Offers, acceptance, and how contracts end
Offer and acceptance
An offer is a proposal that, if accepted, creates a binding contract. The person who makes it is the offeror; the person who receives it is the offeree. In a home sale the buyer usually makes the first written offer, but either side can.
Acceptance is the offeree's agreement to the offer's terms. It must be communicated in a way the offeror authorized or could reasonably expect. In a real estate deal that usually means signing the contract and getting it back to the other party. Under the general mailbox rule, a properly sent acceptance takes effect when it is sent rather than when it arrives, but the parties can agree to a different rule, and many contracts do by defining when an offer becomes effective.
Counteroffers
If the offeree changes any term (price, closing date, who pays a cost), the response is a counteroffer, not an acceptance. A counteroffer does two things at once:
- It rejects the original offer, which cannot be revived by accepting it later.
- It makes a new offer that the other party may accept, reject or counter.
Negotiations can go back and forth many times. A contract exists only when one party accepts the other's latest terms without changes.
Revocation and other ways an offer ends
An offeror can revoke (withdraw) an offer by notifying the offeree before the offeree accepts. A promise to "keep the offer open for three days" does not stop a revocation unless the offeree paid something to hold it open, which turns it into an option. An offer also ends when it is rejected, when it is countered, or when its stated deadline passes.
Performance
Most contracts end the way everyone hopes: by performance. At closing the seller conveys title and the buyer pays, and the contract is executed.
Assignment versus novation
| Assignment | Novation | |
|---|---|---|
| What happens | A party transfers its rights (and usually its duties) to someone else | A new party or a new agreement replaces the old one |
| Original party | Generally stays secondarily liable unless released | Released from the contract |
| Consent | Depends on the contract's terms | Requires agreement of the other original party |
So if a buyer assigns a purchase contract and the new buyer fails to close, the seller can generally pursue the original buyer too, unless the seller released them. A novation is how you get a clean release.
Breach and remedies
A breach is a failure to perform a promise without a legal excuse. The main remedies:
- Money damages. The default remedy, meant to put the injured party where performance would have.
- Specific performance. A court orders the breaching party to do what it promised, for example convey the property. Courts use it when money is not enough, and real property is the classic case because every parcel is unique.
- Liquidated damages. An amount the parties agreed to in advance, such as the buyer's deposit. Courts generally enforce these clauses unless they act as a penalty or are unconscionable.
- Rescission. The contract is cancelled and the parties are returned to where they started. It can be mutual (both agree), or based on grounds such as fraud, material breach or mistake.
Other ways a contract ends
Besides performance and breach, a contract can end by mutual agreement to cancel, by novation, or under its own terms, such as a buyer cancelling within a financing or inspection period the contract provides.