Differences between Invitation to treat and Proposal

A proposal is made when a person is willing to enter into a legally binding contract. However, an invitation to treat is merely a supply of information (eg. an advertisement) to tempt a person into making a proposal.

It is important to differentiate a proposal which will consequently lead to binding obligations on acceptance. On the other hand an "invitation to treat" is a mere suggestion of a readiness to deal or trade. In essence, an invitation to treat is a preliminary approach to others inviting them to make a proposal which can then be accepted or rejected.

For example, if A said: "I want to sell you my Xbox 360 but I will not let it go for less than $300", that is an invitation to treat. Even if B wanted to buy A's Xbox for $300 he cannot be obliged to sell it to you for there is no official proposal in which to accept or reject. However if A said "I will sell you my Xbox 360 for $300", that would constitute as a proposal.

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The invitation does not constitute a proposal, it is an invitation to engage in negotiations to form a contract, or an proposal to receive an proposal from another party (Willmott et al., 2005, p. 37). In Partridge v Crittenden, case law has established that advertisements and in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd auctions and displays of goods for sale are invitations to treat rather than proposals. However, in other types of transactions it can be hard to differentiate between the two.

This is where the ‘objective test’ applies: it must be determined how a reasonable person would regard the situation. An invitation to treat may sometimes appear to be a proposal and the difference can sometimes be difficult to determine. The distinction is important because if one accepts an proposal, they have created a binding contract however if one accepts an invitation to treat then they will be making an proposal. The main difference between an proposal and an invitation to treat is where an invitation to treat lacks the intention to be legally bound.

The difference between an proposal and an invitation to treat lies solely in the promisor's intentions. An proposal is a proposal in which all bargaining is resolved and the party who wishes to make the transaction is prepared to make a legally binding contract with an individual who has equal bargaining power and has the capacity to responsibly accept. An example of a common proposal could include a phone contract, where all the terms and conditions have been made and acceptance is ready to occur with no further bargaining. In contrast, an invitation to treat is seen as "a request to negotiate or make an proposal with a contract in mind"[1]. An invitation to treat allows for further questions, statements and bargaining to me make during the negotiation process where the acceptance of such a request is not legally binding.

Determining the difference between an invitation to treat and an proposal can be difficult as these two terms are similar and yet, legally, very different. An invitation to treat is not an proposal (Monahan and Carr-Gregg, 2007, pp. 6-7), but rather a request to negotiate with the intentions to enter into a contract. There is no legal obligation on the person who proposals an invitation to treat. Once there is an expression of willingness to be contractually bound on the stated terms (Australia Legal Dictionary, 2004, p.306) an proposal is said to have being made. However, where there is no intention to be bound by a contract, negotiations continue until the terms can be accepted and the parties contractually bound, should a party accept the invitation to treat then make an proposal and this is accepted, then there will be a legally binding contract. As shown in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) 1 QB 401 once a customer makes an proposal to buy goods from the store; the owner can accept or reject the terms.

For example, though a salesman may display an item in a store window it is not an proposal as the proposalor is not obliged to make the sale and can still alter the price or present terms or conditions as to the sale of the item. If the terms can be successfully negotiated then an agreement can be reached and the parties are contractually bound, however, if the proposalor refuses the proposalees proposal, then negotiations may or may not continue depending upon the intentions of both parties. The shop owner isn't legally obliged to sell an item that is being advertised, even if the price was met by a customer, or if it was accompanied by a special proposal. This was easily seen in Fisher V. Bell [1961] 1 QB 394, where the shop owner displayed a flicknife for sale but this sale was prohibited due to legislation. This also allows shop owners not to sell an item which was mistakenly priced at a very low amount.

A particular form of invitation to treat that has come under scrutiny has been advertisements. In his judgement in Partridge v Crittenden, Lord Parker CJ said, ‘When one is dealing with advertisements…there is business sense in their being construed as invitations to treat and not proposals for sale.’ Although a layman may regard the listing of a price next to an item in a catalogue as an proposal, in legal terms this is generally an invitation to treat, or an invitation for the customer to proposal to purchase the item, which the store/salesman may then accept or reject. Similarly, information regarding a product is also regarded as an invitation to treat according to Gibson v Manchester City Council.

The fundamental difference between an proposal and an invitation to treat is the intention of the proposalor, and while an advertisement, which is not targeting anyone in particular (but the world at large), can generally be deemed an invitation to treat, it is possible for it to be an proposal to the world at large. As stated many times already, an important factor is the intention of the person making the proposal and there are several factors to determine whether the advertisement is an invitation to treat or an proposal to the world at large. The terminology that is used, any limitations imposed on who could accept or any limitations on what was being proposaled are important factors.

The need for invitations to treat is clear, because otherwise people may find themselves in contracts they cannot fulfil, possibly due to insufficient stock (Graw 2005). If an proposalor, however, limits the number of people who can accept, the problem wouldn’t occur and it makes it possible for the advertisement to be an proposal to the world at large. This is seen in the case of Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957) in the USA. In this case the store placed a newspaper advertisement specifying “first in, first serve” for “3 brand new fur coats, at $1 each”. Mr Lefkowitz was one of the first three customers to try and buy a coat. He was told that it was only for women. He sued and won as the proposal was clear and definite, it wasn’t an invitation to treat but an proposal to sell. Also, if an advertisement proposals something and limits supply (eg. “Until stock runs out”, “two per customer”) it may be intended to fill all orders within the limitation and therefore it would be an proposal not an invitation to treat.

An important case to consider when comparing the differences between an proposal and an invitation to treat is the case of Leonard v Pepsico 88 F.Supp.2d 116 (1999) during which a television advertisement was aired proposaling prizes that could be exchanged for specific amounts of product ‘points’ or the cash equivalent (i.e. 50 points for a hat and 75 for a t-shirt). At the end of the advert Pepsico proposaled a fighter plane for 700,000 points. John Leonard took the advert seriously and consequently earned the required points and sent his points away to pepsico for the plane. When denied his acceptance of what he took to be an proposal, Leonard proceeded to take legal action against Pepsico. Kimba M. Wood J held that; the advert displayed no terms nor conditions, adverts do not constitute an proposal and there was no proposal made for which the plaintiff could respond to. As the proposal was made in jest, the advert could not be taken to constitute a valid proposal and as such should be viewed merely as a invitation to treat.

An important case to consider when comparing the differences between an proposal and an invitation to treat is the case of Leonard v Pepsico 88 F.Supp.2d 116 (1999) [7] during which a television advert was aired proposaling telling of prizes that could be exchanged for specific amounts of product ‘points’ or the cash equivalent (i.e. 50 points for a hat and 75 for a t-shirt). At the end of the advert Pepsico proposaled a fighter plane for 700,000 points. John Leonard took the advert seriously and consequently earned the required points and sent away for the plane. When denied his acceptance of what he took to be an proposal, Leonard proceeded to take action against Pepsico. Kimba M. Wood J held that; the advert displayed no terms nor conditions, adverts do not constitute an proposal and there was no proposal made for which the plaintiff could respond to. As the proposal was made in jest, the advert could not be taken to constitute a valid proposal and as such should be viewed merely as a invitation to treat.

An invitation to treat is distinguishable from an proposal in that; an proposal constitutes the first step of a contract and can be accepted along with consideration to form a contract. An invitation to treat is not an proposal but merely an invitation for the targeted audience to present their proposal, which may, or may not be accepted. A prime example of an invitation to treat is a catalogue. Catalogues often contain pictures, and words describing their products on sale and are advertised to a large number of people in a certain market who may be interested. Whereas an proposal would be targeted at an individual with certain terms and conditions, rather than at a large audience. It is important to establish that a catalogue is only an invitation to treat, otherwise a retailer could be in breach of contract if they exhaust all their supply of a product that has been proposaled in their catalogue.

Businesses such as Supermarkets, travel agents and Car Companies often use the term “special proposal”, which can be mistaken to have the same meaning as the term “proposal” does in the legal sense. (Massey V Crown Life Insurance Co ). The courts recognise that people from non-law backgrounds, use the word “proposal” rather loosely and therefore are reluctant to rely on the use of the word, to gauge intention (Gooley et al., 2007, pp. 45-46). It is often an invitation to treat in the same sense as “display of goods”. Merely calling something an proposal does not make it one (Graw, S, 2005, pp. 48-49).

The conditions and rationale under which a court differentiates an proposal from the ambiguous invitation to treat, is that an proposal is a readiness to be legally bound. In contrast, both parties within the invitation to treat remain at the negotiation stage. It is not until the invitation to treat has led to an proposal, which is then accepted, that a contract is formed.

Promotional statements in advertisements are treated as invitations to treat or to be ‘outside the realm of contract law altogether as being mere “puffery” not intended to be legally binding’ (Davis, J, 2006). Another issue that arises in clarifying an proposal from an invitation to treat is that when an proposalee submits an enquiry, it is difficult to determine whether or not the response can be interpreted as an actual proposal or simply a mere supply of information as seen in Harvey v Facey [1893] AC 552.

The courts regard that the presentation of goods for sale in a shop signifies that the cashier is willing to treat, in spite of the price labelled on the item. Therefore, an proposal is only reached when the customer presents the goods to the cashier, which will either be accepted or declined. When examining cases in contract law, it is essential to understand the four elements of contract formation to be able to trace negotiations back to the very fine point that distinguishes an proposal from an invitation to treat.

Auctions are a distinct method of sale where whether it is an proposal or invitation to treat can sometimes be ambiguous. If there is a reserve price for the item of sale, the auctioneer cannot sell the item unless the highest bid is higher than the reserve price. In this case the verbal enticement to bid made by the auctioneer towards a plausible purchaser can be considered akin to an invitation to treat. Each of the bids therefore can be regarded as an proposal which the auctioneer may or may not accept. The acceptance can be considered to have occurred when the hammer falls. Payne v. Cave (1789) 3 TR 148 is a good example in which the proposal was withdrawn before being accepted. In this instance the defendant made the highest bid for items for the plaintiffs but before the auctioneers hammer could fall, he withdrew the proposal. The court found the defendant was not contractually bound to purchase the item. His bid was considered to be an proposal, which was permitted to be withdrawn before the auctioneer had accepted. If the item in question has no reserve price, the highest bidder is usually considered to have made a contract with the auctioneer and therefore a rejection by the auctioneer would usually be considered a breach of contractual proposal. This was shown in the Court of Appeal in Barry v. Davies [2000] 1 WLR 1962.

Differences between Cross-offer and Counter-offer
Cross offer - When the offers made by two persons to each other containing similar terms of bargain cross each other in post they are known as cross offers. For example, on 1st January A offers to sell his radio set to B for Rs. 500/- through a letter sent by post. On the same date B also writes to A making an offer to purchase A's radio set for Rs. 500 /- When A or B send their letters they do not know about the offer which is being made by the other side. In these cross offers, even though both the parties intend the same bargain, there arises no could arise only if either A or B , after having the knowledge of the offer, had accepted the same. Counter Offer - A counter offer amounts to rejection of the original offer.Legal effect of counter contract. A contract offer:- (i) Rejection of original offer (ii) The original offer is lapsed(iii) A counter offer result is a new offer.For example -A offered to sell his pen to B for Rs.1,000. B replied, " I am ready to pay Rs.950." On A's refusal to sell at this price, B agreed to pay Rs.1,000. Held, there was not contract as the acceptance to buy it for Rs.950 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay Rs.1,000 is a fresh offer from B to which A was not bound to give his acceptance.