Key Takeaways

  • Termination of an offer prevents contract formation when acceptance hasn't occurred.
  • Offers can be terminated by revocation, rejection, lapse of time, death/incapacity, or illegality.
  • Irrevocable offers, such as option contracts and reliance-based offers, may survive these terminations.
  • Communication of revocation, whether direct or indirect, plays a key legal role.
  • Courts assess reasonableness and foreseeability in determining valid terminations.
  • Legal consequences depend on how and when termination occurs.

Termination of an offer contract law is where the offer is terminated before the other side has the opportunity to accept or reject it. This is what's known as “termination of an offer,” and there is a number of reasons it can happen.

When you're talking about contracts, there needs to be an offer by one party and acceptance by another party in order to form a valid contract. The party who makes the offer is known as the offeror, and the party who accepts the offer is known as the offeree. The usual process is where the offeror makes an offer with stated contract terms. Once the offeree has reviewed the terms, he or she will typically respond by accepting the offer or rejecting them. If he or she accepts the terms, the offeror must perform.

Offer Termination in Contracts

Termination of an offer is not the same as contract termination. In the case of termination of an offer, the contract was not fully formed. Termination of an offer ends the power of the offeror to perform. A termination of offer can only be terminated prior to the offeree accepting it. It can happen by one of the party's actions or operation of law.

Validity and Elements of a Legal Offer

For an offer to be legally valid, it must contain clear terms and show the offeror's intent to be bound upon acceptance. The essential components include:

  • Clear intention to form a binding agreement
  • Definite terms that allow the offeree to know what's being agreed upon
  • Communication to the offeree directly or via a reliable source

If any of these elements are missing, there is no valid offer to terminate.

How Does Termination of an Offer Work?

There are different ways an offer can be terminated:

  • By the offeror
  • By the offeree
  • By intervening circumstances

Rejection happens when the offeree clearly communicates their intentions to reject the offer to the offeror. Rejection is effective when the offeree learns of said rejection. This is different from an offeree asking for more information, but not making a counteroffer.

Another way termination of an offer can occur is through the lapse of time. Offerees typically have a reasonable period of time to respond once they learn of the offer. The timeframe can vary based on contract subject matter as well as any prior deals between the involved parties.

Disability, incapacitation, or death can trigger termination of an offer if the offeror is injured or dies before the offeree accepts it. There is an option for the offeree to purchase the power to revoke, which is called an option contract and keeps the offer on the table for a stated timeframe, even if the offeror should pass away or become incapacitated.

Conditional acceptance is a counteroffer. This is when the offeree accepts but with extra conditions. "I will accept this offer if you throw in something else." This redefines the original terms by adding the new conditions, which is what makes it a counteroffer.

Illegality can cause termination of an offer in situations where the subject of the contract performance suddenly becomes illegal after the offer is extended. This will terminate the offer, and the offeree cannot legally accept it.

Revocation Timing and Methods

An offeror may revoke an offer at any point before acceptance. However, the revocation must be communicated to the offeree to be effective. This communication can occur in various ways:

  • Direct revocation: The offeror notifies the offeree clearly and explicitly.
  • Indirect revocation: A reliable third party informs the offeree that the offer has been withdrawn or the offeror has taken inconsistent actions (e.g., selling the subject matter to someone else).

Once revocation is effectively communicated, the offeree can no longer accept the offer.

Irrevocable Offers

There are certain scenarios where an offer cannot be revoked. An offer can be irrevocable for a reasonable amount of time if the offeree relies to his detriment on the offer being held, and it is reasonable and foreseeable to the offeror that the offeree would rely on this. An example is where a general contractor is relying on the sub-contractor's offer to ascertain his overall costs to complete the job. And, if an offeree gave consideration in exchange for the promise that the offer would remain open, it has to be.

Promissory Estoppel and Detrimental Reliance

In certain situations, an offer becomes irrevocable because the offeree relies on it to their detriment. This is governed by the principle of promissory estoppel, which prevents the offeror from revoking the offer if:

  • The offeree reasonably relies on the promise
  • The reliance results in a substantial change in position
  • Justice requires enforcement of the promise

This often applies in bidding contexts or negotiations involving significant preparation or costs by the offeree.

Termination by the Offeror and Offeree

The offeror can communicate the termination of offer directly or indirectly. Indirect methods include having a third party notify the offeree that the offer has been revoked. If it's indirect communication, it has to be by someone deemed to be reliable and reasonable. Offers that were made by publication can be revoked through publication as well. In this scenario, the revocation becomes effective when it's published, not when the offeree receives notice. Termination by the offeree is the counteroffer where an offeree attempts to add or change terms in the original offer. It's not only a rejection of the original offer, but it's a new offer by the original offeree.

Counteroffers and Conditional Acceptance

A counteroffer occurs when the offeree responds to an offer with new or altered terms. This has two effects:

  1. Terminates the original offer, preventing future acceptance of its terms
  2. Creates a new offer, shifting the roles of offeror and offeree

A conditional acceptance is treated as a counteroffer, not a true acceptance, and thus also terminates the initial offer.

Termination by Law

If there is no option contract, death or incapacitation of either party prior to acceptance will terminate the offer. It does not need to be communicated to the other party either. Death and incapacity do not terminate irrevocable offers. If the laws change prior to acceptance of the offer, the law will terminate the offer because it would become a void contract. In the event that the subject matter of the offer is destroyed prior to acceptance, this constitutes termination of the offer as well.

Destruction or Illegality of Subject Matter

If the subject matter of the offer is destroyed or becomes illegal before acceptance, the offer is automatically terminated. Examples include:

  • A contract to sell a building that burns down
  • A sale offer for a substance that becomes banned by law
    No communication is necessary; the offer is void by operation of law.

Lapse of Time and Reasonableness

Offers do not remain open indefinitely. Termination can occur if the offeree fails to accept within:

  • The time limit specified in the offer
  • A reasonable time if no deadline is stated

What counts as a "reasonable time" depends on the nature of the deal, market conditions, and prior dealings between the parties.

Frequently Asked Questions

1. Can an offer be accepted after it is revoked? No. Once a revocation is effectively communicated, the offeree can no longer accept the offer.

2. What is the difference between termination and revocation of an offer? Revocation is a specific type of termination initiated by the offeror. Termination is the broader concept and includes other causes like lapse of time or death.

3. Is silence ever considered acceptance of an offer? Generally, no. Silence alone is not acceptance unless the parties have a prior agreement or relationship where silence is treated as consent.

4. What happens if a counteroffer is made? The original offer is terminated. The counteroffer becomes a new offer which the original offeror can accept or reject.

5. Can termination of an offer be reversed? Only if the offer is re-extended by the offeror after termination. Otherwise, once terminated, an offer is no longer valid.

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