This article is written by Wardah Beg, student, Faculty of Law, Aligarh Muslim University.
The difference between offer and invitation to offer is very basic and lies mainly in the ‘intention’ of the parties. While an offer directly allows the other party to enter into a contract (that is, a legally binding agreement) as soon as it is accepted, an invitation to treat mainly invites the other party to make negotiations and himself make an offer to the seller. This might sound complicated, but it is a very fundamental difference that we see very often in our day to day lives. When we go to a bookshop, the mere display of the books in the shop is an invitation to treat by the bookseller to the general public. Anyone passing by the shop can choose to come to buy one of his books or may choose otherwise. Here, no one is legally bound to perform any action. Similarly, most forms of advertisements are not actually offers but invitations to offer. To fully grasp the difference, let us understand how the offer and invitation to offer has been defined, separately.
Offer or Proposal
The term offer/proposal has been defined in Sec 2 (a) of the Indian Contract Act. According to the Act, “when one person signifies to another his willingness to do or abstain from doing something with a view to obtaining the assent of the other to such an act or abstinence, he is said to make a proposal”. It means when a person tells another person that he would or wouldn’t do something for them, they are said to be making a proposal to them. For instance, a person may offer to sell you their bicycle at a certain sum, say Rs. 5,000. This is an offer. As soon as you and the seller come to an agreement about the sale, and the details are explicitly laid down, a contract comes into existence. Once you accept the offer and pay the consideration (the sum of Rs 5,000), and the bicycle is delivered to you, the contract is said to have been ‘performed’.
Specific and General Offer
An offer can be either specific or general. An offer that is made to the public at large is a general offer. For example, an advertisement of reward for anyone who finds a lost dog for its owner is a general offer. The offer will come to be accepted by any person who happens to find the dog and deliver it to its owner. A specific offer, on the other hand, is made on a personal basis. For example, Kiran offers to sell her flat to Shagun at the cost of Rs. 45.5 lakhs. This offer is specifically made to Shagun and not to the public at large.
‘Invitation to Offer’ or ‘Invitation to Treat’
In an invitation to offer, no specific party has the intention to enter into a contract. The seller may enter into a contract with anybody from the public who makes the best offer to him. So, the essence of an invitation to offer is that the offer is actually made by the seller. For instance, a shopkeeper selling antique statues in his store would prefer the buyer who would agree to pay the higher price for his goods. Similarly, a display of clothes in a shop, of goods in an auction, and even advertisements screaming “Offer! 50% Off on All Shirts!” is actually an invitation to treat, and not an offer. Therefore, an invitation to offer ‘evolves’ into a contract in a different manner than an offer. Initially, it is an invitation to offer, say by a display of goods and their prices. When a person makes an offer that is good enough and the seller ‘accepts’ it, it becomes a contract. Unlike offer, which is made by the seller to the buyer.
This is the direction in which offers are made in both cases:
Invitation to Offer
The Role of Intention
In an offer, both the parties have an intention to enter into a legally binding agreement after due negotiation. Such an intention is absent in an invitation to offer. One might, while returning home from office stop by a shop and look at a displayed book or dress, and not have the intention to buy it immediately. Similarly, a seller may want to sell his goods at a higher price than offered by a particular customer and therefore reject selling the good to him.
A discussion on Invitation to Offer is incomplete without mentioning the infamous precedent laid down in Carlill v. Carbolic Smoke Balls Company. In this case, the defendants carried out an advertisement claiming that their product, the “The Carbolic Smoke Ball”, if used three times daily, for two weeks, would prevent cold and influenza, along with an offer to pay a reward of 100£ to anyone who might catch influenza even after using the product as prescribed. To show their sincerity in doing so, the company deposited a sum of 1000£ in a public bank. The plaintiff, Carlill, bought the product and used it as prescribed and still caught influenza. The plaintiff filed a suit for recovery of 100£, which was appealed against by the Company. It was held that a binding contract came into existence between the Company and the Plaintiff once the plaintiff purchased the product.
To conclude, it is necessary to differentiate between an offer and an invitation to offer, because a party while actually making negotiations may come to believe that it is actually accepting the seller’s offer while in fact, the party may be making an offer themselves. An invitation to offer is actually a precursor to an offer. It is a chance for both the parties to negotiate and discuss the terms they would like to come to, in case they decide to enter into a contract.
An invitation to offer will turn into a contract only when an offer is made by the seller to the buyer. The difference, therefore, lies in the word “invitation”. It is an invitation to any potential buyer to make an offer on the goods to be sold. There are several examples of an invitation to offer: auctioneering, display of goods in a shop, an invitation to tender, display of the menu of a restaurant, advertisements in a newspaper, an invitation to see an apartment for sale/rent, recruitment offers, request for proposals, etc.