What is an offer?
An offer is a very important concept that exists in many aspects of our lives. In the world of business, we use it in routine dealings and also complex legal and business negotiations. Whether it’s a simple exchange in a local marketplace or a multi-million dollar corporate merger, the journey typically commences with a single, critical component: an offer.
An offer is a specific, planned, transparent declaration made by one party (the offeror) to another (the offeree) that they are willing to enter into a contract with certain terms and conditions.
If the offeree accepts the conditions, it is a promise to do or not do something.
The following terms have the same meanings as Offerer and Offeree in certain circumstances:
- Proposer and Proposee.
- Bidder and Recipient.
- Initiator and Acceptor.
- Promisor and Promisee.
- Suitor and Target (in an M&A situation; the Suitor wants to buy the Target company).
What makes a valid offer?
There must be a genuine intention from the offeror to be bound by the agreement should it be accepted. This intention is evaluated from an objective standpoint; what matters is what is communicated rather than subjective intentions.
The terms of the offer must be clear and unambiguous. They should be explicit enough to create a binding commitment when accepted, leaving no room for misunderstanding or vagueness.
The offer needs to be effectively communicated to the offeree. This ensures that the offeree is fully informed and aware of the terms, forming the basis of a consensual agreement.
Types of offers
There are many types of offers, such as:
- Unilateral offer
Made by one party and requires acceptance through performance by another. In other words, the other party needs to ‘do’ something to signal its acceptance.
- Bilateral offer
This type of offer involves a mutual exchange of promises between two parties, each committing to perform specified acts.
- Express offer
Clearly stated in words, writing, or actions. There is no ambiguity at all.
- Implied offer
Understood from the conduct of the parties or the circumstances of the case.
For an offer to culminate in a binding contract, it must be unequivocally accepted. Acceptance entails the offeree’s clear and effective communication of their assent to the terms as set by the offeror.
This acceptance must be absolute, without any deviation – any alteration to the proposed terms doesn’t constitute acceptance but rather introduces a counter-offer, potentially initiating a new cycle of offer and acceptance.
Rejection and counter-offers
Here are some ways you can reject or make a change to an offer:
In this case, the offeror withdraws their offer before it is accepted.
The offeree can decline the offer, which then loses the significance it once had.
The offeree presents a fresh offer, altering the initial terms and effectively replacing the original proposal.
Offers in business and law
Offer’s have a big significance in business and law, such as:
- Foundation of contracts
They are essential in commercial, legal, and everyday transactions because they serve as the foundation on which contracts are built.
- Risk mitigation (risk reduction, minimizing risk)
It gives a structured framework which makes sure all parties are all on clear terms.
- Legal implications
If accepted, offers can result in contracts that are enforceable by law and are legally binding, provided that all other contract requirements are met.
- Strategic tool
Creating offers strategically in business negotiations affects bargaining power and agreement terms.
In our everyday lives
We see offers everywhere in our daily lives. When we are shopping we sometimes see that a store advertises a product at a specific price, in basic terms, it is making a sale offer at that price. A contract is created once you, the customer, decides to buy it. At that point, you accept the offer.
The Cambridge Dictionary defines the term when used in this situation (shopping):
“A reduction in the usual price of sth, usually for a short period.”
Written by Nicolas Perez Diaz, October 11, 2023.