Contract Law Questions - What Is an Offer?

The contract law questions every student asks - answered.

One of the first questions every contract law student encounters is: what exactly is an offer?

Understanding offers is essential because every contract begins with an agreement, and every agreement begins with an offer that is accepted. In exams, students frequently lose marks by confusing an offer with an invitation to treat or by failing to identify when an offer has been terminated.

This guide explains what an offer is, how to identify one, and the key cases you need to know for university law exams.

What Is an Offer?

An offer is:

A clear expression of willingness to contract on specified terms, made with the intention that it will become binding upon acceptance

The offer must:

• Be communicated: An offer must be communicated to the other party by words or by conduct.

  
  

• Contain complete and certain terms: An offer must contain enough detail about the terms of the proposed contract (which are sufficiently certain) to enable a contract to be formed if the other party accepts the offer.

  
  

• Show an intention to be bound: The communication must be such that a reasonable person receiving it would have understood that the offeror intended to be bound by the terms proposed.

Identifying An Offer

It is common that, when parties reach agreement, it is not necessarily obvious who made the offer and who accepted it. Lord Denning was particularly critical of the artificial divide between an offer and acceptance in Butler Machine Tool Co Ltd v Ex-Cell-O Corp [1977]:

"I have much sympathy with the judge's approach to this case. In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date. The better way is to look at all the documents passing between the parties — and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points — even though there may be differences between the forms and conditions printed on the back of them."

Despite the judicial criticism in these comments, the artificial divide Lord Denning described has been confirmed as the preferred analysis by the House of Lords and continues to be used by the courts (Gibson v Manchester City Council [1979]). This is because it allows the judges to pinpoint the exact time the contract was formed (or not!).

Offer or Invitation to Treat?

Offers should be distinguished from invitations to treat. A communication is not an offer if, objectively assessed, the person making it did not intend to be bound by the terms proposed. The common law has established that in certain situations a communication will normally not be treated as an offer but instead as an invitation to the other party to make an offer (or to negotiate).

The following are normally situations that are deemed invitations to treat:

• Advertisements: An advertiser is generally not making an offer of the goods advertised. Instead, a purchaser makes an offer to buy which a retailer can accept or reject (Patridge v Crittenden [1968]).

  
  

  However, an exception to that rule is where a unilateral offer is made (Carlill v Carbolic Smoke Ball Co [1893]). This is where the offeror makes an open promise (e.g. offers to pay a reward or provide a benefit in exchange for another party completing a specific action).

  
  

• The display of goods in a shop or online. A retailer displaying goods is generally not making an offer. Instead, the purchaser makes an offer to buy when they take the goods to the till or submit their order online and the retailer may accept by conduct (Fisher v Bell [1961]).

  
  

• Invitations to tender (sometimes known as 'requests for proposals'). In a procurement situation, the invitation to tender is generally not an offer. Instead, the tenderer is making the offer when they submit their tender (Harvela Investments v Royal Trust [1984]).

  
  

• Auctions. A request for bids at an auction is an invitation to treat. Each bid made by a bidder constitutes an offer, which may be withdrawn at any time before acceptance (Payne v Cave [1789]). 

  
  

How Can an Offer End?

An offer can be terminated in several ways:

• Withdrawal by the offeror. This is frequently referred to as a 'revocation' of an offer. Critically, however, withdrawal is not effective until communicated to the offeree. Nevertheless, an offer can be withdrawn at any time before the offeree has accepted it. However, an exception tot his is where the offeree has given consideration for the offer to be kept open.

  
  

• Lapse of time. If an offer is stated to only be open for a certain period of time, then it will automatically terminate at the end of that period.

  
  

• Rejection by the offeree. Once an offeree has rejected an offer it cannot subsequently change its mind and accept it (Hyde v Wrench [1840]).

  
  

• Death of the offeror. If the offeror dies, their offer will normally terminate, as the parties are no longer able to reach an agreement. However, it should be noted that this may not be the case if the offeree has accepted the offer without knowledge of the offeror's death, or if the offer is a continuing offer. In these circumstances, there may be a claim against the offeror's estate instead (Bradbury v Morgan (1862)).

Unilateral vs Bilateral Offers

Most offers are made to a specific person and require a promise in return. These are known as bilateral contracts because both parties exchange promises.

However, some offers can be accepted simply by performing a specified act. These are known as unilateral offers.

For example, if a company states:

"We will pay £100 to anyone who uses our product as directed and still catches influenza."

The company is not seeking a promise from customers. Instead, it promises to pay anyone who performs the required conditions. Acceptance occurs through conduct rather than communication. The leading authority for this is Carlill v Carbolic Smoke Ball Co [1893].

An Offer - In Summary

Key Takeaways

• An offer is a clear expression of willingness to contract on specific terms.

• Acceptance of an offer creates a legally binding agreement.

• Shop displays and advertisements are usually invitations to treat.

• Advertisements can sometimes be offers.

• Auction bids are offers that may be withdrawn before acceptance.

• Offers may be terminated by rejection, counter-offer, revocation, acceptance, or lapse of time.