What Makes An Offer Legally Binding? Clever Contract Law

Clever Video The Offer

Legal Terms You Need To Know

  • Offeror – The person or ‘party’ who makes the offer.
  • Offeree – The person or ‘party’ has the option to accept the offer.
  • Consideration – Something of value that is bargained for and passed from the ‘offeror’ to the ‘offeree’.
  • Terms and conditions – The details of the offer.

What is an offer?

An offer is defined as ‘the act of offering something for sale, or the submission of a bid to buy something’. https://www.investopedia.com

The Act of offering something for sale could be simply displaying an item in a shop. The offer does not have to be in writing.


Requirements for an Offer To Be Legally Binding

For a contract to exist, there must be an offer. For this to be legally binding, it must include a promise from the person making the offer (the offeror) and a clear demand for action or for something of value from the individual receiving the offer (the offeree).

The offer must clearly define the terms of the agreement including:

  • The price
  • The specific actions of each party
  • The method of acceptance
  • Time limits or constraints for acceptance.

The Main Elements Of A Legally Binding Offer

The offer must be specific

A specific offer is one that is made to someone specific (a clearly defined or identified person). 

  • “Because you are my friend I offer this ring for sale to you for 50% discount.”

A general offer is one that can be considered by any person. 

  • “December winter sale, 50% discount for all customers.”

The offer must be communicated

The offeror must communicate the offer in a clear and appropriate manner.

The offeree must be able to understand the offer and be able to accept or reject it. 

In most cases, the offeror can communicate their offer by any method. This may be in writing or oral (spoken) although some contracts e.g for ‘real estate’ must be in writing to be legally binding – see below.

Consideration

There must be a clear exchange of something of value – ‘I’ll give you a lift home for free,’ does not have an exchange of value between the two parties (only one person gains – the person getting the lift home).

Willingness

The offer must be made willingly. The offeror or offeree must not be forced or threatened (under duress) when making the offer.

Intent

There must be evidence showing that the offeror intended to be bound by a legally enforceable agreement (a contract). In some cases, what appears to be an offer may be an ‘invitation to receive offers’. This is common in auctions.

The method of communicating the offer will often show whether the offeror intended to be bound by the offer.

Definite Terms

The offer must clearly state the terms so that the offeree is able to understand and accept the offer.

The Mirror Image Rule

This requires the offer and acceptance to contain the same terms. If the offer is changed in any way, this is a counter-offer which ends the original offer. The original offer cannot be accepted at a future time unless the terms are changed and the offer is made again.

No further negotiations

After the offer and acceptance are made there should be no intention for further negotiations to take place. Neither party can change the terms of the agreement unless both parties agree to the changes and a new offer and acceptance process takes place.

The offer must be complete

This means that the offer must be known by the offeree (the person the offer is made to). The offeree does not act in ignorance. There can be no acceptance if there was no knowledge of the offer being made.

For example:

A person loses an expensive ring and offers a $1000 dollar reward to anyone who finds, and returms it to them.

Peter is out walking and find a ring. He takes it to a local jewellery shop who tells him they will return it to the owner. Peter is not unaware of the offer of a reward for finding the ring until later that evening. When he sees the offer of a reward Peter conacts the owner of the ring and asks them for the reward money.  The owner refuses to pay him.

In this case, Peter returned the ring out of his own good nature. He was not aware of the offer at the time of his actions and therefore could not have accepted the terms of the offer. Therefore, there was no contractual agreement between Peter and the owner of the ring and Peter was not entitled to the reward money.


Firm Offers

An offeror can normally cancel (revoke/terminate) an offer at any time before it has been accepted – unless it is a firm offer’.

A firm offer is made by a merchant or trader. It must be in writing and state a specific time limit for the offer. It is a promise to keep a sale offer open for a certain amount of time. This may give the offeree (purchaser) time to make arrangements for funds etc.

“I will offer this car to you for $2000 but you must get the money to me before 11 am tomorrow or I will offer it to someone else.”


The Statute Of Frauds (Offers in writing)

The ‘Statute of Frauds’ requires a written offer and acceptance in certain situations including:

  • Agreements regarding real estate
  • Answering for another person’s debts
  • Marriage prenuptial agreements
  • Contracts that the parties cannot perform within a year.

Note: If an offer is made orally it is always best to make the acceptance in writing, clearly stating the points in the offer you are accepting. This will help to make sure that there are no misunderstandings later.


What is not an offer to contract?

  • An invitation to offer. E.g “Who would like to buy my fish?” This is not a legally binding offer because I am ‘inviting people to make an offer to buy my fish which I can accept or refuse.
  • An offer where the terms are vague or unclear – The terms must be clear enough to expect a ‘reasonable’ person to understand them.
  • An offer without an exchange of something of value between the contracting parties (consideration). E.g “I’ll cut your grass later” is not a contractually binding offer as there is no exchange of something of value between the two parties.

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Posted in Business Law, Contract Law.