Seller Tom in Nashville lists his home and receives two simultaneous offers: Offer A from buyer Chen for $350,000 with no contingencies, and Offer B from buyer Rivera for $360,000 contingent on the sale of Rivera's current home. Tom's broker-in-charge advises Tom to sign Offer A and also send a counteroffer to Rivera at $360,000 without contingencies. Tom does exactly this. Which of the following best describes the legal situation?
Correct Answer
A) Tom has a binding contract with Chen, and Rivera received a new counteroffer that Rivera may accept or reject
When Tom accepted Offer A from Chen and communicated that acceptance, a binding contract was formed with Chen. Simultaneously sending a counteroffer to Rivera (changing the terms by removing the contingency) does not create a second binding contract — it is merely a new offer from Tom to Rivera. Rivera can accept, reject, or counter. If Rivera accepts Tom's counteroffer, Tom would be in breach of his contract with Chen, but legally only one binding contract exists at this moment: the one with Chen.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
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