Indian Legal System > Civil Laws > Indian Contract Act, 1872 > Invitation to Offer
An offer must be distinguished from an invitation to offer (Invitation to treat by English Law). An invitation to offer is an action inviting other parties to make an offer to form a contract. These actions may sometimes appear to be offers themselves, and sometimes it is very difficult to distinguish between the two. The distinction between the two is important because accepting an offer creates a binding contract while “accepting” an invitation to offer is actually making an offer. There is no mention of ‘invitation to offer in the Indian Contract Act, 1872.
Invitation to Offer:
An invitation to offer is an action inviting other parties to make an offer to form a contract. An invitation to offer is merely a preliminary discussion before an offer is formally made. A true offer implies a willingness to develop legal relations while an invitation to offer has no intention of creating legal obligations. Before finalizing an offer, parties express their “statement of intention” during the process of negotiation on the terms of a contract, which has no intention of acquiring acceptance.
- Example – 1: Advertisements on media are usually invitations to offer, which allows sellers to refuse to sell products at prices mistakenly marked in the advertisement. Any word showing intention to make a contract may make the advertisement to be an offer.
- Example – 2: Auctions are invitations to offer which allows the seller to accept bids and choose which to accept. However, if the seller states that there is no reserve price or the reserve price has been met, the auction will be considered an offer accepted by the highest bidder.
- Example – 3: The ‘exhibition of goods for sale’ can be confused as an offer when really it is an invitation to offer. When goods are displayed in a store this constitutes an invitation to customers to make offers to purchase the items. Only when the customer indicates that they will pay for the goods at the quoted price has an offer been made.
Case Laws:
In Harvey v. Facey, ((1893) A. C. 552) case the plaintiffs telegraphed to the defendants, writing, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”. The defendants replied, also by a telegram, “Lowest price for Pen, £ 900”. The plaintiffs immediately sent their last telegram stating, “We agree to buy Pen for £ 900 asked by you”. The defendants, however, refused to sell the plot of land at that price. The court held that the defendants only quoted the lowest price and did not express their willingness to sell the plot of the land. It can just be considered as an invitation to offer.
In Philip & Co. v. Knoblanch ((1907) S. C. 994) case A merchant (the plaintiff) wrote to a firm of oil millers (the defendant), “I am offering today plate linseed for January-February shipment to Litth and have pleasure in quoting you 100 tons at usual plate terms. I shall glad to hear if you will buy and await reply”. The oil miller telegraphed the next day: “Accept”, and confirmed it by letter. It was held that the letter by the plaintiff has all the characteristics of a valid offer and contract was concluded by the defendant by the telegram. Thus it is an actual offer.
In Carlill v Carbolic Smoke Ball Co. 1893 case the defendant company advertised that a reward would be given to any person who would suffer from influenza after using the medicine (Smoke balls) made by the company according to the printed directions. One lady, Mrs, Carlill (the plaintiff), purchased and used the medicine according to the printed directions of the company but suffered from influenza, She filed a suit to recover the reward. The defendant’s contention was that the plaintiff has not accepted the offer by communicated consent to the offer. The court held that there was a contract as she had accepted a general offer by using the medicine in the prescribed manner. Still, she suffered from influenza, hence she is liable for getting the reward from the company. Thus the general offer is not an invitation to offer.
In Gibson v Manchester City Council, [1979] 1 All ER 972 case, Gibson leased and occupied a council house which the City Council owned. In 1970 the Council created a scheme which would allow council house tenants to purchase the properties at favourable rates. They created an application form which tenants could fill out, and provided them to the tenants. Gibson complete his form and sent it back to the Council, enclosing the administration fee and asking how much he would have to pay for the house. The Council’s treasurer wrote back to him. The treasurer’s letter stated that the Council ‘may be prepared to sell the house to you at the purchase price of £2,180. It also included details of a corporation mortgage, including an application form, but noted that Gibson should not regard this as a firm offer of a mortgage. Gibson completed the mortgage application form and sent it back to the Council. He left the purchase price section blank, asking the Council to reduce the price to account for defects with the property’s path. The Council wrote back stating that the price was fixed. Gibson responded asking them to ‘carry on with the purchase as per my application.’ The Council did not reply to this letter, but took the house off the list of houses which they were responsible for. In 1971, before any formal sale was concluded, the Council’s policy on selling council houses changed. The Council sent out a notice stating that they would only proceed with those council house sales in which there had been an exchange of contracts. This had not happened in Gibson’s case. Nevertheless, Gibson argued that there was a completed contract for the sale of the house, and sued for specific performance of the agreement. The House of Lords held in favour of the Council. The Council never made an offer to Gibson which he could have accepted. Words like ‘may be prepared to sell’ were too equivocal to constitute an offer. The mortgage letter explicitly stated that it was not a firm offer. There was therefore no completed contract between the parties.
In Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd, [1953] 1 All ER 482 case, Boots Cash Chemists introduced a new method of purchasing drugs from their store- the drugs would be on display, shoppers would pick them from the shelves, and pay for them at the till. The Pharmaceutical Society of Great Britain objected to this method, claiming that S.18(1) of the Pharmacy and Poisons Act 1933 mandated the presence of a pharmacist during the sale of a product listed under the Act’s schedule of poisons. The Society alleged that the display of goods constituted an offer and a customer, upon choosing a product/drug, had accepted the offer. Due to lack of supervision of a pharmacist, the Boots Cash Chemists had, according to the Pharmaceutical Society, violated the terms of the Pharmacy and Poisons Act of 1933. Matter was taken to court. The Court held that in this case that display of articles in a shop, even on a self-service basis, is an invitation to offer. When the customer selects the article and brings it to the cash desk, then it is a proposal/offer by the customer, the acceptance of which can be given by the shopkeeper by accepting payment from the customer.
Tenders:
Government, Railways and other bodies who require a supply of large quantities of material often invite tenders for the supply of goods.
Invitation for Tenders:
An invitation or a request for tenders is a formal, structured invitation to suppliers to submit a bid to supply products or services. Thus a person may invite tenders for the supply of specific goods or services. Thus, a tender is the response to the request of tenders, and it is an offer.
Note that the person who invites tenders for the purchase of goods does not make an offer, it is the person who submits a tender that makes an offer. It depends on the person who invites the tender to accept or not.
Tender as Definitive Offer:
If a tender has been submitted for goods or services in specified quantities it is termed as a definite offer. A binding contract comes into existence as soon as the tender is accepted.
Example: A invites tenders for the supply of 100 tons of wheat. Three persons say X, Y, and Z submit the tenders. A accepts Z’s tender. Then there is a binding contract between A and Z.
Tender as a Standing or an Open Offer:
Standing offer or tender may be of the nature of a continuing offer. A tender to supply goods as and when required over a certain period amounts to a be a standing offer. In this case, the tenderer must supply whenever an order is placed. But he cannot insist on any order being made at all.
In Percival Ltd. V.L.C.C. (1918) case, A tendered to supply goods up to a certain amount to B over a certain period. B’s order did not come up to the amount expected and A sued for breach of contract. The Court held, each order made was a separate contract and A was bound to execute the orders made. B was under no obligation to make any order at all.
In Great Northern Railway V. Witham case, the railway company invited tenders for the supply of certain iron articles over a period of 12 months. Witham’s tender was accepted. After supplying for some time, Witham refused to execute the order placed during the currency of the tender. Court held that Witham could not refuse within the terms of the tender.
In Bengal Coal Co. v. Homi Wadia & Co. (24 Bom 97) case, A agreed in writing to supply coal to B at certain prices and up to a stated quantity, or in any quantity which may be required for a period of twelve months. Court held that B has not agreed to buy any specific quantity of coal, hence it is not a contract. It is a standing or continuous offer, which may be accepted by placing orders from time to time.
Auctions:
It is a public sale in which goods or property are sold to the highest bidder. an advertisement for auction is an example of an invitation to offer. In auction sales, the offer proceeds from the bidder, and it is for the auctioneer to accept it or not. In an auction, the acceptance of the offer is signified by the fall of the hammer. But the offer can be revoked before such acceptance.
In Payne v Cave (1789) 3 TR 148 case Mr. Cave was made the highest bid for good in an auction. But then, Mr. Cave changed his mind and he withdrew his bid before the auctioneer brought down his hammer. It was held that Mr. Cave, the defendant, was not bound to purchase the goods. His bid amounted to an offer which he was entitled to withdraw at any time before the auctioneer signified acceptance by knocking down the hammer.
In Harris v Nickerson (1872) LR 8 QB case, the defendant was an auctioneer who had advertised in the Newspapers that certain goods would be sold by him by auction at a certain place over a period of three specified days. The plaintiff, who attended the sale on the final day came to know that many goods were withdrawn by the defendant. The plaintiff sought to recover his expenses and the time which he had wasted in attending the auction from the defendant. The contention of the plaintiff was that the withdrawal of the lots was a breach of contract which had been formed by the offer made by the defendant in the advertisement, and accepted by the plaintiff in attending the auction. The court held that the advertisement was merely a declaration to inform potential purchasers that the sale was taking place. It was not an offer to contract with anyone who might act upon it by attending the auction, nor was it a warranty that all the articles advertised would be put or sale. As such, it did not legally bind the defendant to auction the items in question on any particular day. Hence the claim of the plaintiff was rejected.
In Warlow v. Harisson, I. E. & E 295 case the defendant Harrison, who was an auctioneer advertised the sale ‘without reserve’ of a mare by public auction. The plaintiff, Warlow attended the auction and bid 60 guineas. Horse owner attended too, and bid 61 guineas. The plaintiff knew that it was the horse owner who bid 61 guineas, so he didn’t bother bidding any higher. The auctioneer, Harrison, knocked down the hammer 3 times to the horse owner. The plaintiff claimed the horse should be his as he was the highest bona fide bidder. The plaintiff had performed the required act (made the highest bid). However, because the hammer had not been put down on the plaintiff’s bid there was no acceptance of his offer. Therefore, there was no contract for the sale. The plaintiff was only entitled to sue the defendant for the loss of the opportunity to buy the horse.
Proposals for Insurance:
When a person submits a proposal form to the insurance company, it is an invitation to offer. Now the insurance company gives an offer which is accepted by the person after paying the premium. After paying the premium the contract is concluded. Once the premium is paid, it is immaterial that the insurance company has issued the policy or not.
In Canning v. Farquhar, (1998) 16 Q.B.D. 727 case, Canning filled “Proposal form” and applied for life assurance with the company. The company wrote that the proposal is accepted and told Canning that no insurance contract take place until the first premium was paid. Before the premium was paid, Canning fell over a cliff and died. The company refused to accept the premium from Canning’s agent. The Court held that the so-called proposal was initial negotiation, while acceptance by the insurance company was the actual offer. Which was not accepted by Canning by paying the premium. Hence the company was under no obligation to pay the sum insured because the risk had substantially changed between the time of the original proposal and the tendering of the premium.
In South British Insurance Co. V. Stenson, 52 Bom. 532 case, A proposes to have an insurance policy; B issues one to A, subject to payment of premium. A does not pay the premium. B files the suit to recover premium. The court held that B gave a counter-offer to A which was not accepted by A. Hence the contract is not concluded. Hence the claim of B was rejected.
In Mohamed Sultan v. Clive Insurance Co., 56 All. 726 case the plaintiff entered into a contract of insurance against theft of his goods and furniture. He signed the proposal and paid the premium for the year. The insurance company acknowledged the receipt of premium and informed to the plaintiff than within 30 days policy shall be issued. Actually, no policy was issued. There was a theft in plaintiff’s house within one year from taking the policy. The insurance company rejected the claim of compensation from the plaintiff. Court held that the contract is complete and the insurance company is liable for paying the compensation.
Distinguishing Between Offer and Invitation to Offer:
| An Offer | An Invitation to Offer |
| An offer is the final willingness of the party to create legal relations. | An invitation to offer is not the final willingness but the interest of the party to invite the public to offer him. |
| An offer is defined in section 2 (a) of the Indian Contract Act, 1872. | An invitation to offer is not defined in the Indian Contract Act, 1872. |
| An offer is an essential element to make an agreement between the parties. | An invitation to offer is not an important element until it becomes an offer. |
| An offer becomes an agreement when accepted. | An invitation to offer becomes an offer when the public responds to it. |
| The main objective of making an offer is to enter into the contract. | The main objective of an invitation to offer is to negotiate the terms on which the contract can be made. |
Conclusion:
An invitation to offer is an action inviting other parties to make an offer to form a contract. An invitation to offer is merely a preliminary discussion before an offer is formally made. A true offer implies a willingness to develop legal relations while an invitation to offer has no intention of creating legal obligations. Unlike a contract, an invitation to offer has no legal consequences. Although, as simple as it might sound, at times determining either if one is faced with an offer or invitation to offer/treat is quite a task and depends upon the rules and laws laid down by different legal systems.
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