Contract Basics

Essential Elements of an Offer

For an offer to be valid, it must be communicated, committed, and specific. An offer results in a contract when accepted. An invitation to offer is not intended to be the final word in negotiations and does not create a contract.

For an offer to be valid, it must meet three criteria.

First, the offer must be communicated. This means that the person must actually convey the offer to the other party in writing, through e-mail, or in some other way.

Second, an offer must be committed. This means that the offeror must intend to be bound by the offer. Sometimes an offer can be made as a joke. For example, on a hot day, Rick says, "I would pay $100 for a cold drink of water right now." Gina gives him a sip of water from her water bottle and jokes, "Now you owe me $100!" However, whether an offeror is committed can usually be determined through the parties' conduct—for instance, whether the offer was a part of an ongoing negotiation.

Finally, the offer must be specific. This means that the offer must contain all important and relevant terms and must be detailed as to those terms. For example, if an offer is missing a price term, it is likely not specific enough. An offer that says "I will buy your phone for $100" is likely specific enough. But if the offer is "I will buy your house for $100,000," that may not be specific enough. A contract for the purchase of a house would need to contain many more terms, such as timing, contingencies, number and type of inspections, and so on. The difference is that a contract for something of very small value only needs to be specific enough to qualify as a normal purchase. But larger items, such as real estate, would require a more definitive meeting of the minds given the size and scope of the purchase.

A valid offer meeting these three conditions results in a contract if it is accepted. A counteroffer is a rejection of an offer and the making of a new offer.

An invitation to make an offer is not the same as an offer. For example, if Amanda indicates to Maria that she would be open to contract with Maria, it is not the same as actually making a definitive offer.

The most important thing to remember about an offer is that it must clearly convey what is being offered and must express an intent to be bound.