Contract Elements: Offer

To have a valid and enforceable contract, there must be an offer, acceptance, and consideration. Each of these legal terms of art carries meaning distinct from the layperson understanding.

One party has made an offer, capable of becoming the basis of an enforceable agreement, when he or she has manifested an intent to be bound—such that if the other party (the offeree) accepts, there is an understanding that they have reached a binding agreement. This is analyzed using the oft-relied-upon “reasonable person” standard, which means a court looks at the situation objectively from the outside to determine whether it believes the offeror meant to be bound. An offer does not have to be in writing to be enforceable.

The offer often looks like a conditional promise, e.g., “I’ll do x if you do y.” To constitute an offer, it must complete, specific, and capable of being accepted. It must contain all the terms of the offer such that there is no need for further negotiations.

If it is an offer, the failure to follow through is a breached contract, for which there are remedies available at law. If it is not an offer, then at best the failure to follow through is a broken promise, for which there is no legal recourse.

Sometimes it is easier to determine what is an offer by clarifying what it is not. Each of the following are not offers, such that even if accepted, no contract is formed.

Inquiries

Inquiries are not offers. An inquiry is a request for information, perhaps preliminary to making an offer. It usually takes the form of a question: “What do you charge for transmission repair?” “Can you make a hamburger without pickles?” “When is the earliest you could be here?” Each of these represents an inquiry, and not an intent to be bound.

Invitations to Make an Offer

Invitations to make an offer are not offers. Invitations to make an offer sometimes look like offers, but they are nonetheless not enforceable if accepted. Most advertisements fall into this category. Many people may not realize that the prices advertised for specific products in a department store catalog, a grocery store mailer, or on a television commercial are not offers. That is to say, the seller is not bound by those prices. These constitute invitations for consumers to offer to purchase those goods or services at the advertised prices.

As a practical matter, these stores will likely honor the prices advertised to promote good customer service. But if the ad contains an error or if they do not have stock on hand to fulfill your order, the fact that it was advertised at a certain price that they do not honor does not amount to a breach of contract.

That is not to say that an advertisement cannot be an offer—there are some famous cases where courts considered advertisements and understood the seller to be manifesting an intent to be bound, but those are the exception, not the rule.

 

This ad from 1893 in London was considered an offer, such that the sellers were bound to its terms once accepted by a consumer.

Auctions

Auctions are interesting creatures in a contract-law context. An auction is a forum for selling an item where if there is no reserve, the good sold goes to the highest bidder. If there is a reserve, then it goes to the highest bidder who bids above the reserve price.

If there is a reserve price, but it has not been met, then the auctioneer’s request for a bid (e.g., “do I hear $10?”) is an invitation to make an offer. Each bid constitutes an offer, which the seller can choose to accept or reject.

If there is no reserve, or the reserve price has been met, then the auctioneer’s request for a bid actually constitutes an offer, and each bid is an acceptance contingent on a higher offer. In other words, if you bid, you are contractually bound, unless someone else makes a higher bid.

Jokes

Jokes are not offers, but what constitutes a joke can be difficult to discern. Whether an offer made in jest is actually a joke depends not on whether the offeror subjectively intended it to be a joke (otherwise anyone being sued for breach of contract would have a complete defense by labelling the offer as a joke) but rather on whether a reasonable person would consider it a joke.

Whether an offer is a joke can be determined by context, and it does not have to actually be funny to be considered a joke. Someone offering to purchase a blank piece of paper for $1,000,000 is probably a joke. It may not be. An otherwise legitimate offer may be considered a joke if made via singing telegram. It may not. Context is everything.

Illusory Promises

Illusory promises are not offers, and the term is a misnomer because they are actually not promises at all, even though at first blush they may seem like they are. They are statements made without any actual commitment.

Examples include “offers” like “I will give you $5 to mow my lawn, unless I forget” or “If you loan me money, I will probably pay you back.”

Not all illusory promises are so obvious. An otherwise valid contract may be invalidated if it has terms that make the offer meaningless. For example, a contract may say “the terms of this contract may be changed at any time by the offeror with written notice to the offeree.” A term like this (which surprisingly, is more common than you might think) makes any terms of the contract meaningless because it gives the offeror unilateral power to do anything. And since an offer has to include all the terms of a contract to actually constitute an offer, this is not an offer at all.

Indefinite Promises

An indefinite promise is not an offer. An indefinite promise is one that would be impossible to enforce because the terms are missing or unclear. “I will pay you if you mow my lawn” is indefinite because no price is specified. If the offeree mows the lawn and goes to collect, there is no contract because no price was agreed upon. (The person may still be able to recover under unjust enrichment, but that is distinct from a contract action.)

Is It an Offer?

The first element of a valid and enforceable contract is the offer. If the offeror manifests an intent to be bound, as determined by the reasonable person standard, then the promise constitutes an offer. No such intent is inferred if the putative offer is an inquiry, invitation to make an offer, an auctioneer’s request for bids in auction without reserve, a joke, an illusory promise, or an indefinite promise.

 

Zachariah B. Parry is an attorney and founding partner at the law firm Parry & Pfau and is an adjunct professor who teaches torts, contracts, and Nevada practice and procedure for UNLV’s paralegal program. He can be reached at 702-912-4451 or zach@p2lawyers.com.