Contract Law: Termination of an Offer

A valid contract must consist of an offeracceptance, and consideration. But once an offer is made, what determines the conditions of acceptance? How long can the offeree wait to accept before the acceptance is no longer valid?

Put simply, an offer is open, the acceptance of which creates a binding agreement (assuming there is sufficient consideration), until it is terminated. There are four ways for the termination of an offer to occur, which means that there can be no acceptance and no contract: lapse, revocation, rejection, and death or incapacity.

Lapse

An offer may lapse according to its express terms, or after a reasonable amount of time—depending on how the offeror structures the offer. For example, the offeror may indicate that she is willing to sell her prized Cabbage Patch Kid for $100, offer to remain open until noon the following day. In that case, the offer must be accepted by noon or it lapses. Once the offer lapses, it cannot be accepted.

If no specific time frame is set, then it lapses after a “reasonable” amount of time. What is or is not reasonable will depend on the circumstances. If an offer is made in person or over the phone, typically a reasonable time to respond will be shorter than if an offer is made via mail.

Revocation

Revocation is a withdrawal of the offer. Revocation can only be done by the offeror, and it can only be done before acceptance. Thus, the same person who first makes an offer to enter into a contract can change his or her mind and revoke the offer, foreclosing the possibility of a contract, but only if the revocation occurs prior to an acceptance.

Revocation is effective when received, whereas an acceptance is effective when sent, which means that if a revocation of an offer and an acceptance of an offer cross paths in the mail, the acceptance will control, and the contract will be formed (assuming consideration), even if the revocation was sent before the acceptance was.

There are no magic words required for a revocation to be effective. In fact, no words have to be spoken at all. A revocation can be effective through actions as well. If the Cabbage Patch Kid owner from above offered to sell the doll for $100, offer to remain open until the next day, but then the offeree discovers before the deadline that the Cabbage Patch Kid had been sold to someone else, this is an effective revocation.

Rejection

Rejection is just what it sounds like, and it can only be done by the offeree. Some rejected offers are more obvious than others.

Offer: I will sell you my Cabbage Patch Kid for $100.

Rejection: No thanks.

Other rejections are more subtle. For example, a counter-offer is a rejection:

Offer: I will sell you my Cabbage Patch Kid for $100.

Rejection: I’ll give you $75 for it.

Once an offer is rejected, either through flat acceptance or via a counter-offer, it cannot later be accepted. A new offer must be made.

Death or Incapacity

If the offeror dies or is incapacitated, it works as a revocation, and the offer is terminated. Similarly, if the offeree dies or is incapacitated, it amounts to a rejection, and the offer is terminated by operation of law.

However, an offeree may purchase the offeror’s power to revoke—known as an option contract—which keeps an offer open for the stated period even if the offeror dies or is incapacitated.

As long as the offer has not been terminated, it can be accepted. Once it has been terminated, it cannot be accepted unless a new offer is made.

 

Zachariah B. Parry is an attorney and founding partner at the law firm Parry & Pfau and is an adjunct professor who teaches torts, contracts, and Nevada practice and procedure for UNLV’s paralegal program. He can be reached at 702-912-4451 or zach@p2lawyers.com.