2.01  The technique of analysing transactions in terms of offer and acceptance to determine whether there is an agreement appears to have been adopted by all developed legal systems, and not surprisingly therefore features in the universal systems which are now appearing.

2.02  So the Unidroit Principles for International Commercial Contracts provide:

Article 2.1

(Manner of formation)

A contract may be concluded either by the acceptance of an offer or by conduct of the parties that is sufficient to show agreement.

2.03  In most cases where there is a dispute as to whether there is a contract, it makes sense to analyse what the parties have done to see whether one of them has made an offer, and then to look to see whether the other party has accepted that offer. This will solve a lot of disputes but it is not always either necessary or appropriate.

2.04  An obvious example is the way in which house purchase transactions are commonly carried out in the English practice. The potential buyers and sellers typically negotiate about the price, often with help from an estate agent but usually without legal help. Once a price has been agreed, there is a deal but not a contract. Most buyers and sellers will know that it is usual to hand matters over to lawyers. At this stage, many will have little idea why and will not know that since 1989 English law has required such contracts to be in writing (this Act has made little practical difference to what happens). The solicitors will agree to the form of words which are to be used for the sale; two copies of the contract will be produced, and one will be signed by the seller and the other by the buyer. At this stage, there will still be no legally binding contract. The contract comes into existence by the process of exchange. The seller’s copy is passed to the buyer and the buyer’s to the seller. Each party now has a copy of the contract signed by the other party (at one time, the contracts would have been physically (p. 11) exchanged; now the exchange is often telegraphic or electronic).¹ No one doubts that there is a contract, but it is very hard to say who is the offeror and who the offeree.

2.05  Another example is provided by the decision of the House of Lords in Clarke v Dunraven.² In this case a collision took place during a yacht race. The owners of the yachts had entered the race by completing the entry form provided by the organizers and had no dealing with each other. Each yacht owner had clearly made a contract with the organizer, but the House of Lords held that there was also a contract between the competitors so that their duties to each other were governed by the race rules and not by the general law.

2.06  It is worth considering why this was a sensible and appropriate decision. There was no doubt that there was a contract between each of the competitors and the organizing committee. This meant that, if one of the competitors broke the sailing rules, this would be a breach of the contract between the competitor and the organizers, but the organizers would not have been able to recover in a contract action damages for loss suffered by another competitor;³ and if this were the only contract, privity of contract would be an obstacle to another competitor bringing a contract action (on the facts a tort action would have been much less satisfactory). In common sense terms, it makes obvious sense to treat all the competitors as having agreed with each other to follow the rules.

2.07  Multi-party contracts are in fact quite common though they are not much discussed in the books. In some cases, such as partnerships, it will be normal for all the parties to enter into an explicit contract with all the others. But in the case of informal associations and clubs, members will often only deal with the secretary or the committee. Nevertheless, in such cases, Clarke v Dunraven may well provide support for finding a contract between the members.

2.08  It is clear then that there will be cases where, objectively speaking, it is clear that there is agreement but difficult to analyse what has happened in terms of offer and acceptance. The problems which are discussed in Chapters 7 and 8 exemplify this.

2.09  Nevertheless, there are cases where offer and acceptance is the appropriate technique. Drawing the line can obviously be a problem. An instructive English case is Gibson v Manchester City Council.⁴ In this case the council decided to sell some council houses to their tenants. Later, after an election, control of the council changed and the policy was reversed. It became necessary to decide which transactions had crossed the line into binding contracts. In Mr Gibson’s case, he had received a letter from the council indicating that they might be willing to sell and at what price and inviting him to return a form. He had returned the form, but it had not been actioned when the policy changed.

2.10  The majority of the Court of Appeal held that there was a contract.⁵ In a characteristic judgment, Lord Denning MR argued for looking at the question of whether there was a contract in a broader setting. The House of Lords disagreed.⁶ In an equally characteristic speech, (p. 12) Lord Diplock affirmed the traditional analysis. The council’s first letter was no more than an invitation to treat, and Mr Gibson’s reply was at most an offer which had not been accepted.

2.11  As a matter of orthodox contract law this seems clearly correct. In the range of possible negotiations Gibson was well towards the simple end. Lord Denning’s judgment reflects a feeling that councils should not behave like this. But if that is to stand, it needs a quite different conceptual basis.

2.12  There is a group of New Zealand cases which have taken what has been described as a global approach.⁷ An interesting example is Aotearoa International Ltd v Scancarriers A/S.⁸ The defendants, a firm of shipowners, sent to the plaintiff, a firm of exporters, a telex agreement to a ‘promotional rate’ for cargo of US$120 per ton and saying that shipping rates would be held for six months. After two shipments, the defendants refused to accept any more bookings from the plaintiffs.

2.13  The New Zealand Court of Appeal held, reversing the trial judge, that there was a binding contract to ship goods at the specified rate. This was justified on the basis that the telex had to be construed in the light of matters which could be included into it on the basis of an objective view of its contents. The Privy Council disagreed, and Lord Roskill⁹ said:

2.14  An offer is defined by Anson¹² as ‘an intimation, by words or conduct, of a willingness to enter into a legally binding contract, and which in its terms expressly or impliedly indicates that it is to become binding on the offeror as soon as it has been accepted by an act, forbearance or return promise on the part of the person to whom it is addressed’. Treitel considers that an offer is ‘an expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed’.¹³

2.15  It is therefore necessary to look at all the circumstances to determine whether the alleged offeror has reached a point of making it clear that all that is needed is for the other to accept (p. 13) his terms.¹⁴ Harvey v Facey¹⁵ involved an exchange of three telegrams. The first was sent by the potential buyer and stated ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price’. The second telegram was a reply by the owner stating ‘Lowest price for Bumper Hall Pen £900’. The potential buyer purported to accept this in the third telegram. The Judicial Committee of the Privy Council held that there was no contract since the second telegram did not constitute an offer to sell. It merely indicated the lowest price if the vendor did decide to sell. The third telegram was therefore an offer by the potential buyer but it was not accepted by the owner.

2.16  It is important to consider both the language used in the document and the general context in determining whether an offer has been made. Harvey v Facey concerned a potential sale of a piece of land where matters other than price will be important.¹⁶ If a document does not indicate a ‘willingness to become bound upon acceptance’, it will not constitute an offer but is classified as an invitation to contract or an invitation to treat.¹⁷

In the United States, the expression ‘preliminary negotiations’ is generally used instead of ‘invitation to treat’. The second edition of the American Restatement of Contracts distinguishes between an offer and preliminary negotiations as follows:

2.17  Here also the distinguishing factor is the intention to make the ‘offeree’s’ assent conclude the contract. Such intention must be judged objectively rather than subjectively so that the courts examine the external manifestation of intention rather than a person’s actual intention. This approach is expressed in the words of Lord Denning MR in Storer v Manchester City Council:¹⁸

2.18  Thus it is a question of what the addressee is justified in believing as a result of the conduct of the ‘offeror’. Treitel¹⁹ states that there will be an offer if the conduct of the ‘offeror’ ‘is such as to induce a reasonable person to believe that he [the offeror] intends to be bound, even though in fact he has no such intention’. However, the addressee would not be justified in considering a communication to be an offer if he knows that no offer is intended. That is, although the fundamental approach is objective, the position is different if there is reliable evidence that the offeree knew that the offeror did not intend to make an offer. In that case there will not be an offer.²⁰

2.19  Section 26 of the American Restatement (2d) Contracts, expressly provides that there is no offer if the addressee knows or has reason to know that there is no intention to be bound.

2.20  The technique of offer and acceptance is used by civilian systems just as much as common law systems, though the application is not necessarily exactly the same.

Because both common law and civil law systems are accustomed to the analysis it has not surprisingly found its way into international conventions. The provisions of the Vienna Convention, the Unidroit Principles for International Commercial Contracts and the Principles of European Contract Law appear in the later discussion. A recent provision is in the Draft Common Frame of Reference, Article 4.201 of which provides:

2.21  The intention on the part of the ‘offeror’ to make the ‘offeree’s’ assent conclude the contract is determined by examining the language used. In particular, it is necessary to assess the extent of commitment evinced, the certainty of the terms used, and the specification of the addressees.

2.22  Schlesinger cites ‘use of non-committing language in the proposal’ as one factor indicating that an offer has not been made, and continues: ‘This factor can come into play in one or both of two ways: either the words of commitment are weak, e.g., “we quote …”, or they are coupled with words suggesting a denial of commitment. Of course, if the language is clearly enough non-committing or anti-committing, this is no longer merely a factor, but determinative.’²¹

2.23  This factor is apparent in the American decision of Moulton v Kershaw.²² Kershaw, dealers in salt, had written a letter to Moulton in the following terms: ‘we are authorised to offer Michigan fine salt, in full car-load lots of 80 to 95 bbls., delivered at your city, at 85c. per bbl., to be shipped per C & N.W.R.R. Co. only. At this price it is a bargain, as the price in general remains unchanged. Shall be pleased to receive your order.’ On receiving this letter, Moulton immediately sent the following reply by telegram: ‘Your letter of yesterday, received and noted. You may ship me two thousand (2,000) barrels Michigan fine salt, as offered in your letter. Answer.’ When Kershaw refused to deliver, Moulton claimed damages for breach of contract alleging that the letter constituted an offer to sell him any reasonable quantity of salt he might order and that he had accepted this offer by telegram. However, the court held that the letter was not an offer and therefore no contract had resulted. As Taylor J stated:

2.24  Another American example of the lack of commitment evidenced in the language used is Nebraska Seed Co v Harsh.²⁴ A farmer, Harsh, had written a letter to the Seed Company in the following terms: ‘I have about 1800 bu. or thereabouts of millet seed of which I am mailing you a sample. This millet is recleaned and was grown on sod and is good seed. I want $2.25 per cwt. for this seed f.o.b. Lowell.’ The plaintiff company immediately sent a reply by telegram stating: ‘Accept your offer. Millet like sample two twenty-five per hundred. Wire how soon can load.’ They also sent a letter to confirm. The Supreme Court of Nebraska held that Harsh’s letter was not an offer. Morrissey CJ referred to the fact that Harsh had used only general language, in particular the words ‘I want $2.25 per cwt. for this seed f.o.b. Lowell’ rather than ‘I offer to sell to you.’ He continued: ‘The letter as a whole shows that it was not intended as a final proposition but as a request for bids.’²⁵

2.25  The importance of the language used in indicating commitment is also demonstrated by English case law, an example of which is the decision of the House of Lords in Gibson v Manchester City Council²⁶ discussed earlier. This can be contrasted with the language used in the correspondence in Storer v Manchester City Council,²⁷ a case which also involved the question of the sale of council houses to tenants. The town clerk had used the following language: ‘I understand you wish to purchase your council house and enclose the agreement for sale. If you sign the agreement and return it to me I will send you the Agreement signed (p. 16) on behalf of the corporation in exchange.’ The Court of Appeal held that, having regard to the language used, it was the council’s intention that it would become contractually bound when the tenant signed and returned the agreement for sale.

2.26  There are many reported cases which turn on the distinction between invitation to treat and offer. In the majority of them there is no dispute about the law, and the problem arises in its application which is highly fact-sensitive.²⁸ There are some other possibilities that should be considered. One is that the parties are conducting negotiations, some part of which will lead to a contract and some of which probably will not. A simple example will be that of a footballer negotiating the possibility of signing for a club. There may be lengthy of negotiations as to pay and length of contract, which, if successful, will form central features of the contract. The player and the manager will very likely discuss how the player will fit into the team. This is an important question, but even if the player and the manager are agreed on that issue, their understanding is unlikely to find its way into the contract.

2.27  A more complicated example is Barbudev v Eurocom Cable Management.²⁹ In this case, Mr Barbudev was a successful Bulgarian businessman who built up a successful cable television and Internet business through a company called Eurocom Plovdiv of which he was CEO and major shareholder. In 2005, Mr Barbudev and the other shareholders in the company wanted to sell their shares. Warburg Pincus Group (WPG) emerged as the successful bidder. From very early in the negotiations, Mr Barbudev made it clear that he wished to buy back 10 per cent of the shares. The negotiations dragged on over several years, and a final protocol was signed in Sofia in April 2008. (It had always been agreed that any contract would be governed by English law.) The leading document on Mr Barbudev’s desire to buy back 10 per cent was a Side Letter (drafted by a solicitor from a leading London firm) produced in April 2006. The Court of Appeal held that although there was a binding contract for the purchase of Mr Barbudev’s shares, the Side Letter did not amount to a binding promise to sell shares back to Mr Barbudev.

2.28  The proposer may use language which reserves the power to conclude the contract to the proposer himself. This clearly indicates that the proposal is not an offer because there is evidently no intention to allow the addressee’s consent to conclude the contract. Examples of wording which expressly deny any commitment include

[This quotation] shall become a contract upon, but not before, acceptance by the Home Office of our company …³⁰

and(p. 17)

This offer is subject to formal approval by our Board of Directors.³¹

2.29  Such clauses enable a company to check proposals made by officers. In International Filter Co v Conroe Gin, Ice and Light Co,³² a proposal had been made by the plaintiff’s travelling solicitor, Waterman, which contained the following clause:

The defendant, addressee, had indicated its acceptance on the proposed document which had then been forwarded to the plaintiff company’s Chicago office. It was endorsed by the president of the company: ‘OK Feb 13, 1920, P N Engel.’

Subsequently, a dispute arose as to whether a contract existed. It was held that the defendant had made an offer when the proposal was approved and that an enforceable contract came into existence when the president of the plaintiff company endorsed it at their Chicago office.³³

2.30  By contrast, the use of the words ‘for immediate acceptance’ has been held to indicate a strong commitment and intention to be bound. In Fairmount Glass Works v Grunden-Martin Goodenware,³⁴ a prospective purchaser had requested details of lowest price, cash discount, and terms of sale ‘for ten car loads of Mason green jars’ and the defendant, seller, had replied: ‘We quote you Mason fruit jars … pints $4.50, quarts $5.00, half gallons $6.50, per gross, for immediate acceptance; and shipment no later than May 15, 1895; sixty days’ acceptance, or 2 off, cash in ten days.’ The buyer had sent a telegram entering an order in accordance with the quotation and subsequently argued that a binding contract had resulted.

Hobson J considered that the defendant’s reply was more than a simple quotation because the words ‘for immediate acceptance’ indicated the defendant’s intention to sell at those prices if accepted immediately. Consequently, it was an offer which the plaintiff had accepted.

2.31  An expression which negatives commitment is not required to be inserted in any advertisement inviting bids or inviting tenders for the supply of goods or services. Such an advertisement is merely an invitation to treat so that each bid or tender submitted represents an offer and it is for the person requesting the bids or tenders to accept whichever he chooses. This is because, in general, the requester is under no obligation to accept the most competitive bid. Authority for this is provided by the leading English case of Spencer v Harding,³⁵ which concerned an action brought by the highest bidder who was not awarded the goods advertised.

The advertiser had sent out a circular in the following terms: ‘We are instructed to offer to the wholesale trade for sale by tender the stock in trade of Messr G. Eilbeck and Co … which will be sold at a discount in one lot.’ Willes J rejected the argument that this amounted to a (p. 18) promise to the highest bidder. However, he expressly stated that if the circular had stated ‘we undertake to sell to the highest bidder’ the circular would have amounted to an offer which would be accepted by conduct, ie being the highest bidder.³⁶

2.32  The certainty of terms is one factor used to determine whether a proposal is an offer or an invitation to receive offers. However, it is difficult to draw the line between offers and invitations to treat from this standpoint alone, and this is especially so in sale of goods cases, where ‘even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy’.³⁸ In such cases, those terms which are not fixed between the parties are implied by statute, ie in accordance with the Uniform Commercial Code (UCC) in all the states of the United States except Louisiana, and in accordance with the Sale of Goods Act 1979 in England.

2.33  It is, however, possible to say that a proposal is very likely to be held to be an invitation to treat if it does not limit quantity.³⁹ In both Moulton v Kershaw⁴⁰ and Nebraska Seed Co v Harsh⁴¹ uncertainty of quantity was also considered important in concluding that no offer had been made.

In Moulton v Kershaw, the proposal contained only the words ‘full carload lots of 80 to 95 bbls.’ and did not specify how many cars. In Nebraska Seed Co v Harsh, only the approximate quantity of stock was communicated via the words ‘I have about 1800 bu. or thereabouts of millet seed.’

2.34  However, in Fairmount Glass Works v Grunden-Martin Woodenware Co,⁴² a proposal which did not state a quantity was held to be an offer by considering the terms of the buyer’s previous inquiry. This previous inquiry had requested terms for ‘ten car loads’ so that a definite quantity had been specified.

2.35  The courts are generally reluctant to interpret a proposal which does not specify the quantity as an offer because ‘such an interpretation would expose its maker to the risk of liability for performance far beyond the maker’s means’,⁴³ ie he might find himself bound to supply goods in a quantity that he did not possess.

2.36  Such risks are removed and a proposal can be interpreted as an offer ‘if the proposal specifies a range or an upper limit within which the recipient may make a selection, or if such a restriction can be read in from usage, course of dealing, or under a standard of reasonableness’.⁴⁴ (p. 19) A standing offer such as that in Great Northern Railway Co. v Witham⁴⁵ can be cited as a good example.

In this case, the defendant had sent a written tender offering ‘to supply the Great Northern Railway Company, for twelve months from the 1st of November, 1871, to 31st of October, 1872, with such quantities of each or any of the several articles named in the attached specification as the company’s store-keeper may order from time to time, at the price set opposite each article respectively’.

This tender was held to be a standing offer which was converted into a series of contracts by the subsequent orders of the company. Brett J stated:⁴⁶ ‘I think it would be wrong to countenance the notion that a man who tenders for the supply of goods in this way is not bound to deliver them when an order is given.’

2.37  An instructive case is Durham Tees Valley Airport Ltd v BMI Baby Ltd.⁴⁷ This case concerned the operation of the Durham Tees Valley Airport, near Darlington. The Airport had originally been owned by the local authority, which wanted to develop it as a source of jobs in the area. In order to bring in money, ownership was transferred to the claimant company, in which outside investors had a controlling interest. In April 2003, the claimant entered into what was called the Base agreement with the first defendant, which was a subsidiary of the second defendant. It was accepted that this was a binding contract, though there were disputes as to its construction. There were disagreements between the parties, and in December 2005 a further document was signed which was supplemental to the Base agreement. The case was about whether this agreement was binding. The defendant argued that it was insufficiently certain. In particular, it was argued that it was not clear how many aircraft the defendants were to operate from the airport and in what ways. Davis J held the agreement uncertain. The Court of Appeal disagreed. Patten LJ said:⁴⁸

(p. 20) But the first question which arises on this appeal is whether any of that is necessary in the present case. The NVA is not a contract for the supply of goods or services or one which raises any difficulties about price. It preserves the detailed schedule of fees and charges set out in the Base agreement which are readily calculable based on the number of departing passengers. The focus of the alleged uncertainty is the contractual obligation imposed on BMIB to operate two aircrafts from the airport by 30 April 2006 at the latest. As already indicated, the Judge held that this meant fly. Fly, in the context of agreement, must mean fly commercially in the sense of providing a passenger service. The contract also identifies the type of aircraft to be used and the pattern of rotations (‘exclusively’). What the NVA does not do is to specify the minimum number of flights required and it is this which is said to be fatal to its enforceability.

The absence of a minimum performance clause indicates that any decisions on the detailed flying program where to be a matter of BMIB. This was Mr. Brealey’s submission to the judge who seems to have accepted it. As I have indicated, Mr. Shah’s submission that these terms were too uncertain to be enforceable without the addition of some specification of minimum numbers is scarcely touched on by the judge and the most relevant passage is his apparent acceptance of Mr. Shah’s argument to this effect.

In my view the judge was wrong to regard the addition of a term as to the minimum number of flights as being necessary for the enforceability of the NVA.

2.38  Another instructive case is MRI Trading AG V Erdenet Mining Corporation LLC.⁴⁹ In this case there was a contract between the parties for the sale of copper concentrates. A dispute broke out and was the subject of an arbitration, which was resolved by a settlement agreement in 2009. This provided for three new contracts by which EMC would sell to MRI consignments of copper concentrates in 2009 and 2010 and consignment of molybdenum concentrate in 2009. The 2009 contracts were performed, but EMC refused to make deliveries under the 2010 contract. It argued that there were material terms which had been left uncertain. That argument was accepted by arbitrators but rejected by Eder J. He said:⁵⁰

2.39  Advertisements placed via the mass media announcing that goods are for sale are addressed to unspecified addressees and are generally not interpreted as offers. The same is true of (p. 21) catalogues, price lists, and circulars sent to general customers. The reason given for this is the so-called limited stocks argument used by Lord Herschell in Grainger and Son v Gough,⁵¹ namely the danger that a seller could face an unfair burden of being obliged to supply a quantity of goods in excess of his stock held if he received a large number of orders.⁵² Conversely, if an advertisement is addressed to a limited number of people or is only capable of acceptance by a limited number of people, then it may be interpreted as an offer.⁵³

2.40  In Lefkowitz v Great Minneapolis Surplus Store⁵⁴ the following advertisement had been placed in a Minneapolis newspaper: ‘Saturday 9 A.M. Sharp/ 3 Brand New/ Fur Coats/ Worth to $100.001 First come/ First served/ $1 Each.’ This was held to amount to an offer which was accepted by the first person on Saturday to offer the stated purchase price at the seller’s place of business. Thus the use of the words ‘first come, first served’ limits the number of those who can accept. By analogy, price lists can be offers when the proposals in them are qualified by language such as ‘subject to prior sale’ or ‘while they last’.⁵⁵

2.41  As has already been noted,⁵⁶ it is not the ‘offeror’s’ actual intention that determines whether an offer has been made, but what the offeree reasonably understands that intention to be. Although price lists are generally assumed to be distributed among a large number of customers, letters are not. If letters containing the same proposal are to be sent to a large number of persons, it is sensible to draw attention to this fact so that it is clear that an offer is not intended. One way to achieve this is to expressly state: ‘I am writing to several people, including yourself, who have previously expressed an interest … .’⁵⁷

(p. 22) 2.42  The cases on price lists, catalogues, displays in shop windows, and so on are often discussed as if particular transactions are being characterized as a matter of law as being or not being offers. This is not always correct.

Most common law systems most of the time say that display in a shop window is not an offer but this was not the result in the Lefkowitz case. The usual rules are sensible (though the opposite rule applies in French law) because shopkeepers do not usually put goods in shop windows for the purpose of selling the goods displayed but to encourage shoppers to seek to buy identical goods. So in many cases the argument that the shopkeeper has only a limited supply has force.

Similarly, if I received a catalogue from a second-hand book-seller, I know that he will only have one copy of most of the books and that offers are made by customers. The position is not necessarily the same if a law publisher invites me to buy their latest monograph, the chance of them being submerged with orders may be thought vanishingly small.

2.43  English law appears to have adopted the position that display in a self-service store is an invitation to treat and not an offer. This cannot be explained on the exhaustion ground since if the display is the offer, the offer is withdrawn as soon as there are no more goods displayed. In the leading case, Lord Goddard said that if the display were an offer, there would be a contract as soon as the goods are put in the shopping baskets or trolley. This seems very doubtful, since many shoppers change their minds and put things back on the shelves. So, applying an objective test, putting goods in the basket would not be an acceptance.

2.44  It seems clear that the best solution is that the contract is made at the checkout, though it can be argued whether the shopper approaches as acceptor or offeror. Despite the millions of such transactions daily, there seems to be no litigated example anywhere of the shopkeeper refusing to sell at this point. The cases which have been litigated involved either criminal law questions where the shopper has, for instance, switched price labels or cases of bottles exploding after being put in the trolley. In the latter case, there will usually be tort liability on the manufacturer but no contract liability on the shop unless, contrary to the argument above, one holds that putting the goods in the basket is an acceptance.

The cases of auction and tenders are more complicated and are discussed more fully in Chapter 5.

2.45  It is clear that whether a proposal constitutes an offer turns not on the actual intention in the proposer’s mind, but on the apparent intention which the addressee is justified in concluding from the proposer’s external manifestations. If the external manifestations do justify the addressee in judging a proposal to be an offer then the proposer cannot argue that it was not his intention to make an offer.

2.46  The language used in the proposal is the most decisive factor when examining what the addressee is entitled to conclude. The level of commitment is important, and language which expressly denies any commitment can be determinative. However, this language of commitment has to be interpreted in its context so that ‘just as the word “offer” does not necessarily mean that an offer is intended, so the word “quote” may be used in an offer’ (American Restatement (2d) Contracts, § 26 Comment c).

(p. 23) 2.47  Case law suggests that the courts are reluctant to characterize a proposal as an offer in doubtful cases.⁵⁸ In United States v Braunstein,⁵⁹ Medina J stated: ‘It is true that there is much room for interpretation once the parties are inside the framework of a contract, but it seems that there is less in the field of offer and acceptance. Greater precision of expression may be required, and less help from the courts given, when the parties are merely at the threshold of a contract.’⁶⁰ A further warning was given by Foster J in Lyman v Robinson⁶¹ that ‘care should always be taken not to construe as an agreement letters which the parties intended only as preliminary negotiations’.

2.48  The United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG) (the ‘Vienna Convention’)⁶² so distinguishes expressly between proposals which have specified addressees and open proposals:

Therefore, where a proposal is addressed to specific persons it will constitute an offer if it is ‘sufficiently definite’, which is defined in Article 14(1) as turning upon certainty of the terms. However, it is not clear whether the requirements specified are mandatory or merely indicate one way in which the proposal can be sufficiently definite.⁶⁴

2.49  The other requirement is that such a proposal must indicate the offeror’s intention to be bound by acceptance. This intention is to be determined in accordance with Article 8(1), which is essentially subjective in nature since statements or conduct by a party ‘are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was’.⁶⁵

(p. 24) 2.50  The Unidroit Principles of International Commercial Contracts (2010)⁶⁶ provide for agreement on the traditional basis of offer and acceptance but also accept that conduct which is sufficient to show the parties’ intention to be bound by agreement may suffice (Article 2.1), for example, if both parties have begun to perform. The approach to contract formation in the Vienna Convention follows the traditional analysis on the basis that ‘to have attempted a different analysis would have added greatly to the difficulties of drafting’.⁶⁷ The definition of an offer in Article 2.2 of the Unidroit Principles uses the same criteria of ‘definiteness’ and ‘intention to be bound’ on acceptance as the Vienna Convention. Although there is no explicit mention of the criteria of definiteness which exists in Article 14(1) of the Vienna Convention, the commentary to Article 2.2 makes reference to the fact that ‘even essential terms, such as the precise description of the goods or the services … the price to be paid for them, the time or place of performance etc., may be left undetermined in the offer without necessarily rendering it insufficiently definite’. It is therefore less prescriptive and instead the determining factors are the parties’ intentions to enter into a binding agreement and whether any missing terms can be filled in accordance with the interpretation provisions and other articles contained in the Unidroit Principles. Thus there is a greater degree of flexibility on this point evident in the Unidroit Principles.

2.51  An offer is not effective until it is communicated to the offeree. The formulation of this principle is identical in both the Vienna Convention (CISG) and the Unidroit Principles, namely: ‘An offer becomes effective when it reaches the offeror.’⁶⁸ The Unidroit Principles also follow the CISG in attempting to address the question of when that important time occurs by specifically providing a definition of ‘reaches’.⁶⁹ Such a definition would provide an answer to the current debate in English law concerning what constitutes actual communication of an offer, acceptance, or revocation sent by telex, fax, or electronic mail since the message would be communicated on receipt by the addressee’s machine.⁷⁰ It also avoids the practical difficulties which would result if it had to be shown that a particular communication specifically came to the attention of the individual addressee.

The need for the offer to be communicated in order to be effective is important in practice since an offeree can only validly accept if he acts in response to an offer of which he has knowledge so that acceptance cannot occur until there has been communication of the (p. 25) offer.⁷¹ As Anson states:⁷² ‘A person who does an act for which a reward has been offered in ignorance of the offer cannot say either that there was a consensus of wills with the offeror, or that the act was done in return for or in reliance on the promise offered.’

2.52  This principle also appears in the American Restatement (2d) Contracts:

This would appear to be the reason why ‘cross offers’ do not result in a contract.⁷³ In Tinn v Hoffmann and Co,⁷⁴ the majority of the Exchequer Chamber were of the opinion that the offer in one such ‘cross offer’ letter could not amount to an acceptance of the offer contained in the other.⁷⁵ Blackburn J stated:⁷⁶ ‘The promise or offer being made on each side in ignorance of the promise or the offer made on the other side, neither of them can be construed as an acceptance of the other.’ In any event, it appears that the ‘cross offers’ in Tinn v Hoffmann were probably not identical. The defendants had offered the plaintiffs 800 tons of iron but, following an inquiry from the plaintiffs about a lower price for a quantity of 1,200 tons, the defendants had sent a letter on 28 November offering a further 400 tons but at the original price of 69s per ton. The plaintiff’s crossing letter agreed to take 800 tons and 400 tons ‘making in all 1200 tons’ at 68s per ton.

The same view on ‘cross offers’ is adopted in the United States.⁷⁷