer. Such a statement will often be what is termed an invitation to treat. An invitation to treat has been defined as ‘a request to others to make offers or to engage in negotiations with a sale in mind’.[2] On other occasions the statement may simply be the supply of information, as was the case in Harvey v Facey.[3]

Application of the Law to the Facts of the Problem

The significant fact in the problem is the statement in Bill’s letter that he is ‘interested in selling’ his unit. This raises the question of whether the letter displays the will or intent to bound in contract by the terms otherwise stated in his letter.

In Gibson v Manchester City Council,[4] the House of Lords was faced with a case whose facts were essentially identical to those in this problem. In that case the wording of the owner’s letter to the prospective buyer stated that the owner ‘may be prepared’ to sell the property to the