A proposal is made when a person is willing to enter into a legally binding contract. However, an invitation to treat is merely a supply of information (eg. an advertisement) to tempt a person into making a proposal.
It is important to differentiate a proposal which will consequently lead to binding obligations on acceptance. On the other hand an "invitation to treat" is a mere suggestion of a readiness to deal or trade. In essence, an invitation to treat is a preliminary approach to others inviting them to make a proposal which can then be accepted or rejected. For example, if A said: "I want to sell you my Xbox 360 but I will not let it go for less than $300", that is an invitation to treat. Even if B wanted to buy A's Xbox for $300 he cannot be obliged to sell it to you for there is no official proposal in which to accept or reject. However if A said "I will sell you my Xbox 360 for $300", that would constitute as a proposal.
The invitation does not constitute a proposal, it is an invitation to engage in negotiations to form a contract, or an proposal to receive an proposal from another party (Willmott et al., 2005, p. 37). In Partridge v Crittenden, case law has established that advertisements and in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd auctions and displays of goods for sale are invitations to treat rather than proposals. However, in other types of transactions it can be hard to differentiate between the two. This is where the ‘objective test’ applies: it must be determined how a reasonable person would regard the situation. An invitation to treat may sometimes appear to be a proposal and the difference can sometimes be difficult to determine. The distinction is important because if one accepts an proposal, they have created a binding contract however if one accepts an invitation to treat then they will be making an proposal. The main difference between an proposal and an invitation to treat is where an invitation to treat lacks the intention to be legally bound.
The difference between an proposal and an invitation to treat lies solely in the promisor's intentions. An proposal is a proposal in which all bargaining is resolved and the party who wishes to make the transaction is prepared to make a legally binding contract with an individual who has equal bargaining power and has the capacity to responsibly accept. An example of a common proposal could include a phone contract, where all the terms and conditions have been made and acceptance is ready to occur with no further bargaining. In contrast, an invitation to treat is seen as "a request to negotiate or make an proposal with a contract in mind". An invitation to treat allows for further questions, statements and bargaining to me make during the negotiation process where the acceptance of such a request is not legally binding.
Determining the difference between an invitation to treat and an proposal can be difficult as these two terms are similar and yet, legally, very different. An invitation to treat is not an proposal (Monahan and Carr-Gregg, 2007, pp. 6-7), but rather a request to negotiate with the intentions to enter into a contract. There is no legal obligation on the person who proposals an invitation to treat. Once there is an expression of willingness to be contractually bound on the stated terms (Australia Legal Dictionary, 2004, p.306) an proposal is said to have being made. However, where there is no intention to be bound by a contract, negotiations continue until the terms can be accepted and the parties contractually bound, should a party accept the invitation to treat then make an proposal and this is accepted, then there will be a legally binding contract. As shown in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) 1 QB 401 once a customer makes an proposal to buy goods from the store; the owner can...