Offers and Revocation: A Closer Look at the Legalities

You have just made an offer to buy a property; then you realise that another property down the street is selling 10% cheaper. Can you revoke the offer? Yes, if you can make and communicate your valid revocation to the offeree in time.

Businesses make contract offers to other businesses and consumers on a daily basis. Markets and industries can be volatile, however. Offers made, that were at the time of making competitive and profitable, can quickly become unprofitable for businesses. To avoid having to perform obligations under this unprofitable contract, you may be inclined to revoke the offer their business has made.

This article will provide you with a comprehensive overview of revocation of offers and will cover the following:

• What is an offer?

• Who are the offeror and offeree?

• What is a revocation of an offer? 

• Can an offeror revoke an offer made to an offeree?

• Revocation of unilateral contract offers.

• Other ways to terminate an offer.

This article will conclude by providing you with template letters of termination of an offer to help you successfully navigate your business life.

What is an offer? 

An offer is a proposal of terms by one party based on which he/she is willing to enter into an agreement with another party. An offer is a necessary element for the formation of a valid, enforceable contract.

Who is the offeror and offeree?

The party who makes the proposal of terms is called the ‘offeror’. The party to whom the offeror makes the proposal of terms is called the ‘offeree’.

The offeree must decide whether or not to accept the offer. If the offeree accepts the offer, both the parties enter into a binding legal contract. Both parties are thereafter legally bound by the contract’s terms and must perform all the obligations stated therein.

What is a revocation of an offer? 

Revocation refers to when an offeror takes back or withdraws an offer that had been previously made to an offeree.

Revoking has the effect of terminating the offer. Upon termination, the offer can no longer be accepted by the offeree. As the offer cannot be accepted by the offeree, no enforceable contract can be formed.

Can an offeror revoke an offer made to an offeree?

Yes, an offeror can revoke an offer made to an offeree.

For a valid revocation, however, the revocation must meet certain conditions and comply with certain rules:

1. The revocation must be made by the offeror before acceptance by the offeree

2. The revocation must be communicated to the offeree before acceptance

3. Even if the offeror states that the offer is to remain open for a certain period of time, the offeror can still revoke the offer so long as the offeree has not accepted the offer yet.

Let’s explore each of these rules in some more detail.

1. The revocation must be made by the offeror before acceptance by the offeree

When an offeree accepts an offer, a binding legal contract comes into existence with both parties subject to legally binding obligations.

Any revocation by an offeror following the coming into existence of such a contract will constitute a breach of contract by the offeror. In such a case, the offeror may be left liable to pay damages to the offeree.

2. The revocation must be communicated to the offeree before acceptance

Such communication to the offeree need not be made by the offeror personally. It can also be made by a third party on behalf of the offeror.

If an offer is made to the world at large, for revocation, the offeror should communicate revocation using the same form as that used to communicate the offer.

It is important to note that the revocation only becomes effective when the offeree actually receives the communication. For instance, if a revocation is communicated by post, the revocation will only become effective when the offeree actually receives the letter of revocation.

3. Even if the offeror states that the offer is to remain open for a certain period of time, the offeror can still revoke the offer so long as the offeree has not accepted the offer yet

The offeror can revoke such an offer, even though it is stated to remain open for a period of time because no consideration has been given to this obligation to keep the offer open.

Consideration is a key requirement for a valid, binding contract. Consideration demands that something of value is given by each party in exchange for the other party undertaking the obligations as stated in the contract.

The offeror, in this case, provides consideration - in the form of the obligation to keep the offer open for the specified period of time. The offeree, however, does not offer any consideration.  

However, if consideration is provided by the offeree to keep the offer open for the specified period of time, then the offer cannot be revoked by the offeror.

In this case, the requirement for consideration would be fulfilled and there would be a binding contract and corresponding contractual obligation on the offeror to keep the offer open for the specified period of time.

These agreements, obliging an offeror to keep open an offer for a specified period of time, are often called ‘options’ contracts.

For general guidance, the consideration provided by the offeree need not meet any threshold to validly constitute consideration. In other words, even the most minimal consideration – such as the payment of $1 by the offeree to the offeror will be sufficient.

Options contracts are used when a person is considering entering into a contract but wants to conduct further due diligence or investigation before doing so. An options contract preserves the opportunity to enter into the contract whilst they conduct this due diligence.

Revocation of Unilateral Contract Offers

What is a unilateral contract?

A unilateral contract is a contract in which the offeror undertakes an obligation without any corresponding obligation undertaken by the offeree.

In unilateral contracts, the offeror undertakes an obligation to perform in return for some act by the offeree. The offeree does not legally have to perform this act and cannot be forced to do so.

If the offeree does, however, choose to perform the act and completes the performance of the act, the offeree accepts the offer, and a unilateral contract is formed. At this stage, a legally binding contract is formed between the offeror and offeree.

Further information on unilateral contracts is outside of the scope of this article. For further information, you can refer to our dedicated article on unilateral contracts, which can be found at the following address: https://docpro.com/blog66/what-is-a-unilateral-offer-how-does-an-offeree-accept-an-offer-unilaterally

Revocation of unilateral contract offers:

The same general rule applies to the revocation of unilateral contract offers. The offeror can revoke an offer for a unilateral contract before acceptance by the offeree.

With unilateral contract offers too, the revocation must be communicated by the offeror to the offeree.

Unilateral contract offers can be made to specific individuals. In such a case, the revocation must clearly be communicated to this individual.

Unilateral contract offers can also, however, be made to the world at large. In such a case, the offeror needs to communicate the revocation in the same form as used to communicate the offer.

For instance, if a police station makes an offer for $10,000 if someone provides information leading to the arrest of a criminal, by posting flyers around town, a notice of revocation should take the same form. Notice of revocation should also be posted as flyers around town.

An offeror cannot revoke an offer for a unilateral contract if the offeree has begun the performance of the act as specified in the offer. So, for instance, if you offered someone $10,000 to climb up Big Ben, once that person has begun climbing, it is not possible for you as the offeror to revoke your offer to give them $10,000.

Other ways to terminate an offer

Apart from revocation, an offer made by an offeror to an offeree can terminate in the following ways:  

1. Lapse of time

2. Rejection of the offer by the offeree

3. Nonfulfillment of any conditions precedent

4. Death of offeror

5. Mistake

1. Lapse of time

An offer can terminate following a lapse of time. The amount of time which must pass for such termination depends on whether the offer is stated to be open for a certain period of time by the offeror or not.

The offer might be stated by the offeror to be open for acceptance for a certain period of time. In such a case, following the passage of this stated period of time, the offer will terminate.

If there is no set time period for which the offer is to remain open for acceptance, then the offer will terminate after a reasonable period of time. What constitutes a reasonable period of time is a question of fact. It will be influenced by the contract at issue and other circumstances at hand.

2. Rejection of the offer by the offeree

An offer can be terminated if the offeree rejects the offer.

Such rejection may take many forms including:

(i)   Express rejection by the offeree

(ii)  Counter-offer by the offeree

(iii) Conditional acceptance by the offeree

(i) Express rejection

Express rejection is where an offeree explicitly communicates his/her non-acceptance of the offer.

The offer is terminated when such acceptance is communicated to the offeror.

(ii) Counteroffer

For an offeree to effectively accept an offer made to them, the offeree must accept the offer based on the exact terms of the offer. If an acceptance is made which does not match the exact terms of the offer, then it will not be treated as an acceptance, but rather as a counteroffer. This counteroffer terminates the original offer.

The making of a counteroffer must be distinguished from a situation where an offeree merely requests further information with regards to the offer. If the offeree is deemed to be doing the latter, this does not constitute a counteroffer and the original offer is not terminated.

(iii) Qualified or conditional acceptance:

A conditional acceptance is an assent to the terms of the offer if certain conditions are fulfilled. Such conditional acceptances generally constitute counteroffers.

Conditional acceptances constitute counter offers because the acceptance does not match the exact terms of the offer. It accepts the terms of the offer subject to certain changes or variations.

As such, conditional acceptances generally terminate offers. Thereby, the original offer cannot be subsequently accepted by the offeree.  

3. Nonfulfillment of any conditions precedent

If an offer is made by an offeror subject to particular conditions being fulfilled, and those conditions are not fulfilled, then the offer will terminate. Upon termination, the offeree will no longer be able to accept it.

4. Death of the offeror

Generally, the death of the offeror will terminate an offer and make it unacceptable to an offeree. In some cases, however, if an offeree accepts an offeror without knowledge of the offeror’s death an offer may not be terminated.

Generally, offers for unilateral contracts also terminate upon the death of the offeror. This is unless the offeree has already begun performance of the act which would constitute acceptance of the offer before the death of the offeror. In such a case, the contract is binding on the offeror’s estate.

5. Mistake

If you have clearly made a mistake in your offer (e.g. including an extra zero in your offer), you can argue that it is a genuine mistake and your offer is not binding. It depends on the facts and circumstances as not all cases of mistake are strong enough to revoke an offer.

Securities dealers famously have the "fat finger" issue where they may have punched in an extra number by mistake. Many are still bound by these trades once they have been transacted on the exchange.  

FREE TEMPLATES:

DocPro offers templates for the termination of a variety of different offers.  

You can find links to these templates below:

You can find and select a template rejection of a product offer/quotation at the following web address:

https://docpro.com/doc663/rejection-of-product-offer-quotation-general

You can find and select a template letter to reject a product order at the following web address:

https://docpro.com/document-form-select/Rejection%20of%20Product%20Order

Disclaimer: Please note that this is a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may be different, you may wish to consult your lawyer.