Agreement of Sale: Timely acceptance

Facts: Interested buyers submitted their offer to purchase on PAR’s Standard Agreement of Sale. The buyers provided a rather limited time for the sellers to consider their offer when they inserted a date in paragraph 5(a) of the agreement: “Written acceptance of all parties will be on or before: ______October 19, 2012______.” The sellers received this offer on October 17.

The sellers responded to the buyers with a counteroffer. Paragraph 5(a) of the offer was not changed. The buyers received this counteroffer in mid-afternoon on October 18. When the sellers did not hear from the buyers or their agent by mid-day on October19, the listing agent called the buyer agent. The buyer agent explained that the buyers were okay with the changes, but that they were out of town for a day or two and they would either accept the sellers’ counteroffer or make a minor modification within a day or two. To this the listing agent responded with a sigh and “great, let me know.”

On the morning of October 21, two things happened. First, the sellers’ counteroffer was signed by the buyers and delivered to the listing agent by email. Second, a better written offer was submitted by other buyers.

Question: Was a binding contract formed when the original buyers signed and delivered the sellers’ counteroffer on October 21, or did the sellers’ counteroffer automatically terminate because there was no written acceptance of all parties on or before October 19?

Answer: It depends. I am hearing your collective groan so let me venture a reasoned answer: Yes, the original buyers have an agreement, because no, the agreement did not expire on October 19.

Paragraph 5(a), requiring a written acceptance by a date certain, is intended to provide a time within which negotiations must be concluded. But how many times in your experience has the final agreement shown a party’s execution as having occurred after that date? I would guess a substantial percentage of the time agreements are concluded beyond that date without either party or agent showing the least concern. Why?  Parties implicitly understand that the date will not serve an obstacle provided they are negotiating in good faith and making progress.

A better practice would be to extend the date in paragraph 5(a) to accommodate the ongoing negotiations. On the other hand, paragraph 5(a) does not provide that either party has to continue negotiating until that time lapses. Either party can abruptly conclude negotiations regardless of whether those negotiations are in the early or very late stages. Neither a buyer nor seller is obligated to continue negotiating in good faith and may walk away for any or no reason.

The issue here is whether the date inserted in paragraph 5(a) represents an automatic end to negotiations that have not previously culminated in an executed agreement. Presumably, that was the intent of the buyers when they submitted their offer and presumably that date was an ending date that the sellers endorsed when making a counteroffer. But that intent changed as the parties continued negotiating. When the listing agent inquired about the status on October 19, he expressed satisfaction that the buyers were still considering the counteroffer by responding “great, let me know.”

This fairly signaled the sellers’ intent to waive the “on or before October 19 requirement. When October 19 passed, sellers took no action to communicate that the negotiations were terminated and that their counteroffer was rescinded. Instead, the listing agent invited a response, though late, and the sellers themselves laid back and waited for the buyers’ response to their counteroffer. Only after receiving a second offer did their position change and only then did they seek to take the position that any reply to the counteroffer after October 19 was untimely.

I believe that the buyers’ acceptance of the sellers’ counteroffer prior to the sellers’ effort to terminate negotiations constitutes a binding agreement.

So why do we have paragraph 5(a) in the agreement? It clearly signals the offeror’s intent that negotiations be concluded by a certain date. I would encourage, however, any party intending to enforce that limitation take a second step. When the date arrives and an agreement has not been achieved, the party seeking to bow out should immediately signal to the other that the offer (or counteroffer) is withdrawn so that no contract can be deemed to exist by a later acceptance.