Termination of the Offer

Class 6 asked when an offer comes into being. This class asks the opposite question: once an offer exists, how does it die? An offer is fragile by default. It confers a power of acceptance on the offeree, but that power does not last forever, and most offers dissolve without ever ripening into a contract. We build the map of how offers terminate, then mark the exceptions that hold an offer open even against an offeror who wants to take it back.

The four ways an offer terminates

R2d § 36. An offeree’s power of acceptance may be terminated by (a) rejection or counter-offer by the offeree, (b) lapse of time, (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree. Each branch has its own elaborated rule. Think of § 36 as the death list for offers: any offer you ever analyze ends one of these four ways unless and until it is accepted.

Rejection and counter-offer. Under R2d § 38, a rejection terminates the power of acceptance unless the offeror has manifested a contrary intention. Rejection need not be explicit; it can be inferred from words or conduct from which the offeror is justified in inferring that the offeree does not intend to accept or to take the offer under further advisement. Under R2d § 39, a counter-offer operates as a rejection: it terminates the original offer and substitutes a new one. A mere inquiry or request to negotiate, by contrast, does not kill the offer. The line that matters is between a move that is inconsistent with going forward on the original terms and one that merely keeps the conversation open.

Lapse and death. An offer left open without a stated deadline lapses after a reasonable time. Death or incapacity of either party terminates the offer automatically, without notice, because there is no longer a person able to be bound.

Revocation and when an offer cannot be revoked

R2d § 42. An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. The default is that an offeror may revoke at any time before acceptance, but the revocation must reach the offeree. R2d § 43 adds that revocation can be indirect: the power of acceptance ends when the offeror takes definite action inconsistent with an intention to enter the contract and the offeree acquires reliable information of that action (for example, learning that the house has been sold to someone else).

The exceptions to free revocability are the heart of the next move. R2d § 45 provides that where an offer invites acceptance by performance and does not invite a return promise, an option contract is created once the offeree tenders or begins the invited performance. The offeror can no longer revoke mid-stride, though the offeree remains free to walk away. R2d § 87 holds an offer open as an option contract where consideration supports it or where the offeror should reasonably expect to induce reliance before acceptance and the offeree does so rely. These are the life-support exceptions to the § 36 death list.

Cases

Smaligo v. Fireman’s Fund Insurance Co. anchors rejection by conduct. After their daughter was killed by a hit-and-run driver, the Smaligos made an uninsured-motorist claim, and the insurer offered to settle while stating that arbitration was the alternative if the offer was unacceptable. Before accepting, the Smaligos demanded arbitration. When the arbitrator awarded far less, they tried to accept the original settlement. The Pennsylvania Supreme Court held they could not: demanding arbitration was conduct inconsistent with acceptance, so it operated as an implied rejection under R2d § 38 and terminated the offer. The lesson is that a strategic counter-move can extinguish an offer just as surely as the words “no thanks.”

What you should be able to do

Apply R2d § 36 to identify which of the four methods terminated a given offer. Distinguish a rejection or counter-offer (R2d §§ 38, 39) from a mere inquiry that leaves the offer alive. Determine when a revocation, direct or indirect, becomes effective under R2d §§ 42 and 43. And recognize the two settings where an offer resists revocation, the part-performance option of R2d § 45 and the reliance-based option of R2d § 87. The next class carries the termination map forward into revocation’s firm-offer exceptions and the start of acceptance doctrine.