FORMATION OF A

CONTRACT
OFFER
Introduction
• The law of contract is about the enforcement of promises. Not all promises are enforced by courts.
To enforce a set of promises, or an agreement, courts look for the presence of certain elements.
When these elements are present a court will find that the agreement is a contract. Therefore, as a
student you need to be aware of the elements required to constitute an enforceable contract.
• To say that we have a contract means that the parties have voluntarily assumed liabilities with regard
to each other. The process of agreement begins with an offer. For a contract to be formed, this offer
must be unconditionally accepted. Once there has been a valid communication of the acceptance,
the law requires that certain other elements. If these elements are not present, a court will not find
that a contract exists between the parties. In the absence of a contract, neither party will be bound
to the tentative promises they have made. It is thus of critical importance to determine whether or
not a contract has been formed.
• Summary : A contract comes into existence when an offer by one party is unequivocally accepted by
another and both parties have the requisite capacity. Some consideration must pass and the parties
must have intended their dealings to give rise to a legally binding agreement. The purpose of the
agreement must be legal and any necessary formalities must have been complied with.
 OFFER
• A person seeking to enforce a contract must prove the existence of an offer.
• Section 2 of the Contracts Act defines an offer as ‘the willingness to do or to
abstain from doing anything signified by a person to another, with a view to
obtaining the assent of that other person to the act or abstinence’.
• In simple terms, an offer is an expression of willingness to contract on certain
terms made with the intention that a binding contract will exist once the offer is
accepted.
• An offer has also been defined as an unequivocal manifestation by one party of its
intention to contract with another. The party manifesting the intention is the
offeror and the party to whom it is manifested is the offeree. It must be made
with the intention that it will become binding upon acceptance. There must be no
further negotiations or discussions required.
Types of Offers
1. Cross offers
• This is a situation where a party dispatches an offer to another who has sent a similar offer and the two
offers cross in the course of communication. No agreement arises from cross offers for lack of consensus
between the parties. The parties are not at ad idem.
2. Counter offer
• This is a change, variation or modification of the terms of the offer by the offeree. It is a conditional
acceptance. A counter offer is an offer in its own right and if accepted an agreement arises between the
parties.
• Its legal effect is to terminate the original offer as in Hyde v. Wrench (1840), the defendant made an offer
on June 6th to sell a farm to the plaintiff for £1,000. On 8th June, the plaintiff wrote to the defendant
accepting to pay £950 for the farm. On 27th June, the defendant wrote rejecting the £950. On 29th June
the plaintiff wrote to the defendant accepting to pay £1,000 for the farm. The defendant declined and
the plaintiff sued for specific performance of the contract. It was held that the defendant was not liable
as the plaintiff’s counter offer of £950 terminated the original offer which was therefore not available for
acceptance by the plaintiff on 29th June as the defendant had not revived it.
Types of Offers cont’d
3. Standing offer.
• A standing offer arises when a person’s tender to supply goods and service to another is accepted. Such
acceptance is not an acceptance in the legal sense. It merely converts the tender to a standing offer for the
duration specified if any. The offeror is promising to supply the goods or services on request and is bound to do
so where a requisition is made.
• Any requisition of goods or services by the offeree amounts to acceptance and failure to supply by the offerer
amounts to a breach of contract.
• As was the case in Great Northern Railway Co Ltd v. Witham. The plaintiff company invited tenders for the
supply of stores for 12 months and Witham’s tender was accepted. The company made a requisition but
Witham did not supply the goods and was sued. It was held that he was liable in damages for breach of contract.
• In standing offer, the offeror is free to revoke the offer at any time before any requisition is made, unless the
offeror has provided some consideration for the offeror to keep the standing offer open.
• This consideration is referred to as ‘an option’. This is an agreement between an offeror and the offeree by
which an offeree agrees to keep his offer open for a specified duration. In this case, the offeror cannot revoke
the offer.
Rules governing Offers

1. The offer may be made orally or in writing, or implied from the conduct of the person making the offer,
namely the promisor or offeror. Section 3.

2. An offer is usually made to a specific party i.e. party A or B. however an offer may also be to the general
public. This means that an offer may be general or specific i.e it may be directed to a particular person, a
class of persons or the public at large.
Read:
- Carlill v. Carbolic Smoke Ball Co,(1893) ; and
- Flomera Nalongo v Luwero Town Council HCCS No. 303 of 1993

3. An offer must be clear and definite i.e. it must be certain and free from vagueness and ambiguity. In
Sands v. Mutual Benefits as well as in Scammell and Nephew Ltd v. Ouston, it was held that words used were
too vague and uncertain to amount to an offer.
Rules cont’d
4. An offer may be conditional or absolute. The offeror may prescribe conditions to be
fulfilled by the offerer for an agreement to arise between them. For instance, the
offeror may prescribe the method of communication of acceptance by the offeree. If he
insists on a particular method, it becomes a condition.
5. The offeror may prescribe the duration the offer is to remain open for acceptance.
However, the offeror is free to revoke or withdraw his offer at any time before such
duration lapses or before acceptance is completed. Section 5(1).e.g. in Dickinson v.
Dodds, the defendant offered to sell a house to the plaintiff on Wednesday 10/06/1874
and the offer was to remain open up to Friday 12th at 9.00 am. However on the 11th of
June, the defendant sold the house to a 3rd party. The plaintiff purported to accept the
offer of Friday morning before 9.00 am. It was held that there was no agreement
between the parties as the defendant had revoked his offer by selling the house to a 3 rd
party on June 11th.
Rules cont’d
• 6. An offer must be communicated to the intended offeree(s). An offer remains ineffective until it is
received by the offeree. Section 3(1)
• This means that to be effective an offer must be communicated: there can be no acceptance of the offer
without knowledge of the offer. The reason for this requirement is that if we say that a contract is an
agreed bargain, there can be no agreement without knowledge.
• How is an offer communicated? Section 3 (1) of the Contracts Act provides that ‘[t]he communication of
an offer is made by an act or omission of a party who proposes the offer, by which that party intends to
communicate the offer or which has the effect of communicating the offer’.
• An offer cannot take effect until it has been received by the offeree as he or she cannot accept
something of which he or she is not aware.
• Fitch v Snedakar (1868), a $200 reward was offered for the arrest of a criminal. The plaintiff, who was
unaware of the reward apprehended the criminal and later claimed the reward. The claim failed and the
court held that a person can only act as an offer if he is aware of the offer. In this regard, where an offer
is posted, it is deemed to have been made at the place and time of posting. It can therefore, only be
accepted after the time of posting.
Examples of Offers
• Public transport: as was the case in Wilkie v. London Passenger Transport Board.
• Bidding at an auction as was the case in Harris v. Nickerson.
• Submission of a tender
• Application for employment

It is very important to realise from the outset that not all communications will be offers. A
major characteristic of an offer is that it must be such that if accepted, it will result in a
contract. If there is a lack of intention to be bound upon acceptance, then it is not an offer.
If it is not an offers, what is it?
There is need to distinguish an offer from other steps in the negotiation process. Other steps
in the negotiation process might include a statement of intention, a supply of information or
an invitation to treat. We will examine these in turn.
• A STATEMENT OF INTENTION
In this instance, one party states that he intends to do something. This differs from an
offer in that he is not stating that he will do something. The case of Harris v Nickerson
(1873) illustrates this point. The auctioneer’s advertisement was a statement that he
intended to sell certain items; it was not an offer that he would sell the items.
 
• A SUPPLY OF INFORMATION
 In this instance, one party provides information to another party. He supplies the
information to enlighten the other party. The statement is not intended to be acted
upon. See Harvey v Facey (1893) where one party telegraphed, in response to the
query of the other, what the lowest price was that he would accept for his property.
INVITATION TO TREAT
• An offer must be distinguished from an Invitation to treat.
• An invitation to treat is an indication of a willingness to conduct business. It is a mere invitation by a party
to another or others to make an offer or to commence negotiations. The invitee becomes the offeror and
the invitor becomes the offeree. A positive response to an invitation to treat is an offer.
In Afro Traders and Farmers (U) Ltd v. Gailey and Roberts (U) Ltd, 56 the plaintiff sold to the defendant one
coffee peeler and another machine in 1980 at a total cost of UGX 385,300. The defendant paid a deposit of
UGX 272,659. The defendant took delivery of the coffee peeler but failed to pay the balance on the
machine within the time stipulated in the contract. In 1983, the plaintiff sent to the defendant a cheque of
the outstanding balance and purported to collect the machine. The defendant rejected the payment on
ground that he had sold it to someone else. It was held that the plaintiff’s request for information about
the peeler and machine amounted to an invitation to treat and when the defendant made out the
proforma invoice, they thereby made an offer to sell the two machines to the plaintiff at the prices stated
on the invoice. The plaintiff accepted that offer by making part payment. Other examples below illustrate
how the courts have, over the years, handled the distinction between an offer and invitation to treat
Invitation to Treat cont’d
• Courts have considered whether or not a communication was an offer or an invitation to treat in a
wide variety of circumstances. These are discussed below.
1. Advertisement.
Most advertisements are considered invitations to treat but some may be regarded as offers
depending on language used in the advertisement and other relevant factors. 
a) Advertisements in a catalogue or in a curricular.
• Circulars, which provide information about items for sale and their prices, are regarded as invitations
to treat. If it were regarded as an offer and the manufacturer ran out of stock, they would be in
breach of contract for anyone who accepted such an offer as they could not provide stock Grainger v
Gough - Price list for wine is Invitation to Treat.
• Often people may think that price lists is an offer because wine and the prices are listed but it does
not mean that someone can come up and say ‘I want those bottles of wine give them to me’. Instead
the person makes an offer and the seller may agree to the offer and sell. Therefore price list is an
invitation to treat.
b) Advertisements in Newspapers and Magazines.
These are also considered invitations to treat unless the advertisement is couched in terms
which indicate the retailers willingness to be bound if the specified terms are accepted (eg.
there is a promise (Carlill) rather than a mere invitation (Partridge v Crittenden).

In Partridge v Crittenden (1968), the advert offered for sale wild birds. It was against the law to
sell such birds. The issue before court was whether there was an offer by the advert. The court
held that the advert was not an offer. (Because what happens is that if people see the advert,
they come forward and once they do, they say, yes I would want to buy the wild birds it is then
up to the seller to say yes I agree to sell them or no. in other words, the advert is an invitation
to treat inviting other people to make offers.)

Read: Mayanja Nkangi v National Housing Corporation [1972] 1 U.L.R 37,

Note:
• Whether an advertisement gives rise to a contract may depend on the circumstances of a
particular case. The court may look at the events following the advertisement.
• For example, in Kibona Enterprises v. Departed Asians Property Custodian Board & Another,
58 the plaintiff saw an advertisement in a newspaper for the sale of property by the first
defendant, a department of the Ministry of Finance. The plaintiff bid for the purchase of the
property and was declared the successful bidder, whereupon it deposited 10% of the value
of the property, which was one of the conditions of the bid. The plaintiff proceeded to
prepare development plans. The plaintiff was later informed by the first defendant that the
sale agreement had been cancelled because the sitting tenant had to be given the first
opportunity to purchase the property. The issues before the court were whether there was a
valid contract and whether the first defendant breached that contract. The court held that
where one person makes a firm offer, which is accepted by the other in all terms, a valid
contract is established. Since the plaintiff saw an advertisement pursuant to which he bid
successfully for the purchase of the property and paid, there was a valid contract
2. Sale by display:
• At common law, the display of goods with cash price tags is an invitation to treat. The
prospective buyer makes the offer to buy the items at the stated or other price which the shop
owner may accept or reject. This rule was established long ago in the 19 th Century in Timothy v
Simpson (1834) “If a man advertises goods at a certain price, I have the right to go into his shop
and demand the article at the price marked – but if you do, he has the right to turn you out”.

• In Fisher-v-Bell (1961), the defendant was sued for ‘offering for sale’ a flick knife contrary to the
provision of the Offensive Weapons Act. The defendant had displayed the knife in a shop with a
cash price tag. The issue was whether he had offered the knife for sale [whether the shop
display was capable of being accepted in definite terms]. It was held that he had not violated
the Act as the display of the knife was an invitation to prospective buyers to make offers
• 3. Sale by self-service:
At common law, a sale by self service is an invitation to treat. Prospective buyers make offers by
conduct by picking the goods from the shelves and the offer may be accepted or rejected at the
cashier’s desk. The offeror is free to revoke his offer to buy the goods at any time before reaching the
cashiers desk.
• In Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd (1952). The
defendant owned and operated a self service store which stocked among other things, drugs which
under the provisions of the Pharmacy and Poisons Act (1933) could only be sold with the supervision
of the registered pharmacist. The defendant’s pharmacist was stationed next to the cashier’s desk.
The plaintiff society argued that the defendant had violated the Act as the pharmacist was not
stationed next to the shelves where the drugs were displayed. The issue was at what point a sale took
place. It was held that the defendant had not violated the provisions of the Act as its pharmacist was
stationed next to the cashier’s desk where the actual sale took place.
• This case is authority for the proposition that in a sale by self-service, a sale takes place at the
cashier’s desk.
4. Auctions
• The question here is whether the auctioneer’s request or
advertisement for bids is an offer at law, which will be converted into
an agreement with the highest bidder.
• In Payne v. Cave, 61 it was held that a call for bids amounts to an
invitation to treat and that the bids themselves are offers, which the
auctioneer is free to accept or reject.
Advertisement of Auctions
• The advertisement of an auction is considered an invitation to treat on the part of the auctioneer. The
auctioneer may withdraw items from the auction or cancel the auction all together without incurring
any liability from potential bidders. It was so held in Harris v. Nickerson the plaintiff failed to recover
damages for loss suffered in travelling to the advertised venue of an auction sale which was cancelled.
The court held that his claim was an attempt to make a mere declaration of intention a binding
contract. In this case, a commission agent had sued as auctioneer for failure to display furniture he
had advertised for sale by auction. It was held that there was no contractual relationship between the
parties as the advertisement was merely an invitation to treat and as such, the auctioneer was not
liable

• The above legal position is recognized by the Sale of Goods and Supply of Services Act, 2017, which
provides that ‘a sale by auction is complete when the auctioneer announces its completion by the fall
of the hammer or in other customary manner, and until that announcement is made any bidder may
retract his or her bid’.63
5. Tendering
Private enterprises and government agencies may procure goods or services through the tender process. They may
issue requests for tenders for supply or delivery of goods and services under certain conditions. This may be through a
notice published in a newspaper or other widely circulating media. Suppliers interested in providing those goods or
services will then submit a tender, which is sometimes called a bid or quotation or expression of interest.
The question is whether the notice or advertisement calling for tenders amount to an offer. Is the private enterprise or
government agency obliged to sell to the highest bidder?
In Spencer v. Harding, 65 where the defendants offered to sell their stock by tender, the court held that they had not
undertaken to sell to the person who made the highest bid, but they were inviting offers which they could accept or
reject as they deemed fit.
However, in Harvela Investments Ltd v. Royal Trust of Canada (CI) Ltd, 66 where the defendants made it clear that they
were going to accept the highest bidder, it was held that thiswas an offer that was accepted by the person who made
the highest bid and that the defendants were bound to sell to the highest bidder.
• Thus, an invitation for tenders for the supply of goods and services is not an offer as such but an invitation for offers
to be submitted.
• See Public Procurement and Disposal of Public Assets Act.
Study Question
How were the facts of Carlill v Carbolic Smoke Ball Company different
from the usual situation involving an advertisement?
TERMINATION OF AN OFFER
1. REJECTION:
• An offer terminates if the offeree refuses to accept the same. Rejection may take two
forms i.e. express rejection or through a counter offer by the offeree. A counter offer is
a change or variation of the terms of the offer by the offeree. It is a form of rejection.
The legal effect of a counter offer is to terminate the original offer as was the case in
Hyde v. Wrench. In this case, the defendant on 6th June offered to sell an estate to the
plaintiff for one thousand pounds. On 8th June, in reply, the plaintiff made an offer on
£950, which was refused by the defendant on 27th June. Finally, on 29th June, the
plaintiff wrote that he was prepared to pay £1000. It was held that no contract existed.
By his letter of 8th June, the plaintiff had rejected the original offer and was no longer
able to to revive it by changinh his mind and tendering.
• Rejection may also be implied from the conduct of the offeree e.g. silence by the
offeree amounts to a rejection as was the case in Felthouse v Bindley.
Termination cont’d
2. LAPSE OF TIME:
• If an offer is not accepted within the stipulated time and not revoked earlier, it lapses on expiration of such
duration. Where no duration is specified, the offer lapses on expiration of reasonable time. What is reasonable
time is a question of fact and varies from case to case. In Ramagate Victoria Hotel Ltd v. Montefiore in early
6/1864, the defendant made an offer to purchase 40 shares of the plaintiff company, the offer was not accepted
until November by which time the defendant had given up. The company sued for the value of the shares, the
defendant pleaded that the offer had not been accepted within a reasonable time. It was held that the
defendant was not liable as the offer had lapsed for non-acceptance within a reasonable time. (3 months to
purchase shares – time lapsed).
• 
• A similar holding was made in Virji Khimji v Chatterbuck The defendant ordered timber from the plaintiff and
indicated that it be supplied as soon as possible. The plaintiff did not respond but delivered the timber. 4 ½
months later, the defendant refused to take delivery and was sued. It was held that he was not bound to take
delivery as his offer had lapsed for non- acceptance within a reasonable time.
• 
• Note: time always depends on what the subject matter is.
3. DEATH:
• The death of the offeror or offeree before acceptance terminates an offer. However,
the offer only lapses when notice of death of the one is communicated to the other.
• It should be noted that for death to terminate an offer, it dependa on whether the
contract can still be performed by the offero’s estate. If the offer was personal, then it
is not capable of being accepted after death.
• In Carter v Hyde (1923) – offeree died but executors had right to accept.
• Facts: Carter offered to sell property to Hyde and while Hyde was thinking about it,
unfortunately Hyde died and the executors of Hyde accepted on the deceased’s behalf
and Carter said no. court held that it was not a personal offer and so the acceptance
was binding.
• 
4. INSANITY:
• The unsoundness of mind of either party terminates an offer. However, the offer only lapses when
notice of the insanity of the one is communicated to the other.

• 5. FAILURE OF A CONDITION SUBJECT TO WHICH THE OFFER WAS MADE:

• These are conditional offers. If a condition or state of affairs upon which an offer is made fails, the
offer lapses. In Financings Ltd v. Stimson, the defendant opted to take up a vehicle on hire purchase
terms. He completed the hire purchase application form and paid a deposit. This form constituted
his offer. He took delivery of the vehicle but returned it to the showroom after 2 days for some
minor rectification. The vehicle was stolen from the showroom and when recovered it was badly
damaged by reason of an accident. The defendant refused to take delivery or pay installments and
was sued. He pleaded the state of the vehicle. It was held that he was not liable as his offer had
lapsed. This offer was conditional upon the motor vehicle remaining in substantially the same
condition as it was before and since its condition had changed, his offer had lapsed.
6. Revocation:
This is the withdrawal of the offer by the offeror. At common law, an offer is
revocable at any time before acceptance. See. Section 6 Contracts Act, 2010. 
Rules of revocation of offers:
a) An offer is revocable at any time before it becomes effectively accepted. It
was so held in Paybe v. Cave. In Dickinson v. Dodds, the sale of the house by
the defendant to a 3rd party revoked his offer to the plaintiff. In Routledge v
Grant, Grant offered to buy R’s house. He gave 6 weeks within which R should
respond. Grant then withdrew the offer before the end of the 6 weeks. It was
held that the defendant was entitled to withdraw his offer even before the 6
weeks had passed, if the offer had not been accepted.
b) Notice of revocation must be communicated to the offeree. Where notice is
given orally by the offeror, communication is effected when the offeree hears it
for instance on telephone. Where the notice is given by letter, the offree must
actually receive the letter of revocation. It does not matter whether the letter
is read or not. In Bryne v Van Tienhoven, on 1st October, the defendant posted
a letter in Cardiff to Bryne in New York offering to sell him goods. The plaintiff
received the letter on 11th October and the same day accepted the offer by
telegram and a letter written on 15 October. However, on 8th October, the
defendant had posted a letter revoking the offer. The plaintiff argued that the
offer was accepted by means of the letters. The defendant contended that the
offer had been withdrawn before acceptance. It was held that the attempted
revocation was inoperative until the receipt of the letter on 20th October.
c) It suffices, if communicated by a 3rd party as was the case in Dickinson v.
Dodds. In this case, the defendant offered to sell a house to the plaintiff and
promised to leave the offer open for a given time. Before the expiration of the
offer and before acceptance by the plaintiff, the defendant sold it to a third
party. The plaintiff was informed of the sale by another person.
Notwithstanding, within the period of the offer, he delivered a letter of
acceptance to the defendant. It was held that there was no contract because
the plaintiff could not accept following the defendant’s unwillingness to sell to
him.
d) An offer is revocable even in circumstances in which the offeror has
promised to keep it open to a specified duration, unless an option exists, as was
the case in Dickinson v. Dodds.
e) 5. In unilateral contracts, an offer is irrevocable if the offeree has
commenced and continues to perform the act which constitutes
acceptance.
f) A bid at an auction is revocable until the hammer falls.