An offer is the starting point in the formation of a contract. It is a clear proposal made by one party (the offeror) to another (the offeree), indicating a willingness to enter into a legally binding agreement on specific terms. To ensure validity and legal enforceability, offers must follow certain rules. Understanding these rules is crucial to determining when an offer exists and when it can be accepted, revoked, or terminated.
1. Definition of an Offer
- Meaning: A definite and unambiguous expression of willingness to be bound by certain terms, made with the intention that it shall become binding as soon as it is accepted.
- Distinction from Invitation to Treat: An invitation to treat is merely an invitation to negotiate or make an offer (e.g., goods on display in a store).
2. Rules Governing Valid Offers
A. Clarity and Certainty
- Specific Terms: An offer must clearly state the terms, such as price, quantity, and subject matter.
- No Vagueness: Unclear or incomplete offers may be deemed invalid.
B. Communication of Offer
- Must Be Communicated: The offer must be communicated to the offeree before it can be accepted.
- Acceptance Without Knowledge: A person cannot accept an offer they are unaware of.
C. Intention to Be Bound
- Serious Intention: The offer must be made with the intention to create legal relations upon acceptance.
- No Mere Negotiation: Preliminary discussions or invitations to negotiate are not offers.
D. Offer Must Be Made to a Specific Person or the Public
- Specific Offer: Made to a specific individual or group (e.g., job offer).
- General Offer: Made to the world at large (e.g., reward offers in advertisements).
3. Termination of Offers
A. Revocation
- Before Acceptance: An offer can be revoked at any time before it is accepted.
- Effective Communication: Revocation must be communicated to the offeree to be effective.
B. Lapse of Time
- Specified Period: If the offer specifies a time limit, it lapses after that period.
- Reasonable Time: If no time is specified, it will lapse after a reasonable period based on the nature of the offer.
C. Rejection or Counter-Offer
- Rejection: Once an offer is rejected, it cannot be accepted later.
- Counter-Offer: A counter-offer constitutes a rejection and extinguishes the original offer.
D. Death of Offeror or Offeree
- Before Acceptance: An offer generally lapses if either party dies before acceptance, unless it is irrevocable by terms or statute.
4. Types of Offers
- Express Offer: Clearly stated in words (oral or written).
- Implied Offer: Inferred from conduct, circumstances, or customs of trade.
- Cross Offer: When two parties make identical offers to each other in ignorance of the other’s offer; no contract is formed.
- Standing Offer: An offer to supply goods or services over a period of time, which becomes binding each time an order is placed.
Understanding Offer Rules to Avoid Contractual Disputes
Clear knowledge of the rules governing offers helps individuals and businesses distinguish between valid offers and mere negotiations, know when an offer is legally binding, and understand when it may be revoked or terminated. This clarity is vital to ensuring contracts are formed intentionally, lawfully, and with mutual understanding.