Is a Quote a Contract? – A Detailed Guide

Businesses often offer a quote to clients when they first offer a service. Why is that? By doing this, the client will get a better idea of the cost of the service, which will help to manage potential client expectations and help them decide whether the service is worth the cost.

How can you determine whether a price quotation is legal under the law? Is a quote a contract, or is it simply an offer?

When a quotation is drawn in the form of a contract (which we will explore in the subsequent sections), it will be considered legally binding quotations. 

One thing to keep in mind, though: relying solely on the offer itself is not enough to create a legally binding agreement. Also, the client needs to understand that the contract they are entering into is a legally enforceable contract involving several legal obligations.

When offering clients a quote, fully disclose your intentions and legal obligations. A more advanced way to send a quote to the client is by employing an estimating software like InvoiceOwl. 

This article examines what makes quotations legally binding for your clients.

Understanding Quotes and Contracts

Before we get started with anything too technical, let’s break down the difference between quotes and contracts.

Definitions

• Quote: A formal estimate provided by a seller outlining the price and terms for specific goods or services, typically not legally binding.
• Contract: A legally binding agreement between two or more parties outlining rights, duties, and obligations related to a transaction.

Differences between quotes and contracts

Aspect	Quote	Contract
Legal binding	Generally not legally binding.	Legally binding once agreed upon by all parties.
Purpose	To provide an estimate for goods/services.	To formalize an agreement and enforce obligations.
Content	Includes price, terms, and validity period.	Includes terms, obligations, and consequences of breach.
Modification	Can be updated or withdrawn before acceptance.	Requires mutual consent for modifications.
When used	At the inquiry or proposal stage.	At the agreement and execution stage

When Does a Quote Become Legally Binding?

Cornell Law School points out that quotes do not constitute offers and only acceptances result in legally binding contracts.

If you face any challenges with sending estimates to clients, try InvoiceOwl, an efficient invoice and estimate software, to simplify the estimating process.

Elements that make a quote binding

A quote binding is composed of essential elements like:

• Clear offer: The quote must clearly state all terms, including pricing, services, or goods provided, and any conditions.
• Acceptance: The client must explicitly accept the terms of the quote without modifications.
• Intention to create legal relations: Both parties must intend for the agreement to be legally enforceable.
• Consideration: There must be an exchange of value, such as a deposit or payment agreement, to support the quote.
• Mutual agreement: All parties must agree to the terms outlined in the quote.
• Written confirmation: While verbal agreements can be binding, written confirmation helps avoid disputes and provides clarity.

Steps for converting a quote into contract

• Step 1: For a quote to become a contract, these steps must be taken:A quote is submitted to the client by the supplier.
• Step 2: The client issues an order after accepting the quote.
• Step 3: Suppliers accept orders.

Example scenarios

Let’s understand with an example:

If one of the music bands for the function party emails a client a written quote for $2500 for 10 hours of photography. 

The process will be somewhat like this: As soon as the client receives the quote, they indicate they accept it and are ready to proceed with the order. 

In a follow-up email, the music band responds with a thanking email to the client and confirms that they will work for $2500 for 10 hours on a specific date. The contract is now legally enforceable.

Is Price a Legal Binding Contract?

As far as pricing is concerned, a price quote (sometimes called a “quote”) does not have a legally binding effect. 

The Houston Chronicle has reported that legal contracts exist when two parties commit to each other regarding things that are extremely important to them. An offer of goods or services does not represent a promise by a supplier to deliver them, nor does it reflect a pledge by a client that they will pay for them. Thus, it cannot be said that a price quote has legal force.

Despite this, a legal contract begins with a quote offered by the supplier to provide certain products and services. The client can accept, reject or change an offer (a “counteroffer”).

As long as the offer is not rejected or countered, there is no contract. Furthermore, a contract cannot be legally binding if either party is forced to accept it through fraud or other means.

Significance of Legally Binding Quote

There are several reasons why binding quotes are essential:

Protecting your business with legal agreements

In the event of a dispute, it is essential to have proof of the agreement.

The use of binding quotations can also benefit the accounting processes within your organization.

Providing your clients with a formal quote will help to ensure that you bill your clients accurately so that you are paid on time. Clients who clearly understand what they can expect regarding their budget and cost are more likely to pay you on time and with full payment.

Common misconceptions

Just like any other legal document, there are some misconceptions around a legally binding quote as well. Let’s clear them off right away:

• All quotes are binding: Not all quotes are legally enforceable unless explicitly accepted by both parties.
• Quotes equal contracts: Quotes become contracts only when both parties agree to the terms and formalize them.
• Verbal agreements are sufficient: While verbal agreements can be binding, written documentation is more reliable for avoiding disputes.
• Quotes can be modified anytime: Once a quote is accepted, changes require mutual consent to remain enforceable.

Legal Considerations for Quotes

Finally, let’s take a look at the legal consideration that every business have to keep in check for avoiding problems in the near future.

Verbal vs. written agreements

As far as legal binding is concerned, verbal contracts are just as effective as written contracts. As such, a quote is not a contract, and simply giving a verbal quote does not give it the force of law nor make it binding.

It has been consistently observed that a verbal quote delivered to a client becomes legally enforceable as soon as an apparent bargain is made between the parties.

As part of the negotiation process, three phases need to take place for a legally binding contract to be formed:

• The supplier must make the offer.
• The client must accept it.
• Both parties need to agree to give something up in the process.

If we take an example of a graphic designer selling a logo for $500 over the phone to his client, he will get a great deal since the client will be contributing money and the designer will be designing it. This negotiates a good deal since the client contributes money, and the designer will design the logo for $500. Contracts are legally binding and enforceable.

Validity periods for quotes

Having said that, if the client requests a formal written agreement to finalize the contract, a verbal agreement may not be able to stand up in court if a document does not back it up. According to DBL Law, the parties must draw up and sign a written agreement before the bargain can legally be binding.

According to the Houston Chronicle, it is possible to include a written agreement with the parties’ names, the date, payment terms, what each party is responsible for, and what is expected of them. In addition to the above terms, other conditions can also be included at your discretion. What’s most important is clearly defining responsibilities. It is then possible for the other party to sue if one party fails to fulfill these responsibilities.

Conclusion and Best Practices

As stated by the Houston Chronicle, a quotation contract should include the parties’ names, dates, payment details, and their respective responsibilities. The inclusion of any number of terms is permitted. The most important part is defining who is responsible for what. Court action is then possible if one party fails to fulfill its responsibilities.

For best practices, always ensure that your quotation contracts are detailed, transparent, and mutually agreed upon to avoid potential disputes and establish a strong foundation for project execution.