2.2 Termination of Offers
3 min read•july 22, 2024
Offers can be terminated in various ways, including , , and . Understanding these methods is crucial for grasping how contracts are formed or dissolved before acceptance occurs.
Effective termination of offers involves considering the method used, ensuring proper communication, and assessing timing. Exceptions like option contracts and firm offers add complexity to the process, making it essential to evaluate specific circumstances.
Termination of Offers
Termination of offers
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- Revocation: Offeror withdraws the offer before acceptance (seller takes the house off the market before buyer accepts)
- Rejection: Offeree refuses to accept the offer (buyer declines seller's offer to purchase the house)
- : Offeree responds with different terms, rejecting the original offer (buyer offers a lower price for the house)
- Lapse of time: Offer expires after a specified period or reasonable time (seller's offer to sell the house expires after 30 days)
- Death or incapacity: Death or mental incapacity of either party before acceptance terminates the offer (seller becomes mentally incapacitated before buyer accepts the offer)
- : Subject matter of the contract is destroyed before acceptance (house burns down before buyer accepts the offer)
- : Law is passed making the contract illegal before acceptance (zoning law prohibits the sale of the house for commercial use before buyer accepts the offer)
Revocation and offer validity
- Revocation withdraws an offer by the offeror before acceptance (employer revokes a job offer before the candidate accepts)
- Offer can be revoked any time before acceptance communicates revocation to the offeree directly or through a reliable third party (employer emails the candidate or has HR inform them of the revocation)
- Revoked offer is no longer valid and cannot be accepted (candidate cannot accept the job offer after the employer has revoked it)
- Exceptions to revocability:
- : Offeree pays consideration to keep the offer open (job candidate pays a fee to keep the job offer open for 1 week)
- : Merchant makes a written offer and expressly states it will be held open (supplier sends a signed letter offering to sell goods at a fixed price for 30 days)
Time limits for offers
- Offers can have specific time limits for acceptance (seller gives buyer 48 hours to accept the offer to purchase a car)
- Offer expires at the end of the specified period if no time limit is specified, offer expires after a reasonable time depending on circumstances (nature of the contract, industry practices)
- (dispatch rule) applies to acceptance by mail or other non-instantaneous communication:
- Acceptance is effective when dispatched (sent), not when received by the offeror (buyer mails acceptance letter, contract is formed when the letter is sent)
- Mailbox rule does not apply to instantaneous communication (email, fax)
- Offer termination by lapse of time occurs at the expiration of the specified time limit or after a reasonable time (job offer expires after the stated deadline or a reasonable period based on industry norms)
Effective offer termination
- Consider the termination method (revocation, rejection, lapse of time, death/incapacity, destruction of subject matter, supervening illegality)
- Determine if termination was communicated effectively:
- Revocation must be communicated to the offeree before acceptance (seller informs buyer of revocation before buyer accepts the offer)
- Rejection must be communicated to the offeror (buyer informs seller of rejection)
- Assess whether termination occurred before or after acceptance (if acceptance occurred before effective termination, a valid contract may have been formed)
- Evaluate exceptions (option contracts, firm offers)
- Examine specific circumstances (time limits, nature of the contract, industry practices)
Key Terms to Review (12)
Counteroffer: A counteroffer is a response to an original offer that modifies the terms of that offer, effectively rejecting the initial proposal and presenting a new one. This concept highlights the importance of communication in agreements, as it creates a new set of terms for negotiation rather than simply accepting or declining the original offer. It has significant implications for understanding how offers are accepted, terminated, and how mutual consent is achieved in contract formation.
Death of the offeror: The death of the offeror refers to the legal principle that an offer is automatically terminated upon the death of the person who made the offer. This principle applies regardless of whether the offeree is aware of the offeror's death, meaning that the offeree can no longer accept the offer, as the legal ability to contract ceases with the offeror's passing.
Destruction of subject matter: Destruction of subject matter refers to the loss or unavailability of the specific item or property that is the focus of a contract, rendering the agreement impossible to perform. This concept is critical because it leads to the termination of offers, as parties can no longer fulfill their contractual obligations when the subject matter is destroyed. Understanding this term helps clarify how contractual relationships can change when the underlying basis for the agreement is eliminated.
Effectiveness of revocation: The effectiveness of revocation refers to the legal principle that an offer can be terminated by the offeror before it has been accepted, provided that the revocation is communicated to the offeree. This principle is crucial in understanding how offers can be managed and withdrawn in contract law, ensuring that parties are aware of their standing in negotiations and can act accordingly.
Firm Offer: A firm offer is an offer that is irrevocable for a certain period of time, meaning the offeror cannot withdraw it before the time expires. This concept primarily applies to merchants under the Uniform Commercial Code (UCC), where an offer made in writing and signed by the offeror is binding and enforceable for the specified duration, even if no consideration is provided. The firm offer rule is important because it provides stability and predictability in commercial transactions.
Lapse of time: Lapse of time refers to the automatic termination of an offer when a specified period for acceptance has expired, or if no time is stated, after a reasonable period has passed. This concept underscores the importance of timing in contract law, as it emphasizes that offers are not indefinite and can become void if not accepted promptly.
Mailbox Rule: The mailbox rule is a legal principle that states an acceptance of an offer is considered effective once it is dispatched, regardless of whether it is received by the offeror. This rule emphasizes the moment of acceptance rather than the moment it is communicated, which is crucial in determining the timing of contract formation and the potential termination of offers.
Option Contract: An option contract is a type of agreement that gives one party the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified timeframe. This contract can significantly influence negotiations and transactions, as it provides security for the party holding the option while allowing flexibility in decision-making related to offers.
Rejection: Rejection is the act of refusing an offer, indicating that the offeree does not accept the terms presented by the offeror. This action results in the termination of the original offer, meaning it can no longer be accepted, and can lead to new negotiations or discussions if desired. It is a crucial aspect of the contract formation process as it directly affects the validity and continuation of offers.
Revocation: Revocation is the act of withdrawing or canceling an offer, making it no longer valid or binding. This concept is crucial in understanding how offers can be terminated, as it highlights the power of the offeror to retract their proposal before it is accepted. Additionally, revocation plays a significant role in the dynamics of negotiations, impacting the expectations of both parties involved in the agreement process.
Supervening Illegality: Supervening illegality refers to a situation where a change in law or regulation renders an agreement or contract illegal after it has been formed, leading to its termination. This concept is crucial because when a contract becomes illegal due to unforeseen legal changes, parties can no longer enforce the agreement, which directly impacts the validity of offers made under that contract.
Time of Acceptance: Time of acceptance refers to the period during which an offeree can validly accept an offer. It is crucial because it dictates the window for acceptance, which can affect the legal binding nature of a contract. Understanding the time of acceptance helps in identifying when an offer may lapse and when acceptance must occur to form a binding agreement.