VI. DURATION OF THE POWER OF ACCEPTANCE

A. General strategy: For an acceptance to be valid, it must become effective while the power of acceptance is still in effect. So where there is doubt about whether the acceptance is timely: (1) pinpoint the moment at which the "acceptance" became effective; and (2) ask whether the power of acceptance was still in effect at that moment. If the answer to part (2) is "yes," the acceptance was timely.

B. Ways of terminating power of acceptance: The offeree's power of acceptance may be terminated in five main ways: (1) rejection by the offeree; (2) counter-offer by the offeree; (3) lapse of time; (4) revocation by the offeror; and (5) death or incapacity of the offeror or offeree.

1. Rejection by offeree: Normally, if the offeree rejects the offer, this will terminate his power of acceptance.

a. Exceptions: But rejection will not terminate the power of acceptance if either: (1) the offeror indicates that the offer still stands despite the rejections; or (2) the offeree states that although he is not now accepting, he wishes to consider the offer further later.

2. Counter-offer: If the offeree makes a counter-offer, his power to accept the original offer is terminated just as if he had flatly rejected the offer. (Example: On July 1, A offers to sell B 100 widgets at $5 each, the offer to be left open indefinitely. On July 2, B responds, "I'll buy 50 at $4." A declines. On July 3, the market price of widgets skyrockets. On July 4, B tells A, "I'll accept your July 1 offer." No contract is formed, because B's power of acceptance was terminated as soon as B made his counter-offer on July 2.)

a. Contrary statement: But as with a rejection, a counter-offer does not terminate the power of acceptance if either offeror or offeree indicates otherwise. (Example: On facts of above example, if B said on July 2, "I'll buy 50 from you right now for $4; otherwise, I'd like to keep considering your original offer," A's offer would have remained in force.)

3. Lapse of time: The offeror, as "master of his offer," can set a time limit for acceptance. At the end of this time limit, the offeree's power of acceptance automatically terminates.

a. End of reasonable time: If the offeror does not set a time limit for acceptance, the power of acceptance terminates at the end of a reasonable time period.

i. Face-to-face conversation: If the parties are bargaining face-to-face or over the phone, the power of acceptance continues only during the conversation, unless there is evidence of a contrary intent.

4. Revocation: The offeror is free to revoke his offer at any time before it is accepted (except in the case of option contracts).

a. Effective upon receipt: A revocation by the offeror does not become effective until it is received by the offeree. (Example: On June 15, A mails an offer to B. On July 1, A mails a revocation to B. On July 3, B has a letter of acceptance hand delivered to A. On July 5, A's revocation is received by B. B's acceptance is valid, because A's revocation did not take effect until its receipt by B, which was later than the July 3 date on which B's acceptance took effect.)

i. Lost revocation: If the letter or telegram revoking the offer is lost through misdelivery, the revocation never becomes effective.

5. Death or incapacity of offeror or offeree: If either the offeror or offeree dies or loses the legal capacity to enter into the contract, the power to accept is terminated. This is so even if the offeree does not learn of the offeror's death or incapacity until after he has dispatched the "acceptance." (Example: On July 1, A sends offer. On July 2, A dies. On July 3, B telegraphs his "acceptance." On July 4, B learns of A's death. There is no contract.)

C. Irrevocable offers: The ordinary offer is revocable at the will of the offeror. (This is true even if it states something like, "This offer will remain open for two weeks.") However, there are some exceptions to this general rule of revocability:

1. Standard option contract: First, the offeror may grant the offeree an "option" to enter into the contract. The offer itself is then referred to as an "option contract."

a. Common law requires consideration: The traditional common-law view is that an option contract can be formed only if the offeree gives the offeror consideration for the offer.

b. Modern (Restatement) approach: But the modern approach, as shown in the Restatement, is that a signed option contract that recites the payment of consideration will be irrevocable, even if the consideration was never paid.

2. "Firm offers" under the UCC: The UCC is even more liberal in some cases: it allows formation of an irrevocable offer even if no recital of the payment of consideration is made. By §2-205, an offer to buy or sell goods is irrevocable if it: (1) is by a merchant (i.e., one dealing professionally in the kind of goods in question); (2) is in a signed writing; and (3) gives explicit assurance that the offer will be held open. Such an offer is irrevocable even though it is without consideration or even a recital of consideration. (Example: Jeweler gives Consumer a signed document stating, "For the next 120 days, I agree to buy your two-carat diamond antique engagement ring for $4,000." Even though Consumer has not paid consideration for the irrevocability, and even though there is no recital of consideration in the signed offer, Jeweler's offer is in fact irrevocable for 120 days, because it is by a merchant (Jeweler professionally sells or buys goods of the kind in question), is in a signed writing, and explicitly assures that the offer will be held open.)

a. Three month limit: No offer can be made irrevocable for any longer than three months, unless consideration is given. §2-205.

b. Forms supplied by offeree: If the firm offer is on a form drafted by the offeree, it is irrevocable only if the particular "firm offer" clause is separately signed by the offeror.

3. Part performance or detrimental reliance: The offeree's part performance or detrimental reliance (e.g., preparations to perform) may transform an otherwise-revocable offer into a temporarily irrevocable one.

a. Offer for unilateral contract: Where the offer is for a unilateral contract, the beginning of performance by the offeree makes the offer temporarily irrevocable. As long as the offeree continues diligently to perform, the offer remains irrevocable until he has finished. (Example: A says to B, "I'll pay you $1,000 if you cross the Brooklyn Bridge anytime in the next three hours." Before B starts to cross the bridge, A may revoke. But once B starts to cross the bridge, A's offer becomes temporarily irrevocable. If B crosses the bridge within three hours, a contract is formed and A owes B the money. If B starts to cross, then changes his mind, neither party will be bound.)

i. Preparations: This doctrine applies only to the beginning of actual performance, not the making of preparations to perform. (Example: On facts of above example, if B went out and bought expensive walking shoes in preparation for crossing, this act would not cause his offer to be irrevocable.)

b. Offer for bilateral contract: If the offer is for a bilateral contract (i.e., a contract which is to be accepted by a return promise), the offeree's making of preparations will cause the offer to be temporarily irrevocable if justice requires. "An offer which the offeror should reasonably expect to induce action or forbearance of substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice." Rest.2d, §87(2).

i. Offers by sub-contractors: Most importantly, an offer by a sub-contractor to a general contractor will often become temporarily irrevocable under this rule. (Example: A, sub-contractor, offers to supply steel to B on a job where B is bidding to become the general contractor. B calculates his bid in reliance on the figure quoted by A. B gets the job. Before B can accept, A tries to revoke. If B can show that he bid a lower price because of A's sub-bid, the court will probably hold A to the contract, or at least award B damages equal to the difference between A's bid and the next-lowest available bid. But observe that B, the offeree, is not bound, so B could accept somebody else's sub-bid.)