Firm Offer Contract Law: Everything You Need to Know
Firm offer contract law is important to know before you embark on any contract, whether for business or personal reasons.3 min read
Firm offer contract law is important to know before you embark on any contract, whether for business or personal reasons. A firm offer is a term commonly used in the proposal is definite and binding when the contract is entered into. If the party accepts the firm offer, then the contract becomes legally binding. Once agreed to, the offer cannot be withdrawn.
A firm offer is also used in an agreement where the offeror wishes to avoid protracted or competing negotiations with the same or another party.
Firm offers often fall under the guideline of the UCC offer rule under section 2-205. Under these rules, a firm offer is considered an offer that is made by a merchant to sell either goods or services in a signed document ensuring that the deal is non-revocable and may have a period of irrevocability that lasts no more than three months.
When the merchant presents the offer in writing, that offer will be open for a set and reasonable period of time. The contract will become a binding agreement if the offeree ends up accepting the goods or services. The term reasonable amount of time will largely depend on each party's circumstances.
The section 2-205 of the UCC code:
- Deals with the offer made in writing. To be valid, the offer must be signed, and the purpose of drafting it was to make an irrevocable offer.
- Imposes a limit of three months for the offer to be irrevocable. For example, if an offer is irrevocable up to a year, this section would in effect make it only last for six months. To extend this section, there must be a consideration filed with the offer.
- Requires that the offer state that the assurances will be held open which means they will not be revoked for a period of time.
It is essential that your language be specific and ambiguous so that it can satisfy the requirements of Section 2-205, specifically the assurance requirement. Such language as "this offer is firm and will remain open for three months," not only indicates the timeframe in which the contract in non-revocable but also that the offer is firm and the offerer does not plan to revoke it ahead of time. Though there is no one phrase that can make the section legal and all language should be carefully looked at to make sure it provides the right implications.
A court will refer to the section of the offer known as assurances to interpret the language and whether or not the offeree made an intention to revoke. In many American court jurisdictions, they will take the approach of interpreting how the other party might have interpreted the language of the contract. They will also consider all of the offerees circumstances and how they might have thought certain language related to them.
An example would be the fact that a company that supplies materials or buys materials could put a time limit on any offer that they make. In this case, the UCC provision would only be used to fill in the blanks if no time frame was set.
There are problems holding any type of offer open for more than a three-month period. If the offer stays open for more than three months, it must be supported by a consideration which means there must be a formal agreement of some type. When the offer is considered a firm offer, it has only gone one way and has not yet been accepted. For an offer to remain open for more than three months an agreement would have to be made with a promise of payment; the consideration. In this instance, the agreement would be referred to as an option contract which means the offeror is being paid to keep the offer open for an extended period.
Offeror as Master of the Offer
When a contract is created, it is the offeror who will determine the means of acceptance. This can include such things as how the offer can be accepted and how payment can be received. This essentially means that the offeror has the power to determine what is offered to the offeree and how.
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