Canadian Business Contracts Handbook. Nishan Swais
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He cannot make a counteroffer and keep the original offer open (unless the original offeror agrees to keep it open). As soon as the original offeree makes a counteroffer, he has reversed roles with the original offeror. It is now up to the original offeror whether he, in his new role as offeree, wants to accept or reject the counteroffer.
To bring it full circle, if the original offeror (who is now the new offeree) rejects the counteroffer, then the original offeree (who is now the new offeror) cannot go back and accept the original offer. As noted, it ended with the counteroffer.
Now if the original offeror/new offeree accepts the new offer but with new conditions or changes of his own (e.g., you tell your friend that you will take $9,500 for the car), then he again becomes the offeror and so on until the persons involved either agree on terms or part ways without further negotiation.
2.2d Revocation
To revoke an offer means taking it back. Practically speaking, that entails communicating to the offeree that the offer is no longer open for acceptance by the offeree. To be able to revoke an offer, the offer must not have already been accepted. An offeror cannot legally revoke an offer after it has been accepted. By that point, it is too late. It has become irrevocable. An offer that has been revoked cannot be accepted.
The situation becomes more complicated when there are conditions involved. For example, suppose an offeree has met all the conditions imposed by the offeror, can the offeror still revoke the offer? The answer is no.
What happens, though, if some of the conditions have been met by the offeree but not all of them? In that case, the offer also cannot be revoked. The offeror will simply have to wait to see if the remaining conditions are met by the offeree.
If one of the offeror’s conditions has come and gone without being met by the offeree, there is no need to revoke the offer. At that point the offer is incapable of being accepted.
Finally, it is worth mentioning that an offeree cannot revoke acceptance. Once accepted, the offeree is bound unless he or she can convince the offeror to agree otherwise.
2.3 Consideration
Consideration is the third and final component of a contract and, for our purposes, requires the least explanation. Let’s begin with an example.
I might offer the opinion that “April is the cruellest month.” You might accept that as true. We have an offer and we have acceptance; do we have a contract? Leaving aside the law’s position for a moment, does it even make sense in our everyday affairs to say that our exchange of views amounted to a contract?
Suppose that you offer to kiss your sweetheart and your sweetheart accepts. Did you enter into a contract for a kiss? Again, there is offer and acceptance. Still, I think you’d agree that it is absurd to speak of a contract in that context.
Now suppose that you, as offeror in our previous example, offer to sell your friend your car for $10,000 and he accepts. Is there a contract to buy your car? This sounds more like a contract, doesn’t it? After all, aren’t thousands of cars sold every day under exactly those or similar circumstances? This time, talk of a contract does not seem so absurd. Yet, even in this case, there is no contract, at least as far as the law is concerned.
What is missing is what the law calls consideration, which is what finally draws us together in the eyes of the law.
In the simplest terms, consideration means, “to get something you have to give something.” Agreement to do something is not enough. There has to be value exchanged between the offeror and the offeree before a contract will be found to exist, at law. That is the meaning of consideration.
There is no value exchanged in agreeing that the month of April is the cruellest. Nor is there value exchanged in a kiss (poetics aside). However, if I give my friend a car and my friend gives me money, value has been exchanged. In fact, very tangible value has been exchanged because he now has something to use for his work and I have the means to afford a nice vacation. Each of us has given consideration.
Why would such a seemingly abstract notion as consideration be so important in determining whether a contract exists? The best answer to this question is that the law, again in its wisdom, seeks to enforce bargains. The law does not want to, and shouldn’t, step in to give its opinion on such matters as whether you and I share a common opinion regarding the month of April or whether your sweetheart is obliged to share a kiss. These aren’t legal matters. The law’s purpose, especially insofar as it can force us to comply with our commitments, is directed toward enforcing exchanges of value.
In that regard, it is also worth noting that the law will not enforce gratuitous promises. If I promise to fix the clutch on your motorcycle and I never get around to it, there is no basis at law to enforce the original promise against me, because I made it gratuitously, meaning, there was no exchange of value between us or consideration given for the promise. If it were otherwise, the courts would be tied up in endless demands to enforce the empty assurances that crowd our days.
What does the law look at in determining whether there has been an exchange of value? Two concepts are relevant: sufficiency of consideration and adequacy of consideration.
2.3a Sufficiency of consideration
The law requires that consideration must be sufficient, which means that the things of value exchanged between the persons who are contracting must be real or tangible.
In our example, the exchange of money for a car involves two real and tangible items of value. In our exchange of opinions, the value is not tangible and not real. To put it another way, the value may be real in an abstract sense but not in a way that anyone can measure, at least not without resorting to further abstractions.
Note that the law only requires sufficient consideration, not the best or even good consideration. In other words, the law just wants to ensure that the things exchanged meet the threshold of having some real value, regardless of how small. If you want to sell a box of old postage stamps for a dime, that is consideration enough in the eyes of the law and sufficient consideration to form a contract. It need not be a car that is being sold. Nor is there a monetary threshold to be met in the amount paid in order to be considered sufficient consideration.
Note also that consideration does not have to involve money. If, instead of $10,000, your friend gave his vintage guitar to you in exchange for your car, that would also constitute value exchanged and, hence, sufficient consideration. Alternatively, if instead of $10,000 or a vintage guitar, the offeree agreed to fix your plumbing in exchange for your car (e.g., offer valuable services), that too would constitute sufficient consideration.
Finally, note that it can also be considered sufficient consideration if, in exchange for a benefit, the person receiving the benefit merely suffers some sort of detriment, rather than give a benefit in return. In our example, it may be sufficient consideration if your friend, in exchange for receiving the benefit of your car, suffers the detriment of no longer playing his guitar late into the evening.
2.3b Adequacy of consideration
A second concept that frequently arises when discussing consideration is that of adequacy of consideration. It may surprise you to learn that courts generally will not take into account whether the exchange of value was a fair one. In legal terms, courts will not question adequacy of consideration.
Returning to our example, if your car has an actual book value of several hundred thousand dollars (e.g., a rare antique) and you offer it for sale for only $10,000, a court will not say that there was no consideration given just because the offeree “underpaid” for the car. Ultimately, it is left to the persons involved to exercise their judgment and make their own determinations about the value of what is being exchanged. There are two reasons why courts take this approach.
First, courts do not wish to regulate market forces. If courts start taking it upon themselves