Date: Mon, 19 Dec 2005 19:54:17

From: Robert Stevens

Subject: Snapping at an Offer

can the snapper up be held to the contract on the terms it was clear the other party intended to offer - in other words should a buyer who should have known there had been a mistake be forced to take the single share for 610000 yen (assuming there was a single human buyer) - since the offeree's acceptance, taking everything into account, can only reasonably be understood as an acceptance of the only offer that can reasonably appear to have been intended. There are surprisingly few authorities on the matter - those that there are apply the stricter rectification test rather than merely the test of 'what should the offeree have understood the offeror to be offering'.

Adam

(1) We are (generally) held to the objective impression of agreement we create. If the other party knows that I am making a mistake as to the terms of the deal, he knows that that objective impression is false and cannot rely upon it. In the example from the Economist the relevant term was the price.

(2) If the offer I appear to be making is patently ridiculous (I offer to sell you something worth £10m for 1 penny) it may be said that as no reasonable person would believe it to be true, if it is snapped up I have not created the objective impression of agreement.

(3) (1) and (2) are separate rules.

(4) In principle, the answer to Adam's hypo should be no. The snapper has not created the (objective) impression that he is prepared to pay that sum for a single share.

(5) If the market dramatically falls, so that 1 yen per share becomes a good deal for the seller, the snapper could not rely upon the seller's mistake in order to get out of the deal.

(6) In New Zealand the Contractual Mistakes Act s 6 allows the offeror to get out of a deal where his mistake is 'fundamental' and the other side knows of it. This is a fairly bad example of the damage which can be wrought by legislatures tinkering with the coherence of the common law. The traditional common law rule as represented by Smith v Hughes is much to be preferred. If I buy or sell something and I know that the counterparty is making a mistake as to its value, tough luck on them. We are allowed to exploit the stupidity of others. Many on this list make a living out of it. That is capitalism. However, if it is a mistake as to the terms of the deal and I know it, there is no deal.

Robert Stevens
Barrister
Fellow and Tutor in Law
Lady Margaret Hall
University of Oxford

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