2.2 Termination & Irrevocability of Offers

Termination & Irrevocability of Offers

I. Termination of the Power of Acceptance

Once an offer is communicated, the offeree's power of acceptance remains alive until terminated. An offer terminates through any of the following seven methods:

                    ┌────────────────────────────────────────┐
                    │ Methods of Terminating an Offer        │
                    └───────────────────┬────────────────────┘
                                        │
         ┌────────────────┬─────────────┴──────┬────────────────┬──────────────┐
         ▼                ▼                    ▼                ▼              ▼
    Revocation        Rejection           Counteroffer      Lapse of Time  Operation of Law
 (Direct/Indirect) (Words/Conduct)    (New Offer vs Inquiry) (Stated/Reason) (Death/Destruct/Illegal)

1. Revocation by the Offeror

An offeror may revoke an offer at any time prior to acceptance. Revocation is effective only upon receipt by the offeree (or when it comes into the offeree's possession).

• Direct Revocation: Affirmative communication from offeror to offeree terminating the offer.
• Indirect Revocation (Dickinson v. Dodds): The offer is terminated if the offeree receives reliable information from a third party that the offeror has taken definite action inconsistent with an intention to enter into the proposed contract (e.g., learning from a reliable broker that the property was sold to another).

2. Rejection by the Offeree

An express refusal or manifestation of intent not to accept the offer terminates the power of acceptance. A rejection is effective strictly upon receipt by the offeror.

3. Counteroffer vs. Mere Inquiry

• Counteroffer: A response to an offer that proposes a substitute bargain differing from that proposed by the original offer. A counteroffer operates as an immediate rejection of the original offer and terminates the power of acceptance, while creating a new offer.
• Mere Inquiry / Request for Clarification: An inquiry regarding whether alternative terms might be acceptable does not reject or terminate the offer (e.g., "Would you consider $4,500?" vs. "I will pay $4,500, not $5,000"). An offeree can preserve the original offer while negotiating by explicitly stating: "I reserve the right to accept your original offer, but would you take $4,500?"

4. Lapse of Time

An offer lapses if not accepted within the time specified in the offer. If no deadline is stated, the offer lapses after a reasonable time under the circumstances. Face-to-face or telephone conversations are presumed to lapse at the end of the conversation unless a contrary intent is indicated.

5. Operation of Law

An offer terminates automatically without notice upon:

• Death or Incapacity of either the offeror or the offeree prior to acceptance (even if the offeree has no knowledge of the death). Note: Death does not terminate an existing option contract or an already formed contract.
• Destruction of the Subject Matter essential to the performance of the proposed contract.
• Supervening Illegality rendering the proposed transaction unlawful prior to acceptance.

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II. Irrevocable Offers (The Four Exceptions)

At common law, the offeror is "master of the offer" and may freely revoke at will before acceptance—even if the offeror expressly promises to keep the offer open. However, four critical doctrines render an offer legally irrevocable:

1. Option Contracts Supported by Consideration

A distinct contract in which the offeror agrees to hold an offer open for a specified duration in exchange for separate consideration.

• Requirement: Must be supported by independent consideration (even nominal consideration, such as $10 or $1, satisfies the majority rule).
• Critical Exam Rule: Rejection or counteroffer by the offeree during the option period does not terminate the option! The offeree retains the absolute legal right to accept the original offer until the option period expires, unless the offeror detrimentally relied on the offeree's rejection.

2. UCC § 2-205 Merchant's Firm Offer Rule

Under UCC Article 2, an offer to buy or sell goods can be irrevocable without consideration if four strict statutory elements are satisfied:

1. Merchant Offeror: The offeror must be a merchant (a person who deals in goods of the kind or otherwise holds themselves out as having knowledge or skill peculiar to the practices or goods involved);
2. Signed Writing: The offer must be in a writing signed (or authenticated) by the merchant offeror;
3. Assurance of Openness: The writing must give explicit assurance that the offer will be held open; AND
4. Three-Month Statutory Cap: The offer is irrevocable for the time stated, or if no time is stated, for a reasonable time, but in no event may such period of irrevocability exceed three months (90 days) without separate consideration.

[!WARNING] The Three-Month Trap on the FYLSE: If a merchant's signed writing promises to hold an offer open for six months without consideration, the offer is not void. Rather, it is legally irrevocable for the first three months. After three months, the offer does not automatically expire; instead, it simply becomes a standard revocable offer that the merchant can revoke at any time prior to acceptance.

Form Supplied by Offeree: If the firm offer clause is contained on a form supplied by the offeree, UCC § 2-205 requires that the clause be separately signed or initialed by the offeror to prevent unfair surprise.

3. Detrimental Reliance / Promissory Estoppel (Restatement § 87(2))

An offer becomes irrevocable as an option contract if:

1. The offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance; and
2. The offer actually induces such action or forbearance; and
3. Injustice can be avoided only by enforcement of the offer.

Classic Exam Paradigm (Drennan v. Star Paving Co.): A general contractor relies on a subcontractor's bid to compute a prime construction bid submitted to a project owner. Once the general contractor submits the prime bid, the subcontractor's bid is held irrevocable for a reasonable time after the prime contract is awarded.

4. Part Performance of a Unilateral Contract (Restatement § 45)

A unilateral contract is an offer that can be accepted only by full performance of the requested act, rather than by a return promise.

• Restatement (Second) of Contracts § 45: Once the offeree begins performance (tenders or begins the requested act), an option contract is created by operation of law. The offeror is precluded from revoking the offer for the time stated or a reasonable time.
• Rights and Duties: The offeree is not bound to finish the performance and incurs no breach liability if they abandon the task. However, the offeror's duty to pay remains conditional upon the offeree's full completion of the requested performance.
• Mere Preparation vs. Part Performance: Acts of mere preparation (e.g., purchasing paint or checking flight schedules) do not trigger Restatement § 45 protection. However, preparation may trigger reliance relief under Restatement § 87(2) promissory estoppel if substantial and foreseeable.

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III. Doctrinal Comparison: Common Law vs. UCC Formation Rules