Revocation

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R § 36

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Methods of Termination of the Power of Acceptance:
1. Rejection or counter-offer by the offeree
2. Lapse of time
3. Revocation by the offeror (still liable for reliance damages)
4. Death or incapacity of the offeror or the offeree

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Offer Rejected by the Offeree’s Rejection – R § 38

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R § 38 (Takes into account the intention of the parties)
• If the offeree rejects the offer, his power of acceptance is terminated unless:
1. the offeror indicates that the offer still stands in spite of rejection
2. the offeree states that he has an intention to take it under ‘further advisement’

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Counter-Offer and Termination of the Power of Acceptance

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• If the offeree makes a counter-offer, his power to accept the original offer is terminated as if he had rejected it.


***Remember, the offeree’s power of acceptance is terminated only when his response is a true counter offer rather than a qualified acceptance of the sort referred to in 2-207(1). (?)

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Times when a counter-offer doesn't terminate the power of acceptance (exceptions)

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1. A counter offer does not terminate the power of acceptance if either the offeror or the offeree indicates otherwise.
2. If the offer is irrevocable, a counter offer will not terminate the offeree’s power of acceptance. (ie. Option contract)
3. If the offeree merely makes an inquiry about changing the terms of the offer, he has not made a counter offer, but merely a counter inquiry and acceptance is not terminated.

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Minneapolis RR v. Columbus Rolling Mill

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{Nature and Effect of Counter Offer}
o P was an RR and D was steel manufacturer. D’s offer had an upper and lower limit, which P’s qualified acceptance didn’t meet. When D wouldn’t fill P’s original requested order, P tried to accept again w/in the original upper and lower limit offered by D.
o HOLDING: P’s qualified acceptance was a counter-offer which D was free to accept or reject. P’s second acceptance doesn’t count b/c you can’t revive a previous offer after it has been revoked – you have to go back to square one.

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Lapse of Time as revocation

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Offeror is master of his offer, he can set a time limit for acceptance. R§41(1): at the end of the time period, the offeree’s power of acceptance is automatically terminated.
• Expiration after reasonable time period if the offer does not set a time limit for acceptance.
o Question of fact- court must determine what a reasonable time for acceptance is as a question of fact, “depending on all the circumstances existing when the offer and attempted acceptance are made.”
• Bargaining face to face or over the phone- the power of acceptance continues only during the conversation, unless the parties’ words or actions indicate that they intend the power of acceptance to continue.
• Offers sent by letter or telegram- written offer provides that the power of acceptance will continue for a specified period of time, that period is usually measured from the time the offer is received, not the time it is sent.

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Revocation by the Offeror

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The offeror is free to revoke his offer at any time before it is accepted (except in the case of an option contract).
--Revocation is effective upon receipt of offeree §42
o Receipt of revocation- effective when it comes into his own possession, the possession of someone authorized to receive it for him, or when it is put into his mailbox. UCC approach is the same.
o Lost revocation becomes ineffective
o Revocation of general offer (via newspaper)- revocation will be effective even if one of the potential offerees does not learn about it and acts in reliance on the offer. §46
--Indirect communication of revocation is sufficient when offeror behaves in a way inconsistent with an intention to enter the contract she has proposed and the offeree learns indirectly
o There is an indirect revocation where offeree learns of offer made to third party and the offeree learns that the offeror has taken a definite step inconsistent with the proposed contract.
o The offeree acquires reliable information to that effect which indicate to a reasonable person that the offeror no longer wishes to make the offer. §43

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Receipt of revocation

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Effective when it comes into his own possession, the possession of someone authorized to receive it for him, or when it is put into his mailbox. UCC approach is the same

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Indirect communication of revocation

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Indirect communication of revocation is sufficient revocation when offeror behaves in a way inconsistent with an intention to enter the contract she has proposed and the offeree learns indirectly
o There is an indirect revocation where offeree learns of offer made to third party and the offeree learns that the offeror has taken a definite step inconsistent with the proposed contract.
o The offeree acquires reliable information to that effect which indicate to a reasonable person that the offeror no longer wishes to make the offer. §43

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Death or incapacity of offeror or offeree

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• If either the offeror or the offeree dies, or if either loses the legal capacity to enter into the contract, the power to accept is terminated.
o This is so even if the offeree does not learn of the offeror’s death or incapacity until after he has dispatched an acceptance. §48.

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LIMITATIONS to Revocation and Irrevocable Offers

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1) Option contracts
2) Firm Offers Under the UCC
3) Detrimental Reliance (temporary)
4) Part Performance (temporary)

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Dickinson v. Dodds (as it relates to Indirect Revocation)

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(Indirect Revocation communicated by 3rd party) - Reliable 3rd party bc it was P's agent

Facts:• D signed and delivered a memo to P, agreeing to sell P property; disclaimer that offer was to be left open until Friday at 9 am; P was told that D had been offering or agreeing to sell his property to another person; left a letter at his house, but D didn’t get it; went to see him in person that Friday, but D replied it was too late, he had already sold the property. P sued for specific performance.

Holding: No recovery for P bc there had been an indirect revocation where the information is communicated to the offeree by a third party
• Based on objective theory, it is unreasonable for him to think that the offer still exists after hearing the news; land can’t be sold to more than one person.

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Option Contracts (as a limitation to revocation)

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offeror grants the offeree an option to enter into the contract; an irrevocable offer! {Restatement §25- An option contract is a promise which meets the requirement for the formation of a contract and limits the promisor’s power to revoke an offer.}
o Must be exercised before term expires
o Mail box rule does not apply to an option contract

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3 Types of Option Contracts

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• Paid-for
• Those created by part performance (Sec. 45)
• Those created from reliance (Drennan and Sec. 87(2))

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Dickinson v. Dodds:
look at the fact that no option contract was formed bc there was no consideration

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{Not an option contract because no consideration}

Facts:
• D signed and delivered a memo to P, agreeing to sell P property; disclaimer that offer was to be left open until Friday at 9 am; P was told that D had been offering or agreeing to sell his property to another person; left a letter at his house, but D didn’t get it; went to see him in person that Friday, but D replied it was too late, he had already sold the property. P sued for specific performance.
• HOLDING: there had been an indirect revocation where the information is communicated to the offeree by a third party. (Reliable 3P bc he was plaintiff’s agent.)
• Based on objective theory, it is unreasonable for him to think that the offer still exists after hearing the news; land can’t be sold to more than one person; promise to keep contract open meant nothing b/c it wasn’t supported by consideration, i.e. it wasn’t revocable (not an option contract).

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R §37

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Counter-offers, revocation, or death/incapacity don’t terminate the power of acceptance in Option K’s

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Humble Oil v. West Side Investment

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{Counter-offers/negotiations don’t terminate the power of acceptance in Option K’s §37 }
-Departs from Minneapolis case bc it’s an option K here
o P and D agreed that D would give P an “exclusive and irrevocable” option to purchase certain tract of land. P’s 1st letter to exercise option added an amendment to the option K. His second letter disregarded the 1st letter and said that D didn’t have to accept the proposed amendment.
o ISSUE: Do continued negotiations or counteroffers by the offeree terminate the power of acceptance contained in an irrevocable option K? NO. (He had ‘purchased’ the right to keep the option K for the specified time.)
o HOLDING: P’s 1st letter didn’t terminate the option K. (Qualified acceptance becoming counter-offers doesn’t apply to option K.)
o The minds of the parties met (offeror binds himself (for consideration) to keep the option open for the election of the offeree for the specified time). Option contracts don’t require an acceptance of the offer but rather the performance of the condition of the option K. P is still entitled to negotiate before deciding whether or not to exercise option.

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Firm offer under UCC 2-205

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A 'Firm Offer' provides that an offer by a merchant to buy or sell goods is irrevocable if the offer meets two conditions: 1) it is in a signed writing and 2) it gives explicit assurance that the offer will be held open. Such an offer is irrevocable even though there is NEITHER consideration nor a recital that consideration has been paid.
o Reasonable time period- irrevocable only for a reasonable time.
o Stated time- must include time period controls (may not exceed 3 months).
o Three month limit- whether or not a time period is stated, an offer under 2-205 cannot be made irrevocable for a longer period than three months.
o Forms drafted by offeree- if the firm offer is contained on a form drafted by the offeree, the offer is irrevocable only if that particular firm offer clause is separately signed by the offeror.

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3 possible situations where part performance or detrimental reliance causes temporary irrevocability

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1) The offer is for a unilateral contract, and the offeree begins to perform
2) It is not clear whether the offer is for a unilateral or bilateral contract, and the offeree begins to perform
3) The offeree makes preparations prior to acceptance, which is detrimental reliance (whether acceptance is to be by promise or by performance)

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Option Contracts Created by Part Performance

→ Realize that part performance may create an option contract!
(Another reason that makes it irrevocable.)

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o Beginning of the performance by the offeree creates an option contract
o § 45: (1) Offeror invites offeree to accept by rendering a performance and does not invite a promissory acceptance, an option K is created when offeree tenders or begins the invited performance. (2) Offeror’s duty of performance under any option contract is conditional on completion of the invited performance in accordance with the terms of the offer.
• This section does not apply when offeree has only performed preliminary preparation

UCC View: where the beginning of performance would be a reasonable form of acceptance, it is effective as an acceptance only if the offeree seasonably notifies the offeror that he has accepted.
o Plowing the Field → if starting performance is reasonable, it still doesn’t count as acceptance if the offeror doesn’t find out that offeree has begun performance

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UCC view of part performance

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Where the beginning of performance would be a reasonable form of acceptance, it is effective as an acceptance only if the offeree seasonably notifies the offeror that he has accepted.
o Plowing the Field → if starting performance is reasonable, it still doesn’t count as acceptance if the offeror doesn’t find out that offeree has begun performance.

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Marchiondo v. Scheck

{§45 Option Contract}

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{§45 Option Contract, Offer made irrevocable through part performance (reliance)}

o D (Seller) made a unilateral offer to pay P (broker) a percentage price of the sale of his property if P could obtain an acceptance from the specified buyer. Offer was specifically fixed for 6 days. Scheck revoked the offer in the a.m. of the 6th day and later that day P (broker) obtained the buyer’s acceptance. Broker sues for breach of contract.
o Issue: Did the offeror have a right to revoke his offer to enter into a unilateral contract, if offeree already began partial performance? NO. According to §45, part performance deprives the offeror of the right to revoke.
o HOLDING: D can’t revoke his offer once P has begun partial performance. If P had taken no action, D could’ve revoked. But, the broker’s time and money spent in effort to obtain acceptance constitutes as part performance.
o Part performance by the offeree in a unilateral contract results in a contract with a condition (the condition is full performance by the offeree).
o §45 frequently applies to real estate brokers.
o Determining if partial performance has occurred is a question of fact for a jury.

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What if it's unclear whether offer is Unilateral or Bilateral?

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Offeree may accept either by performance OR promising to perform

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Effect of performance by offeree where offer invites either performance or promise: R §62
(What about UCC §2-206?)

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R §62 Once offeree begins to perform, he has accepted the contract, and is bound to complete it
• Only takes effect when actual performance (rather than mere preparation) has begun. However, preparations may make the offer temporarily irrevocable under R §87.

o UCC §2-206: Beginning of performance operates as an acceptance only if the offeror is notified of the acceptance within a reasonable time.

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R § 87(2): Applied when offeree makes preparations prior to acceptance
→ could call it ‘Implied Option Contract’

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• Offeree makes preparations that aren’t explicitly required by the K, but are necessary for performance to begin.
• R §87(2): “An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which doesn’t induce such action or forbearance is binding as an option contract to the extent necessary to prevent injustice.”
o At this point, the offer has gone beyond a promise, so it’s different than §90
o §87(2) can apply not only to preparations made prior to an acceptance by promise (Drennan v. Star Paving), but also to preparations made prior to an acceptance by performance.
• Offers by sub-contractors: 87(2) is used most often by offers by subcontractors to general contractors. Subcontractor’s bid is usually held to be irrevocable for at least the time necessary for the general contractor to obtain the job and then accept the subcontractor’s bid.

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Baird v. Gimbel Brothers
{Minority Rule!!}

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• Sub-Contractor made a material mistake as to how much linoleum was needed for a new building. SC sent out offer to General Contractor based on mistaken calculation, GC put the bid in his master cost sheet. GC got big K, sent out acceptance to SC. Later that day, GC got SC’s letter indicating the mistake.
• HOLDING: GC placing a successful bid held NOT TO CREATE A BINDING CONTRACT, even where GC relied on SC’s offer before notice of withdrawal. GC should have protected himself bc he could have insisted on a contract with SC before using the figures for his bid.
• This case refuses to invoke §90 b/c the judge thinks it should only apply to “gifts.”

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Drennan v. Star Paving
{Majority Rule, over Baird}

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• GC (Drennan) placed a bid using (Star) SC’s mistaken offer for paving work. GC awarded bid, then SC informed GC of mistake and said it would cost twice as much. GC had to find someone else to do the job and eventually sued original SC for the difference in price. (awarded)
• HOLDING: (Traynor) Drennan Rule → if the GC reasonably relies on the SC’s bid, the offer is irrevocable (applying 87(2)). GC’s reasonable reliance (to GC’s detriment) acts in lieu of consideration. SC had reason to expect GC would rely on his offer if it proved to be the lowest (and SC would want him to).
• **For SC’s offer to become revocable, GC must act in bad faith (bid shopping, etc) or if GC had reason to know that SC made a mistake (then GC would be least-cost avoider).
o GC’s choice once he is awarded the big contract:
• GC is not free to delay acceptance once he is awarded such contract, BUT he is not bound to accept either (can use another SC’s bid) without breaching.
• SC’s offer is only irrevocable for a reasonable amount of time (why he can’t delay)
• If GC bid shops, he can’t claim continuing right to accept SC’s bid; he would lose protection of implied option contract, and SC’s offer would become revocable.
• But, if SC doesn’t revoke, the offer is still open for acceptance.

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Drennan Rule

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If the GC reasonably relies on the SC’s bid, the offer is irrevocable (applying 87(2)). GC’s reasonable reliance (to GC’s detriment) acts in lieu of consideration.

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When would a subcontractor's offer become revocable?

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GC must act in bad faith (bid shopping, etc) or if GC had reason to know that SC made a mistake (then GC would be least-cost avoider).

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General contractor's choice once he is awarded the big contract

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• GC is not free to delay acceptance once he is awarded such contract, BUT he is not bound to accept either (can use another SC’s bid) without breaching.
• SC’s offer is only irrevocable for a reasonable amount of time (why he can’t delay)
• If GC bid shops, he can’t claim continuing right to accept SC’s bid; he would lose protection of implied option contract, and SC’s offer would become revocable.
• But, if SC doesn’t revoke, the offer is still open for acceptance.

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How is §87(2) different than §90?

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o §87(2) is very similar to §90 because reliance causes something to be irrevocable and binding.
o But we look to §87 (2) BEFORE §90 in the context of an actual offer! (§90 has no requirement of a ‘substantial character’ and §87(2) specifically refers to option contracts and an actual offer.