The basic creation of a contract requires one party, the offeror, to make an offer and a second party, the offeree, to accept that offer; after which both will exchange what is called consideration. An offer can be made to a specific person, group or the general public.
A common offer is a sale sign at your local shop in which anyone can walk in off the street and pay money to own the item for sale. An offer can also be a promise to perform a particular service in exchange for money or something else of value.
In order to accept that offer, the offeree must show intent to be bound to the terms of the offer such as making payment or signing an agreement.
If you are interested in what is being offered but not completely satisfied with the details of the offer such as the amount then you may be able to negotiate with the offeror. However, in many cases, offerors have the ability to revoke, or take their offer back, at anytime.
When faced with an unsatisfactory offer, the offeree can reject, counter-offer or let th offer expire, if possible.
Generally, an offer can be revoked at anytime before acceptance unless otherwise indicated. If the offer specifies that it will be open for a specified period of time, it typically cannot be revoked before that time elapses.
An option contract is the exception to the general rule that an offer can be revoked at anytime before acceptance. Option contracts are generally found when dealing in securities, commodities, or real estate.
A buyer and seller of an option contract agree that the purchaser of the option has the right to sell or buy an asset on a later date for an agreed upon price. Option contracts are a tool that create an opportunity for purchasers to hedge their bets, so to speak, on multiple assets before deciding on one asset.
Because the offer is open for a specified period of time, the offeror of the option contract cannot modify, revoke or sell the asset to someone else.
Option contracts have the following steps:
- The offeror makes an offer and agrees that the offer will be open for a specified period of time.
- Valid consideration exists to create the option. For example, a deposit to keep the offer open without fear of revocation, modification or losing it to another buyer.
If the offeree rejects the offer, the offer is no longer available should the offeree change their mind later. The parties can negotiate a new offer if they both agree.
Essentially, the original offer is rejected and the counter-offer becomes the new offer available for acceptance by the first party.
An offer can specify an expiration date, though it is not a requirement to do so. Thus, an offer without an expiration date can expire within any reasonable amount of time.
Contracts can be difficult to understand and it is easy to overlook something. A qualified business lawyer with experience with contracts can review offers, draft offers and contracts, and ensure your assets are properly protected in the process. Consult a lawyer when you are unsure of any terms or want to properly protect your future interest.