What Is an Offer in Contract Law?

What Is an Offer in Contract Law?
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  • 0:05 How Does an Offer Work?
  • 3:04 Carlill v. Carbonic Smoke Ball
  • 6:28 Lesson Summary
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

In contract law, an offer is a promise in exchange for performance by another party. An offer can be revoked or terminated under certain conditions. There are also times when an offer can be negotiated to create a counter-offer.

How Does an Offer Work?

Ronald wanted to purchase a new condo in the city, so he combed the classified ads looking for the perfect place. He came across an ad for a condo in the perfect neighborhood and at the right price. The ad was, in fact, an offer by the seller to sell his home to a potential buyer.

Offer is one of the elements that make for a valid contract, and is the main focus of our lesson. To back it up a bit, there are six elements to a contract. These elements include:

  • Offer
  • Acceptance
  • Consideration
  • Mutuality
  • Capacity
  • Legally acceptable terms

When two parties choose to enter into a contract, the first thing that occurs is an offer. The offer can be money or another thing of value in exchange for performance by the other party.

The offer can come in the form of a:

  • Letter
  • Newspaper
  • Website
  • Fax
  • Email
  • Behavior

In technical terms, the offer is not really an offer until it is received by the offeree. By listing the ad for the condo in a newspaper or on a realtor's website where Ronald is able to view it, the offer is valid.

There are other things to consider when determining the validity of an offer. Some offers have a specific time limit to be accepted. In the case of a time limit, the offeree must respond with acceptance of the offer prior to its expiration or the offer is no longer valid.

An offer can also be revoked or taken back by the offeror at any time prior to acceptance. If Ronald did not act fast enough, it would be within the legal right of the seller to revoke his offer to sell his condo.

It is also possible to terminate an offer, or take the offer off of the table completely. There are a few ways this can be done.

  • Death of either party
  • Insanity of either party
  • Death or destruction of the person or the thing required to perform the contract terms

The offer can also be terminated if a counter-offer is made by changing the terms of the original offer. If Ronald decides to offer a lower price for the condo, the original offer would be terminated, and the new offer would reflect the new offer for the lower selling price.

As the two parties engage in price haggling, what they are really doing is negotiating a mutually beneficial agreement for the purchase of the condo.

Once both parties agree on a fair price, the offer will stand.

In our example of the condo sale, the offer was pretty straightforward. The seller placed an ad with a realtor that offered the condo for sale at a certain price. Ronald could either accept the condo at the stated price or counter-offer with a lower price. The owner can either accept or decline the counter-offer. This is all part of the negotiation process.

However, what happens when an offer comes in the form of an advertisement with a mass target audience, like the local newspaper, and involves consideration? Things can take a different turn.

Carlill v. Carbonic Smoke Ball Company (1893)

Back in 1893, Carbonic Smoke Ball Company placed an ad in a local newspaper claiming that their smoke balls prevented influenza. In today's advertising, this would be considered 'puffing' and would mean very little in the context of a contractual offer.

However, in those days, things were different. In fact, the folks at Carbonic Smoke Ball Company were so confident in their product, they included a strict promise in their advertisement.

They claimed that their product was so effective on the influenza virus that if a smoke ball user was to contract the infectious flu while using the smoke balls, or even after their use, the contagious customer would be entitled to compensation of 100 pounds.

To drive home Carbonic's promise, they went as far as to deposit the sum of 1,000 pounds in a local bank to demonstrate good faith.

Well, Louisa Elizabeth Carlill made the purchase and put the smoke balls to the test. Unfortunately, she contracted influenza despite Carbonic's claims that the product was fool-proof.

After attempting to contact the company numerous times, Carlill received a letter stating that the smoke balls do work. The company even requested that she visit their office daily to use the smoke balls. This would be monitored and tested by a secretary at Carbonic.

Mrs. Carlill refused and brought the case to court. Carbonic claimed that the ad could not be taken seriously, and no customer should have inferred that there was an actual contract between them and a customer for a reward sum of 100 pounds for contracting influenza while using the smoke balls. Carlill prevailed.

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