8.2: The Offer
- Page ID
- 143319
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)LEARNING OBJECTIVES
- Know the definition of offer.
- Understand the three essentials of an offer: intent, communication, and definiteness.
- Know when an offer expires and can no longer be accepted.
Offer
Offer and acceptance may seem to be straightforward concepts, as they are when two people meet face-to-face. But in a commercial society, the ways of making offers and accepting them are nearly infinite. A retail store advertises its merchandise in the newspaper. A seller makes his offer by mail or over the Internet. A telephone caller states that his offer will stand for ten days. An offer leaves open a crucial term. An auctioneer seeks bids. An offeror gives the offeree a choice. All these situations can raise tricky questions, as can corresponding situations involving acceptances.
In contract law, an offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that their assent will conclude the deal. To be legally valid, an offer must meet certain requirements. Courts look closely at whether the offeror genuinely intended to create a binding agreement, whether the terms of the proposal are clear enough to be enforceable, and whether the offeree actually received and understood the offer.
These requirements are summarized in three key elements:
- Serious intent
- Definite and certain terms
- Communication to the offeree
Serious Intent
The offeror must demonstrate serious intent to be bound. This is not measured by the offeror’s private state of mind, but by the objective standard of what a reasonable person in the offeree’s position would believe. Courts examine outward words and conduct, not hidden thoughts.
- Valid Offer Example: A car dealer tells a customer, “I’ll sell you this car for $15,000.” A reasonable person would view this as a serious offer.
- Invalid Offer Example: At a party, the same dealer jokes to a friend, “I’d sell you my car for a dollar.” No reasonable person would treat this as an enforceable offer.
Proposals That Lack Intent
Certain types of statements do not qualify as valid offers because they lack the required intent.
- Expressions of Opinion – A doctor telling a patient, “You should feel better in a few days,” or a mechanic saying, “This repair will cost about $500,” is merely expressing an estimate, not making a binding promise.
- Statements of Future Intent – A business owner saying, “I plan to sell my delivery van for $10,000 next spring,” is only stating a plan. By contrast, “I will sell you my van for $10,000, payable next Friday,” is a definite offer.
- Advertisements and Price Quotations – Generally considered invitations to negotiate, not binding offers, because they usually lack essential terms (quantity, delivery, etc.). For example, a store’s ad stating “Bicycles on sale for $800” is an invitation to buy, not an enforceable contract. However, courts sometimes treat ads as offers if the facts show otherwise, as in Lefkowitz v. Great Minneapolis Surplus Store (Minn. 1957), where a store’s “first come, first served” ad was held to be a valid, enforceable offer.
- Invitations to Bid – An auctioneer, for example, solicits offers from the crowd but does not make the initial offer themselves. Similarly, requests for bids on a construction project are invitations for others to make offers.
Definite and Certain Terms
For an offer to be valid under common law, its terms must be clear enough for a court to determine whether a breach occurred and to fashion a remedy. At minimum, the following must be specified:
- Identification of the parties
- Identification of the subject matter
- Consideration (the price or exchange)
- Time of payment, delivery, or performance
- Invalid Example: “I will sell you my car at a fair price soon.” – too vague.
- Valid Example: “I will sell you my 2021 Toyota Camry for $18,000, payable June 1, with delivery that same day.”
Communication to the Offeree
The offer must be communicated to the intended recipient. Until the offeree has knowledge of the offer, they have no power of acceptance.
- An individual cannot accept an offer they did not know about, even if they later perform the requested act.
- If an offer is directed to a specific person, only that person (or their authorized representative) has the legal ability to accept it.
Example: A company offers a reward for a lost dog. Only those who know of the reward before returning the dog can claim it. Someone who returns the dog without knowledge of the offer cannot later demand payment.
Starbucks Example: Who does Starbucks communicate to, and how? Starbucks communicates its offers (e.g., “Buy one, get one free” or “$1 off any iced latte today”) to its customers through mobile apps, email marketing, in-store signs, and digital menus. These communications are directed to the public or to loyalty program members, creating the power of acceptance when a customer walks in and makes the purchase under the advertised terms.
The UCC Approach
The Uniform Commercial Code (UCC) provides a more flexible approach for contracts involving the sale of goods. Under UCC § 2-204(3), a contract does not fail for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for a remedy.
Missing terms (price, delivery time, payment) can be “gap-filled” by default UCC provisions. For example, if no price is specified, the UCC supplies a “reasonable price” at the time of delivery.
Output and Requirements Contracts – Valid under the UCC so long as they are made in good faith. A seller may agree to sell “all the widgets we produce,” or a buyer may agree to purchase “all the widgets we need.” However, neither party can demand quantities unreasonably disproportionate to past practice.
- Example – Output Contract: A farmer agrees to sell all the corn he produces in a season to a local mill. If he produces 10,000 bushels, the mill is obligated to buy them all.
- Example – Requirements Contract: A restaurant agrees to purchase all the flour it needs from one bakery. If the restaurant typically uses 500 pounds a week, it cannot suddenly demand 5,000 pounds without justification.
The UCC prioritizes intent and commercial reasonableness over strict formalities, allowing courts to enforce legitimate business agreements even when some terms are missing.
Termination of the Offer
An offer cannot remain open forever. Unless accepted, it may terminate in several ways:
- Revocation by the offeror – Effective if communicated before acceptance.
- Example: A seller offers to sell a car but withdraws the offer before the buyer accepts.
- Exceptions: Option contracts (promise to hold an offer open for consideration), firm offers under UCC (signed, written by a merchant, irrevocable for up to 3 months), unilateral contracts where performance has begun (partial performance creates an implied option).
- Rejection by the offeree – Once rejected, the offer is terminated unless renewed.
- Example: A buyer rejects a $10,000 offer for a car; later acceptance is ineffective unless the seller renews the offer.
- Counteroffer – Rejects the original offer and creates a new one.
- Example: Seller offers $10,000; buyer replies, “I’ll pay $9,000.” The $10,000 offer is terminated.
- Under common law, this follows the “mirror image rule.”
- Under UCC § 2-207, additional terms may still form part of the contract in commercial transactions (“battle of the forms”).
- Lapse of time – Either the time stated in the offer, or a “reasonable time” if none is specified.
- Example: A stock offer left open for one day expires if not accepted before markets close.
- Death or insanity of the offeror – Terminates the offer before acceptance.
- Example: If a seller dies before acceptance, the offer ends.
- Destruction of subject matter – If essential goods or property are destroyed before acceptance, the offer terminates.
- Example: Seller offers to sell his car, but it is totaled in an accident before acceptance.
- Postoffer illegality – If a law is passed making the contract illegal, the offer terminates.
- Example: An offer to sell herbal supplements ends when the FDA bans them.
Key Takeaway
An offer is the foundation of contract formation. To be valid, it must be communicated to the offeree, made with serious intent (judged by an objective standard), and contain definite terms that allow for enforcement.
Under the UCC, courts are more flexible and may enforce a contract despite missing terms, so long as intent to contract exists. Special categories like output and requirements contracts are enforceable if made in good faith and consistent with past practice.
Finally, offers are not eternal: they can terminate by revocation, rejection, counteroffer, lapse of time, death or incapacity, destruction of subject matter, or illegality.
EXERCISES
- Why is it said an offer is a “manifestation” of willingness to enter into a contract? How could willingness be “manifested”?
- Which kind of standard is used to determine whether a person has made an offer—subjective or objective?
- If Sandra posts a written notice offering “to the kitchen staff at Coldwater Bay (Alaska) transportation to Seattle at the end of the fishing season,” and if David, one of the maintenance workers, says to her, “I accept your offer of transportation to Seattle,” is there a contract?
- What are the seven ways an offer can terminate?