Business Law (part 12)

Offer and Acceptance

 by

 Charles Lamson

 A valid contract is created by the agreement of the parties. This agreement, vital to the formation of a contract, is frequently called "a meeting of the minds" of the parties. The agreement exists when one party makes an offer and the other party accepts the offer.

The parties may expressly state, either orally or in writing, what they agreed to do, or they may indicate their Intentions by their actions. If A's conduct reasonably leads B to believe that A intends to enter into a binding contract, then A is bound as effectively as if the contract had been expressed. However, in business, a person seldom indicates every intention solely by acts. In most cases only a part of the contract is expressed, and the other part is implied.

Two essential elements of a contract are: (1) an offer, either expressed or implied and (2) an acceptance, either expressed or implied. 

Requirements of a Valid Offer

The proposal to make a contract is the offer. The offeror is the person who makes the offer; the offeree is the person to whom the offer is made. An offer expresses the willingness of the offeror to enter into a contractual agreement. The mutual agreement required for a contract is composed of an offer and an acceptance. A valid offer includes three requirements:

1. They offer must be definite.
2. It must appear to be seriously intended.
3. It must be communicated to the offeree.

The Offer Must Be Definite

The contract will not be enforced unless the court can ascertain what the parties agreed to. The offeror's intentions are ascertained from the offer, and these intentions cannot be ascertained unless the offer is definite. Terms usually required to be stated would include who the offeree is, the subject matter of the offer, and the price, quantity, and time of performance.

The Uniform Commercial Code modifies the strict rule somewhat as to contracts for the sale of goods. It is not always practical for a business person to make an offer for the sale of merchandise that is definite as to price. The offer may state that the price will be determined by the market price at a future date or by a third-party. If the contract does not specify the price, the buyer must ordinarily pay the reasonable value of the goods.

The Offer Must Appear to Be Seriously Intended

One may make an offer in jest, banter, fear, or extreme anger and if this fact is known or should be known by the offeree because of the surrounding circumstances, no contract is formed. A business transaction is ordinarily not entered into in jest or because of extreme fear or anger, and the offeree has no right to think that the offer is seriously intended when it is made under these circumstances.

There are times when the offer is not seriously intended, but the offeree has no way of knowing this. In that event, if the offer is accepted, a binding contract results.

The Offer Must Be Communicated to the Offeree

Until the offeror makes the offer known to the offeree it is not certain that it is intended that the offeree may accept and thereby impose a binding contract. Accordingly, the offeree cannot accept an offer until the offeror has communicated the offer to the offeree. If one writes out an offer and the offer falls into the hands of the offeree without the knowledge or consent of the offeror, it cannot be accepted. Furthermore, an offer directed to a specific individual or firm cannot be accepted by anyone else. This is because people have a right to choose the parties with whom they deal. 

Invitations to Make Offers

In business, many apparent offers are not true offers. Instead, they are treated as invitations to the public to make offers at certain terms and prices. If a member of the public accepts the invitation, and an offer is submitted embodying all the terms set out in the invitation, the inviter may refuse to accept the offer. Ordinarily, however, as a practical matter and in the interest of maintaining goodwill, such an offer will be accepted. The most common types of general invitations are advertisements, window displays, catalogs, price lists, and circulars. If the merchant displays in a store window a coat for $95, there is no binding requirement to sell at this price. Most business people would consider refusing to sell a very poor business policy, but nevertheless merchants may legally do so. Considering advertisements and window displays as invitations to make offers rather than offers provides protection to business people. Otherwise they might find that they were subjected to many suits for breach of contract if they over sold their stock of goods.

The general rule is that circulars are not offers but invitations to the recipients to make an offer. However, it is often difficult to distinguish between a general sales letter and a personal sales letter. The fact that the letter is addressed to a particular individual does not necessarily make it a personal sales letter containing an offer. If the wording indicates that the writer is merely trying to evoke and offer uncertain terms, it is an invitation to the other party to make an offer.

An advertisement, however, may be an offer when it clearly shows it is intended as an offer. This is primarily true with advertisements that offer rewards.

*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, J.D., PGS. 59-62*

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