Firm Offer: Everything You Need to Know
A firm offer is an offer that has been promised to be left open in writing and cannot be revoked.3 min read
A firm offer is an offer that has been promised to be left open in writing and cannot be revoked.
What Is a Firm Offer?
When goods are sold, a firm offer is considered to have taken place when there has been a signed promise to keep the offer open and the merchant involved in the sale qualifies as a merchant under the Uniform Commercial Code. In many cases, customers will request a firm offer so they can be sure of their pricing over a set period of time. Many merchants also ask their suppliers for firm offers.
Although there are several advantages to firm offers, the risk is that the circumstances may change, meaning that the original offer would no longer be reasonable. For example, the raw material cost may increase or your inventory may run out, meaning you cannot sustain the price you originally offered.
Firm offers will only last for the amount of time that is listed in the offer. Should the offer not specify a time limit, the offer will remain open for three months maximum.
The person receiving the offer has the right to request a firm quotation, and they may also ask that the person making the offers signs confirmation. If you are depending on a firm offer to help you conduct business, you should be sure that the offer fulfills the requirements listed in Article 2 of the Uniform Commercial Code.
The Firm Offer Rule in the Uniform Commercial Code only applies to merchants that sell goods. If you are a merchant that is governed by the UCC, it's important that you understand this rule. Make sure you gain a familiarity with the fine details of this rule.
The Firm Offer Rule applies in a variety of circumstances where a time period has not been expressly stated:
- There is an existing offer to sell or purchase goods.
- A signed agreement keeping the offer open exists, but there is no stated timeframe.
- Both parties involved in the offer are merchants who are familiar with the process of selling and buying goods.
Any time a contract is drafted for the purpose of selling goods, the Firm Offer Rule may be applicable. An example of the firm offer rule could be a merchant agreeing to sell one hundred units of a certain good at a fixed price of $50 for a period of 60 days. Time limits on firm offers can be extended by offering a new offer or agreeing to an option contract.
Rules for Writing a Firm Offer
In contracts that are regulated by the UCC, all parties are required to be merchants. The merchant that is selling the goods is known as the offeror. Offers will remain valid for a set period of time. This time period can be either implied or expressly stated. For express time limits, the contract should list the amount of time so the buyer will have the information they need to decide if they will agree to the contract.
You must meet a variety of UCC requirements if you wish to use an implied time period. Both parties also need to consider how much money will be involved in the deal.
Differences Between Firm Offers and Option Contracts
Option contracts are agreements made between sellers and buyers. These contracts allow the purchaser to buy a good at a later date and at a specific price to which both parties agree. The agreed upon price in an option contract is referred to as a strike price. The person that benefits from the option is called the beneficiary, and the person providing the option is known as the grantor. Options that allow the beneficiary to purchase an asset at the strike price are called put options.
A call option is an option that allows the beneficiary to require that the grantor sell them property at the strike price. Firm offers are offers that remain in place for a set period of time and cannot be withdrawn until that time period has expired. The primary difference between firm offers and option contracts is that option contracts are only valid when they are supported by consideration. Contracts between two parties only exist after the contract has been offered and accepted.
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