Allen R. Krauss Co. v. Fox
132 Ariz. 125, 644 P.2d 279, 1982 Ariz. App. LEXIS 414 (1982)
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Rule of Law:
An offer or counteroffer which states it will remain open for a specified period is revocable at any time before acceptance unless it is supported by separate consideration, thereby creating an option contract.
Facts:
- On May 27, 1981, Krauss tendered a written offer to purchase land from Fox.
- On May 29, Fox made a written counteroffer with a different price.
- After Krauss extended his original offer, Fox made a second counteroffer on June 2, agreeing to the price but changing other terms, and stating the offer would remain open until 5 p.m. on June 3.
- With his initial offer, Krauss had tendered $5,000 as earnest money.
- On the morning of June 3, Krauss decided to accept and signed the acceptance form at 11:58 a.m.
- At approximately 3:00 p.m. on June 3, Fox's agent orally informed Krauss's agent that Fox was revoking the offer and would not sell the property.
- At 4:15 p.m. on June 3, Krauss delivered the signed acceptance document to the designated escrow agent.
Procedural Posture:
- Krauss initiated an action against Fox in an Arizona trial court, seeking specific performance of a land sales contract.
- Both parties filed cross-motions for summary judgment.
- The trial court granted summary judgment for Krauss, ordering Fox to sell the property.
- Fox, as the appellant, appealed the trial court's judgment to the Arizona Court of Appeals. Krauss is the appellee.
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Issue:
Can a party revoke a counteroffer before the time limit specified in the offer has expired if the offeree has not provided any consideration to keep the offer open?
Opinions:
Majority - Hathaway, Judge
Yes. A counteroffer that specifies a time limit for acceptance is still revocable at any time before it is accepted, unless the promise to keep the offer open is supported by consideration. Krauss argued that his $5,000 earnest money constituted consideration, making the counteroffer an irrevocable option. However, the court found the earnest money was consideration for the underlying land purchase agreement, not for the promise to keep the counteroffer open. The language in the counteroffer stating it would remain open was merely part of the offer itself, not a separate, binding option contract. Because the counteroffer was not supported by consideration, it was a revocable offer. Fox's agent orally revoked the offer at 3:00 p.m., before Krauss completed his acceptance by delivering the signed document at 4:15 p.m. Therefore, the revocation was effective, and no contract was formed.
Analysis:
This decision reaffirms the common law distinction between a standard offer and an option contract. It clarifies that a promise to hold an offer open (a "firm offer" in non-UCC contexts) is unenforceable without separate, bargained-for consideration. The ruling underscores that parties cannot rely on language within an offer to make it irrevocable; they must create a distinct option contract supported by its own consideration. This case serves as a crucial reminder for parties in real estate transactions that if they desire a guaranteed period to consider an offer, they must explicitly bargain and pay for that right.
