8. When does an offer to contract terminate?
An offer to contract terminates at the following times or under the following conditions:
• Specific Provision – An offer may include a specific provision detailing how long an offer will stay open and the conditions under which it terminates.
• Lapse of Time – Unless the offer states otherwise, an offer terminates after a reasonable period of time. A reasonable period of time will vary depending upon the type of contract.
⁃ Example: An offer to sell bananas will terminate more quickly than an offer to sell cement.
• Offeree’s Rejection – An offer terminates if the offeree receives the offer and rejects it. Once the offeree rejects the offer, she cannot come back later and accept the offer. Any attempt to do so may constitute a new offer to the original offeror.
• Counter Offer – If an offeree makes a counter offer or counter proposal in response to an offer, the original offer terminates. This is the case with negotiations. If a party attempts to negotiate new or additional material terms to the offer, the original offer terminates. Attempting to offer ancillary or non-material terms may not terminate the offer.
• Revocation by Offeror – Generally, the offeror may revoke an offer at any time before the offeree accepts it. If the offeree has already accepted the offer, a valid contract exists and an attempt to revoke the offer may constitute breach of the contract.
⁃ Note: There are certain offers, known as “firm offers”, that state that the offer cannot be revoked for a certain period. This type of offer is a form of contract in itself.
• Destroy Subject Matter of Contract – An offer terminates if, before the offer is accepted, the property that is the subject of the offer is destroyed. If the offer has already been accepted, this could serve to void the contract.
• Death or Mental Incapacity – If the offeror dies or loses mental capacity at any time before an offer is accepted, the offer is revoked.
⁃ Note: The offer does not become effective again if the offeror regains mental capacity.
• Illegality – An offer terminates if the subject of the offer (the activity or product) becomes illegal. If the offer has been accepted, the subject matter becoming illegal will void the contract.
Some of the methods of contract termination are voluntary, while others others are a result of circumstances beyond the control of the parties.
• Discussion: Do any of the common methods by which an offer terminates surprise you? What factors should a court consider when determining whether a “reasonable time” has passed? What factors should the court consider in determining whether an offeree has been rejected? Does the rule regarding counter-offers discourage negotiation? Why or why not?
• Practice Question: Dudley is interested in purchasing an ownership interest in Sarah’s business. Sarah sends over a term sheet that places a specific value on her business and offers a specific number of shares. Dudley reviews the sheet and sends back a sign subscription agreement that lists a lower valuation, but agrees to buy a larger number of shares. The total purchase price for all shares would equal the amount indicated in Sarah’s term sheet. Sarah writes back and says that she will work with other investors. Dudley is angry and wants to sue for a breach of contract? What is the likely outcome?