Offer in Contract Law - Lecture

This contract law lecture covers the areas of what makes an offer, offer vs invitation to treat, and the revocation of an offer.

What makes an offer?

The usual starting point in deciding whether the parties have reached agreement is to identify an offer and its acceptance. One party is the offeror, who presents the offer, and one party is the offeree, who is the potential acceptor of the offer.

1. An expression of willingness to contract on specified terms
2. With the intention that it is to be binding once accepted

Storer v Manchester City Council confirmed that in assessing whether these conditions have been met, the courts will take an objective approach. Therefore, the courts will consider how the conduct of the offeror would appear to a reasonable person in the offeree’s position, which requires an application of the ‘reasonable man’ standard. Therefore, the question to ask is:

‘On examination of the offeror’s conduct as a whole, would the reasonable person consider the offeror to have expressed a willingness to contract on specified terms with the intention that it is to be binding once accepted?’

This test looks to what the offeror communicated, rather than an intention they kept to themselves. Even if the offeror did not intend his conduct to amount to an offer at all, the courts may still find contractual intent based on this test.

The same objective test applies where agreement is inferred from what the parties have done: RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH [2010] UKSC 14, [45].

It is also important to note that the offer must be communicated to the offeree (Taylor v Laird (1856) 25 LJ Ex 329)

Offer v Invitation to Treat

An important distinction to make in contract law is that between an offer and an invitation to treat. An invitation to treat is usually an invitation for another party to make an offer. It may also be defined as an indication that a party is open to negotiation.

The case of Gibson v Manchester City Council [1979] 1 WLR 294, held the following words to be an invitation to treat

“May be prepared to sell the house to you”

There was clearly no display of contractual intent, due to the words “may be prepared”, which suggest the Council were open to negotiation, and therefore the statement was construed as an invitation to treat, rather than an offer. Applying the standard from Storer v Manchester City Council and the ‘reasonable man’ standard, would the reasonable man consider the words “may be prepared to sell the house to you” as being an unequivocal display of contractual intent?

Here are some key distinctions of offers and invitation to treats.

Offer:

• Certain promise to be bound
• Clear and specified terms
• The conduct or words of the party show certainty
• No further negotiation is needed for acceptance

Invitation to treat:

• There is room for negotiation
• There is an invitation for offers
• It may invite a response without committing either party
• Even a precise price need not be an offer

Presumptions

Throughout the history of contract law, there has been various disputes over the distinction between an offer and an invitation to treat. Therefore, in order to provide consistency, there are a number of presumptions which are applied to certain types of conduct.

Presumption one - Display of goods

The case of Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401 confirms that a display of goods is considered to be an invitation to treat. The specific approach taken is as follows:

• The display of goods in a shop/self-service shop are an invitation to treat
• The customer makes the offer to the cashier by presenting the goods at the service desk
• The shop accepts the offer at the till when the cashier agrees to sell the goods

Reasons why a display of goods is an invitation to treat: There are a multitude of reasons for which the court construed the display of goods in this way. It is evident that there would be various issues with the display of goods constituting an offer. If a display of goods was an offer, the acceptance would occur when the customer removes the goods from the shelves. The type of problems that may occur are:

• The shopkeeper has no choice whether or not to sell to somebody once they have removed an item from the shelves, preventing the shopkeeper’s ability to choose their customers
• The acceptance has occurred at the price specified for the goods, meaning there can be no negotiation between the buyer and seller. This is not particularly relevant in most shops where negotiation is not possible, but it is still a relevant issue in some cases, and particularly if an item is mispriced
• A customer couldn’t choose to exchange the item for another once they have removed it from the shelf, or replace the item, as acceptance has already occurred. Otherwise, they would be in breach of contract

Presumption two - Display of goods in a shop window

The case of Fisher v Bell [1961] QB 394 is the legal precedent that confirms the display of goods in a shop window is an invitation to treat. In this case, the defendant had a knife in the window of their shop with a price tag attached, which was held to be an invitation to treat.

Reasons why a display of goods in a shop window is an invitation to treat: This presumption is based upon the rules from the above case of Pharmaceutical Society v Boots Cash Chemists, in that if it was considered an offer, the shopkeeper could not pick and choose his customers.

There is a further consideration for display of goods in a shop window; the shop may have a limited stock of the item, therefore if two individuals accepted the ‘offer’ and there was only one available item, the shopkeeper would be in breach of contract to one of the individuals.

Presumption three - Advertisements

As a general rule, the case of Partridge v Crittenden [1968] 2 All ER 421 rules that an advertisement is an invitation to treat. The primary reason for this is the “multi-acceptance” principle.

The multi-acceptance principle: If an advertisement is considered an offer, theoretically, an unlimited amount of people could accept that offer, which causes obvious problems when the advertisement is for a limited amount of goods, as the seller would be in breach of contract to each individual whom they could not provide goods for.

This statement from Lord Herschell in the case of Grainger & Son v Gough [1896] AC 325 HL succinctly describes this issue:

“The transmission of such a price-list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited.”

Theory behind the multi-acceptance principle: Following this consideration, it is obvious that an ordinary advertisement for goods will generally not fulfil the requirement from Storer v Manchester City Council, as there is clearly no unequivocal display of contractual intent; the reasonable person would recognise that the individual who placed the advertisement never intended to contract with everybody who responds to the advert.

Exceptions to advertisements as invitations to treat:

Advertisements from a manufacturer

There is a theoretical argument that suggests if an advertisement is from a manufacturer it may be construed as an offer. This viewpoint was suggested by Lord Parker in Partridge v Crittenden, where he stated that:

“I think when one is dealing with advertisements and circulars, unless they indeed come from manufacturers, there is business sense in their being construed as invitations to treat and not offers for sale”

As can be identified, Lord Parker was not deciding a case about a manufacturer. The fact that an advertisement comes from a manufacturer is therefore a factor for the courts rather than a rule that it is an offer.

Unilateral contracts

Before the effect of a unilateral contract on an advertisement is considered, a clear definition of a unilateral contract is required.

A unilateral contract is formed where the offeror makes a promise in exchange for an act by any offeree. The offer may be made to one person or to the whole world. Acceptance is made through the performance of the act specified in the offer, and the offeree need not give advance notice unless the offer requires it. Here is a common example of a unilateral contract:

Party A puts a poster up in the street, offering a £100 reward to anybody who finds their lost dog.

It is clear that the acceptor of the offer, party B, is an individual who knows of the reward and finds the dog, with acceptance occurring on performance. The contract is considered to be ‘unilateral’ as there is only obligations for one of the parties; the offeror has the strict obligation to pay the £100 to the person who accepts the offer in this way, but there is no second party who must search for the dog, they may choose to, but there is no obligation.

Following, an advertisement is likely to be construed as an offer when these requirements are met

• There is a unilateral offer
• Acceptance is communicated through performance (to refer to our above example, finding the lost dog)
• Clear terms and conditions (are the requirements for performance and the reward clear?)
• Intention to create legal relations and be legally bound (this will be explained further in the following paragraphs)
• Consideration (in our example, finding the lost dog is the act requested in return for the promise to pay £100. For more detail on consideration, please see the chapter on consideration)

There are limited judicial decisions showing this in operation, but the most famous example of a court finding an advertisement amounting an offer due to a unilateral contract is found in Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256.

In Carlill, the defendant’s product was a medicinal device which was designed to help prevent the contraction of illnesses. The defendant’s advertised the product, and promised a £100 reward to any person who contracted influenza after using the ball for two weeks, three times daily, following the printed instructions. In respect of this, I will consider the above bullet-pointed criteria for an advertisement to be construed as an offer.

• A unilateral contract can be identified here, as only the defendant has an obligation under the contract, to pay the £100 reward, any potential offeree may accept this contract
• Using the device as instructed was the performance requested. Contracting influenza despite that use was the event that made the reward payable
• The terms and conditions are clear - the advertisement is very specific with regards to in what way and how frequently the device is to be used, and the £100 reward is also clear.
• Intention to create legal relations and be legally bound - this was a point of contention, the defendant’s argued that the advertisement was a marketing device to entice people into buying the product (the courts referred to this as a “mere puff”), and that no contractual intent could be inferred from the advertisement. However, this justification was negated by the fact the defendant explained in the advertisement that £1,000 had been deposited in a bank account specifically for the purpose of paying the rewards, which suggests a clear contractual intent. As Lindley LJ stated…

“The deposit is called in aid by the advertiser as proof of his sincerity in the matter”

• Consideration - the claimant went to the trouble of using the ball three times a day as requested. The defendants also stood to benefit commercially because public use of the ball could promote sales.

All of the criteria were met, and therefore the advertisement was considered to be an offer. As noted, this exception does not operate frequently and only under very specific circumstances.

Advertisements negating the ‘multi-acceptance’ problem

The American case of Lefkowitz v Great Minneapolis Surplus Store, Inc. (1957) 86 NW 2d 689, although only persuasive on the English courts, is an excellent example of the negation of the ‘multi-acceptance’ problem posed by advertisements.

The store advertised three fur coats for $1 each, first come first served. A second advertisement included a black lapin stole, worth $139.50, for $1 on the same terms. Multi-acceptance was not an issue: the goods, the price and the order of priority were specified. The claimant was first at the counter and offered to pay. He recovered $138.50 for the stole. The value of the coats had not been proved.

In effect, this example can be seen as a unilateral contract, with the performance required being to arrive first and offer the advertised price.

Further reasoning as to why advertisements should be considered invitation to treats

Sellers discretion

As explored previously in regards to the display of goods in a shop, if advertisements were construed as an offer, the seller would have no discretion as to who they choose to sell to. This could cause a number of issues, even without the operation of the multi-acceptance problem:

• The buyer may live in another country - the seller would now potentially have to arrange delivery
• The creditworthiness of the buyer
• The seller must still comply with the Equality Act 2010, section 29. A retailer is generally prohibited from selling alcohol to anyone under 18 (Licensing Act 2003, section 146).

Mispriced goods

If an advertisement were an offer, acceptance could bind the seller at the advertised price. This is unfair for the sellers. This issue is especially relevant in the technological age. Many advertisements are made online or priced automatically, and a small typographical error/mistake could mean the difference between £10 and £100.

Presumption four - Tenders

An invitation to tender is where an individual seeks bids for goods or services. This is usually construed as an invitation to treat, and a tender submitted in response will normally be an offer. Here is an example of an invitation to tender:

“I am looking to purchase a new car for around £5,000”

There is clearly no contractual intent, as it is merely inviting an offer in response. Even if the price was specified as exactly £5,000, there is still no offer owing to the lack of contractual intent, the writer of the tender obviously intends to negotiate and consider his options.

Exceptions

Intention

If a person seeking a tender shows unequivocal intention to be bound, the invitation can be construed as an offer.

In the case of Harvela Investments v Royal Trust Co of Canada [1986] AC 207, the defendants set out a tender for their sale of shares in a company. One of the details in the tender was that they would accept the highest offer.

The sellers were bound to accept the highest valid fixed bid. The rival bidder’s proposal to pay a specified sum more than any competing bid was invalid under the terms of this invitation.

Tenders with collateral offers

In Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 1195 the council invited a small group of operators to tender under a prescribed procedure. The court implied a promise to consider a conforming tender submitted on time if any tenders were considered. The claimants delivered their tender before the required date, but the post wasn’t emptied by the defendant. As the defendant did not consider the claimant’s tender, the defendant had breached that promise. It had made no promise to award the club the concession.

Presumption five - Automated machines

Automated machines posed an interesting question for the court in Thornton v Shoe Lane Parking [1971] 2 QB 163. The court ruled that the operation of an automatic machine is considered an offer. The reasoning behind this was mainly based on the inability of the machine to negotiate with the customer and they cannot reject a customer.

The point of acceptance depends on how the machine works. In Thornton, the driver accepted the terms displayed at the entrance when he drove up and activated the ticket machine. A new condition printed on the ticket came too late.

Presumption six - Auctions

Auction without reserve: Where an auction is “without reserve” (i.e there is no minimum priced bid required to win the auction) each bid is an offer, and the auctioneer accepts by the fall of the hammer or in another customary manner (Sale of Goods Act 1979, section 57(2)). Therefore, each bidder may revoke their offer at any time before the end of the bidding.

The auctioneer could, in theory, refuse to accept the offer, however, in an auction without reserve, there is a collateral contract, this is between the auctioneer and the highest bidder, which involves the obligation to accept the highest bona fide bid, meaning refusal of that bid would amount to a breach of contract (Barry v Davies [2000] 1 WLR 1962).

Damages for a breach of collateral contract: The court will consider the position the bidder would have been in if his bid was accepted. For example, if the auctioneer declined a highest bid of £10 for an item worth £100, the price difference between the bid and the market price of the item would be awarded - in this case, £90.

Auction with reserve: Where an auction is “with reserve”, (i.e the owner of the goods has set a minimum price) a bid reaching the reserve does not by itself bind the seller. Unless the auction terms provide otherwise, the auctioneer may decline the bid before the hammer falls.

Advertisement of an auction: An advertisement of an auction is considered to be an invitation to treat, meaning an individual who intended to bid on items cannot bring an action against the auctioneer who does not auction the item. In the case of Harris v Nickerson (1873) LR 8 QB 286 the claimant attempted to claim for travel expenses and the time spent travelling for the auction.

Presumption seven - online transactions

Online transactions operate on a similar basis to that of advertisements and displays of goods. An online display of goods is usually an invitation to treat, as the customer has the freedom to pick and choose the items in their virtual ‘basket’ before actually committing to a purchase.

The question of where acceptance occurs is a difficult one with online transactions. The terms and the messages exchanged will usually show when the retailer accepts the customer’s order. An automated email acknowledging receipt of an order, as required for an ordinary online checkout by regulation 11 of the Electronic Commerce (EC Directive) Regulations 2002, need not be an acceptance.

Many retailers stipulate that acceptance occurs on dispatch. Until acceptance, the retailer can normally decline a mispriced order. Even after an apparent acceptance, a customer who knew the price was a mistake cannot insist on it (Hartog v Colin & Shields [1939] 3 All ER 566). Misleading price information can nevertheless be an unfair commercial practice under the Digital Markets, Competition and Consumers Act 2024, sections 225–226.

Where a consumer places an order using a button and the order entails an obligation to pay, the button must make that obligation clear. If the trader fails to meet the payment-acknowledgement requirements, the consumer is not bound by the order or contract (Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, regulation 14(3)–(5)).

Revocation of an offer

How to revoke an offer: An offeror may generally revoke an offer at any point prior to acceptance (Routledge v Grant (1828) 4 Bing 653). In order to be effective, the revocation must be communicated to the offeree before acceptance. Posting a withdrawal is not enough (Byrne v Van Tienhoven (1880) 5 CPD 344). A fixed deadline does not ordinarily prevent earlier withdrawal, but a binding option to keep the offer open does. If the deadline passes without acceptance, the offer lapses.

Lapse of an offer: Where no time for acceptance is fixed, the offer lapses after a reasonable time. ‘Reasonable’ is assessed on a case-by-case basis. In Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109 the defendant applied for shares in June and withdrew his application in November before the company allotted the shares. The court held that even the applicant in the companion case, who had never withdrawn, was free of the offer because a reasonable time had passed.

In Ramsgate, the interval between June and November was too long on the facts. The subject matter was shares, whose value can change while the applicant waits for an allotment.

Third-party revocation: The offeree may learn from a reliable third party that the offeror has taken action inconsistent with the offer, such as selling the property to someone else. That knowledge can prevent a subsequent acceptance (Dickinson v Dodds (1876) 2 Ch D 463).

Revocation of unilateral contracts: Unilateral contracts pose a different issue, as there are any number of potential offerees to communicate revocation to. In the American case of Shuey v United States, 92 US 73, the government withdrew a public reward through the same channel and with the same publicity before the claimant performed. That decision is persuasive only in England and Wales. For example, if the offer was made via a post on a website, the revocation should also be posted on the website.

Revocation of unilateral contracts when the offeree has begun performance:  As previously explained, unilateral contracts require the performance of an act for acceptance. In Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231, Goff LJ said that once the offeree starts to perform, the offeror is generally under an implied obligation not to prevent completion. The offeree must still complete the requested act to earn the promised return.

Counter offers: A counter-offer from the offeree normally rejects the original offer (Hyde v Wrench (1840) 49 ER 132). A mere inquiry about different terms leaves the offer open (Stevenson, Jaques & Co v McLean (1880) 5 QBD 346).

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