Legal terms you need to know
- Rejection: The offer is not accepted
- Revoke: The offeror may withdraw (revoke) an offer (usually before it is accepted)
- Termination: This is when an offer is ended
- Counter-offer: The original offer may be rejected and the offeree may make a revised offer.
- Material subject: This is the main subject of the contract. It may be an action or an item. It is the main reason for the contract to exist.
Revoking an offer
Normally a legally binding offer can be revoked (withdrawn) at any time before it has been accepted. The offeror must communicate the withdrawal of the offer (revocation) to the offeree (the party who has the option to accept the offer) before they have accepted it. The offer ends when it has been communicated to the other party. Once the withdrawal of the offer has been communicated to the offeree, the offer is no longer valid or legally enforceable. This may be true even if there has been a promise to keep an offer open for an amount of time.
Firm offers are for a set period of time and cannot be withdrawn within the time stated in the offer. To be valid a firm offer must be:
- Made by a trader
- In writing
- State the amount of time the offer will be held open.
Lapse of time
When the terms of an offer do not state the amount of time the offer is open for, it will be valid for a ‘reasonable’ amount of time. What is ‘reasonable’ will depend on:
- The subject of the offer. E.g Offers regarding flowers or perishable goods cannot be expected to be valid for days.
- Common standards of time that are normal for the type of merchandise.
- Whether the parties have dealt with each other before and have a set norm for similar offers.
- The method of communicating the offer and acceptance. E.g. By telephone would be much quicker than a postal offer/acceptance process.
If the offer clearly states the duration of the offer then it will end at the period stated. If the offeree wants to take up the offer after this period they will have to renegotiate the agreement. A problem arises when the offeror is trying to revoke (end) an offer and the offeree is in the process of accepting the offer. Generally, the revocation of an offer does not apply until it has been ‘received’ by the offeree. This means that a letter notifying that an offer has been revoked may have been sent but before it arrives the offeree has accepted the offer. As the notice of revocation of the offer had not yet been received by the offeree then the offer is still valid.
Rejection and counter-offer
An offeree may reject an offer at any time. When they reject the offer, the offer is immediately ended. There are two types of rejection:
- Express rejection: This is where the offeree clearly indicates their rejection of the offer by some form of firm action. This may be oral, in writing etc.
- Implied rejection: If any material (main) terms of the offer are changed then it is considered to be a counter-offer.
A counter-offer is made when the offeree makes a change to the ‘material subject’ of the offer. When a counter-offer is made by the offeree the original offer is automatically ended.
Offer and Counter Offer Example:
- Peter (The offeror): “I’ll paint your fence for $500” (This is the original offer).
- Ann (The offeree): “How about $450?” (The original offer has been rejected and has now ended).
- Ann now becomes the offeror as she has made a counter-offer at a lower price of $450.
- Peter is now the offeree and has the option to accept or reject the revised offer from Ann.
- Peter (Now the offeree – accepts Ann’s revised offer): “OK, I’ll start after lunch”.
Other reasons for terminating a contract
- Death: The death of one of the parties will end the agreement if it was made between two individuals.
- Insanity: If either party is found to be insane at the time of entering into a contract they lack the ‘capacity’ to contract (See ‘Capacity to contract’ in a later article) the contract is terminated without notice.
- Loss or destruction of the material subject: If the main subject of the contract (the material subject) is destroyed before the offer is accepted then the offer is automatically terminated.
- Illegality: If the material subject of the offer becomes illegal (due to new or revised laws) before it is accepted the offer is automatically terminated.
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