The legal test to be applied for determining whether an agreement has been made between parties is that of offer and acceptance.
For the formation of a contract, one party must make an offer. The other party must accept it. After the acceptance takes effect, a contract will be formed binding on both parties.
A contractual offer consists of a firm and definite promise (or several promises).
Unilateral and bilateral contracts
Most contracts are bilateral. This means that each party takes on an obligation, usually by promising the other something – promise in return for a promise.
Example – Kamal offers to sell his computer to Amal.
(Although contracts with mutual obligations are called bilateral contracts, actually there may be more than two parties to a contract.)
By contrast, a unilateral contract arises where only one party assumes an obligation under the contract – promise in return for action.
Examples might be promising to pay Rs: 1,000 rewards to anyone who finds your lost purse.
The person who makes an offer is called the offeror. The person to whom the offer is made is called the offeree.
Offers to the public at large
In most cases, an offer will be made to a definite person – as when Kamal offers to sell his computer to Amal.
But, offers can be addressed to a group of people. Or, the offer may be addressed even to the general public.
For example, a final year university student may offer to sell his old textbooks to any student in the year below – i.e. specific group. The owner of a lost dog may offer a reward to anyone who finds it – an offer addressed to the general public.
Offers addressed to the general public are accepted when the offer is acted upon by a member of the general public.
Advertisements for unilateral contracts are generally treated as offers.
Carlill v Carbolic Smoke Ball Co (1893)
In Carlill v Carbolic Smoke Ball Co (1893), the defendants were the manufacturers of ‘smoke balls’ which they claimed could prevent flu. The defendants published an advertisement which stated that, after using their smoke balls for a specified time, if anyone caught flu, they would pay that person £100. To prove they were serious about the claim, they had deposited £1,000 with their bankers.
Mrs. Carlill bought and used a smoke ball as specified in the advertisement. But unfortunately, she ended up with the flu. Then, she claimed £100, and the company refused to pay. Carbolic Smoke Ball Co argued that their advertisement could not give rise to a contract, because it was impossible to make a contract with the whole world. Therefore, they were not legally bound to pay the money. The Court rejected this argument and held that the advertisement did constitute an offer to the world at large. It formed a contract when it was accepted by Mrs. Carlill using the smoke ball and getting flu. Therefore, she was entitled to the £100 reward.
Bowerman v Association of British Travel Agents Ltd (1996)
A school had booked a skiing holiday with a tour operator. The tour operator was a member of the Association of British Travel Agents (ABTA). All members of this association display a notice provided by ABTA. It states: Where holidays or other travel arrangements have not yet commenced at the time of failure [of the tour operator], ABTA arranges for you to be reimbursed the money you have paid in respect of your holiday arrangements.
The tour operator became insolvent and canceled the skiing holiday tour. The school was refunded the money they had paid for the holiday. However, the cost of the wasted travel insurance was not refunded. The plaintiff – Bowerman – brought an action against ABTA and asked for reimbursement of the cost of the travel insurance. The Court of Appeal agreed with the plaintiff and held the ABTA notice constituted an offer which the customer accepted by contracting with an ABTA member. It was a contract arising from an offer to the public at large and hence a unilateral contract.