Home Contract law All about termination and revocation of offers under US Contract Law

All about termination and revocation of offers under US Contract Law

November 7, 2023

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This article has been written by Cheyanne Pereira. This article provides a comprehensive understanding of all the nuances of an offer and everything related to its termination and revocation in the United States of America. It involves a detailed explanation of all the important elements of offer, acceptance, termination, and revocation as well as important case laws to help us understand how these rules operate in real-world scenarios.

It has been published by Rachit Garg.

Table of Contents

Introduction

Contract law plays a tremendously crucial role around the globe. From laying down the building blocks for legal and economic policies to providing a legal framework within which a business or an organization can operate and govern the transactions between buyers and sellers, it is immensely important that we understand the elements and essentials of a contract. However, before entering into a contract there are several steps that must be fulfilled first. The first and perhaps the most important element is the existence of an offer. It is the step that commences the formation of a contract. Without an offer, there can be no acceptance, no legal object, no consideration, no capacity to contract or the meeting of the minds of the parties. An offer contains many components and can be terminated or revoked before a contractual agreement has even been entered into. Therefore, in order to get a grasp on the elements of a contract, we need to first take a look at what an offer is and why it is essential for the formation of a contract.

Sources of law regulating contracts made in the USA

There are two sources of law that govern contracts in the USA. They are:

The common law of contracts
Article 2 of the Uniform Commercial Code of the USA

The common law is the law laid down by the courts that is constantly evolving. All requirements of a common law contract must be present in order for a contract to be valid. The common law rules are stricter than the rules laid down by the UCC and therefore it is essential to understand the differences between the two. Common law regulates contracts related to services, real estate, insurance, and all other contracts that do not fall under the regulations of the UCC. Some of them are:

Land sales
Copyright
Trademarks
Patents
Personal services

The UCC is concerned with the regulation of transactions related to the purchase of goods and other tangible objects.

What is the Uniform Commercial Code

The Uniform Commercial Code was introduced in 1952 in order to introduce a uniform set of laws to govern contracts in the United States. Just like other uniform laws, the UCC does not become a law until it has been adopted by the different state legislatures. Though it is not mandatory, all 50 states in the USA have adopted the Uniform Commercial Code. Article 2 of the UCC lays down the rules regarding the sale of goods. As per the laws laid down by the UCC, the offeree or the buyer has the right to accept or reject the offer, revoke his acceptance of the offer, and inspect the goods that he is considering for purchase. The goods can be inspected, rejected, or sent back if they do not meet the expected standards. The UCC and common law of contracts have several differences, which are:

Accepting an offer with different conditions

As per the common law of contracts, changes to the conditions of an offer are considered a rejection by a counteroffer. Whereas, as per the UCC, if there is a change to the terms and conditions of an offer, it is still considered a binding contract, depending on the terms and conditions of the transaction and the subject matter of the new conditions.

A promise to keep an offer open for a particular time

As per the UCC, the promise to keep an offer open for a particular period of time is known as a firm offer. It requires consideration and is only applicable to offers that are made by merchants. As per common law principles, a promise to keep an offer open for a particular period of time is known as an option contract.

Modifying or changing a contract

A modification or change made to a contract that falls under common law principles is considered an option contract and requires consideration. Contracts governed by the Uniform Commercial Code have no such requirement.

Discharge of contracts

As per common law principles, contracts that fall under it can only be discharged if there is destruction of the subject matter of the contract or death of a party to the contract. As per the regulations of UCC, a contract can be discharged due to impracticability.

Statute of Limitations

As per the regulations of the UCC, the statute of limitations is a period of four years. The statute of limitations, as per common law principles, is four to six years.

Fraud

In cases where fraud has been committed, the principles of common law do not allow for punitive damages. Under the UCC, a good title for a purchaser is allowed if fraud has taken place.

Battle of Forms

In cases involving merchants, it is often observed that these merchants use boilerplate language in their individual invoices and purchase orders, which could result in them using language different from other merchants. This could lead to discrepancies that could cause problems in the formation of contracts, also known as the Battle of Forms. The UCC, however, provides much more flexibility in contract formation than common-law contracts, which helps accommodate the reality of business practices.

Statute of Frauds

The UCC also includes some elements of the Statute of Frauds. The Statute of Fraud makes it a requirement for certain contracts to be in writing. Goods placed at $500 or more and signed by the defendant have to be in writing for them to be enforceable. Those contracts which are contemplated by the Statute of Frauds but are not captured by the UCC are often embodied in statutes

Quantity of Terms

According to the UCC, the quantity term is the only essential that is required, while the other terms can be filled with gap fillers. In common law contracts, the essential terms must be definite.

What is an offer

An offer is one of the most essential elements of the law of contracts. It is important to know what an offer is and what it entails. Whether you are involved in business transactions or not, we must be aware of the essentials as we come across such offers in our daily lives. An offer is made when one party, known as the offeror, makes a proposal or promise to another party, known as the offeree. The offeror is basically inviting the offeree to enter into a legally binding agreement with him. If the offeree finds the terms and conditions of the offer suitable, he may accept the offer. He may also terminate the offer or reject it as per his discretion. An offer can be made orally or communicated in written form via email or letter.

Requirements for a valid offer

An offer is the first step in the formation of a legally binding contract. The offeror, by making a proposal or offer, is giving the offeree the right to bind the offer into a legal agreement with his (the offeree’s) acceptance. Not every offer can be a valid offer to enter into a contractual agreement. For example, if Sally offers to meet her friend Betty out for dinner, it does not mean that Betty’s acceptance would lead to a legally binding contract. Similarly, if Betty accepts Sally’s offer and Sally cancels their plans due to prior commitments, Betty would not be able to sue Sally for not performing her part of the offer. Their plans to meet for dinner is a mere agreement for a social purpose. It is not a legal obligation but a social one and cannot be legally enforced in a court of law. An agreement to be enforceable in court must involve a lawful consideration and a legal object. Therefore, how can we differentiate between an offer and a mere agreement? There are some requirements that must be fulfilled in order for a proposal to be considered a valid offer. They are :

The intention to enter into a contractual agreement or any indication of the same. There should also be an intention to get assent from the offeree.
The terms of the offer should be definite. Must be in clear and easy-to-understand words and unambiguous in nature, and
The communication of the offer to the offeree.

Intention to enter into a contractual agreement

The intention to enter into a contractual agreement means that the offeror is serious about the intention to enter into a contract with the offeree, and he is not joking or bluffing in any way. He truly wishes to enter into a legally binding agreement and is completely willing to perform his part of the offer.

The terms of the offer should be definite

An offer that is ambiguous and does not clearly mention the terms or what the offeror is offering to do in exchange for consideration or performance of an act from the offeree is not a valid offer.

The standard of definite terms as per common law principles

The standard of definite terms of an offer as per common law principles is subject to constant evolution. Modern contract law generally allows for a lower standard of definiteness in an offer than classical common law principles would have.

The standard of definite terms as per the Uniform Commercial Code

The standard of definiteness as per the Uniform Commercial Code is different from common law principles in the sense that if the parties leave a few terms of their contract open, their agreement is still definite enough to enforce.

Communication of the offer to the offeree

The offeror has to communicate the terms and conditions of the offer to the offeree. He can do so orally or in writing. Generally, a written offer is more convenient as it ensures that all points are mentioned and there is less chance of leaving out or missing out on a valid point. In this way, the parties are well aware of what they are agreeing to. If an offer has not been communicated, this can serve as proof in cases where a person has not assented to or accepted an offer.

Acceptance as an element of contracts

Acceptance of an offer basically means that the terms and conditions of the offer or proposal made to one or more parties have been agreed to by them. The acceptance of an offer is one of the most important primary steps in the formation of a contract. If person A has agreed to a proposal put forward by person B without making a counter offer, then he has accepted all the conditions of B’s offer. The ways in which the acceptance of an offer can be determined are as follows:

The person to whom the offer is being made (the offeree) intends to enter into a contract with the offeror.
The offeree accepted the offer in the manner put forward by the offeror.
Communication of the acceptance of the offer has been made to the offeror.

Principles of acceptance

The mirror image rule

The mirror image rule is a legal doctrine according to which the offeree must accept the offer in the exact manner as laid down by the offeror. In other words, the acceptance by the offeree should mirror the offer, and there should be no additional or new conditions to the offer by the offeror as per common law practice. However, this rule has now been amended by the Uniform Commercial Code. As per UCC § 2-207 even if the offeree agrees to the offer while adding new or different terms to the original offer, the acceptance is valid. Although this rule is not applicable to the cases that fall under the regulations of the UCC, the cases that are not governed by the UCC follow the rules of common law.

The mailbox rule

The mailbox rule is applicable to situations in which the offeror does not lay down any specifications for the manner of acceptance that the offeree must adhere to. It is a rule that helps us determine when the offer was accepted. So as per this rule, the offeree has accepted the offer as soon as he has sent communication of his acceptance to the offeror. The communication in this case may be made via emails, letters, a fax, or a telegram. So in a situation where there is an offer sent out to multiple offerees, the first person to accept the offer is the one who has emailed or sent a fax or letter to the offeror stating his acceptance of the same. The case that gave rise to this rule was Adams v. Lindsell (1818). This is an English contract law case where it was established that a contract is complete when the offeree has posted his letter and not when the offeror receives it. As soon as the offeree mails the letter, his acceptance is valid, and the contract is complete. The mailbox rule falls under UCC § 2-206 and is not necessarily applied to all contract cases, and its use differs from state to state. In most states in the USA, it applies to bilateral contracts.

Silence as a form of acceptance

Silence on the part of the offeree is not accepted. The acceptance of an offer requires acknowledgment as well as communication on the part of the offeree. The offeror, however, cannot force or demand that the offeree must reply to his offer. So if an offeror does not reply to an offer, his silence cannot be taken as his acceptance, even if, as per the terms of the offer, silence is an acceptable form of agreement. There are some situations that may be an exception to this rule. For example, if two parties A and B are dealing with each other on a regular basis and it is clear to A (the offeror) that silence on B’s part (the offeree) is his acceptance or intention to accept, then in this case B need not communicate his acceptance to A as there is a general understanding between the parties. Another situation may arise wherein B tells A that “if you do not hear from me within a week, I have accepted your offer”. Then, in this case, it would not be necessary for B to communicate his acceptance after a week, as he has already communicated that his silence is his acceptance of A’s offer.

Manner of acceptance

The offeror has the right to state the deadline, mode, and manner in which acceptance of the offer must be communicated. The offeree must respond to the offeror in the manner and within the timeframe that has been stipulated by the offeror. As per the mailbox rule, a contract is complete when the offeree has posted his letter and not when the offeror receives it. Communication of acceptance of an offer can be made in the following ways:

Instantaneous acceptance- Face-to-face conversations, virtual meetings, or any other situation where the acceptance can be communicated instantly and the contract can be entered into after the offeree has communicated his assent.
Non-instantaneous acceptance- A situation where there is an interval between the communication and the receipt of the communication by the offeror is a noninstantaneous acceptance. This may be via letters, emails, voicemail messages, and so on. This may also be known as express acceptance.
Conditional acceptance- Conditional acceptance takes place when the person to whom the offer was made will give his assent to the offer only if certain conditions and terms are added or changed. This offer then becomes a counteroffer and will be valid only if the offeror incorporates the changes.

Types of offers in the USA

General offer

A general offer is one that is made to the general public. Any person who is willing to perform the terms and conditions of the offer can take up the offer and become a party to it. The offeror mentioned the terms and conditions and left the offer to the discretion of the public. If anyone wishes to take up the offer, they can do so by simply performing the terms or accepting the conditions. For example, the Starbucks drive-throughs in your city may offer a $5 discount on all breakfast foods between 9 and 11 A.M. every weekend. This is a general offer being made by Starbucks, and anyone wishing to avail of the same can approach the drive-through nearest to them and take them up on their offer.

Specific offer

A specific offer is an offer that has been made to a specific person or group of people. These offers can only be accepted by the people or by person to whom it has been made. It is different from a general offer as it is not open to the public. The communication between the offeror and offeree is direct, and unlike a general offer, where anyone can accept by fulfillment, a specific offer must be accepted in the mode prescribed by the offeror. So, for example, if A makes an offer to sell his horse B for $250, C cannot accept the offer. Even if B rejects the offer, C cannot accept the offer unless A then makes a new offer to him. Therefore, the offer here is being made to a specific person and is not open to anyone else for acceptance. Another example of a specific offer is if an employer sends a letter containing a job offer to a specific candidate. This job is only available to and is open for acceptance by the specific candidate to whom it has been sent.

Express offer

An express offer or proposal is one where the party (the offeror) clearly lists out and mentions all the conditions and terms of the offer. It is straightforward and direct in stating the conditions, and it is very unambiguous in nature. This ensures that the other party or parties are aware of what the offer consists of, and there is no room for mistakes or misunderstandings. It can be made in either a written manner through emails, letters, and commercials or an oral manner through a phone or in-person conversation. Once it is accepted by the party or parties, the contract so formed may be oral or written as per the convenience of the parties.

Examples of express offers are:

Offer letter- An offer letter or job offer where all the terms, conditions, benefits, remuneration, and other important information that the candidate should know.
Shopping online- When you browse the internet for products, the prices are the same, and the features and services are almost always clearly mentioned on the site. An interested buyer can then, if required, add the product to his or her cart and purchase it if they choose to accept the terms of buying.
A person X offers to buy his friend Y’s car for a certain amount.

Implied offer

An implied offer is an offer that is not explicitly communicated but instead is implied. It is not directly declared but implied through some action or conduct of the offeror, which implies his intention to make an offer or proposal. For example, if a person named John has displayed an item in his store with a price tag of $100, then he is implying his intention to sell that item at the price of $100. If Peter enters the store and picks up the item and takes it to the cash register to pay for it, then Peter is implying his acceptance of the offer to purchase the item for $100.

Unilateral offer

A unilateral offer is one where the offeror agrees to perform a specific action in exchange for, or pays for, an action to be performed by the offeree. It is one-sided in nature, as the offeror is willing to pay for the performance of an action by the offeree. Once the offeree completes his part of the contract, the offeror must pay him for it. If the offeree fails to complete the performance of his part, he cannot ask the offeror to pay him. For example, if a person named X makes an offer to pay the finder of his lost possession $25, he is making a unilateral offer. If a person Y sees the offer and finds the lost item, he can claim the $25 reward being offered for the same. Similarly, if Y sees the offer and does not find the lost item, he cannot claim compensation from X. Some other examples are contests, promotions, rewards, and lottery tickets. An example of a unilateral offer has been laid down in the famous English contract law case, Carlill v. Carbolic Smoke Ball Co. (1893), which has heavily influenced the understanding of contract law in the USA, India, as well as other countries. In this case, the court held that if an advertisement is sent out and it mentions certain terms to be fulfilled in exchange for a reward of any kind, the advertisement is a unilateral offer and is legally binding. If the terms of the advertisement have been accepted and fulfilled by anyone, that person will have to be rewarded by the offeror.

Counteroffer

A counteroffer is made when the offeree responds to the original offer made by the offeror by demanding a few changes to the original offer or new terms altogether. It is part of the negotiations that take place between the parties (the offeror and offeree) before entering into a legally binding contract. A counteroffer does two things:

It terminates the original offer made by the offeror
It creates a new offer and new conditions that must be accepted in order for the formation of a contract to take place.

So, for example, if a person A is offering to sell his old sports car to B at a price of $30,000, B may express his interest in purchasing the sports car, but at a price of $25,000 instead. If B is open to further negotiations, then both A and B can continue negotiating until they agree upon a price that suits both parties. However, the minute B replied to A’s offer with new conditions is when A’s offer was terminated or replaced by a counteroffer.

Cross offer

A cross offer is made when both the offeror and the offeree make the same offer to one another, ignorant of the fact that both parties have made an offer and that the offer made by the other party is the same as the offer made by themselves. This often leads to the rejection of both offers, as neither party accepts the other’s offer due to their ignorance of the offer being made in the first place. For example, A can say “I offer to sell my laptop to B for a consideration of $500“ and B may say “I offer to buy A’s laptop in exchange for $500”.

Standing offer

A standing offer is an offer that the offeror agrees to keep open to acceptance for a particular amount of time, and its acceptance will be valid as long as it is made before the deadline. Sometimes a company may require a huge amount of a particular product, and so it puts out a tender or an offer for the supply of that good. This type of offer or tender is referred to as a standing offer or a continuing or open offer. If a supplier accepts this offer, it will not result in the formation of a contract until the company actually places an order for the products required by it. It just means that the offer is open for a particular amount of time, and when the products are required and the order is placed, the contract will then be formed.

Invitation to treat

An invitation to treat is basically an invitation from one person to another to start discussing the terms and conditions that could lead to an offer, its acceptance, and eventually the formation of a legally binding contract. There is an intention to create an offer. For example, a restaurant may distribute fliers with the prices and discounts for their items, or a catalog may display the prices of the items being sold by that brand.

Advertisements and catalogs

An advertisement or a catalog, as explained above, would usually fall under the category of an invitation to treat instead of types of offers, as an advertisement usually describes the characteristics and functions of a product rather than offering them up as an object of a legally binding agreement. However, there are certain cases where an advertisement may be considered an offer. If the advertisement uses certain adjectives with the intention of attracting a customer to purchase their products, it is an offer rather than an invitation to treat. A mere statement of a price for a particular product is considered an invitation to treat. However, if the brand uses a price tag, it is binding itself to a particular price, and therefore this could be an offer to potential customers when they walk into the store and see the price on the tag. For example, if a person named Janice walks into a clothing store and sees a pair of sneakers with a price tag of $100 attached to it or a flier outside the store that states, “We are selling sneakers from the brand X for $100”, this could be considered an offer as it contains the following:
The terms and conditions of the purchase
Certainty of the terms and conditions
Acceptance can be done without negotiating or bargaining for a new price.

What is the termination of an offer

The termination of an offer takes place before the offeree can accept the offer. It is different from the termination of a contract, as in this case, the contract has not yet been entered into completely. It can take place due to the actions of either of the parties. There are many reasons behind the termination of an offer. It may be terminated by either the offeror, the offeree, or unavoidable circumstances.

Grounds on which an offer can be terminated

There are several ways in which an offer may be terminated:-

Lapse of time

An offer, unless mentioned explicitly, will cease to be valid after a reasonable amount of time. The reasonable amount of time will vary from one offer to another and depends upon the circumstances of the situation. The offeror may specify a certain time period within which the offeree has a chance to accept the offer. If the time period is up and the offeree has not yet accepted the offer or responded, the offer will be terminated due to the lapse of time. In cases where the offeror has not set a deadline for acceptance, a reasonable period of time is given to the offeree. As mentioned earlier, it may differ depending on the offer. For example, offers regarding things that have a very brief lifespan, such as foods that have an expiration date, are examples of situations in which the reasonable time may be longer as compared to other commodities like clothes or shoes. The negotiation period may also be a factor in determining a reasonable time. For example, if the parties are negotiating over the phone, it would be expected that the offeror is offering to sell goods that have not already expired.

Death or mental incapacity

The offer can be terminated due to disability, insanity, or death of any of the parties to the offer. For example, if a person named X (the offeror) makes an offer to sell his car to Y (the offeree), but then, due to an unforeseen circumstance, X dies, then the offer would be terminated because it would not be possible for X to perform his part of the offer. Similarly, if a person with mental incapacity makes an offer, that offer can be terminated as they lack the understanding needed to become a party to a contract.

Illegality

An offer is terminated if the product or activity that is at the center of the offer is illegal. If the offer is accepted despite the illegality of the activity or product, then the contract will be void. Even if the product was not illegal before the offer was made but suddenly becomes illegal before it is accepted, the offer will be terminated. For example, if person A (the offeror) offers to sell drugs to person B (the offeree) and B accepts the offer despite knowing that the activity is illegal, then the contract that is formed after B’s acceptance of the offer is void.

Destruction or expiration of the subject matter of the offer

The destruction of the product or the expiration of its lifespan can be a ground for the termination of an offer. Even if the offer has been made prior to the acceptance of the offer, if the product is suddenly unavailable or destroyed, the offer would be terminated. For example, if A offers to sell B some garments but the warehouse where he stores his products gets destroyed in a fire, it would be difficult for A to perform his duties as the offeror, and thus the offer would be terminated. Even if the offeree accepts the offer and then the destruction of the product takes place, the offer will be terminated. For example, if A offers to sell his house to B and B accepts, but due to a flood, the house gets ruined beyond repair, in this case, the offer may be terminated as it would be impossible for A to perform his part of the offer.

Rejection of the offer by the offeree

The general rule regarding the rejection of an offer is that an offeree can reject an offer either explicitly or by implying his rejection by showing his unwillingness to agree to the terms of the offer. As per the general rule, whichever way he chooses to reject the offer leads to the termination of the offer and the power of the offeree to accept the offer. The rejection is valid when the same has been communicated effectively to the offeror. So if an offeree has sent a letter communicating his rejection and it has yet to reach the offeror, he may still change his mind, and the offer may still be valid if he is able to communicate his acceptance before the offeror receives the rejection letter.

Counteroffer

A counteroffer terminates the offer that was originally made by the offeror, and therefore it terminates the offer and makes way for new conditions to be added to the offer. It functions as a new offer and a way to terminate the previous offer. So for example, if A (the offeror) offers to sell his car to B (the offeree) for $25,000 and B offers to buy it for $20,000, then it would terminate A’s offer, and A can then either accept or reject the new offer made by B.

Revocation by the offeror

An offer can also be terminated through revocation by the offeror. As per the general rule, the revocation by the offeror is valid only when the same has been communicated to the offeree. Otherwise, until then, as per the knowledge of the offeree, the offer is still in existence. To learn more about the revocation of an offer, you may refer to the discussion of the same below.

Offer subject to conditions or specific provisions

An offer may be subject to specific provisions where the offeror clearly mentions the timeframe within which the offer is open and the terms that must be accepted to prevent termination of the offer. If the offeree does not adhere to the time limit or the stipulated conditions required for valid acceptance on his part, then this is a valid ground for termination of the offer.

What is the revocation of an offer

The revocation of an offer is when the offeror withdraws the proposal he made to the offeree before the offeree has a chance to accept it. The offeror has to inform the offeree of the withdrawal of his offer before the offeree has accepted. Once the withdrawal has been communicated to the offeree, the offer is no longer a valid offer and cannot be accepted by the offeror anymore. The offeror enjoys the right to terminate his offer through revocation. He also gives the offeree the power to make him legally responsible towards him (the offeree) by making an offer that could potentially become a contract. As per the general rule or common law practice, the offeror can revoke the offer at any time that he wants to, as long as it has not yet been accepted by the offeror. Even if they have agreed to keep the timeframe for acceptance open for a certain period unless the offer has been accepted, they can revoke their offer before said time period.

Are there any exceptions to the offeror’s right to revoke his offer

There are some situations where the offeror cannot revoke his offer. They are:

The offeree pays the offeror some form of consideration, and in exchange, the offeror agrees to not revoke his offer or keep the offer open for a particular time. For example, a person X offers to sell his car to Y for $30,000. Y needs a few days to get his funds together in order to purchase the car. He asks X to keep the offer open for another week in exchange for a consideration of $100. Therefore, if X agrees to this, then he cannot revoke his offer to Y for another week.
An offer for a unilateral contract is another example of when an offeror cannot revoke his offer. If the offeree has started to perform his part of the contract, the offeror cannot revoke his offer, at least for the time period that it takes the offeror to complete his task. The unilateral contract may also be turned into a bilateral contract if the offeree has started to act on his part of the contract.
In some cases, the offeree can rely on the doctrine of promissory estoppel to stop the offeror from revoking his offer before it has been accepted (you may refer to restatement (second) of contracts § 87(2))
Sale of goods for merchants- The Uniform Commercial Code changes the common law regulations regarding offer revocation by introducing the option of firm offers under § 2-205. As per the first example mentioned, in this situation also, the offer is open for a particular time period, but there is no consideration in this case. This is only applicable to merchants for the sale of goods. All other offers fall under the governance of common law rules.

Difference between termination and revocation of offer

After discussing the termination and revocation of offers earlier in the article, there are some differences between the two terms that we must take note of. Though they are very similar in nature, the terms are not interchangeable, and the differences are as follows:

Initiation of the termination or revocation of an offer

The initiative to terminate an offer is usually taken up by the offeree. However, this does not mean that an offeror cannot terminate an offer from his end. As mentioned earlier, the offeror can terminate an offer either by revoking it or due to unforeseen destruction or expiration of the subject matter, death or incapacity, and so on.
The initiative to revoke an offer is taken by the offeror. The offeree cannot revoke an offer, but he can terminate it by rejecting it or presenting a counteroffer.

Communication of the termination or revocation of an offer

An offeree does not necessarily have to communicate his rejection of the offer to the offeror. He can simply choose to not respond or let the reasonable time frame for acceptance pass without accepting the offer.
In almost all cases, the offeror has to communicate the revocation of the offer to the offeree.

Control and timing of the termination and revocation of a contract

Termination is usually done by the offeree and can take place before the offer has been accepted and even after the offer has been accepted in cases of damage or destruction to the subject matter of the offer, death or incapacity of the offeror to perform, and so on.
Revocation must be communicated by the offeror to the offeree before the offeree has accepted it.

Prevention of the formation of a legally binding agreement

Termination of an offer prevents the parties from entering into a contractual obligation with one another when the offeree terminates or rejects the offer from his end.
The revocation of an offer also prevents the parties from entering into a contractual agreement, but in this case, the offeror is the one who revokes it from his end.

Methods of termination or revocation of an offer

An efficient revocation is said to take place when it is done before acceptance by the offeree and when its revocation has been communicated to the offeree. The revocation of an offer can be communicated to the offeree directly, indirectly, or with the help of a third party. If the communication has been made indirectly, then it must be communicated by a trustworthy person in the correct manner, that is it must be communicated as stated by the offeror.
If the time period within which the offer still exists has passed and the offeree has not yet accepted the offer or responded, the offer will be terminated due to the lapse of time. In cases where the offeror has not set a deadline for acceptance, a reasonable period of time is given to the offeree. As mentioned earlier, it may differ depending on the offer. For example, offers regarding items such as foods or cosmetics that have an expiration date are examples of situations in which the reasonable time may be less as compared to other commodities like clothes or shoes.
In cases of rejection, the offeree may directly communicate his rejection or stay silent instead of accepting the offer.

The termination and revocation of an irrevocable offer

Offers can at times be irrevocable in the case of an options contract or firm offer and this may prevent the offeror from revoking his offer.
The termination of an offer is not irrevocable or reversible, as it is completely dependent on the offeree, who chooses if he wants to terminate the offer or not.

Important case laws

Lonergan v. Scolnick (1954)

In the case of Lonergan v. Scolnick, (1954), the plaintiff Lonergan sued the defendant Scolnick for reneging on the alleged agreement between them. Lonergan was supposed to purchase a 40-acre tract of land from Scolnick who now asked for compensation for breach of contract and damages amounting to $3,581 for the difference between the sale price and the property appraisal. This case is an appeal to a judgment given by the Lower Court in favor of Scolnick.

Facts of the case

Scolnick had placed an advertisement in one of the Los Angeles Papers for a property in the vicinity of Joshua Tree. Lonergan, a respondent from New York, responded through a letter. Scolnick gave a reply to this letter on 26 March where he described the property, gave directions on how to get there, stated that his rock bottom price was $2,500 cash, and also stated that it was a form letter. Lonergan, on April 7, replied with questions related to the property and shared the name of the Bank he would use if he desired to purchase the land. Scolnick, in reply to this, said that the escrow agent was acceptable and Lonergan had to act fast because he was expecting to have another buyer

Following this, on April 12, Scolnick sold the property to a third party. He received Lonergan’s response on April 14, where he stated that he would deposit $2,500 in conformity with Scolnck’s offer. Lonergan, on finding out that the property had already been sold, filed a suit. The Lower Court stated that the plaintiff and defendant had not entered into a contract and gave the judgment in favor of Scolnick.

Issue of the case

Whether Scolnick made an offer to Lonergan by asking if he was interested in purchasing the land?

Judgment

The Court found out that Lonergan and Scolnick had not entered into a contract. The Court stated that the defendant’s communication with the plaintiff was an invitation to offer. Scolnick had clearly stated that there were other potential buyers who were interested in buying the property, and at no point in time did he agree to hold the property for Lonergan. Therefore, it can be concluded that a valid contract requires both an offer and acceptance. The defendant in the present case had made an invitation to offer to the plaintiff, and he had no time to make a valid offer to the plaintiff. A contract cannot be made unless the minds of the parties have met and mutually agreed upon a specific area of interest. Simply asking if the person is interested in the purchase of the property cannot be considered a valid offer to that person.

Shuey v. United States (1875)

Facts of the case

In this case, the United States, being the defendant, made a public proclamation on 20 April. $25,000 was offered as a reward to anybody who would apprehend a fugitive and a “liberal reward” to anyone providing information that would lead to the arrest of the fugitive. The unilateral offer was made through another public proclamation on 24th April. The claimant was unaware of the offer being revoked and gave information regarding the fugitive for his arrest. The claimant was paid $10,000, but he believed he was entitled to $15,000 more since he believed he was entitled to $25,000.

Issues of the case

If Shuey was entitled to the full reward of $25,000?
If Shuey’s ignorance of the revocation of the offer was a valid argument?

Judgment of the case

The Court in its decision, stated that Shuey was not entitled to the full reward of $25,000 and that his ignorance of the offer was not a valid argument. The Court stated that Shuey was unsuccessful in meeting the condition to receive the entire compensation of $25,000 as he had not apprehended the fugitive as stated in the proclamation. Justice Strong stated that the opinion of the Court was that offers could be withdrawn before the rights had accrued under them and when the withdrawal was made through the same channel through which they had been made. In the present case, the revocation of the offer was made in the same way as the offer, and it was withdrawn before the rights had occurred under it. The claimant should have been aware that the revocation of the offer could be made through the same channel as that of the offer.

Ever-Tite Roofing Corp. v. Green (1955)

In this case, the plaintiff, Ever-Tite Roofing Corp., entered into a contract with the defendant, Green, for the renovation of the defendant’s house. The plaintiff arrived at the place of work and found that someone else was doing the renovation work that his company was supposed to do.

Facts of the case

The defendant, Green, had signed an offer to hire Ever-Tite to fix the roof of his house. The offer did not mention a time within which it must be accepted, but it stated that acceptance of the offer should be either through writing or performance of the job. The contract was also signed by the agent of Ever-Tite (the plaintiff), who did not have the authority to agree to the contract on behalf of Ever-Tite. The contract also included a clause according to which the cancellation of the contract was not allowed. The plaintiff gathered all the necessary manpower and supplies for the job and arrived at the defendant’s residence. He found that another company had already started doing the job that his company was supposed to do. The defendant told the plaintiff that the other company had signed the contract to do the work two days prior to when the defendant had prohibited the plaintiff from doing the job. The defendant had also not contacted the plaintiff before, as he needed time to get his finances in order to pay for the job. Ever-Tite sued Green for breach of contract.

Issues of the case

Did the defendant adequately inform the plaintiff of the withdrawal of the offer?
Was their revocation of the offer made by Green?

Judgment of the case

The Court held that the offer made by Green was an offer where acceptance of the offer could be done by performing the task. As soon as Ever-Tite gathered their manpower and supplies and arrived at the property of Green, they had accepted the offer. The court also held that there was no revocation of the offer by the offeror (Green) just because he hired another company. There were two reasons for this:

Green did not inform Ever-Tite of his revocation, and they had already begun the work by arriving at his property with their trucks and supplies.
Ever-Tite had shown their acceptance of the offer by showing up to do the work

The Court also dismissed Green’s argument, stating that there was no consideration for the job. Thus, this case demonstrates the fact that an offer can be accepted by the performance of a task even if the person who made the offer is not informed of the same, and that once the performance has started, the acceptance by the offeree is valid. An offer once it has been accepted cannot be revoked, and revocation should be communicated well before acceptance.

Minnesota Linseed Oil Co. v. Collier White Lead Co. (1876)

Facts of the case

In this case, the plaintiff, Minnesota Linseed Oil Co., was selling linseed oil that the defendant, Collier White Lead Co., was interested in purchasing; however, they communicated about the terms and conditions of the offer by telegraph. There was confusion and contention about whether a contract had been formed. The plaintiff brought a case against the defendant for a sum of $2,151. The defendant argued in his defense that the plaintiff had entered into a contract with him where it was agreed that the plaintiff would sell 12,450 gallons of oil for 58 cents per gallon. The defendant stated that the plaintiff did not deliver the linseed oil and therefore had breached the contract. The defendant argued that the plaintiff had offered to sell the oils for 58 cents per gallon via telegraph on July 31st but his message was not received by the defendant until August 2nd. The defendant accepted the offer via telegraph on August 3rd. The plaintiff tried to revoke their offer on August 3rd, but the defendant claimed that a binding contract had been formed. The plaintiff, on the other hand, argued that there was no contract as the defendant’s acceptance was not communicated within a reasonable time.

Issues of the case

Was the acceptance by Collier White Lead Co. communicated within a reasonable time?
If the parties were bound by the contract?

Judgment of the case

It was held by the Court that the acceptance by the defendant was not communicated within a reasonable time, and therefore there was no contract binding the two parties. The delay in acceptance was not fair to the plaintiff. Moreover, due to the fluctuation in the prices of the linseed oil, the defendant was able to take advantage of the delay and changes in the prices to accept or reject the offer in a way that would only benefit him. The gap between the offer made on July 31 and the acceptance on August 3 could not be considered a reasonable time because the prices of the commodities being sold were constantly fluctuating.

Moore v. Donegal Mutual Insurance Co. (2020)

Facts of the case

In this case, the plaintiff, Trina Moore, brought a case of personal injury against Belmont Hospital Inc., which was insured by Donegal Mutual Insurance Co. Before the beginning of the trial, Moore was offered a settlement of $18,000 by Donegal Mutual Insurance Co., which Moore rejected, and so the case went forward for trial. On the second day of the proceedings, Moore’s lawyer informed Donegal that Moore would agree to settle the case for $21,500. Donegal, however, stayed firm on the settlement offer of $18,000 and stated that the offer was still open for acceptance. No time limit was mentioned, and the trial continued. During the recess for lunch, Moore’s attorney informed Donegal that Moore would settle for $18,000; however, Donegal said that the offer was no longer open. Moore’s side tried to bring up the settlement offer as an issue in court, but the court did not entertain it. The Court found Belmont not negligent and delivered the verdict. Moore then filed a suit for breach of the settlement offer.

Issues of the case

Did the time limit of the offer lapse?
Was Moore entitled to the settlement offer?

Judgment of the case

The Court delivered the judgment in favor of Donegal, stating that there was a lapse in offer. It further stated that if an offer is made and no time limit has been agreed upon by the parties, the jury should decide if the offer has been accepted within a reasonable time.

Lucy v. Zehmer (1954)

Facts of the case

In this case, the defendants, Mr. and Mrs. Zehmer, owned a piece of land called Ferguson Farms. The plaintiff, Mr. Lucy, was interested in buying the property and had expressed his interest to Mrs. Zehmer as well. Mr. Lucy made an offer of $20,000 in exchange for the land, which was accepted by Mrs. Zehmer. However, later on, for some reason, the deal did not work out. One evening, both parties met at a restaurant owned by the defendant and discussed the matter over a few drinks. There was a verbal discussion, and thereafter both parties and even Mr. Zehmer’s wife signed a contract for the sale of the property in exchange for a sum of $50,000. Mr. Lucy made all the necessary financial arrangements and made his attorney contact Mrs. Zehmer regarding the execution of the contract. Mrs. Zehmer dismissed them, saying that the contract was signed as a joke and no deal existed between the two parties. Mr. Lucy then sued Mrs. Zehmer for a specific performance.

Issues of the case

Is the presence of mental assent necessary for the formation of a contract?
Was there a valid offer and acceptance, or was it terminated as Mr. Zehmer was not serious?

Judgment of the case

The Lower Court delivered a verdict in favor of Zehmer, stating that there was no agreement or meeting of minds and therefore no existence of a contract. Mr. Lucy appealed further, and the Supreme Court overturned the verdict of the Lower Court. It was held that the parties were not intoxicated to a point that would invalidate the agreement. It held that mental assent is not necessary to determine if the offer made is genuine, as those are the inner thoughts of the party, and that the words and actions of a party are enough to communicate his intention to enter into an agreement. It also dismissed Mr. Zehmer’s claim that he imagined the agreement to be a joke, as Mr. Lucy was not aware of this joke and considered the agreement to be a real business transaction. An offer was made, and the offer was accepted in good faith.

Burton v. Coombs (1976)

Facts of the case

In this case, the defendants had initially filed an appeal against the judgment of the Lower Court, which had awarded damages to the plaintiffs for breach of contract. The plaintiffs had responded with a cross-appeal on the issue of damages and on the ruling of the Court that the defendants were not bound by the previous offer they had made to settle. Following this, the parties stipulated the dismissal of all the issues that were raised by the appeal and the cross-appeal. The only issue on which they could not reach a consensus was the acceptance of the offer to settle. During the commencement of the trial, the defendants had made an offer to settle that was based on certain promises. The counsel for the plaintiffs had rejected this offer and had proceeded with litigation on the theory of anticipatory breach. During the conclusion of their case, the plaintiffs said that they had accepted the offer made by the defendants. The defendant’s counsel argued that due to the rejection of the offer by the plaintiffs, the defendant would no longer be bound by the terms of the offer and that the defendants had not renewed the earlier offer. There was some debate as to whether the offer had been renewed during the trial.

Issue of the case

Would the defendant be bound by the responsibilities of the offer made at the beginning of the trial?

Judgment of the case

The Court in its judgment stated that once an offer is terminated, it cannot be accepted subsequently to form a contract. Also, the Court found no evidence of the offer being renewed during the course of the trial. The conduct of the plaintiff by proceeding with the litigation amounted to rejection of the offer and could not have been revived later unless the offeror showed his willingness to do so. Thus, the offeree could not revive the contract by tendering acceptance. Any words or acts committed by the offeree that would indicate that he declined the offer or that would make the offeror believe that he had reason to decline the offer would amount to rejection. The defendants were therefore not bound by the offer, as the plaintiffs had rejected it.

Conclusion

An offer is the point from which the formation of a contract begins. We are faced with several situations, which include the making of an offer, its acceptance, the termination, and the revocation of an offer. Offers are a part of our everyday lives. From business transactions to the hiring or firing of employees and the protection of our financial and legal interests, it is essential to understand and inform ourselves of the legal complexities involved in the termination, acceptance, and rejection of offers. Additionally, it would be advised to hire or procure the services of a contract lawyer to help you navigate the offers that may be made to you and select the one that is most beneficial and best suits your interests. You may also take a look at the most Frequently Asked Questions related to offers, acceptance, and contracts down below.

Frequently Asked Questions (FAQs)

Can an offeror’s right to revocation of his offer be restrained?

An offer has to be revoked before it has been accepted by the offeree.

Sale of goods for merchants- The Uniform Commercial Code changes the common law regulations regarding offer revocation by introducing the option of firm offers under § 2-205. In this situation, the offer is open for a particular time period, but there is no consideration in this case. However, this is only applicable to the sale of goods by merchants.

The offeree can pay the offeror some money, and in exchange, the offeror agrees to give up his right to revocation for a particular time.
An offer for a unilateral contract is another example of when an offeror cannot revoke his offer. If the offeree has started to perform his part of the contract, the offeror cannot revoke his offer, at least for the time period that it takes the offeror to complete his task.
In some cases, the offeree can rely on the doctrine of promissory estoppel to stop the offeror from revoking his offer before it has been accepted (you may refer to restatement (second) of contracts § 87(2)).

Can an offer be revoked once the offeree has accepted it?

As per the general rules, the revocation of an offer must take place before the acceptance by the offeree. However, there is an exception to this rule, and that is when both the offeror and the offeree have decided that the offer will stay open to acceptance for a particular time period.

When is the acceptance of an offer communicated efficiently?

When it comes to the context of contracts, a person’s compliance with the terms of the offer is referred to as acceptance. Acceptance is usually judged objectively, but it can be expressly stated or implied by the offeree’s conduct. To form a binding contract, it is essential that the acceptance be relied on in a manner that is authorized, requested, or reasonably expected by the offeror. When it comes to insurance law, acceptance takes place when the insurer agrees to the application of the person for insurance and then issues them a policy to cover certain risks. In business transactions, the buyer agrees to buy a product from a seller even if the goods were not originally planned to be bought.

What are the various laws in the United States that govern the law of contracts?

There are two sources of law that govern contracts in the USA. They are:

The common law of contracts
Article 2 of the Uniform Commercial Code of the USA

The common law is the law laid down by the courts that is constantly evolving. Common law regulates contracts related to real estate, insurance, and other categories of contracts like:

Land sales
Copyright
Trademarks
Patents
Personal services

The UCC is concerned with the regulation of transactions related to the purchase of goods and other tangible objects.

What is the Uniform Commercial Code?

The Uniform Commercial Code was introduced in 1952 in order to introduce a uniform set of laws for the United States. It is not mandatory, but all 50 states in the USA have adopted the Uniform Commercial Code. Article 2 of the Uniform Commercial Code is related to the sale of goods. As per the laws laid down by the UCC, the offeree or the buyer has the right to accept or reject the offer, revoke his acceptance of the offer, and inspect the goods that he is considering for purchase. The goods can be inspected, rejected, or sent back if they do not meet the expected standards.

What are all the essential elements required to form a valid contract?

A contract is an agreement between parties with mutual obligations that can be enforced by the law. There are some basic elements that are required to form a contract.

These are:

Mutual Assent. This is expressed by a valid offer and acceptance
Adequate Consideration
Capacity
Legality

In some particular cases, the elements of consideration can also be satisfied by a substitute that is valid.

What are the requirements to make an offer enforceable by law?

There are a few essential elements to make an offer enforceable by the law –

Communication – The offeror has to communicate his offer to a person. After this, the person to whom the offer has been made can choose to accept or reject it. The offeror is free to communicate his offer to the offeree either orally or in writing.

Committed – The intention of the offeror should be to be bound by the offer. An intent to be bound by the offer can arise through the code of conduct. For example, “This is my final offer.” It also has to be analyzed whether the alleged offer is an offer or just an invitation to offer. Auctions are the most common examples of invitations to offer.
Definite Terms- The offer that is provided by the offeree has to be in specific and definite terms. Essentials like price, manner of acceptance, timing, etc. have to be specified.

What are the different ways in which an individual can accept an offer?

The acceptance of an offer can be expressed or implied. The various ways in which an individual may accept an offer are as follows:

Instantaneous acceptance- Face-to-face conversations, virtual meetings, or any other situation where the acceptance can be communicated instantly and the contract can be entered into after the offeree has communicated his assent.
Noninstantaneous acceptance- A situation where there is an interval between the communication and the receipt of the communication by the offeror is a noninstantaneous acceptance. This may be via letters, emails, voicemail messages, and so on. This may also be known as express acceptance.
Conditional acceptance- Conditional acceptance takes place when the person to whom the offer was made will give his assent to the offer only if certain conditions and terms are added or changed. This offer then becomes a counteroffer and will be valid only if the offeror incorporates the changes.

What is the difference between an offer, a proposal, and a contract?

The part of the contract where the party agrees to do or not do something in exchange for a valid consideration is known as the offer or the proposal. The offer or proposal gives the offeree the ability to form a valid contract. In a situation where the offeree accepts the offer given by the offeror, it leads to the formation of a valid contract. Once the party has accepted the offer, the contract becomes binding, and the offeror cannot generally retract the offer. However, if the contract is not found to have a valid consideration, it is invalidated by the court. If the offeree rejects the offer of the offeror, he can no longer accept it later.

What is meant by reasonable time for acceptance of an offer?

An offer has to be accepted within the time frame that has been fixed by the offeror. In a case where there is an absence of an express or fixed time by the parties to an agreement, any time that is not considered manifestly unreasonable under the given circumstances is considered a reasonable time. For example, if there is a contract where no time for performance has been made, the court will infer a particular time for such performance. Similarly, a reasonable time is defined as the amount of time that is fairly necessary and convenient for acceptance of the offer if no time frame has been specified. The circumstances of each case – the nature, purpose, and circumstances can be different. All these factors have to be taken note of by the court when they decide on a reasonable time frame for acceptance of the offer.

What is the difference between the “mirror image rule” and the “mailbox rule”?

The mirror image rule is a legal doctrine according to which the offeree must accept the offer in the exact manner as laid down by the offeror. In other words, the acceptance by the offeree should mirror the offer, and there should be no additional or new conditions to the offer by the offeror as per common law practice. The mailbox rule, on the other hand, applies to situations in which the offeror does not lay down any specifications for the manner of acceptance that the offeree must adhere to. It is a rule that helps us determine when the offer was accepted. As per this rule, the offeree has accepted the offer as soon as he has sent communication of his acceptance to the offeror. The communication in this case may be made via emails, letters, a fax, or a telegram.

What are the different kinds of offers in contract law?

The different kinds of offers in contract law are:

General offer
Specific offer
Unilateral offer
Cross offer
Counteroffer
Express offer
Implied offer
Standing offer
Advertisements and catalogs
Invitation to treat

References

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