3.2 The Agreement: Offer and Acceptance

Contracts hinge on offer and acceptance. An offer must be clear, communicated, and show intent to create legal relations. Acceptance needs to mirror the offer exactly and be properly communicated to form a binding agreement.

Offers can be terminated by the offeror or external factors. Acceptance must meet specific requirements to be valid. Understanding these elements is crucial for forming legally binding contracts in business and personal transactions.

Offer Components

Essential Elements of a Valid Offer

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• Manifestation of willingness to enter into a bargain justifies the other person in understanding their assent will conclude the agreement
• Offeror makes the offer while offeree receives the offer
• Contains definite and certain terms including identities of parties, subject matter, price, and performance time
• Demonstrates present intent to enter into a contract rather than preliminary negotiations or future intent expressions
• Requires communication to the offeree to become effective
• Must be made with intention of creating legal relations distinguishing from social or domestic arrangements

Specificity and Communication Requirements

• Offer terms must be sufficiently clear and definite (price, quantity, delivery date)
• Communication can occur through various means (verbal, written, electronic)
• Offer becomes effective only when received by the offeree
• Offeror bears the risk of transmission issues until receipt by offeree
• Automated systems (vending machines, online shopping carts) can constitute standing offers

Offers vs Invitations

Distinguishing Characteristics

• Offers propose definite contracts while invitations to negotiate are preliminary steps
• Advertisements, catalogs, and price quotes generally considered invitations unless containing very specific language
• Distinction often depends on specificity and definiteness of presented terms
• Auctions typically involve auctioneer's call as invitation and bidder's bid as offer
• Store displays and shelved merchandise generally viewed as invitations not offers to sell at displayed price
• Legal implications significant as only valid offers can be accepted to form binding contracts

Common Examples and Legal Interpretations

• Restaurant menus usually considered invitations to negotiate not offers
• "First come, first served" ads may constitute offers if sufficiently definite
• Requests for proposals (RFPs) in business typically classified as invitations
• Online marketplaces often structure listings as invitations rather than offers
• Promotional flyers generally viewed as invitations unless containing very specific terms (limited quantity, set price, definite timeframe)

Offer Termination

Offeror-Initiated Termination

• Revocation withdraws offer before acceptance if communicated to offeree
• Communication of revocation can be direct or indirect (offeree learning from reliable third party)
• Firm offers or option contracts may limit offeror's ability to revoke
• Revocation ineffective if offeree has already accepted or begun performance in unilateral contracts

Offeree Actions and External Factors

• Rejection explicitly terminates offer
• Counteroffer implicitly rejects and terminates original offer
• Lapse of time automatically terminates offers (reasonable time or stated expiration)
• Death or incapacity of either party generally terminates offer
• Destruction of subject matter terminates offer (house burns down before real estate deal closes)
• Intervening illegality automatically terminates offer (new law prohibits proposed transaction)

Acceptance and Special Circumstances

• Proper acceptance forms binding contract, terminating ability to revoke
• Some jurisdictions recognize irrevocable offers in certain circumstances (merchant firm offers, detrimental reliance)
• Offers for unilateral contracts may become irrevocable once performance begins

Acceptance Requirements

Form and Communication of Acceptance

• Acceptance must be unequivocal and mirror offer terms exactly
• Communicated to offeror as silence or inaction generally insufficient
• Must comply with specified or reasonable method under circumstances
• Made while offer still valid and not terminated
• Bilateral contracts typically accepted through promise to perform
• Unilateral contracts accepted through actual performance
• "Mailbox rule" or "postal acceptance rule" makes acceptance effective upon dispatch if sent through authorized method

Electronic Acceptance and Legal Considerations

• Governed by Uniform Electronic Transactions Act (UETA) or Electronic Signatures in Global and National Commerce Act (E-SIGN)
• Electronic signatures generally given same legal weight as traditional signatures
• Time of acceptance in electronic communications may depend on when message enters offeror's system
• Automated systems can form valid contracts (online shopping carts, electronic data interchange)
• Some jurisdictions require additional consumer protections for electronic contracts (cooling-off periods, specific disclosures)