Contracts Foundations 3 - Termination of Offers

Termination of Offers

Offers can be terminated in several ways:

• Passage of time
• Action of a party (offeror or offeree)
• Operation of law

Termination by Passage of Time

• If the offer specifies a termination date, the offer terminates at that time.
  • Example: Joe offers to sell David a bike for 100, and the offer must be accepted by noon on Saturday. The offer terminates at noon on Saturday.
• If no time is specified, the offer remains open for a reasonable time, considering the circumstances.
  • Example: James offers Gina dry ice for 2. Gina says she'll get back to him, but by the next morning, the dry ice has sublimated. The offer terminated due to the perishable nature of the item.
  • Sublimation is the process where a solid turns into a gas.

Termination by Offeror's Revocation

• An offeror can revoke their offer by communicating the revocation to the offeree before acceptance.
  • Example: Danny offers to sell Priya a 2015 Ford Taurus (Itzy) for 2,500. Danny can revoke the offer by saying, "Hi, Priya, I revoke my offer."
• Revocation is more complex when the offeror promises to keep the offer open.

Option Contracts

• General rule: No consideration, no contract, so the offer is revocable.
• If the offeree provides consideration to keep the offer open, an option contract is formed, and the offer is not revocable during the agreed-upon time.
  • Example: Priya pays Danny 20 to keep the offer open for ten days. Now it's an option contract, and Danny can’t revoke.
• An option contract is ancillary to an offer that promises to keep the offer open.

Merchant Exception (UCC Article 2)

• If a merchant promises in a signed writing to keep an offer to buy or sell goods open, the offer is irrevocable for the stated time, or a reasonable time not exceeding three months.
• Merchant Definition:
  • A person who regularly deals in goods of the kind being sold, or
  • A person who by their occupation holds themselves out as having knowledge or skill peculiar to the practices or goods involved.
• This rule only applies to the Sale of Goods.
• Example: If Dom, a used car dealer, offers Priya the car in writing and promises to keep the offer open, the promise is binding for the stated time.

Revocation by Indirect Communication

• If the offeree learns from a reliable source that the subject matter of the offer has been disposed of by the offerer, the offer is revoked.
  • Example: Danny offers to sell Itzy to Priya, promising to keep the offer open for 10 days without consideration from Priya. Priya then learns from Julia, who is driving Danny's car, that Julia bought Itzy from Danny. Danny’s offer to Priya is revoked.

Termination by Offeree

Rejection

• If the offeree rejects the offer, it terminates, and the offeree cannot later accept it.
  • Example: Danny offers to sell Itzy to Priya for 2,500. Priya replies, "I wouldn't let my brother be caught dead in that thing." The offer is terminated. If Priya later changes her mind, Danny doesn’t have to sell the Taurus to Priya.
• Priya’s attempted acceptance becomes a counteroffer, which Danny can accept or reject.

Counteroffer

• A counteroffer terminates the original offer and creates a new offer.
  • Example: Danny offers to sell Itzy to Priya for 2,500. Priya replies, "I'll give you 2,000." This terminates Danny's original offer and is a new offer from Priya to buy the car for 2,000.

Mere Inquiry

• A question or inquiry is not a rejection or counteroffer and does not terminate the original offer.
  • Example: Danny offers to sell Itzy to Priya for 2,500. Priya asks, "Would you consider taking 2,200?" This is a mere inquiry. Danny can say no, and Priya could then still accept the initial offer of 2,500.

Termination by Operation of Law

• Operation of law: A rule that automatically terminates the offer upon certain circumstances.

Death or Incapacity

• If the offeror or offeree dies or becomes legally incompetent after the offer is made, the offer terminates automatically.

Destruction of Subject Matter

• If the subject matter of the contract is destroyed after the offer is made, the offer is terminated.
  • Example: Danny offers to sell Itzy to Priya, but a tree falls on the car and totals it after the offer is made. The offer is terminated.
  • If the car was destroyed before the offer was made, the offer itself was invalid due to mutual mistake.

Illegality

• If the government makes the sale of the subject matter illegal after the offer is made, the offer is terminated.
  • Example: Danny offers to sell Itzy to Priya, but the government outlaws the sale of used Tauruses after the offer. The offer is terminated.