Limitations on Contract Termination
There are four main types of limitations on contract termination. In other words, there are four main ways in which a contract cannot be terminated by the offeror (i.e. the person who made the offer) once the contract is created.
The first limitation deals with option contracts. An option contract is a specific agreement, supported by consideration, which limits the offeror’s power to revoke an offer. Here, the party in whom the power of acceptance has been created pays the offeror in some manner that meets the criteria for consideration (e.g. with money). By paying the offeror, the offeree strips that person of his or her power to revoke.
The second limitation deals with firm offers under the Uniform Commercial Code. A firm offer is basically a written offer by a merchant that promises to keep the offer open for a certain period of time. A firm offer is similar to an option contract, except it deals with goods under the Uniform Commercial Code. Here, the offeror, once he or she memorializes the offer in writing and creates the power of acceptance in another person, is prohibited from revoking the offer.
The third limitation deals with detrimental reliance. Under this limitation, the person in whom the power of acceptance has been created detrimentally relied on the offer. Furthermore, in this scenario the person who made the offer could have reasonably expected that the offeree would rely on the offer in that particular way.
The fourth limitation deals with unilateral contracts. A unilateral contract is a contract that invites performance by the accepting party. For example, an offeror may offer to pay someone to paint a house. Painting the house is the performance requested. Under a unilateral contract, if the offeree has begun performing (e.g. painting the house) then the offeror is prohibited from revoking the offer.
The elements of a binding contract include an offer, acceptance of that offer, and consideration for the same. But how can an offer be terminated, thus preventing the creation of a contract? In this article, we’ll discuss how an offer can be terminated by the person making the offer, by the person accepting the offer, and by operation of law.
NOTE: The Uniform Commercial Code (UCC) is a contract statute that was drafted by a team of lawyers for certain types of contracts. The UCC is not actual law in and of itself, but is merely just a recommendation on how states should draft their contract laws. As such, many states have adopted many sections of the UCC in their own statutes.
Next, we’ll take a look at how the person accepting the offer, i.e. the offeree, can terminate the offer.