DOES LATE ACCEPTANCE OF AN OFFER CREATE AN ENFORCEABLE CONTRACT?

By David Hamerslough

October 16, 2020

Most offers and counteroffers, including the PRDS and C.A.R. forms, contain language stating that any offer shall be deemed revoked unless the offeree signs and delivers the signed documents to the offeror or their agent (if designated) within a fixed period of time. This is referred to in both contract forms as “Acceptance.”

What happens when Acceptance of that offer occurs after the expiration of that fixed period? Has the offer automatically terminated by lapse of time, meaning that there is therefore no power to accept that offer? Does that mean that any attempt to accept the offer does not create an enforceable contract but at best creates a counteroffer that must then be accepted by the original offeror in order to create a contract? Alternatively, can the offeror waive any condition within the contract solely for the offeror’s benefit and bind the late-accepting party? Finally, can an offeror who fixes a time for acceptance be estopped to assert that there is no enforceable contract based upon their conduct and statements occurring after late Acceptance by the offeree?

I encountered this issue in one of my recent cases. The buyer had submitted an offer that was countered by the seller. That counteroffer stated that it would be revoked if it was not accepted within three days after it was signed by the seller and delivered to the buyer. The buyer did not sign and deliver the counteroffer until seven days after the seller signed it. The buyer then claimed that there was a ratified contract, and the seller contended that the counteroffer had expired per its own terms.

In this case, the seller prevailed, but not because the preprinted language stated that the counteroffer was revoked if Acceptance did not occur within the three-day timeframe. That argument is known as the “counteroffer theory” of contract formation. The alternative theory (“waiver/estoppel”) is the one that has been adopted by California courts. Those courts have analyzed the issue by focusing on the conduct and statements of the parties and whether the offeror (in my example, the seller) communicated his/her objection to the tardy Acceptance, acted consistently or inconsistently with respect to whether there is a contract in place or not, and otherwise led the other party (in this case, the buyer) to believe that there was an enforceable contract and performed accordingly. California law recognizes that the conduct and statement of not only the parties but also the real estate licensees, attorneys, and others acting on their behalf can impact these issues.

The rationale of these decisions is that the expiration or revocation of the offer creates a right on the part of the offeror (in my example, the seller) to refuse to recognize a belated Acceptance. However, that right may be waived by the offeror or the offeror may be estopped to assert it where the offeror ignores the delay and treats the acceptance as timely.

So what’s the takeaway from this situation? First, don’t assume that the offer is automatically revoked because of the preprinted language in the contract. Second, promptly communicate and confirm in writing whether the offeror (here, the seller) is rejecting the late Acceptance and is not going forward with the contract or, alternatively, is going forward with the contract despite the late Acceptance. In the latter case, the written communication (typically in the form of an addendum) should state that the date of acceptance has been extended, confirm the date of delivery, and establish the start of any timeframes. The written communication should also state that “time is of the essence” is not being waived by the acceptance of tardy performance.

Third, the conduct and statements of the parties, their agents, and/or their attorneys will need to be evaluated if there is no agreement regarding whether there is a contract in place. Other facts that may have an impact include the length of the delay, the reason for that delay, whether there was any extension of the time to accept either formally or through written communications, and whether the parties acted as if there was or was not a contract (including opening escrow, making deposits, providing disclosures, conducting inspections, etc.).

Fourth, if another offer is received, any Acceptance of that offer should be subject to a cancellation and release of the first transaction. If there is no cancellation and release, the seller runs the risk of selling the property twice based upon a claim by the first buyer that the conduct and/or statements of the seller, their agent, and/or their attorney give rise to a waiver by or an estoppel against the seller.

Finally, the conduct and statements of the buyer can also impact the outcome of this scenario. Where a buyer does not act as if they are in contract, submits another offer, and/or acknowledges that they do not have a contract, they will in all likelihood not be able to enforce a tardy acceptance.