1. The Definition of an Offer
2. What Makes an Offer Valid?

An offer in business law is an express proposal to enter into a contract with another person. For an offer to be legally valid, it must meet several qualifications. An offer and acceptance of that offer are the building blocks of a contract.

The Definition of an Offer

When you propose to enter into a contract with another person, you have made an offer. Upon acceptance of the offer, the parties enter a legally binding contract.

An offer is the first step towards creating a contract and is one of three vital components of a legal contract. The other two elements that must be present for a contract to exist are acceptance of an offer and consideration, which are the obligations that the parties have towards one another.

In business law, you may come across the terms "offeror" and "offeree." The offeror is the person who proposed the contract, and the offeree is the person that received the proposal.

The form that an offer takes can vary from contract to contract. For example, in some cases, you may make an offer by stating that you have an interest in buying an asset. An offer may also occur in some circumstances if you put something up for sale.

Imagine, for instance, that you walk into an electronics store that offers to sell you a television for $500. You then express your interest in buying the TV for $450. In this case, both an offer and a counteroffer have occurred, but no contract yet exists since neither party has accepted an offer.

What Makes an Offer Valid?

Now that you know what an offer is, it's important to learn what constitutes a valid offer. First and foremost, valid offers are either implied or expressed. An express offer is one made either verbally or in writing. Implied offers are those made through the conduct of one person toward another. Here are a few examples that can help you understand express and implied offers:

  • You propose selling your car to a friend for $10,000. This would be an express offer.
  • A train company runs the same routes throughout the city every day for the same rates. This is an implied offer.
  • You work for a bus company and load a passenger's luggage without asking, and they allow you to do so. You have made an implied offer.

The second element of a valid offer is that the purpose of the offer is to create a legal relationship. If you make an offer and acceptance of that offer does not legally obligate you to another person, it is not a legally valid offer.

If you invite a friend to a dinner party and they accept, this is not a legal offer because your friend is under no legal obligation to attend, and you are not legally obligated to actually host the party. On the other hand, if you offer to sell your friend a stereo for $200 and they agree, this is a valid offer because it would result in a legal relationship. You have an obligation to give your friend the stereo, and they have an obligation to pay you.

Valid offers must be clear and definite. If your proposed terms aren't clear, the offer is not legal. Even if the offeree accepted the offer, it would not create a legally binding contract since the offer was not clearly defined. For example, if you own two cars and offer to sell one to an acquaintance for $15,000 but fail to specify which car, the offer is not valid because it is not immediately clear which vehicle you intend to sell.

It's important to understand the difference between an offer and an invitation to offer, which is also known as an invitation to receive offer or an invitation to treat. An invitation to offer may seem like a legal offer even though it's not. An invitation to offer basically means you are inviting another person to make an offer. You are expressing your willingness to hear offers from other people on certain matters. However, these invitations are not valid offers and will not result in a contract if accepted. A price catalogue is an example of an invitation to offer, as is an auction display.

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