KEY TAKEAWAYS 

  • An offer in contract law must reflect the clear intention to be legally bound. 

  • For an offer to form a binding contract, it must be accepted unconditionally by the offeree.

  • Offers can be terminated through revocation, rejection, counteroffers, or the passage of time, among other factors.

 

What is an Offer in Contract Law

An offer is a clear intention to enter into a legally binding agreement. It marks the first step in creating that agreement. Think of it as an initial proposal. One party outlines what they will do or provide. This invites the other party to consider it. Once an offer is made, the recipient can accept, reject, or propose changes.

Definition of an Offer in Contract Law 

An offer requires an express present intent to be legally bound to a contract, specific terms, and communication to an identifiable offeree. An offer can be spoken, written, or presented as a sign. However, for an offer to be valid, it must be specific. If the other party agrees, both sides must understand their commitment. This clarity is crucial for moving forward in the negotiation process.
 

An offer typically has the following three elements:

Elements of an Offer

Explanation

Clear and definite terms

A clear offer is specific and detailed. For instance, if you’re selling a comic book, a clear offer would include the issue number, the condition, and the price. However, if the offer is not specific, it will be found to be invalid.

Intent to be legally bound

The offeror also has to prove that they intend to be legally bound. For instance, if you offer to sell a limited-edition comic and then yell, "Sike!"There is no intention to be legally bound. If, however, you offer to sell your limited-edition comic book for $1,000, there is an intention to be legally bound.

Communication with the offeree

The offer also has to be clearly expressed to the offeree. For example, if you go to the park and yell, “I want to sell my comic book,” there is no clear communication with the offeree. If you deliver a written letter to a comic book store owner expressing your desire to sell your comic book, you have clearly communicated with the offeree.

Offer vs. Invitation to Bargain

An offer should not be confused with an invitation to bargain. An offer is a firm proposal ready to be accepted; the only thing missing is acceptance by the offeree. An invitation to bargain, however, is a willingness to negotiate. Goods in a store with price tags are typical examples of an invitation to bargain. The display of goods with the price tag is not a formal offer; it is an invitation to pay for that good at the price displayed on the tag.

The court uses the reasonable person standard to decide whether a communication is an offer. Under this standard, the court asks if a reasonable person in a similar circumstance believes there was a genuine intention to be legally bound. Was there a serious proposition? Or was there something else going on that would invalidate the offer? In deciding this, the court often relies on a few cases. Let’s review some of these cases below.

Case Name

Explanation

Leonard v. Pepsico, Inc. 88 F. Supp. 2d 116 (S.D.N.Y. 1999) (U.S).

In the landmark Leonard v. Pepsico, Inc case, Pepsico ran an ad campaign where customers could redeem points for various products. The ad humorously suggested that a Harrier Jet could be redeemed for 7 million points. Leonard collected enough points and demanded the jet. The court ruled that no reasonable person would interpret the commercial as a serious offer, and rather it was an invitation to bargain. According to the court, the ad's humorous context undermined the offer's seriousness.

Fairmount Glass Works v. Crunden-Martin Woodenware Co. 106 Ky. 659 (1899) (U.S.)

Fairmount Glass Works quoted a price for certain jars and indicated that it was for immediate acceptance. Although Crunden-Martin tried to accept, Fairmount refused. The court ruled that Fairmount’s price quote constituted a formal offer because it included language suggesting that acceptance would conclude the agreement, making it different from an invitation to bargain.


 

Termination of an Offer 

An offer can be terminated in several ways, including:

  • Revocation: Unless the offer is irrevocable, an offeror has the power to revoke the offer by making a clear and express statement to the offeree.

  • Rejection: The offeree could simply reject the offer and this would terminate the offer.

  • Lapse of time: While the amount of time depends on the circumstances, if too much passes, the offer will terminate.

  • Death or incapacity: If either the offeror or offeree dies or becomes incapacitated before the offer is accepted, the offer will terminate.

  • Counteroffer: If the offeree makes a counteroffer instead of accepting the offer, the original offer will terminate.

Acceptance of an Offer

Acceptance must mirror the offer, meaning it must match the terms without modifications or conditions. An offer can be accepted in several ways, including: 

  • Expressly: The offeree can explicitly state their acceptance in writing or verbally. 

  • Impliedly: The offeree can accept the offer through their actions or conduct.  

  • By an agent: In certain business situations, an agent of the offeree may accept the offer.

Conclusion

In contract law, a valid offer is important. It signifies the initial stage of forming a legally binding agreement. For an offer to be valid, it must clearly invite acceptance. This can be done explicitly or implicitly. If you are starting to create a contract, it is vital to ensure it is valid.

Frequently Asked Questions

Is accepting an offer legally binding?

Accepting an offer is legally binding when both parties have agreed to the terms, demonstrated mutual assent, and the acceptance is communicated clearly.

 

What are the conditions for making an offer?

The conditions for making an offer include clear terms that outline the intent to be bound, communicated to the other party, and sufficient specificity so the offer can be accepted without further negotiation.

 

At what point does an offer become a contract?

An offer becomes a contract when it is accepted unconditionally. All terms must be agreed upon, and consideration (something of value) must be exchanged.