These are the basic foundations that occur in negotiation and contract formation.
A contract is formed by acceptance of an offer. An offer is a proposal by a person known as the “offeror” to enter into a contract. The person receiving the offer is called the “offeree”. For instance if we use a coaching scenario, I would be the offeror (offering coaching services) and you would be the offeree (person the services are being offered to).
When the offeree intends to accept the offer and communicates this acceptance to the offeror, a contract is formed. It can be verbally or in writing. So if you intended to start a coaching program with me, you would accept my offer of coaching by signing the contract and then we have offer and acceptance resulting in contract formation.
Rejection of an Offer
The rejection of the offer by an offeree terminates the offer. When an intended offeree communicates to the offeror that he or she does not want to accept the proposal, the offer is terminated. A rejection must be communicated to the offeror in order to become effective. Once rejected, the offer is legally dead and may no longer be accepted; to form a contract, a new offer is necessary.
Counter-Offers – this is where negotiations come into play. If you simply have offer and acceptance, there is no need for negotiations. When you have an offer and a counteroffer then that means discussions are open.
A counter offer is in a sense a rejection of an offer. One form of counter-offer is to accept an offer, but with a material term changed or altered. The offeree may state “I accept your offer with the exception that I am unwilling to pay the price stipulated; instead I accept at X price.”
Alternatively, the offeree may make a counter-proposal: “I am willing to contract with you but instead of your terms I propose the following terms….” In either of these examples the communication by the offeree constitutes a counter-offer.
Most offers can be accepted only by or on behalf of the designated offeree. Generally, an acceptance must be communicated in order to become effective and bind the parties in contract. In bilateral contracts, it is usually necessary for the offeree to communicate acceptance to the offeror. A bilateral contract means both parties sign the contract to make it binding.
For more detailed information on Offer & Acceptance, refer to the Contracts 101 Guide. Click here to get your guide.
See you next week!
Eldonna Lewis Fernandez, MSgt USAF Retired