What is a Valid Offer?

Cite this article as: Jason Mance Gordon, "What is a Valid Offer?," in The Business Professor, updated January 10, 2015, last accessed March 29, 2020, https://thebusinessprofessor.com/knowledge-base/what-is-a-valid-offer/.
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What is a Valid Offer to Contract?
This video explains what is required to have a valid offer to contract.

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What constitutes an “offer” to contract?

The following elements must be present to establish a valid offer to contract.

Offeror and Offeree – An offer to contract must contains a specific promise from the the person making the promise (offeror) and a specific demand of the individual receiving the offer (offeree).

  • Example: I tell you that I will sell you a product for $5. I am the offeror and you are the offeree. My offer is to transfer ownership of a product and my demand is that you transfer ownership $5.

Intent to Make an Offer – The offeror must intend to make the offer. Whether there is intent to make an offer is judged from the position of the offeree. If a reasonable person in the position of the offeree would believe the offeror’s words or actions constitute an offer, it is an offer. This is an objective, rather than subjective, standard for determining whether the intent to make an offer exists.

  • Example: I shout out loud in frustration that I would sell my piece-of-junk care for a $100. The words look like an offer to sell my car. In reality, I am simply espousing my frustration. I do not have the intent necessary for my statement to constitute an offer and no reasonable person would interpret my statement as truly demonstrating that intent.

Definite Terms – An offer to contract must be sufficiently definite. That is, the terms of the offer must be sufficiently specific to allow the offeree to understand and accept the offer. The offeree must understand that she is the intended recipient of the offer and may accept it. Also, the terms of consideration must be stated.

  • Example: Simply stating that I will sell you an item “for a reasonable price” is not sufficient to constitute a definite offer. Most advertisements, catalogs, and web page price quotes are considered too indefinite to form the basis for a contract. To be sufficiently definite, the advertisement must be specific about the quantity of goods being offered and who is the intended offeree.
  • Note: There is an exception to this rule for the sale of goods pursuant to the terms of the UCC. Some contracts for the sale of goods can leave open non-quantity terms to be decided at a future time.

Remember, the above elements do not have to be in writing or formal. Further, the parties do not have to realize that their words or actions constitute a valid contract; rather, each element is judged by an objective standard. That is, how would a reasonable person perceive the actions potentially constituting an offer?

Discussion: How do you feel about the requirement that a contract meet this level of formality? Should it be more or less formal, and why? How do you feel about the fact that individuals can form a contract without fully realizing that their agreement is legally enforceable?

Practice Question: Ashton is reading looking at the merchandise for sale on Smart Clothes Corp’s website. He places an order for a new shirt and goes through the process of setting up an account and attempting to pay. At the end of the process, he gets notification that his purchase is discontinued and cannot be purchased. Ashton is furious and wants to sue Smart Clothes for breach of contract. If he does, what is the likely legal result in this situation?

Proposed Answer

  • An offer must have two specific characteristics. It must have the intent to be an offer. Next, it must be sufficiently definite. This means that the offer must identify the goods or services offered, it must provide definite terms of the offer (such as price, quantity, etc.), and it must indicate who specifically can accept the offer. Generally, advertisements for the sale of goods is seen as a solicitation of offers to purchase. The seller does not make an offer simply by putting the goods out for sale, as it is not definite who can purchase the goods. As such, Ashton has made an offer to purchase goods. The seller rejects the offer by notifying him that the offer is reject. As such, there was no contract formed. Ashton would not be successful in bringing a legal action against Smart Clothes.

Academic Research

Nolan, Donal, Offer and Acceptance in the Electronic Age (December 16, 2010). Andrew Burrows and Edwin Peel (eds), Contract Formation and Parties (OUP 2010) 61-87. Available at SSRN: https://ssrn.com/abstract=3082505. This chapter explores the application of the ‘offer and acceptance’ rules in contract formation to new modes of communication. The analysis is structured around the technologies under scrutiny, and the chapter is therefore divided into two main parts, the first dealing with contracts formed by email exchanges, and the second with contracts formed through websites. The discussion suggests that there may be rather less to the legal issues surrounding electronic commerce than has sometimes been suggested. I argue that while the proliferation of electronic commerce raises some interesting questions about the precise mechanics of contract formation by email and through websites, the offer and acceptance model is likely to prove sufficiently flexible to accommodate these new forms of communication without great difficulty. By reasoning from first principles, and by analogy with the rules governing older means of communication, the courts should prove well able to deal with the issues posed by offer and acceptance in the Electronic Age.

Marks, Colin P., Not What, but When is an Offer — Rehabilitating the Rolling Contract (March 4, 2013). Connecticut Law Review, Vol. 46, No. 1, 2013. Available at SSRN: https://ssrn.com/abstract=2228502 or http://dx.doi.org/10.2139/ssrn.2228502. To what degree are rolling, or layered, contracts binding? A number of courts, starting with the now infamous case of ProCD, Inc. v. Zeidenberg, have held that, rather than a contract for the sale of a good, such as a computer, being completed in-store, the contract is formed when deferred terms found inside the package are reviewed by the buyer and accepted by some act — usually use of the good (or declining to return it). This approach, which has been called the rolling contract, has been widely criticized by commentators as an abomination of contract law that ignores a true application of the Uniform Commercial Code (“UCC”) as well as the spirit of that code. The approach is not without its allure, however, as it permits contracts to be formed in an efficient manner that may very well appeal to consumers and merchants alike. However, too strict of an adherence to the approach threatens to impose terms upon parties that they never expected or agreed upon. But the opposite is also true — too strict of an adherence to traditional roles of offer and acceptance threatens to displace terms that were contemplated and not objectionable to the consumer. Thus, rather than relegating the rolling contract approach to a dark corner of contract law in favor of a more traditional approach, this article proposes that the rolling contract should be rehabilitated. Existing contract law does a good job of defining contract offers. However, what is the trickier issue, particularly when a transaction involves an initial oral component, is identifying when the offer is actually made. In other words, when is it fair to say that an offer is made in-store by the buyer, and when is it fair to say that the in-store interaction is nothing more than a preliminary event to the actual offer, which comes later when the buyer gets home and opens the product? Legal realism, which was a foundational principle driving the drafting of the Restatement (Second) of Contracts, as well as the UCC, may offer some insights into how to approach the rolling contract theory. But so may a more recent approach to contract law — the relational contract approach. Relational contract theory, which essentially treats contracts not as isolated events but ongoing relationships, provides a useful way of making this determination. Relational contract theory has its roots in the writings of Ian Macneil who believed most contracts were rarely, if ever, fully thought-out and expressed representations of the parties’ obligations. It would therefore seem to be a logical extension of both legal realism and relational contract theory that certain situations exist where the parties expect that a contract has not been fully formed in the store, but rather further terms, i.e., the formal “offer,” will come later. If parties to a contract know that there is more to the contract than simply the price and the good, then it should come as no surprise that more terms are to come, or that a more detailed offer will be forthcoming. Thus, in some scenarios, it is perfectly reasonable to assume that the contract has not been formed in-store, but rather a deferred offer will come later. Thus rolling contract theory can be explained under a legal realism approach, as influenced by a relational approach; however, this is not to say that all contracts are now subject to the rolling contract approach. As this article explains, some contracts really are formed at the point of contact under a relational contract approach. The challenge to the courts is to determine which will be which. This article describes how legal realism and the relational contract theory can be used to explain the rolling contract approach and makes suggestions for how this relational contract theory can be used to aid courts in determining which contracts involve a rolling or deferred offer.

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