Tuesday, 16 July 2013

Termination Of An Offer

Termination Of An Offer

Once an offer is made, the power of acceptance is created in the offeree; if he accepts the offer, the offeror must perform. Termination of the offer extinguishes this power. An offer can only be terminated before the offeree accepts it. Termination can occur by an act of either party or by operation of law.

A. Revocation by the Offeror

An offeror can revoke his offer so long as it has not been accepted by the offeree. An offer can be terminated in various ways:
1. Communication to the Offeree
Communication of termination of an offer can be direct or indirect. Indirect communication may involve a third party who notifies the offeree of the offerer’s revocation. The indirect communication must be correct, given by a reliable source and understandable to a “reasonable person.” Example: A makes an offer to B then sells the item to C before B accepts. The act of selling to another is a reasonable indication of revocation if B is aware of the sale. However, if B is not notified of A’s revocation — either directly or indirectly —before he accepts, then the acceptance is valid and A must sell to B.
2. By Publication 
Offers that are made by publication can be revoked by publication. Unlike direct and indirect communications, the revocation is effective when published, not when it is received by the offeree.

B. Irrevocable Offers

An offeror can generally terminate his offer, even if he promised not to do so. However, offers cannot be revoked under certain circumstances.
Mnemonic: DROP FU
1. Detrimental Reliance 
Offers are irrevocable for a reasonable time period if the offeree relied to his detriment on the offer being held open, and it is reasonably foreseeable to the offerer that the offeree would so rely. Example: A general contractor relies on a sub-contractor’s offer in determining the costs of the overall job.

2. Options
If the offeree gave consideration for the promise that the offer would be kept open, it must be. It is, in essence, a contract to contract.
Example: A gives B $20 not to revoke his promise for two weeks. Section 87 of the Restatement (Second) holds an option contract valid even if there is no actual consideration, so long as consideration is recited in a written and signed document.
3. Partial Performance of a Unilateral Contract 
Traditionally, a unilateral contract was revocable at any time prior to completion of the requested performance. For example, A promises to pay B $100 if B crosses a bridge. B “accepts” only by crossing the bridge. A can revoke at any time before B reaches the other side. Today, the majority and Restatement (Second) view is that a contract is formed when performance begins (i.e., when B starts crossing), provided that it is completed within a reasonable time. The offeror cannot revoke, but the offeree can discontinue his performance at any time. However, preparation to begin performance is not considered to be partial performance (e.g.. when B puts on his bridge-crossing shoes and says his pre-crossing mantra).
4. Firm Offers (UCC § 2-205) 
A signed writing by a merchant to buy or sell goods that has firm terms and assures that the offer will be held open is enforceable, even without consideration. Duration:
a. Period stated
If the period is actually stated, the offer will remain open for the stated period or three months, whichever is less.
b. Period not stated
If the period is not stated, the offer remains open for a “reasonable time,” not to exceed three months.

C. Termination by the Offeree

An offeree can terminate an offer in three ways:
1. Express Rejection 

2. Counteroffer 
A counteroffer occurs when an offeree tries to add or change terms in the original offer. This is considered a rejection of the original offer, as well as a new offer. Example: A offers to sell his car to B. B makes a counteroffer to buy the car if A repaints it. A’s original offer to sell has been rejected, and B’s offer to buy with additional conditions is the new offer. A is actually the offeree now.
a. Mere Inquiry
A “mere inquiry” is not a counteroffer. As long as offeree suggests that he is still considering the original offer, a counteroffer has not been made. Example: B tells A, “I’m still thinking about buying your car, but I would like to know how you feel about lowering the price.”
b. Irrevocable Offer
A counteroffer does not revoke an irrevocable offer.
c. Date Effective
A rejection is effective when it is received by the offeror, who then can extend a new offer to another party.
d. “Battle of the Forms” Exception
See Acceptance, below.
3. Passage of Time 
If an offer specifies a time within which it must be accepted, failure to accept within that time period will constitute a rejection. If no time period is specified, a reasonable time period is given for response. In either case, the time period starts when the offeree actually gets the offer.

D. Termination by Law

1. Death or Incapacity 
The death or incapacity (e.g., insanity) of either party before the offer is accepted will terminate the offer. The death or incapacity does not have to be communicated to the other party. Irrevocable offers are not terminated by death or incapacity. (Rest. 2d. § 48.)

If the subject of the offer, such as the goods offered for sale, is destroyed prior to acceptance, the offer is terminated. (Rest. 2d. § 35.)
If the contract becomes contrary to law prior to acceptance, the offer will be terminated. (Rest. 2d. § 35.) Example: A offers to sell liquor to B. While the offer is open, Congress outlaws alcohol consumption. A’s offer is terminated. Had B already accepted, the contract would become void.


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