Time to time, I am going to be going through some of the basic concepts of contracts. Hopefully this will give my readers a more fundamental understanding of the rest of the items posted here, and provide some context for understanding contractual situations in their own lives.
Please remember: I am a lawyer, but I am not your lawyer, and this is not legal advice. If you find yourself in a situation to which these posts apply, please contact me and I will see if I can help.
Contract Basics Part I: The Offer
On its face, Contract Law in the United States is rather simple. There are only a few requirements to form a basic, valid Contract: an Offer, an Acceptance, and Consideration. Everything other than these three requirements constitutes an attempt to make better legal sense of a given set of circumstances. Offers, Acceptance, and Consideration also each have their own parts that determine whether they are valid (i.e., whether they constitute real instances of those things according to the law), but contracts at their most basic require only these three items.
At its foundation, an Offer is simply a proposal to enter into an agreement (citation). Typically, an Offer requires intent on the part of the offeror (the person making the offer), as well legal competency. Intent is generally easy to determine: Did the offeror want to propose some sort of agreement? If so, then it was an Offer. Legal competency also is generally evident: Is the offeror mentally competent to make sound decisions? Adults are typically considered legally competent unless there is a problem with mental capacity or age-related mental capabilities; determining whether children are legally competent can sometimes be more difficult.
The form of an Offer is not hard to understand, although in practice it is sometimes difficult to determine exactly what the Offer is. Offers most typically manifest themselves in the form of trades. “I will pay you $20 to babysit my child” is a simple example of an Offer. The offeror is proposing to pay the offeree (the person receiving the offer) $20 for babysitting. There is nothing in the Offer that would lead a person to believe that the offeree does not intend to enter into an agreement, or that the offeree is not legally competent to make the offer. This is plainly an Offer.
An Offer can be responded to in two ways: it can be accepted or rejected. If it is accepted, then the Offer becomes a Contract (assuming everything else is in order). If it is rejected, then the Offer is no longer valid–that is, it has been disposed of and cannot be accepted. An Offer that is rejected is usually followed up with a Counter-Offer, which has all the same requirements of an Offer, but is made by the original offeree. A Counter-Offer to the example above might be, “I will babysit for you if you pay me $30.” This is still an intent to enter into an agreement, but the terms have changed, and it is now up to the new offeree (originally the offeror) to accept or reject the Counter-Offer.
Not every proposal counts as an Offer, though, and this is where some legal problems with Contracts can arise.
Mere suggestions (for instance, “You should buy that old grocery store”), or preliminary negotiations (“What would you say if I offered you $10 to babysit my child?”) are not Offers. It is easy to see why not: there is no intent by the speaker in these situations to enter into an agreement. A suggestion is simply a piece of advice–something the speaker thinks might be a good idea for someone else to pursue. Preliminary negotiations, although closer to Offers (and sometimes considered Offers in the right circumstances), are generally meant to gather information prior to making an offer. “What would you say if I offered you $10 to babysit my child?” is just a means for the speaker to test the waters and see if the other person is at all receptive to that idea. In either of these situations, though, the other person could not Accept those statements and try to make them contractual obligations. If you need a simple test to see if something counts as an offer, try this: Would the statement “I Accept!” sound correct after whatever it is that is being said? In the two examples in this paragraph, it clearly does not, and it turns out that those also aren’t Offers.
And that is where I will leave it for Offers. Entire books are written about these subjects, but this is Contract Basics, and there’s not need to get confusing. Please look for the next installment of Contract Basics, where I will cover Acceptance.
As usual, if you have questions about this post or suggestions for other topics to cover, please leave them in the comments.
Thanks for reading.
(photo by lepiaf.geo)
About Graham Martin
Graham Martin is a solo practitioner focusing on Contract law (including drafting, review, and litigation). He operates Martin Legal Services, LLC in the Minneapolis-St. Paul area.
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