The External Signs of Agreement

As we have seen, the process by which the courts try to decide whether the parties have made an agreement does not necessarily involve looking for actual agreement, but rather for the external signs of agreement. The classical theory of contract relied on a number of specific elements, which were regarded as both necessary and sufficient to identify an agreement which is intended to be legally binding. These were:

- offer;

- acceptance; and

- consideration.

These three factors, together with an overarching requirement that the court is satisfied that there was an intention to create legal relations, formed the classical basis for the identification of contracts in English law. As far as offer and acceptance are concerned, in the modern law the courts have, as will be noted below, at various times recognized the difficulty of analysing all contractual situations in terms of these concepts. Some attempts have been made to apply a more general test of “agreement”. These have not been fully developed, but the direction in which English law is moving is perhaps indicated by the Principles of European Contract Law. These suggest that the normal basis for the creation of a contract will be the exchange of offer and acceptance (Arts 2:201; 2:204). They recognize, however, that not all contracts will be made in this way (Art 2:211). The overall test is simply whether there is “sufficient agreement” (Art 2:101), with this being determined by whether the terms “have been sufficiently determined by the parties so that the contract can be enforced” (Art 2:103).

Offer

An offer may be defined as an indication by one person that he or she is prepared to contract with one or more others, on certain terms, which are fixed, or capable of being fixed, at the time the offer is made. Thus, the statement “I will sell you 5,000 widgets for £1,000” is an offer, as is the statement “I will buy from you 5,000 shares in X Ltd, at their closing price on the London Stock Exchange next Friday”. In the former case, the terms are fixed by the offer itself, in the latter they are capable of becoming fixed on Friday, according to the price of the shares at the close of business on the Stock Exchange. The offer may be made by words, conduct or a mixture of the two. The concept applies most easily to a situation such as that given in the above example where there are two parties communicating with each other about a commercial transaction. It fits less easily, as will be seen below, in many other everyday transactions, such as supermarket sales, or those involving the advertisement of goods in a newspaper or magazine. What the courts will look for, however, is some behaviour which indicates a willingness to contract on particular terms. Once there is such an indication, all that is then required from the other person is a simple assent to the terms suggested, and a contract will be formed. The “indication of willingness” referred to above may take a number of forms - for example, the spoken word, a letter, a fax message, an email or an advertisement on a website. As long as it communicates to the potential acceptor or acceptors the basis on which the offeror is prepared to contract, then that is enough. It is not necessary for the offer itself to set out all the terms of the contract. The parties may have been negotiating over a period of time, and the offer may simply refer to terms appearing in earlier communications. That is quite acceptable, provided that it is clear what the terms are.

2.4.1 Distinction from ‘Invitation to Treat’

As we have noted, the objective of looking for “offer and acceptance” is to decide whether an agreement has been reached. It is important, therefore, that behaviour which may have some of the characteristics of an offer should not be treated as such if, viewed objectively, that was not what was intended. Once a statement or action is categorised as an offer, then the person from whom it emanated has put themselves in the position where they can become legally bound simply by the other party accepting. It must be clear, therefore, that the statement or action indicates an intention to be bound, without more. The courts have traditionally approached this issue by drawing a distinction between an offer and an“invitation to treat”.

Sometimes a person will wish simply to open negotiations, rather than to make an offer which will lead immediately to a contract on acceptance. If I wish to sell my car, for example, I may enquire if you are interested in buying it. This is clearly not an offer. Even if I indicate a price at which I am willing to sell, this may simply be an attempt to discover your interest, rather than committing me to particular terms. 1 he courts refer to such a preliminary communication as an “invitation to treat” or, even more archaically, as an “invitation to chaffer”. The distinction between an offer and an invitation to treat is an important one, but is not always easy to draw. Even where the parties appear to have reached agreement on the terms on which they are prepared to contract, the courts may decide that the language they have used is more appropriate to an invitation to treat than an offer.

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