The crucial first steps of forming a valid contract involve an offer and acceptance. The basic definition of an offer provides that it is an expression of willingness to contract made with the intention to create legal relations once accepted (see Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 93 CLR 546). Offers can be written or verbal, and can be directed to individuals, groups or even the ‘world at large’ (see Carlill v Carbolic Smoke Ball Co  1 QB 256).
Whilst this appears to be straightforward, grey areas arise when we consider what kinds of statements or representations may constitute an offer. Does an advertisement which offers rewards for customers who buy their goods constitute a contractual offer? Does the display of goods in a retail store express a valid offer?
Australian Courts have considered the following factors when determining these issues:
- Whether the alleged offer is sufficiently clear and precise;
- Whether the person making the offer (offeror) demonstrates an intention to be bound by the offer without any further discussion or negotiations upon acceptance;
- The factual context of the alleged offer; and
- Whether the recipient of the alleged offer would reasonably interpret it as an offer.
Invitations to Treat
In situations where the offeror is merely approaching the other party to start negotiations or offering information such as quoting prices, it is unlikely that a valid offer will be established. These situations are generally viewed as an ‘invitation to treat’ rather than an offer because they often lack the offeror’s intention to be bound, or the required certainty and specificity in contractual terms.
Blurred lines also arise in situations where exaggerated statements may appear to be an offer. For example, in the American case of Leonard v Pepsico, Inc. 88 F. Supp. 2 d 116 (Leonard), the Court considered the issue of whether an advertisement which showed a customer receiving a fighter jet as a prize for purchasing a certain number of Pepsi drinks could be viewed as a contractual offer. The Court held that this was not an offer because no reasonable person would believe that a fighter jet was a viable prize in this context. Australian Courts have taken a similar approach to distinguish whether exaggerated representations can be a contractual offer.
Although cases like Leonard can help with differentiating between offers, invitations to treat and mere puffery, there is no hard and fast rule which can be applied mechanically. The question of whether a valid contractual offer is established must be answered by evaluating the specific facts of the alleged offer by reference to the key factors that Courts have considered in these situations, particularly the intention of the offeror.