Who is the offeror?
What is the legal definition of an offeror?
How does it work in contract law and what are some examples?
In this article, we will break down the notion of “offeror” so you know all there is to know about it.
We will define the term “offeror” from a legal perspective, look at who is an offeror, what is the role of an offeror in the contract formation process, what is the difference between an offeror and offeree, look at examples and more.
Keep reading as you’ll learn things about an offeror that you did not know before.
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Let’s get started!
Table of Contents
According to Merriam-Webster’s dictionary, an offeror is defined as:
one that makes an offer to another
To give additional insights, The Free Dictionary defines the offeror as:
a person or entity who makes a specific proposal to another (the offeree) to enter into a contract
What is notable with the definition of an “offeror” is that it is a person or entity who makes a proposal to another person to enter into a contract.
Who is the offeror
An offeror is a person or legal entity who makes a proposal to be legally bound to execute certain obligations.
To enter into a bilateral contract, the offeror makes an offer to perform certain obligations in exchange for the other party, the offeree, to perform certain obligations in return.
For example, John offers to renovate Suzy’s kitchen for $5,000 based on the specifications given by Suzy.
In this case, if Suzy accepts John’s offer, a bilateral contract is formed where John, the offeror, is legally bound to renovate Suzy’s kitchen.
To enter into a unilateral contract, the offeror makes an offer to perform certain obligations without expecting anything in return.
For example, John promises to pay Jack $1,000 if the black horse wins the race.
John is the offeror and his obligation to perform is linked to a random event (horse winning the race) and Jack has no obligation to execute in favour of John.
If the horse wins the race, John will have an obligation to pay Jack $1,000.
Offeror in contract law
Elements of a contract
To form a valid and legally binding contract, you must observe at least five elements of a contract:
In some cases, there may be six essential elements of a valid contract when a written form is required.
The first element of the contract is the offer.
In other words, a person or entity must initiate the contract formation process by presenting a legally binding proposal to another person or entity.
When a person initiates the offer and acceptance process leading to a contract formation, we call that person or entity the ‘offeror’
The legal qualification of the offeror can change many times in the context of contractual negotiations.
A person can be an offeror and then become the offeree.
This happens when the offeror’s offer is rejected and the offeree makes a counter-offer (or counter-proposal).
For example, John makes an offer to renovate Suzy’s kitchen for $5,000 (John is the offeror and Suzy is the offeree).
Suzy rejects John’s offer and makes a counter-offer of $4,500 and asks for more deliverables (John becomes the new offeree and Suzy becomes the new offeror).
As you can see from this example, the initial offeror changes hat and becomes the offeree while the initial offeree becomes the offeror.
We typically hear that a contract is formed when there is a “meeting of the mind” or “mutual assent”.
This means that both parties to the contract have accepted and agreed to its terms.
A contract is officially formed when an offeror’s offer is accepted by the offeree
The offeror’s role is to define the content of a potential contract and what the offeree can accept or reject.
If the offeror submits a proposal to the offeree, if the offeree accepts the offer, he or she will be legally bound to perform the obligations resulting from his offer.
The offeror can make an offer that is limited in time.
In other words, an offeror can make a proposal giving the offeree a specific amount of time to accept, if not, the offer will expire or lapse.
For example, in real estate, a buyer of a property can make an offer to buy the owner’s property for $250,000 provided the owner accepts the offer within the next 24 hours.
If the owner does not accept the offer within this timeline, the offer will lapse and will no longer produce legal effects even if accepted by the owner.
Revocation of offer
The offeror has the ability to revoke his or her offer as long as the offeree has not yet accepted it.
For example, a person looking to purchase a home puts an offer on a property to buy it for $250,000 and gives the property owner 72 hours to accept the offer.
However, if the buyer changes his or her mind and revokes the offer (takes the offer back) before the property owner had the chance to accept the offer, then the offer will be taken off the table.
On the flip side, if the property owner has already accepted the offer, the buyer can no longer revoke the offer anymore as a contract is legally formed.
Invitation to treat
An invitation to treat is when someone invites another to make an offer.
Advertisements are not offers but an invitation to treat.
Generally speaking, the person advertising is not compelled to sell if a person accepts the advertisement.
You can have circumstances when an advertisement can be considered as an offer but that will be more the exception than the norm.
Another example of an invitation to treat is when a merchant displays goods in a shop window.
Imagine a car dealer presenting automobiles in the shop with price stickers, that’s an invite for someone to make an offer and start a negotiation process leading to an offer and ultimately a contract.
The person inviting others to make an offer is not considered an offeror.
Offeror vs offeree
What is the difference between an offeror and offeree?
Typically, contracts are signed between two or more parties.
As a result, you need at least a party that makes an offer to contract or a proposal (the offeror) and the other party receiving the proposal who will agree or reject the offer (the offeree).
A contract is formed when an offeror makes an offer to the offeree who accepts the offer
There is a legal significance in being qualified as the offeror or offeree.
The offeror is the one who determines the content of the offer whereas the offeree is the one who concludes the deal (accepts the offer) or turns down the deal (rejects the offer).
The offeror defines the terms and while the offeree moves the proposal from the status of an “offer” to a “binding contract”.
Let’s look at a few examples of when a person or entity can be an offeror.
Offeror in real estate
In the context of a real estate transaction, a potential buyer can offer to purchase the property of a property owner.
In most instances, the potential buyer is the initial offeror and the property owner is the offeree.
That’s the case as, most often, a person interested in buying a property or a house will make a purchase offer to the owner of the property.
However, if the owner rejects the initial offer and makes a counter-offer, then the owner becomes the offeror and the potential buyer becomes the offeree.
Offeror in a purchase agreement
In the context of the purchase of goods, the buyer will generally be the offeror.
For example, if a merchant has a store filled with goods and a person picks up goods from the store and presents it to a cashier, the buyer is making an offer on the terms of the invitation to treat (advertised price).
The cashier by processing the item is accepting the buyer’s offer on behalf of the store owner.
The client buying the goods is the offeror and the merchant selling the goods is the offeree.
Offeror in a service contract
In a service contract, you’ll generally have some pre-contractual negotiations before concluding a deal unless the services are rendered in a standardized way.
For example, if you want to have a contractor renovate your kitchen, you’ll need to show your kitchen, discuss your plans so the contractor can present an offer to you.
In this context, the offeror will be the service provider and the client will be the offeree.
If the client does not accept the service provider’s proposal, the client may make a counter-offer.
In that case, the client becomes the offeror and the service provider an offeree.
Is the offeror the buyer or the seller?
In many cases, the offeror is the buyer but an offeror is not necessarily the buyer all the time.
In routine transactions, such as when you buy a cup of coffee or you buy groceries from the store, you do not negotiate the price or terms of the contract.
You’ll typically look at the advertised price for the coffee or groceries and buy it if you are interested in paying that price or you will not buy it at all.
If you do choose to order a cup of coffee and walk to the cashier, you are effectively the buyer (the offeror) making an offer to buy a cup of coffee at the listed price.
However, in contracts where you have the parties negotiating or the nature of the contract is more complex, then the buyer and seller will offer and make counter-offers during the process.
With the offers and counter-offers, the buyer may be the offeror at some point and become the offeree at another point.
Similarly, the seller can be the offeree at some point but the offeror as well.
What is an offeror?
An offeror is a person making a legally binding promise or offer to another person in order to enter into a contract.
The offeror is the person or entity who initiates the contracting process by outlining the terms and conditions of a possible contract with the offeree (or other party).
For example, if you are looking to purchase a new property, you will make an offer to buy someone’s property.
This makes you the offeror as you’ve defined the terms of a potential contract by specifying the price at which you are ready to buy, you designated which property you are interested in buying and you have presented your offer to the property owner.
Why is it important to distinguish an offeror from an offeree?
It’s important to distinguish an offeror from and offeree from a legal perspective as:
- The offeror is the one who initiates the contracting process and defines the terms of a potential contract
- While the offeree is the one who has the power to accept the offer and transform the offer into a legally binding contract