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Contract Law: The Offer

This is the first in a series of articles explaining the basics of contract law. Contract law governs the regulation of trade take the following for example: "contract law has many 'purposes', but the central one is to support and to control the millions of agreements that collectively make up the 'market economy'"(HG Beale, WD Bishop and MP Furmston, Contract Cases and Materials (4th Eds, Butterworthsm 2001)).

In order to prove that a contract exists there are formation rules i.e. a contract is only formed in law where the following can be showed to exist:

  • an agreement
  • consideration
  • and intention


Offer

Later articles will look at consideration and intention but for now I will concentrate on the first point 'an agreement' and specifically the 'offer' element of this. In order to show an agreement there must be a valid offer followed by a valid acceptance this seems a straightforward idea for example I approach you and offer you £5,000 for your car and you accept the offer, but trouble occurs when complex business transactions are dealt with as it can be unclear which offer has been accepted in which Lord Denning MR stated: "In many of these cases our traditional analysis of offer, counter offer, rejection, acceptance and so-forth is out of date.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" (Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 WLR 401)

So what constitutes this offer? basically an offer is a statement of intent by the offeror to be bound to the terms of the offer if it is accepted and thus be bound to the contract that will exist on acceptance. Whilst the word 'offer' does not need to be used in the offer itself it should be made clear that it is an offer and not an 'invitation to treat' an example of this is goods for sale in a supermarket, it is considered that they are not offered for sale but are merely an 'invitation to treat' it is when the customer takes an item to the checkout that an offer is made and in fact the offer is made by the customer to the supermarket the classic example of this can be found in: Pharmaceutical Society of GB v Boots Cash Chemists Ltd [1953] 1 ALL ER 482. Other examples of an invitation to treat include goods in a shop window, magazine / newspaper adverts etc.

Having seen what constitutes an offer it must now be determined whether an offer is valid, one of the rules of validity is that the offer must be communicated to the offeree. The reasoning behind this rule is quite simple: you cannot accept something of which you have no knowledge the case of note for this is that of Taylor v Laird [1856] 25 LJ Ex 329, similar to this is the requirement that the offeree must have clear knowledge of the existence of the offer for it to be valid and enforceable. The next point is that an offer can be made equally to one person or in fact to the whole world for example Carlil v The Carbolic Smoke Ball Co [1893] 1 QB 256 where Lord Justice Lindley stated as follows: "it is said that (the offer) is not made to anyone in particular. Now that point is common with the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anyone who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer".

Certainty: In order to ensure that a contract is found to be enforceable the terms of the contract must be certain see Guthing v Lynn [1831] 2 B & AD 232 which involved the sale of a horse and a term to the effect of 'an extra £5 will be paid if the horse is lucky' it was unsurprisingly found that this term of the offer was unenforceable as it is uncertain.

Revocation of Offers Of course in some situations a person may wish to withdraw their offer this can be done in theory at least as long as the offer has not already been accepted, the offeror must communicate this withdrawal to the offeree although this communication can be through a reliable third party. But in the case of unilateral contracts the offer can only be withdrawn until the contract is complete or there is a failure to perform by the offeree.

So having seen when and how an offer can be withdrawn how can an offer be said to have been terminated? acceptance of the offer by the offeree of course in such a situation the offer is thus terminated and the contract itself formed, rejection of the offer by the offeree another simple point although a counter offer will also count as a rejection, revocation of the offer by the offeror this is as per the last section, lapse of times if the offer has a specified end date then the offer will be considered terminated when this date has passed and also when a reasonable time period has passed for an offer with no specified date (see Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 Ex 109), death of one of the parties this situation depends upon who dies if it is the offeree then the offer will be deemed to have lapsed however if it is the offeror then his representatives may still be bound to the offer (although if the offeree knows of the death then it is unlikely that he could claim acceptance). The final condition of termination is that of a non-fulfilment of a condition, in some situations parties agree to meet certain conditions before the contract is validly formed, if however one party does not do so then the offer will be deemed lapsed and thus is no longer open to acceptance (Financings Ltd v Stimson [1962] 3 ALL ER 386)

12 August 2008
Ben Evans is an Intellectual Property Executive at Lawdit.


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