Cool "Valid Offer" Overview

The more you understand offer the better you will perform on exams. Let me show you how offer works.

Enforceable Offer: Definition

The smarty pants definition of offer is that it is the “manifestation of present intent to enter into a bargain based upon certain an definite terms that create the power of acceptance in an identifiable offeree.” Sounds cool but not very helpful. Here’s the scoop.

An offer is a promise. But the promise is not an enforceable offer unless it passes the test for being a valid offer.

Present Intent

The first step of the test for a valid offer is present intent. If a person really intends to make a promise that they can be held accountable for then they presently intend to be bound to the promise they make.

(A) Reasonable Language

The way you analyze whether a person intends to be bound at that moment, or presently, is by looking at three components. First look to see whether the language used in the promise is definite and reasonable. Word’s like maybe or unreasonably outlandish claims are clues that a promise may lack present intent to be bound.

(B) Surrounding Circumstances

Secondly, pay attention to the surrounding circumstances. A drunken promise at an 80’s throwback concert is probably not the most reasonable place to believe that I had the requisite present intent to sale you my mint condition 1965 mustang far below market value.

(C) Relationship

Lastly, keep an eye out for the relationship between the parties. For folks that have known each other for sometime or have previously talked about the terms of a deal, it’s far more reasonable to objectively believe that a promise to enter a contract has the requisite present intent because of the nature of their relationship.

Communication

After present intent, step two is communication. An enforceable offer must be made or communicated to a specific person. The reason is simple. An enforceable offer will give another party the power to accept the offer or promise made. Since the parties will be bound to the contract they form it is important that we know exactly who the offer is made to. It is based on this rationale that advertisements and auctions are not considered enforceable offers.

Certain and Definite Terms

The third and final step is certain and definite terms. There are two lenses through which to view certain and definite terms. One lens is the common law which applies to service contracts. The other lens is the Uniform Commercial Code or the UCC which applies to contracts for the sale of goods. This is an important distinction because an offer may be enforceable under one approach and unenforceable under the other.

(A) Common Law Terms

Let’s begin with the common law. Offers under the common law required that five certain and definite terms must be set out in order to form an enforceable offer. The common law required that there be a set price, set quantity, known subject matter, a specific time for performance and the parties to the contract. If any of the five were missing then an offer would not be formed.

(B) UCC Terms

The UCC was developed because the common law’s strict position on certain and definite terms would destroy too many contracts that business people intended to form. The idea was that the requirements needed to be softened since people who regularly engage in business are often so familiar with their industry that they commonly gloss over certain terms that are commonly understood by insiders.

Gap Fillers

For this reason the UCC created what are called gap fillers. Gap fillers allow the court to fill in certain terms that business people or merchants leave out. For instance, under the UCC’s gap filling, while the subject matter, parties, and quantity are required the price and time for performance can be filled in later. A lot of times the price and time for performance can be determined by industry or market standards commonly known to merchants that regularly do business in a certain area.

When reading a case or on an exam, usually one party will favor the common law rule for certain and definite terms because it fits their objective to stop an enforceable contract from forming. The opposing party may favor the UCC approach because it is more liberal in creating enforceable offers. The arguments made really come down to the respective party’s desired outcome.

After you have analyzed the facts of a case or an exam fact pattern under each of the three steps you can draw a conclusion about whether the offer is enforceable.

Now that you’ve got the big picture, read your cases, listen in lecture and get practice analyzing offer with practice problems.