Offer, Acceptance, and Agreement in Contract Law Explained - Part I: The Offer

We are now ready to have a closer look
at the element of agreement

as one of the key concepts
of contract law.

The existence of an agreement
is an essential basis

and precondition of a contract.

We could say that the exceptions
are promissory estoppel

and quasi-contracts,

where there is no agreement,
but technically

those are not actual contracts.

We have already seen that
whether there is agreement or not

will be determined based on
the objective theory of contracts.

But what we examine now in more detail

are the individual elements of agreement

namely, offer and acceptance.

There can only be an agreement,
and hence a contract,

if there has been a valid offer
and valid acceptance of the offer.

The party making the offer
can be referred to as the offeror,

while the party that receives the offer
and may or may not accept it

can be referred to as the offeree.

If there is in fact
an offer by the offeror

and an acceptance by the offeree,

then we have the meeting of the minds
that we already referred to earlier,

and which is necessary for
the formation of a contract.

Remember however, that whether or not
there is a meeting of the minds

is determined based on an objective basis.

The parties may subjectively not think
that there is a meeting of the minds,

but from the perspective of a reasonable
person or bystander, this is the case.

That's the reason why
there may be a contract

despite one of the parties'
unwillingness to enter into an agreement.

Every contract begins with an offer.

In order to be valid,
an offer must contain

the following elements:

an objective intent to make an offer

by the party that is attempting
to make the offer,

the offer must contain
definite material terms

that would govern the contract,

and the offer and its contents
must be communicated to the offeree.

Let's look at these elements in turn.

Whether there is an objective
intent to make an offer

is determined by the words
and actions of the offeror.

There is no objective intent
if the offeror

uses words that a reasonable person
would interpret as an opinion, joke,

future plan, a simple suggestion
to engage in preliminary negotiations,

or an invitation to the other party
to make an offer.

Let's look at some examples.

Let's assume a friend says to you,

"I really like your old car
and I would like to buy it for $15,000."

In reality, your friend hates your car,
but is just trying to be polite.

Looking at this statement objectively

suggests that this would be a valid offer.

Subjective intent or so-called
mental reservations

that are not shared with the other party

are immaterial.

Next, let's assume that
your friend says to you

she will pay you a million dollars
if you go to the store

and pick up a sandwich
and drink for her.

Would this be an objective intent
to make an offer?

Normally not because

unless perhaps your friend
is a somewhat reckless billionaire,

it's very clearly a joke
and not a serious offer

that you could accept.

There is a famous German case,
or perhaps just a hypothetical,

that nicely illustrates
the concept of an offer

under the objective theory.

Mr. X, a visitor from out of town,
enters the town hall of a small village.

He doesn't know that
a wine auction is going on.

Under the applicable local law,
during an auction,

the participants can raise their offers
by lifting their hand.

Mr. X spots an acquaintance
who is sitting in the town hall.

He raises his hand
to greet the acquaintance.

Unbeknownst to Mr. X,
this means that he is making an offer,

and it is interpreted as such
by the auctioneer.

As a result, Mr. X wins the auction

and is obliged to pay
for 12 cases of rare wine.

In this scenario, would there be
a contract under the law?

Under the objective theory,
the answer is yes,

since a reasonable person would interpret

his actions at the auction
as constituting the making of an offer.

The second element is that
the offer needs to include

definite material terms.

This means that the terms of the offer

must be sufficiently clear and unambiguous

so that the essential terms
of the offer can be determined,

and if the need for
enforcement would arise,

that a court would be able
to fashion a remedy.

For instance, saying to a car dealer,

"I would like to purchase
this blue Ford Fiesta for $15,000,"

contains definite material terms.

The essential terms are clear,
and if necessary,

a court wouldn't have no problems
enforcing this contract

or fashioning a suitable remedy.

Conversely, mentioning to a car dealer,

"I would like to purchase
one of your cars for a good price,"

would not meet that requirement.

The third element is that the offer
needs to be communicated to the offeree,

that is, the person to whom
the offer is being extended.

An uncommunicated offer is not an offer.

Also the offer must be
communicated by the offeror

to the offeree in the manner
chosen by the offeror.

For example, let's say that Joel
writes on a piece of paper:

"George, I want to buy your car
for $15,000."

He then puts that paper
in his own desk drawer

as he is not yet sure

whether he's ready to make the offer.

Two days later, George finds the note.

Is there an offer?

No, there would be no offer in this case.

While it was communicated to the offeror,

it was not willingly communicated
by the offeror, Joel.

However, if Joel would have instructed
George to go into his study,

open his drawer and read the note,

there would have been a valid offer.