A university sent an offer letter to a prospective student, stating, 'We offer you admission for the Fall semester, contingent upon successful completion of your high school diploma by June 15th.' The letter also stated, 'This offer is irrevocable until July 1st.' The student received the letter on May 1st. On May 20th, the university discovered an administrative error and sent a revocation letter to the student. The student received the revocation on May 22nd. On May 25th, the student mailed a letter accepting the offer. Assuming the student successfully completed their high school diploma by June 15th, is there a valid contract for admission?
- AYes, because the offer was irrevocable until July 1st.
- BNo, because the university revoked the offer before the student accepted.
- CNo, because the offer was merely an invitation to negotiate, not a firm offer.
- DYes, because the student accepted the offer before July 1st.
Show answer & explanationAnswer & explanation
Correct answer: A. Yes, because the offer was irrevocable until July 1st.
This scenario describes an option contract. The university's statement that the offer was 'irrevocable until July 1st' created a firm offer. While no separate consideration was paid by the student, under common law, a promise to keep an offer open (an option) can be binding if it is in writing and signed by the offeror, even without consideration, if it is made by a merchant. However, even for non-merchants, if the offer itself states it is 'irrevocable' for a period, it creates an option contract. Therefore, the university could not revoke the offer before July 1st, and the student's acceptance on May 25th was valid.
Why the other options are wrong
- B. The revocation was ineffective because the offer had been made irrevocable.
- C. The offer was specific enough to constitute a firm offer, not just an invitation to negotiate.
- D. While the acceptance was within the stated period, the key reason for contract formation is the irrevocability of the offer.
Option Contract
A separate contract created when an offeror promises to keep an offer open for a stated period, supported by consideration (or in some cases, a signed writing under common law, or a firm offer under UCC).
- Makes the underlying offer irrevocable during the option period.
- Requires consideration to be binding under common law, unless a specific exception applies.
- UCC 'firm offer' rule allows for irrevocable offers by merchants without consideration if in writing and signed.
Memory trick: Can't take it back if it's got 'Options' or 'Firms' it!