What Is an Offer to Contract?

An offer kickstarts a contract. It's one of the six elements that make a valid contract. But what actually makes an offer an offer, and when does an offer turn into a contract?

What Makes an Offer Valid?

When you make an offer, you invite someone to enter into a contract with you. That contract is often legally binding. As a result, not just any offer will act as a valid offer that can turn into a contract. To be valid, an offer must meet three requirements:

• The offer must be intended to be an offer. In other words, the offer must be serious and free from pressure. For example, if someone's car breaks down and they say in jest, "I'll give you a million bucks if you fix my car," you can't hold them to that offer. They didn't actually intend to give you $1 million for a service that likely costs a few hundred to a few thousand dollars. If you pressure someone into making an offer, such as through duress or undue influence, then that offer also isn't valid.
• The offer must be communicated to the other side (the offeree). As you'd likely expect, the other side must actually receive the offer. If you want to offer a free ice cream cone to your first 10 customers of the day, then you must communicate that offer—either through a sign, handout, or other advertisement. If the other side is unaware of an offer that can be accepted, then there can't be a valid offer.
• The offer must be definite. The offer needs to have clear and defined terms. The offer should indicate who the offer is made to, what the offeror is offering, what the offeror expects to receive from the offeree in return, and any other relevant conditions of the offer. If the receiving party accepts the offer but later on the parties don't agree on the original terms, then the contract can be thrown out.

When Is an Offer Accepted as a Contract?

Once a valid offer is made, it's important to know when an offer is accepted and becomes a legally binding contract.

Express Acceptance

The most straightforward way for an offer to be accepted is for the offeree to expressly accept the offer. The offeree can accept the offer verbally or in writing.

For example, suppose you received a quote to install new windows in your office building. You then email the window company saying that you accept the terms of the quote (including the price) and are ready to schedule an installation date. Your email would constitute an acceptance of an offer. The window company can then hold you to your end of the contract.

Implied Acceptance and Acceptance by Actions

Even if you don't explicitly accept an offer, you can accept an offer through your actions. If an offer has been made and you act in a way that shows you want to accept the offer, then your actions can constitute an acceptance.

For example, suppose you run a coffee shop. A salesperson offers to sell you 20 pounds of coffee beans for $300. You hand the salesperson three one-hundred-dollar bills. Though you didn't explicitly say "I accept" or sign a contract, your actions indicated acceptance of their offer.

Consider another scenario. Suppose you place an online order for 30 reams of paper for your office. You get a notification from the seller that your order has shipped. Though the seller didn't message you back and explicitly accept your offer, their act of shipping the goods you ordered is an implied acceptance.

When the Offer Specifies a Means of Acceptance

If an offer specifies what counts as an acceptance, then you'll need to abide by those terms for the acceptance to be valid. For instance, suppose an offer says that bagels are half price on Mondays with a minimum $10 order. To accept the offer, you must place an order on Monday for at least $10.

Alternatively, if an offer specifies that an acceptance must be in writing, then only written acceptances can create a valid contract.

When Is an Offer Terminated?

An offer can be terminated before acceptance is made. An offer can be terminated before it becomes a contract if:

• the offeror revokes the offer
• the offeree (receiving party) rejects the offer
• the offeree counteroffers
• the offer expires, or
• a reasonable amount of time passes without an acceptance.

If an offer is terminated—either by the offeror or the offeree—then no contract can be made. The offeror will have to make a new offer. Or, if the offeree has counteroffered, then a new offer has already been proposed.

Revoking an Offer

You can always revoke an offer before it's been accepted (except with an option contract as discussed later). But once the offer has been accepted, you can't revoke it. If your offer has been accepted, you're legally bound by the terms of your offer as long as the offer was valid.

You must communicate to the other side that the offer is revoked. If the other party doesn't know that you've revoked the offer and they later accept, then the acceptance stands.

For example, suppose you own a carpet cleaning business. You evaluate a potential customer's home and offer to clean all of their upstairs carpeting for $800. They tell you that they'll think it over and let you know. Over the next day, you rethink your price and decide that you should instead charge $1,200 for the job, given the square footage. You call the potential customer on the phone and let them know that you can't clean their carpet for $800. You give them the new price of $1,200. You've successfully revoked your offer. The potential customer hadn't accepted your original offer before you took it back.

Now, suppose you don't contact the potential customer to revoke the $800 offer. Instead, the next day, the customer emails you and says that they want to hire you to clean their upstairs carpet for $800. You can't revoke your offer after the customer contacts you to accept your offer. You're bound to the original price point of $800 for the upstairs cleaning.

An exception to this rule occurs if the parties agree that the offer will remain open for a stated period of time. If you and the other side agree that the offer will remain open for, let's say, five days, then you can't revoke the offer before the end of that five-day period.

Counteroffers

Often, when an offer is made, the response will be to start bargaining. Of course, haggling over price is the most common type of negotiating that occurs in business situations. However, parties can negotiate other key terms such as the quantity, timeline, and the scope of work.

When one party responds to an offer by proposing something different, this proposal is called a "counteroffer." A counteroffer is essentially a rejection of the original offer combined with a new offer.

When a counteroffer is made, the offeror now has the legal responsibility to either:

• accept the counteroffer
• decline the counteroffer, or
• make a new counteroffer.

How Counteroffers Work: An Example

Suppose your printer (here, the original offeror) offers to print 5,000 brochures for $300. You respond by saying you'll pay $250 for the job. You haven't accepted their offer, and as a result, no contract has been formed.

Instead, you've made a counteroffer. You've rejected the original offer to print the 5,000 brochures for $300. You've submitted a new offer proposing that the printer make 5,000 brochures for $250.

If your printer then agrees to do the job exactly as you have specified (5,000 brochures for $250), then they've accepted your counteroffer. You and the printer have reached a legal agreement. But the printer is free to reject your counteroffer. They can also present their own counteroffer—for example, they can offer to print the 5,000 brochures for $275.

Parties Must Agree on Substantial Terms of an Offer

Typically, the offer and acceptance involve the more important terms. Once those terms are agreed upon, the parties can iron out the finer details. Even though a contract is formed only if the accepting party agrees to all substantial terms of an offer, you shouldn't rely on inconsequential differences to void a contract later.

For example, let's suppose you offer to buy 100 chicken sandwiches on one-inch-thick sourdough bread. There'd be no contract if the other party replies that they'll provide 100 emu filets on rye bread. But if the other party agrees to provide the chicken sandwiches on one-inch-thick sourdough bread, a valid contract exists. You can't later refuse to pay if the bread turns out to be a hair thicker or thinner than one inch.

Option Contracts: Offers With Expiration Dates

An offer with an expiration date is called an "option." When an offer has an expiration date, that offer must remain open for a set period of time. During that time, the offeror can't revoke the contract. The offeree is free to consider the contract until it expires.

Option contracts usually don't come for free. Typically, the offeree gives some kind of consideration (usually, in the form of money) to the offeror. In exchange, the offeror promises to keep the offer open until a certain time.

Consider the following example. Say someone offers to sell you a forklift for $10,000. However, you want to consider the offer without worrying that the seller will withdraw it or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time—say, 30 days. Often, however, the seller will ask you to pay for this 30-day option. The seller's ask is understandable because during the 30-day option period, the seller can't sell to anyone else.

Offers That Expire Without Expiration Dates

An offer can expire without an explicit expiration date. Typically, an offer expires when a reasonable period of time passes. But what is a "reasonable period"? Typically, this question is one for the courts.

However, you can apply your best judgment when considering what a reasonable period of time is for an offer. What's considered reasonable will depend on the nature of the offer and when someone would reasonably expect an offer to expire.

For instance, suppose an accountant offers to do your business's taxes for $400. You can probably reasonably expect that offer to stay open for around 30 days unless the account says otherwise.

Alternatively, say a bakery offers to sell your cafe yesterday's bread for a discounted price. You and the baker could both reasonably expect this offer to be short-lived. The bread would go stale after a few days, and you wouldn't be interested in reselling it to your customers. This offer would likely expire within a day or two.

Tips on Making a Valid Offer

When you offer goods or services to another party, you want to make sure the offer is valid. In other words, you want the other side to be able to accept the offer, forming a contract. As discussed earlier, a valid offer must be intentional, definite, and communicated to the other side.

Follow these tips to help ensure your offer is valid:

• Put your offer in writing. It's always a good idea to put your offer terms in writing to help prevent any ambiguity, miscommunications, or disagreements. If you have a written offer, then the other side can't later argue that you offered something different.
• Include an expiration date with your offer. To avoid leaving the matter up to the courts, you can proactively communicate an expiration date with your offer. Choosing when your offer expires also allows you to control how long you're obligated to follow through on your offer and how long you need to wait for the other side to decide whether to move forward with the deal.
• Ask the other side for confirmation that they received your offer. As we covered earlier, you must communicate your offer to the other side for it to be valid. Sometimes emails go to spam, voicemails get missed, or mail gets lost. It's a good idea to have a record that this requirement is satisfied.
• Specify how the offer can be accepted. If practical, you should clarify how your offer can be accepted. Including this detail can help keep you and the other side on the same page. You'll both know when the offer is accepted and when a contract exists.

If you're sure about the terms of your offer and don't want to leave anything to chance or interpretation, be as specific as possible in your offer. But you should make sure that anything you specify in your offer doesn't paint you into a corner.

Most business owners can craft their own offers. But it might be a good idea to consult with a lawyer once your offer has moved to the contract stage. An experienced business attorney can help you negotiate the terms of your contract and draft your contract for you.

If you'd like to learn more about contracts on your own, you can read Contracts: The Essential Business Desk Reference, by Richard Stim (Nolo). This book has a breakdown of contract terms and includes sample contract provisions and contracts for your use. You can also check out our business section of books and forms for more general information on running a business.