The four main elements needed for a valid contract are:
• Offer
• Acceptance
• Intention to create legal relations
• Consideration
As a rule, the assessment of whether the criteria above are satisfied is to be judged by the intentions of the parties. If the parties shared the same intention it is likely there was a valid contract. However, the existence of this intention is to be ascertained objectively i.e. leaving aside what the parties actually thought, by looking at their words or actions we can decide what their objective intentions were. The question is: how does their intention appear to a reasonable man?
An offer is a statement of willingness by a party to enter into a contract on the basis of the terms they suggest. An offer can be contrasted with an invitation to treat (ITT) which is an invitation to the other party to enter negotiations as to what the terms might be if they contracted. The distinction between an offer and ITT can be difficult to see, particularly in cases involving advertisements, display of goods and auctions.
It can be difficult to tell whether a contract has been concluded, such as where there is uncertainty as to the terms or as to the precise time of the acceptance. The offer/acceptance formulation has been criticised for failing to reflect commercial practice and does not sit well, without modification, with unilateral contracts.
Cases turn on their particular facts and common sense is important. For example, in Harvey v Facey [1893] AC 552, the C sent a telegraph to D saying "will you sell Bumper Hall Pen for ?900? Telegraph lowest cash price". D replied saying "lowest cash price ?900". The C replied saying "we agree to buy for ?900". The D did not reply. The court held that there had been no contract to sell as the reply by the D was simply an answer to a question and not an offer to sell. The final telegraph by the C was however an offer to buy, though as the D did not reply there was no acceptance.
In the case of advertisements, the general rule is that with bi-lateral contracts the advertisement will be an ITT not an offer: Partridge v Crittenden [1968] 1 WLR 1204. The reason behind is this it to protect people who sell goods from being widely liable to anyone who wants to buy the goods. Thus if 10,000 people reply to an advertisement on the internet about a certain product, the seller would be liable to all 10,000 if the advertisement was construed as an offer and not an ITT. Thus when a customer contacts the seller stating that they would like to purchase a product, they are making an offer to buy which the seller must accept for a contract to come into existence. An alternate way in which the courts could have resolved this problem is by stating that the advertisement is an offer, but that it is subject to the term that it can only be accepted while stocks last. This would solve the problem of having a seller liable to thousands of potential customers. The court, however, preferred the ITT rationale.
However, the courts will not always view advertisements as an ITT. Sometimes they will construe an advertisement as a type of offer, namely, a unilateral offer which is an offer to the world at large, as opposed to a bilateral offer which is an offer to an identifiable person. The courts will construe it as a unilateral offer rather than ITT when the wording of the ad supports it . In Carlill v Carbolic Smoke Ball [1893] 1 QB 256, the court held that an advertisement was a unilateral offer and not an ITT. The Defendant company placed an ad in a newspaper stating that they would pay ?100 to anyone who used the smoke ball three times per day for two weeks and still contracted a cold. They deposited ?1000 in a bank to show their willingness to pay the money if anyone did contract influenza. The Claimant did contract a cold and sued for the money. In order for Mrs Carlill to recover, the following questions had to be decided:
• Was the advertisement an offer? This depends on whether the Defendants intended to be bound by it (objectively judged).
• If so, did Mrs Carlill validly accept it?
• If so, did she provide consideration?
As regards (1), the defendant advanced the argument that the offer was too uncertain to be enforceable if accepted (i.e. the terms were so uncertain that the parties would be unsure as to what obligations, if identifiable at all, the contract imposes. And in any case, it would be too uncertain for a court to adjudicate upon.) This was rejected by the court. However, what would the answer to this question have been if Mrs Carlill had caught influenza months later? The court said a reasonable time afterwards was the cut-off.
As regards (2), the court discussed whether acceptance had been the buying of the ball, using it once or completing the course of usage. They tended towards the latter. This is significant when revocation is concerned as an offer cannot be revoked once it has been accepted. If the offeree embarks on an arduous course of performance and the offer is revoked right before completion, the offeree has arguably suffered an unfairness. This is considered in the acceptance section below. A further point is that acceptance must normally be communicated to the offeror. The court, however, disapplied this rule as the offer demonstrated that the need for communication had been waived.
As regards (3), the D argued that there was no consideration but the Court of Appeal held that there was on two grounds: firstly, the benefit gained by D from sales and, secondly, the use of the ball by Mrs Carlill three times daily constituted a detriment.
A good example of a unilateral offer where the owner of a lost dog puts a leaflet up stating that a reward will be given to anyone who finds the dog and returns it. This is not an invitation to treat because it promises something to the offeree in return for something. It's not simply saying "I have lost my dog", but rather "I have lost my dog and will pay you if you go out and find it". Moreover, this is unilateral rather than bi-lateral because it is made to the world at large. Acceptance in this case would be for the individual to actually find and return the dog. The idea behind a unilateral offer is that the traditional offer and acceptance model doesn't fit without some amendments. The court in Carllil amended the idea of offer/acceptance to make it workable by holding that performance of the thing stated in the offer constituted acceptance, rather than the traditional acceptance in the form of a statement saying "I accept your offer." Moreover, the court didn't require this acceptance to be communicated as this would clearly pose difficulties in many cases (how many people would write to a company saying that they are accepting the advertisement? Not many).
How about goods which are on display in a shop? The general rule is that goods on display in a shop constitute an ITT not an offer to sell. In the leading case Pharmaceutical Society of Great Britain v Boots Chemists [1953] 1 QB 401, the C brought a lawsuit in which they claimed that D had sold protected chemicals without being an authorised seller of those chemicals, in breach of a piece of pharmacy statute. The C argued that because the check-out was self-service, it could not be said that the chemical was sold under the "supervision of a registered pharmacist" which is what the legislation required. The C further argued that in self-service shops the transaction is completed when the customer places the items in their basket not at the counter. The court held that they had been sold under the supervision of a pharmacist. It said that the goods on the shelves were an ITT and when the customer brought those goods to the counter, they offered to buy them. Merely placing the goods into a basket was not an acceptance of an offer. If this were so, customers would be bound to purchase any goods put into their basket.
However, it is not always the case that goods/advertisements will always be an ITT. If, for example, the display is sufficiently precise and evidences an intention that it is an offer, the court will have no difficulty in enforcing that. In the Canadian case Leftkowitz v Great Minneapolis Surplus 86 NW2d 689 (1957), the court dealt with a newspaper advertisement which advertised fur coats for sale on a "first come first serve" basis. The C turned up at the shop but was turned away as the shop said it only sold the coats to women, the ad did not mention this. The court held in favour of the C and said that because C managed to turn up at the shop first, he should be served. There was an offer and his performance was acceptance.
Sometimes parties are invited to tender (or bid) for a particular project, this is the case in many industries such as sciences, technology and construction industries. The employer will invite companies to place a bid, what is the status of this invitation; is it an offer or ITT? The general rule is that it is an ITT.
A court may hold that an invitation to tender amounts to a duty to consider the bids and not simply ignore them. Thus, while an invitation to tender is not the same as an offer, and thus cannot be accepted by submitting a bid, there can be a duty on the inviter to consider all bids. In Blackpool and Fylde v Blackpool Borough Council [1990] 1 WLR 1195, the Claimant was awarded damages because his bid was not considered. The Claimant was well known to the Defendant and had submitted his bid on time, however the Defendant failed to check their mail box and assumed that they had not submitted a bid and awarded the contract to someone else.
An auctioneer will make an invitation to treat, and bidders will make offers of what they are willing to pay. The auctioneer will then accept an offer and a contract is formed. There is, however, in cases not involving a reserve price, an obligation by the auctioneer to sell to the highest bidder. This obligation arises from a collateral contract between the auctioneer and highest bidder under which the auctioneer offered to sell to the highest bidder and the highest bidder accepts: Barry v Davies [2000] 1 WLR 1962.
