Offers may be terminated in any one of the following ways: Revocation of the offer by the offeror; counteroffer by offeree; rejection of offer by offeree; lapse of time; death or disability of either party; or performance of the contract becomes illegal after the offer is made.
The general rule is that the revocation is effective only when it is made known to the offeree. Until it is communicated to the offeree, directly or indirectly, the offeree has reason to believe that there still is an offer that may be accepted. The offeree may rely on this belief. If the offeror seeks to revoke the offer, but the offeree accepts the offer before notice of the revocation, a valid contract is created.
A conditional acceptance is a counteroffer. For example, if Jones accepts the $10,000.00 price, but adds a term by stating that new tires must be put on the car, this is a conditional acceptance and therefore a counteroffer.
A rejection terminates an offer. A rejection is an offeree’s communication that an offer is unacceptable.
When an offer states that it will be open until a particular date, the offer terminates on that date if it has not yet been accepted. This is particularly clear when the offeror declares that the offer shall be void after the expiration of a specific time. If the time passes, and the offeree attempts to accept the offer, this is in effect a counteroffer from the offeree and can be accepted or rejected by the offeror.
If the offer does not specify a time, it will terminate after a reasonable period of time has passed. What constitutes a reasonable time depends on the circumstances of each case. For example, if the commodity to be sold or purchased is a perishable commodity, such as food, the reasonable time would be shorter than if the matter to be sold is machinery.
If either the offeror or the offeree dies or becomes mentally incompetent before the offer is accepted, the offer is automatically deemed to be terminated.
If the performance of the contract becomes illegal after the offer is made, the offer is deemed to be terminated. For example, if there is an offer made to sell alcoholic beverages to a store, but a city ordinance is passed prohibiting the sale of alcoholic beverages before the offer is accepted, the offer is terminated.
If the offeror does not otherwise specify, a mailed acceptance takes effect when the acceptance is properly mailed. This is known as the “Mailbox Rule.” If the offeror specifies that an acceptance shall not be effective until received, there is no acceptance until acceptance is received. The Mailbox Rule also would not apply in a situation where the offeror requires receipt of a payment to accompany an acceptance. Improper mailing of an acceptance can cause the acceptance to take effect only when received.
Smith owned land. Jones mailed an offer to Smith to buy his land. Smith agreed to this offer and mailed back a contract signed by him. While this letter was in transit, Smith orally notified Jones that his acceptance was revoked. Was Smith bound by a contract? Yes, since the acceptance was effective when mailed. Subsequent revocation had no effect.