Judgment of the Judicial Committee of the Privy Council

Court: Judgment of the Judicial Committee of the Privy Council

Citation: (1893) AC 552

Delivered: 29 July 1893

The Parties:

Plaintiffs:

The plaintiffs were Harvey and Anor, who wanted to purchase a certain plot of land owned by the defendant.

Defendant:

The defendant was L.M. Facey, a Jamaican resident who owned a plot of land called, Bumper Hall Pen, which the plaintiffs wanted to buy.

Facts of the Case:

The plaintiff, Mr Harvey expressed his intention to purchase the defendant’s plot of land through telegram, asking him; “will you sell us Bumper Hall Pen? Telegraph lowest cash price.” The defendant sent by telegram his naming price, stating; “Lowest price for Bumper Hall Pen, €900”. The plaintiff sent a telegram in response to express his agreement to purchase the defendant’s plot of land stating, “We agree to buy the Bumper Hall Pen for the sum of €900 asked by you. Please send us your title-deeds in order that we may get early possession.” The defendant, Mr Facey, having received this telegram, did not respond to it and later refused to sell the discussed plot of land to the defendants.

The plaintiffs thus instituted proceedings alleging breach of contract by the defendant, but their claim was dismissed with costs and proclaimed that no binding contract existed between the plaintiffs and the defendant. The plaintiffs then instituted appeal proceedings.

Issues Raised:

1. Was an explicit offer made by the Defendant to the Plaintiff to sell the land for €900?
2. Was the second telegram providing the lowest price an offer capable of acceptance?
3. Was a valid contract concluded between the parties?

Laws Applied

The court applied the Indian Contract Act 1872:

1. In terms of Section 2(a), the court noted that a proposal is synonymous to an offer. This proviso states that; “When one person signifies to another his willingness to do or to abstain from doing anything, with view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”
2. In terms of Section 2(b), the court noted that when a proposal is accepted, that amounts to a promise. This proviso states that; “When the person to whom the proposal has been made signifies his assent thereto, the offer is said to be accepted.”
3. An invitation to treat as a principle of contract law, determines that where one party makes an invitation to another party to make an offer, such an invitation is merely an offer to enter into contractual negotiation and does not amount to a contractual agreement that is binding between the parties.

Ruling of the Court:

The court found in favor of the defendant and ruled that no binding contract had been formed. It laid down the foundations of the contractual concept of “invitation to tender”. The concept determines that when a person expresses a willingness to negotiate or do business, such expression is not a legally binding agreement. It is merely a willingness to discuss or negotiate the terms of an agreement and does not amount to an offer. The rationale is that, an invitation to tender does not amount to an agreement because no consensus ad idem (intention to contract) exists between the parties.

An invitation to tender is merely an invitation to make an offer and the ultimate decision of whether to accept or decline such an offer remains with the offeree. Thus, if an invitation to tender is made, the party who accepts such invitation only makes an offer or tenders to the party who made that invitation. Only then can the party who made the invitation to tender, accept or decline the offer which has been made to him.

Reasoning of the Court

The court stated that the defendant’s statement which indicated the lowest price at which they were willing to sell their plot, was merely an invitation to tender and did not amount to anything beyond the price at which they were willing to negotiate the price of the land. The statement did not amount to a willingness to create a binding contract nor to create any binding term of contract that would govern a sale agreement. Thus, the defendant had only made an invitation to tender, which is a preliminary communication that a party makes (the offeror), to another party (the offeree) to make an offer in relation to the subject matter of the sale contract. This invitation does not constitute an offer and the plaintiffs ought not to have interpreted the defendant’s communication as such, as they made the first offer to purchase the land at the stated price, an offer which the defendant did not accept.

No valid agreement was therefore concluded between the plaintiffs and the defendant. The court noted that no valid offer was made to the plaintiff and referred to the relevant sections of the Indian Contract Act 1873. The court noted that the following requirements must be satisfied for there to be a valid offer:

1. An obvious intention on the part of the offeror to be bound by the offer made to him must be present. The offeror must express his willingness to bind himself in contract to the offeree
2. The offeror must make his offer with the view of obtaining the acceptance of the offeree to his offer
3. The offer must be definite, certain and concrete
4. It must be appropriately and properly communicated or expressed to the offeree; and
5. The offer must be made with an intention to create a legally binding relationship

The court analysed that no proper and valid offer had been made by the plaintiffs to the defendant with regard to buying the discussed piece of land. It noted that the plaintiffs had erroneously interpreted the lowest price communicated by the defendants in response to their enquiry as an offer to sell their land and hinted that this was merely an invitation to tender.

Conclusion:

This case established the concept of invitation to tender under contract law. It defined the parameters of a valid offer by ascertaining the requirements to be satisfied when making an offer. It further highlighted the relevant requirements of acceptance of such an offer to create a valid and binding contract. Simply, the case establishes the principle of contract that, an offer must be clear and unambiguous and it must express a willingness to bind oneself in contract.