Normally, if an offeror makes an offer, it remains open to acceptance by the offeree until one of the following occurs:
- rejection of the counter offer by the offeree
- lapse of time
- revocation by the offeror
- death or incapacity of the offeror or offeree.
Those come from Restatement § 36, which closes with, “In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.”
But what happens if the offeree wants to guarantee that an offer will remain open for a given period of time, perhaps to allow him to think about it without risking having a third party swoop in and accept instead? After all, the offer can be revoked at any time by the offeror, which isn’t terribly reassuring to an offeree who’d rather wait a bit.
The solution is an “option contract.”
The offeror can agree to hold the offer open. However, because the offeror gets nothing out of this concession, it is generally considered to be an offer made without consideration and, therefore, non-binding. To address this, the offeree can himself give consideration, usually by purchasing it. Thus, he can say to the offeror, “I’ll pay you ten dollars to hold this offer open until Friday.” A bilateral contract — a sub-contract of the proposed original one, so to speak — is now in effect. Since it has consideration on both sides (the offeror is giving up his right to revoke and the offeree is paying out ten bucks), it is binding.
This modified offer — the one that has to be kept open until Friday — is called a “firm offer.”
One additional note: Under UCC §2-205, it is possible to create an option contract without consideration. The terms are pretty specific, however. First, the offer must be to buy or sell goods and the offeror must be a merchant, who is defined as someone who professional deals in those kinds of goods. Furthermore, the offer must be signed in writing; an oral agreement just won’t do. Next, it must clearly state that the offer will be held open. Lastly, if all this is written on a form supplied by the offeree, not the offeror, then the specific section dealing with the firm offer must be signed by the offeror. This is to make sure he doesn’t get duped into creating a firm offer by language hidden somewhere by the offeree.
Once all these criteria are met, a firm offer to hold the original offer open is created and lasts either for the length of time specified in the contract or for three months, whichever is shorter. Thus, if the contract says the offer is to remain open for five months, it really only stays open for three. But keep in mind that UCC §2-205 covers only offers made without consideration. If the parties want the offer to remain open for longer than three months, the offeree need simply buy an option, creating consideration, and kicking the whole thing back under the umbrella of common law firm offers, which stay open for as long as the contract terms state.