Legally binding agreements
What is an agreement?
Once a legally binding offer is made by party A and accepted by party B, a legally binding agreement is formed.
Providing all the other elements necessary for contract formation are present, a contract is formed. To read about the formation of a contract, read the blog, What is a contract?
What is a legally binding offer?
An offer is an expression from the offeror to do or give something to or for another party, the offeree. If this ‘expression from the offeror’ is not clear and specific, the law does not recognise it as a legally binding offer.
Therefore, party B cannot technically ‘accept’ this non-binding expression.
What makes the ‘expression’ from party A a legally binding offer?
If the ‘expression’ is clear and specific with an intention to be bound by it, the courts will deem it a legally binding offer.
In Gibson v Manchester City Council (1979), the courts decided that the council’s statement that ‘they may be prepared to sell’ the house to Mr. Gibson was not an offer, but an invitation to treat.
What is an invitation to treat?
An invitation to treat invites another party to enter negotiations. In Gibson v Manchester City Council (1979), the court said the statement was a step in negotiations for a contract. The purpose of the letter was to invite Mr Gibson to make an offer. The letter was not an offer from the council to Mr Gibson.
In addition to cases that involve negotiations, there are specific instances in which the courts will state that the expression in question is not an offer, but an invitation to treat. They include cases that involve goods on display in shop windows Fisher v Bell (1960) and goods sold on a self-service basis Pharmaceutical Society v Boots Cash Chemist (Southern) Ltd ((1953).
The courts also usually view advertisements for bilateral contracts as invitations to treat Partridge v Crittenden (1968). However, advertisements for unilateral contracts are usually viewed as offers. Carlill v Carbolic Smoke Ball Co (1893).
To listen to a discussion of Gibson v Manchester City Council (1979), watch the video below.