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Explain the distinction between an offer and an invitation to treat using case law to illustrate how the distinction is applied in practice

Introduction

In the law of contract, an offer by one person and its acceptance by another person, where both have an intention to be legally bound by the terms of offer, leads to the formation of a binding legal agreement. As offer is the starting point of the formation of contract, it must be clearly defined and distinguished from other statements and significations which are not meant to bind the person making these significations to a legal agreement. These significations may include what have come to be known as invitation to treat or invitation to offer. An invitation to offer or treat is not an offer under the law of contract and there are significant differences between the two and their legal impact therefore, is not the same under the law of contract.

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This essay discusses the distinction between an offer and an invitation to treat, with the help of case law in order to understand how the distinction is applied in practice.

Distinction between offer and invitation to treat

An offer and an invitation to treat have different impacts on the formation of the contract. An offer is an expression of the offeror’s willingness to be bound by the specified terms of the offer without further negotiation. An invitation to treat is an indication of the person making the signification of a willingness to conduct business with those receiving the signification. An invitation to treat is an invitation to make an offer or to commence negotiations with another party.

An offer is the first condition of a valid contract, the acceptance of which leads to the formation of a legal contract between two parties. An offer is signified by one party’s indication of its willingness to be legally bound by the terms made by him, if accepted by the other party. Once the offer is accepted by the other party, the other condition for a valid contract is completed and if the other elements are also fulfilled, a contract is formed. These other elements include consideration, which is a quid pro quo where each party will do something of benefit to the other party; both the parties must have consensus ad idem on the

  • Jill Poole, Textbook on Contract Law (Oxford: Oxford University Press 2012) 54.
  • Catherine Macmillon and Richard Stone, Elements of the Law of Contract (London: University of Law 2012) 16.

contract and, most importantly an intention to create legal relations. An offer may be made to one specific individual or to the world in general.

Considering the above discussion, an offer can be said to be the starting point for a valid contract. There are two important features of an offer, which also distinguish it from an invitation to treat. First, an offer indicates the offeror’s intent to be bound by the acceptance once the offeree communicates an acceptance. An invitation to treat, as discussed below, does not contain any such intention to be bound by the acceptance. Second, when an offer is made, the offeror makes a promise to do something for the offeree and also specifies what the offeree must do in return. There is no such signification in an invitation to treat.

Once the offer is made by the offeror, it must be accepted unconditionally and without any reservations, and if any changes are made by the offeree to the terms, this is a counter offer. A counter offer made by the party is considered to be the final rejection of the original offer. Therefore, once the offer is made, there is no scope for negotiations between the parties. An invitation to treat is not restricted in the same sense. Since, the invitation to treat is not an offer but merely an invitation to offer, the offeror and offeree may negotiate terms.

Once an offer has been made, and if it is accepted by the other party, it becomes a binding contract. On the other hand, there can be no acceptance of an invitation to offer and nothing binding is created by such an acceptance.

The distinction between an offer and an invitation to treat is brought out very well by two cases.

In Storer v Manchester City Council, it was held that in order to establish the intent, it is not necessary to look into a person’s mind and that the words and actions of the parties can be used for implying or expressing the intention to contract. In this case, the Manchester Council had sent Storer a communication regarding a sale of a house, which they intended would be binding upon his acceptance. All Storer had to do to bind himself to the later sale was to sign the document and return it. In the second case, Gibson v Manchester City Council, the Council sent Gibson a document which asked him to make a formal invitation to buy and stated that the Council ‘may be prepared to sell’ the house to him. When Gibson signed the document, it did not mean that the signature was an acceptance of the offer. Accordingly, the

  • H Collins, The Law of Contract (Cambridge: Cambridge University Press 2003) 68.
  • Carlill v Carbolic Smoke Ball Company, [1892] EWCA Civ 1.
  • Jill Poole, Textbook on Contract Law (Oxford: Oxford University Press 2012) 54.
  • M Furmston, Cheshire, Fifoot and Furmston’s Law of Contract (Oxford: Oxford University Press 2012) 51.
  • [1974] 1 WLR 1403.
  • [1979] UKHL 6.

House of Lords held neither there was an offer nor there was an acceptance which would bind the council to sell the house to Gibson. The use of the words “prepared to sell” was an important aspect of the decision of the House of Lords.

Where the shopkeeper or another person advertises a product or service for sale, in such situations as well, such advertisements are considered to be invitation to treat by the courts and not as offers. This is seen in a number of cases decided by the courts.

In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd, a pharmacist who had put up the products for sale on counters in the shop, was not bound to sell it to the customer who would put these displayed products in a shopping bag and bring it to the payment counter. The court held that when the customer brought to goods to the payment counter, he was making an offer as the display of products was merely an invitation to offer. In Fisher v Bell, Lord Parker wrote in the judgement: “according to the ordinary law of contract, the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense and offer of sale, that acceptance of which constitutes a contract.”

In Partridge v Crittenden, Patridge, published a classified advertisement and mentioned that he had Bramblefinch hens and Branmblefinch cocks, but the advertisement nowhere used the words ‘offer for sale’. The court decided that this advertisement was an invitation to treat and not an offer.

A reading of the decided case law demonstrates that an invitation to treat is just an invitation to start negotiations with the party making the invitation or it may be treated as an invitation to the recipient to make an offer to the person making the invitation.

Finally, it may be held in certain instances that advertisements can amount to offers, if such advertisements include the intention to be bound to sell the product to the person who accepts the terms of the advertisement. As mentioned earlier an offer is “an expression of willingness to contract on certain terms”. If the advertisement contains such an intention to be bound to a legal obligation, then it may not be treated as an invitation to an offer, as it is clearly an offer. Advertisements that offer reward for doing some act, will also be offers and not invitation to treat. An auction, where the reserve price is stated, is an invitation to treat and

  • Catherine Macmillon and Richard Stone, Elements of the Law of Contract (London: University of Law 2012) 15.
  • [1952] 2 QB 795.
  • [1961] 1 QB 394.
  • Ibid, [399].
  • [1968] 1 WLR 1204.
  • Catherine Macmillon and Richard Stone, Elements of the Law of Contract (London: University of Law 2012)
  • Ibid,
  • Gibbons v Proctor, [1891] 64 LT 594.

here bidders are the offerors and acceptance is signified by the auctioneer bringing down his hammer.

As the case law demonstrates, the courts draw a distinction between offer and invitation of offer. In the case of invitation to offer, the courts do not treat the party making it to be bound by it. The party who makes the offer is bound by the acceptance, but the person making invitation to treat is not so bound.

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Conclusion

An offer signifies the intention of the party making it, that if it is accepted then the offeror will be legally bound by the terms made by him in the offer. As such an offer once made and accepted creates a legally binding relationship between the parties by forming the contract. An invitation to treat does not have the same effect in law. An invitation to treat is an invitation to the recipients to start the negotiations with the party making it, or to make an offer. The acceptance of the same is to be done by the person who made the invitation.

The case law decided by the courts shows that the courts see the intention of the offeror to also differentiate between the offer and invitation to offer. If the intention was to be bound by the offer then it is an offer, if the intention is not to be bound by the statement or advertisement, then it is an invitation to treat.

Bibliography

  • Collins H, The Law of Contract (Cambridge: Cambridge University Press 2003)
  • Furmston M, Cheshire, Fifoot and Furmston’s Law of Contract (Oxford: Oxford University Press 2012)
  • Macmillon C and Stone R, Elements of the Law of Contract (London: University of Law 2012)
  • Poole J, Textbook on Contract Law (Oxford: Oxford University Press 2012)
  • British Car Auctions v Wright, 1972] 3 All ER 462.

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