6.3 Duration of Offer

An offer need not be accepted on the spot. Because there are numerous ways of conveying an offer and numerous contingencies that may be part of the offer’s subject matter, the offeror might find it necessary to give the offeree considerable time to accept or reject the offer. By the same token, an offer cannot remain open forever, so that once given, it never lapses and cannot be terminated. The law recognizes several ways by which the offer can expire (besides acceptance, of course): revocation, rejection by the offeree, counteroffer, lapse of time, death or insanity of a person or destruction of an essential term, and illegality. We will examine each of these in turn.

Revocation

Just as people are free to make offers, they are generally free to revoke those offers as they see fit. The general rule, both in common law and under the UCC, is that the offeror may revoke an offer at any time before acceptance, even if the offer states that it will remain open for a specified period of time. Thus, Neil offers Arlene his car for $5,000 and promises to keep the offer open for ten days. Two days later, Neil calls Arlene to revoke the offer. The offer is revoked and Arlene can no longer accept even though the 10-day period has not expired.

To be effective, the revocation must be communicated to the offeree. This means that the offeree must be made aware of the offeror’s decision to revoke the offer. So, if Neil had sent his revocation by mail it would not be effective unless it was received by Arlene. This means that if, before receiving a revocation, Arlene telephoned her acceptance, there would be a valid agreement. Revocation may be communicated indirectly. If Arlene had learned from a friend that Neil had sold his car to someone else during the 10-day period, she would have had sufficient notice. Any attempt to accept Neil’s offer would have been futile.

There is an exception to the rule providing for direct communication of revocation for offers made to the public through a notice or newspaper. Public offers are open to anyone who meets the criteria specified in the offer. They are not limited to a specific individual or a small, private group. The offeror typically communicates the public offer through various means, such as advertisements, announcements, postings, or other forms of public communication. The offeror may revoke a public offering by notifying the public by the same means used to communicate the offer. If no better means of notification is reasonably available, the offer is terminated even if a particular offeree had no actual notice.

Irrevocable Offers

Not every type of offer is revocable. One type of offer that is irrevocable (cannot be revoked) is the option contract. An option contract occurs when an offeree has provided consideration (usually a payment) to the offeror in exchange for a promise to keep the offer open for a specified period. Arlene tells Neil that she cannot make up her mind in ten days but that she will pay him $25 to hold the offer open for thirty days. Neil agrees. Arlene now has a 30-day option to buy the car for $5,000; if Neil should sell it to someone else during the thirty days, he will have breached the contract with Arlene. Note that the transactions involving Neil and Arlene consist of two different contracts. One is the promise of a thirty-day option for the promise of $25. It is this contract that makes the option binding and is independent of the original offer to sell the car for $5,000. The offer can be accepted and made part of an independent contract during the option period.

Partial performance of a unilateral contract creates an option. Although the option is not stated explicitly, it is recognized by law in the interests of justice. Otherwise, an offeror could induce the offeree to go to expense and trouble without ever being liable to fulfill his or her part of the bargain. Before the offeree begins to carry out the contract, the offeror is free to revoke the offer. But once performance begins, the law implies an option, allowing the offeree to complete performance according to the terms of the offer. If, after a reasonable time, the offeree does not fulfill the terms of the offer, then it may be revoked.

Revocability under the UCC

The UCC changes the common-law rule for offers by merchants. Under Section 2-205, a merchant can make a firm offer. A firm offer is a written and signed promise by a merchant to hold an offer to buy or sell goods for some period of time. A merchant’s firm offer is irrevocable. The offer must remain open for the time period stated or, if no time period is given, for a reasonable period of time, not to exceed three months.

Irrevocability by Law

By law, certain types of offers may not be revoked (statutory irrevocability), despite the absence of language to that effect in the offer itself. One major category of such offers is that of the contractor submitting a bid to a public agency. The general rule is that once the period of bidding opens, a bidder on a public contract may not withdraw his or her bid unless the contracting authority consents. The contractor who purports to withdraw is awarded the contract based on the original bid and may be sued for damages for nonperformance.

Rejection by the Offeree

When an offeree decides not to accept an offer from an offeror, the offeree will reject the offer. A rejection is a manifestation of refusal to agree to the terms of an offer, and is effective at the time that the offeror receives it. Arlene calls Neil to reject his offer. As soon as Neil receives the rejection, he is free to sell to someone else. Even if Arlene reconsiders the rejection, calling the next day to try to accept after all, there is no open offer, and therefore no agreement. Having rejected the original offer, Arlene, by her second call, is not accepting but making an offer to buy. Arlene is now the offeror, and Neil is free to accept or reject Arlene’s offer.

Counteroffer

A counteroffer in contract law is a response made by the offeree to the offeror that proposes different terms or conditions than those contained in the original offer. When a counteroffer is made, it essentially rejects the original offer and replaces it with a new offer. If Neil offers to sell his car to Arlene for $5,000, and Arlene would like to purchase the car but at a lower price, she may offer to buy Neil’s car for $4,000. Arlene’s counteroffer has rejected Neil’s original offer, and her offer is available to Neil who can then accept, reject, or even counter, Arlene’s offer.

When negotiating an agreement, an offeree may want to accept most of the agreement while changing a part of it. Normally this would result in a counteroffer which has the results described above. To avoid presenting a counteroffer, it is also possible to accept an agreement by requesting a change or an addition to the offer that does not require the offeror’s assent. In this case, the acceptance of the original offer is valid and does not constitute a counteroffer. Consider the following different scenarios. The broker at Friendly Real Estate offers you a house for $320,000. You accept but require as part of your acceptance that the deal include “the vacant lot next door.” Your acceptance is a counteroffer, which serves to terminate the original offer. If, instead, you had said, “It’s a deal, but I’d prefer it with the vacant lot next door,” then you have accepted the original offer and there is a contract, because you are not demanding that the broker abide by your request in order for you to accept the offer. If you had said, “It’s a deal, and I’d also like the vacant lot next door,” you have also have a contract under the original terms, because the request for the lot is a separate offer, not a counteroffer that rejects the original proposal.

The UCC and Counteroffers

The UCC is more liberal than the common law in allowing contracts to be formed despite counteroffers and in incorporating the counteroffers into the contracts. This UCC provision is necessary because the use of routine forms for contracts is very common, and if the rule were otherwise, much valuable time would be wasted by drafting clauses tailored to the precise wording of routine printed forms. A buyer and a seller send out documents accompanying or incorporating their offers and acceptances, and the provisions in each document rarely correspond precisely. Indeed, it is often the case that one side’s form contains terms favorable to it but inconsistent with terms on the other side’s form. Section 2-207 of the UCC attempts to resolve this “battle of the forms” by providing that additional terms or conditions in an acceptance operate as such unless the acceptance is conditioned on the offeror’s consent to the new or different terms. The new terms are construed as offers but are automatically incorporated in any contract between merchants for the sale of goods unless “(a) the offer expressly limits acceptance to the terms of the offer; (b) [the terms] materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.”

An example of terms that become part of the contract without being expressly agreed to are clauses providing for interest payments on overdue bills. Examples of terms that would materially alter the contract and hence need express approval are clauses that negate the standard warranties that sellers give buyers on their merchandise.

Frequently, parties use contract provisions to prevent the automatic introduction of new terms. A typical seller’s provision is as follows:

Amendments – Any modification of this document by the Buyer, and all additional or different terms included in Buyer’s purchase order or any other document responding to this offer, are hereby objected to. BY ORDERING THE GOODS HERE FOR SHIPMENT, BUYER AGREES TO ALL THE TERMS AND CONDITIONS CONTAINED ON BOTH SIDES OF THIS DOCUMENT.

Section 2-207 of the UCC, liberalizing the mirror image rule, is pervasive, covering all sorts of contracts, from those between industrial manufacturers to those between friends.

Lapse of Time

Offers are not open indefinitely; even offers that do not have a date, day, or time of expiration will lapse after some period of time. In the absence of an expressly stated time limit, the common-law rule is that the offer expires at the end of a “reasonable” time. Such a period is a factual question in each case and depends on the particular circumstances, including the nature of the service or property being contracted for, the manner in which the offer is made, and the means by which the acceptance is expected to be made. Whenever the contract involves a speculative transaction—the sale of securities or land, for instance—the time period will depend on the nature of the security and the risk involved. In general, the greater the risk to the seller, the shorter the period of time. Karen offers to sell Gary a block of oil stocks that are fluctuating rapidly hour by hour. Gary receives the offer an hour before the market closes; he accepts by fax two hours after the market has opened the next morning and after learning that the stock has jumped up significantly. The time period has lapsed if Gary was accepting a fixed price that Karen set, but it may still be open if the price is market price at time of delivery. For unilateral contracts, both the common law and the UCC require the offeree to notify the offeror that he has begun to perform the terms of the contract. Without notification, the offeror may, after a reasonable time, treat the offer as having lapsed.

Death or Insanity of the Offeror

If the offeror dies before the offeree has accepted the offer, the offer is automatically terminated; the offer is said to die with the offeror. The same is true of the offeree. If the offeree dies before accepting the offer, the offer is automatically terminated. Similar to death, if either the offeror or the offeree becomes legally insane or mentally incapacitated to the extent that they cannot understand the terms of the offer or the nature of a contract, the offer is typically considered terminated. Notice, however, that these rules apply to attempts at offers, and would not necessarily apply to a contract between parties made prior to death or insanity.

Destruction of Subject Matter Essential to the Offer

Similar to the rule above, if the subject matter of the offer is destroyed, the offer is terminated. You offer to sell your car, but the car is destroyed in an accident before your offer is accepted; the offer is terminated.

Postoffer Illegality

Finally, it is possible for an offer to become illegal only after that offer is made. For example, an offer to sell a quantity of herbal weight-loss supplements will terminate if the Food and Drug Administration subsequently outlaws the sale of such supplements.

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