For a legally binding contract to exist in English law, there must be an agreement. This agreement is typically formed when one party makes an offer that is accepted by another. To determine whether an agreement has been reached, the courts do not look into the actual state of mind of the parties, but instead apply an objective test. This essay will explain the objective approach to agreement before examining how this approach is used by the courts to distinguish between a firm offer and a preliminary step in negotiations known as an invitation to treat.
The Objective Approach to Agreement
The foundation of contract formation is not based on the subjective intentions of the parties but on how their intentions would appear to a reasonable person. This is known as the objective test of agreement. The classic formulation of this principle was provided by Blackburn J in Smith v Hughes (1871) LR 6 QB 597, who stated: "If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."
The rationale for this approach is to promote legal certainty and protect the reasonable expectations of parties in commercial and everyday transactions. If the law were to focus on subjective intentions, it would be easy for a party to escape a bad bargain by simply claiming they did not truly intend to be bound, making commercial dealings unreliable (McKendrick, 2021). Therefore, the law is concerned with the external manifestation of intent, not the secret thoughts of the individuals involved.
Distinguishing Offers from Invitations to Treat
An essential part of determining whether an agreement exists is identifying a valid offer. An offer is a clear and certain expression of a willingness to be bound on specified terms, which becomes binding upon acceptance by the person to whom it is addressed (Peel, 2020). However, many communications are not offers but are instead invitations to treat. An invitation to treat is an expression of a willingness to enter into negotiations, inviting the other party to make an offer. The key distinguishing factor is the intention to be bound, as assessed objectively. The courts have developed several established rules for common scenarios.
Generally, goods displayed in a shop are considered invitations to treat, not offers. In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401, the Court of Appeal held that goods on a shelf in a self-service store were an invitation to treat. The customer makes the offer when they present the goods at the till, and the shop accepts this offer by processing the payment. This reasoning prevents a customer from being bound to purchase an item as soon as they place it in their basket and allows the shopkeeper to refuse a sale. Similarly, in Fisher v Bell [1961] 1 QB 394, a flick knife displayed in a shop window with a price tag was held to be an invitation to treat, not an offer for sale.
Advertisements are also usually treated as invitations to treat. In Partridge v Crittenden [1968] 1 WLR 1204, an advertisement for the sale of "Bramblefinch cocks and hens" was held to be an invitation to treat. The court noted the practical absurdity if it were an offer, as the advertiser might find themselves contractually obliged to sell more goods than they actually possessed (the 'limited stock' argument).
However, an advertisement can be an offer if the objective test of intention is satisfied. This is particularly the case in unilateral contracts, where one party makes an offer that is accepted by the performance of a specified act. The leading example is Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The company advertised their smoke ball, claiming it would prevent influenza and stating they had deposited £1,000 in a bank to show their sincerity. Mrs Carlill used the ball as directed but still contracted influenza. The court held that the advertisement was not a mere invitation to treat but a unilateral offer to the world, which was accepted by Mrs Carlill when she performed the conditions. The deposit of money showed a clear intention to be bound, distinguishing it from a mere advertising puff.
In conclusion, the objective test is the guiding principle for establishing agreement in contract law, ensuring certainty and fairness. This test is crucial in distinguishing between an offer, which demonstrates an intention to be legally bound upon acceptance, and an invitation to treat, which is simply a preliminary step inviting others to make offers. Through case law concerning shop displays and advertisements, the courts have established practical presumptions, but the ultimate decision in any case will turn on the objective intention of the party making the communication.
References
- McKendrick, E. (2021) Contract Law. 14th edn. Palgrave Macmillan.
- Peel, E. (2020) Treitel on The Law of Contract. 15th edn. Sweet & Maxwell.
- Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
- Fisher v Bell [1961] 1 QB 394
- Partridge v Crittenden [1968] 1 WLR 1204
- Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401
- Smith v Hughes (1871) LR 6 QB 597
