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 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.

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?’

This test means 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 based on this test. This is an interesting standard to apply, as most other civil laws apply a subjective test.

The courts have admitted that the ‘reasonable man’ standard is inherently difficult to apply, as it is always difficult to be completely impartial or reasonable. However, owing to the lack of a better alternative, the courts will apply the ‘reasonable man’ standard, if this standard did not apply, there would be a high amount of absurd rulings and decisions, as will become clearer on consideration of some of the rules of contract law.

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
• 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.

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 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

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 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.

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 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:

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, the issue was only mentioned in passing, and there was no debate or discussion with the other judges. The issue has not been revisited by the courts, therefore, this is not an established legal precedent and should only be treated as a persuasive factor for the courts rather than a rule.

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. This is often considered to be a contract with the whole world, as theoretically, any offeree may accept the contract. Acceptance is made through the performance of the act specified in the offer, and the offeree need not communicate his intention to accept/perform. 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 any individual who 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 anybody who finds the dog, 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 (benefit and detriment to each party - in our above example, the benefit for the offeror is the return of the lost dog, the detriment is the loss of £100, and for the offeror, the benefit is the £100, and the detriment is time/money spent looking for the lost dog. 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
• Acceptance is communicated through the performance of using the device in the specified way, and contracting influenza
• 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 proof of his sincerity in the matter - that is, the sincerity of his promise to pay this £100 in the event which he specified”

• Consideration - there was a benefit for the defendants created by the use of the balls (free advertising), the detriment being the £100 reward. The benefit for the claimant was the £100 reward, and the detriment was spending the time and effort to use the ball, and also contracting influenza

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 Stores 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 advertisement stated ‘Saturday 9AM sharp, 3 brand new fur coats worth $100, first come first served, £1 each’. Multi-acceptance is not an issue here, as it is clear that there is only 3 of the coats available, and only the first three people to arrive at the shop would be able to accept the offer. If the principle from Storer v Manchester City Council is applied, it is objectively clear that there is an intention to create legal relations with those first three people.

In effect, this example can be seen as a unilateral contract, with the performance required being the arrival at the store first.

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
• Any discretion of who to sell to, for example, a seller may not want to sell large amounts of alcohol to younger individuals.

Free promotion of goods without liability

Goods which are wrongly marketed would have to be sold at the price they were advertised for. 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

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. Here is an example of a 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, a tender 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.

Again, it can be seen that this tender negates the issue of multi-acceptance, as the seller can only accept one bid, the highest one. Therefore, the highest bid was considered to be an acceptance of the offer.

Tenders with collateral offers

In Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 1195 the council stipulated it would consider all tenders submitted before a specific date. 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 the collateral contract to consider all tenders submitted before the required date.

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.

An interesting debate can be had about exactly when acceptance occurs. It may be contended that the acceptance is made once an individual inserts the coins and chooses an option. Acceptance is not at the point of the insertion of coins because the customer can still choose to cancel and get their coins returned. However, if there is no coin return option, acceptance would likely be held to be on insertion of payment.

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 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.

Presumption seven - online transactions

Online transactions operate on a similar basis to that of advertisements and displays of goods. They are considered to be 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 three common points of acceptance are on acceptance of the terms & conditions, on payment, or on shipping of the goods. Usually, the terms & conditions of the purchase will stipulate exactly when the binding contract is formed.

The most common position for online terms & conditions to take is where acceptance occurs on the shipping of the goods. This may seem difficult to reconcile with the other types of contracts, but there is a specific reason for this: it allows the seller to avoid liability for any pricing errors. There are often pricing errors made online, and if the acceptance takes place when the customer chooses to buy the goods, the seller would be legally obliged to sell for that price. In effect, this is a failsafe for any errors with the pricing.

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.

In Ramsgate, six months was seen as a sufficient lapse of time due to the subject matter of the contract. The contract was for the sale of shares; naturally, the price of shares is volatile and the possibility of a significant change in price is high, therefore it is sensible for the court to apply the lapse of a reasonable period 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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