The most basic difference in contract law is between an "offer" and an "invitation to offer." Both are very central in questions of when a legally enforceable contract arises as well as what obligations and rights the parties have towards each other because these very differences are the basis of the law. It would seem to pass as similar, but the difference between an offer and an invitation to offer makes all the difference in the interpretation as well as enforcement of an agreement.
Are you interested in pursuing a career in Law? The Legal School in collaboration with IndusLaw has created a unique program for a Certification in Mergers & Acquisitions, Private Equity and Venture Capital Laws for fresh law graduates as well as professionals looking to advance in their careers! Enquire now for details!
What Is an Offer?
An offer is a definite proposal that one party, referred to as the offeror, makes to another party, also known as the offeree, to bring about a legally binding contract on acceptance. Section 2(a) of the Indian Contract Act, 1872 defined an offer as "when one person signifies to another his willingness to do or to abstain from doing anything, to obtain the assent of that other to such act or abstinence, he is said to propose." In simpler words, it means an offer is a direct expression of willingness to enter into a contract on certain terms and conditions.
An offer should satisfy the following indispensable requirements to be valid:
Clarity and Certainty: The terms of the offer must be clear and not ambiguous. If they are vague or uncertain, the offer cannot be considered valid.
Communication: The offer must reach the offeree. An offer can only be accepted if the offeree is aware of it.
Offer Must Be Made With an Intention to Create Legal Relations: The offer shall be accepted to create legal relations. Generally, offers made out of mere amusement or in a social environment are regarded as not binding.
Capable of Acceptance: The offer must be capable of acceptance by the offeree and lead to a contract. Such as, if someone places an offer to sell a car at a certain price, then the offer is capable of being accepted.
As soon as the offer gets accepted, it works out to be a binding contract, but only when other key elements of a contract such as consideration, legal purpose, and capacity are fulfilled.
Also, read the difference between contract of indemnity and contract of guarantee.
What is an Invitation to Offer?
An invitation to offer is the other name for the invitation to treat, which is not an offer but rather an expression of intention to negotiate or an invitation to another party to make an offer. It is a preliminary communication that expresses the desire to engage in discussions or to receive offers from others. In this regard, the party invited to offer does not acknowledge any of the bindings of the contract until they have accepted an offer made in response to the invitation.
Characteristics of an invitation to offer
Pre-Negotiation: An invitation to offer is always a preliminary invitation to negotiate or talk about the terms of a prospective contract.
Not Binding: The party inviting to tender is not bound by any of the offers that might be received in response. He is free to reject or accept any offer as he may decide.
Examples: Common examples of an invitation to offer include advertisements, auction notices, price lists, and the display of goods in a store. These are not offers but invitations for customers to make offers, which the seller may then accept or reject.
Read to understand the Partnership Act 1932.
Difference between Offer and Invitation to Offer
With both terms defined, it is now time to discuss the critical differences that exist between an offer and an invitation to offer:
1. Definition:
Offer: An offer is a proposal from one party to another that is expected to be accepted with the intention of bringing about a legally binding contract.
Invitation to Offer: An invitation to offer is an offer but only an expression of a desire to negotiate or accept offers without any intention of bringing into existence legal relations.
2. Intention to Bring About Legal Relations:
Offer: The offeree intends to place the offeror under a legal obligation when the offeree accepts the offer.
Invitation to Offer: There is no intention to place each other's legal relations in a binding position immediately. The party offering the invitation does not agree to assume or be bound by the obligations of any contract.
3. Legal Consequence:
Offer: Once an offer is accepted, it results in a legally binding contract.
Invitation to Offer: An invitation to offer does not create a contract. It rather inspires the offeree to make an offer the invitee can accept or decline.
4. Examples:
Offer: If a person offers to sell his car to a particular individual at a specific price, then that is an offer. If the latter accepts, then there lies a contract.
Invitation to Offer: Whenever commodities that have price tags in a shop are displayed, it becomes an invitation to offer. When one of the items is picked up and taken to the cashier for sale, it becomes a proposal for purchase at that particular price. The shop either accepts or declines the proposal (for example, when this commodity is out of stock).
5. Nature of Communication:
Offer: This is a communication that expresses the hope that the acceptance made would lead to a contract forthwith.
Invitation to Offer: An invitation to offer is a form of communication that seeks offers that would later be accepted by one or more of them by inviting them for further negotiation.
6. Control over Acceptance:
Offer: The offeror does not exercise control over the offeree as to whether he will accept or not to accept the offer. The moment an offer is accepted, a binding contract results.
Invitation to Offer: The party extending the invitation to offer is competent to accept or decline any number of offers. They are at liberty to accept only such offers as they like except in cases where they finally accept one offer. They are not bound to perform one of them.
7. Formation of Contract:
Offer: Acceptance results in the immediate formation of a contract.
Invitation To Offer: In an offer to accept, if the offeree accepts it, then only he would submit an offer. The contract is said to be established only when this particular offer is accepted by the original party.
AspectOfferInvitation to OfferDefinitionA definite proposal made by one party to another with the intent to create a binding contract upon acceptance.A mere invitation to others to make offers or negotiate terms.Legal ConsequenceResults in a binding contract if accepted.Does not create a contract; it leads to an offer being made.IntentThe offeror intends to be legally bound once the offeree accepts the offer.The inviter does not intend to be legally bound by responses.AcceptanceUpon acceptance, a binding contract is formed.Acceptance only leads to the submission of an offer, which may be accepted or rejected.Control Over OfferOnce made, the offeror has no control over the offeree’s decision to accept or reject.The invitee can accept or reject any offers made in response.ExamplesA person offering to sell their car to another individual for a fixed price.Advertisements, auction notices, and display of goods in a shop.Nature of CommunicationDirect and specific communication, offering definite terms.General communication inviting offers or proposals.Legal BindingLegally binding upon acceptance.No legal obligation exists unless an offer is made and accepted.Formation of ContractA contract is formed immediately when the offer is accepted.No contract is formed unless an offer is made and accepted.RevocabilityAn offer can be revoked before acceptance but not after.There is no need for revocation since no legal offer is made.
Understand the difference between interim bail and anticipatory bail.
Examples of Offer to Accept and Invitation to Offer
To make the contrast even clearer, let's consider some examples that are applicable in life.
Example 1: Sale of Goods in a Shop
An invitation to offer would be the displaying of goods at a price in a shop window or on a shelf. The store, in a sense, is inviting potential buyers to make an offer to buy the displayed goods at the price.
Offer: When a customer selects an item and takes it to the checkout, he makes an offer to buy the item at the price presented. The store has the right to accept or decline the offer, especially if the item has run out of stock or may be priced incorrectly.
Example 2: Advertisements
Invitation to Offer: Most of the ads are treated as an invitation to offer. For instance, when a car is advertised to be sold, this does not constitute an offer. It only constitutes an invitation to the potential buyer to make an offer to purchase the car.
Offer: If a buyer sees an advertisement and reaches out to the seller regarding the exact offer to purchase the car on sale at the price set, then the buyer is making an offer. The seller may either accept or reject the offer.
Example 3: Auctions
Invite of Offer: When an auctioneer declares that there will be an auction or items are placed on display for auction, this creates an invite to the offer. It invites people with offers to submit their bids.
Offer: When a person places a bid at an auction, then he or she is presenting an offer to buy the item at that price. The auctioneer can accept or reject such an offer either by accepting or declining the bid.
Know who is a data protection officer in India.
Conclusion
The difference between an offer and an invitation to offer rests as an important nuance from which the distinction on how a contract is formed springs forth. An offer is a definite proposal to create a legally binding contract upon acceptance. On the other hand, an invitation to tender or offer is just a preliminary communication by one party that calls for offers from others who may or may not accept them, or just refuse the offers altogether. Understanding this difference can help in avoiding misconceptions and court battles arising from acceptance, especially when entering into agreements or negotiations. Whether buying products, responding to advertisements, or participating in an auction, understanding when a proposal has been tendered versus an invitation to tender could clarify the legal obligations of the parties involved.
Difference between Offer and Invitation to Offer FAQs
1. Is a price list an offer?
No, a price list is generally construed as being merely an invitation to offer. The buyer may well make an offer to buy at the price quoted by the catalogue, and that offer may be accepted or rejected by the seller.
2. Can an advertisement be classified as an offer?
In other words, generally speaking, invitations to offer are advertisements. However, if the advertisement is clear enough, specific enough, and contains no scope for a bargain, such as with a reward offer, then it can be considered a valid offer.
3. Can an offer be withdrawn when accepted?
No, once an offer has been accepted, it cannot be withdrawn.
4. What happens if my offer is rejected?
If the offer is declined, then there is no contract. The offeree may decide to withdraw the offer, allow it to lapse, or alter it for further negotiation.
5. Can an offer be made to the public?
Yes, an offer may be made to the public at large; for example, the offer for lost property rewards. In such cases, acceptance will be created by the first person who does the required act.
