TOPIC 3

Contract Formation–Offer

Topic outline
1. Definition of an Offer
2. The objective test
3. Form of an offer
4. To whom can an offer be made
5. Termination of an offer
6. Lapse of time
7. Failure of a condition
8. Death

Learning Outcomes
At the end of this topic you should be able to:
(i) Define what the law means by 'an offer' and what is required to
make a valid offer;
(ii) Distinguish between an offer and an invitation to treat; and
(iii) Be familiar with the ways in which an offer can be terminated.

Prescribed Reading
Corrin Care J; Contract Law in the South Pacific, Chapter 2.

Prescribed Cases
 Mani v St Fort Investments (1985) 31 Fiji LR 136 (Link in study task 2)
 Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256. (p 1 – 14 of Poole, or
find online)
 Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] 1 QB
401. (p 23 – 24 of Poole, or find online)
 Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR
1195 (CA). (p 28 - 29 of Poole, or find online)
 Barry v Davies [2000] 1 WLR 1962 (CA). (p 31 – 32 of Poole, or find online)

LW201: Contract Law I 4.1

Key terms

Offeror the person who makes an offer

Offeree the person to whom an offer is made

Puff or Mere Puff a statement such as an advertising gimmick

that is not meant to be taken seriously.

Invitation to treat an invitation to make an offer, for example the

advertising of goods for sale.

Revocation withdrawal of an offer.

Termination (in relation to an offer) the circumstances when the offer will come to
an end.

1. Definition of an Offer
An offer is the first requirement in order to find an agreement between the
parties, or consensus-ad-idem. An offer has been defined as: What is an
offer?
An intimation, by words or conduct, of a willingness to enter into a legally
binding contract, and which in its terms expressly or impliedly indicates that it
is to become binding on the offeror as soon as it has been accepted by an act,
forbearance or return promise on the part of the person to whom it is addressed.
(J Beatson, Anson's Law of Contract (27th ed, 1998) 32.)

2. The objective test

An offer will only have legal force if a reasonable person in the shoes of the
offeree would reasonably believe the offeror was making an offer.

STUDY TASK 1

Read Carlill v Carbolic Smoke Ball Company

1. What did the defendant argue that the advertisement was?

2. What did the court hold?
3. What were the factors that led the court to this conclusion?

LW201: Contract Law I 4.2

3. Form of an offer
An offer may be expressed or implied from the offeror's conduct. It may be
written or oral, or partly written and partly oral.

STUDY TASK 2

Read the headnote of Mani v St Fort Investments (1985) 31 Fiji LR 136

http://www.paclii.org/cgi-bin/sinodisp/fj/cases/FJLawRp/1985/31.html

1. Why does the citation in these notes have round brackets?

2. Who were the people involved in this case?
3. Was there any written contract?
4. What facts do you think the Appellant would have argued to say that a
contract could be implied from the conduct of the parties?
5. What ratio decidendi is expressed in the headnote?
6. Did the court find in favour of the Appellant? Why/why not?

4. To whom can an offer be made?

An offer may be made to a specified person or persons, a class or group of
people, or to the whole world.

STUDY TASK 3

In the case of Carlill v Carbolic Smoke Ball Company it was argued that you
could not make an offer to the whole world because you cannot contract with
everyone in the world.

1. What did the court think of this argument?

5. Invitations to treat
A distinction must be drawn between an offer and an invitation to treat. An
invitation to treat may resemble an offer but it does not indicate a clear intention
or willingness to be bound. Therefore, an invitation to treat is a preliminary
communication or part of the negotiating process. Some examples of an invitation
to treat are:

1. Advertisements
Generally, an advertisement will not amount to an offer. However, if an
advertisement includes words which demonstrate a willingness to be
bound then it may be construed as an offer, for example, Carlill v
Carbolic Smoke Ball Co.

LW201: Contract Law I 4.3

 2. The display of goods in shops
The display of goods in a shop window or in a self-service store is
generally regarded as an invitation to treat.

STUDY TASK 4
1. What are the facts of Pharmaceutical Society of Great Britain v
Boots Cash Chemists?
2. What did the court decide?
3. What reasons did the court give for this decision?

4. Tenders
Calling for tenders or an advertisement for tenders is usually regarded as
an invitation to treat.

STUDY TASK 5
I

1. What was the dispute in Blackpool and Fylde Aero Club v

Blackpool Borough Council?
2. What did the Court decide?
3. What reasons did the court give?

The question of whether a call for tenders is, in fact, an offer, is probably the
most common area of disputes relating to offers in the Pacific.
In Sivans Transport Ltd v Nadi Town Council (1981) 27 FLR 192 the
plaintiff submitted a tender to the Council for refuse collection, but said that
the tender figure was open to negotiation. A committee of the defendant
resolved that the plaintiff's tender be recommended for acceptance by the full
Council, subject to further negotiation with the plaintiff by a subcommittee
with a view to reducing the figure. The sub-committee met with the plaintiff
and persuaded him to submit a lower figure. This was referred to the full
Council which rejected it. It was held that the discussions which the
subcommittee had with the plaintiff did not indicate an acceptance by the
subcommittee of the original tender (which in any event it had no authority to
do) but an effort to persuade the plaintiff to reduce the price. Accordingly, the
court found that there was no breach of contract on the part of the Council.

SMM Solomon Ltd v Attorney General; Bugotu Minerals Ltd v Attorney

General [2014] SBHC 91 is a long complex case involving, amongst other
things, disputed land. The judge usefully refers to Pratt Contractors Ltd v
Palmerston North City Council [1995] 1 NZLR 469:
Allen J in Pratt's case[132], at 478 when speaking of contractual relations
arising out of the tender process, said:

LW201: Contract Law I 4.4

 "A tendering procedure of this kind is, in many respects, heavily
weighted in favour of the Invitor. He can invite Tenders from as
many or as few parties as he chooses. He need not tell any of them
who else or how many others, he has invited. The Invitee may
often, although not here, be put to considerable labour and expense
in preparing a tender, ordinarily without recompense if he is
unsuccessful. The invitation to tender may itself, in a complex
case, although again, not here, involve time and expense to
prepare, but the Invitor does not commit himself to proceed with
the project, whatever it is. He need not accept the highest tender,
he need accept any tender, he need not give reasons to justify his
acceptance or rejection of any tender received."

5. Auction sales
An auctioneer's request for bids either at the auction or before the auction is
an invitation to treat. The bid is the offer which the auctioneer can accept or
reject. The fall of the hammer provides the acceptance, so any bidder may
withdraw his or her bid before that time. However, where the auction is
without reserve the situation is different.

STUDY TASK 6
I

1. What was the dispute in Barry v Davies?

2. What did the Court decide?
3. What reasons did the court give?

Some self-assessment questions

1. You pick a bottle of shampoo off the supermarket shelf,
take it to the counter and buy it. Where is the offer and
5. where is the acceptance in this situation?
2. What was the offer in Sivans Transport Ltd v Nadi Town
Council?

3. Describe the difference between an offer and an invitation

to treat.
Termination of an offer
An offer can be terminated at any time before it has been accepted. Once an offer
has been accepted it becomes irrevocable. (Great Northern Railway Co v Witham
(1873) LR 9 CP 16). An offer can be terminated by revocation, by rejection of the
offer, by a counter-offer (discussed in Topic 5), by lapse of time, by failure of a
condition subject to which the offer was made, or by death.

LW201: Contract Law I 4.5

 A. Revocation
The offeror is generally free to withdraw an offer at any point before it has
been accepted. This general rule will apply even if the offeror has promised
to keep the offer open for a certain period of time, unless some consideration
for the time allowance has been provided by the offeree. (Consideration is
discussed in Topic
8.)
For example, in Myers v Bavadra (1994) unreported (Fiji Islands) the
defendants wrote to the plaintiff offering to sell him some shares and stated
that the offer was valid for 90 days. During the course of the 90 days the
defendants replaced their original offer with different terms. The plaintiff
purported to accept the original offer. It was held that the bare promise to
keep the original offer open for a certain number of days was not binding on
the defendants.

Revocation must be communicated in order to be effective. This means that

the revocation must be received by the offeree. This was implicit in the
decision of Byrne v Van Tienhoven (1990) 5 CPD 334 where the withdrawal
of an offer, which was sent by telegram, was held not to be effective until it
was received.

However the communication of the revocation need not come directly from
the offeror. Provided that the offeree is fully aware at the time of a purported
acceptance that the offeror has decided not to proceed with the contract, then
the offer will be regarded as having been revoked and acceptance is no
longer possible. (Dickinson v Dodds (1876) 2 ChD 463 (CA).

One difficulty that arises in respect of revocation of an offer is in relation to

unilateral contracts. If in a unilateral contract, acceptance means complete
performance, then an offeror would be able to revoke their offer at any point
before performance was complete even if the offeree was on the point of
completing his or her performance.

In Great Northern Railway v Witham (1873) LR 9 CP 16 the court suggested

that revocation could occur before a person completed an action they had
undertaken as their acceptance of the offer. The court used the example that
if someone offered you 100 pounds to walk to York, that offer could be
revoked at any time before you reached York even if you were within 100
yards of the city.

However this result can be seen to give rise to unfairness. Leading on from
this there have been attempts to argue that partial performance may in some
circumstances amount to a sufficient indication of acceptance and so prevent
the revocation of the offer by the offeror. (See for example Errington v
Errington [1952] 1 KB 290 (CA). In that case Lord Denning relied in part on
the law on estoppel (not being allowed to go back on your promise) to
resolve the matter. Estoppel is discussed in Topic 10.

LW201: Contract Law I 4.6

 An alternative way of dealing with the unfairness is to argue that when the
offer was made there was also an implied promise that it not be withdrawn
after the offeror becomes aware or should reasonably be aware of the fact
that performance of the acceptance had commenced.

STUDY TASK 7

1. Nathan offers to sell his bicycle to Sam for 10,000vt. Sam says that he
needs time to think about it. Nathan says that he will give Sam a week to
make up his mind. Nathan sells the bicycle after 3 days. After a week Sam
comes to see Nathan with 10,000 vatu and is upset that the bicycle is sold.
Has Nathan done anything unlawful?

2. Nathan offers to sell his bicycle to Sam for 10,000vt. Sam says that he
needs time to think about it. Nathan says that he will give Sam a week to
make up his mind, just so long as Sam pays him 500 vatu now. Sam pays
500 vatu. Nathan sells the bicycle after 3 days. After a week Sam comes
to see Nathan with 10,000 vatu and is angry that the bicycle is sold.
Has Nathan done anything unlawful?

3. Nathan offers to sell his bicycle to Sam for 10,000vt. Sam says that he
needs time to think about it. Nathan says that he will give Sam a week to
make up his mind. Nathan then places an advert on Facebook saying that
he is selling the bicycle for 15,000 vatu. Sam sees the advert on Facebook.
Sam comes to see Nathan with 10,000 vatu, but Nathan says that the price
is now 15,000 vatu.
As the offer to sell the bicycle for 10,000 vatu been revoked?

B. Lapse of time
An offer might terminate due to a lapse of time - either (i) where acceptance
is to be completed by a certain time and it is not completed by that time or (ii)
where there is a term that can reasonably be implied into the offer that it must
be accepted by a due date. (Implied terms are discussed in Topic 14).

LW201: Contract Law I 4.7

 STUDY TASK 8

Mere offers to sell her shares in a company registered on the stock exchange
to Paul for 400vt each. Six months later Paul decides to accept Mere's offer.

1. Would it reasonable to find that this offer is still “live”? Why/why not?

C. Failure of a condition
It is not uncommon for offerors to place conditions on their offers. These
offers are referred to as conditional offers. This often happens in the context
of land sales, for example where an offeror might state that his or her offer is
subject to finance or subject to approval by my solicitor. (For a discussion of
subject to contract cases see Masters v Cameron (1954) 91 CLR 353,
discussed in the case of Prasad v Hussein (1967) 13 FLR 98)

D. Death
The effect of the death of one of the parties to the agreement is not entirely
settled. The outcome may depend upon the intention of the parties (for
example whether the acceptance was meant to be binding on the estate of the
deceased).

Some self-assessment questions

1. In the case of a unilateral offer should you be able to revoke the offer just
prior to the completion of the acceptance by the offeree? In what
circumstances (if any) should the law allow for this and upon what legal
basis?
2. If an offer is made subject to satisfactory finance is the offeror bound by an
acceptance if he or she is not happy with the terms of the finance provided,
for example the interest rate?
3. What should be the situation where an offeror has revoked his or her offer but
the revocation is not received by the offeree, even though it was sent prior to
the sending of the acceptance?

LW201: Contract Law I 4.8