This comparative exploration aims at highlighting the different rules and approaches in the formation of a contract, preventing the risks for those who venture contracting in different countries, therefore requiring special attention since the first steps. The formation of a contract requires an offer and an acceptance, with sufficient defined terms, that reflects the intention of the parties to be legally bound by it. Some countries require an additional step to establish a contractual relationship, like England which requires consideration, and France which, for a long time, required causa - however this additional feature was abolished recently.
When does an offer exist?
The starting point to enable the establishment of a contractual relationship is to define whether an offer exists in the first place. As an accepted definition, reflected by Art. 2:201 (1) PECL (Principles of European Contract Law), the offer should have sufficient clear terms and reflect the intention of the party to be legally bound by it. Even though the starting point is similar, the countries have different approaches regarding the importance of the intention and definition of an offer. In some countries, it will be possible for parties to invoke the lack of will (intention) in order to show that there is no agreement between them – a subjective approach. Other countries won’t allow the invocation of lack of will to establish that there is no contractual relationship – an objective approach. Additionally, there are balanced views, which will meet in between the two approaches. This lack of will can be seen for several reasons, for example due to misunderstandings (such as disagreements due to the use of vague terms), or due to mistakes (like misspelling, writing wrong numbers – 40 instead of 400).
What is the role of intention and how does it influence the formation of the contract?
France has a more subjective approach regarding the necessity of intention and will to be legally bound. It is necessary to have a meeting of minds, which is the will aligned with the declaration. If one party manages to prove that did not have the intention to declare what they did in the offer/acceptance, there is no agreement. The proof of lack of will is enough to establish that there is no contractual relationship between the parties. However, already adopting some objective characteristics, if the other party relied on the agreement, it could ask damages on basis of extra contractual liability. England, on the other hand, has a more objective approach and interprets the contracts and the declarations of will (offer/acceptance) on basis of what a reasonable person would believe in face of it. Therefore, is a reasonable person could believe that the other party had intention to declare what was declared in the offer, then the lack of will cannot be invoked. As a middle ground, representing a balanced view, there is the Netherlands which adopts the will-reliance theory. This states that if a party could reasonably believe in the declaration and believe that the person had the intention to be bound by the offer/acceptance, then, the lack of will cannot be invoked, as seen in the Art. 3:35 BW (Dutch Civil Code). This discussion is more relevant in some countries than in others, and more specifically to some contractual nature. Commercial transactions are believed to already reflect intention to be bound, there is the presumption that commercial agreements are legally binding, and this belief is stronger in England. In the case of commercial agreements, the party should manage to prove that didn’t intend to be bound by its declarations.
Another interesting point is to explore whether the countries consider advertisements and display of goods as an actual offer, or a mere invitation to treat. In this point, French and Dutch law have a similar approach and consider advertisements and display of goods in a shop as a binding offer. Both categorizes an advertisement as a binding offer to the public, which binds the offeror to the first person who accepts it. The exception to this rule is in contracts intuitu personae, when the qualities of one party are important to the other to conclude the contract, like in the sale of a house. In this case, the qualities and conditions of the buyer matter to the person selling it, therefore the advertisement won’t be binding. This exception of intuitu personae contracts is seen in the French case Maltzkorn v Braquet 1969, and in the Dutch case Hofland v Hennis 1981. The practical impact of this approach is that whenever one person accepts the terms of the offer, the offeror would be bound by it – the fact of accepting the terms of the advertisement leads to the conclusion of the contract. In the same line, in France and in the Netherlands, the display of goods in a shop is considered an actual offer, as seen in the French case known as Exploding Lemonade Bottle 1964. In this case, when the person moved to the cashier with the product, she has accepted the offer and therefore there was a contractual relationship between the shop and the client. Therefore, when the bottle exploded and caused damages, the client could claim damages under the sales’ contract and not extra-contractual (tort) liability.
England and Germany follow a different approach towards the categorization of advertisements as an offer. As a rule, both jurisdictions do not consider advertisements as binding offers, but merely an invitation to treat. As seen in the English case Patridge v Crittenden 1968, advertisement only invites customers to make an offer, but it is not a binding offer itself. Practically speaking, the acceptance of the terms of the advertisement doesn’t conclude the contract, but merely start the negotiations. England, differently from the other countries, distinguishes unilateral from bilateral contracts. In cases of unilateral contracts, like rewards, advertisement is considered an offer – as seen in the Carbolic Smokeball English case, while in bilateral contracts it won’t be considered as such. Exploring some real-life implications, this difference in approach leads to Germany and England protecting more the seller, which can decide after the advertisement if it still wants to sell something or not; while in France and the Netherlands, the bigger protection lies with the consumers, and avoid those sellers/offerors advertise something and after decide not to sell/respect that anymore. One bad effect of the Dutch and French approach is that the advertiser would be expected to sell to all interested parties, which is not possible since stocks are limited. However, in response to this problem, these two countries state that an offer ends when the stock is finished, and this assessment is based on what a reasonable person would believe to happen.
When is it possible to revoke the offer?
Another point to be analyzed before talking about the conclusion of the contract, is the possibility of revocation of the offer. In one side, there is Germany, which establishes that the offeror is bound by the offer, unless he stated in the offer itself that s/he is not bound by it. From this approach, the offeror cannot revoke the offer, however if a reasonable time has expired and the offeror received no response, he is not bound by it anymore. On the other side, there is England, which allows the offeror to revoke the offer any time before the acceptance of it. Revocation is always allowed, regardless of the existence of a time limit for acceptance. The offeror can revoke the offer, even before the expiry of the time limit contained in the offer itself. The explanation for this approach is that England requires the additional element of consideration in order to create enforceable and binding agreements. Consideration means that there is a quid pro quo, one party is giving something, but receiving another in return. While there is only an offer, the offeror is receiving nothing in return, and therefore is not bound by it since there is no consideration. The requirements and specific characteristics of consideration will be further explored in another article.
As a middle ground in the revocation discussion there are the Dutch and the French approaches. In France, an offer cannot be revoked, but if it’s revoked anyways then the offeror must compensate for the damages incurred. The revocation is abusive if it frustrates the expectations of the offeree, which is seen when there is a time period for acceptance, or when the offeree could reasonably believe that the offer would remain in force for a reasonable time. In the Netherlands, it is possible to revoke an offer before the acceptance of the offeree, expect in cases where the offer is deemed irrevocable, as stated in Art. 6:219 BW (Dutch Civil Code). Examples of it is when the offer contains a time limit for acceptance which hasn’t expired yet; when the offer indicates that is irrevocable; when it was reasonable for the offeree to believe it would be irrevocable.
When is the contract indeed concluded? What is the time of conclusion of a contract?
After establishing that there was actually a standing offer, the contract will be concluded when another party accepts it. However, there are different approaches regarding the time of conclusion of the contract. In the civil law countries mentioned here, namely France, Germany and the Netherlands, the receipt theory is accepted and used. The receipt theory states that the contract is concluded as soon as the acceptance reaches the offeror. This is seen in the Civil Codes of these countries, in Art. 1121 CC, § 130(1) BGB and Art. 3:37(3) BW, respectively. In Brazil, for example, the contract is considered concluded at the moment in which the offeror receives and become aware of the acceptance. Note that, however, it is possible for the offeror to revoke its offer, and thus the latter is not binding anymore, if the revocation arrives before or at the same time of the offer (CC, Art. 428, IV). At the same way, the acceptance ceases to exist if, the revocation of the acceptance reaches the offeror before, or at the same time, as the acceptance (CC, Art. 433). To better understand the existence of different Brazilian variables, the reading of Art. 427 and the ones that follow it is recommended.
On the other hand, in England, a common law country, the time of conclusion of the contract is distinguished in cases of instantaneous and non-instantaneous means of communication. In non-instantaneous means of communication, like emails and letters, the dispatch or expedition theory is used. This theory states that the contract is concluded when the acceptance is dispatched, issued by the offeree, as seen in the English case Adams v Lindsell 1818. The relevance of this difference in approach was better seen in the past, as nowadays the means of communications are each day faster and more instantaneous. In the past, many letters were lost and never reached the addressee, therefore, following this approach, even if the acceptance letter never reached the offeror, the contract was concluded - as soon as the offeree dispatched the letter of acceptance. In this case, the real implication of it is that the contract was concluded sooner than it would be if the receipt theory was adopted, therefore, the time that the offeror could revoke its offer would be shortened – thus giving a bigger protection to the offeree. In instantaneous means, such as an in-person negotiation, the receipt theory is adopted, which is when the acceptance reaches the offeror, this is seen in Entores Ltd v Miles Far East Corporation 1955.
Summing up the discussion regarding some key points in the formation of a contract, the countries have many differences in respect of the definition of an offer, the role of intention and the time of conclusion of a contract. Because of that, taking care of the contractual relationship since the first steps is essential, and the answer to the above-mentioned questions guides the contracting parties about the importance of the comprehension of the legislation of the country where one is contracting, not arriving in the naïve conclusion that the different legislations equally deal with the matter of formation of contracts.
Notas e Referências
- SMITS, Jan. Contract Law, a comparative introduction. 3 ed. Edward Elgar publishing, 2021.
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