Offers, Acceptance and the Irrevocable Period
Sometimes these matters become confusing, but, they really shouldn’t be. After all, the law now is much the same as it was 400 years ago.
What we are really talking about is the formation of a contract.
That contract comes together once we have an Offer that is properly accepted. We should look at some other matters, as well, at the outset.
There are several essential elements of a contract:
1) Parties, (legal capacity)
2) Lawful object (not illegal)
3) Intention to create contract (consideration or seal)
4) Mutual agreement (offer and acceptance)
5) Agreement in respect to terms (genuine intention)
6) Agreement must be certain (definite and clear).
Once those essential elements are all present, then we have a legally binding agreement. There may very well be conditions that need to be fulfilled, satisfied or waived as the contract proceeds, but at the outset, we still have a “binding agreement”.
In dealing with the conditions, the contract itself may specify the consequences, but nevertheless, we started out with a legally binding agreement.
So, why all the problems? Apparently, many waivers, amendments, fulfillments etc. will include a phrase to the effect that “… this agreement is now firm and binding”. That is just confusing. It was already “firm and binding”. There just happened to be an outstanding condition that required resolution.
The result is that some practitioners have come to the conclusion that the contract was not “firm and binding” at the outset, but rather later, upon resolution of the condition. That view would be in error.
The deposit was missing from the list of essential elements. Actually, it was left out on purpose, because it’s not required. You can easily have a contract without any kind of deposit. In some cases, it may constitute part of the consideration, but it’s not required.
We are really looking at # 4 Mutual Agreement. What we need here is evidence of an Offer and evidence of the acceptance of THAT Offer, not another offer, that particular offer. Now, we have a deal!
What is an offer? What does it mean? What is the nature of an offer?
Actually, it is a proposal or an invitation. It enables the invitee to form an agreement, or accept the invitation. And, like all invitations, it must be accepted or rejected. There’s no middle ground.
An offer is a conditional promise. It is an acknowledgement that if you do something specified, then, I will do what I proposed. An unconditional promise would simply be a “gift”, and that’s not enforceable. A conditional promise, proposes the possibility of a contractual agreement, and that’s enforceable.
A contract could be represented by the algebraic expression:
I will do “X”, IF, you do “Y”.
What about acceptance? What does that mean, exactly? May it be qualified?
Acceptance is the promise to do “Y”. It is not “kinda sorta”, “Y”.
It is clear and unambiguous. It is a “yes”. It is unqualified in every respect. As indicated, there’s no middle ground. It is a positive statement: I will do “Y”.
Acceptance is an unconditional promise which has the effect of creating a binding agreement and changing the offeror’s conditional promise into an unconditional promise. Now, we have two unconditional promises exchanged for one another, which are independently enforceable as against the other party.
Nothing in life goes on forever. A conditional promise has a time limit, but an unconditional promise may not. Well, let’s put it this way, it could go on for a long, long time as in “…til death do us part”, so, it seems like forever, but really, there is an end to it.
The time period is often referred to as the “irrevocable period”, the “offer period”, the “acceptance period” or other time limiting expressions.
Coming back to algebra, here’s what it looks like:
I will do “X”, IF, you do “Y”, provided you tell me by Z (time).
So, the conditional promise sits out there for acceptance until Z. That’s whatever time period the offeror seeks to unilaterally impose upon his offer.
Once the time limit passes, the conditional promise expires. There’s no further opportunity for acceptance.
Two Steps in Contract Formation
If you want to prove that you have converted the conditional promise into an unconditional promise, then you must prove two separate steps:
1. the offeree agreed to do “Y”,
2. the offeree communicated #1 within the time period “Z”.
Negotiating the Deal
Many contractors, dealers, negotiators like to speak about the art and science of getting, making or negotiating the deal.
The science to it is rather clear. Just look at the algebraic expressions! The science of it is the LAW.
Now, of course, the art of the deal can be something else again. Maybe you have an offer, it’s too low, so you just ignore it. There’s nothing in law, that says that you have to respond. No response, is just no deal. You can’t prove #1.
Let’s say you just let the time period expire. Again, no deal. You can’t prove #1.
What if someone gives you an Offer, but the time period “Z” has already come and gone? Sorry, it’s too late, you can’t prove eithe #1 or #2. It's not an Offer!
There are special rules of etiquette, or codes of ethics, or common practices in many specific businesses which cover some of the negotiating. But, a good deal of it, just comes down to human nature: bluffing (or lying, if you wish) in order to get something better.
You can always continue to “fool around” with a old, expired offer in the interests of attempting to negotiate something better. But, we are not talking about the law, we are just talking “politics”.
How, “politically” will you position yourself and your client to get an improved deal, or even the same one that was proposed before?
If you have an Offer, what are your options, in terms of creating a contract?
Just one! ACCEPT it, fully and completely, without reservation. That creates the contract. Nothing else.
If you have an Offer, what are your options, in terms of dealing with it?
1. Accept it, or
2. Reject it.
There’s no middle ground here. There’s no such thing as “guilty with an explanation”. Anything which is not acceptance is rejection.
And, this is something you need to know, once you say “no”; it’s over, there’s no such thing as “take backs”. Everyone knows this!
That means, naturally, that if the price offered is $500,000.00 and you sign it back at $525,000.00, which is not agreeable to the offeror, that you can’t go back and accept the original $500,000.00 assuming, of course, that you are still within the time period (“Z”).
Any answer, other than a “yes” is a rejection. It is a “no”.
That’s the law.
Now, when it comes to “negotiating” which is just “talking smack” until you’re ready to write it down as an algebraic expression, you can do just about whatever you want.
So, (in the art of the deal) you can revive dead offers, you can resuscitate the dead offers, you can kill offers, you can spike offers, you pass on verbal offers, you can do just about anything.
However, if you want to create a contract, you have to follow the rules. These rules have been around for thousands of years, so there shouldn't really be much of a debate, but for one reason or another, many people forget them or apply them incorrectly.
What’s the Most Common Mistake?
Failing to communicate the “yes” to the offeror before the expiration of the time period.
Once “Z” comes and goes, it’s too late. If 8:00 pm is the deadline, then the agent for the offeree (who just said “yes’) must communicate this information to the offeror BEFORE 8:00 pm.
Evidence of that communication taking place at 8:05 pm is the death knell to the deal. That is evidence of no agreement. What you need is evidence of an agreement. If you are t5 minutes too late, you might as well be 5 years too late.
This is interesting because the standard form agreement carries a Confirmation of Acceptance clause at the end, and permits the signature of either the seller or the buyer. But, 99% of the time, they won’t know, it’s only the agent for one of the parties who can properly attest to that.
Brian Madigan, Broker is a Manager at RE/MAX West Realty. BRMadigan@iSourceRealEstate.com