Formation of Contract - Offer Lecture
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2.1.2 Offer Lecture

What makes an offer?

The first requirement of a legally binding agreement is that there is an offer. One party is the offeror, who presents the offer, and one party is the offeree, who is the potential acceptor of the offer.

The case of Storer v Manchester City Council [1974] 1 WLR 1403 outlines that an offer is:

  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 an objective party, 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?’

There is no consideration of the intentions of the offeror or their state of mind. Even if the offeror did not intend his conduct to amount to an offer at all, the courts may still find contractual intent amounting to an offer based on this test.

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 can 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 statement 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.

Here are some key distinctions between an offer and an invitation to treat.

Offer:

  • Certain promise to be bound
  • Clear and specified terms
  • The conduct or words of the party show certainty
  • There is no room for negotiation

Invitation to treat:

  • There is room for negotiation
  • There is an invitation for offers
  • There is a request for information
  • Lack of certainty

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.

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 cashier accepts the offer by scanning the goods and requesting payment

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

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 saw the ‘offer’ at the same time and there was only one available item, the shopkeeper would be in breach of contract to one of the individuals.

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 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.

Theory behind the multi-acceptance principle: Following this consideration, it is obvious that an advertisement does 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:

  • One theoretical argument suggests that an advertisement from a manufacturer may be construed as an offer, as the manufacturer would be able to make more of the item in question in response to all of the acceptances. This is not a rule, but may be a factor in a court’s decision!
  • Advertisements which negate the ‘multi-acceptance’ problem. Lefkowitz v Great Minneapolis Surplus Stores Inc(1957) 86 NW 2d 689 did this by stating “3 coats for sale, first come first served”, making it clear only the first three individuals would be sold the coat.
  • Unilateral contracts. A Unilateral contract is formed where the offeror makes a promise in exchange for an act by any offeree. An example of this would be where an individual puts a poster up, offering money to anybody who finds their lost dog. A practical example of this is seen in Carlill v Carbolic Smoke Ball Co Ltd[1893] 1 QB 256

In the Carlill case an advertisement promised a £100 reward to anybody who contracted influenza after using the Carbolic Smoke Ball in a certain way over a fixed period of time. This is a unilateral contract as there is only obligations for one of the parties – i.e anybody could choose to use the smoke ball, but they didn’t have to, but the seller had to pay the £100 if anybody met the requirements.

The defendant had deposited £1,000 with a bank for the purpose of paying these £100 rewards. Therefore, the court decided that as the terms were certain, and there was a clear display of intent displayed via the deposit of £1,000 for the reward payments, the advertisement should be construed as an offer.

It is important to note that not every unilateral contract is an offer, only ones where clear intent and certainty is shown.

This can be a rather complex differentiation to make, but again, it essentially requires a consideration of the rule from Storer v Manchester City Council; is there an unequivocal display of contractual intent? The objective evidence in this case was the £1,000 deposit.

Tenders

A tender is where an individual seeks specific goods or services and advertises their need for them. This is construed as an invitation to treat, and any response to the tender will be an offer.

Automated machines

The operation of an automated machine is considered an offer, as the machine cannot negotiate the price – if an individual inserts the correct amount of coins, the contract will be formed. Acceptance is considered to take place when the offeror inserts the coins and chooses an option (Thornton v Shoe Lane Parking [1971] 2 QB 163)

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 when the auctioneer ends the bidding, this is the acceptance. 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 the case of auctions, there is a collateral contract, this is between the auctioneer and the highest bidder, which involves the obligation to accept the highest bidder, meaning any refusal of a highest 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) the auctioneer is only obliged to accept any bids which are above the minimum price.

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(1872) LR 8 QB the claimant attempted to claim for travel expenses and the time spent travelling for the auction.

Revocation of an offer

How to revoke an offer: An offeror may 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. An offer may also be revoked if there is a fixed time for acceptance; once this period is over, there is an automatic revocation of the offer.

Automatic revocation of an offer: An offer will automatically be revoked after a reasonable lapse of time. ‘Reasonable’ is assessed on a case-by-case basis. In Ramsgate Victoria Hotel v Montefiore(1866) LR 1 Ex 109 an offer was accepted by the claimant six months after the offer, but the courts held that this offer had been revoked due to the lapse of time.

Third-party revocation: A third-party may also revoke the offer by communicating this to the offeree. In order for the revocation to be effective, the third-party must be objectively reliable (Dickinson v Dodds(1875) 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 case of unilateral contracts, the courts require the offeror to take reasonable steps to communicate the revocation. Shuey v USA (1875) 92 US 73 suggests revocation should occur in the same manner that it was offered. 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. The current judicial precedent from Dahlia v Four Millbank Nominees [1978] Ch 231 is that the unilateral contract cannot be revoked once the offeree has embarked on performance.

Counter offers: A counter-offer from the offeree has the effect of revoking the original offer (Hyde v Wrench (1840) 49 ER 132).


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