Revocation (Is the Offer Still Open?)
The rule for revocation is that an offer may usually be revoked by the party who made the offer at any time until the offer has been accepted. You should carefully note that if a revocation is valid, there is no ability to accept the offer. So bear in mind that a revocation is generally effective at the time it is received.
When an offer is made to a group of people, such as through a newspaper ad, it may be revoked through an equal means of publicity or any better means, like direct contact, even though it may be unlikely in the case of an advertisement.
Some offers are not freely revocable. These include the following:
1. Options Contracts – generally must be "paid for." In other words, for the option to be valid, the Optionor must pay a separate consideration specifically for the option, even if it is a small amount. However, make sure that you consider “detrimental reliance.” If no separate consideration is paid to the Optionee, the Optionee may still be required to live up to the terms of the option, if he knows of the option and the Optionor has reasonably relied on the option to his detriment.
2. UCC Firm Offer Rule (2-205) – when a merchant makes a written, signed offer to buy or sell goods including a promise to hold the offer open, the offer is irrevocable for the period stated, not to exceed three months. A merchant is one who deals in the kind of goods involved or holds himself out as having special knowledge or skills relating to the goods involved. Here is a good reason to have already determined if the common law or the UCC applies (Applicable Law).
3. Unilateral Contract (e.g. I promise to pay you $1,000 if you ride your tricycle all the way from San Diego, California, to Bangor, Maine) – Is it revocable at any time prior to full performance? For instance, what happens if you begin your journey and I track you down in St. Louis and tell you that I revoke? Are you entitled to all or part of the $1,000? The majority rule (Restatement 45) is that once the offeree has begun performance, the offer becomes irrevocable for a reasonable time to allow the offeree to complete performance. Some jurisdictions (Restatement view) call this an option contract – the offer is irrevocable, but the offeree does not have to complete performance. Some jurisdictions say that a bilateral contract is formed by the beginning of performance and the offer is irrevocable, but the offeree must complete performance or else he is in breach.
Note that the beginning of performance is that which goes beyond mere preparation and the act specified has begun, but watch for detrimental reliance.
I mentioned detrimental reliance, above, so let me explain it in more detail here. If an offeror makes an offer to someone that he knows, or should reasonably know, will be irrevocable for a period of time, then such an offer is deemed irrevocable, if necessary, to prevent detrimental reliance by the offeree. Modern courts will allow the offer to be irrevocable for a reasonable time if the offeree reasonably relied on the promise to his detriment and if such reliance was reasonably foreseeable by the offeror.
Next we’ll look at “Acceptance.”
Professor Doug Holden
© 2010 Douglas S. Holden. All Rights Reserved.