Invitation to Offer or Invitation to Treat: The Test for Distinguishing It from an Offer, and Its Application to Shop Displays, Advertisements, Auctions, Tenders, Prospectuses and Price Lists

An invitation to offer is a communication inviting others to make proposals. It cannot be accepted, because it contains nothing to accept. Everything of practical importance follows from identifying which party is the offeror: that party is the one who is bound when the other says yes, and the other is the one who remains free to decline. The Indian Contract Act, 1872 does not use the expression, and the category is entirely judicial. This topic sets out the test the courts apply, the reasons of commercial policy that support the standard classifications, and the classification of each situation that recurs in practice.

1. The Test

The question is one of intention, objectively ascertained: would a reasonable person reading the communication understand the maker to be signifying a willingness to be bound on acceptance, or merely a willingness to receive proposals and to consider them? Section 2(a) supplies the standard, since it requires the willingness to be signified with a view to obtaining the assent of the other party. A communication made in order to elicit proposals rather than assent does not satisfy that requirement.

Four indicators recur in the decided cases, and none of them is conclusive on its own.

1. The language used. Words of commitment such as 'I offer', 'I will sell to you at', or 'we undertake to pay' point to an offer. Words such as 'for sale', 'terms available on application', 'quotations', 'subject to contract' or 'subject to availability' point to an invitation.
2. Whether the essential terms are complete. A communication that leaves quantity, specification or delivery to be settled cannot be accepted as it stands and is an invitation.
3. Whether the maker's obligation would be indeterminate. A trader with limited stock who circulates a catalogue to thousands of people cannot have intended to bind himself to supply every person who responds. This consideration explains most of the standard classifications.
4. Evidence of seriousness or commitment. A sum deposited with a bank to show good faith, or a statement that the maker will be bound to the highest bidder, converts what would otherwise be an invitation into an offer.

2. Display of Goods

Goods displayed in a shop, whether on a self-service shelf or in a window, are an invitation to treat. The customer makes the offer, at the shelf or at the counter, and the shopkeeper accepts or declines. Two consequences follow, both of them commercially important: a shop is not bound to sell an item that has been mismarked at a wrong price, and the shopkeeper may refuse to serve a particular customer without being in breach of any contract.

The self-service case is Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1953] 1 QB 401, where the Court of Appeal held that the customer makes the offer by presenting the goods at the cash desk, so that the sale takes place there and under whatever supervision is maintained at that point. The practical corollary is that a customer who has placed goods in a basket is free to put them back, having made no offer and concluded no contract.

3. Advertisements, Catalogues and Price Lists

An advertisement offering goods for sale, a trade catalogue and a circulated price list are invitations to offer. The reason is the indeterminate-obligation point: a trader who published a price list would otherwise be in breach the moment orders exceeded his stock, and would be bound to contract with persons whose creditworthiness he had no opportunity to consider.

The classification reverses where the advertisement promises a sum of money to anyone who does a specified act. That is a general offer, accepted by performance, and the indeterminate-obligation objection carries no weight because the advertiser chose to expose himself and could have limited the terms. The line therefore runs between an advertisement offering goods for sale, which invites offers, and an advertisement making a promise conditional on an act, which is an offer.

3.1 Prospectuses and other public documents

A company prospectus inviting the public to subscribe for shares or debentures is an invitation. The application for shares is the offer, and the allotment is the acceptance, which is why the rules on communication of allotment matter so much in company law. A railway timetable is a statement of intended service rather than a promise that a particular train will run, though once a ticket is issued a contract of carriage exists on the carrier's usual terms. An advertisement inviting applications for a public post is an invitation, the application being the offer and the appointment letter the acceptance.

4. Auctions

• The advertisement that an auction will be held is an invitation, and a person who incurs expense in attending has no claim if the sale is cancelled or the lot withdrawn. This was decided in Harris v. Nickerson, (1873) LR 8 QB 286.
• The auctioneer's request for bids is an invitation, not an offer to sell to the highest bidder.
• Each bid is an offer, and acceptance takes place on the fall of the hammer. It follows that a bidder may withdraw his bid at any time before the hammer falls, as held in Payne v. Cave, (1789) 3 TR 148, since until then nothing has been accepted.
• A sale advertised 'without reserve' may give rise to a separate collateral undertaking by the auctioneer to sell to the highest bona fide bidder, breach of which sounds in damages even though the main contract of sale was never concluded.

5. Tenders

The tender process reproduces the same structure. The invitation to tender is an invitation to offer. The tender submitted is the offer. Acceptance of the tender concludes the contract, unless the tender was for supply as and when required, in which case acceptance converts it into a standing offer and each order placed under it is a separate acceptance.

Two qualifications have developed. First, an invitation to tender may itself contain a binding undertaking about the process, for example that all conforming tenders received before the deadline will be considered, and breach of that undertaking is actionable although no contract of supply was ever made. Second, where the invitation states that the highest or lowest conforming bid will be accepted, the invitation is an offer and the conforming bid is the acceptance, which is the reasoning applied to fixed bidding in Harvela Investments Ltd. v. Royal Trust Co. of Canada (CI) Ltd., [1986] AC 207. In India, tender processes conducted by the State are additionally subject to Article 14, so that even at the invitation stage the authority must act fairly and without arbitrariness.

6. Employment and Benefit Schemes

7. The Classification Summarised

8. The Position Stated Shortly

1. An invitation to offer invites proposals and cannot be accepted; the party responding to it becomes the offeror.
2. The test is objective intention, drawn from the language used, the completeness of the terms, whether the obligation would be indeterminate, and any evidence of commitment.
3. Fisher v. Bell: a display with a price marked is an invitation, and the expression 'offer for sale' bears its contract-law meaning.
4. The Boots case: in self-service the customer offers at the cash desk, so a shop need not sell at a mismarked price.
5. Catalogues, price lists, quotations and prospectuses are invitations; an advertisement promising money for a specified act is a general offer.
6. At an auction the advertisement and the call for bids are invitations, each bid is an offer, and acceptance is on the fall of the hammer.
7. An invitation to tender is an invitation, but may carry a binding undertaking about the process, and State tenders are subject to Article 14.
8. Bank of India v. O. P. Swarnakar: a voluntary retirement scheme is an invitation to offer, and the employee may withdraw his option before acceptance under Section 5.
9. Website listings follow the shop-display analysis, and whether an order acknowledgment is an acceptance depends on its wording.

9. Related Topics and Provisions