Course:
Law of Contract
OFFER AND INVITATION TO TREAT IN CONTRACT LAW
Introduction
The law of contract is fundamentally built upon the mutual agreement of parties. This mutual agreement is typically demonstrated through a process of offer and acceptance. For a contract to be legally binding, there must be a valid offer made by one party and an unqualified acceptance by the other. These foundational elements ensure the presence of consensus ad idem (meeting of the minds), which is vital for the formation of enforceable agreements. Ghana, as a common law jurisdiction, heavily relies on English common law principles as well as statutory provisions, particularly the Contracts Act, 1960 (Act 25), in determining whether a contract exists.
Definition of an Offer
An offer is a definitive and unequivocal expression of willingness by one party (the offeror) to contract on certain terms, with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed (the offeree).
According to Black’s Law Dictionary (11th ed.), an offer is “a promise or proposal by one person to give or do something if the other person will do or refrain from doing something in return.”
The offer must be clear, definite, and communicated to the offeree. A statement such as “I am willing to sell my car to you for GHS 50,000” is an offer. In contrast, “I might consider selling my car” is vague and lacks the necessary intention to be legally binding.
What Makes an Offer Valid?
For an offer to be valid, it must satisfy the following criteria:
1. It must be definite and not ambiguous.
2. It must express a clear intention to be bound once accepted.
3. It must be communicated to the offeree.
In the Ghanaian Supreme Court case of NTHC Limited v. Antwi [2009] GHASC 24, the court held that a company by a letter from indicating that management has proposed to sell the company’s house being occupied by the Management staff is valid offer, underscoring the importance of intention and clarity in offer-making.
Additionally, the objective test is applied by courts to determine whether a valid offer exists. That is, whether a reasonable person in the position of the offeree would consider the communication as constituting an offer. This principle was affirmed in the English case of Smith v. Hughes (1871) LR 6 QB 597, and it continues to inform Ghanaian contract law.
Types of Offers
Offers can manifest in various forms, each with its own legal implications:
Bilateral Offers
A bilateral offer consists of a promise in exchange for a promise. For instance, “I will sell my house to you for GHS 300,000” implies a contractual obligation upon acceptance.
Unilateral Offers
These involve a promise in exchange for an act. A classic example is found in Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256, where a company promised £100 to anyone who used their smoke ball and still contracted influenza. The court held that the advertisement was a unilateral offer, accepted by performing the stipulated act.
Offer Versus Invitation to Treat
It is essential to distinguish between an offer and an invitation to treat, as only the former can be accepted to form a binding contract. An invitation to treat is merely a preliminary communication that shows a party’s willingness to enter into negotiations. It is not intended to be binding.
The difference was clearly articulated in Gibson v. Manchester City Council [1979] 1 WLR 294, where a letter from the council stating they “may be prepared to sell” a house was held to be an invitation to treat and not an offer. The court emphasized the importance of the wording used in determining legal intent.
In Partridge v. Crittenden [1968] 1 WLR 1204, an advertisement for birds in a newspaper was held to be an invitation to treat, not an offer. Similarly, in Pharmaceutical Society of Great Britain v. Boots Cash Chemists [1953] 1 QB 401, the display of goods on shelves was deemed an invitation to treat. The actual offer is made by the customer at the cashier, and acceptance occurs when the cashier processes the sale.
Other classic examples of invitations to treat include:
Termination and Revocation of Offers
Offers do not remain open indefinitely. They may be terminated in several ways:
Revocation
An offeror may withdraw an offer at any time before it is accepted. However, the revocation must be communicated to the offeree to be effective. In Byrne v. Van Tienhoven (1880) 5 CPD 344, the court held that a revocation sent by post but received after the offeree had already posted an acceptance was ineffective.
Rejection or Counter – offer
An offeree who rejects the offer or makes a counter-offer terminates the original offer. In Hyde v. Wrench (1840) 3 Beav 334, the court held that a counter-offer acts as a rejection of the original offer, which cannot later be revived.
Lapse of Time
Offers lapse after the time stipulated in the offer or, if no time is specified, after a reasonable time depending on the subject matter. Perishable goods, for example, require a shorter response time.
Death or Insanity of a Party
If either the offeror or offeree dies or becomes mentally incapacitated before acceptance, the offer may lapse, especially in personal contracts.
Failure of a Condition Precedent
If an offer is subject to a specific condition and that condition is not met, the offer cannot be accepted. For example, if a person offers to sell land “subject to ministerial approval” and such approval is not granted, no binding contract can arise.
Effect of an Offer
hen someone makes a valid offer, it means they are clearly saying, “I’m ready to make a contract with you on these specific terms—if you agree, we have a deal.” The effect of that offer is that the offeree (the person receiving the offer) now has the power to accept it. Once the offer is accepted properly, a legally binding contract is created. But until it is accepted, there is no contract, and the offer can still be changed or withdrawn.
In Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256, a company promised £100 to anyone who used their product and still caught the flu. Mrs. Carlill did exactly that. The court said the company’s promise was a unilateral offer that became legally binding once Mrs. Carlill performed the condition. This case shows that once an offer is accepted (even by an action, not just words), it has the effect of creating a contract.
But if what’s said isn’t really an offer, it has no legal effect. In Gibson v. Manchester City Council [1979] 1 WLR 294, the council told Mr. Gibson they “may be prepared to sell” him a house. The court said this was just an invitation to treat (an invitation to negotiate), not an offer, so nothing legally binding came from it.
This idea was also contrary in the case of NTHC Ltd v. Antwi [2009] GHASC 24. A company by a letter from indicating that management has proposed to sell the company’s house being occupied by the Management staff is valid offer.
Also, if the person who receives the offer tries to change the terms, it kills the original offer. In Hyde v. Wrench (1840) 3 Beav 334, someone offered to sell land for £1,000, but the other person replied, “I’ll pay £950.” That was a counter – offer, which automatically cancelled the original offer. So when the offeree later tried to accept the original £1,000 offer, it was too late.
Example:
If Kwame tells Ama, “I’ll sell you my phone for GHS 2,000,” that is a clear offer. Ama can accept and create a contract. But if she replies, “Will you take GHS 1,800?” she has made a counter – offer. Kwame is no longer legally bound by his first offer, unless he repeats it again.
Conclusion
Offer and acceptance form the bedrock of contract formation. A valid offer must be clear, communicated, and demonstrate an intention to create legal relations. It must also be distinguishable from an invitation to treat, which merely invites negotiation and cannot itself be accepted to form a contract. Ghanaian courts, in line with common law tradition, employ an objective test to ascertain whether an offer or acceptance exists. Landmark cases such as NTHC v. Antwi, Carlill v. Carbolic Smoke Ball Co., Gibson v. Manchester City Council, and Hyde v. Wrench, among others, provide practical insights into how courts interpret and enforce the principles surrounding offer and acceptance. These principles are also buttressed by the Contracts Act, 1960 (Act 25), which gives statutory legitimacy to the doctrine and ensures consistency in its application within Ghana’s legal system.
