Key Takeaways

  • An offer is a clear proposal to form a legally binding agreement, made by the offeror and directed to an offeree.
  • Offers must be communicated clearly, with the intent to create legal relations and with definite terms.
  • Various types of offers exist in business law, such as general, specific, cross, and counter-offers.
  • Offers may terminate through revocation, rejection, lapse of time, death, or failure of conditions.
  • The difference between an offer and an invitation to treat is essential in assessing legal intent and contract formation.

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.

Types of Offers in Business Law

In business law, offers can take several forms based on the nature of the proposal and the parties involved. Understanding these types is crucial to determining how and when a contract may be legally formed:

  • Express Offer: Made through spoken or written words. Example: "I offer to sell you my laptop for $500."
  • Implied Offer: Arises through actions or conduct rather than words. For example, a restaurant menu implies an offer to serve food at listed prices.
  • General Offer: Made to the public at large and can be accepted by anyone who performs the required act. A common example is a reward advertisement.
  • Specific Offer: Directed to a particular individual or group and can only be accepted by that party.
  • Cross Offer: Occurs when two parties make identical offers to each other without knowledge of the other's offer. No contract is formed unless one party accepts.
  • Counter Offer: A response to an original offer with modified terms. It terminates the original offer and constitutes a new offer.

These distinctions help determine whether a legally binding contract can arise from the interaction between parties.

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.

Communication of an Offer

For an offer to be enforceable in business law, it must be effectively communicated to the offeree. A person cannot accept an offer they are unaware of. Communication ensures the offeree understands the nature and terms of the proposal, which is essential for informed acceptance.

Offers may be communicated in person, in writing, electronically, or through conduct that clearly signals the intention to form a contract. Silent conduct typically does not amount to acceptance unless a prior relationship or course of dealing justifies such an interpretation.

Termination of an Offer

Even valid offers do not remain open indefinitely. In business law, several scenarios can terminate an offer before it becomes a binding contract:

  • Revocation by the Offeror: The offeror can withdraw the offer anytime before acceptance, provided the offeree has been notified.
  • Rejection by the Offeree: If the offeree declines the offer, it ends immediately.
  • Counter Offer: Making a counter offer constitutes rejection of the original offer.
  • Lapse of Time: If the offer specifies a time limit for acceptance, it automatically expires once that period passes.
  • Death or Incapacity: The death or legal incapacity of either the offeror or offeree before acceptance can terminate the offer.
  • Failure of a Condition Precedent: If a condition attached to the offer is not met, the offer may be void.

Understanding these termination rules helps prevent disputes over whether an agreement still stands.

Frequently Asked Questions

  1. What is offer in business law?
    An offer in business law is a proposal by one party (the offeror) to enter into a legally binding agreement with another (the offeree), requiring acceptance to form a contract.
  2. What are the different types of offers?
    Types of offers include express, implied, general, specific, cross, and counter-offers, each differing by form, audience, and manner of acceptance.
  3. Can an offer be withdrawn after it’s made?
    Yes, an offer can be revoked any time before acceptance, unless it's an option contract or otherwise bound to remain open.
  4. What’s the difference between an offer and an invitation to treat?
    An offer is a definite proposal intending legal commitment, while an invitation to treat is merely a call to negotiate or invite offers from others.
  5. What makes an offer legally valid?
    A valid offer must be clear, communicated, made with the intent to form legal relations, and contain definite terms.

If you need help with an offer in business law, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.