Formation of Contract (2) – Termination of Offer

Overview

Under English contract law, an offer does not remain open indefinitely. It may be brought to an end in one of three principal ways: revocation by the offeror, rejection by the offeree, and lapse of time. An understanding of each ground, together with the applicable rules and exceptions, is essential for determining whether a valid contract has been formed.

Revocation by the Offeror

The General Rule

As a general principle, an offeror may revoke an offer at any time before acceptance, even where the offeror has expressly stated that the offer will remain open for a specified period. This was confirmed in Routledge v Grant (1828), where it was held that an offeror who had promised to keep an offer open for six weeks was nonetheless entitled to withdraw it before that period had elapsed, provided the offeree had not yet accepted.

Exception: Consideration Given to Keep the Offer Open

An important exception arises where the offeree has provided, or has promised to provide, something of value in exchange for the offeror's commitment to hold the offer open. In such circumstances, the offeror is bound not to revoke. This exception was illustrated in Mountford and another v Scott [1975], where the payment of a nominal sum in return for an option to purchase land was held to be sufficient consideration to prevent revocation during the agreed period.

The Requirement to Communicate Revocation

Revocation is not effective merely upon the offeror's decision to withdraw; it must be communicated to the offeree. In Byrne & Co. v. Leon Van Tienhoven & Co. (1880), a letter revoking an offer was posted but had not been received by the offeree at the time the offeree purported to accept. The court held that the revocation was ineffective because it had not been communicated before acceptance took place.

Professor Treitel identifies two exceptions to this general communication requirement:

1. Notice sent to a known address: Where the offeror sends a notice of withdrawal to the offeree's last known address, that notice may be effective even if the offeree has since moved and failed to inform the offeror of the new address.
2. Notice received but deliberately not read: A withdrawal that reaches the offeree may be effective even where the offeree simply chooses not to read it.

Revocation of Offers Made to the Public at Large

Where an offer has been made to the public at large, it may be revoked by using the same channel through which it was originally made, provided that the revocation is given the same prominence as the original offer. This principle derives from the American case of Shuey v United States (1875), and it is submitted that English courts would adopt a similar approach. It is essential to note that mere publication through the same channel is insufficient if the revocation is not accorded comparable prominence to the original offer.

Revocation by Non-Instantaneous Means

Practical difficulties arise where revocation is communicated by fax, telex, or other means that may not be read immediately upon receipt. In The Brimnes [1975], it was established that where a notice of revocation arrives during ordinary business hours but is not read until the following day, the court will determine the precise moment of communication by reference to the reasonable expectations of the sender. In that case, a notice received by telex during normal business hours was treated as having been communicated at the time of receipt, regardless of when it was actually read.

Revocation Communicated by a Reliable Third Party

Revocation need not be communicated directly by the offeror; it may be conveyed through a reliable third party. In Dickinson v Dodds (1876), the Court of Appeal held that an offeree who had learned through a reliable intermediary that the offeror had sold the property to another person could not subsequently purport to accept the original offer. Knowledge of the revocation, however acquired from a reliable source, was sufficient to terminate the offer.

Restrictions on Revocation in Unilateral Contract Offers

A unilateral contract arises where the offeror promises to pay or perform in exchange for the offeree performing a specified act. Particular rules govern when such an offer may be revoked, as the offeree cannot "accept" in the conventional sense until the act is complete.

In Errington v Errington & Woods [1952], the Court of Appeal indicated that it is likely that an offeror cannot revoke a unilateral offer once the offeree has commenced performance of the required act of acceptance. In that case, a father had promised that a house would belong to his son and daughter-in-law once they had paid off the mortgage instalments. It was held that the promise could not be revoked so long as they continued to pay.

One academic explanation for this principle, advanced by McGovney in an article published in 27 Harvard Law Review 644, suggests that unilateral contract offers in fact contain two distinct offers: first, an express main offer (for example, to pay £100 on completion of a specified act); and second, an implied collateral offer not to revoke the main offer, provided the offeree starts to perform within a reasonable time. On this analysis, the offeree's commencement of performance constitutes acceptance of the collateral offer, thereby binding the offeror not to revoke the main offer.

Rejection by the Offeree

Express and Implied Rejection

An offer is terminated where the offeree rejects it, whether expressly or by implication. Once an offer is rejected, the offeree cannot subsequently purport to accept it; the offer has ceased to exist.

Counter-Offers and Implied Rejection

Because acceptance must correspond exactly with the terms of the offer, a counter-offer — one that proposes different or additional terms — constitutes an implied rejection of the original offer and replaces it with a new offer. This principle was established in Hyde v Wrench (1840), where the defendant offered to sell his farm for £1,000. The claimant replied by offering £950, which the defendant refused. The claimant then purported to accept the original offer of £1,000, but the court held that his counter-offer had destroyed the original offer, so that no contract existed.

Distinguishing a Counter-Offer from a Request for Information

A response that merely requests further information or clarification does not amount to a rejection and does not terminate the offer. The offeree may still go on to accept the original offer on its own terms. In Stevenson v McLean (1880), the offeree sent a telegram asking whether the offeror would accept payment in instalments over two months. The court held that this was a request for information rather than a counter-offer, and accordingly the original offer remained open and capable of acceptance.

Lapse of Time

Offers with a Specified Time Limit

An offeror may stipulate that an offer is available for acceptance only within a defined period — for example, by stating that a quotation is valid for twenty-one days only. On the expiry of that period, the offer lapses automatically and can no longer be accepted. It should be noted, however, that even where such a time limit has been set, the offeror retains the general right to revoke the offer before acceptance, as confirmed by Routledge v Grant (1828), subject only to the exception identified above where consideration has been given to keep the offer open.

Offers Without a Specified Time Limit

Where no time limit is stated, an offer will lapse after a reasonable period has elapsed. What constitutes a reasonable time is a question of fact that depends on all the circumstances of the case. For instance, an offer to sell perishable goods would lapse far more quickly than an offer to sell real property. Similarly, offers made in rapidly fluctuating markets — such as offers relating to shares or foreign exchange — may lapse within a very short time, reflecting the commercial context in which they were made.