Offer and Acceptance – Generally:

• Person who makes an offer OFFEROR, person to whom the offer is made is called
an OFFEREE
• An offer = A proposal by one party that is communicated to another person to enter
into a LEGALLY BINDING agreement. If the other person accepts a contract is made
• The courts distinguish offers from other statements such as mere puffs, invitation to
treat and statements supplying information.

Rules as to offer:
MERE PUFF:

• A mere puff is a statement containing exaggerated claims and assertions about

products or services that no reasonable person would take seriously.
• It has no contractual significance and cannot constitute an offer. It is the common
currency of the advertising world.

Case Example – Leonard V PepsiCo 88 F Supp 2d 116 (1999)

• PepsiCo ran a campaign in which consumers were encourage to collect “Pepsi

points” from specially marked packages of Pepsi.
• A TV commercial for “Pepsi Stuff” showed a series of products with the Pepsi logo
and the number of Pepsi points that were required to purchase the,
• In the final scene from the advertisement, a young boy is seen flying a harrier jet
fighter. After he parked the jet on the school playground he emerged with a Pepsi in
his hands and the words “HARRIER FIGHTER 7,000,000 PEPSI POINTS” appeared
on the screen.
• After viewing the commercial Leonard submitted a cheque for $700,008.50.
• When PepsiCo rejected his order and returned his cheque, Leonard sought specific
performance of the unilateral contract that he alleged had been formed when he
performed his obligations.
• The court decided the advertisement was not “clear, definite and explicit” enough to
constitute an offer.
• Due to the comical nature of the commercial, a reasonable person would not
conclude that PepsiCo was offering a Harrier Jet to anyone. It was a mere puff.

Advertisements = INVITATIONS TO TREAT:

• Window displays, catalogues, price lists circulars and advertisements are usually
invitations to treat and not firm offers by the seller.
• In going up to a counter to buy something, you’re making an offer NOT an
acceptance.
• This law is put in place to protect suppliers as if they run out of a product advertised,
they will not be in breach of a contract, as it is not considered an offer, rather an
invitation to treat/for offers to be made. They can then subsequently accept or deny
the offer.
• E.g. If A said “I want to sell my car but I will not let it go for less than $5,000”, that is
an invitation to treat. Even if you desired to purchase A’s car for $5,000 he cannot be
compelled to sell it to you for he has made no offer which you can accept. However,
if A said “I will sell you my car for $5000” that would be an offer.
THE EXCEPTION TO THE ABOVE ADVERTISEMENT RULE:

Case Example – Carlill V Carbolic Smoke Ball Co [1893] 1 QB 256

• The manufacturers of the “carbolic smoke ball” claimed it would prevent the onset of
the influenza and other maladies and offered to pay 100 pounds to any customer
who, despite using the ball, contracted influenza.
• Mrs Carlill saw the advertisement, bought a smoke ball and used it as direct. She
nevertheless contracted the influenza.
• When she requested the company pay her the 100 pounds as promised, they
refused and she sued the company for breach of contract.
• The company denied liability
• The case involved a number of issues – the first was whether the advertisement was
an offer or a mere puff which no reasonable person would regard as a binding
contractual promise.
• The court held that the advertisement was more than a mere puff as the Carbolic
Smoke Ball Co made a serious offer to the whole world and “deposited 1000 pounds
with the Alliance Bank showing our sincerity in the matter” as evidence that it was not
engaging in mere puffery
• Lindley LJ: “The deposit is called in aid in proof of his sincerity in the matter - that is
the sincerity of his promise to pay the 100 pounds in the event which he specified” “In
point off law this advertisement is an offer to pay 100 pounds to anybody who will
perform these conditions, and the performance of these conditions is the acceptance
of the offer”
• THIS CASE LAW MUST BE MENTIONED

Case Example - Gibson V Manchester City Council [1979] 1 ALL ER 972.

• Manchester city council adopted a policy that allowed its housing tenants to purchase
their flats
• Gibson, a tenant, was sent a letter in which the council said “it may be prepared to
sell” him the flat for a particular price and outlining other terms and conditions
• “If you would like to make a formal application to buy your council house please
complete the enclosed application form and return it”
• Gibson completed the form but before formal contracts were signed, the council
policy changed and it only proceeded with those contracts that had already been
executed.
• Gibson argued that the Council’s letter was an offer and his response was an
acceptance of that offer.
• The council argued that its letter was an invitation to treat, that Gibson’s response
was an offer that had not been accepted by the council.
• The House Of Lords decided that there was no enforceable agreement. The council’s
letter was an invitation to treat, not an offer.
• A statement that provides information but does so without indicating that the person
intended to make an offer is not an offer.
• An advertisement may be regarded as an offer if it is sufficiently definite in its terms
(quantity, quality and price) and is communicated in a way that is reasonable person
would say that the advertiser intends to enter into a contract if the response from the
person receiving the communication is positive.
an ITT
Case Example – Harvey V Facey [1893] AC 552

• Harvey sent a telegram enquiring, “will you sell us Bumper Hall Pen? Telegraph
lowest cash price” (a property)
 • Facey replied “lowest price for Bumper Hall Pen 900 pounds”
• To which Harvey replied “we agree to buy Bumper Hall Pen for the sum of 900
pounds asked by you”
• When Facey refused to sell, Harvey sued for breach of contract
• Harvey argued that Facey’s telegraph reply was an offer to contract and that an
agreement to contract was made when Harvey sent his second telegram “agreeing to
buy” the property
• Held: no contract existed. The third parties telegram (Harvey’s acceptance of Facey’s
offer) was in fact, an offer to buy at the price stated.
• The second telegram was simply a precise answer to a precise question – the lowest
price Facey would except IF he was prepared to sell. (He was just supplying
information)
• A contract would be made only if Facey accepted the offer from Harvey to buy the
property. This he DID NOT DO.
• If Facey had replied saying “I am interested in selling. My price is 900 pounds” This
communication is more likely to be regarded as an offer because it indicates a
willingness by Facey to enter into a contract

The Effect of the Australian Consumer Law:

• The fact that a statement is a mere puff or an invitation to treat or a mere

representation – and not part of a contract – does not mean that the statement
cannot constitute misleading or deceptive conduct under S18 of the Australian
Consumer Law (Cth) (ACL). I
• It is important that parties who are negotiating contracts or advertising goods or
services are aware of the broad reach of S18 and other sections of the ACL.
• Statements or conduct that may have been excused as mere puffery or as non-
binding pre contractual negotiations may now be considered to be misleading
conduct.

Auction Sales:

• In the case of a typical auction sale, the auctioneers call for bids is an invitation to
treat. Where a bid is made, it is an offer from the bidder to buy at the price offered.
The auctioneer may then either accept or reject the offer on behalf of the principle.
• There is no sale until the property is knocked down to a bidder and conversely, the
auctioneer may withdraw goods or property from the auction at any before a bid is
accepted.
• Bid maker = Offer, Auctioneer = Acceptance

Case Example – Harris V Nickerson (1872-73) LR 8 QB 268

• The defendant advertised that an auction of certain goods would take place at a
stated time and place.
• The plaintiff travelled to the auction only to find that items that he was interested in
had been withdrawn
• He claimed compensation for breach of contract, arguing that the advertisement
constituted an offer, and his travelling to the auction, an acceptance by conduct.
• The court held that the advertisement was not an offer; it was merely an INVITATION
TO TREAT.

Online auctions and sales

 • Auctions conducted online, such as eBay, raise interesting questions about the
process of contract formation. So too does internet shopping
• In both situations, the traditional contractual formation process can be applied.

Case Example – Smythe V Thomas [2007] NSWSC 844

• The seller listed a Wirraway aircraft on eBay with an effective disclosed reserve of
$150,000
• Smyth made a bid of $150,000 in accordance with eBay rules and was the highest
bidder. Both parties received a notification that Smythe had won the auction
• Thomas, however, refused to complete the transaction, arguing that no contract had
been made between Smythe and himself.
• He argued there were only contracts between eBay and the buyer, and eBay and the
seller.
• The court decided that the eBay terms and conditions created a framework for the
auction in which Thomas and Smythe were willing participants.
• A binding contract was formed between the buyer and seller that the court would
specifically enforce
• THIS CASE LAW MUST BE MENTIONED

Tenders:

• A tender is an offer to do or perform an act, which the party offering, is bound to

perform to the party to whom the offer is made. Up to someone to decide which
tender to accept. Person submitting the tender is the offeror; the person who can
accept this offer is the offeree.
• A statement that goods are to be sold by tender is usually regarded as an invitation
to treat.
• A party submitted a tender makes the offer and there is no contract until the person
who called for tenders accepts the tender.
• Further, unless it says so in the original document calling for tenders, the person
calling tenders is not obliged to accept the lowest or any tender.

Case Example – Harvela Investments V Royal Trust Co of Canada LTD

• The House of Lords indicated that those inviting tenders had an obligation to abide
by the undertakings given in the tender document
• The Royal Trust Co owned share in a company, and invited bids for them from two
parties
• The letter of invitation said “… we confirm that if any offer made by you is the higher
offer… we will bind ourselves to accept it...”
• Harvela bid 2,175,000 and its competitor bid 2,100,000 or 101,000 in excess of any
other offer… expressed as a fixed monetary amount, whichever is higher
• The Royal Trust accepted the competitor’s bid as being $2,276,000.
 • Harvela sued for breach of contract, saying a referential bid (not a fixed bid, but one
that refers to an increases a competitors bid” was invalid.
• The house of lords agreed.
• It held that Harvela’s bid should have been accepted.
• The parties had been invited to put in a tender, they had invested time and effort in
preparing the tender and it was reasonable for the tender selection process to be
carried out in the way Royal trust has impliedly promised – that is it would accept the
higher of the two fixed bids. It therefore could into accept a referential bid.

Persons to whom an offer can be made:

• An offer can be made to a specific person or persons, to a particular class of

persons, or to the world at large.
• The person or persons form whom it was intended are the only ones who can accept
it.
• If the offer is made to the world at large, for example, by way of general
advertisement, then anyone who reads the advertisement is able to make an offer

Communication of Offer:

• The offer must be communicated, that is, brought to the notice of the person to whom
it is made.
• Unless an offer is communicated, there can be no acceptance and therefore no
contract.
• The reason for the rule that an offer must be communicated is that the whole basis of
the law of contract is that there has been an agreement between parties.
• The word agreement presupposes that parties were aware of the act that they were
doing would lead to an agreement

Revocation of Offer

• An offer is revoked when the offeror formally withdraws the offer.

• On revocation the offer come to an end and cannot subsequently be accepted.
• The offeror can give notice of the revocation of the offer at any time BEFORE
acceptance
• To be effective the revocation of an offer, like the offer itself must be communicated
to the offeree.