CORBIN ON CONTRACTS, Vol. 1, Rel. 20S2

2021-04-29T09:36:00Z

Publication Update

Publication 63310 Release 20S2, December 2020

Warren’s Forms of Agreements Fern’s Desk Edition

Chapter 5 Intellectual Property Transactions

New forms have been added.

Chapter 5, Intellectual Property Transactions. The following new Forms have replaced some existing forms:

Form 5.1.01, General Form of Trademark License.
Form 5.1.02, Apparel License Agreement with Minimum Performance Standards.
Form 5.1.03, Comprehensive Jewelry Trademark License Agreement.

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CORBIN ON CONTRACTS

FORMATION OF CONTRACTS

Timothy Murray

Partner
Murray, Hogue & Lannis
Pittsburgh, Pennsylvania

Volume 1

REVISED EDITION

§§ 1.1–4.14

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PREFACE TO THE REVISED EDITION

For several years, every time Professor John Murray and I prepared the biannual supplements for this treatise, we noticed that the supplement for one volume in particular—this volume—grew at a markedly faster pace than the others. No surprise—this volume includes offer and acceptance, the guts of contract law. But when the supplement gets bigger than the main volume, it is time to revise the main volume.

How does one approach the revision of an iconic work justifiably hailed as “the greatest law book ever written”?1 In this case, the question scarcely survived its statement. The jurisprudence of offer and acceptance has been “Corbinized.” The sheer number of judicial decisions that cite to this portion of the treatise attest to that. Often “Corbin” principles are espoused in judicial decisions that don’t cite to this treatise but to other judicial decisions, and one has to go back several layers of decisions to find that the language originated with Corbin. Since Professor Corbin’s philosophy and his language are embedded in the DNA of offer and acceptance, it would be foolhardy to tamper with his text other than where necessary.

But make no mistake, this is a robust revision. It includes a cornucopia of noteworthy precedents handed down in the quarter century since the last revision. Certain sections of this volume required more extensive revision than others. For example, § 3.37, which deals with two subjects: dreaded U.C.C. § 2-207 (the “battle of the forms”), which continues to confound judges and the commercial bar a half century after it became law, and the “rolling contract theory,” which then-Judge Neil Gorsuch said, “may be about as controversial an idea as exists today in the staid world of contract law.”2 In addition, new § 2.12 deals with legal conundrums spawned by the e-commerce revolution and the evolving landscape of retail with “in-the-box” contracting. And a veritable explosion of cases dealing with preliminary agreements required that §§ 2.8 and 2.9 be extensively reworked.

As a trustee of the Corbin legacy, it was my job to ensure that this volume is not a cluster of string citations plopped into the text without scrutiny. To do that would dishonor the Corbin philosophy, which holds that facts are more important than black letter law,3 and that black letter law is nothing more than “tentative working rules.”4 In writing the original edition of this treatise, Professor Corbin painstakingly pored over what he called the “stubborn and impressive”5 facts of significant judicial decisions, and this revision continues to do that.

Although I assembled this volume, and any shortcomings are mine alone, the shadow of three titans of contract law loom over it: Professor Arthur Linton Corbin, whose meticulous research and incalculable scholarship remain its core; Professor John E. Murray, Jr., with whom I co-authored the supplements for this treatise for many years; and Professor Joseph M. Perillo, author of the 1993 revision of this volume.

I am indebted to my incomparable editor, James Motley, both for his guidance and his unstinting assistance; the esteemed commercial lawyer Jon Hogue for his advice and guidance; my trusted colleague, attorney Michelle Smith, for her assistance; and Carol Murray, who did more to help with this revision than it is possible to chronicle.

Timothy Murray

Pittsburgh, Pennsylvania

2018

Footnotes:

1 Grant Gilmore, The Death of Contract at 64 (2nd ed. 1995).

2 Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 982 (10th Cir. 2014).

3 Arthur L. Corbin, Corbin on Contracts, § 1303 (one vol. ed. 1952).

4 Arthur L. Corbin, Sixty-Eight Years at Law, 13 U. Kan. L. Rev. 183, 194–95 (1964).

5 Id.

Volume 1 Summary of Contents

A COMPLETE SYNOPSIS FOR EACH CHAPTER APPEARS AT THE BEGINNING OF THE CHAPTER

PREFACE TO THE REVISED EDITION

Volume 1 Summary of Contents

PART I. FORMATION OF CONTRACTS

DISPOSITION TABLE

CHAPTER 1 — PRELIMINARY DEFINITIONS

§ 1.1. The Main Purpose of Contract Law Is the Realization of Reasonable Expectations Induced by Promises

§ 1.2. Legal Obligation Defined

§ 1.3. Definition of the Term “Contract”

§ 1.4. Contracts of Adhesion

§ 1.5. Formal and Informal Contracts

§ 1.6. Voidable Contracts

§ 1.7. Void Contracts

§ 1.8. Unenforceable Contracts

§ 1.9. Agreement Defined

§ 1.10. “Bargain” as a Contractual Expression

§ 1.11. Offer Defined

§ 1.12. Simultaneous Expressions of Assent: Contracts Without Offer and Acceptance

§ 1.13. What Is a Promise?

§ 1.14. Promise and Warranty

§ 1.15. Expressions of Intention, Hope, Desire, or Opinion

§ 1.16. Letters of Intent

§ 1.17. Illusory Promises

§ 1.18. Assumpsit: Implied Assumpsit, Indebitatus or General Assumpsit, Special Assumpsit

[1] Implied Assumpsit

[2] Indebitatus or General Assumpsit

[3] Special Assumpsit

§ 1.19. Express and Implied Contracts

§ 1.20. Contract and Quasi Contract Distinguished

[1] Quasi Contract as a Source of Primary Rights

[2] Quasi Contract as a Remedial Device for Unwinding Failed Agreements

§ 1.21. General Contract Law, The Uniform Commercial Code, and the United Nations Convention on Contracts for the International Sale of Goods.

[1] General Contract Law and the Restatements

[2] The Uniform Commercial Code

[3] The United Nations Convention

§ 1.22. The Uniform Commercial Code as a Source of Common Law

§ 1.23. Unilateral Contracts Distinguished From Bilateral

TOPIC A. OFFER AND ACCEPTANCE

CHAPTER 2 — OFFERS; CREATION AND DURATION OF POWER OF ACCEPTANCE

§ 2.1. Preliminary Negotiation

§ 2.2. Preliminary Communications Compared to Offers—Interpretation

§ 2.3. Request for an Offer Is Not an Offer—Auctions and Solicited Offers

§ 2.4. Advertisements as Offers

§ 2.5. Quotation of Prices; Estimates

§ 2.6. Authority or Instructions to an Agent

§ 2.7. Offers at the Supermarket or Self-Service Shop

§ 2.8. Preliminary Agreements Part I—Agreements to Negotiate

§ 2.9. Preliminary Agreements Part II—Agreements to Agree, Formal Document Contemplated by the Parties

[1] The Corbin Classification

[2] Other Tests

[3] Two Overarching Questions

§ 2.10. What Constitutes a Written Contract—There May Be a Series of Communications

§ 2.11. Delivery of a Document as the Final Expression of Assent

§ 2.12. Contractual Terms in Non-Contractual Documents

[1] Non-Contractual Documents: Contractual Provisions Not Enforced Due to Absence of Actual or Inquiry Notice.

[2] Contractual Terms in Non-Contractual Documents in the 21st Century: “Browsewrap” Contracts

[3] Contractual Terms in Non-Contractual Documents in the 21st Century, Part II: “In-the-Box” Contracts

§ 2.13. Intention to Affect Legal Relations—Non-Commercial Engagements

§ 2.14. Duration of Power of Acceptance Created by an Offer

§ 2.15. Missed Deadlines in Option Contracts

§ 2.16. Reasonable Time for Acceptance

§ 2.17. Effect of Delay in the Delivery of an Offer

§ 2.18. Offers Are Usually Revocable

§ 2.19. Notice of Revocation Necessary

§ 2.20. Revocation Otherwise Than by Direct Notice

§ 2.21. Revocation of General Offer by Publication

§ 2.22. Irrevocable Offers—Meaning of “Irrevocable”

§ 2.23. Options Created by a Conditional Contract or Covenant

§ 2.24. Contract to Keep an Offer Open

§ 2.25. Effect of the Rule Against Enhancement of Damages

§ 2.26. Offers Made Irrevocable by Statute and Public Policy

§ 2.27. Deposits to Be Forfeited in Case of Revocation

§ 2.28. Irrevocable Offers Under Seal

§ 2.29. Revocation After Part Performance or Tender by the Offeree

§ 2.30. Real Estate Brokerage and Other Agency Cases

§ 2.31. Effect of Action in Reliance That Is Not Part Performance

§ 2.32. Part Performance and the Indifferent Offer

§ 2.33. When a Standing Offer of a Series of Separate Contracts Is Irrevocable

§ 2.34. Effect of Death or Insanity on Power of Acceptance

CHAPTER 3 — ACCEPTANCE AND REJECTION OF OFFER

§ 3.1. Two Parties Necessary for a Contract, a Promisor and a Promisee

§ 3.2. In a Bargaining Transaction, Only the Offeree Has Power to Accept

§ 3.3. Assignment of Power by an Option Holder—Irrevocable Offers

§ 3.4. Motive With Which Offeree Renders Performance

§ 3.5. Knowledge of Offer as a Pre-requisite to Acceptance

§ 3.6. Knowledge of the Offer After Part Performance Already Rendered

§ 3.7. Acceptance “Subject to Approval” by a Third Party

§ 3.8. Acceptance by Overt Act

§ 3.9. Unilateral Contract—Acceptance by Beginning Requested Performance

§ 3.10. Acceptance of a Published Offer of a Reward for Action or Contest Prize

§ 3.11. When the Words “I Accept Your Offer” Would Be Ineffective

§ 3.12. Acceptance by Forbearance From Action

§ 3.13. When Notice of Acceptance Is Necessary

§ 3.14. Notice as a Requisite of Guaranty and Letters of Credit

§ 3.15. Notice as a Condition Distinguished From Notice as an Acceptance

§ 3.16. Offer of a Promise, Requesting Non-promissory Action in Return

§ 3.17. Offer of an “Act” for a Promise

§ 3.18. Silence as a Mode of Acceptance

§ 3.19. Can Offeror Make Silence Operate as Acceptance?

§ 3.20. Belated or Conditional Acceptance Followed by Offeror’s Silence

§ 3.21. Silence Plus Additional Circumstances

§ 3.22. Multiple Acceptances

§ 3.23. Alternative Modes of Acceptance

§ 3.24. Acceptance by Post

§ 3.25. Acceptance by Telephone or Electronic Means

§ 3.26. Withdrawal of a Letter of Acceptance From the Mails

§ 3.27. Acceptance by Telegraph—When Operative

§ 3.28. Acceptance Must Manifest Assent and Be Unconditional

§ 3.29. An Acceptance May Be Unconditional Even Though the Acceptor Makes a Conditional Promise

§ 3.30. Acceptance Not Conditional, Even Though Grumbling or Accompanied by a Request or by a New Offer

§ 3.31. Subsequent Erroneous Interpretation Does Not Make an Acceptance Conditional

§ 3.32. Attempts by the Offeree to Restate in the Acceptance the Terms of the Offer

§ 3.33. Attempts by the Offeree to State in the Acceptance the Legal Operation of the Agreement

§ 3.34. Mode of Acceptance Can Be Prescribed by the Offeror

§ 3.35. Counter-Offers and Their Effect

§ 3.36. Power to Accept an Offer Is Terminated by a Counter-Offer or Conditional Acceptance

§ 3.37. The “Battle of the Forms”; “Terms Later” Contracting

§ 3.38. A Counter-Offer or Rejection by One Who Has a “Binding Option” or an Irrevocable Offer Does Not Terminate the Power of Acceptance

§ 3.39. Power of Acceptance Not Terminated by a Counter-Offer if Either Offeror or Offeree So Prescribes

§ 3.40. Inquiries and Separate Offers Distinguished From Counter-Offers

§ 3.41. Effect of Rejection of an Offer

CHAPTER 4 — INDEFINITENESS AND MISTAKE IN EXPRESSION

§ 4.1. Vagueness and Indefiniteness of Terms

§ 4.2. Time of Performance Indefinite—Promises of “Permanent” Employment—At Will Employment

§ 4.3. Indefiniteness of Price or Terms of Payment—Money as a Commodity

§ 4.4. Agreed Methods of Determining the Price or Amount

§ 4.5. Reasonable Price—Quasi-Contractual Remedy After Performance

§ 4.6. Uncertainty of Subject Matter to Be Exchanged for Price; Requirements and Output Contracts

§ 4.7. Effect of Subsequent Verbal Clarification or Action by the Parties

§ 4.8. Subsequent Action May Create a Quasi Contract

§ 4.9. Mistake—Difficulty and Complexity of the Subject

§ 4.10. Mistake as to the Words Used, or as to the Meaning Given to Words and Expressions

§ 4.11. Mistake in Transmission of Messages

§ 4.12. Objective and Subjective Theories

§ 4.13. Mutual Assent—“Meeting of the Minds”

§ 4.14. Auction Sales—Offers to Sell and to Buy

DISPOSITION TABLE

Volume 1 (§§ 1.1–4.14)

Original Edition	1993 Edition	Current Edition
1	1.1	1.1
2	1.2	1.2
3	1.3	1.3
4	1.3	1.3
5	1.5	1.5
6	1.6	1.6
7	1.7	1.7
8	1.8	1.8
9	1.9	1.9
10	1.10	1.10
11	1.11	1.11
12	1.12	1.12
13	1.13	1.13
14	1.14	1.14
15	1.15	1.15
16	1.17	1.17
17	1.18	1.18
18	1.19	1.19
19	1.20	1.20
19A	1.20	1.20
20	1.18	1.18
20A	1.22	1.22
21	1.23	1.23
21A	1.22	1.22
21B	1.22	1.22
21C	1.22	1.22
22	2.1	2.1
23	2.2	2.2
24	2.3	2.3
24A	2.3	2.3
24B	2.31	2.31
25	2.4	2.4
26	2.5	2.5
27	2.6	2.6
28	2.4	2.4
29	2.8	2.8 and 2.9
30	2.9	2.9
31	2.10	2.10
32	2.11	2.11
33	2.12	___
34	2.13	2.13
35	2.14	2.14
35A	2.15	2.15
36	2.16	2.16
37	2.17	2.17
38	2.18	2.18
39	2.19	2.19
40	2.20	2.20
41	2.21	2.21
42	2.22	2.22
43	2.23	2.23
44	2.24	2.24
45	2.25	2.25
46	2.26	2.26
47	2.27	2.27
48	2.28	2.28
49	2.29	2.29
50	2.30	2.30
51	2.31	2.31
52	2.31	2.31
53	2.33	2.33
54	2.34	2.34
55	3.1	3.1
56	3.2	3.2
57	3.3	3.3
58	3.4	3.4
59	3.5	3.5
60	3.6	3.6
61	3.7	3.7
62	3.8	3.8
63	3.9	3.9
64	3.10	3.10
65	3.11	3.11
66	3.12	3.12
67	3.13	3.13
68	3.14	3.14
69	3.15	3.15
70	3.16	3.16
71	3.17	3.17
72	3.18	3.18
73	3.19	3.19
74	3.20	3.20
75	3.21	3.21
75A	3.21	3.21
75B	3.37	3.37
76	3.22	3.22
77	3.23	3.23
78	3.24	3.24
79	3.25	3.25
80	3.26	3.26
81	3.27	3.27
82	3.28	3.28
83	3.29	3.29
84	3.30	3.30
85	3.31	3.31
86	3.32	3.32
87	3.33	3.33
88	3.34	3.34
89	3.35	3.35
90	3.36	3.36
91	3.38	3.38
92	3.39	3.39
93	3.40	3.40
94	3.41	3.41
95	4.1	4.1
96	4.2	4.2
97	4.3	4.3
98	4.4	4.4
99	4.5	4.5
100	4.6	4.6
101	4.7	4.7
102	4.5	4.5
103	4.9	4.9
104	4.10	4.10
105	4.11	4.11
106	4.12	4.12
107	4.13	4.13
108	4.14	4.14

«Pt. I •«Ch. 1 »

1 Corbin on Contracts Ch. 1 (2020)

CHAPTER 1

PRELIMINARY DEFINITIONS

Table of Sections

§ 1.1. The Main Purpose of Contract Law Is the Realization of Reasonable Expectations Induced by Promises

§ 1.2. Legal Obligation Defined

§ 1.3. Definition of the Term “Contract”

§ 1.4. Contracts of Adhesion

§ 1.5. Formal and Informal Contracts

§ 1.6. Voidable Contracts

§ 1.7. Void Contracts

§ 1.8. Unenforceable Contracts

§ 1.9. Agreement Defined

§ 1.10. “Bargain” as a Contractual Expression

§ 1.11. Offer Defined

§ 1.12. Simultaneous Expressions of Assent: Contracts Without Offer and Acceptance

§ 1.13. What Is a Promise?

§ 1.14. Promise and Warranty

§ 1.15. Expressions of Intention, Hope, Desire, or Opinion

§ 1.16. Letters of Intent

§ 1.17. Illusory Promises

§ 1.18. Assumpsit: Implied Assumpsit, Indebitatus or General Assumpsit, Special Assumpsit

[1] Implied Assumpsit

[2] Indebitatus or General Assumpsit

[3] Special Assumpsit

§ 1.19. Express and Implied Contracts

§ 1.20. Contract and Quasi Contract Distinguished

[1] Quasi Contract as a Source of Primary Rights

[2] Quasi Contract as a Remedial Device for Unwinding Failed Agreements

§ 1.21. General Contract Law, The Uniform Commercial Code, and the United Nations Convention on Contracts for the International Sale of Goods.

[1] General Contract Law and the Restatements

[2] The Uniform Commercial Code

[3] The United Nations Convention

§ 1.22. The Uniform Commercial Code as a Source of Common Law

§ 1.23. Unilateral Contracts Distinguished From Bilateral

«Pt. I •«Ch. 1 »•§ 1.1 »

1 Corbin on Contracts § 1.1 (2020)

§ 1.1. The Main Purpose of Contract Law Is the Realization of Reasonable Expectations Induced by Promises

The underlying purpose of law and government is human happiness and contentment, to be brought about by the satisfaction of human desires in the highest practicable degree. It has been found that this end can best be attained, in cases where there are conflicting human interests and desires, by establishing a judicial and administrative system that acts with a reasonable degree of uniformity. It is impossible that this uniformity should be absolute and perfect; the judges and other officers who are the agents of society in the process of reconciling interests and in distributing satisfaction of desires are mere human beings, with all of the ordinary human limitations; and the cases arising before these judges and other officers have a diversity that continually increases with the development of our modern civilization.

That portion of the field of law that is classified and described as the law of contracts attempts the realization of reasonable expectations that have been induced by the making of a promise.1 Doubtless, this is not the only purpose which motivated the creation of the law of contracts; but it is believed to be the main underlying purpose, and it is believed that an understanding of many of the existing rules and a determination of their effectiveness require a lively consciousness of this underlying purpose.

There has been much commentary on the role of contract law in protecting the reliance interest of promisees, that is, redressing the injury caused by a promisee’s conduct in reliance on an unfilled promise.2 Rarely, however, is there a conflict between the promisee’s expectancy and reliance interests. Indeed, as explained in a very influential law review article,3 one of the chief rationales for protecting the reasonable expectations of promisees is to promote and facilitate reliance on agreements.

The essence of a credit economy lies in the fact that it tends to eliminate the distinction between present and future (promised) goods. Expectations of future values become, for purposes of trade, present values. In a society in which credit has become a significant and pervasive institution, it is inevitable that the expectancy created by an enforceable promise should be regarded as a kind of property, and breach of the promise as an injury to that property. In such a society the breach of a promise works an “actual” diminution of the promisee’s assets—“actual” in the sense that it would be so appraised according to modes of thought which enter into the very fiber of our economic system. That the promisee had not “used” the property which the promise represents (had not relied on the promise) is as immaterial as the question whether the plaintiff in trespass quare clausum fregit was using his property at the time it was encroached upon. The analogy to ordinary forms of property goes further, for even in a suit for trespass the recovery is really for an expectancy, an expectancy of possible future uses. Where the property expectancy is limited (as where the plaintiff has only an estate for years) the recovery is reduced accordingly. Ordinary property differs from a contract right chiefly in the fact that it lies within the power of more persons to work a direct injury to the expectancy it represents. It is generally only the promisor or someone working through or upon him who is able to injure the contract expectancy in a direct enough manner to make expedient legal intervention.

It may be said that there is not only a policy in favor of preventing and undoing the harms resulting from reliance, but also a policy in favor of promoting and facilitating reliance on business agreements. As in the case of the stop-light ordinance we are interested not only in preventing collisions but in speeding traffic. Agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. When business agreements are not only made but are also acted on, the division of labor is facilitated, goods find their way to the places where they are most needed, and economic activity is generally stimulated. These advantages would be threatened by any rule which limited legal protection to the reliance interest. Such a rule would in practice tend to discourage reliance. The difficulties in proving reliance and subjecting it to pecuniary measurement are such that the business man knowing, or sensing, that these obstacles stood in the way of judicial relief would hesitate to rely on a promise in any case where the legal sanction was of significance to him. To encourage reliance we must therefore dispense with its proof. For this reason it has been found wise to make recovery on a promise independent of reliance, both in the sense that in some cases the promise is enforced though not relied on (as in the bilateral business agreement) and in the sense that recovery is not limited to the detriment incurred in reliance.

The law does not attempt the realization of every expectation that has been induced by a promise; the expectation must be a reasonable one. Under no system of law that has ever existed are all promises enforceable. The expectation must be one that most people would have; and the promise must be one that most people would perform. This necessarily leads to a complexity in the law, to the construction of the various rules determining the circumstances under which a promise is said to be enforceable and those under which its performance will be excused.

It must not be supposed that contract problems have been solved by the dictum that expectations must be “reasonable.” Reasonableness is no more absolute in character than is justice or morality. Like them, it is an expression of customs and mores—the customs and mores that are themselves complex, variable with time and place, inconsistent and contradictory. Nevertheless, the term is useful, giving direction to judicial research, and producing workable results. The reasonably prudent person, reasonable care and diligence, reasonable expectations, are terms that are not to be abandoned, at least until we can demonstrate that others will work better.

Not all promises are enforceable even though the expectations of the promisee and third parties are reasonable. Law is a human institution; and the machinery for its administration is human machinery. This means that there are imperfections and uncertainties and variation and inconsistency. Sometimes a promise will not be enforced by one of the customary remedies, even though another remedy may be granted. Thus, there are cases in which a judgment for damages is obtainable, but a decree for specific performance is not. In other cases a decree for specific performance is obtainable even though the remedy in damages is not. A promise may become unenforceable by reason of the mere passage of time, in accordance with some statute of limitation. This may be the case however reasonable it may be for the promisee still to expect performance.

It cannot truthfully be said that the law operates uniformly with respect to the promises of the rich and the poor, the employer and the employee. Sometimes the rich can escape enforcement by reason of their ability to employ the ablest counsel or to prolong litigation. More often, however, the poor can escape enforcement when the rich cannot. Judges as well as juries moderate the operation of the law in favor of the poor as against the rich. In our country, it is the comparatively poor who determine what the law is. As between an employer and his employees, the contract may, as a practical matter, be substantially unenforceable against the latter. Battles have been fought for the system called “collective bargaining.”

By the foregoing, it is not meant that injustice prevails or that there is no law. For all humankind, justice is relative, not absolute. In spite of the long tradition that “justice” is absolute and eternal, the tradition has always been incorrect. Fiat justitia ruat coelum is a phrase impressive mainly because of its being in Latin and not understandable. When the skies begin to fall, Justice removes the blindfold from her eyes and tilts the scales.

The protection of reasonable expectations finds many concrete applications. The following catalog is illustrative and by no means exhaustive. Contract rights are generally assignable; so firm is the protection of the promisee’s expectations that such rights are treated as transferable assets.4 Damages for breach of contract are normally measured by the value of the aggrieved party’s reasonable expectations.5 It has been held that despite technical noncompliance with rules of contract formation, reasonable expectations may be given legal effect where noncompliance has caused no injury.6 Similarly, the reasonable expectations of the parties will be examined to determine whether a contract has been formed by a course of conduct between the parties.7 Most importantly, provisions of mass-produced standardized agreements are not automatically given effect if they are at variance with the reasonable expectations of the party who did not prepare the document.8 Conversely, where a literal-minded reading of a contractual term would give a party more than is reasonably expectable, an interpretation of the contract as a whole may result in the refusal of the court to accept a literal interpretation of the term.9

(A) The following case cites this treatise:

(1) Teufel v. Am. Family Mut. Ins. Co., 2018 Ariz. LEXIS 187 (June 14, 2018). Teufel built a home, then sold it and moved. The buyer subsequently sued Teufel for alleged negligent excavation, and Teufel sought coverage under his personal liability policy. An exclusion in his personal liability policy provided: “Contractual Liability. We will not cover personal liability under any contract or agreement.” The trial court concluded that the builder-vendor’s potential liability for negligence was “necessarily ‘under a contract’ ” because liability would not exist “absent the underlying real estate purchase contract.” The intermediate appellate court disagreed, and on appeal to the instant court, the court also sided with the builder-vendor. The court framed the question before it: “[W]hether a policy exclusion for personal liability ‘under any contract or agreement’ relieves an insurer of defending its insured, an alleged builder-vendor, against a claim for negligent excavation brought by the home buyer.” The insurer argued that the word “under” in the exclusion should be broadly interpreted to mean that the exclusion applies to liability that could not exist “but for” a contract “irrespective of whether the liability is related to or independent of the contract.” The builder-vendor, on the other hand, argued that “under” should be construed narrowly—and that it should refer to liability governed solely by a contract. The instant court concluded that both parties’ arguments were reasonable, but it sided with the builder-vendor. The court invoked his reasonable expectations in support of its holding: “An insured’s reasonable expectations under this policy … suggest that the contractual liability exclusion does not apply to liability based on a stand-alone tort claim that is viable apart from any contract between the injured party and the insured. Nothing in the exclusion suggests such a restriction.” The court noted that “the exclusion is titled ‘Contractual Liability.’ Cf. Darner Motor Sales, Inc. v. Universal Underwriters Ins., 140 Ariz. 383, 389, 682 P.2d 388 (1984) (recognizing that ‘reasonable expectations’ are those ‘induced by the making of a promise’ (quoting 1 Arthur L. Corbin, Corbin on Contracts § 1, at 2 (1963))).” The court concluded that “an insured would reasonably expect the insurer to defend against a stand-alone tort claim despite the existence of a contract with the injured party.” The court also strictly construed the contract against the insurer—as the drafter, it was in a position to utilize more exact language to express its “but for” interpretation, but it failed to do so. The court concluded that “the exclusion does not absolve [the insurer] of its duty to defend an insured against stand-alone tort claims.”

Footnotes — § 1.1:

Mass.

—Downer & Co., LLC v. STI Holding, Inc., 76 Mass. App. Ct. 786, 927 N.E.2d 471 (2010). Defendant engaged plaintiff, an investment banking firm, to assist it in raising capital. A dispute arose over how much compensation the defendant owed the plaintiff under the contract. A jury awarded the plaintiff contractual damages. On appeal, the court reviewed whether the result was consistent with the reasonable expectation of the parties when they entered into the contract. Citing § 1.1 of the Corbin treatise (1993 ed.), the court explained that the “ ‘portion of the field of law that is classified and described as the law of contracts attempts the realization of reasonable expectations that have been induced by the making of a promise.’ ” 76 Mass. App. Ct. at 797, 927 N.E.2d at 480. The court found that the plaintiff had no reasonable expectation to receive a portion of the money it was awarded, and it remanded the case for a new judgment to be entered.

Minn.

—Starlite L. P. v. Landry’s Seafood Restaurants, Inc., 780 N.W.2d 396, 398 (Minn. App. 2010). Citing § 1.1, 1993 ed., the court stated, “A fundamental purpose of contract law is to protect the reasonable expectations of the parties who enter into a bargain which, in turn, promotes and facilitates business arrangements.”

N.Y.

—Ronan Assocs. v. Local 94-94A-94B, 24 F.3d 447 (2d Cir. 1994) (manifest, not undisclosed intention, controls contract formation; the principal purpose of the law of contracts is realization of reasonable expectations induced by a promise).

Harpercollins Publ. v. Arnell, 2009 NY Slip Op 50794U, 23 Misc. 3d 1117A, 886 N.Y.S.2d 71 (2009). HarperCollins alleged that Arnell breached a book publishing contract by failing to submit a complete manuscript by the deadline set in the contract, and it sought the return of $100,000 paid as an advance on royalties from the book, plus interest and attorneys’ fees. Arnell submitted a manuscript of 25,000 words whereas the contract called for a complete manuscript, suitable for a book of approximately 80,000 words. The court cited this treatise, noting that a search for the parties’ intent meant a realization of their reasonable expectations. The court explained that the contract required a manuscript that approximated the anticipated length of the book, i.e., approximately 80,000 words, or about 320 pages. Though “approximately” allows for flexibility, the 80,000 word requirement is not satisfied by the delivery of 25,000 words.

N.C.

—Crosby v. City of Gastonia, 635 F.3d 634 (4th Cir. 2011).

S.C.

—Bell v. Progressive Direct Ins. Co., 407 S.C. 565 (2014). Petitioner was injured in a car accident while riding as a passenger in a vehicle driven by a co-employee. He submitted a claim for UIM benefits under an insurance policy issued to “his on again off again fiancé” with whom he resided. The claim was denied. The policy explicitly provided for coverage for an “insured person,” and petitioner was not a named insured. The court rejected his argument that he was a “named insured” under the policy based on the doctrine of reasonable expectations since the doctrine could not be reconciled with the rule that unambiguous insurance policies are subject to the traditional rules of contract construction. The court cited this treatise, § 1.1, 1993 ed., regarding the realization of reasonable expectations but noted the doctrine does not contemplate the expansion of insurance coverage on a general equitable basis. Nor can it be used to alter the plain terms of an insurance policy.

2 See, e.g., Patrick S. Atiyah, Promises, Morals and Law (1981); Grant Gilmore, The Death of Contract (1974).

3 Lon L. Fuller and William R. Perdue, The Reliance Interest in Contract Damages: 1, 46 Yale L.J. 52, 59–62 (1936).

4 Discussed in Vol. 9, Ch. 49.

5 Discussed in Vol. 11, Ch. 55.

6 See, e.g., Adams v. Waddell, 543 P.2d 215 (Alaska 1975).

7 Brown Brothers Electr. Contractors, Inc. v. Beam Constr. Co., 41 N.Y.2d 397, 393 N.Y.S.2d 350, 361 N.E.2d 999 (1977).

8 Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984); C & J Fertilizer, Inc. v. Allied Mutual Ins. Co., 227 N.W.2d 169 (Iowa 1975); Estrin Constr. Co., Inc. v. Aetna Cas. & Sur. Co., 612 S.W.2d 413 (Mo. App. 1981).

See Andersen v. Highland House Co., 93 Ohio St. 3d 547, 757 N.E.2d 329 (2001). The Supreme Court of Ohio held that language in an insurance policy did not clearly, specifically, and unambiguously state that coverage for residential carbon monoxide poisoning was excluded. While the court refrained from making a determination on the merits of the “reasonable expectations” doctrine that has been adopted by numerous courts in determining the enforceability of terms in insurance policies that may be ambiguous or masked by technical or obscure language (see, e.g., Max True Plastering Co. v. United States Fid. & Guar. Co., 912 P.2d 861 (Okla. 1996), and cases cited therein), the court suggested that the rationale of that doctrine could apply to the case before it, quoting from Restatement (Second) of Contracts, § 211 cmt. f (Am. Law Inst. 1981) (757 N.E.2d at 333). Parties are not bound by unknown terms in standardized agreements that are beyond the range of reasonable expectation. Similarly, a party who adheres to the other party’s standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction.

9 Tantleff v. Truscelli, 110 A.D.2d 240, 493 N.Y.S.2d 979 (2d Dept.1985), aff’d, 69 N.Y.2d 769, 513 N.Y.S.2d 113, 505 N.E.2d 623.

«Pt. I •«Ch. 1 »«§ 1.2 »

1 Corbin on Contracts § 1.2 (2020)

§ 1.2. Legal Obligation Defined

It is commonly said that even though there have been expressions of mutual assent, a contract cannot exist unless there is also a legal obligation. This is often defined in purely figurative language. An obligation is “a legal bond or tie.” It is a vinculum juris. It is indeed hard to avoid the use of figurative language like this, and for merely literary purposes, it is not desirable to avoid it. While historically the expression may have been more than a metaphor,1 today an obligation is neither a rope nor a chain.

In English legal history, the term “obligation” has been used in a variety of senses. At times it has meant a formal document, such as a sealed bond. Again, it has meant the entire group of jural relations created by certain facts, usually expressions of agreement. The tendency has been to narrow its usage, so that it has come to be an almost exact synonym of the term “legal duty.” This is a term that should be used solely as a correlative of the term legal right. If a duty (obligation) exists, it is a duty to some person who has a right against the one subject to the duty. If a legal right exists, it is a right against some person who is under a duty to the one having the right. These two correlative terms express a legal relation between the two persons, this relation consisting of certain specific facts of a kind such as have in the past caused organized society to give remedies against the duty bearer in favor of the right holder.2 This is what is meant by vinculum juris, and by “control” that the holder of the right has over the bearer of the duty. Past judicial and legislative history enables us to look at the specific facts and predict that A can get judgment against B if the latter does not perform as promised. Legal relations are merely existing facts of life viewed in the light of a past uniformity of social action, that enable us to predict similar action in the future with respect to two or more persons.3

Footnotes — § 1.2:

1 See Raoul Berger, From Hostage to Contract, 35 Ill. L. Rev. 154 (1940).

2 See Wesley N. Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning (1919) and Arthur L. Corbin’s Foreword to the 1964 and later reprints of Hohfeld’s work.

3 “Contracts are private, voluntary allocations by which two or more parties distribute specific entitlements and obligations.” Johnson v. Scandia Assocs., 717 N.E.2d 24, 29 (Ind. 1999) (citing §§ 1.2 and 1.3, 1993 ed.). “A contract expresses the legal relationship between parties manifested by their assent and which organized society recognizes as giving remedies to the holder of a right against the bearer of a legal obligation.” New Welton Homes v. Eckman, 830 N.E.2d 32, 34–35 (Ind. 2005) (citing §§ 1.2 and 1.3, 1993 ed.).

«Pt. I •«Ch. 1 »«§ 1.3 »

1 Corbin on Contracts § 1.3 (2020)

§ 1.3. Definition of the Term “Contract”

This term has been defined in a good many different ways. Definitions have been constructed by almost all writers on law and in many thousands of judicial opinions.1 The fact that these definitions are not in agreement has led occasionally to a little confusion; but the harm is not so great as might be expected. Diversity of definition does at times lead to a confused analysis, obscure reasoning, and to unnecessary misunderstanding and litigation. This is, of course, socially harmful; and it occasionally leads to an unjust decision and to uncertainty in the law. It is a very common error to suppose that legal terms, such as contract, have one absolute and eternally correct definition. The fact is that all such terms have many usages, among which everyone is free to select. One usage is to be preferred over another only in so far as it serves our necessity and convenience.2

A study of its common usage will show that the term “contract” has been made to denote three different kinds of things in various combinations: (1) the series of operative acts of the parties expressing their assent, or some part of these acts; (2) a physical document executed by the parties as an operative fact in itself and as lasting evidence of their having performed other necessary acts expressing their intention; (3) the legal relations resulting from the operative acts of the parties, always including the relation of right in one party and duty in the other.

The most quoted definition of the term “contract” is that found in Section 1 of both the first and second Restatements of Contracts: “[a] contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”3 This definition does not inform us as to what kind of facts will be operative to create contractual rights and duties; it merely gives us a mode of describing these operative facts after we have found by other means that they do have legal operation. This definition is not particularly useful, and may be positively misleading. It, along with definitions such as “legally enforceable agreement,”4 attempts to squeeze, often with a shoehorn, and sometimes with a crowbar, the complexity of the topic into the pigeonholes of “promise” or “agreement.”5 There are at least two difficulties with equating contract with promise. First, much of contract involves judicial imposition of solutions to problems the parties have not addressed or which they have addressed in illegal or unconscionable ways. As Judge Learned Hand wrote in 1940:6

Consent had for many years been the cornerstone for much of the political thinking of the time; and to make it serve, the judges had gone to great lengths to discover in contracts an initial acceptance of consequences they felt bound to impose on the promisor. It assuaged harsh results, if one could say that the sufferer had agreed to them in advance, and sophistry, as ever, was a facile handmaiden to authority.

Another difficulty with the equating of contract with promise is that it ignores the array of consensual transactions that can be termed “executed contracts.” The notion that a contract must be a promise stems from the old writ of assumpsit under which the making of a promise was a necessary allegation. But assumpsit is not the sole progenitor of contract. The writ of debt required no allegation that a promise was made. Covenants were used to make binding promises but also to transfer rights in land and chattels as well as to assign and discharge intangible rights. These transactions were, and often still are, called “executed contracts.” Treatises that begin by equating “contract” with “promise,” often proceed inconsistently to discuss the case law dealing with executed as well as executory transactions in connection with many legal problems such as those caused by allegations of infancy, mental disability, fraud, duress and the like, as well as the proper interpretation of instruments evidencing the transaction, the narrow definition not deterring a more realistic vision of a larger universe. Indeed, both Restatements of Contracts, while offering the definition of contract as promise, contain chapters on the assignment and discharge of contract rights. Clearly, assignments, a form of executed non-promissory transactions, are treated in Restatements and treatises entitled “The Law of Contracts,” as are releases and other non-promissory kinds of discharge. Here again, the narrow definition does not deter realistic treatment of the broader topic. Yet, an occasional court or scholar will take the definition too seriously. In so doing, harm may result.

A richer, more helpful, definition is enacted into law by the Uniform Commercial Code for purposes of analyzing transactions dealing with the sales of goods. A fair synthesis of its definitions of “contract”7 and “agreement”8 is: “[c]ontract means the total legal obligation which results from the bargain of the parties in fact as found in their language or by implication from other circumstances, as affected by rules of law.” A more succinct, but related definition has been proposed by Ian Macneil—“the relations among parties to … .exchange.”9 The merit of these definitions is that they acknowledge that a contract establishes a relationship among the contracting parties that goes well beyond their express promises. The promise, or group of promises, or other bargain, is fleshed out by a social matrix that includes custom, trade usage, prior dealings of the parties, recognition of their social and economic roles, notions of decent behavior, basic assumptions shared, but unspoken by the parties, and other factors, most especially including rules of law, in the context in which they find themselves. The entire law of contracts plays a major role in determining the terms of the contract. Macneil’s definition also underscores that the economic core of contract is an exchange. This definition, however, does not indicate the role of law in attaching legal effects to the relationship of the parties. The U.C.C. fully recognizes this role.10

Contract is such a complex subject that a definition may be impossible within the usual space constraints of definitions. Even if a perfect definition were crafted, it would not necessarily be helpful. Nonetheless, the two definitions discussed in the preceding paragraph point away from older ones which attempted to define contract in purely promissory terms and, therefore, give us a more realistic view of what contract is. These definitions propounded by the U.C.C. and Ian Macneil are, however, incomplete in one respect. There are certain contracts that are binding despite the absence of a “bargain” or an exchange. These contracts consist of promises that are enforceable under the doctrines of past consideration and promissory estoppel, both of which are encompassed in the otherwise less helpful definition of the Restatements of Contract.

Commonly accepted definitions of contract often exclude those transactions that may be properly described as barters. The definition of contract enacted into law by the Uniform Commercial Code, however, include barters where at least one party is supplying goods to the other. Although a mutual, present, and fully effective exchange of lands or chattels, without warranties, creates no executory contractual duties, it is useful to look at the transaction both through the lenses of contract and of property. If A has apples to sell and B has money, A may offer the apples to B for the money. B may accept by delivering to A the possession of the money. Such a transaction is a barter. The character of the commodities exchanged is not material. Such a transaction creates new physical relations, and in an organized society it creates new legal relations. These new relations arise by the voluntary action and consent of the two parties; but there is created no special right in one party by which to compel a subsequent performance by the other. Nonetheless, the law of contract will supply much of the analysis and many of the rules if a dispute arises between the parties. Assume the money handed over is counterfeit or the seeds within the apples are sterile when they were believed by both parties to be fit for propagating a new variety. Where would a lawyer turn to determine the rights of the parties? Among the many possible sources, the lawyer might turn to the Restatement (Second) of Contracts and to this treatise for guidance. In a practical working sense, the transaction may be called a contract.

If the term “contract” is used in its secondary sense to denote a document executed by the parties, evidencing their mutual assent, there are many bartering transactions in which such a document that could properly be described as a contract is drawn up. A bill of sale would be a contract in this sense. Its interpretation and construction would be pursuant to the law of contracts.

There is also a property lens to such a transaction. In the case of a fully effective exchange of lands or chattels, there may be no promise made that is ever enforceable at law or that is capable of breach, and there may be no problems of interpretation or of mistake or the like. Such a fully effective exchange, without including any enforceable promise by either party, creates numerous legal relations. These, however, are customarily described as property relations and not as contractual relations. This is because they are relations not merely between the two parties themselves, but between each of those parties and all other persons who are subject to law. The two parties are said to have received rights in rem, a term that is useful, even though likely to mislead some into thinking that such a right is a physical relation to the res. The legal relations created are not special relations between A and B. They involve all persons alike and exist in total independence of the voluntary action or consent of the third persons involved. If, after the completed barter of apples for money, A should forcibly deprive B of the apples sold to him, A is breaking no promise. A is committing no different wrong from that committed by X, if X should do the same; and A is subject to no different penalties. B could maintain no action against A for breach of contract, although B could maintain an action in tort for A’s wrongful conversion of the goods.

What has been said above in relation to barter can, in most respects, be said with equal truth in relation to an executed gift. If A has lands or chattels and executes a gift to B, which B accepts, there are acts of offer and acceptance, and there is mutual assent, but there are no contractual rights and duties. As in the case of a barter, the only rights involved are property rights, or rights in rem. The only duties created are those general duties binding upon non-participating persons as well as upon A. The executed gift creates new legal relations. These arise from the voluntary acts of offer and acceptance; but there is no promise and there is no executory contractual right or duty.

It must be observed, however, that transfers of land or chattels may be accompanied by contractual duties as a part of the same transaction. When this is the case, there is both a contract and a conveyance. Thus, if A has apples, automobiles, or land to sell and B has no money with which to buy, a barter of the property for the money is not possible. However, A may be willing to make a transfer of the property to B in return for B’s promise to pay money in the future. If B agrees to this, promises to pay, and receives a conveyance of the property, B comes under new relations in rem with all other members of ordinary society. At the same time B becomes bound by a special duty in personam to A—a duty that B owes to no other person whatsoever. A’s correlative right against B is a contract right. B’s rights, with respect to the subject matter of the conveyance, are property rights.11

Furthermore, it is very common indeed for a transfer of land or chattels to be accompanied by a warranty of title or of quality, either expressed by the transferor or imposed by law. In such a case, there is a contract as well as a transfer, and the transferee gets both property rights and contract rights.

At times the word “contract” is used to refer to the physical document in which the parties have expressed an agreement to which the law will attach legal consequences. This usage is imbedded in the language and is therefore by no means improper. Lawyers, however, should not confuse the contract with the physical document, which is evidence of the contract, but not the contract itself. The contract in the legal sense is the relationship, not the paper.

In a treatise on contract law, as well as in the decisions of litigated cases, the essential problem is not one of definition; and if a solution appears to have been derived from a definition, there can often be found an “inarticulated major premise” based on opinions as to societal policy—the prevailing mores in business dealings and other social relations. Therefore, to determine whether a “contract” has been made and what are the resulting legal relations is a matter for the entire treatise, not for an introductory chapter. Instead of simplicity and uniformity, we shall find complexity and variation. In the dynamic societies of today, transactions are continually escaping from old forms and patterns; and opinions as to social policy and the general welfare are affected by the conflicts among large groups struggling for a greater share of power, wealth, and other objectives. New classifications are continually required, and old generalizations must be continually limited or replaced. The expression and communication of these rules must be stated in words that can be defined; but the definitions are merely “working definitions” that are useful only insofar as they aid in conveying our thoughts to others, and the rules are merely tentative “working rules” that become confusing and harmful the moment that they cease to work.

(A) The following cases are noteworthy:

(1) Dark Horse Express v. Lancer Ins. Co., 2018 U.S. App. LEXIS 21696 (6th Cir. Aug. 6, 2018). In the course of interpreting a contract, the Sixth Circuit provided a very practical definition of “contract.” Plaintiff Dark Horse, a trucking company, purchased cargo insurance from defendant Lancer Insurance Company. The policy stated that Lancer would pay any amount that Dark Horse “legally must pay” for loss to a customer’s cargo. Dark Horse had a transportation contract with a customer that required Dark Horse to deliver a load of meat. In the course of transporting the meat, the meat was tampered with and partly stolen, and the customer held Dark Horse responsible for the loss per the terms of the transportation contract. The customer did not sue Dark Horse, but Dark Horse demanded that Lancer cover the loss nonetheless. When Lancer refused, Dark Horse sued Lancer, and the district court granted summary judgment for Lancer. The district court held that the policy language required Lancer to cover only payments mandated by court judgments, not contracts such as the instant transportation contract mandating that Dark Horse pay for the loss of the cargo. On appeal, the Sixth Circuit reversed. The court noted that this is a case of contract interpretation, and it resorted to a dictionary, which showed that the word “must” means as “required by law, custom, or moral conscience.” The court concluded that a contract can impose a legal obligation just as a judgment can “since a contract is a promise that ‘the law in some way recognizes as a duty.’ Restatement (Second) of Contracts § 1 (1981).” Interestingly, the court observed that a contract is a substitute for a judgment: “Indeed, contracts exist to create legal obligations, and thus to save parties the expense of reducing every dispute to a court judgment. And when parties go to court, presumably the court simply enforces the contract.” The court concluded that “a party who breaches a contract is obligated-not only morally, but legally-to make the other party whole.” This means that “the phrase ‘legally must pay’ included Dark Horse’s payment obligations under contracts as well as under judgments.” The Sixth Circuit reversed the district court’s judgment and remanded the case. On remand, it instructed the district court to determine whether Dark Horse must pay the customer under the transportation contract—if so, then “Lancer must pay under the insurance policy whatever Dark Horse must pay under the transportation contract.”

(2) Nwoke v. Consulate of Nig., 2018 U.S. App. LEXIS 18021 (7th Cir. 2018). A nation state cannot be sued for breach of contract for issuing a passport to one of its citizens—issuing a passport is a sovereign activity. Nwoke sued the Consulate of Nigeria for breach of contract after it allegedly failed to provide her and her son with passports for which she says she paid. The district court held that it did not have subject matter jurisdiction because Nigeria had immunity under the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602–1611 (“Act”). On appeal to the Seventh Circuit, Nwoke argued that an exception to the Act applied—the exception for acts “based upon a commercial activity” referenced in 28 U.S.C. § 1605(a)(2). The court explained that a foreign state is immune from federal jurisdiction for its “sovereign or public acts,” but not its acts that are “private or commercial in character.” Nwoke argued that the Consulate’s alleged profit motivation rendered the Consulate’s activity here as “commercial,” but the court rejected this argument. The test is “whether a private person could have engaged in similar conduct.” If not, then the commercial exception does not apply. “Private parties cannot issue national passports, so the Consulate was engaged in sovereign activity.” The court rejected Nwoke’s other arguments, too, and affirmed the judgment of the district court.

Footnotes — § 1.3:

1 Compare the following definitions. “The most popular description of a contract that can be given is also the most exact one; namely, that it is a promise or set of promises which the law will enforce. The specific mark of a contract is the creation of a right, not to a thing, but to another man’s conduct in the future.” “Every agreement and promise enforceable by law is a contract.” Gustavus A. Wald’s Pollock, Contracts (3d Ed.) pp. 1, 2.

A contract is “an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.” William R. Anson, Contracts (2d Am. Ed., Huffcut) p. 11.

“The act alone is the contract, the resulting contractual relation is quite a different thing.” Holland, Jurisprudence (10th Ed.) p. 251. See also Jeremy Bentham’s classification, Works, III, 191.

2 The uncertainties of language (especially of legal terms) and the illusion that words have an “objective” meaning all their own, independent of any person who uses them to express his thoughts, are most obvious and most damaging in the field of “interpretation” of contracts. Far more dispute and litigation are concerned with “interpretation” than with any other subject of contract law; and the degree of uniformity in judicial results is probably the lowest.

3 Baehr v. Penn-O-Tex Oil Corp., 258 Minn. 533, 104 N.W.2d 661 (1960) (citing this section from a prior edition of this treatise).

Cederstrand v. Lutheran Brotherhood, 263 Minn. 520, 529, 117 N.W.2d 213, 219 (1962) (citing this section from a prior edition of this treatise). The court quotes the Restatement definition of “contract,” and describes it as defining “in a circular fashion.” It says: “This amounts to saying that a contract is a legally enforceable promise. But a promise is legally enforceable only if it is a contract. Thus nothing less than the whole body of applicable precedents suffices to define the term contract.” It is certainly true that the definition gives not the slightest hint as to when a promise is enforceable; but it is not “circular,” it merely excludes unenforceable promises from the coverage of “contract.”

Cherokee Nation v. Leavitt, 543 U.S. 631, 125 S. Ct. 1172, 161 L. Ed. 2d 66 (2005). The issue before the Supreme Court was the proper definition of “contract” as used in the Indian Self-Determination and Education Assistance Act (Act), 88 Stat. 2203, which authorizes the government to enter into contracts with Indian tribes to supply federally funded services such as tribal health services. The government failed to pay for such services, arguing that it was legally bound to do so only if Congress appropriated sufficient funds. The government characterized the arrangements with the tribes as if they had the same status as government agencies that have no legal entitlement to receive promised amounts from Congress. The tribes countered that their contracts with the government were ordinary procurement contracts, which the government conceded would be enforceable. The court found that the language of the Act strongly suggested that Congress intended to treat promises made pursuant to the Act as ordinary contractual promises. The Act uses the term “contract” 426 times, sets forth a “sample” contract, and states that if the government refuses to pay, contractors are entitled to “money damages.” The court found the definition of “contract” in the Restatement (Second) of Contracts, Section 1, an apt one in describing the “contract” to which the Act referred. The court reversed the decision of the Tenth Circuit and held in favor of the tribes.

The law does not give a remedy to every set of promises exchanged. Certain bargains are recognized as creating a contractual duty in only some but not all states, and the enforceability of the contract is a manifestation of state action depending on the perceived mores of the time and the place. An example: Bilbao v. Goodwin, 333 Conn. 599, 217 A.3d 977 (2019). Plaintiff and defendant underwent in vitro fertilization at the time they were married in order to have children. Pre-embryos resulting from that procedure were stored for future implantation. The parties entered into a storage agreement with the fertility clinic stating that they wanted the pre-embryos to be discarded if they ever divorced. The marriage later dissolved. Plaintiff sought to have the pre-embryos discarded per the storage agreement, but defendant argued the agreement was unenforceable. The court explained: “There are three leading approaches to determining the disposition of a pre-embryo upon divorce: (1) the contractual approach, (2) the balancing approach, and (3) the contemporaneous mutual consent approach.” Bilbao v. Goodwin, 333 Conn. at 608, 217 A.3d at 984. The majority approach is the contractual approach. This approach does what every contract does—it allows the parties to choose their own course. But critics of this approach insist it fails to take into account the fact that parties might change their minds and that circumstances may change over time. Unlike the contractual approach, the balancing approach puts the disposition of a pre-embryo in the hands of the court. The majority of courts use the balancing approach only as a second step, to be employed in the event there is no enforceable agreement. The contemporaneous mutual consent approach, followed only in Iowa, requires the progenitors to agree on a disposition at the time of the disposition. This approach answers the concerns of the critics of the contractual approach (which does not allow for the parties to change their minds). The court adopted the contractual approach. It honors “procreative liberty,” encourages discussion in advance of disputes, promotes certainty, and minimizes litigation. Further, the parties can, indeed, modify their agreements if they change their minds. This holding advances Connecticut’s public policy, which promotes the enforcement of intimate partner agreements. Instantly, the court held that the agreement, shown by the exchange of promises, was enforceable—there was consideration. The court limited its decision to contracts that, if enforced, will not result in procreation.

4 Definitions substantially like this are very commonly stated in judicial opinions.

See the following cases:

Ill.

—People v. Dummer, 274 Ill. 637, 113 N.E. 934 (1916).

Md.

—Buffalo Pressed Steel Co. v. Kirwan, 138 Md. 60, 113 A. 628 (1921).

N.C.

—N. & W. Overall Co. v. Holmes, 186 N.C. 428, 119 S.E. 817 (1923).

Ohio

—Local Telephone Co. v. Cranberry Mut. Telephone Co., 102 Ohio St. 524, 133 N.E. 527 (1921).

Or.

—Feenaughty v. Beall, 91 Or. 654, 178 P. 600 (1919).

5 For an elegant demonstration that one kind of contractual liability is not dependent on promise, see Randy Barnett, Squaring Undisclosed Agency Law with Contract Theory, 75 Cal. L. Rev. 1969 (1987). For another illustration, see the final paragraph of § 2.31 of this treatise.

6 Learned Hand, Foreword to Samuel Williston, Life and Law: An Autobiography, at viii (1940).

7 U.C.C. § 1-201(b)(12).

8 U.C.C. § 1-201(b)(3).

9 Ian R. Macneil, The New Social Contract 4 (1980). Macneil’s definition in full is that contract means “the relations among parties to the process of projecting exchange into the future.” This definition does indicate the important role of contract as an instrument for planning future action. The point in the text is that contract also affects past actions; e.g., conveyances already made.

The definition in the U.C.C. is more inclusive. The term “bargain,” includes barters and other executed transactions. Such transactions would be outside the field of contract as defined by the Restatement or by Macneil’s full definition.

10 To recognize this role is not to deify it. The primary goal of contract law is to effectuate the parties’ expectations. See § 1.1. In recognizing the role of the law in contract, this treatise does not participate in any political effort to undercut the primacy of the parties’ voluntary undertakings. See Steven J. Burton & Eric G. Andersen, The World of a Contract, 75 Iowa L. Rev. 861 (1990).

11 For a great exploration of these issues, see Morris v. St. John Nat’l Bank (In re Haberman), 516 F.3d 1207 (10th Cir. 2008). To secure a bank loan, debtors granted the bank a security interest in their Pontiac TransAm. The value of the TransAm, however, was less than the amount of the loan. A year later, the debtors filed for Chapter 7 Bankruptcy and claimed the TransAm as exempt from the bankruptcy estate. The Trustee discovered that the bank failed to perfect its security interest in the TransAm, and seeking to protect the bankruptcy estate’s interest, filed an adversary action against the bank and the debtors to avoid the security interest. At the conclusion of the adversary proceeding, the bankruptcy court determined that the Trustee was entitled to avoid the bank’s lien, but the question arose whether the Trustee should recoup from the bank the value of the lien itself as of the date of the debtors’ bankruptcy filing or the full amount of the loan as of the same date? The bankruptcy court held that a Trustee who avoids a lien takes for the bankruptcy estate only the value of the lien itself rather than the full amount of the loan. On appeal, the court cited § 1.3, 1993 ed., of this treatise and noted that “a fully effective exchange … without including any enforceable promise [of future performance] by either party creates numerous legal relations [that] are customarily described as property relations and not as contractual relations. This is because there are relations not merely between the new parties themselves, but between … all … persons who as a society recognize the transfer of a property interest.” The person-to-person contractual right embodied in a promise to pay some amount in the future is thus distinct and independent from the present property right created and recognized by society when one is given an interest in such property such as a lien. The court noted that other circuits have held that, while the benefit of an avoided security interest belonged to the estate under 11 U.S.C.S. § 551, the bank whose lien was avoided nonetheless retained its interest in a contract with the debtor—even though that contract, in the form of a subordination agreement, was part of the same transaction and ancillary to the avoided security interest. Further citing this § 1.3, the court explained that “transfers of land or chattels, may be accompanied by contractual duties as part of the same transaction. … There is both a contract and a conveyance [or transfer].” The court noted that the debtor’s contractual promise to make future loan payments to the bank was neither a lien nor any other transfer of an interest in property. Indeed, had the debtors defaulted on their loan prior to bankruptcy, the only property the bank could have claimed, assuming a perfected security interest, was the TransAm, and then only up to the value of the loan. Given that the TransAm happened to be worth less than the loan balance, the bank would have been left with a mere unsecured contractual promise for the difference. While Congress provided in Section 551 that the Trustee may take from the estate the value of the bank’s security interest in the TransAm, the power to take “liens” and “transfers” does not also embrace a right to deprive the bank of a separate contractual right to be repaid for its debt above and beyond the value of the security interest. The court determined that the Trustee was mistaken when he asserted that he became the creditor upon avoidance and ascended to all the rights thereof. Instead, he received only the bundle of rights given him by Congress in the Bankruptcy Code. Thus, a bankruptcy trustee who successfully avoids a lien preserves for the bankruptcy estate the value of the avoided lien but does not automatically assume other rights the original lien holder may have had against the debtors.

«Pt. I •«Ch. 1 »«§ 1.4 »

1 Corbin on Contracts § 1.4 (2020)

§ 1.4. Contracts of Adhesion

The term “contract of adhesion” has become part of the language of contract law. The origin of the term sheds some light on its meaning. It was borrowed from French scholars and was first applied in this country to insurance policies. The French scholar who coined the term likely borrowed it from the language of international law where treaties negotiated by a group of States are sometimes left open for “adhesion” by other States, who are free to agree to adopt or reject the treaty but frequently have no voice in formulating its provisions.1

Similarly, much of modern commerce is conducted on terms dictated by one contracting party to another who has no voice in its formulation. For example, contracts entered into over the internet are the epitome of take-it-or-leave-it that allow for no negotiation.2 In addition, a would-be borrower from a bank or other financing institution applies for a loan. Once the application is approved, the bank clerk inserts a limited amount of information and terms (name, address, amount, interest rates, etc.) into the blanks of pre-printed forms prepared by the bank, many clauses of which will be identical or similar to those in use by competitive lenders. The borrower may be asked to check the information and terms that have been inserted manually, but an attempt to read the pre-printed provisions of the documents will likely be met with impatience. Indeed, reading the rest of the provisions of the documents might be rather pointless because the borrower has only the choice between taking the offered terms or leaving them. The process of entering into a contract of adhesion “… is not one of haggle or cooperative process but rather of a fly and flypaper.”3 The above descriptions of the process of agreement to a retail banking loan and an on-line contract can be repeated, with appropriate adaptations, for many of the everyday transactions of life. It is not only the retail transaction that is molded by a standardized form. Even trust indentures, which govern bond issues of hundreds of millions of dollars, and which are negotiated between giant corporate borrowers and cash-rich underwriters or banks, take on a rigidly stylized form, negotiable only as to the basic core (amount of borrowing, interest rate and the like) and various fringe provisions. The rest of the document basically follows the command of a federal statute and deeply ingrained customs.4 A similar pattern exists in many of the transactions of vast scale that are of great importance to the functioning of the economy. Although the flourishing existence of the contract of adhesion and other standardized contracts is a challenge to much contract theory, the contract of adhesion is part of the fabric of our society.5 It should neither be praised nor denounced by the legal scholar—it must be analyzed and studied.6

Some of the negative facets of this type of contract are that the terms may be drafted with a view to protect to the maximum degree the enterprise that propounds the form, thus minimizing the realization of the reasonable expectations of the adhering party. Frequently, the protection will be in incomprehensible and intentionally obfuscating language.7 Efforts to rectify this problem have included statutory requirements mandating the use of plain English,8 but they are not necessarily a panacea.9 Oppressive terms can be expressed in plain English and still remain oppressive. Thus, legislatures have frequently intervened to require substantive fairness in contracts of adhesion. Insurance legislation, for example, has a long history of dictating specific terms of insurance policies. Courts, under the doctrine of unconscionability, also have a role to play in protecting the adhering party from oppression.

Despite the potential that contracts of adhesion have for abuse, there are important advantages to their use. Indeed, they are essential to the functioning of the economy. We live in an era of mass production of standardized goods and services. The movement of goods and services on the scale and rapidity with which they are produced or rendered requires that transactions not get bogged down in prolonged negotiations about the ancillary terms of the contract. It would be unimaginable to negotiate the terms of use of every internet site accessed. Or if we consider again the illustration of the retail bank loan and ponder the time and cost of negotiating the provisions of a bank loan on an individual basis, we realize the enormous transaction costs this would entail. The standardization of forms for contracts is a rational and economically efficient response to the rapidity of market transactions and the high cost of negotiations. Another advantage of the contract of adhesion is that the enterprise which prepares the form the other party must take or leave can rationally calculate the costs and risks of performance.10 The pre-printed terms of a limited warranty, for example, control a seller’s risks and play an important role in the rational pricing of a seller’s product. Indeed, this self-evident proposition is amply demonstrated by the active market that arose in the latter part of the 20th Century for the sale and purchase of warranties. Throughout this treatise, special treatment of contracts of adhesion and other standardized contracts is supplied whenever appropriate.

Footnotes — § 1.4:

1 For example the Hague Convention for the Pacific Settlement of International Disputes of 1899 invited certain non-signatory States to adhere to it and “[f]or this purpose must make known their adhesion to the Contracting Powers by a written notification addressed to the Netherlands Government and communicated by it to all other Contracting Parties.” This and similar treaties are quoted in 5 Green H. Hackworth, Digest of International Law 79 (1943). A State Department critic of the term, wrote in a memorandum, “Adhesion smacks of the gum-bottle.” Id. at 75.

2 Since there is no possibility of negotiating, and since human experience counsels that the legal risk of using popular websites to procure goods or services is largely non-existent, there is no incentive to even read the terms that govern the sites. United States Supreme Court Justice John Roberts “admitted he doesn’t usually read the computer jargon that is a condition of accessing websites … .” Debra Cassens Weiss, Chief Justice Roberts Admits He Doesn’t Read the Computer Fine Print, ABA Journal (10/20/2009), http://www.abajournal.com/news/article/chief_justice_roberts_admits_he_doesnt_read_the_computer_fine_print/ (last visited May 7, 2018). Some thorny issues regarding on-line contracting are explored in § 2.12.

3 Arthur Leff, Contract as a Thing, 19 Am. L. Rev. 131, 143 (1970).

Woodruff v. Bretz, Inc., 353 Mont. 6, 218 P.3d 486 (Mont. 2009). The plaintiff claimed that the arbitration provision in the contract governing his purchase of a motor home was unconscionable. The court quoted this treatise, § 1.4, 1993 ed., to explain that a contract of adhesion is a contract whose terms are dictated by one contracting party to another who has no voice in its formulation. “It follows from Corbin’s observations that the truly negotiable terms of such contracts are those to be inserted into the blanks, such as the amount being borrowed, the interest rate, and the like. [Plaintiff], for example, might have haggled over price, but not over the preprinted terms listed [in defendant’s] standard-form purchase contract.” Id., 353 Mont. at 11, 218 P.3d at 490. The court determined that the standard form purchase contract was one of adhesion, but that alone does not render the arbitration clause unenforceable. The court reasoned, however, that the arbitration clause contained within the agreement was not within the plaintiff’s reasonable expectations, and that rendered the provision unenforceable.

4 See Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir. 1982).

5 Judge Frank Easterbrook openly wondered: “But what’s wrong with a contract of adhesion anyway?” United States v. Hare, 269 F.3d 859, 862 (7th Cir. 2001).

6 See Higgins vs. The Superior Court of Los Angeles County, 140 Cal. App. 4th 1238, 45 Cal. Rptr. 3d 293 (2006). The parents of five siblings died in 2004, and they were taken in by church acquaintances, the Leomiti family. The defendants approached the Leomitis about featuring the siblings in the realty-based television show called “Extreme Makeover,” which is designed to find needy and deserving families who live in a home that does not serve their needs. The program radically improves the home by demolishing and rebuilding it. The siblings entered into contracts with the television defendants containing an arbitration provision. Following the production and airing of the television program, the Leomitis informed the siblings that the home belonged to the Leomitis, and the Leomitis ultimately forced the siblings to leave. The television defendants advised the siblings that they could not help them. The siblings filed an action against the television defendants and the Leomitis based on, among other things, misrepresentation and breach of contract. The television defendants petitioned to compel arbitration, but the court held that the arbitration provision was unconscionable. The court explained that a contract of adhesion is a standardized contract imposed and drafted by the party of superior bargaining strength and gives the other party only the opportunity to adhere to the contract or reject it. Citing this treatise, § 1.4, 1993 ed., the court explained that adhesion contracts are routine in modern day commerce, and that they are worthy of neither praise nor condemnation. Though the siblings read the contract, the court found the arbitration provision to be procedurally unconscionable. The provision appeared in one paragraph near the end of a lengthy, single-spaced document. The entire document was drafted by the television defendants, who knew that the siblings were young and unsophisticated and had recently lost both parents. The television defendants made no effort to highlight the presence of the arbitration provision. It was one of twelve paragraphs in a section entitled “Miscellaneous.” Unlike other provisions in the contract, no text in the arbitration provision was conspicuously printed. The court also found that the provision was substantively unconscionable, that is, unfairly one-sided. The arbitration provision required only that the siblings submit their claims to arbitration. It allowed the television defendants the right to seek injunctive or other equitable relief in court. Only the siblings were barred from seeking appellate review of the arbitrator’s decision, and costs were to be borne equally by both parties. The arbitration provision was deemed to be unconscionable and, therefore, unenforceable.

For further discussion of unconscionability and arbitration clauses, see § 29.4 of this treatise and, e.g., Elite Logistics Corp. v. Hanjin Shipping Co., 589 Fed. App’x 817 (9th Cir. 2014) and Beattie v. Credit One Bank, 2016 U.S. Dist. LEXIS 104456 (N.D.N.Y. Aug. 9, 2016).

7 See, e.g., the cross-collateral clause in Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). The proposed contract was adhered to by a single welfare-mother.

8 See Carl Felsenfeld and Alan Siegel, Writing Contracts in Plain English (1981).

9 Eric Zacks, Contracting Blame, 15 U. Pa. J. Bus. L. 169 (2012).

10 See Friedrich Kessler, Contracts of Adhesion-Some Thoughts About Freedom of Contract, 43 Colum. L. Rev. 629, 631–632 (1943).

«Pt. I •«Ch. 1 »«§ 1.5 »

1 Corbin on Contracts § 1.5 (2020)

§ 1.5. Formal and Informal Contracts

Contracts have commonly been classified in several ways that must here be given some consideration. The descriptive terms in common use must be considered and defined. One such classification is expressed by the terms formal contract and informal contract. The distinction between formal and informal contracts was one of the great organizing distinctions prior to the twentieth century. Today, the distinction is only rarely noted and is not of great importance.

A formal contract is one where the legal operation is dependent upon the form in which it is made, the mode of expression, and not upon the sufficiency of the consideration that is given in return for it, or upon any change of position by the promisee in reliance upon it. An informal contract, on the other hand, is one where the legal operation does not depend upon the form in which it is made or the mode of expression. Most informal contracts depend for their legal validity upon the presence of a sufficient consideration given in return for the promise, but others are enforceable without any consideration given in return, for various reasons, all of which must be discussed in great detail hereafter in dealing with the subject of consideration and with other reasons for enforcement of promises. Informal contracts have very commonly been called “simple” contracts. Certain kinds of formal contracts have been described as “specialties.”

Among the contracts that are commonly classified as formal in character are contracts under seal, recognizances, negotiable instruments, documents of title, and letters of credit. Stipulations in open court may properly be classified as formal contracts. In addition, statutes in some jurisdictions permit the making of some kinds of contracts without consideration, provided the contract is expressed in a signed writing. To the discussion of contracts under seal, a significant portion of an entire chapter must be devoted. The law applicable to negotiable instruments, documents of title and letters of credit is so special in character and so extensive in amount, that they are commonly treated as independent subjects. It could not be stated and explained with any fullness in less than one large volume. There are many instances in which the law of negotiable instruments is different from that which is applicable in the case of other kinds of contracts. A recognizance is usually, if not always, a formal acknowledgment of indebtedness, made in the presence of a court, or before a magistrate who is authorized to take such acknowledgment, or by means of a document filed with a clerk of court as a part of the record of a pending litigation.1 Primarily, today they are employed to secure the provisional release of persons under arrest and are generally discussed in connection with bail bonds.2 In some jurisdictions the term may have still other uses. In early English history the recognizance seems to have played a much more important part than it does at present in the United States. The taking of recognizances was authorized by certain statutes, one of which was known as the Statute of Merchants. The mayors of certain towns in which various staple commodities were bought and sold were authorized to take such recognizances. A recognizance so taken was often called a Statute Merchant or a Statute Staple. In legal effect it conclusively established the existence of the indebtedness, and it enabled the creditor very easily to obtain legal remedies for the collection of a debt.3

Footnotes — § 1.5:

1 An example of a recognizance in a criminal case is to be found in State of Maine v. Chandler, 79 Me. 172, 8 A. 553 (1887). The court said: “It is an obligation of record founded upon contract, and entered into by the recognizors upon certain conditions, upon the breach of which the recognizance became forfeited, and an absolute debt of record, in the nature of a judgment, was created, and upon which scire facias properly lies for the recovery of the forfeiture.”

In Smith v. Collins, 42 Kan. 259, 21 P. 1058 (1889), the court said: “A recognizance is a debt confessed to the state which may be avoided upon the conditions stated. At common law the forfeiture of the recognizance was equivalent to a judgment.”

A recognizance acknowledged in open court need not be signed unless a statute expressly so requires. McNamara v. People, 183 Ill. 164, 55 N.E. 625 (1899). At common law a recognizance could be enforced by an action of debt or by a writ of scire facias. Green v. Ovington, 16 Johns. 55 (N.Y. 1819); Bodine v. Commonwealth, 24 Pa. 69 (1854); McNamara v. People, supra.

2 See 18 U.S.C.A. § 3142(b).

3 Concerning recognizances the Restatement of Contracts (Second) § 6 cmt. c (Am. Law Inst. 1981), states: “A recognizance is an acknowledgment in court by the recognizor that he is bound to make a certain payment unless a specified condition is performed. They are in use chiefly to secure, first, the attendance in court at a future day of the recognizor, or, second, the prosecution of an action, or, third, the payment of bail.” A bail bond is not ordinarily a recognizance. State v. McGuire, 42 Minn. 27, 43 N.W. 687 (1889); People v. Barrett, 202 Ill. 287, 67 N.E. 23 (1903). A recognizance entered into by an infant has been held to be enforceable. State v. Weatherwax, 12 Kan. 463 (1874). There is a definition of recognizance in Miller v. Cross, 73 Conn. 538, 540, 48 A. 213, 214 (1901).

In the following cases the validity and the enforcement of recognizances were involved:

Conn.

—Pacheco v. Cocoran, 2012 Conn. Super. LEXIS 2534 (Oct. 4, 2012); Knibbs v. Knibbs Constr. Co., Inc., 202 A.2d 248, 25 Conn. Sup. 253 (1964); Grillo v. Cannistraro, 147 Conn. 1, 155 A.2d 919 (1959); New Haven v. Rogers, 32 Conn. 221 (1864); Mix v. Page, 14 Conn. 329 (1841); Goodwin v. Dodge, 14 Conn. 206 (1841); Darling v. Hubbell, 9 Conn. 350 (1832).

Ill.

—People v. Clinnin, 12 Ill. App. 2d 446, 139 N.E.2d 609 (1957).

Md.

—Albrecht v. State, 132 Md. 150, 103 A. 443 (1918).

N.M.

—State v. Hicks, 132 N.M. 68, 43 P.3d 1078 (2002).

N.Car.

—Tar Heel Bond Co. v. Krider, 218 N.C. 361, 11 S.E.2d 291 (1940).

Ohio

—State v. Green, 2008-Ohio-4671 (2008).

Pa.

—Hamilton v. Harida, 280 Pa. Super. 45, 421 A.2d 396 (1980).

R.I.

—State v. Vinal, 113 R.I. 426, 325 A.2d 81 (1974).

See further Vol. 3, § 10.19.

«Pt. I •«Ch. 1 »«§ 1.6 »

1 Corbin on Contracts § 1.6 (2020)

§ 1.6. Voidable Contracts

The term “validity” as applied to contracts is of variable signification; there are varying degrees of “validity.” An oral contract within the statute of frauds is unenforceable under some circumstances; but it has a high degree of “validity” and is neither void nor voidable. A contract that is induced by fraud is “voidable” by the injured party who has the power of avoidance. The defrauded party also has a power to “ratify,” and the contract is enforceable against the wrongdoer. Such a contract, therefore, has a considerable degree of legally operative effect—that is, “validity.”

In the case of a voidable contract, there is usually both a power to avoid and a power to validate by ratification. The agreement is, to some extent, legally operative,1 but there are differences in what its legal operation may be. Where A induces the agreement of B by fraud, as long as it remains wholly executory by both parties it can hardly be said that B is under a legal duty. In an action by A on B’s promise, all that B needs to do is to plead and prove the fact of fraud; and if A’s own complaint had shown the fraud and absence of ratification, B could have successfully moved to dismiss. It is not necessary to B’s defense that B should have done an act of avoidance before the action is brought or before filing an answer.

Thus, in an action by the vendor against the purchaser to recover the purchase price of land, the defendant pleaded that the agreement was induced by fraudulent representations on the part of the plaintiff. The defendant pleaded no act of avoidance prior to the bringing of the suit or prior to the filing of an answer. The contract was wholly executory, there having been no conveyance or payment or delivery of possession. The court held that the answer stated a good defense. The agreement had created no duty in the defendant to pay the price; and the failure to pay was not a breach of contract. The court stated: “In the case of an executory contract, a refusal to perform any obligation thereunder and the defense of an action brought thereon are all that the defrauded party can do by way of asserting his right to disaffirm the contract; and, unless his silence or delay has operated to the prejudice of the other party, he may first assert his right when his adversary first asserts his claim by action.”2 If a conveyance had already been made or if the purchaser had been put in possession of the land, in order to avoid the contract it would have been necessary for him to offer a reconveyance or offer to surrender possession.

The same distinction exists in the case of contracts that are said to be voidable on the ground of infancy. As long as such an agreement is wholly executory on both sides, the infant is under no enforceable duty whatever. When sued for an alleged breach, all the infant needs to do is to plead infancy as a defense.3 It is not necessary that the infant should have done any act of avoidance prior to raising the defense. Here, too, according to the commonly existing law of infancy, if the infant had received a part performance and still retains it at the time of suit, it would be necessary to give it up; its continued retention after becoming of age soon operates as a ratification.

In none of these cases is the agreement wholly void of legal operation. It may or it may not create a legal duty in the party having the power of avoidance; but it certainly is fully operative as against the other party to the agreement, except in those cases where the other party, too, may have a power of avoidance.4 In all such cases, whatever legal relations the agreement in fact creates are voidable by one of the parties; and the agreement may be made fully operative as against both of the parties, by the exercise of a power of ratification. There is a power to ratify, as well as a power to avoid; and most such contracts as are commonly said to be voidable can be described with equal accuracy as ratifiable.5

“Voidable contract” is not a simple and uniform concept; detailed analysis of voidable contracts will show important differences.6 In every case, however, it will be found that one of the parties has a legal power, either of avoidance or of ratification, or of both. If the party having a power of avoidance—the infant, the lunatic, the defrauded party, the party affected by mistake—exercises it, such rights and duties as the transaction has created are terminated including those of the other party. The exercise of the power to ratify will in some cases create a duty that did not before exist and will always terminate the power of avoidance. No new consideration is required for this.7

Such a power of avoidance as is above described is sometimes created by the express agreement of the parties; there may be an “option” to terminate an otherwise perfectly valid contract by giving notice or by doing some other act.8 But the term “voidable contract” is customarily used only where the power to avoid or to validate is created by the law on grounds of policy and independently of agreement.9

Footnotes — § 1.6:

1 “It was resolved that in all cases when the deed is voidable, and so remains at the time of the pleading (as if an infant seals and delivers a deed, or a man of full age by duress) in these and the like cases, the obligor cannot plead non est factum, for it is his deed at the time of the action brought.” Whelpdale’s Case (1605) 5 Coke, 119a.

The distinction between “voidable” and void is well drawn in National Union Fire Ins. Co. v. Carib Aviation, Inc., 759 F.2d 873 (11th Cir. 1985). See Larian v. Larian, 123 Cal. App. 4th 751 (2004) (discussing difference between agreements induced by fraud in the execution, which are void, and fraud in the inducement, which are voidable). RTT Holdings, LLC v. Nacht, 2015 NY Slip Op 32505(U), 4 (N.Y. Sup. Ct. 2015) (unconscionable contract usually voidable). See also, Ockey v. Lehmer, 2008 UT 37, 189 P.3d 51 (2008); Blakeney v. Lomas Infor mation Systems, Inc., 65 F.3d 482 (5th Cir. 1995).

In Ladenburg Thalmann & Co., Inc. v. Imaging Diagnostic Sys., Inc., 176 F. Supp. 2d 199 (S.D.N.Y. 2001), the court cited this § 1.6, 1993 ed., to support its holding that a contract induced by fraud provides the defrauded party with the choice of affirming the contract or exercising its power of disaffirmance or avoidance created by the fraud.

Giannone v. Ayne Inst., 290 F. Supp. 2d 553 (E.D. Pa. 2003). The court distinguished fraud in the inducement, making the contract voidable, from fraud in the factum, rendering the entire contract void including the arbitration clause at issue. Citing this § 1.6, 1993 ed., the court recognized that a voidable agreement was still operative in that the innocent party may either avoid or ratify the contract. The court held the facts demonstrated a claim for fraud in the inducement, making the contract voidable, but not the arbitration clause. Absent a claim that the arbitration clause itself was induced by fraud, the court held that under Section 4 of the Federal Arbitration Act as interpreted in the leading case of Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967), federal courts may consider only issues relating to the making and performance of the agreement to arbitrate. The plaintiffs’ claim had to be submitted to arbitration.

King v. Fox, 7 N.Y.3d 181, 818 N.Y.S.2d 833, 851 N.E.2d 1184 (2006). At issue was whether an unconscionable contingent fee agreement could be ratified. The court explained that at common law, an unconscionable agreement was one that no promissor, absent delusion, would make on the one hand, and no honest and fair promisee would accept on the other. An unconscionable contract is one that is grossly unreasonable because of the absence of meaningful choice on the part of one of the parties together with contract terms that unreasonably favor the other. The court cited this treatise, § 1.6, 1993 ed., for the proposition that “[s]uch contracts are usually voidable since a party to a contract has the power to validate or ratify the contract, as well as the power to avoid it.” But courts give particular scrutiny to attorney fee arrangements, such as the one at issue, casting the burden on attorneys who have drafted the retainer agreement to show that the contracts are fair, reasonable, and fully known and understood by their clients. Aside from the amount of the fee, perhaps the most important factor is whether the client was fully informed in entering into the agreement. The court explained that it will be a rare case where an unconscionable agreement may be ratified by the client because of the special protections given to clients, but it was not prepared to say that ratification of an unconscionable fee arrangement can never occur. Where a fully informed client with equal bargaining power knowingly and voluntarily affirms an existing fee arrangement that otherwise would be unconscionable, ratification can occur. The question was certified to the Second Circuit.

Lawrence v. Miller, 2008 NY Slip. Op. 9434 (2008) involved another contingency fee agreement that the client claimed was unconscionable and voidable.

N.J.

—Roberts v. James, 83 N.J.L. 492, 85 A. 244 (1912).

Eng.

—Aaron’s Reefs v. Twiss, [1896] A.C. 273.

Vt.

—Lesnick v. Pratt, 116 Vt. 477, 78 A.2d 487 (1951).

4 Both parties might be infants. See Hurwitz v. Barr, 193 A.2d 360 (D.C. App. 1963) (sale of motor scooter). Absent such an independent ground for avoidance, only the protected party may disaffirm. Taylor Distributing Co., Inc. v. Haines, 31 Wash. App. 360, 641 P.2d 1204 (1982).

5 The Restatement of Contracts (Second) § 7 (Am. Law Inst. 1981) provides: “A voidable contract is one where one or more parties thereto have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract; or by ratification of the contract to extinguish the power of avoidance.”

In Cassella v. Tiberio, 150 Ohio St. 27, 37 Ohio Op. 320, 80 N.E.2d 426 (1948), the court held that an infant’s guaranty of the debt of another was not validated by his failure to express his disaffirmance within a reasonable time after becoming of age. He had received no benefits, the continued retention of which might operate as a ratification. The court said: “To say that the executory contract of an infant is voidable means that it is capable of being confirmed or avoided, although, until there is a definite ratification or confirmation by the infant after he becomes of age, it may not be enforced against him.” There is similar language in Minock v. Shortridge, 21 Mich. 304 (1870), and Edgerly v. Shaw, 25 N.H. 514, 57 Am. Dec. 349 (1852).

In Abbadessa v. Moore Business Forms, Inc., 987 F.2d 18 (1st Cir. 1993), the court held under New Hampshire law that resignation agreements allegedly signed under economic duress constituted voidable contracts. By accepting the benefits of the agreements and failing to notify the employer promptly that they intended to repudiate the agreements, however, the employees had ratified the agreements and were bound by them.

In Donnell v. Conn. Tech. High Sch. Sys., 2015 Conn. Super. LEXIS 1576 (June 5, 2015), Donnell filed an action against the school system where he previously was employed claiming he was forced to retire as an assistant principal at a high school and that the agreement he signed should be voided because he was under duress and coerced into signing it. The court granted the school’s motion to dismiss. Failure to act promptly is a ratification. Donnell was afforded twenty days to sign the agreement and seven days to repudiate it after signing. He waited more than two years to institute the action and sought to raise the same claims the stipulated agreement resolved. As a matter of law, ratification results if the party who executed the contract under duress accepts the benefits flowing from it or remains silent and acquiesces in the contract for any considerable length of time after opportunity is afforded to annul or avoid it.

6 This treatise deals with duress in § 28.2 to § 28.8; undue influence in § 28.9 to § 28.12; misrepresentation and non-disclosure in § 28.13 to § 28.25; mistake in § 28.26 to § 28.54; and unconscionability in § 29.1 to § 29.7, as well as various other sections, such as the chapters dealing with arbitration agreements.

Rawlings v. John Hancock Mut. Life Ins. Co., 78 S.W.3d 291 (Tenn. Ct. App. 2001). A wife confined to a nursing home was diagnosed with senile dementia and depression. Her husband, the sole beneficiary of her life insurance policy, informed her that he wanted a divorce, and the wife then gave her brother a power of attorney and signed a change of beneficiary form naming her brother as beneficiary of the policy. The husband had not filed for divorce at the time the wife died. In response to the husband’s challenge of incompetency, the court found that competency to contract does not require an ability to act with judgment and discretion. Rather, it only requires the contracting party to know and understand the nature, extent, character, and effect of the transaction. The husband failed to prove incompetency and also failed to plead or prove undue influence by the wife’s brother.

7 Restatement (Second) of Contracts § 85 (1981) (Am. Law Inst. 1981).

8 See Gurfein v. Werbelovsky, 97 Conn. 703, 118 A. 32 (1922).

9 See Residential Capital, LLC v. Premier Trust Deed Servs., Inc., 2003 Cal. App. Unpub. LEXIS 4729 (Cal. Ct. App. 2003). The plaintiff’s high bid was accepted at a nonjudicial foreclosure sale conducted under the power of sale in a trust deed encumbering residential real property. After the sale, however, the defendant trustee notified the plaintiff that the deed would not be delivered because the trustee had learned that the trustor and beneficiary had agreed to postpone the sale pursuant to a forbearance agreement and payment plan. The plaintiff accepted a refund of the price without waiving its right to sue, which it then pursued in a breach of contract claim for loss of bargain damages of $34,150.90, the difference between its bid price and the value of the property. The trial court held that the sale to the plaintiff was void since the trustee could not deliver the deed after discovering the forbearance agreement between the trustor and beneficiary. On appeal, the plaintiff relied on this treatise, § 1.7, 1993 ed., in claiming that the contract was voidable rather than void, and only the plaintiff as the innocent party could choose to avoid it. The court concluded that a two-party contract analysis was inapt where other parties such as the trustor and beneficiary were affected. Moreover, nonjudicial foreclosure sales were subject to comprehensive statutory regulation, which was not based on contract principles. The court held that since the deed had not been transferred, the statute limited the plaintiff’s claim to restitution—the return of the bid price—which the plaintiff had received from the trustee.

«Pt. I •«Ch. 1 »«§ 1.7 »

1 Corbin on Contracts § 1.7 (2020)

§ 1.7. Void Contracts

The meaning that is most commonly intended to be conveyed by the word “void” is total absence of legal effect. It may sometimes be confused with the word “voidable”; but the error involved is nearly certain to be an error as to the legal operation of facts and not one of mere terminology. One who says that an agreement or a promise is “void” usually supposes that it has no legal operation whatever, being in many cases quite unaware that a number of important legal relations have been created.

In the term “void contract,” there is a self-contradiction.1 This is because the term “contract” is always defined so as to include some element of enforceability. There is no such weakness, however, in the term “void agreement.” This is because the term “agreement” is commonly used to mean nothing more than the expressions of the parties, their acts of offer and acceptance, without any reference whatever to any resulting legal relation. The same is true of the term “void promise,” since the word promise is used to denote a mere promissory expression without any implication that it either is or is not legally enforceable or otherwise operative.

Many promises are made that are not contracts and are not capable of becoming enforceable by any act of acceptance or by any action in reliance. A promise that creates no legal relation of any kind may properly be called a void promise. Likewise, there are many expressions of mutual agreement that make no change in the legal relations of the parties; they may properly be said to be void agreements.2Most bargains that are described as “illegal” are not wholly void of legal effect, but an agreement by two parties for the doing of acts that both know to be a felony would have no legal operation and be “void,” although the acts themselves, when performed, would have very important effects indeed. If the expressions of two parties purporting to be acts of offer and acceptance are materially different in meaning and the facts are not such as to create an estoppel against either one, there is neither a contract nor an agreement. Not only is it inaccurate to say that the contract is void; it is equally inaccurate to say that there is a void agreement. In such a case the individual expressions of the two parties, the offer and the acceptance, are not entirely void of legal effect. Each one of them may be a legally operative offer creating in the other party a power of acceptance. The transaction is merely one of offer and counter-offer.

In cases where the transaction of the parties is in fact a mutual agreement, but is legally void, and also in cases where there is no contract for the reason that there are no mutual expressions of assent, the parties may nevertheless follow the transaction by action that is itself legally operative. A party may make a conveyance of land, even though there was no contract creating a duty to convey. The agreement may have been void, but the conveyance is not. A party may render service to another, both of them erroneously thinking that an agreement has been reached and a contract has been made. In such a case the rendition of the service is a legally operative act, even though there was no contract and there was a misunderstanding instead of an agreement.

Illustrations of agreements that are wholly void of legal effect are not very numerous; but several classes of them can be found.3 There are illegal bargains that are actually void and those in which they are enforceable by one or both of the parties. Again, courts often declare that a contract within the statute of frauds that is not evidenced by the required writing is void. Indeed, the statutes of a few states expressly declare such an agreement to be “void.” Nevertheless, there is no case in which such an agreement is totally without legal operation. Even if a statute expressly declares an agreement to be illegal or void, justice requires and the courts have continually decided that the effect of such a statute upon a particular case must depend upon the circumstances of that case. The words of the statute will be interpreted in the light of the purpose of the statute, with due regard to the result that will be reached by the interpretation. One result of this is that agreements will often be found to have some legal operation even though the statute may have used the word “void.”

(A) The following case cites this section:

Janvrin v. Fannie Mae, 2019 N.H. LEXIS 144 (July 11, 2019). The girlfriend of plaintiff’s son needed money to pay the arrearage on her mortgage, so plaintiff agreed to take out a loan using plaintiff’s own home as collateral. Plaintiff provided the girlfriend information to obtain the loan—plaintiff’s date of birth, social security number, and income information. A loan application, in plaintiff’s name, was submitted to a lender—apparently by the girlfriend—and it contained false information regarding plaintiff’s income and employment status. The mortgage on the plaintiff’s home was held by FNMA and serviced by PNC. The loan proceeds were used by the girlfriend to pay off the arrearage on the girlfriend’s own mortgage—the proceeds did not benefit the plaintiff. Subsequently, plaintiff encountered difficulty making payments on the loan, and plaintiff signed off on three separate loan modification agreements to help her manage the obligation. When defendants sought to foreclose, plaintiff filed a petition to enjoin the foreclosure and to set aside the mortgage. The lower court found that the loan and mortgage were valid, but the Supreme Court of New Hampshire reversed, concluding that the loan documents and mortgage were void ab initio. But that was not the end of the case. PNC and FNMA argued that, even if the original loan and mortgage were void, plaintiff ratified them when she signed off on the three subsequent agreements, each of which contained language purportedly ratifying her obligations under the loan and mortgage. The lower court did not reach this issue since it found that the loan and mortgage were valid. On appeal, the instant court framed the issue—which it called “an issue of first impression in New Hampshire”—as follows: “whether a loan and mortgage that have been held to be void ab initio can, in fact, be ratified.” The court noted that one treatise states that void promises cannot be ratified, but the court noted that the Corbin treatise differs. The court wrote:

On the other hand, Corbin on Contracts states a contrary position: “In cases where the transaction of the parties is in fact a mutual agreement, but is legally void, and also in cases where there is no contract for the reason that there are no mutual expressions of assent, the parties may nevertheless follow the transaction by action that is itself legally operative.” 1 Timothy Murray, Corbin on Contracts § 1.7, at 26 (rev. ed. 2018) … .

The caselaw is similarly split. In light of this split of authority, the court remanded to the lower court to resolve it.

Footnotes — § 1.7:

1 Accord, Restatement (Second) of Contracts § 7 cmt 1 (1981) (Am. Law Inst. 1981). On the varying uses of the term “void,” see Abraham J. Levin, The Varying Meaning and Legal Effect of the Word “Void,” 32 Mich.L.Rev. 1088 (1933).

U.S.

—Bertram v. Benefit Consumer Disc. Co., 286 F. Supp. 2d 453 (M.D. Pa. 2003). When the plaintiffs, homeowners, brought an action against the defendant, lender, for violation of the Truth-in-Lending Act (TILA), 15 U.S.C. § 1601 et seq., the defendant moved to stay the proceedings pending arbitration, based on an arbitration clause in the parties’ contract. Recognizing the major judicial shift from hostility towards arbitration agreements to highly favoring such agreements pursuant to the Federal Arbitration Act (FAA), the court explained that the FAA mandates the enforcement of arbitration clauses except where (1) the entire contract, including the arbitration clause, is void ab initio, or (2) where the arbitration clause itself is voidable. The arbitration clause was not voidable in this case, nor was the entire contract void ab initio. If a creditor fails to make a disclosure required by TILA, a consumer may rescind the agreement. The provisions of TILA permitting rescission, however, only render the contract voidable, not void. A so-called “void” contract lacks any legal existence. Relying on the Restatement (Second) of Contracts, § 7 (Am. Law Inst. 1981), the court held that a claim that a contract is voidable does not challenge the existence or prima facie validity of the underlying agreement. Rather, it provides a party with a power of avoidance or disaffirmance. Since the entire contract was not void and the arbitration clause was not, by itself, voidable, the court held the arbitration clause to be enforceable.

Ariz.

—See More Light Investments v. Morgan Stanley, DW, Inc., 2009 U.S. Dist. Lexis 112927 (D. Ariz. Nov. 20, 2009). The plaintiff purchased Cuban bearer bonds from the defendant, but the defendant did not deliver the bonds. The plaintiff pursued arbitration, which held for the defendant. On appeal, the court found that the transaction was prohibited under the Cuban Assets Control Regulations and awarded the plaintiff restitution of its payment plus interest. Though attorney’s fees are normally not recoverable, the plaintiff also sought such fees under an Arizona statute permitting a court to award fees in a contested action arising out of an express or implied contract. Assuming without deciding that Arizona law applied, the court was not persuaded that the plaintiff’s action arose out of a contract. The court found the Regulations prohibiting such a transaction made the sale of the bonds a “voided contract,” and a “void contract” is not a contract at all (Restatement (Second) of Contracts § 7 (Am. Law Inst. 1981)). The court explained that its use of the term “contract” referred to acts of the parties, not their legal effect.

N.M.

—Borde v. Board of County Commissioners, 514 Fed. App’x 795 (10th Cir. 2013). The plaintiffs entered into employment agreements with Luna County, New Mexico, that contained extensive severance payment provisions if the employments were terminated prior to the completion of three-year terms. The plaintiffs were terminated after sixteen months. The district court held that the contracts violated the New Mexico State Constitution which proscribes agreements between New Mexico government units and private parties giving rise to debt without voter approval. The plaintiffs’ claims were dismissed. On appeal, the instant court agreed with the district court’s determination that employment contracts such as the one at issue created a “debt” for the County that violated Article IX, Section 10 of the New Mexico State Constitution. Citing § 7 of the Restatement (Second) of Contracts (Am. Law Inst. 1981), the court noted that a so-called void contract “is not a contract at all” since it is “void of legal effect.” Relief is unavailable for such an “illegal contract.” The employment contracts were made in violation of the State Constitution and were, therefore, void from the outset and wholly unenforceable. As a matter of law, obligations under these agreements “never existed.”

Ore.

—Dess Prop., LLC v. Sheridan Truck & Heavy Equip., 220 Ore. App. 336, 185 P.3d 1113 (2008), review denied, 345 Ore. 301, 194 P.3d 147 (2008). An Oregon statute (Or. Rev. Stat. § 20.083) expressly permits a prevailing party to recover attorney fees authorized by the contract even though the party prevails because of a claim or defense asserting that the contract is in whole or in part void or unenforceable. The plaintiff’s attempt to enforce a contract for the sale of land against the defendant failed when the court found that no contract existed between the parties. The purchase agreement contained a provision for the award of attorney fees. As the prevailing party, the defendant sought attorney fees under the statute, but the trial court refused the award on the footing that the statute was designed to allow attorney fees for a party prevailing on an express or implied contract. Since no contract ever existed in this case, the statute did not apply and attorney fees were not recoverable. On appeal, the defendant, relying on Black’s Law Dictionary, argued that a nonexistent contract is the same as a “void” contract. The court found other authorities more persuasive, including this treatise and the Restatement (Second) of Contracts § 7, cmt a (Am. Law Inst. 1981). Quoting from this treatise, § 1.7, 1993 ed., the court noted that the term “void contract” is a self-contradictory term since “contract” is always defined as including some element of enforceability. Noting that Oregon courts have used the phrase “void contract” in a context of a contract unenforceable for some reason other than because the parties did not reach any agreement (e.g., statute of frauds), the court affirmed the decision below that “void contract” does not mean nonexistent contract.

Wash.

—Nicholson v. Orthodontic Ctrs. of Wash., Inc., 2008 Wash. App LEXIS 1288 (June 2, 2008). An agreement involving the practice of dentistry by a corporation was deemed illegal. The corporation conceded that, under Washington law, the agreement was void and unenforceable, but it argued that a contract can be severed of its illegal provision to allow the remainder to be enforced. The instant court disagreed, explaining that if an agreement is void, it is by definition not a contract. The law neither gives a remedy nor otherwise recognizes a duty of performance with respect to a so-called “void” contract.

2 Golden Pisces, Inc. v. Fred Wahl Marine Construction, Inc., 495 F.3d 1078 (9th Cir. 2007) (“void” contract “is not a contract at all,” the absence of an effective manifestation of assent precludes recognition of a contract).

3 Sphere Drake Ins. Ltd. v. Clarendon Nat’l Ins. Co., 263 F.3d 26 (2d Cir. 2001) (citing § 1.7, 1993 ed., of this treatise for this proposition).

Polk v. Gontmakher, 2020 U.S. Dist. LEXIS 89872 (W.D. Wash. May 21, 2020). The parties ran a cannabis growing and processing business. The business would have been perfectly legal except that plaintiff’s prior criminal record prohibited him from obtaining a producer or processor license under applicable state law. The parties plowed ahead with the business anyway, verbally agreeing to be “equal partners.” The verbal agreement was illegal under both state and federal law. Plaintiff eventually left the business, and the parties disputed his share of it. Plaintiff sued for past and future profits, but the court granted defendant’s motion to dismiss. Plaintiff admitted to the illegality of the verbal agreement that was the basis of the business, but he claimed that he was entitled to his share of the profits anyway since profits from an illegal venture can be disgorged after the transaction has been completed. The court agreed that this is a correct statement of the law but held it did not apply to these facts. The court explained: “Plaintiff’s amended complaint does not support his claim that the illegal transaction has ended. Instead, [plaintiff] asserts a right to both past and future profits from” the business. The court granted the motion to dismiss, with leave to refile.

«Pt. I •«Ch. 1 »«§ 1.8 »

1 Corbin on Contracts § 1.8 (2020)

§ 1.8. Unenforceable Contracts

The term “unenforceable contract” would seem to be as self-contradictory as is the term “void contract,” but the law affords a variety of remedies by which a contract is recognized. Some of these are non-judicial in character, while others may be described as judicial remedies. In addition to the usual direct means of enforcement of a promise, there are also various indirect means of enforcement. There are certain agreements with respect to which the most commonly used direct means of enforcement are not available, but which cannot properly be called either void or voidable. They create duties of imperfect obligation1 and have some effect upon the legal relations of the parties. They are enforceable by various indirect and non-judicial remedies. It is agreements of this sort that have commonly been grouped together under the heading of unenforceable contracts.2 The term has rendered some useful service and it will not be abandoned here; but it should be observed that there are important differences in the legal relations that are created by the various agreements that are called unenforceable contracts.

A perfectly valid contract may become unenforceable by virtue of the statute of limitations—a statute that provides that one or more of the direct judicial remedies shall not be available unless asked for within a specified period of time.3 The expiration of the period fixed by the statute, however, does not make such a contract void. If a promisee holds goods in pledge or a mortgage on land as collateral security for the performance of a promise, the barring of direct judicial remedies by the statute of limitations will not prevent the use of this collateral security as a means of enforcement.4 Furthermore, the original contract, even though direct remedies are barred by the statute, is still operative to create in the promisor a power of creating a new directly enforceable duty, by a mere expression of will, without any act of assent by the other and without any new consideration. A contract cannot properly be said to have become void if it is still operative to create such a power of validation. Neither can such a contract properly be described as voidable after its direct enforcement has been barred by the statute, because the promisor has no power of avoidance whatever. The promisor cannot destroy the rights of the other party or create new rights or privileges in himself or herself.

A contract may be unenforceable, also, by reason of the statute that is commonly called the statute of frauds. If there is no written memorandum sufficient to satisfy the requirements of that statute, the direct judicial remedies at common law are not available to the plaintiff if the defendant chooses to take advantage of the statute. Such oral agreements, however, are far from being without legal operation. The parties have the legal power to make the contract directly enforceable as against themselves by signing proper written memoranda, but they cannot by such a process make the contract enforceable in their own favor. In the subsequent chapters dealing with the statute of frauds, there will be found a full discussion of the legal operation of an oral contract that is made directly unenforceable by the statute.5

Also unenforceable are some contracts tainted by illegality but which are not wholly void or voidable.6 Contracts with governmental units that can be met with the defense of sovereign immunity also may be classified as unenforceable.7 No doubt the catalog of unenforceable contracts given in this section is incomplete and new members will be found to fit this class.

Footnotes — § 1.8:

1 Frederick Pollock, Principles of Contract *608.

2 The definition of the Restatement of Contracts (Second) § 8 (Am. Law Inst. 1981) is as follows: “An unenforceable contract is one for the breach of which neither the remedy of damages nor the remedy of specific performance is available, but which is recognized in some other way as creating a duty of performance, though there has been no ratification.”

3 The first statute of limitations, passed in the 21st year of James I, provided that the action of debt should not be maintainable after the lapse of six years. In form, this was not applicable to other legal writs; much less was it applicable to a bill in equity.

4 In the case of Weems v. Carter, 30 F.2d 202 (4th Cir. 1929), certain bonds and stocks had been assigned as collateral security for the payment of a promissory negotiable note. The direct enforcement of the note became barred by the statute of limitations; but in spite of this, it was held that the creditor might properly sell the bonds and stocks to secure repayment of the debt. The court wrote:

“The plaintiffs are third persons who have pledged their property to secure the debt of another, a debt for which they are in no way personally liable. They are asking the relief of a court of equity because the statute of limitations has run against the debt. In order to enforce his remedy against the collateral in his hands, the creditor does not ask or need the aid of a court. The question to be considered is whether the running of the statute of limitations in favor of a principal extinguishes the right of the creditor to proceed, as agreed, against the collateral. On this question there is some conflict of authority, but we agree with the learned judge below when he says that both ‘the weight of authority and the better reason lead to the conclusion that the running of the statute of limitations in favor of the principal, does not extinguish the obligation of a surety on a promissory note in whose favor limitation has not run.’

“Though a debt has been declared barred in an action on it, yet the security is unaffected. Brent v. Bank of Washington, 35 U.S. 596, 9 L.Ed. 547 (1836); Gage v. Riverside Trust Co., 86 Fed. 984 (C.C.Cal.1898). 2 Samuel Williston on Contracts, § 1231; Johnson v. Planters’ Bank, 12 Miss. 165 (Miss.1843); Minter v. Branch Bank of Mobile, 23 Ala. 762, 58 Am.Dec. 315; Ashby v. Johnston, 23 Ark. 163, 79 Am.Dec. 102; Bull v. Coe, 77 Cal. 54, 18 P. 808, 11 Am.St.Rep. 235, 239; Willis v. Chowning, 90 Tex. 617, 40 S.W. 395, 59 Am.St.Rep. 842, 845, 846; Darby v. Berney Nat. Bank, 97 Ala. 643, 11 So. 881, 882; Johnson v. Success Brick Mach. Co., 104 Miss. 217, 61 So. 178, 179, 62 So. 4; Charbonneau v. Bouvet, 98 Tex. 167, 82 S.W. 460, 461; Eickhoff v. Eikenbary, 52 Neb. 332, 72 N.W. 308, 310.”

5 Oral contracts within the statute of frauds may be used to show that services rendered were not rendered gratuitously: Downey v. Guilfoile, 96 Conn. 383, 114 A. 73 (1921); Schempp v. Beardsley, 83 Conn. 34, 75 A. 141 (1910); or as evidence of the reasonable value of the services rendered: Ryan v. Dayton, 25 Conn. 188 (1856); Grantham v. Grantham, 205 N.C. 363, 171 S.E. 331 (1933); Bennett Leasing Co. v. Ellison, 15 Utah 2d 72, 387 P.2d 246, 21 A.L.R.3d 1 (1963).

In Sawyer v. Estate of Estate of John Sawyer, 790 S.E.2d 753 (N.C. Ct. App. 2016), the relatives of a deceased man filed an action against his estate and the estate’s sole beneficiary alleging the deceased breached a promise to devise them certain tracts of real estate in his will in consideration for their service in caring for him during his final months. The court ruled that the statute of frauds barred the contract claim. Though the plaintiffs voluntarily dismissed their claim for quantum meruit to recover the value of their services caring for the deceased, in dicta, the court quoted Grantham v. Grantham, supra, which stated: “The general rule is that, where services have been performed in consideration of a promise to devise real property, if the contract, as in the pending case, is not enforceable by reason of the Statute of Frauds, an action cannot be maintained on the special contract, but in case of services performed it may be prosecuted on the theory of implied assumpsit or quantum meruit to recover the value of the services rendered.”

In Nanos v. Harrison, 97 Conn. 529, 117 A. 803 (1922), it was held that although an oral agreement for a five-year lease was unenforceable, a tort action would lie for a false representation of power to execute such a lease, which, along with the oral agreement, induces the plaintiff to incur expenditures in preparation to occupy.

6 Restatement of Contracts (Second) § 8 cmt. b (Am. Law Inst. 1981).

Often, the unenforceability of a contract is based on the words of a statute. See Ruth v. Cherokee Funding, LLC, 304 Ga. 574, 820 S.E.2d 704 (2018). Ronald Ruth and Kimberly Oglesby sustained injuries in automobile accidents and entered into a financing agreement with Cherokee Funding to obtain funds for personal expenses. The agreements made repayment contingent upon the success of their personal injury litigation. The deal provided that plaintiffs would not have to repay the funds if they recovered nothing. If they did recover damages, they would repay the amounts that Cherokee Funding had provided, as well as interest at a rate of 4.99 percent per month and other “fees,” up to the amount of their recovery. Both litigants settled their cases and filed this action challenging their duty to pay Cherokee Funding pursuant to the terms of their agreements. They claimed that the contracts violated the Industrial Loan Act, OCGA § 7-3-1 et seq. and the Payday Lending Act, OCGA § 16-17-1 et seq. which regulate the making of certain loans. The lower court dismissed the complaints, and the instant court affirmed. The court held that the contingent repayment obligation did not qualify as a loan under either act because there was no requirement that the money had to be repaid in the event plaintiffs failed to recover in their personal injury actions. The court explained that “[a]n agreement that involves such a contingent and limited obligation of repayment is not a ‘contract requiring repayment,’ as those words are commonly and ordinarily understood in the context of the law of usury.” Ruth, 304 Ga. 574, 578, 820 S.E.2d 704, 710. There is no “loan” when the obligation to repay is contingent and limited.

But plaintiffs argued that the instant contingent payment obligation is illusory because Cherokee Funding does not make contingent loans unless the risk of not being repaid “is close to null.” The court was sympathetic to the possibility that a contingent repayment obligation might be a disguised loan. “It is easy to imagine an agreement with a sham contingent repayment provision that reflects an attempt to evade the usury laws. And a court properly presented with a claim that a contingent repayment provision is a sham should look beyond the text of the agreement to ‘penetrate to the substance’ and perhaps find an unlawful loan, notwithstanding the contingency.” Ruth, 304 Ga. 574, 580, 820 S.E.2d 704, 710–711. But the instant pleadings presented no such claim that the contingent nature of their transactions was illusory. Based on the complaint, the two statutes do not apply to the instant transactions—they were not loans as contemplated by the statutes.

7 Restatement of Contracts (Second) § 8 cmt. c (Am. Law Inst. 1981).

«Pt. I •«Ch. 1 »«§ 1.9 »

1 Corbin on Contracts § 1.9 (2020)

§ 1.9. Agreement Defined

What is meant by the term agreement? How does it differ from such terms as contract and obligation? Like all other legal terms, it, too, has been used in a variety of senses. No doubt, it is frequently used as an exact synonym of the term contract.1 It seems desirable, however, to narrow its meaning so that it expresses nothing more than mutual assent, nothing more than the terms offer and acceptance.2 To say that there is an agreement generally means that two or more persons have expressed themselves in harmony. Of course these harmonious expressions can be with regard to any subject in life. Two persons may be in agreement that Napoleon was a great general, or that Smith is the best person to serve as President, or that the weather is disagreeable. In the law of contracts, however, the term agreement is commonly used to mean the expressions of two or more persons respecting a subject-matter of a kind that in the past has stimulated official action on the part of organized society. In the law of contracts we mean by the term agreement an expression of mutual assent between two parties that frequently creates a contract.3

Agreement consists of mutual expressions; it does not consist of harmonious intentions or states of mind.4 It may well be that intentions and states of mind are themselves nothing but chemical reactions or electrical discharges in some part of the nervous system. It may be that some day we may be able to observe a state of mind in the same way that we observe chemical processes and electrical discharges. At present, however, what we observe for judicial purposes is the conduct of the parties.5 We observe this conduct and we describe it as the expression of a state of mind. It is by the conduct of two parties, by their bodily manifestations, that we must determine the existence of what is called agreement. The Uniform Commercial Code defines “agreement” as “as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade … .”6 This makes clear that an agreement, as a factual matter, includes not only the words and non-verbal expressions of the parties, but also the added meaning as revealed by the context of their expressions. This is what is meant by mutual assent.

As we proceed through this treatise it will appear over and over again that one may be “bound” by a contract in ways that one did not intend, foresee, or understand. The juristic effect (the resulting legal relations) of expressions in word or act may be very different from what the speaker or actor supposed it would be. The legal effects that are produced by an “agreement” depend upon past legislative and judicial history, of which most of humanity must necessarily be largely ignorant. They may depend also upon surrounding factors that are unknown to the parties and upon subsequently occurring circumstances that could not at the time of agreement be known to anybody. Courts often declare that they “cannot make contracts for the parties,” a statement that is quite true; but it is of much greater importance to realize that the courts must determine the requirements of justice and that the legal effects thus given to expressions of agreement are seldom exactly what one or both of the agreeing parties supposed or expected.7

By the foregoing it is not meant that courts are indifferent to actual intentions and expectations or to the legal effects that one or both contracting parties thought that they were producing. But in the law of contracts, as in all other legal fields, “justice” is not attained by giving the parties unlimited freedom or power, by enforcing every result that either one of them expected and intended, or by never enforcing a result unless both of them expected and intended it.

The word “agree” is often used by contractors and even by draftsmen of statutes with a meaning that is identical with that of “promise.” Thus, one may say “I agree to pay one hundred dollars,” or “I agree to receive a horse in full satisfaction of the debt.” This usage is too common to be eliminated. When the word “agree” or “agreement” is used, the context may show that the intended meaning is something other than mutual expressions of assent.

Footnotes — § 1.9:

1 In Fitzpatrick v. Vermont State Treasurer, 144 Vt. 204, 475 A.2d 1074 (1984), the court cited this § 1.9 (1963 ed.) in concluding that the legislature intended the term “special agreement” to mean “special contract.”

2 See Restatement of Contracts (Second) § 3 (Am. Law Inst. 1981).

Del.

—Sutherland v. Sutherland, 28 A.3d 1093 (Del. Fam. 2010).

Ill.

—Brand v. Comcast Corp., 2013 U. S. Dist. LEXIS 52098 (N.D. Ill. April 11, 2013) (distinguishing “contract” from “agreement”).

Wharton v. Comcast Corp., 912 F. Supp. 2d 655 (N.D. Ill. 2012) (distinguishing “agreement” from “contract” and “bargain” and noting that “agreement” requires only mutual assent).

In re Turner, 156 F.3d 713, 718 (7th Cir. 1998): “Fundamental to the concept of an agreement is an expression of mutual assent between the two (or more) parties to that agreement.” (Citing this § 1.9, 1993 ed.).

Landers-Scelfo v. Corporate Office Systems, 827 N.E.2d 1051 (Ill. Ct. App. 2005). “Agreement” is broader than “contract” and requires only a manifestation of mutual assent between the parties. Parties may enter into an “agreement” absent the formalities and accompanying legal protections of a contract. See also Brown-Wright v. E. St. Louis Sch. Dist. 189, 2016 IL App (5th) 150148-U (2016).

Ohio—Tiffe v. Groenenstein, 2003-Ohio-1335, P25 (Ohio App. 2003). “ ‘Meeting of the minds’ refers to the manifestation of mutual assent by the parties of an agreement to the exchange and consideration, or to the offer and acceptance.’ Restatement of the Law 2d, Contracts (1981) 52, Section 17 cmt. c. In the determination of a created contract, ‘the relevant inquiry is the manifestation of intent of the parties as seen through the eyes of a reasonable observer, rather than the subjective intention of the parties.’ ”

3 See Sage v. Wilcox, 6 Conn. 81, 85 (1826): “The word, ‘agreement,’ in its popular and usual signification, means no more than concord; the union of two or more minds; or a concurrence of views and intention … . This concord or union of minds, may be lawful or unlawful; with consideration, or without; creating an obligation, or no obligation. Still by the universal understanding of mankind, proved by daily and home conversation it is an agreement; and it is none the less so because it is opposed to law or even to good morals.”

Kitzke v. Turnidge, 209 Or. 563, 572–573, 307 P.2d 522, 527 (1957). Contract depends on mutual expressions of agreement, not upon identity of unexpressed ideas. The court wrote: “If this requested instruction was intended to say that the mind of the plaintiff and that of the defendant had to meet; that is, that each of the two parties had to have in mind the same idea and intent before the jury could find that they effected a contract, the instruction if given would have erred. The law of contracts is not concerned with the parties’ undisclosed intents and ideas. It gives heed only to their communications and overt acts.” The supposed necessity of a “meeting of the minds” is fully discussed in §§ 4.12 and 4.13.

This section from a prior edition of this treatise (§ 9, 1950 ed.) is cited in Boggs v. Motors Ins. Corp., 139 A.2d 733, 735 (D.C. Mun. App. 1958), as to definition of the term “agreement.”

4 Dyer v. Bilaal, 983 A.2d 349 (D.C. App. 2009) (citing § 1.9, 1993 ed.); Shaw v. Buser, 2009 Iowa App. LEXIS 310 (April 22, 2009) (citing § 1.9, 1993 ed.).

U.S.

—United States v. Blankenship, 382 F.3d 1110 (11th Cir. 2004). The court cited this to emphasize the general principle that a contract is to be determined objectively regardless of the subjective intentions of the parties.

Ariz.

—Carroll v. Lee, 148 Ariz. 10, 712 P.2d 923 (1986). The court cited this section from a prior edition (§ 9, 1963 ed.) in concluding that a contract can be inferred from conduct other than verbal expressions.

Ill.

—National Prod. Workers Union Insurance Trust v. Life Ins. Co. of N. Amer., 2010 U. S. Dist. LEXIS 29582 (N.D. Ill. Mar. 29, 2010) (the popular notion of “meeting of the minds” should not be interpreted literally since there is no requirement that parties share a subjective understanding of the terms of the contract; rather, the focus is on the parties’ objective expressions to each other).

Mich.

—Loloee v. Ali, 2010 Mich. App. LEXIS 590 (Mich. April 6, 2010). Plaintiff was a registered medical assistant, and the defendants were physicians. Defendant Ali informed the plaintiff that he and defendant Asghar intended to open an urgent care center and inquired whether the plaintiff would consider working as the new venture’s office manager. Ali suggested that the plaintiff invest in the new business, and the plaintiff subsequently wrote Ali a check for $20,000, which entitled her to a 20% share in the enterprise. An employment agreement was drafted by the plaintiff and signed by Asghar, but the plaintiff and Ali never signed it. After the center opened, the defendants grew dissatisfied with the plaintiff and sent a letter to her that she would no longer serve as the clinic’s office manager. Enclosed with the letter was a certified check for $20,000. In her breach of contract claim, the plaintiff asserted that the parties agreed to be bound by the employment agreement that Asghar signed. Quoting this treatise, § 1.9, 1993 ed., the court explained that “agreements consist of mutual expressions … . We observe this conduct and we describe it as the expression of a state of mind. It is by the conduct of two parties, by their bodily manifestations, that we must determine the existence of what is called agreement … . This is what is meant by mutual assent.” Id. at *12. The court found that the employment agreement that the plaintiff prepared and gave to Ali and Asghar constituted an offer of employment. The agreement contained no term expressly requiring mutual signatures. Asghar signed the document without modifying any of its terms, and the parties commenced mutual performance under the terms of the agreement. Thus, the court found a meeting of the minds and concluded that it was inappropriate to grant the defendants’ summary judgment motion.

6 U.C.C. § 1-201(b)(3).

7 A noteworthy example of these principles is Allen v. Allen, 903 So. 2d 835 (Ala. Civ. App. 2004). A husband appealed from a divorce judgment, claiming that the trial court erred in adopting “almost verbatim” the terms of an alleged settlement agreement that he executed but supposedly did not understand and that allegedly did not represent the agreement to which he thought he was agreeing. The appellate court rejected these contentions, noting that the husband’s objective manifestation of intent was contrary, as evidenced by the language of the agreement. The court cited this section from a prior edition (§ 9, 1952 ed.) for the explanation that a person “may be ‘bound’ by a contract in ways that he did not intend, foresee, or understand. The juristic effect (the resulting legal relations) of a man’s expressions in word or act may be very different from what he supposed it would be.” The court explained that contract law is premised on an objective rather than a subjective manifestation of intent. When the parties reduce their agreement to a signed writing, the writing becomes the sole expositor of their agreement, absent mistake, fraud or ambiguity. Further, in this instance, the husband began performing certain of the obligations contained in the settlement agreement within days after its execution. This course of performance was inconsistent with his alleged understanding of the settlement agreement. See also, Jones v. Jones, 2014 Ala. Civ. App. LEXIS 1201 (April 7, 2014) (citing Allen v. Allen with approval).

U.S.

—United States v. Turner, 2006 U.S. Dist. LEXIS 46891 (D.D.C. July 12, 2006). Defendant’s claim that she had been granted an informal “equitable” immunity was not supported by the alleged statements made in support of this claim. Defendant’s claimed subjective belief is irrelevant.

Ala.

—Lilley v. Gonzales, 417 So. 2d 161 (Ala. 1982). Quoting this paragraph from a prior edition of this treatise (§ 9, 1952 ed.), the court held that the seller’s undisclosed thought that a “due on sale” clause was part of the deal is not relevant. See also, Dixie Ag Supply, Inc. v. Nelson, 500 So. 2d 1036 (Ala. 1986) (citing Lilley v. Gonzales with approval).

Williams v. General Electric, 13 F. Supp. 3d 1176 (N.D. Ala. 2014). The court denied employer’s motion to compel arbitration because the “Solutions” document disseminated to employees did not manifest an offer of binding arbitration, as contained in the more comprehensive document that employees did not receive.

Conn.

—Waterview Site Services, Inc. v. Pay Day, Inc., 2008 Conn. Super. LEXIS 2221 (Conn. Aug. 8, 2008). Citing this treatise (§ 9, 1952 ed.) for the proposition that “it is of much greater importance to realize that the courts must determine the requirements of justice and that the legal effects thus given to expression of agreement are seldom exactly what one or both of the agreeing parties supposed or expected.”

Ohio

—Phillips v. May, 2004 Ohio 5942 (Ohio App. Geauga Cty. Nov. 5, 2005), appeal not allowed, 105 Ohio St. 3d 1465, 2005-Ohio-1024, 824 N.E.2d 93 (2005). Citing this treatise (§ 9, 1963 ed.), the court explained that the relevant inquiry is the manifestation of intent as seen through the eyes of a reasonable observer, rather than the subjective intention of the parties.

Another noteworthy example is Padden Law Firm, PLLC v. Toyota Motor Corp., 956 F.3d 1069 (8th Cir. 2020), where the terms of a freely negotiated contract was overridden by ethical considerations governing the attorney-client relationship. Plaintiffs collectively recovered in excess of $7 million following a jury trial verdict in a product defect case involving a car accident that injured plaintiffs and took the life of the daughter of one of the plaintiffs. The recovery was subject to a 40% contingent fee award. Various law firms were involved in the case, and the clients’ retention agreement stated that one of those firms, the Padden firm, was to receive 30% of the contingent fee. But after trial, based on the Padden firm’s actual contributions to the case, plaintiffs moved to reduce the fees owed to the Padden firm to 15%. Minnesota Rule of Professional Conduct 1.5(e)—which mirrors the American Bar Association’s rule of the same number—provides: “A division of a fee between lawyers who are not in the same firm may be made only if (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (3) the total fee is reasonable.” The district court concluded that a 15% recovery matched the Padden firm’s actual contributions. The 8th Circuit affirmed, explaining that the garden-variety rules of contract law must yield to the ethical standards governing the attorney-client relationship. The Padden firm did not challenge the district court’s findings regarding the proportion of legal work performed by the Padden firm that led to the reduction in its share. Rather, the Padden firm simply argued that the parties’ agreement entitled it to 30%. But the 8th Circuit rejected this argument because it disregards the proportionality requirement of Rule 1.5(e). The court also held that neither does the “joint responsibility” portion of Rule 1.5(e)(1) justify the Padden firm’s receipt of 30% of the contingent fee. The court cited authority holding that “joint responsibility” generally means taking joint financial and ethical responsibility, but this authority did not persuade the court that the Padden firm was entitled to a greater share. If the retention agreement had explicitly stated that proportionality would not be considered, and if the clients had not themselves initiated the motion to reduce the fees, the court suggested the result might be different (though the court does not explain why this is so as neither seem to have anything to do with the requirements of Rule 1.5(e)). But the court added that the Padden firm assumed no responsibility for litigation expenses—which exceeded $100,00—so the Padden firm did not take joint financial responsibility for the case.

«Pt. I •«Ch. 1 »«§ 1.10 »

1 Corbin on Contracts § 1.10 (2020)

§ 1.10. “Bargain” as a Contractual Expression

The word “bargain” is often used as substantially synonymous with agreement and contract. In this work, however, it is used with the connotation of a definite exchange of equivalents, of a quid pro quo. Restatement of Contracts (Second) § 3 provides: “A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.”1As so used, a bargain is one kind of agreement. There are many agreements that are not bargains; and there are many contracts that involve no bargain.2 But a bargain is always an agreement for an exchange.

The exchange agreed upon may be a promise for a promise—the ordinary bilateral contract. It may be a promise by one party in exchange for some executed performance by the other—the ordinary unilateral contract. It may also be an exchange of two commodities—a barter. There may also be a bargain for an exchange in a double sense, for an exchange of promises and for an exchange of the promised performances. In the case of aleatory bilateral agreements, this double exchange does not exist; the two promised performances are not regarded or agreed by the parties to be equivalents.3 In no case are the premiums to be paid for a policy of insurance or for a surety bond regarded as the agreed equivalent of the amount promised conditionally by the insurer or the surety.

There are many agreements that are not bargains just as there are many contracts that are not bargains. Two parties may express mutual agreement in the case of a sealed promise to make a gift. There is agreement, and there may be contract in such a case, but there is no bargain. Also, a promise may become binding by reason of action by the promisee in reliance upon it, even though such action was not bargained for and neither party has agreed upon it as the equivalent of the promise.

Just as there are agreements that are not contracts, so also there are bargains that create no contract. One may bargain for and actually receive many an agreed equivalent that is insufficient consideration for a promise. Such a bargain makes no contract.

Footnotes — § 1.10:

1 This differs from its predecessor, Restatement of Contracts § 4 which omitted from the definition agreements to exchange performances, thereby excluding sales and barters.

2 For illustrations of contracts that involve no exchange of equivalents and no “bargain” see Chapter 10, Contracts Under Seal, and Chapters 8, 9, Informal Contracts Without Assent or Consideration.

That there may be a bargain by an exchange of promises, without any intention that the promised performances are also to be exchanged, see Aleatory Contracts, Chapter 38. Most bilateral contracts involve a bargain for an exchange of the promised performances as well as for an exchange of promises. Most unilateral contracts involve a bargain for the exchange of a promise for a performance that is not promised.

3 See Vol. 8, Ch. 38, Aleatory Contracts.

«Pt. I •«Ch. 1 »«§ 1.11 »

1 Corbin on Contracts § 1.11 (2020)

§ 1.11. Offer Defined

An offer is an expression by one party of assent to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express assent to the same terms.1 An offer looks forward to an agreement—to mutual expressions of assent.

Can it properly be said that an offer—a mere expression of assent to certain terms by one party—before any acceptance or similar expression of assent by the other party, has any legal operation whatever? There are some cases in which it can properly be said that such an expression of assent has no legal operation. There are certain persons who may be quite capable of expressing assent to certain terms, and yet in whom the law recognizes no capacity to make a contract. Various limitations on such legal capacity are discussed elsewhere. Moreover, there are expressions of such assent looking toward non-contractual illegal bargains. Furthermore, there are expressions of assent looking forward to a similar expression of agreement by another party, and yet no effect will be given to these expressions by the law, because it has not been customary to do so. Two friends may mutually agree to meet at lunch or to play golf together, without in any way affecting their legal relations. The differences between such social engagements and a business agreement that constitutes a contract will be discussed in a subsequent section.2 It should be observed here, however, that, as the term “offer” has been defined above, the offer may or it may not be a legally operative fact.

The definition of offer that has been discussed above is an attempt at a factual description, without any reference whatever to the legal operation of the facts so described. There are two kinds of questions that are presented to the courts for their solution. First, what were the facts that occurred or existed? This question must be answered by making a historical investigation, by receiving oral testimony and other evidence, and drawing inferences therefrom. Second, what is the legal operation and effect of the facts that are found to have existed? When an offer is made as a part of a lawful business transaction that looks to an exchange, and is made by a person possessed of full contractual capacity, it has legal consequences. Generally, when lawyers and courts use the term “offer,” this kind of offer is meant and hereafter this treatise will use it in this sense. It is believed that the best short description of these legal consequences is that an offer creates a power of acceptance in the offeree.3 With respect to the resulting legal relations, offer and acceptance may be defined thus: An offer is an act whereby one person gives to another the legal power of creating the relation called contract. An acceptance is the exercise of the power conferred by the offer, by the performance of some other act or acts. Both offer and acceptance must be acts expressing assent.4 It will not be disputed by any one that, after an offer is made, a voluntary expression of assent by the offeree is all that is necessary to create what we call contract. This is what is meant, and it is all that is meant, by saying that an offer creates a power of acceptance in the offeree. The exercise of this power by the offeree will create a very important change in the legal relations of the parties. But the power to bring about this important change by the act of acceptance is itself an important juristic fact, and it is the legal result of the offer standing quite alone. For this reason, it seems to be reasonable and convenient to say that the offer may be an operative fact creating a new legal relation—the relation of power in the offeree to create new changes in legal relations, with the correlative liability in the offeror that such a change will take place without any further action or expression on the offeror’s own part.

What kind of act creates a power of acceptance and is therefore an offer? It must be an expression of will or intention. It must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred.5 This applies to the content of the power as well as to the fact of its existence. It is on this ground that we must exclude invitations to deal or acts of mere preliminary negotiation, and acts evidently done in jest or without intent to create legal relations. All these are acts that do not lead others reasonably to believe that they are empowered “to close the contract.” So long as it is reasonably apparent that some further act of the purported offeror is necessary, the purported offeree has no power to create contractual relations, and there is as yet no operative offer.6

An expression of willingness to make a contract is not an operative offer unless it is made in such a manner as justifies another person in thinking that it is directed to him or her for acceptance. An oral statement of such willingness made to a third person who has no authority to communicate it is not an operative offer; and a written statement to the same effect is not an offer, even though without any authorized delivery and without negligence it becomes known to a person who tries to accept. So also the mere passing of a resolution by a board of directors or by a town council, uncommunicated by them or by anyone with authority, creates no power of acceptance in one who learns of it in some fortuitous manner.7 A legislative enactment promising exemption from taxation, addressed to no specifically named party, is almost certain to be held not to be an offer of a contract.8 Similarly, a report of a community association to property owners conveying projections with respect to fees and costs after a proposed acquisition of a water company is no offer.9

In order to be legally operative and to create a power of acceptance, it is necessary that the offer shall contain all the terms of the contract to be made. It is not enough for one party to promise to do something. This party must also say what the other party must do in exchange.10 If A says to B: “I will sell and convey Blackacre to you,” and B replies: “I will pay you $5,000,” no contract has been made as yet. In order to make a bilateral contract, the offer must state the terms of both the promises to be made; one party offers to exchange a specified promise for a similarly specified promise by the other party. By acceptance, the other party not only makes the requested return promise, but also assents to the exchange of the two specified promises as offered.

As is the case with most working definitions of legal terms, the definition advanced here is not fully understandable without multiple illustrations based on concrete cases. These are given in the discussion of various cases in this section and in the text of later sections of this volume.11

An example of a situation where an offer has some legal operation even after it has been rejected by a counter-offer is found in Uniform Commercial Code § 2-207, the controversial section dealing with the “battle of the forms.” Where the offer has not been accepted but the parties proceed to perform by shipping and accepting goods without having entered into a contract based on their exchange of non-matching forms, § 2-207(3) instructs: “In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.” Thus, the law looks to the offer—even though it has been rejected—and the counter-offer document that responded to the offer in order to discern the terms of the parties’ contract. The “battle of the forms” is explored in § 3.37.

Footnotes — § 1.11:

1 This definition is used in Spenard Plumbing and Heating Co. v. Wright, 370 P.2d 519, 524 (Alaska 1962).

The Restatement (Second) of Contracts § 24 (Am. Law Inst. 1981) provides: “An offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it.” It differs from the original Restatement’s definition primarily by omitting the idea that an offer is necessarily a promise. Under the Restatement (Second) definition, a proposal looking to a sale or a barter may constitute an offer even though no promise is made. Nonetheless, it will be conceded by all that most offers are promissory. The United Nations Convention on Contracts for the International Sale of Goods (see § 1.21) defines “offer” inferentially in Article 14, providing as follows: “A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. … A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.” This language bristles with legal rather than merely factual terms: “contract,” “sufficiently definite,” and “intent to be bound.”

U.S.

—Finnsugar Bioproducts, Inc. v. Amalgamated Sugar Co., LLC, 2002 U.S. Dist. LEXIS 4979 (N.D. Ill. 2002) (citing this treatise (§ 1.11), an “influential source”).

Ariz.

—Melendez v. Hallmark Ins. Co., 232 Ariz. 327, 305 P.3d 392 (Ariz. App. 2013). An Arizona statute required insurers to offer uninsured motorist coverage. The plaintiff argued that the defendant-insurer’s UM/UIM selection/rejection form was not an offer because it did not quote a premium price. The lower court determined that the defendant’s form was sufficient because it stated the insured’s right to get UM/UIM coverage in an amount equal to her liability limits while permitting selection of lower limits or rejection of the coverage. On appeal, the instant court noted precedent applying general contract principles to determine the meaning of “offer” (citing this § 1.11 (1993 ed.) as well as the definition of “offer” in § 24 of the Restatement (Second) of Contracts). Noting that the insurer’s form stated that it did not provide coverage, the court found that it failed to objectively communicate a proposal of terms that would lead a reasonable person to understand that, if accepted, the other party would be bound. Repeating a quote from this treatise in an earlier opinion, the court noted that the form did not constitute an offer because it did not convey “an expression by one party of assent to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express assent to the same terms.”

Tallent v. National Gen. Ins. Co., 185 Ariz. 266, 915 P.2d 665 (1996) (citing this § 1.11, 1993 ed.).

Fla.

—Kolodziej v. Mason, 774 F.3d 736 (11th Cir. 2014). Mason, a lawyer representing a client accused of murder, appeared on “Dateline” and challenged the prosecution’s theory that Mason’s client traveled from Atlanta to Orlando, then back to a hotel in Atlanta within the relevant time period. “Dateline” edited the interview and aired Mason stating: “I challenge anybody to show me—I’ll pay them a million dollars if they can do it.” A law student who saw the interview attempted to accept the offer by completing the challenge. When Mason refused to pay the student a million dollars, the student filed suit. The issue under review was whether an oral, unilateral contract was formed. To prove the existence of a contract, there must be an offer, acceptance, consideration, and sufficient specification of essential terms. The court relied upon this § 1.11, 1993 ed., to explain what constitutes an offer: “… [A]n expression by one party of assent to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express assent to the same terms.” The court found that Mason’s statement was merely a figure of speech and that a reasonable, objective person would not have understood it to be an invitation to contract.

Ohio

—Baseball at Trotwood, LLC v. Dayton Prof’l Baseball Club, 2003 U.S. Dist. LEXIS 27460 (S.D. Ohio Sept. 2. 2003) (quoting § 1.11, 1993 ed.).

2 See § 2.13.

Prof. Corbin asked whether an offer has any legal status before acceptance. His answer, infra, using Hohfeld’s freshly minted fundamental legal conceptions, was that an offer creates a power of acceptance in the offeree. Modern drug laws offer a second, surprising, answer. In Arizona v. Alvarado, 875 P.2d 198 (Ariz. Ct. App. 1994), the trial judge found Alvarado guilty of offering to sell marijuana, a felony. Defendant appealed, urging that there was no substantial evidence to support the conviction. The appellate court disagreed, but reversed and remanded for a new trial anyway on a different theory. The State maintained (and the trial judge agreed) that offering to sell marijuana is a strict liability crime, and that the speaker’s intentions are irrelevant. According to the State’s position, if the speaker knows what he says, and if a reasonable person would understand what he says as an offer, then the speaker is guilty of offering to sell marijuana no matter what he intended. Noting that this theory would criminalize mere words, even those spoken without criminal intent, the court concludes that this theory lacks a necessary mens rea. Hence, to commit the crime of offering to sell marijuana, “a person must be aware or believe that he has made an offer to sell, not that he has told a lie or made a joke.”

This subjective component of offer in a criminal case was conspicuously missing from State v. Cardwell, 1997 Conn. Super. LEXIS 2109 (Conn. Super. Ct. July 31, 1997), where the defendant was charged with violating a state ticket scalping law. That law criminalizes any offer or sale of tickets to entertainment events within the state at prices greater than their face price plus $3. Defendant arranged his business so that potential buyers of in-state events would call his office located outside the state. He argued that when in-state buyers for in-state events call his out-of-state office the offer is not made in-state so he does not violate the statute. The court says an offer is made when communicated, so when the defendant communicates to in-state residents, even when he is out-of-state, the offer is made in-state and he violates the statute. If the in-state customer made the offer, the defendant would not be guilty of offering to sell at all (though presumably the customer would). But he would have to accept. Since acceptance also must be communicated, the contract is formed when the customer hears the acceptance. At that moment a “sale” is made in-state, so the defendant violates the other part of the statute that prohibits sales at premium prices. All this is pure objective theory of contracts. Communication and the site of communication are all that matter. But what about the Alvarado theory? That theory requires that the defendant have “been aware that he has made an offer to sell.” This defendant had designed his business precisely so that he was not making an offer to sell in-state. So he could not have been aware that he was making such an offer. The defendant had argued and the court extensively discussed myriad challenges to the defendant’s conviction, including numerous constitutional and jurisdictional ones, but not apparently this little corner of contract law. So much for the subjective theory of contracts.

3 This § 1.11 is cited in Moldflow Corp. v. Simcon, Inc., 296 F. Supp. 2d 34 (D. Mass. 2003). It is also cited in Myers v. Buff, 45 N.J. Super. 318, 132 A.2d 543 (1957) (in the predecessor edition, it was § 11, 1950 ed.). In Myers, a broker wrote to his principal, “In accordance with our conversation, we have quoted a price of $7400” to a named prospective purchaser. This letter was held to satisfy the New Jersey brokerage statute. The word “quoted,” under the circumstances, meant “offered,” and it is reasonably implied that the owner had “promised” to pay a commission.

4 Calo, Inc. v. AMF Pinspotters, Inc., 31 Ill. App. 2d 2, 176 N.E.2d 1 (1961).

In United States v. Farina, 153 F.Supp. 819 (D.N.J. 1957), the court held that the defendant, by merely making a collusive bid to supply goods, was not guilty of a violation of the “False Claims Act.” By “claim” is meant “a demand for money or property to which a right is asserted. … Being essentially an offer, a bid creates no rights.” The defendant had asserted no “right” or “claim” against the government; he had merely created a power of acceptance.

See Kolodziej v. Mason, 774 F.3d 736 (11th Cir. 2014), discussed in note 1.

U.S.

—Linear Tech. Corp. v. Micrel, Inc., 275 F.3d 1040 (Fed. Cir. 2001). Promotional material about a future product, solicitations of information from sales representatives to determine the value of the product to assist in setting its price, publication of preliminary data sheets and the dissemination of advertising and other information about the product to customers did not justify an understanding that the party to whom such communications were sent could conclude a bargain by assent. There was no offer.

Ariz.

—Melendez v. Hallmark Ins. Co., 232 Ariz. 327 (Ct. App. Ariz. 2013). An Arizona statute requires insurers to offer uninsured motorist coverage (A.R.S. § 20-259.01). The plaintiff argued that the defendant-insurer’s UM/UIM selection/rejection form was not an offer because it did not quote a premium price. Citing this treatise, § 1.11, 1993 ed., and the Restatement (Second) of Contracts, the court held that since the insurer’s form states that it does not provide coverage, it failed to objectively communicate a proposal of terms that would lead a reasonable person to understand that, if accepted, the other party would be bound.

Conn.

—Saye v. Howe, 2004 Conn. Super. LEXIS 3103 (Oct. 25, 2004). Offeree was not free to “accept” one point of negotiation, posited in one e-mail by a company’s president among many other points, since that lone point was not intended to be an “offer” that could be accepted isolated from the other points of negotiation.

Yardscapes, Inc. v. Town of E. Haddam, 2006 Conn. Super. LEXIS 2184 (July 19, 2006). Town sent an announcement to certain contractors for winter snowplowing bids but expressly stated that the town had no obligation to hire any contractor. The court held the announcement was not an offer and “bids” in response to announcement created no contract.

D.C.

—RDP Technologies, Inc. v. Cambi AS, 800 F. Supp. 2d 127 (D.D.C. 2011). The statement that issues with respect to proposed agreement were “open to discussion” evinces a preliminary negotiation, not an operative offer and acceptance.

Ga.

—Frederics, Inc. v. Felton Beauty Supply Co., 58 Ga. App. 320, 198 S.E. 324 (1938), overruled on different grounds, Willis v. Hill, 116 Ga. App. 848, 159 S.E.2d 145 (1967). The sending of a complete documentary contract signed by the Vice President of a corporation justified the other party in believing it was an offer empowering it to consummate the contract by signing it and mailing it back.

Haw.

—Willis v. Swain, 112 Haw. 184, 145 P. 3d 727 (2006). An insurance company’s statement in a certificate of eligibility that read, “If you desire UM coverage, contact an insurance agent to assist you with these coverages upon the payment of the appropriate premium” was at most an invitation to negotiate and not an offer.

Ind.

—Zimmerman v. McColley, 826 N.E.2d 71 (Ind. Ct. App. 2005). Insurer bound to honor offer to settle claim made by representative who did not have actual authority to settle for that amount, but did have apparent authority, and even though he subjectively did not intend to make an offer.

Iowa

—Heartland Express, Inc. v. Terry, 631 N.W.2d 260 (Iowa 2001). The employee, a Georgia resident, applied for a job with the employer, an Iowa company, by filling out an application at one of the employer’s Georgia terminals, and was hired. Later, the employee suffered a brain injury and applied for workers’ compensation benefits. The decisive issue in this workers’ compensation proceeding was whether the Industrial Commissioner of Iowa had subject matter jurisdiction over the claimant’s claims. The court considered whether the contract for hire took place in Iowa or in Georgia. The general rule, as stated by the court, is that the place of contract is the place where the acceptance is made. If a resident of one state places a letter in the mail making an offer to one who resides in another state, the contract would be completed where the acceptance is mailed. In determining where the offer was accepted, the court held that the application for employment completed by the employee was not an offer that created the power of acceptance, but rather a solicitation of an offer of employment. When the employer approved the application in Iowa, there still was no contract. There was no contract until Heartland telephoned the employee and offered him the job. Since the employee accepted the job over the telephone from his home in Georgia, Georgia was deemed to be the place of the contract. The Industrial Commissioner of Iowa had no subject matter jurisdiction.

N.J.

—Levy v. Lucent Techs., Inc., 2003 U.S. Dist. LEXIS 414 (S.D.N.Y. Jan. 13, 2003) (applying New Jersey law, citing this section from a prior edition (§ 11, 1962 ed.)).

Fletcher-Harlee Corp. v. Pote Concrete Contrs., Inc., 482 F.3d 247 (3d Cir. 2007). A noteworthy case. The plaintiff (Fletcher) was a general contractor that brought this action against Pote, a concrete subcontractor, for refusing to perform in accordance with its submission of a quote that Fletcher relied upon in submitting a bid for the entire project. The instant court recognized the classical practice in which a general contractor necessarily relies on bids from various subcontractors in order to create the general, overall bid. Courts recognize the subcontractors’ bids as firm offers because they may be relied upon and the general contractor cannot accept the subcontractor bids until the general succeeds in being awarded the contract for the project. The “realism” of such commercial practices is recognized by courts in their interpretation of contracts. Such practices, however, must yield to the express terms used by the parties since express terms are given greater weight than evidence of usages of trade (Restatement (Second) of Contracts, § 203 (b) (Am. Law Inst. 1981)). Fletcher sent a solicitation letter to various subcontractors stating that their bids had to be held open for a minimum of 60 days and the subcontractors had to be responsible for the prices and proposals they submitted. The court assumed this letter was merely a request to submit an offer. Pote replied with a price quotation that not only failed to conform to the terms of Fletcher’s solicitation but stated that it was submitted for informational purposes only, did not constitute a “firm” offer, should not be relied on, and that Pote would not be held liable for any of the terms in this quote. The court correctly noted that this reply could not be an offer because it disclaimed any intention on the part of Pote to be bound. Even if Fletcher’s solicitation letter had been an offer, the Pote response could not be an acceptance because it contained terms that were materially different from the terms of the offer. For the same reason that Pote’s quotation was not an offer, it could not be a counter-offer. Absent any offer or acceptance, there was no contract and the district court properly dismissed Fletcher’s claim for breach of contract. Notwithstanding the language in Pote’s quotation, Fletcher used that quoted price in its bid for the project, which was successful. Pote then refused to perform in accordance with the quote and Fletcher had the concrete supplied by another party, adding $200,000 to Fletcher’s cost, which it attempted to recover from Pote on a promissory estoppel theory. The court noted the absence of the critical element of reasonable reliance. While noting that Pote may have exhausted whatever goodwill it had “by bucking industry custom,” the disclaimer in Pote’s quotation was so plain that the court had no choice but to credit it.

Cotter v. Newark Housing Authority, 422 Fed. App’x 95 (3d Cir. 2011).

N.Y.

—U.S. Rubber Co. v. Silverstein, 229 N.Y. 168, 128 N.E. 123 (1920). A father and two sons were separately in business, and all had dealings with the plaintiff. The father wrote, without specifically naming his sons: “send them separate statements, but I am good for what they buy.” The jury found that this included both of the sons. Cardozo, J., said: “The promise, if uncertain, was to be taken in the sense in which the promisor had reason to suppose it was understood by the promisee. The jury were to fix the meaning in the light of all the circumstances.” The defendant’s offer created such power in the offeree as its terms led him reasonably to believe that it did and as the defendant should have foreseen that it would.

Ohio

—Zebrasky v. Valdes, 2007 U.S. Dist. LEXIS 87694 (N.D. Ohio Nov. 29, 2007). Language that a party was “willing to negotiate” was not an offer.

Pa.

—Thomas v. Univ. of Pa., 2007 U.S. Dist. LEXIS 73469 (E.D. Pa. 2007). Thomas’s statement that she “would” accept a settlement agreement if one provision were removed constituted an offer, not just a solicitation of an offer, since the statement was made to a magistrate judge in the presence of counsel with the intent that the settlement be conveyed to the other party.

Va.

—Jensen v. IBM, 454 F.3d 382 (4th Cir. 2006). Letter expressly stating that IBM was not making a promise to adhere to any statement in compensation program and could modify or cancel the program at any time meant that IBM never “manifested a willingness to enter into a bargain.”

W.Va.

—Kimrey v. American Banker Life Assurance Co., 2008 U. S. Dist. LEXIS 23060 (W.D. Va. Mar. 20, 2008). The defendant (ABA) enclosed an “enrollment form” for “Accidental Death Insurance” in the mortgage closing papers that the Kimreys were completing in connection with a mortgage on their house. The enrollment form contained headings stating, “Why wait? Enroll today.” The form stated that the enrolling customer would get six months of complimentary coverage and would receive a certificate of insurance that contained the date of effective coverage. The enrollment form was completed and mailed in April, 2006. Later, on April 22, 2006, Mr. Kimrey was killed in an auto accident. The ABA denied coverage on the ground that the completed enrollment form was only an offer, which had to be accepted by ABA. The court noted that Virginia courts apply an objective theory to determine whether an offer was made and accepted. The test to determine whether an offer was made is whether a reasonable person in the offeree’s position under all of the words, acts, and surrounding circumstances would believe that he or she has a power of acceptance. The court noted that the term “application” was not used in the ABA document. Rather, the document called itself an “enrollment form.” While an “application” may be reasonably understood to be an offer, a reasonable person in Mrs. Kimrey’s position in light of all of the surrounding circumstances would have believed that the ABA “enrollment” form was an offer. It manifested ABA’s willingness to enter into a bargain that could be accepted by completing it, signing it, and mailing it. The court noted that the “mailbox” rule, which provides that a contract is formed upon mailing, applies in Virginia. The court may have added that there could be no doubt as to whether the offeror, ABA, authorized the proper mailing as a manifestation of acceptance since the enrollment form so directed.

Many cases deal with patent law’s “one-year” bar under 35 U.S.C. § 102:

U.S.

—Gemmy Indus. Corp. v. Chrisha Creations, Ltd., 452 F.3d 1353 (Fed. Cir. 2006) involved a dispute over the patentability of a holiday product. Gemmy brought this action for patent infringement against Chrisha that claimed the patent was invalid because it violated the on-sale bar in being offered for sale more than one year prior to the application for a patent. The district court agreed and granted summary judgment for Chrisha. More than one year prior to the application, the product had been displayed in less than final form to potential customers in Hong Kong along with “quote sheets” that included an estimated price of the product, measurements and sometimes weights. Approximately 30 retailers saw this exhibit but no sales orders were taken. On appeal, Gemmy relied upon Elan Corp. v. Andrx Pharms., Inc., 366 F.3d 1336 (Fed. Cir. 2004), in arguing that this exhibit did not meet the requirements of a commercial offer for sale that would bar the patent under 35 U. S. C. § 102(b) of the patent statute. The court noted that § 33 of the Restatement (Second) of Contracts (Am. Law Inst. 1981) was in accord since the mere publication of preliminary data left open terms, thereby indicating that the exhibit did not amount to an offer. The court vacated the district court’s summary judgment.

In Alexam, Inc. v. Best Buy Stores, L.P., 2013 U.S. Dist. LEXIS 59945 (E.D. Tex. 2013), the defendants claimed that the “on-sale” bar was a defense to infringing the plaintiff’s patent because the plaintiff had made statements describing and commending his gift-card activation system. After explaining that the § 102(b) on-sale bar requires a commercial offer for sale and an invention ready for patenting, the court noted the absence of a Uniform Commercial Code definition of “offer” It cited § 24 of the Restatement (Second) of Contracts (Am. Law Inst. 1981) in recognizing the usual description of an “offer” as a manifestation of willingness to enter into a bargain so made as to justify the party to whom it is addressed in understanding that his or her assent to the bargain is invited and, if given, would form a contract. The evidence presented by the defendants failed to meet this definition of an offer. It essentially consisted of descriptions and commendations of the product, which the court deemed to be mere preliminary negotiations. Since the defendant failed to meet the first prong of the on-sale bar (a commercial offer), the Magistrate recommended that the plaintiff’s motion for partial summary judgment to dismiss the on-sale bar defense be granted.

Medical Solutions, Inc. v. C Change Surgical, LLC, 468 F. Supp. 2d 130 (D.D.C. 2006). The defendant’s display of a product at a trade show did not constitute an “offer to sell” the product that allegedly infringed the plaintiff’s patent since the display did not include any price terms, which the court viewed as defeating the critical requirement in the definition of an offer.

In Finnsugar Bioproducts, Inc. v. Amalgamated Sugar Co., LLC, 2002 U.S. Dist. LEXIS 4979 (N.D. Ill. Mar. 25, 2002), the court had to determine whether there was a commercial offer for sale that activated the “on-sale” bar of 35 U.S.C. § 102(b). The court quoted several statements from this § 1.11 (1964 ed.) and found that the evidence was sufficient to determine that an offer for sale had been made, activating the “on-sale” bar.

Wafios Mach. Corp. v. Nucoil Indus. Co., 2004 U.S. Dist. LEXIS 13674 (S.D.N.Y. July 21, 2004). Defendant claimed that this action for patent infringement should be dismissed for lack of personal jurisdiction. The plaintiff alleged that by publishing a catalogue of its machines, including the allegedly infringing machine on its website, the defendant had offered to sell the infringing product wherever internet sellers could access the defendant’s website. Citing this treatise, § 1.11, 1993 ed., the court concluded that the product information on the defendant’s website providing neither pricing information nor ordering forms was insufficient to create an offer to sell. While the website, alone, was insufficient, the court held that jurisdictional discovery was necessary to resolve the issue.

Petter Invs, Inc. v. Hydro Eng’g, Inc., 2015 U.S. Dist. LEXIS 5030 (D. Utah Jan. 9, 2015). The absence of a price term renders the communications incapable of being construed as an offer that could be accepted to form a contract.

6 This concept is explored in detail in § 2.9. See, e.g., Bank of Benton v. Cogdill, 118 Ill. App. 3d 280, 73 Ill. Dec. 871, 454 N.E.2d 1120, 1125–26 (1983), which quotes this section from a prior edition, § 11 (1963 2d).

U.S.

—Baker v. United States, 50 Fed. Cl. 483 (2001). Federal statute guaranteeing loans to farmers is not an offer that a farmer can accept since the approval of the application, must be performed by the purported offeror. The statute, therefore, is an invitation to submit offers by applying for guaranteed loans.

Fla.

—Pierpont v. Lee County, 710 So. 2d 958 (Fla. 1998). Florida law provides that when a condemning authority embarks on a taking, the attorney hired by the condemnee gets a fee based on the difference between the final judgment and the last written offer made by the condemning authority before the condemnee hired the attorney. Here the county commenced a “quick taking proceeding” against the condemnee, which was by statute required to include a good faith estimate of the value of the property. They followed it by a written offer. The condemnee wanted his attorney’s fee calculated on the difference between final judgment and the good faith estimate, arguing that the good faith estimate is equivalent to an offer because it is an expression of what the condemning authority is willing to pay. The county wanted to pay only the difference between final judgment and the written offer. The Supreme Court of Florida held that a good faith estimate of value does not constitute a written offer, on the ground that a good faith estimate of value does not bind the condemning authority, which is free to contest the issue of full compensation by presenting testimony of a lower or higher value.

Ill.

—Cobb-Alvarez v. Union Pacific Corp., 962 F. Supp. 1049, 1054 (N.D. Ill. 1997) (applying Illinois law). An employer’s letter inviting certain employees to apply to resign early in exchange for an enhanced severance package was held not to constitute an offer but rather an invitation. The letter said that the employer would consider applications and any applications received would be subject to approval. Said the court: “The necessity of the purported offeror’s further approval undermines the inference that an offer exists.”

Iowa

—Allied Mut. Ins. Co. v. Colby Dev. Co., 2003 Iowa App. LEXIS 545 (June 25, 2003). Defendants claimed insurance coverage for roof damage caused by faulty workmanship on their townhouses. The insurer’s letter of June 30 stated that the insurer was prepared to offer the defendants $1 million “to bring this claim to a mutually agreeable conclusion.” The letter indicated that the writer, representing the insurer, expected to receive an appropriate release form. Apart from the letter, the insurer also required confirmation that the representative of the defendants had the authority to bind them. The representative’s authority was confirmed in writing and was delivered to the insurer on July 2 along with a release form that was essentially the same as an earlier release form the insurer found acceptable. In a July 30 letter, the insurer stated that it had “made an offer” in its June 30 letter which was never accepted and was withdrawn. The insurer filed a declaratory judgment action, and the instant court reversed an order of summary judgment in the insurer’s favor. The June 30 letter was an offer because it manifested a willingness to enter into a bargain in a fashion that justified the defendants in believing that their assent would conclude a bargain. The court found that the offer required a satisfactory release form and a confirmation of the representative’s authority, both of which had been delivered on July 2 in response to the June 30 offer.

Md.

—Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769 (4th Cir. 2013). A home mortgage modification application provided: “To start, we must receive specific documentation from you. Then we determine if you qualify for the first step of the process, which is the trial period plan.” Citing § 1.11, 1993 ed., the court found that the application language made clear that further action was required on the part of Wells Fargo before an offer for a mortgage modification would be extended.

Fedder Dev. Corp. v. FB Hagerstown, LLC, 181 Fed. App’x 384 (4th Cir. 2006). Among other reasons for not finding a contract, FB’s attorney’s “signature” on an e-mail was not effective to bind FB since the attorney had made it clear that no contract would exist unless his client signed.

Mcbongo v. JP Morgan Chase Bank, 2013 U.S. Dist. LEXIS 112781 (D. Md. Aug. 9, 2013). The defendant did not make an offer to plaintiff for a mortgage modification because the final act necessary to form a contract was the defendant’s determination that the plaintiffs qualified for it, which had not occurred.

Mich.

—Caratron Indus., Inc. v. Bird Electron Beam Corp., 2007 U.S. Dist. LEXIS 72963 (E.D. Mich. 2007). The defendant submitted its quotation to perform electron beam welding on helicopter parts for the plaintiff in a document stating, “This quotation does not constitute a firm offer … but is an invitation for your purchase order,” and “all purchase orders are subject to final acceptance by Seller.” The quotation contained a disclaimer of warranties and other limitations and concluded with the statement that the seller’s terms and conditions “supercede, control and prevail” over any inconsistent terms in the buyer’s purchase order. The plaintiff submitted purchase orders and the defendant welded the parts and shipped them to the plaintiff. When defects were allegedly found in the welded parts, the plaintiff sued the defendant. Applying Michigan law, the court held that the defendant’s terms of sale were not incorporated into the contract. While quotations are generally viewed as mere invitations to make offers (Restatement (Second) of Contracts, § 26 (Am. Law Inst. 1981)), there could be no doubt that this was not an offer. By its express terms, it was an invitation to the plaintiff to make an offer. The plaintiff’s purchase order, therefore, was an offer because it was the only document that created the reasonable understanding that the recipient’s assent would create a contract (Restatement (Second) of Contracts, § 24 (Am. Law Inst. 1981)). The defendant accepted these purchase order offers (and did not send back any different terms and conditions) and was bound by the terms of the offer since its quotation terms inviting these offers were inoperative.

Rummell v. Vantium Capital, Inc., 2012 U.S. Dist. LEXIS 91254 (E.D. Mich. July 2, 2012). Plaintiffs’ loan documents would not be modified “unless and until” plaintiffs met all of the conditions for modification. One of the conditions was that the plaintiffs had to receive a fully executed copy of a modification agreement. Thus, a further manifestation of assent required by the lender for there to be a valid offer.

Mo.

—Volker Court, LLC v. Santa Fe Apartments, LLC, 130 S.W.3d 607 (Mo. Ct. App. 2004). Where the plaintiff negotiated for the purchase of an apartment building, and the defendant clearly stated that he did not have the authority to form a contract absent the agreement of his brother-partner, the court quoted this treatise, § 1.11, 1993 ed., to the effect that a manifestation of willingness to enter into a bargain is not an offer if the party to whom it is addressed knows or has reason to know that the person making the statement does not intend to conclude the bargain absent a further manifestation of assent.

In Douglas Group v. Tf Publ’g, Inc., 2017 U.S. Dist. LEXIS 543 (E.D. Mo. Jan. 4, 2017), the parties attempted to contractually define what constitutes an “offer” to trigger a contingency fee but the result was less than satisfying. The parties entered into a letter agreement effective June 1, 2014, in which plaintiff (Douglas Group) agreed to represent defendant (TF Publishing) in procuring a buyer for defendant’s assets. The agreement provided that plaintiff would perform its services on a contingent fee basis and that defendant’s owner “is willing to sell to any capable buyer who tenders a bona fide offer at or greater than the ‘minimum acceptable sales price’ ” ($7 million) and that it “agrees that in the event that bona fide offers are tendered in the amount of the ‘minimum acceptable sales price’ or more, the contingent fee will be due in full as calculated on such offered amounts, even if he should decide to reject all such offers.” The agreement defined an offer as “any expression of definitive intent, with the purchase price specified, even though such offer may still be subject to normal pre-closing contingencies, such as requirements for buyer due diligence to verify data represented.” Thereafter, Crofton Capital submitted a letter of intent regarding the proposed acquisition of defendant’s assets that set forth the “major terms and conditions upon which [Crofton Capital] would pursue the Acquisition,” including a description of the cash and non-cash assets it contemplated would be paid as consideration. It also included a provision stating that, aside from the confidentiality and exclusivity provision in the Letter, “this letter is non-binding, and neither Crofton Capital nor the Seller will be legally bound unless and until definitive agreements relating to the proposed transaction are executed by the parties.” Defendant did not complete that deal, and defendant stated that it did not sign the Crofton Letter “due to its unacceptable contingencies and requirements, and its lack of sufficient detail.” Defendant did not pay the contingent fee under the agreement with plaintiff, and plaintiff sued. The court held that the existence of a genuine issue of material fact precluded an award of summary judgment. The court explained that “bona fide offer” as stated in the contract was ambiguous. It was unclear whether the Crofton letter of intent was an “expression of definitive intent” sufficient to trigger the contingent fee obligation. The court also did not know what was meant by “normal pre-closing contingencies.”

Va.

—Kraft Foods North America, Inc. v. Banner Engineering and Sales, Inc., 446 F. Supp. 2d 551 (E.D. Va. 2006). Banner’s quotation stated “all orders are subject to Banner’s acceptance” and was not an offer.

Wash.

—Goodstein v. Continental Casualty Co., 509 F.3d 1042 (9th Cir. 2007). Citing the Restatement (Second) of Contracts § 26 (Am. Law Inst. 1981), the court held that an “agreement in principle” that “had not yet been finalized” did not result in a definitive agreement that only had to be memorialized.

W.Va.

—Kerns v. Range Resources–Appalachia, LLC, 2011 U.S. Dist. LEXIS 4473 (N.D. W. Va. 2011). Range’s letter stated that Range “would consider” entering into a leasing agreement. At most, this invited the plaintiffs to make an offer, and the plaintiffs should have understood that some further manifestation of assent by Range was necessary to form any agreement.

U.S.

—Frazier v. Harris, 218 F.R.D. 173 (C.D. Ill. 2003). The defendant, City of Springfield, made a purported offer of settlement under Rule 68 of the Federal Rules of Civil Procedure which requires the plaintiff either to accept the offer or to reject it and assume the risk of paying the defendant’s litigation expenses as well as its own if a judgment or verdict lower than the offered amount is rendered for the plaintiff. A Rule 68 offer is governed by the rules of contract law. The purported offer in this case required the plaintiff to agree to its terms but then required the city council to decide whether to approve the agreement. Thus, the court held that the City’s proposal was not an offer since the plaintiff’s acceptance would not form a contract. No power of acceptance was conferred upon the plaintiff. Only the City’s acceptance would conclude a contract. Thus, the City’s proposal was a mere invitation to the plaintiff to make an offer, and the plaintiff was not subject to Rule 68.

Resolution Trust Corp. v. Carr, 13 F.3d 425 (1st Cir. 1993) (bank’s minute book is “merely an internal record of the corporate proceedings” and memorialization of authorization to grant extension of a loan did not create contract with borrower).

Ind.

—Rosi v. Business Furniture Corp., 615 N.E.2d 431 (Ind. 1993) (interoffice document not an offer to employee because employee was not given a copy and had not even seen it at the time of his hiring).

U.S.

—Wisconsin & M.R. Co. v. Powers, 191 U.S. 379, 24 S. Ct. 107, 48 L. Ed. 229 (1903).

Ind.

—Grand Lodge Hall Ass’n v. Moore, 224 Ind. 575, 70 N.E.2d 19, 173 A.L.R. 6 (1945), aff’d, 330 U.S. 808, 67 S.Ct. 1088, 91 L.Ed. 1265, cert. denied, 331 U.S. 864, 67 S.Ct. 1201, 91 L.Ed. 1869.

N.Mex.

—Tax abatement legislation was found to be an offer in Board of County Commissioners v. N. Mexico and So. Pac. Ry., 3 N.M. 126, 2 P. 376 (1884).

Cf. State v. Baltimore & O.R. Co., 127 Md. 434, 96 A. 636 (1916) (where the legislative act was addressed directly to the railroad company as a compromise of previous tax disputes); Alliance of American Insurers v. Chu, 77 N.Y.2d 573, 569 N.Y.S.2d 364, 571 N.E.2d 672 (1991) (Hancock, Jr., dissenting).

9 Chasan v. Village Dist. of Eastman, 128 N.H. 807, 523 A.2d 16 (1986).

10 See Klimek v. Perisich, 231 Or. 71, 371 P.2d 956 (1962).

Like any other word in any language, the word “offer” may be used by any person with an idiosyncratic meaning. Thus, in Molero v. California, 145 So. 2d 602 (La. App. 1962), a contract provided that the defendant must pay $37,500 as liquidated damages if he should within one year “make an offer” to the owner for a mineral lease on certain land. The court held on sufficient extrinsic evidence that the contractors did not mean by “offer” merely a proposal that would create in the owner a power of acceptance; they used the term to include “concerted, bona fide, serious and persistent” efforts to obtain a lease.

11 Sections 2.2-2.34.

«Pt. I •«Ch. 1 »«§ 1.12 »

1 Corbin on Contracts § 1.12 (2020)

§ 1.12. Simultaneous Expressions of Assent: Contracts Without Offer and Acceptance

It is quite possible for two persons to reach an agreement and to express that fact in words or other conduct without going through the specific process of an offer made by one, followed by a separate and independent acceptance by the other. For example, the terms of an agreement between two persons, A and B, might be prepared in advance by a third person, C, and communicated by C in completed form to A and B. Thereupon, A and B stand in each other’s presence and repeat in unison, “We mutually agree in accordance with the terms prepared for us by C.” This scenario is purely hypothetical, but something much like it sometimes occurs where C, a mediator, makes a proposal that is accepted by both A and B. In such a case, the party first assenting to the proposal can be deemed the offeror, and the second party the offeree. In this context, as in others, however, it frequently will be apparent that although mutual assent has been reached, no identifiable moment of conclusion of the contract can be reconstructed and no offeror or offeree identified.1

The model of offer and acceptance does not describe all contract formation. There are certain large and well-defined classes of cases in which a promise is held to be a binding contract even though there has been no expression of assent by the promisee. Such are practically all the cases in which a promise is enforceable because of some “past consideration” that constituted the motivating reason for which the promise is made.2 Also, contracts formed under the doctrine of “promissory estoppel” are not made by the process of offer and acceptance.3

The Uniform Commercial Code provides in Section 2-204(2) that: “An agreement sufficient to constitute a contract of sale may be found even though the moment of its making is uncertain.”4 There are also many cases at common law, not governed by the Uniform Commercial Code, where it is clear that a contract has been formed, but the process of offer and acceptance—if there was one—cannot be reconstructed. This may be true in a bargaining contract where agreement is reached in bits and pieces.5 It is frequently true in a contract inferred from the parties’ conduct over a long period of time.6 As to contracts formed by conduct, the Uniform Commercial Code is explicit. It provides in Section 2-204(1) that: “A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of the contract.”

In modern business transactions of large scale, it frequently happens that the parties, often not just two but a multiplicity of enterprises, negotiate a transaction with the understanding that the parties will not be bound until their agreement is finally and completely articulated in written documents that are signed and exchanged. The documents are drafted, usually by lawyers, and reviewed by all of the interested parties. The parties arrange to meet at a “closing” where the documents are signed more or less simultaneously and exchanged.7 Such closings depart from the model of offer and acceptance. Similarly, a proposed contract may be drafted, each party signing one copy. Upon the simultaneous exchange of the documents, a contract may be formed without there being an identifiable offeror or offeree.8

There are also contracts to which there is no assent to the terms of the contract. Through the use of a fiction, tortious acts of conversion are transmuted into contracts.9 Also certain contracts are made without assent by operation of law as where a lease is renewed by a tenant’s holding over.10

Despite the existence of contracts for which no process of offer and acceptance has occurred, or for which the process cannot be reconstructed, it is doubtless true that most contracts are made by the acceptances of offers. Third party beneficiary contracts are an interesting group in this respect. In nearly all of the cases in which a third party beneficiary has an enforceable right, the beneficiary’s own expression of assent is not a necessary factor in making the promise enforceable.11 In these cases, the contract is made by two other parties (promisor and promisee); with respect to them the rules as to offer and acceptance are applicable.

Footnotes — § 1.12:

1 Accela, Inc. v. Sarasota County, 2008 Fla. App. LEXIS 2548 (Fla. Feb. 27, 2008) (citing § 1.12, 1993 ed.). 2 Formation of Contracts: A Study of the Common Core of Legal Systems 1586 (Rudolph Schlesinger ed. 1968).

2 See Vol. 3, Ch. 9, dealing with Past Consideration.

3 See Vol. 3, Ch. 8, dealing with Reliance on a Promise as Ground for Enforcement.

4 Accord, Restatement of Contracts (Second) § 22(2) (Am. Law Inst. 1981).

5 E.g., Metro-Goldwyn-Mayer, Inc. v. Scheider, 40 N.Y.2d 1069, 392 N.Y.S.2d 252, 360 N.E.2d 930 (1976). Numerous cases of indefinite agreements that became binding contracts because of subsequent conduct or discussion are good illustrations of contracts without an identifiable process of offer and acceptance. See § 4.7. See also Restatement of Contracts (Second) § 22 cmt. b (Am. Law Inst. 1981).

6 E.g., Wilhoite v. Beck, 141 Ind. App. 543, 230 N.E.2d 616 (1967), one of countless cases of an implied contract to pay for food and lodging, and Bourisk v. Amalfitano, 379 A.2d 149 (Me. 1977), one of the countless cases of an implied contract to pay for construction work done. Neither case seems to have involved an identifiable process of offer and acceptance.

One of the leading cases of a contract implied-in-fact, where the moment of formation could not be pinpointed, is Ingrassia Constr. Co. v. Walsh, 337 Pa. Super. 58, 486 A.2d 478 (1984). See also, Henderson v. NutriSystem, Inc., 2009 U.S. Dist. LEXIS 38926 (E.D. Pa. May 7, 2009) (citing Ingrassia).

A case that followed Ingrassia Constr. Co. v. Walsh, 337 Pa. Super. 58, 486 A.2d 478, 483 (Pa. 1984) and its progeny is Rose Gold LLC v. PayActiv, Inc., 2018 U.S. Dist. LEXIS 152626 (E.D. Pa. 2018). Rose Gold LLC alleged that PayActiv sought out Rose Gold’s assistance to market the PayActiv platform (according to the court’s opinion, “PayActiv seeks to improve employee wellness with respect to wage access.”). Rose Gold advised PayActiv that its consulting fee was $15,000 per month. Rose Gold forwarded a written agreement but PayActiv never signed it. Nevertheless, PayActiv indicated that it wanted to use Rose Gold’s services, and it paid Rose Gold the $15,000 per month from October 2016 to February 2017. The agreement was supposed to run for twelve months, according to Rose Gold. After February 2017, PayActiv unilaterally reduced the rate to $10,000 per month for two months, then stopped paying altogether. Rose Gold initiated this suit. One of the claims Rose Gold asserted was for breach of a contract implied-in-fact, and PayActiv moved to dismiss. The court denied the motion on this claim, explaining: “In some circumstances, ‘[a] manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.’ ” Although the parties’ express communications about the deal might be unclear, their performance can clarify and define the contract. Here, the court found that PayActiv’s payments to Rose Gold were dispositive. “Rose Gold’s allegations that PayActiv made consistent $15,000 monthly payments between October 2016 and February 2017 are sufficient to allege an implied contract.” PayActiv’s motion to dismiss was denied.

7 See 2 Formation of Contracts, note 1 supra at 1583–85.

Ga.

—Whitley v. Patrick, 226 Ga. 87, 172 S.E.2d 692 (1970).

Ky.

—D.L. Walker & Co. v. Lewis, 267 Ky. 107, 101 S.W.2d 685 (1937). The court wrote: “Appellant contends that the paper in question was no more than an offer by appellee, and that there was no acceptance. Looking to the papers exhibited, it appears that while the names of both parties were not signed to either of the papers, they were exact duplicates written at the same time; one signed by appellant and one by appellee. A written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as if each party had signed on one paper. Duplicates are treated as originals, although one may be called ‘original’ and another ‘copy.’ 13 C.J. 304, § 126. We have frequently held exchange of telegrams, postcards, or letters to constitute a valid contract, if upon consideration together they evidenced a meeting of the minds.”

N.Y.

—Besser v. K.L.T. Associates, 42 A.D.2d 725, 345 N.Y.S.2d 659 (1973), aff’d, 34 N.Y.2d 687, 356 N.Y.S.2d 295, 312 N.E.2d 478.

Ut.

—Aspen Acres Association v. Seven Associates, Inc., 29 Utah 2d 303, 508 P.2d 1179 (1973), where it was properly held that mere execution of the duplicates without an inquiry into the parties’ other expressions of intent is insufficient to establish that a contract had been made.

9 See § 3.8.

10 See 2 Formation of Contracts, supra note 1, at 1587–89

11 See Vol. 9, Ch. 41, Third Party Beneficiaries.

Occasionally a court, not realizing or not approving the development of third party beneficiary law, has discovered a fictitious “privity” between the promisor and the third party. In such cases the third party’s “assent” may be long after the making of the promise.

See:

Mass.

—Gardner v. Denison, 217 Mass. 492, 105 N.E. 359 (1914).

N.Y.

—Kessler v. Haile Motor Co., 127 Misc. 413, 217 N.Y.S. 182 (1926).

Eng.

—The Satanita, [1895] P. 255, [1897] A.C. 59; McCannell v. Mabee Maclaren Motors, Ltd., 36 B.C. 369 (1926).

«Pt. I •«Ch. 1 »«§ 1.13 »

1 Corbin on Contracts § 1.13 (2020)

§ 1.13. What Is a Promise?

The term “promise” must continually be used in any statement of the law of contracts. The act constituting an offer and the act constituting an acceptance may each consist in a promise. One of the most common definitions of the term “contract” itself is that it is a promise directly or indirectly enforceable at law. A definition of the term “promise” is, therefore, suggested as follows: A promise is an expression of commitment to act in a specified way, or to bring about a specified result in the future, or to take responsibility that the result has occurred or will occur, communicated in such a way that the addressee of the expression may justly expect performance and may reasonably rely thereon.

The definition of the Restatement of Contracts (Second) § 2(1) is: “A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.” This definition is less comprehensive than the definition above or that contained in the first Restatement of Contracts.1 It is, however, fleshed out by definitional material in its comments and it is believed that its definition is not substantially in conflict with this treatise. Definition of promise in terms of “commitment” provides a useful metaphor. The term “commitment” preserves its core meaning in the phrases, “the judge committed the prisoner to Attica,” and “the traveller committed the luggage to the baggage-handler.” A promise hands over a bit of the promisor’s freedom to the promisee.

It should be observed that the express words used in making a promise do not always specify conduct on the part of the promisor as the object of expectation by the promisee. Thus, if A promises B that C will not disclose a trade secret, B’s ultimate goal is conduct on the part of C, not conduct on the part of the promisor, A.2 It is believed, however, that A is promising and that B is being led to expect conduct on the part of A that will be sufficient to induce the desired non-disclosure on the part of C. If conduct on A’s part sufficient to attain this purpose turns out to be impossible or unsatisfactory then it is full indemnification by A that is expected, inasmuch as A has taken responsibility for C’s conduct with respect to the trade secret.3

In order to constitute a promise, the expression of intention by the promisor is not required to be in words. It may be made by the use of sign language or by any other conduct that under the existing circumstances has a promissory meaning. Promises may be tacit, implied, or inferred, as well as express.4 If a person has reason to know that his or her words or other conduct may reasonably cause another to believe that a promise is being made and such belief actually results, a promise has been made even though the speaker or writer of the words does not intend to convey such a meaning.5 For example, although both folklore and philosophy distinguish between promises and threats, there is no doubt that language intended to menace, reasonably, in context, can be understood to be promissory.6

Footnotes — § 1.13:

1 The definition accepted by Restatement, Contracts, § 2, is as follows:

“(1) A promise is an undertaking, however, expressed, either that something shall happen, or that something shall not happen, in the future.

“(2) Words which in terms promise the happening or failure to happen of something not within human control, or the existence or non-existence of a present or past state of facts, are to be interpreted as a promise or undertaking to be answerable for such proximate damage as may be caused by the failure to happen or the happening of the specified event, or by the existence or non-existence of the asserted state of facts.”

U.C.C. § 3-103(a)(12) has a definition of promise in the context of negotiable instruments. “Promise” means a written undertaking to pay money signed by the person undertaking to pay. An acknowledgment of an obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation.”

This section, § 1.13, 1993 ed., is quoted in Fagerstrom v. Amazon.com, Inc., 141 F. Supp. 3d 1051, 1066 (S.D. Cal. 2015) (“Here, Amazon made a promise to Plaintiffs that ‘any dispute or claim … will be resolved by binding arbitration.’ Plaintiffs are justified in expecting Amazon to carry out this core obligation should a dispute or claim arise … .”).

This treatise (§ 13 from a prior edition) is also quoted in Cain v. Allen Electric & Equipment Co., 346 Mich. 568, 78 N.W.2d 296, 301 (1956). A corporate board adopted a resolution with respect to “severance pay.” This was held to be an offered promise, accepted by the employee’s continuing to serve for the prescribed period.

Choate asserts that the CEO of appellee, knowing the nature of the book, told him, “The topic sounds wonderful, and I have no problems with it.” Choate asserts that this is the promise on which he relied. But a promise is “an expression of intention that the promisor will conduct himself in a specified way or bring about a specified result in the future, communicated in such a manner to a promisee that he may justly expect performance and may reasonably rely thereon.” 1 CORBIN ON CONTRACTS § 13 (1963). Even taking the evidence in the light most favorable to appellant, Dr. Mettler’s statement does not meet that description.

See In Re Worldcom, Inc., 47 Bankr. Ct. Dec. 249 (S.D.N.Y. 2007). The debtors argued that even if a lien filed against them was valid when filed, it lapsed when the creditor failed to bring a suit to foreclose it within the statutory period required by Nebraska law. The creditor alleged that after it received the debtors’ disclosure statements, counsel for the debtors stated to the creditor,“if you have a lien you are fine.” The creditor claimed that this statement conveyed the material misrepresentation that creditor was not required to take any further action to be paid in full. Thus, the creditor detrimentally relied on this statement by not taking action to insure that the lien would not lapse. The court explained that the elements of equitable estoppel are a material misrepresentation, reasonable reliance, and provable damages. The court found that the debtors never stated that the creditor was not required to take any action to protect the lien, and the creditor was responsible for protecting its own interest. Thus, even taking the evidence in the light most favorable to creditor, the court concluded that creditor’s allegations failed to meet the requirements of equitable estoppel.

In Granfield v. Catholic University, 530 F.2d 1035, 1040 (D.C. Cir.1976), cert. denied, 429 U.S. 821 (1976), the court held that amorphous statements, expressed goals, and stated aims do no constitute promises.

“A promise is a declaration by any person of his intention to do or to forbear from anything at the request or for the use of another. A proposal when accepted becomes a promise.” This is an attempt to give “promise” a legal meaning that differs from its ordinary meaning. Finlay v. Swirsky, 103 Conn. 624, 632, 131 A. 420, 423 (1925).

In Cederstrand v. Lutheran Brotherhood, 263 Minn. 520, 117 N.W.2d 213 (1962), there is a long and intelligent discussion of “promise.” The court said: “we must take care to distinguish between statements meant to express merely present intention and those meant to give an assurance as to a future event.” The evidence in this case is reported in great quantity. It is not improbable that some courts would have held that it was sufficient to support the jury’s verdict finding a promissory intention by inference therefrom. But this treatise does not dissent from the court’s decision that the many statements and conduct of the defendant’s officers indicated nothing more than expressions of general policy and intention, and that the plaintiff’s own conduct indicated that she had not herself interpreted their words as expressing a promise of the kind on which her suit was based.

In Cabaud v. Federal Ins. Co., 37 F.2d 23 (2d Cir. 1930), the court held that an application for insurance on a vessel “for account of lienors” was not a promise (or a “promissory warranty”) by the applicant that the proceeds should go to discharge liens and not otherwise. The court said: “a declaration that the policy was for the benefit of the lienors, even though that be construed as meaning that all the proceeds would go to them, was not necessarily a promise to the underwriter, for a promise is an assurance, an ‘undertaking,’ Restatement of the Law of Contracts, § 2(1). To be such the hearers must understand that they may rely upon it; humans say much about future events that does not commit them. Ordinarily the hearers must have an interest in the fulfillment of what is said; otherwise, it will be seldom, if ever, that they can suppose it directed to them, or intended to be the basis for their conduct.”

In Schippers Excavating v. Crystal Creek Enters., 2011 Mich. App. LEXIS 1136 (Mich. App. June 23, 2011), Fifth Third Bank provided some $3 million in financing Crystal Creek’s subdivision development plan. The plaintiff was a subcontractor on the project. When unforeseen costs precluded Crystal Creek from meeting its financial obligations, the plaintiff threatened to cease work unless Fifth Third provided written assurances that the plaintiff would be paid. The written assurance from the bank stated, “The bank recognizes the cost budget for land development at the Landings at Crystal Creek has increased and will provide the necessary financing for the updated costs. … Please accept this letter of our confirmation.” The plaintiff resumed work, but three months later, the bank stopped funding the project. Crystal Creek became insolvent, and the plaintiff sought recovery from the bank of $295,000 for work done in reliance on the bank’s promise. The jury returned a verdict for the plaintiff, and the appellate court affirmed. Quoting Restatement (Second) of Contracts § 2 (Am. Law Inst. 1981), the court found that the bank’s statement clearly manifested an intention to the plaintiff, which the plaintiff reasonably understood as the bank’s commitment.

In Bondie v. Robert Saltsman and Novodynamics, Inc., No. 257218, 2006 Mich App. LEXIS 496 (Feb. 23, 2006), appeal denied, 476 Mich. 858, 718 N.W.2d 364 (2006), the plaintiff’s employment as a vice president of the defendant corporation was terminable-at-will. A subsequent resolution of the defendant’s board of directors, however, precluded the dismissal of any officer absent the approval of the board. Fourteen months later, the plaintiff was dismissed without board approval. In the plaintiff’s action for wrongful termination, the trial court granted summary disposition to the defendants. On appeal, the instant court recognized that parties are free to bind themselves to whatever termination provisions they choose. The issue before the court was whether the plaintiff had a legitimate expectation that she could not be terminated without board approval. In determining such expectations, the court stated that the first step was to determine what, if anything, the employer has promised, i.e., did the employer manifest an intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made? The court concluded that reasonable minds could differ as to whether the defendant corporation created a reasonable expectation in the plaintiff that she could not be dismissed absent board consent. The court remanded the case for further proceedings on these issues.

See, also:

U.S.

—See E.I. Du Pont de Nemours & Co. v. Claiborne-Reno Co., 64 F.2d 224 (8th Cir.1933), where the court’s sound discussion of promise is combined with a retrograde application of the doctrine of consideration.

Conn.

—Skelly v. Bristol Sav. Bank, 63 Conn. 83, 87, 26 A. 474 (1893).

D.C.

—Wilson v. Cox, 828 F. Supp. 2d 20, 2011 U.S. Dist. LEXIS 139890 (D.D.C. Dec. 11, 2011), rev’d on other grounds, Wilson v. Cox, 753 F.3d 244 (D.C. Cir. 2014). The court held the alleged promise at issue was too vague and noncommittal to constitute a binding expression of intent.

Ky.

—Hoskins v. Black, 190 Ky. 98, 226 S.W. 384 (Ky. App. 1920).

Ashland, Inc. v. Oppenheimer & Co., 648 F.3d 461 (6th Cir. 2011) (vague statement did not amount to commitment per Restatement (Second) of Contracts § 2 (Am. Law Inst. 1981)).

N.J.

—Esslinger’s Inc. v. Alachnowicz, 68 N.J. Super. 339, 172 A.2d 433 (1961). The court held that a dealer’s words, asserted to be a promise of a “lifetime” distributorship agency, were intended only as a statement of “intention.”

N.Y.

—Davey v. Jones, 2007 U.S. Dist. LEXIS 35965 (S.D.N.Y. 2007).

In McReynolds v. Prudential Ins. Co., 276 Ga. App. 747, 624 S.E.2d 218 (2005), cert. denied, 2006 Ga. LEXIS 334 (April 25, 2006), a divorce settlement included the husband’s agreement to maintain an insurance policy naming his ex-wife as the primary beneficiary. The plaintiff (wife) sought assurance from the defendant insurer that she would be notified of any changes in the policy that might affect her rights. The defendant stated that it would “consider” the terms of the divorce decree in making judgments to pay under the policy. The husband changed the beneficiary. After his death, the plaintiff sought to recover from the defendant under a promissory estoppel theory. The court held that the defendant’s statement that it would “consider” the decree in making decisions about payments under the policy was nothing more than an agreement to think about the issue seriously. When a party agrees to “consider” an issue, it is free to make any decision it chooses about that issue. Since the defendant never agreed to act or refrain from acting in a specified way, the defendant’s statement was not a “promise” as defined in the Restatement (Second) of Contracts, § 2, upon which the plaintiff could rely.

2 See Tode v. Gross, 127 N.Y. 480, 28 N.E. 469 (1891); also Sinclair Refining Co. v. Jenkins Petroleum Process Co., 99 F.2d 9 (1st Cir.1938), where the defendant contracted to induce its employees to make applications for patents and to assign them to the plaintiff.

3 See Wilson, Can One Promise to Love Another?, 64 Philosophy 557 (1989).

In Barcroft Woods, Inc. v. Francis, 201 Va. 405, 111 S.E.2d 512 (1959), a contract for the sale of a lot provided: “It is further understood that the lake is to be cleaned out up to lot 685 by Barcroft Lake Shores Inc.,” a third party that owned the marshy land. This provision was held to be a promise by the seller that the third party would turn the marsh into a lake.

4 See Cummings v. AT&T Corp., 619 F.3d 1188 (10th Cir. 2010). California residential customers of AT&T claimed a breach of Consumer Services Agreements (CSA’s) which stated that an “AT&T Universal Connectivity Charge is a monthly charge to customers to recover amounts AT&T must pay into a federal program called the Universal Service Fund (USF).” The district court held that this statement manifested a promise by AT&T to charge customers the amounts AT&T had to pay to the USF “and no more.” The court awarded the plaintiffs damages of almost $11 million plus prejudgment interest. Among other arguments on appeal, AT&T claimed that the quoted language in the CSA’s was merely an explanation of the charge that did not constitute a promise. Focusing on the reasonable understanding of a promisee, the court noted that words such as “agree,” “will” or “shall” are not required to form a promise under New York law where a reasonable person would understand the language as promissory. Concluding that a reasonable person would certainly read the quoted phrase as a promise that AT&T would charge only the amount it had to pay into the USF and no more, the court affirmed the district court’s construction of the quoted language.

5 Restatement, Contracts, § 5: “… a promise in a contract must be stated in such words either oral or written, or must be inferred wholly or partly from such conduct, as justifies the promisee in understanding that the promisor intended to make a promise.”

This section is substantially preserved but reworded in Restatement of Contracts (Second) of Contracts § 4 (Am. Law Inst. 1981): “A promise may be stated in words either oral or written, or may be inferred wholly or partly by conduct.”

6 In East Providence Credit Union v. Geremia, 103 R.I. 597, 239 A.2d 725 (1968), the financing institution wrote the borrower as follow: “If we are not notified of a renewal policy within ten days, we shall be forced to renew the policy for you and apply this amount to your loan.” This dunning letter was deemed to be a promise upon which the borrower could rely.

Conversely, in Centric Corp. v. Morrison-Knudsen Co., 1986 OK 83, 731 P.2d 411 (Okla. 1986), a take-it-or-leave-it offer of settlement of $1.4 million, together with other factors, was deemed a wrongful threat and a predicate for the application of the doctrine of duress. See also the landmark Germantown Mfg. Co. v. Rawlinson, 341 Pa. Super. 42, 491 A.2d 138 (1985), where a threat to criminally prosecute the husband unless the wife signed a judgment note was duress.

«Pt. I •«Ch. 1 »«§ 1.14 »

1 Corbin on Contracts § 1.14 (2020)

§ 1.14. Promise and Warranty

A promise may be expressed in the form of a warranty, but the expectation engendered in the promisee may be something over which the promisor has absolutely no power or control. Thus, as a part of a contract that A is making with B, A may warrant that a horse is sound and free from defects, or that a steel rail is free from internal and invisible flaws, or that the ship “Peerless” arrived in Amsterdam the day before yesterday.1In sale of goods cases, if “an affirmation of fact or promise made by the seller to the buyer” relating to the goods “becomes part of the basis of the bargain,” an express warranty is created.2 Similarly, an express warranty is created by a description or sample or model which is made part of the basis of the bargain.3 Express warranties can be made in connection with construction projects.4 The warranty thus may be the result of an express promise or of a factual representation that is treated as a constructive promise. The term “constructive promise” means an obligation imposed by law that is treated as if it were a promise. If a warranty is made, it is believed that what is being promised and what the promisee is being led to expect on the part of the promisor, is indemnification against loss, in case the facts turn out to be not as represented. It is not that the promisor will instantly make the vicious horse gentle, or the steel rail flawless, or cause the Peerless to have been in Amsterdam when she was in the Bay of Biscay.5 Rather, the promisor has assumed responsibility for these states of fact.

Characteristically, the most lucid statement of the law of breach of warranty was written by Judge Learned Hand:6

“A warranty is an assurance by one party to a contract of the existence of a fact upon which the other party may rely. It is intended precisely to relieve the promisee of any duty to ascertain the fact …; it amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue, for obviously the promisor cannot control what is already in the past.”

(A) The following case is noteworthy:

Partners 3190, LLC v. Signature Bldg. Sys., 2019 U.S. Dist. LEXIS 39232 (M.D. Pa. 2019). Signature agreed to provide Partners with twenty-one modular units. Partners determined that the sprinkler systems of the units were defective and rejected the units. Signature had provided a warranty with the units and claimed that any warranty dispute was to be resolved by PFS, a third-party engineering inspector, pursuant to this contractual provision: “[A]ny dispute regarding the warranty shall be resolved by [third-party engineering inspector] PFS …” But Partners took the dispute to AAA arbitration pursuant to the parties’ contract since Partners expressly renounced any warranty claim and pursued a claim for breach of contract. Any warranty claim under the contract would have been premature, Partners claimed. The arbitrator awarded Partners $330,509.38 and provided for the repair or replacement of the sprinkler systems. Signature filed a motion to vacate the arbitration award in state court, and Partners removed the matter to the instant court. The court explained:

In the arbitration, Partners sought to be indemnified and made whole for damages resulting from Signature’s use of Propylene Glycol (“PG”) in the Chlorinated Polyvinyl Chloride (CPVC) in the fire suppression system in the units. … . The manufacturer of the system expressly does not recommend the use of PG because it can cause cracking in the system thus creating safety risks. … . The contract between Signature and Partners provided that Signature comply with the National Fire Protection Association (“NFPA”). The NFPA prohibits the use of Glycol. Signature used Glycol thus Partners alleged that Signature breached the contract.

The court held that the matter was properly resolved in arbitration because the dispute involved breach of contract, not warranty. The court does not tell the reader what the contract says, but a breach of warranty claim apparently would have been premature.

(B) The following case cites this section:

(1) Berg v. Berg, 2020 Ind. App. LEXIS 296 (July 15, 2020). Husband and Wife entered into a mediated settlement agreement concerning the disposition of marital property, which the lower court adopted in its dissolution decree. The parties made mutual representations and warranties: “Each of the parties … represent and warrant one to the other that all assets and debts owned or owed by the parties, either individually or jointly, have been correctly and truly revealed to the other and reflected within this [Settlement A]greement.” Wife later claimed that the agreement did not reflect a stock account held by Husband even though her own attorney knew about the stock account. She claimed that she, personally, was unaware of that account, and “had she been aware of the account, she ‘would not have agreed to the property disposition’ set forth in the Settlement Agreement.” She made a motion to correct error, and the lower court awarded her half the value of the account. The lower court held that “Wife was entitled to relief because Husband breached a warranty in the Settlement Agreement.” Husband appealed, and the instant court reversed. The court discussed what constitutes a warranty:

A warranty is a promise about a fact, e.g., “I warrant that the river will not run dry.” See 1 Timothy Murray, Corbin on Contracts § 1.14 (rev. ed. 1993) (“Corbin”) (“A promise may be expressed in the form of a warranty … . [A party] may warrant that a horse is sound and free from defects, or that a steel rail is free from internal and invisible flaws, or that the ship “Peerless” arrived in Amsterdam the day before yesterday.”). When a party makes a warranty, the party is guaranteeing that the factual assertion is true.

The court quoted Judge Learned Hand in Metro. Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946):

A warranty is an assurance by one party to a contract of the existence of a fact upon which the other party may rely. It is intended precisely to relieve the promisee of any duty to ascertain the fact for himself; it amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue[.]

The court added: “In other words, when a promisor makes a warranty, ‘the promisor has assumed responsibility for [the] fact.’ Corbin, § 1.14. Thus, if the fact is untrue or becomes untrue, the promisor is in breach and liable for damages.” Here, the warranties were mutual—“assuming arguendo that the factual assertions in both warranties were untrue, both Husband and Wife breached the warranties.” The court concluded that “Wife may not avoid the Settlement Agreement.” The Wife was bound by the mutual representations she made. “Wife asserted that all assets had been disclosed and reflected in the terms. Wife is estopped from claiming that her assertions are untrue.” The court noted that since Wife’s attorney knew about the account, that knowledge is imputed to the Wife.

Footnotes — § 1.14:

1 Warranties in insurance contracts are usually representations of fact, the truthfulness of which is a condition precedent to the insurer’s duty to pay. Even though they are in promissory form, as they sometimes are, they are not likely to be interpreted as promises for breach of which an action will lie. It is not always easy to determine whether words in a contract are intended to constitute a promise creating a duty in one of the parties, or are intended to make some fact or event a condition precedent to the other party’s duty. They may have both effects at once, one party undertaking a duty and the other party’s reciprocal duty being made conditional. It is not every “warranty” contained in an insurance policy that will be given the effect that was intended by the insurer.

2 U.C.C. § 2-313(1)(a).

3 U.C.C. § 2-313(1)(b) and (c).

See In re Caterpillar, Inc., 2015 U.S. Dist. LEXIS 98784 (D.N.J. July 29, 2015). The court noted that the prevailing view regarding express warranties is that the basis of the bargain or reliance requirement is satisfied through circumstantial evidence, particularly the nature of the warranty and the context of the transaction. Some states say that affirmations made during the bargain are presumed to be a part of the bargain unless there is affirmative proof to the contrary. Some states do not require reliance. Some states are less flexible and require reliance.

Sweeney v. Kimberly-Clark Corp., 2015 U.S. Dist. LEXIS 123080 (M.D. Fla. Sept. 15, 2015) (illustrates the difference between the implied warranty of merchantability and the implied warranty of fitness for a particular purpose).

U.S. Nonwovens Corp. v Pack Line Corp., 48 Misc. 3d 211, 2015 NY Slip Op 25078 (2015) (CISG Article 35 may be read to suggest implied warranties of fitness and merchantability).

Williams v. United Techs. Corp., 2015 U.S. Dist. LEXIS 159814 (W.D. Mo. Nov. 30, 2015) (the implied warranty of merchantability means only that goods satisfy a minimum level of quality, inconsistent express warranties displace implied warranty of merchantability).

Am. Atelier, Inc. v. Materials, Inc., 675 Fed. App’x 149, 152 (3d Cir. Pa. Jan. 18, 2017). The implied warranty of merchantability means the goods are “ ‘free from significant defects, that they perform in the way that goods of that kind should perform, and that they be of reasonable quality within expected variations and for the ordinary purpose for which they are used.’ ” (Quoting Gall by Gall v. Allegheny Cty. Health Dep’t, 521 Pa. 68, 555 A.2d 786, 789–90 (Pa. 1989).)

Simply Natural Foods LLC v. Polk Mach. Co., 2015 U.S. Dist. LEXIS 126703 (E.D.N.Y. Sept. 22, 2015). U.C.C. § 2-316(3)(b) provides: “[W]hen the buyer before entering into the contract … has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him.” But to qualify as a refusal to examine, the seller must demand that the buyer examine them fully.

Hooksett Sewer Comm’n v. Penta Corp., 2016 N.H. Super. LEXIS 5 (N.H. Super. Ct. April 13, 2016) (discussing implied warranty of fitness for a particular purpose).

Global Shredding Techs., Ltd. v. Aggregates Equip., Inc., 2005 U.S. Dist. LEXIS 13428 (N.D. Ohio July 5, 2005) (discussion of express warranty (U.C.C. § 2-313), implied warranty of merchantability (§ U.C.C. 2-314), and implied warranty of fitness for a particular purpose (U.C.C. § 2-315)).

4 In Reilly Constr. Co. v. Bachelder, Inc., 863 N.W.2d 302 (Iowa App. 2015), the Bachelders retained Reilly to add a recreational pond to their property, and after the pond was built and paid for, the water level dropped dramatically. The court held that Reilly breached an express warranty. “When Reilly agreed to construct a pond on Bachelder’s property, he was expressly warranting the pond would hold water.” He also breached an implied warranty to perform in a workmanlike manner since he had failed to check the soil conditions before digging. Reilly also breached the implied warranty of fitness for a particular purpose, which requires a showing of these elements: (1) Reilly had reason to know Bachelder’s particular purpose; (2) Reilly had reason to know Bachelder was relying on his skill or judgment to furnish appropriate services; and (3) Bachelder did, in fact, rely upon Reilly’s skill or judgment.

5 “An assurance that it shall rain tomorrow, or that a third person shall paint a picture may as well be a promise as that the promisee shall receive from some source one hundred bales of cotton or that the promisor will pay the promisee one hundred dollars. What is the difference in the cases? It is only in the degree of power possessed by the promisor over the event. He has none in the first case. He has equally little legal authority to make a man paint a picture, although he may have larger means of persuasion. He probably will be able to make sure that the promisee has the cotton. Being a rich man, he is certain to be able to pay the one hundred dollars, except in the event of some most improbable accident … . But unless some consideration of public policy intervenes, I take it that a man may bind himself at law that any future event shall happen. He can therefore promise it in a legal sense. It may be said that when a man covenants that it shall rain tomorrow; or that A shall paint a picture, he only says, in a short form, I will pay if it does not rain, or if A does not paint a picture. But that is not necessarily so. A promise could easily be framed which would be broken by the happening of fair weather, or by A not painting. A promise, then, is simply an accepted assurance that a certain event or state of things shall come to pass.” Oliver Wendell Holmes, The Common Law 298 (1881).

In the foregoing quotation, Mr. Justice Holmes says that a man “can promise it in a legal sense,” even an event over which everyone knows that he has no control. What is meant by “in a legal sense”? Do we have here another illustration of the “eye of the law” that was so often blind to facts? Is there not a plain implication that there may be a promise “in a legal sense” that is not a promise in common sense? Should we not rather say that words will constitute no promise “in a legal sense” unless they are promissory in fact when interpreted with common sense?

6 Metropolitan Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946), quoted and followed in Ainger v. Michigan General Corp., 476 F. Supp. 1209, 1220 (S.D.N.Y.1979), aff’d, 632 F.2d 1025 (2d Cir.); CBS, Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496, 554 N.Y.S.2d 449, 553 N.E.2d 997 (1990).

«Pt. I •«Ch. 1 »«§ 1.15 »

1 Corbin on Contracts § 1.15 (2020)

§ 1.15. Expressions of Intention, Hope, Desire, or Opinion

A person may express an intention to do something in the future without promising to do it.1 There is nothing contradictory or inconsistent in the following statement: “I fully expect and intend to leave you a thousand dollars in my will, but I do not promise to do it.” A statement of intention is the mere expression of a state of mind, put in such a form as neither to invite nor to justify action in reliance by another person. A promise is also the expression of a state of mind, but put in such a form as to invite reliance by another person, making it reasonable and customary to throw the risk of loss arising from non-performance upon the one making the promise. One can make a promise without actually having the intention of performing it, just as one can express an intention without promising; but if one uses words of promise and at the same time clearly expresses an intention not to perform it, the promissory words have no meaning or effect.2

A promise is an expression of intention, but not every expression of intention can properly be called a promise. An expression of intention is not a promise unless it is communicated to one or more persons under such circumstances that they will expect performance and may reasonably act in reliance upon the expression. In an early English case, the father of a young lady made the general statement that he intended to give £100 to the man who should thereafter marry the daughter with her father’s consent. It was held that this statement was not a promise, and that a young man who acted in reliance upon it and fulfilled the conditions could not get judgment for the payment of the money.3 The case may have been so decided because plaintiff pleaded that defendant “asserted and published” that he would pay the £100 and not that he had promised to pay. There is no doubt, however, that an assertion or publication of an intention may be made under such circumstances as to reasonably be understood as a promise. Thus, where a vice-president of a punchboard corporation publicly testified before the State Gambling Commission that he would pay $100,000 to anyone who could find a crooked punchboard, it was held that this testimony constituted an offer to a unilateral contract.4 There is little in common between this kind of statement and benevolent expressions of hope and desire in a personal or even a business setting.5

In addition, a statement of intention may be made under such circumstances of excitement, or may be accompanied by such evidence that it is mere bluster or bragging, that no one would be justified in understanding it to be a promise to be relied upon. The line of distinction between promises and such non-promissory statements of intention is in many cases difficult to draw. It must be drawn by making what seems to be a reasonable interpretation of the expressions of the parties in the light of the surrounding facts—an interpretation that must be made by a jury, or by a judge acting in the jury’s place.6 No doubt the fact that an expression of intention if interpreted as a promise would be improvident is influential in the process of interpretation.

It may be difficult to determine whether a legislative act is an offered promise or a mere expression of an intention and a policy. Thus, a railway tax law provided “that the rate of taxation fixed by this act or any other law of this state shall not apply to any railway company hereafter building and operating a line of railroad … until the same has been operated for the full period of ten years, unless the gross earnings shall equal $4,000 per mile.” It was held that this was not an offer to contract; and Mr. Justice Holmes said: “The broad ground in a case like this is that, in view of the subject matter, the legislature is not making promises, but framing a scheme of public revenue and public improvement. In announcing its policy, and providing for carrying it out, it may open a chance for benefits to those who comply with its conditions, but it does not address them, and therefore, it makes no promise to them. It simply indicates a course of conduct to be pursued until circumstances or its views of policy change.” It was, therefore, held that a company that had constructed a railroad in reliance on the words of the taxation statute had no contract rights and that the state was free to tax such a company without impairing the “obligation of a contract.”7

The fact that the legislative enactment is not addressed to a specifically named party, even though it may invite action in reliance upon it, is a factor indicating that a promissory offer is not being made.8 This factor is of importance also in the transactions of private individuals; but there are many cases in which published offers of a reward are promissory offers although addressed to the public at large, not to any specific person.9

Also to be distinguished from promises are expressions of opinion. In one case a tenant stocked the land with cattle in reliance on the landlord’s assurance as to water as follows: “Never mind the water, John, I will see there will be plenty of water because it never failed in Minnesota yet.” This made no contract, because by reasonable interpretation the words were mere prediction and encouragement, not promise.10 The indefiniteness of the words tends to this conclusion. The result would probably have been different if the landlord had said: “I will drive a producing well,” or “I will construct and fill a reservoir” of a specified capacity. Although by no means limited to such cases,11 the issue seems to arise primarily in the physician-patient relationship. After proposing surgery, a physician is asked, “How long will the boy be in the hospital?” He replies, “Three or four days … not over four; then the boy can go home, and it will be just a few days when he will go back to work with a perfect hand.” As the court said, “Clearly this and other testimony to the same effect would not justify a finding that the doctor contracted to complete the hospital treatment in three or four days or that the plaintiff would be able to go back to work within a few days thereafter.” Rather, these words, in the context of the relationship, should be understood as expressions of opinion or predictions. Where the same doctor in the same conversation states, “I will guarantee to make the hand a hundred percent perfect hand,” he has overstepped the bounds of customary words of reassurance and prediction and entered the territory of commitment.12 The determination of whether these bounds have been overstepped is made by inquiring whether a reasonable person in the position of the patient would conclude whether the physician made a promise or merely stated an opinion. At times, the conclusion may be so clear as to be a question of law for the court;13 often, the question is for the jury.

Footnotes — § 1.15:

U.S.

—Estate of Bogley v. United States, 514 F.2d 1027 (Ct. Cl. 1975).

In Beverage Distributors, Inc. v. Olympia Brewing Co., 440 F.2d 21, 29 (9th Cir.1971), cert. denied, 403 U.S. 906 (1971), the following language was found to be non-promissory: “it is our intention that, if they show the ability and application required to make the business successful under reasonable direction of our organization, they shall have a reasonable amount of the new common stock, which will be issued exclusively to members of our organization.”

On the other hand, “Where one corporation presents to another corporation, a form of agreement reciting, ‘It is understood and agreed that this contract is entered into upon the following conditions: That it is our intention and desire to continue under this agreement so long as your services, in our judgment, prove satisfactory,’ we have no doubt that such language would ordinarily be understood to mean a promise to continue until dissatisfied.” E.I. du Pont de Nemours Co. v. Claiborne-Reno Co., 64 F.2d 224, 89 A.L.R. 238 (8th Cir. 1933), cert. denied, 290 U.S. 646 (1933).

National By-Products, Inc. v. United States, 405 F.2d 1256 (Ct. Cl. 1969).

In Keane v. Gartrell, 334 F.2d 556, 118 App. D.C. 166 (1964), it was held that a corporate officer’s statement that an account would be paid, “even if I have to pay you personally” was not a promise. This conclusion seems erroneous, but the case was rightly decided as there was no consideration for the promise.

Ala.

—Alabama Nat. Life Ins. Co. v. National Union Life Ins. Co., 275 Ala. 28, 151 So. 2d 762 (1963).

Cal.

—See Western Homes, Inc. v. Herbert Ketell, Inc., 236 Cal. App. 2d 142, 45 Cal. Rptr. 856 (1965) in which the parties “contemplated” hiring plaintiff as rental manager. Held there was no promise to hire.

Conn.

—Borden v. Skinner Chuck Co., 150 A.2d 607, 21 Conn. Sup. 184 (1958).

Del.

—Frazier v. American Airlines, Inc., 434 F. Supp. 2d 279 (D. Del. 2006). When a bankrupt TWA was consolidated with the defendant, American Airline’s CEO was asked at a Senate subcommittee hearing about travel privileges on American for TWA retirees. He responded: “We intend to offer retirees pass privileges.” It was held that this statement and others similar to it were, at most, statements of future intent that did not constitute an offer.

Fla.

—In Peters v. Bower, 63 So. 2d 629 (Fla. 1953), the owner of a tract of land presented a plan to the Board of Commissioners and submitted an accompanying affidavit containing the statement: “It is the intention of said subdivider to grade all the streets-and pave them-on or before two years after date.” In a suit by a purchaser of one of the lots this was held not to be a promise to purchasers.

Ill.

—Dewein v. Dewein’s Est., 30 Ill. App. 2d 446, 174 N.E.2d 875 (1961).

Ind.

—Craig & Landreth, Inc. v. Mazda Motor of Am., Inc., 744 F. Supp. 2d 818 (S.D. Ind. 2010) (quoting this § 1.15).

Iowa

—In two Iowa cases defendants signed charitable subscriptions on forms prepared by the charity which stated that “I intend to pay” and “I intend to subscribe.” In the first case it was held that parol evidence showed that no promise was intended and in the second it was held that, in the absence of parol evidence, the subscription would be construed against the drafter. Pappas v. Hauser, 197 N.W.2d 607 (Iowa 1972); Pappas v. Bever, 219 N.W.2d 720 (Iowa 1974).

Ky.

—Cumberland & O.V. Ry. v. Shelbyville, B. & O. Ry., 117 Ky. 95, 77 S.W. 690 (1903). A corporate resolution authorizing the president to sell corporate property at a fixed price is not a promise.

Mass.

—Stewart v. Johnson, 252 Mass. 287, 147 N.E. 850 (1925).

Mich.

—In WKBW, Inc. v. Children’s Bible Hour, 332 Mich. 569, 52 N.W.2d 219 (1952), the words “we fully intend to meet this obligation” were interpreted as a promise to pay the debt of another, although the word “promise” does not appear. It was clear that forbearance to press the third party debtor was desired.

N.J.

—In Esslinger’s, Inc. v. Alachnowicz, 68 N.J. Super. 339, 172 A.2d 433 (1961), the court held that a dealer’s words, asserted to be a promise of a “lifetime” distributorship, were intended only as a statement of intention.

N.Y.

—In Benjamin v. First Citizens Bank and Trust Co., 248 A.D. 610, 287 N.Y.S. 947 (1936), plaintiff’s assignor came from South Africa to attend an auction announced to be without reserve. Recovery was not allowed. The announcement was a statement merely of intention.

In Stone v. Commonwealth Finance Corp., 127 Misc. 368, 216 N.Y.S. 639 (1924), aff’d, 215 A.D. 704, 212 N.Y.S. 924 (1925), aff’d, 243 N.Y. 528, 154 N.E. 592 (1926), a letter from a finance corporation to its subsidiary stated its readiness to place its resources behind the subsidiary’s project to the extent necessary to insure its complete success, was held to be a mere statement of intent and neither a promise to third parties nor a promise to the subsidiary for their benefit.

Ohio

—In Asbury v. Hugh L. Bates Lodge No. 686, 62 Ohio App. 430, 16 Ohio Op. 134, 24 N.E.2d 638 (1939), a masonic lodge passed a resolution to buy certain property from specified members at a specified price and authorized its officers to make the purchase. It was held that no promise to the sellers had been made.

S.D.

—In Wipf v. Blake, 72 S.D. 10, 28 N.W.2d 881 (1947), a debtor whose debt was barred wrote to his creditor: “I am planning on making a settlement on this note as soon as I get the funds. I will let you know as soon as I am in a position to do this.” The court held that this was not a promise to pay, and that if interpreted otherwise, the promise was conditional.

Eng.

—In Randall v. Morgan, 33 Eng. Rep. 26 (Ch. 1805), the following statement made in a letter was held clearly not to be a promise despite the use of “I shall.” “Whether Mary remains single or marries, I shall allow her the interest of £ 2000 at 4 percent. If the latter I may bind myself to do it … .”

2 See § 1.17.

3 Weeks v. Tybald, Noy 11 (1605). A similar case is Farina v. Fickus, [1900] 1 Ch. 331, where a father wrote to his prospective son-in-law: “She will have a share of what I leave after the death of her Mother.”

4 Barnes v. Treece, 15 Wash. App. 437, 549 P.2d 1152 (1976). Similar cases are collected in Rosenthal v. Al Packer Ford, Inc., 36 Md. App. 349, 374 A.2d 377 (1977). See also, Leonard v. Pepsico, Inc., 88 F. Supp. 2d 116 (S.D. 1999) and its discussion of the “prove me wrong” cases, including the “most venerable of these precedents,” Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (Court of Appeal, 1892).

U.S.

—Cabaud v. Federal Ins. Co., 37 F.2d 23 (2d Cir.1930).

Ga.

—Charles v. Simmons, 215 Ga. 794, 113 S.E.2d 604 (1960), cert. denied, 364 U.S. 871 (1960).

Ill.

—In Harper v. Kennedy, 15 Ill. 2d 46, 153 N.E.2d 801 (1958), the court held that the evidence did not show a contract to make a will canceling an existing debt. It showed merely that the parties “regarded each other with benevolence and had expressed an intention or desire that the survivor of them should care for the family of the other. Such expression did not constitute a binding contract to make a will. It was more in the nature of a hope or an unenforceable expectation based upon a mere statement of intention.”

Mass.

—Phoenix Spring Bev. Co. v. Harvard Brewing Co., 312 Mass. 501, 45 N.E.2d 473 (1942).

Mich.

—Hammel v. Foor, 359 Mich. 392, 102 N.W.2d 196 (1960).

N.J.

—A mere expression of hope is neither an offer nor an acceptance. The same is true of an expression of intention to act in a certain manner if it is of such a character that it cannot reasonably be understood to be a promise. See Broad Street Nat. Bank v. Collier, 112 N.J.L. 41, 169 A. 552 (1933).

N.C.

—Yeager v. Dobbins, 252 N.C. 824, 114 S.E.2d 820 (1960), is another similar case. A man’s letter to his son-in-law expressing hopes and intentions with respect to a future conveyance of a farm was held to create no power of acceptance, although the son-in-law moved from Pennsylvania to North Carolina with his family and ran the farm for some years. Two dissenting judges asserted that the complaint alleged a valid contract; but it is clear that it would have to be established by proof of an offer made otherwise than by the letter of the father.

In Bowman v. Hill, 45 N.C. App. 116, 262 S.E.2d 376 (1980), a document recited, “whereas the parties … desire to construct a building adjacent to the building of the party of the first part … .” It was held this statement of intention was not a promise.

Wyo.

—An expression of a “desire” to pay another man’s debt is not a promise to pay it. Robar Corporation v. Kingham, 51 Wyo. 409, 66 P.2d 1046 (1937).

In Farm and Garden Sales v. Allied Equipment Co., 138 F. Supp. 317, 1956 Trade Cas. (CCH) P68433 (E.D. Va. 1956), a distributor asked the manufacturer for an assurance of continuance of their relationship. In reply he received only compliments on his past performance and this sentence, “I hope that we may have the pleasure of many more years of pleasant, profitable association.” The decision was reversed and remanded for further findings. Although this language was non-committal, the manufacturer owes a distributor a reasonable period of time in which to recoup its investment, unless the distributor has materially breached, 237 F.2d 879 (4th Cir. 1956).

6 “If it was the real understanding of the parties that the defendant was to procure an actual purchaser with such splendid profits to the plaintiff from so small an investment, there was a contract which should be given effect. To create an obligation such must have been the understanding. If what was said was mere talk, boasting by the broker of what could be accomplished, hopeful talk as to land prospects, without a genuine intention that the defendant was bound to produce a purchaser at the price fixed, there was no contract. The proofs will tell.” Smith v. Vosika, 166 Minn. 18, 208 N.W. 1 (1926).

“His further language was in the nature of an explosion of wrath against some supposed thief who had stolen the harness, and was coupled with boasting and bluster about the prosecution of the thief. It was indicative of a state of excitement, so out of proportion to the supposed cause of it, that it should be regarded rather as the extravagant exclamation of an excited man than as manifesting an intention to contract.” Higgins v. Lessig, 49 Ill. App. 459 (1893). See also Stamper v. Temple, 25 Tenn. 113 (1845). The defendant returned to his hotel to find it ablaze. His wife was on the fourth floor. He stated “I will give $5,000 to any person who will bring the body of my wife out of that building, dead or alive.” The defendant entered the building and brought out her dead body. This was held to state a cause of action. Reif v. Paige, 55 Wis. 496, 13 N.W. 473 (1882).

See Bayview Hunters Point Cmty. Advocates v. Metropolitan Transp. Comm’n, 366 F.3d 692 (9th Cir. 2004), amended, reh’g denied, 2004 U.S. App. LEXIS 10718 (9th Cir. June 2, 2004), reprinted as amended, 2004 U.S. App. LEXIS 10703 (9th Cir. June 2, 2004). As part of a state implementation plan (SIP) to meet national air quality standards, the Metropolitan Transportation Commission (defendant) included Transportation Control Measure 2 (TMC 2), which included a “target” increase in public transit ridership of 15 percent over 1982–1983 levels in the San Francisco Bay area. When the levels were not achieved, the plaintiff filed a citizen suit under the Clean Air Act. The court noted that establishing a “target” is not a promise to attain that target. It emphasized the distinction between promises and statements of opinion or mere predictions of future events. To interpret TMC 2 as an obligation arising from a promise would imply the implausible proposition that the defendant had promised a result that was necessarily contingent upon a number of uncontrollable external factors, including human behavior, which is notoriously unpredictable. The plain language of TMC 2 did not establish a mandatory requirement to increase ridership by 15 percent.

Gustafson v. Wachusett Regional School District, 64 Mass. App. Ct. 802, 836 N. E. 2d 1097 (2005). Where an agreement concerning the regionalization of schools included a provision stating, “The parties hereto understand that a regionalization of all or any part of the present school system … will terminate this agreement with respect to those staff members affected by such regionalization … ,” the court held that the operative term, “understand,” is not a term of agreement. Rather it suggests a mere prediction or anticipation of future events as distinguished from a manifestation to be bound or an enforceable promise.

Berg v. Obama, 574 F. Supp. 2d 509, 529 (E.D. Pa. 2008). A plaintiff claimed that the Democratic National Committee and then-Senator Barack Obama broke campaign promises on which the plaintiff relied. The court rejected this claim: “[O]ur political system could not function if every political message articulated by a campaign could be characterized as a legally binding contract enforceable by individual voters. Of course, voters are free to vote out of office those politicians seen to have breached campaign promises. Federal courts, however, are not and cannot be in the business of enforcing political rhetoric.”

U.S.

—Wisconsin & M.R. Co. v. Powers, 191 U.S. 379, 24 S. Ct. 107, 48 L. Ed. 229 (1903). It may be suggested that while the interpretation given by the court seems not unreasonable to a disinterested party, it would not seem so reasonable to one who had built a railroad and rendered the desired service in reliance on the statutory assurance. It may be sound policy to deprive legislature of the power to bind the state by promises of future exemption from taxation.

In Cutler-Hammer, Inc. v. United States, 441 F.2d 1179, 194 Ct. Cl. 788 (Ct. Cl. 1971) it was concluded that certain Treasury regulations made no offers to contracts.

N.M.

—In Board of County Commissioners v. New Mexico & S.P. Ry., 3 N.M. 126, 2 P. 376 (1883), the court concluded that legislation similar to that in the Wisconsin & M.R. Co. case, above, was “a bid for railroads under fair and explicit terms, and upon a consideration of great public importance.”

Ind.

—Grand Lodge Hall Ass’n v. Moore, 224 Ind. 575, 70 N.E.2d 19, 173 A.L.R. 6 (1945), aff’d, 330 U.S. 808, cert. denied, 331 U.S. 864 (1947).

9 See §§ 2.4 and 3.10.

10 Anderson v. Backlund, 159 Minn. 423, 199 N.W. 90 (1924).

Mass.

—A and B owed plaintiff $221.52. Plaintiff was about to commence legal action when the defendant, who apparently is B’s attorney or insurance broker, sent the following letter: “I am attempting to adjust an automobile case for Mr. B, resulting from his being seriously injured … . If I am successful in settling this matter, the balance due will be paid at that time. If I am not successful A will doubtlessly be called upon to pay it. I would suggest that you allow the matter to remain in status quo for a short period to determine whether or not I can effect a settlement.” Plaintiff refrained from suit and B received a settlement but spent the money without paying plaintiff. It was held that the letter-writer had made a prophecy, not a promise. Sears Boston Employees Federal Credit Union v. Cummings, 322 Mass. 81, 76 N.E.2d 150 (1947).

N.Y.

—On similar facts the court points out that an attorney “is not liable unless he has assumed a personal liability in clear and unmistakable language.” The court is absolutely correct in taking into account the social context in which the alleged promise is made. Sefi Fabricators v. Tillim, 79 Misc. 2d 213, 360 N.Y.S.2d 146 (1973).

12 Hawkins v. McGee, 84 N.H. 114, 146 A. 641 (1929). Other cases are in accord.

U.S.

—Johnston v. Rodis, 251 F.2d 917 (1958).

Ill.

—Gault v. Sideman, 42 Ill. App. 2d 96, 191 N.E.2d 436 (1963). This case discusses a unique consideration requirement.

Mass.

—Sullivan v. O’Connor, 363 Mass. 579, 296 N.E.2d 183 (1973). The surgeon promised to attain a given cosmetic improvement by plastic surgery.

Mich.

—Guilmet v. Campbell, 385 Mich. 57, 188 N.W.2d 601 (1971) involved a contract to cure an ulcer by surgery. Stewart v. Rudner, 349 Mich. 459, 84 N.W.2d 816 (1957) involved a promise to perform a caesarian section. Such decisions apparently spurred the legislature to place contracts with respect to medical care within the Statute of Frauds. This enactment was applied in Gilmore v. O’Sullivan, 106 Mich.App. 35, 307 N.W.2d 695 (1981).

N.Y.

—Robins v. Finestone, 308 N.Y. 543, 127 N.E.2d 330 (1955) was a “promise to cure” case.

13 In George Bernard Shaw’s play, “The Doctor’s Dilemma” (1906), a financially successful physician, Dr. Schutzmacher, reveals the secret of his financial success to his former classmate, Dr. Ridgeon, in the following dialog:

“Schutzmacher.

Oh, in my case the secret was simple enough, though I suppose I should have got into trouble if it had attracted any notice. And I’m afraid you’ll think it rather infra dig.

Ridgeon.

Oh, I have an open mind. What was the secret?

Schutzmacher.

Well, the secret was just two words.

Ridgeon.

Not Consultation Free, was it?

Schutzmacher [shocked].

No, no. Really!

Ridgeon [apologetic].

Of course not. I was only joking.

Schutzmacher.

My two words were simply Cure Guaranteed.

Ridgeon [admiring].

Cure Guaranteed!

Schutzmacher.

Guaranteed. After all, that’s what everybody wants from a doctor, isn’t it?”

Hansen v. Virginia Mason Med. Ctr., 113 Wash. App. 199, 53 P.3d 60 (Ct. App. 2002), review denied, 149 Wn. 2d 1005, 70 P.3d 964 (2003) (physician’s statement that patient would not die within a year or that it did not seem to be the case not an enforceable promise).

«Pt. I •«Ch. 1 »«§ 1.16 »

1 Corbin on Contracts § 1.16 (2020)

§ 1.16. Letters of Intent

Letters of intent are the quintessential preliminary agreement if, indeed, there is such a thing. A preliminary agreement is a document in which parties agree on some, and sometimes all, matters under negotiation, but intend to execute at least one additional writing. The problem arises when the parties dispute whether the preliminary agreement constitutes a binding contractual commitment on the parties’ ultimate contractual objective. Given the staggering amount of litigation on this and related, preliminary agreements are explored in much greater depth in §§ 2.8 and 2.9.

Letters of intent are fodder for litigation. “Because of their susceptibility to unexpected interpretations, it is easy to understand why letters of intent have been characterized by at least one practitioner as ‘an invention of the devil.’ ”1

One of the problems is that there is no such thing as a “typical” letter of intent. In fact, a “letter of intent” can serve so many different purposes that caution needs to be exercised when talking about them as a class. They serve a variety of purposes. They often signal the parties’ seriousness and good faith about concluding the contemplated transaction to one another. In that sense, they are akin to an engagement ring, symbolic but important nonetheless.2 Sometimes they are a signal to third parties whose cooperation is needed to help get the deal done, including lenders and potential investors. Sometimes they serve as a roadmap that pinpoints where the parties are on the road to a binding agreement. When parties are negotiating a complicated transaction, it can be beneficial to establish a non-binding record of the parties’ good faith efforts to come to terms on discrete issues, thus allowing the negotiations to continue without having to rehash understandings reached in the negotiations.

Importantly, sometimes, the letter of intent provides for a limited time period of exclusive dealing that allows the parties to conduct due diligence, review the other party’s confidential records, and hammer out a deal without fear that one of them will try to come to a deal on the same matter with another party during that time.3 It is not a useless document, and its possible uses are many.

Regardless of its uses, the parties to a typical letter of intent generally contemplate another, final writing to bind the parties to the ultimate contractual objective.4 But a problem occurs if the parties have otherwise agreed to all the essential terms of the deal in the letter of intent. In that case, a court may determine that the parties have entered into a contract on the ultimate contractual objective, even though the final document has yet to be signed.5

Where, for example, the parties had agreed on the material terms of the purchase of a business in a “memorandum of intent,” and one of the parties issued a press release proudly referring to the agreement as if it was completed—but later claimed that the final document was never approved as required by the letter of intent—a court refused to grant summary judgment to hold that no agreement was entered into.6

Since “letters of intent” are chameleonic and take on many forms, they are subject to all the problems that arise in connection with preliminary agreements, regardless of what they are called.

(A) The following case is noteworthy:

(1) Am. Mortg. & Equity Consultants, Inc. v. Everett Fin., Inc., 2020 U.S. Dist. LEXIS 34450 (D. Minn. Feb. 28, 2020). Supreme Lending and AMEC engaged in negotiations for Supreme Lending to acquire AMEC’s assets. The parties circulated and negotiated various drafts of a letter of intent relating to the transaction. Each draft contained this provision: “[E]xcept for the terms, provisions, and conditions of Paragraphs 6 (Confidentiality), 7 (Expenses and Fees), and 10 (Term and Termination) and this sentence, this LOI is not a binding agreement or contract and no binding legal agreement with respect to the subject matter of this LOI will arise until the execution by the parties of the Definitive Agreement.” Another provision that was included in one or more drafts was this one: “In the even[t] of a non-successful closing Supreme agrees to not solicit and no[t] hire [] AMEC employees for 24 months after the conclusion of the LOI without written consent from AMEC CEO. The information available to Supreme could be damaging to AMEC.” But the parties openly disagreed about this clause, and Supreme Lending removed the portion about not hiring AMEC employees only to have AMEC reinsert it. None of the provisions were ever agreed upon. AMEC’s CEO signed one draft but made significant changes to it in the process (this was tantamount to a rejection of it). Ultimately, Supreme Lending backed out of the proposed deal. Nevertheless, AMEC filed this action alleging that Supreme Lending breached the letter of intent by soliciting AMEC employees (using information Supreme Lending acquired during due diligence), and AMEC sought a preliminary injunction to stop Supreme Lending’s solicitations. The court denied the motion. The draft letters of intent were just that—drafts. None were accepted. The court explained:

Each offered letter of intent included a provision entitled “Duration of this Offer.” … . This term was identical in each offer, and provided that the “LOI must be accepted and a signed copy returned to [Supreme Lending] on or before 5:00 PST within ten (10) days of the date of this LOI, unless extended in writing by mutual agreement.” … . (emphasis added). In other words, the offer expired unless a signed copy was returned. Therefore, the first, second, fourth, and fifth draft letters of intent were not accepted because Ellestad did not sign them. … . Nor was the third draft letter of intent accepted because, although Ellestad signed it, he made significant changes to the letter of intent’s terms in an attached addendum.

The parties made the requirement of signatures a condition precedent to contract formation, and this condition was never activated because the parties never signed off on a document that they agreed on. In addition, “ ‘where the parties have agreed that an agreement to negotiate or letter of intent, in its entirety, is not a binding legal agreement, Minnesota courts have refused to enforce an individual provision of the letter as a freestanding contract promise.’ Richie Co., LLP v. Lyndon Ins. Grp., Inc., 316 F.3d 758, 761 (8th Cir. 2003) (citation omitted).’ ” Even if the parties did agree on one of the draft letters of intent, the inclusion of this clause made clear that the non-solicitation provision was not binding: “[E]xcept for the terms, provisions, and conditions of Paragraphs 6, … 7, … and 10 … and this sentence, this LOI is not a binding agreement or contract and no binding legal agreement with respect to the subject matter of this LOI will arise until the execution by the Parties of the” acquisition agreement. The non-solicitation provision was contained in section 1 of the draft letters of intent, and that section was not referenced by the quoted provision.

Footnotes — § 1.16:

1 Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281, 320-321, 152 Ill. Dec. 308, 327, 565 N.E.2d 990, 1009 (1990) (Stamos, J., concurring and citing the source).

2 HIMC Corp. v. Ramchandani, 2008 U.S. Dist. LEXIS 96242, *7 (W.D. Wash. Nov. 25, 2008) (“Letters of intent may be useful when there are many tasks to be accomplished (checking into any legal impediments, arranging financing or other preliminary matters); while it is not itself a contract, it may establish the good faith of the parties to continue negotiations to achieve goals stated in the letter.”).

3 One court explained:

A complex business transaction … requires a significant expenditure of time, effort, research and finances simply to arrive at its terms. The books of the companies must be carefully reviewed, difficult judgments of valuation must be made, financing must be secured, new corporations may have to be formed, and various timing and risk allocation issues must be spelled out in detail … obviously incurring substantial legal fees. Depending upon the specifics of the deal, other professional services such as accounting and financing may have to be commissioned as well. Together, all these costs in executing a complex transaction may consume more than a trivial portion of the benefit the parties hope to realize. This cost may be too high if it need be borne without some assurance that it will culminate in a sale … . When a deal necessarily is preceded by costly groundwork, a letter of intent may benefit both the purchaser and the seller. Although much work remains to be done, indeed virtually all the details remain open, the buyer secures the seller’s undivided attention as long as progress continues in ironing out the points of the transaction. Neither party has committed himself to the exchange. Both have agreed to work toward it. While success is not certain, it is more likely and the fear of wasted and duplicative effort is reduced.

Feldman v. Allegheny International, Inc., 850 F.2d 1217, 1221 (7th Cir. 1988) (Coffey, J).

4 Willis Pool Co., LLC v. Maurath, 2014 Conn. Super. LEXIS 3138 (Conn. Super. Ct. Dec. 2, 2014) (parties to a letter of intent “were never in accord with regard to many of the essential terms required for the agreement, including design or price,” so no contract was entered into); Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429 (7th Cir. 1993) (letter of intent clearly contemplated that additional steps had to be undertaken before a contract would be formed).

5 Falls Garden Condo. Ass’n v. Falls Homeowners Ass’n, 441 Md. 290, 107 A.3d 1183 (Md. Jan. 27, 2015).

Liu v. Wang, 2019 Md. App. LEXIS 509 (2019). Appellees created entities to purchase and develop real property but expelled a member, appellant Liu, which led to litigation. The parties discussed settlement and signed a letter of intent that agreed on all essential terms and did not leave any for future resolution. The court later explained: “The Letter of Intent ‘sets forth all material terms’ and states that the parties executed it ‘with the intent to be bound hereby and the intent to be bound by a separate Settlement Agreement memorializing these terms.’ ” Thus, the letter of intent expressly contemplated a subsequent settlement agreement. A settlement agreement was circulated and was signed by all parties except for appellant Liu. This litigation followed. The court referenced a prior edition of this treatise and concluded that the letter of intent was a binding contract on the parties’ ultimate contractual objective. The parties expressed definite agreement on all necessary terms and said nothing about other terms; further, “the parties expressly state[d] that they intend their present expressions to be a binding agreement or contract.” Despite the fact that the parties explicitly contemplated a subsequent, future agreement, this does not prevent enforcement of the agreement they entered into. The court went a step further and held that the settlement agreement that had been circulated must also be executed and enforced. This document simply expounded on the provisions agreed to in the letter of intent.

6 Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 (6th Cir. 1976).

«Pt. I •«Ch. 1 »«§ 1.17 »

1 Corbin on Contracts § 1.17 (2020)

§ 1.17. Illusory Promises

There are certain forms of expression that have been described as “illusory promises.” As this term itself implies, an illusory promise is not a promise at all as that term has been herein defined. If the expression appears to have the form of a promise, this appearance is an illusion. Suppose, for example, that X guarantees payment of P’s note in return for C’s written promise to forbear from suing P as long as C wishes to forbear. In this case C’s words may create the illusion of a promise, but, in fact, C has made no promise.1 The fundamental element of promise is a promisor’s expression of intention that the promisor’s future conduct shall be in accord with the present expression, irrespective of what the promisor’s will may be when the time for performance arrives. In the supposed case, the words used by C are not such as may reasonably be relied upon by P. The clear meaning of the expression is that C’s future conduct will be in accord with his or her own future will, just as it would have been had nothing at all been said.2

An early illustration of a bilateral agreement that was illusory on both sides was given by John Selden, the great Seventeenth Century legal scholar:3

“Lady Kent articled with Sir Edward Herbert that he should come to her when she sent for him, and stay with her as long as she would have him, to which he set his hand; then he articled with her that he should go away when he pleased and stay away as long as he pleased, to which she set her hand.”

Nat Nal Service Stations v. Wolf illustrates that illusory promises can be cured by performance. The defendant promised to pay a rebate on all orders sent in by plaintiff that should be accepted by defendant. The illusion disappeared, however, as soon as an order was sent in and accepted.4 Although plaintiff’s promise was illusory in that plaintiff made no commitment to buy anything, once the order was given and filled, the plaintiff had earned the promised rebate.5

In Vanegas v. American Energy Services,6 former at-will employees of AES brought suit against AES and its shareholders asserting it breached an agreement to pay them five percent of the proceeds received in the event of a sale or merger of AES. The defendants claimed that they were entitled to summary judgment because the promise to pay five percent of the proceeds in the event of a sale or merger was illusory since it depended on the continued employment of the employees who were at-will employees. As at-will employees, AES could have terminated their employment at any time which made AES’ promise illusory. The trial court granted the shareholders’ motions for summary judgment, and the court of appeals affirmed. The court noted Corbin’s analysis (§ 1.7, 1993 ed.) that a promise is illusory when it fails to bind the promisor who retains the option of discontinuing performance. Because an illusory promise fails to bind the promisor under such circumstances, it provides no consideration for a contract. Since the employees were at-will employees, any promise made by either them or their employer that depended upon an additional period of employment was illusory because it was conditioned upon something that was exclusively within the control of the promisor. Thus, an employer’s promise of a raise to an at-will employee is illusory because it depends upon a period of continued employment. After making the promise, the employer is free to fire the at-will employee and, therefore, avoid the obligation to perform the promise. The court also explained that AES’s illusory promise could not serve as the offer for a unilateral contract, which has only one promisor, and is completed by the promisee’s performing the act or acts called for by the promisor, not by the promisee making any reciprocal promise or promises. When the promisee delivers the bargained-for performance, the promisor then becomes bound to provide the promise to benefit. Here, in contrast, the court held that AES’s illusory promise was no promise at all since it did not bind AES to do anything. The former employees could not convert AES’s illusory promise into a binding non-illusory promise by their performance. Accordingly, the parties did not form a binding unilateral contract.

The Supreme Court of Texas reversed, holding that the employees were entitled to recover the bonus once they had performed by remaining employed with the company at the time of sale. The court cited Corbin’s criticism of the court of appeal’s rationale:

[T]he court of appeals’ holding would potentially jeopardize all pension plans, vacation leave, and other forms of compensation made to at-will employees that are based on a particular term of service. Corbin on Contracts observed as much in discussing the court of appeals’ opinion in this case:

The court’s analysis may attempt to prove too much. The argument that a promise to grant a raise to a terminable-at-will employee is necessarily illusory raises the question, why is an employer’s original promise to pay a certain wage to an at-will employee enforceable when the employee performs? The court’s analysis would suggest that the employer’s promise was never enforceable. If an at-will employee is hired at a promised compensation and performs for some period, the court’s analysis would suggest that the promised rate of compensation was never enforceable.

1 JOHN E. MURRAY, JR. & TIMOTHY MURRAY, CORBIN ON CONTRACTS § 1.17 (Supp. Fall 2009). We agree that the court of appeals’ opinion could have far-reaching adverse effects on well established forms of compensation.7

The complaint that a promise is illusory often comes in rather poor grace from the addressee of the allegedly illusory promise, particularly where the addressor is ready and willing to carry out the expression of intention. For this reason, courts are quite properly prone to examine the context to conclude that the escape hatch was intended to be taken only “in good faith” or in the “exercise of a reasonable discretion” or upon some other condition not wholly within the control of the promisor. In which case, the conclusion is that the promise is not illusory.8

(A) The following case cites this section:

(1) Brooke v. State, 2020 MT 187, 2020 Mont. LEXIS 2130 (July 28, 2020). Attorneys who provided legal services for indigent clients pursuant to a “Memorandum of Understanding” sued the State of Montana for breach of contract after their fees were reduced nearly ten percent due to a budget shortfall. The attorneys claimed that the fees could not be changed after they had taken on a case. They alleged that the contract was illusory because it gave the state unlimited discretion to change fees. The lower court granted summary judgment in favor of the state, and the instant court affirmed. The court, relying on the Corbin treatise, rejected the argument that the contract was illusory:

In reviewing contract disputes, this Court reads into all contracts a duty of good faith and fair dealing. Knucklehead Land Co. v. Accutitle, Inc., 340 Mont. 62, 2007 MT 301, ¶ 18, 172 P.3d 116. A contract becomes illusory when it consists of “words in promissory form that promise nothing.” 2 Corbin on Contracts § 5.28 (rev. 2019). Or, a contract becomes illusory when the words of promise by their terms “make performance entirely optional” with the promisor. Restatement (Second) Contracts § 2 cmt. e (1981) (emphasis added). Relevant here, where a contract provision allows one party to modify the terms and that party relies on the provision “ ‘in good faith’ or in the ‘exercise of reasonable discretion’ or upon some other condition not wholly within the control of the promisor,” the conclusion is that the promise is not illusory. 1 Corbin on Contracts § 1.17.

Brooke v. State, 2020 MT 187, P13, 2020 Mont. LEXIS 2130, *8–9. The state’s power to reduce fees was not unlimited. A state statute required that contracting for public defenders must be done fairly and that compensation must be reasonable. In addition, the implied covenant of good faith prevents the state from exercising unlimited discretion to reduce fees. The court explained:

The implied covenant of good faith and fair dealing requires that the parties “not attempt, through dishonesty or abuse of discretion in performance, to deprive each other of the benefits of the contract.” Phelps v. Frampton, 339 Mont. 330, 2007 MT 263, ¶ 38, 170 P.3d 474 (emphasis omitted). The Appellants have not asserted that OPD’s decision to reduce compensation rates by ten percent due to its budget shortfall was made in bad faith or in an attempt to deprive the parties of the benefits of the contract. Nor have Appellants asserted that the reduction was unreasonable.

Brooke v. State, 2020 MT 187, P15, 2020 Mont. LEXIS 2130, *10. In short, the attorneys did not argue that the state failed to act in good faith—they argued only that the state did not have the authority to reduce fees after the attorneys had undertaken to handle a case. The law does not support the attorneys’ argument. The court concluded that the Memorandum of Understanding was not illusory.

Footnotes — § 1.17:

1 The Restatement of Contracts (Second) § 2 cmt. e (Am. Law Inst. 1981) provides: “Words of promise which by their terms make performance entirely optional with the ‘promisor’ whatever may happen, or whatever course of conduct in other respects he may pursue, do not constitute a promise. Although such words are often referred to as forming an illusory promise, they do not fall within the present definition of promise.”

Cornejo-Ortega v. United States, 61 Fed. Cl. 371 (2004). Where a United States reward poster offered a reward “up to” $2.2 million, the court cited precedent holding that “zero” would be included as its lower limit. In holding that such language gives rise only to an illusory promise, the court quoted the language of the Restatement (Second) of Contracts, § 2 cmt. e (Am. Law Inst. 1981).

2 For cases in which an illusory promise have been found, see:

Conn.

—In Marsh v. Bridgeport, 75 Conn. 495, 54 A. 196 (1903), the defendant city leased premises of the plaintiff at a specified rent, with the express provision that the rent was not to be payable unless the city council should thereafter appropriate money to pay it. This was rightly held to create no duty to appropriate or to pay without appropriating. There was no promise to pay rent.

Fla.

—Rosenberg v. Lawrence, 541 So. 2d 1204 (Fla. App. 1988), review denied, 542 So. 2d 1334 (1989). An agreement by parties to a divorce to provide equally for their children’s college educations was found to be illusory promise in spite of language specifying that the parties were not “obligated for any material, unusual or extraordinary expense to which [they do] not consent.” The outcome may possibly have been influenced by the fact that expenses for one child attending college for slightly more than one year were asserted to amount to $43,616.38. The case might better have been analyzed as a case of indefiniteness.

Ga.

—Automatic Sprinkler Corp. of America v. Anderson, 243 Ga. 867, 257 S.E.2d 283 (1979). The agreement provided “the award of any direct incentive is entirely within the discretion of the corporation and nothing herein will be construed to the contrary.” It was held that the presence or absence of good faith in the exercise of discretion is irrelevant.

Ky.

—Rehm-Zeiher Co. v. F.G. Walker Co., 156 Ky. 6, 160 S.W. 777 (1913) (promise to buy a specified quantity unless “for any unforeseen reason” the buyer should desire otherwise).

Mich.

—Mastaw v. Naiukow, 105 Mich. App. 25, 306 N.W.2d 378 (1981). Mastaw agreed to take $9,000 to settle his false arrest case and to, by a writing, make the police payment contingent on approval by the Detroit Common Council. A co-plaintiff refused to settle, gaining a jury verdict for $100,000, and at trial evidence came out that police files corroborated plaintiffs’ version of the events. Mastaw said the deal was off, but the judge below refused to allow him to withdraw. Held, reversed. The court quoted § 16 from a previous edition of this treatise to show that the city’s obligation was illusory. This was just an offer by Mastaw to the city; the council’s approval was its acceptance. Mastaw could withdraw before the city accepted.

Amerisure Mutual Insurance Company v. Carey Transportation, Inc., 578 F. Supp. 2d 888 (W.D. Mich. 2008) (insurer’s promise to provide coverage was not illusory since policy did not exclude coverage for all property damage).

Mo.

—In Middleton v. Hoecroft, 270 S.W.2d 90 (Mo. App. 1954), the following words of an employer were held to be merely an illusory promise: “I propose to employ you to work for me for 15 months at my option.”

In Kalivas v. Hauck, 365 Mo. 923, 290 S.W.2d 94 (1956), a supposed “option” to buy land, for which the plaintiff paid $200, was said to be wholly illusory because it was conditional upon the execution within 30 days of a written contract of sale on terms still to be agreed on. The case is really one of indefiniteness.

Neb.

—De Los Santos v. Great Western Sugar Co., 217 Neb. 282, 348 N.W.2d 842 (1984). The agreement provided that the Contractor “shall transport in the Contractor’s trucks such tonnage of beets as may be loaded by the Company.” It was held that there was no contract as the Company had not promised to load any beets.

Nev.

—Sala & Ruthe Realty, Inc. v. Campbell, 89 Nev. 483, 515 P.2d 394, 396 (1973). The real estate agent had produced a buyer who agreed to buy conditioned on his approval of an accounting and inventory of Campbell’s books and stock, which was never completed. The agent sued for its commission, claiming to have produced a buyer “ready, willing and able” to buy on the terms agreed. The court held that the contract was illusory, citing this section from an prior edition of this treatise (§ 16, 1950 ed.), since it did not bind the buyer, and therefore could not bind the seller. The court concluded that the buyer was thus not shown to have been ready, willing and able.

The court was right in concluding that the buyer was not ready, willing and able, but wrong in concluding that the contract was illusory. If the accounting and inventory had been completed, the buyer would have been bound to use a good faith judgment in determining whether the books and inventory were satisfactory; and a court would not find it difficult to conclude that buyer was acting in bad faith if a reasonable person would have been satisfied. Even if the contract were properly interpreted as resting on condition of personal (including unreasonable requirements no reasonable person would impose) satisfaction of the buyer, this condition does not make the contract illusory. The reason why the buyer was not ready, willing and able to buy was that there was a condition precedent that was not fulfilled. The agreement itself showed that the buyer was not willing to buy unless the condition was complied with.

N.Y.

—Strong v. Sheffield, 144 N.Y. 392, 39 N.E. 330 (1895) (“I will hold it [the note of a third person, without pressing for payment] until such time as I want my money.”).

Wash.

—Spooner v. Reserve Life Ins. Co., 47 Wash. 2d 454, 287 P.2d 735 (1955) (holding that an employer’s bulletin, announcing a proposed bonus schedule, contained only the illusion of a promise, so that refusal to pay the bonus was not a breach of contract).

Wis.

—Runzheimer International Ltd. v. Friedlen, 2015 WI 45, 862 N.W.2d 879 (2015). Friedlen, an at-will employee, worked for Runzheimer for more than 15 years when Runzheimer decided to require its employees to sign restrictive covenants, giving Friedlen the option to sign the covenant or be fired. Friedlen signed the covenant and continued to work for two more years before being terminated. Friedlen then went to work for Corporate Reimbursement Services (“CRS”), a competitor of Runzheimer. Runzheimer sued both Friedlen and CRS alleging that Friedlen’s employment constituted a breach of the restrictive covenant. The court found “Runzheimer’s promise not to fire Friedlen if he signed the covenant was not illusory because it was not a promise implicating Runzheimer’s future discretionary conduct” but “rather was a promise that it would not fire Friedlen at that time for that reason.”

Eng.

—Great Northern R.R. v. Witham, L.R. 9 C.P. 16 (1873) (“I am instructed to inform you that my directors have accepted your tender, dated, etc., to supply this company at Doncaster station any quantity they may order during the period ending October 31.”).

3 John Selden, Table Talk (under heading “Contracts”), in English Belles-Lettres 163, 169 (Universal Classics Library; A.W. Dunne, Washington & London 1901).

4 Nat Nal Service Stations v. Wolf, 304 N.Y. 332, 107 N.E.2d 473 (1952).

5 See In re Sealed Case, 449 F.3d 118 (D.C. Cir. 2006) (illusory nature of promise cured by performance).

6 Vanegas v. American Energy Services, 224 S.W.3d 544 (Tex. App. 2007).

7 Vanegas v. Am. Energy Servs., 302 S.W.3d 299, 303-04 (Tex. 2009).

In Powanda v. Inteplast Group, LTD, L.P., 2015 U.S. Dist. LEXIS 44261 (D. Conn. April 3, 2015), Powanda agreed to work for Inteplast and his compensation package included, inter alia, a base salary and commission of 2% for orders he brought in by himself in Rhode Island, Connecticut, New York, New Jersey and Eastern Pennsylvania. However, the employment contract Powanda signed gave Inteplast the sole discretion to modify Powanda’s compensation. When a dispute arose, the court held that defendants were not permitted to retroactively reduce of commissions Powanda had already earned. Such a reduction would essentially render the contract illusory.

Compare Barton v. Hewlett-Packard Co., 635 Fed. App’x 46 (3d Cir. 2015), where HP issued Barton, one of its software salespersons, a Sales Letter describing his eligibility for sales commissions in fiscal year 2012 if he hit certain sales quotas. But HP reserved the right to adjust the terms or cancel “at any time,” and to adjust accounts, goals/quota, target incentive amount and the right to review and “in its sole discretion adjust incentive payments associated with large transactions for which the incentive payments are disproportionate when compared with the employee’s assigned quota or contribution to toward [sic] the transactions.” When a dispute arose over Barton’s entitlement to commissions, the Third Circuit held: “HP clearly manifested its intention not to be bound by the commission rates set forth in the Sales Letter.” The implied covenant of good faith and fair dealing did not apply since it only applies to a party’s performance of an existing contract. Here, no contract was ever formed.

U.S.

—Where a subcontract contained a provision that “bridges deemed necessary by the contractor will be constructed by the contractor without cost to the subcontractor,” such provision was not a mere “illusory” promise. The contractor’s duty to build was conditional on the contractor’s own personal judgment as to “necessity”; but he was bound to exercise that judgment honestly and in good faith. E.J. Albrecht Co. v. New Amsterdam Cas. Co., 164 F.2d 389 (7th Cir. 1947).

Del.

—In American University v. Todd, 39 Del. 449, 1 A.2d 595 (1938), the promise of a subscriber to pay a sum of money “at my convenience” was held to be enforceable and not illusory. The phrase merely made the duty conditional on ability to pay without financial difficulty or inconvenience.

N.C.

—Mezzanotte v. Freeland, 20 N.C. App. 11, 200 S.E.2d 410 (1973). “This agreement is contingent upon parties of the second part being able to secure a second mortgage from North Carolina National Bank on such terms and conditions as are satisfactory to them … .” The quoted clause did not make the promise of the buyers illusory. They undertook to make an honest good faith effort to acquire financing satisfactory to themselves. The opinion collects many of the cases finding implied promises that limit the party’s apparent ability to thwart performance on his or her own whim.

N.Y.

—Richard Bruce & Co. v. J. Simpson & Co., 40 Misc. 2d 501, 243 N.Y.S.2d 503 (1963). The plaintiff, an underwriter, had the power to terminate, “if prior to the effective date the Underwriter, in its absolute discretion, shall determine that market conditions or the prospects of the public offering are such as to make it undesirable or inadvisable to make or continue the public offering hereunder.” The court held that the quoted language did not make the plaintiff’s promise illusory, saying: “The term ‘absolute discretion’ must be interpreted in context and means under these circumstances a discretion based upon fair dealing and good faith-a reasonable discretion.” See also Seymour Grean & Co. v. Grean, 274 A.D. 279, 82 N.Y.S.2d 787 (1948) (“sole judgment”).

Or.

—Wyss v. Inskeep, 73 Or. App. 661, 699 P.2d 1161 (1985), review denied, 300 Or. 64, 707 P.2d 582 held that the discretion reserved to the promisor must be exercised in good faith. See also Furrer v. International Health Assurance Co., 256 Or. 429, 474 P.2d 759 (1970) (“to spend such time as he personally sees fit”).

Wash.

—Omni Group, Inc. v. Seattle-First Nat’l Bank, 32 Wash. App. 22, 645 P.2d 727 (1982). “Sole discretion” must be exercised in conformity with the obligation of good faith and fair dealing.

But when a contract provides no standards or guidance for a court to apply the duty of good faith, the contract is illusory. In Dolder v. Auto Boutique Collision, Ltd., 2018-Ohio-4508, 2018 Ohio App. LEXIS 4823 (2018), Dolder, former manager of the defendant repair shop, sued seeking recover of unpaid commissions. Dolder’s contract provided that, in addition to his salary, defendant “will make commission payments to Nicholas Dolder based on 10–25% OF SALARY of $57,000. This commission will be paid monthly on the thirtieth day of the following month.” The parties filed dueling motions for summary judgment. The court granted defendant’s motion and denied Dolder’s. It refused to enforce the commissions provisions, noting that “the contract contains no language addressing how the commission is earned, the commission payments were entirely at the employer’s discretion, making the provision illusory.” The court added: “in the absence of a meeting of the minds as to what triggers the earning of a commission, this provision is indefinite and uncertain, rendering the promise illusory.”

«Pt. I •«Ch. 1 »«§ 1.18 »

1 Corbin on Contracts § 1.18 (2020)

§ 1.18. Assumpsit: Implied Assumpsit, Indebitatus or General Assumpsit, Special Assumpsit

At early common law, contracts, as we know them, were difficult to enforce in the King’s or Queen’s courts of England. While contracts under seal were enforced in actions commenced by the writ of covenant and debts were collectible under the writ of debt, damages for breach of informal contracts1 was not an available remedy except in local, merchants’ and ecclesiastical courts. The form of trial in an action commenced by the writ of debt-wager of law boggles the contemporary mind.2 Many promises, however, in reliance on which the promisee materially changed position, neither created a money debt nor were under seal. As the demand for the enforcement of such promises in the Royal courts arose, a remedy was invented to meet it. This remedy was afforded by the writ of assumpsit, created by making only a slight variation in the wording of the older writ of trespass on the case. This variation consisted merely in an allegation in Latin that the defendant promised (super se assumpsit) and that the plaintiff had relied thereon to his injury. Trial was by jury.

In the course of time, this writ was applied to the enforcement of promises actually made, whether express or implied in fact from conduct other than words, and also to the enforcement of obligations hereafter described as quasi contracts. The writ was sustained in all cases in which the court was willing to hold that the law would imply an assumpsit; and in Slade’s case3 the court held that whenever a debt existed the law would imply an assumpsit. The result of this holding was that the action of debt was largely replaced by assumpsit. The subsequent growth of contract law took place mainly in cases in which assumpsit was used as the form of action. Thereafter, for some centuries in our legal history, promises were enforced by the use of the common law writ of assumpsit, this word having the literal meaning “he promised.” Although the common law writ of assumpsit has become, in most jurisdictions, something of a legal dinosaur with the general movement toward notice pleading without regard to the forms of action,4 this has, of course, no effect on the courts’ ability to predicate relief on the breach of an express or implied promise.

Sometimes a promise is said to be “implied in law,” such a promise being distinguished from a promise that is implied in fact. This distinction and these terms have a long history in Anglo-American law. A promise that is implied in fact is merely a tacit promise, one that is inferred in whole or in part from expressions other than words on the part of a promisor. It is a question of fact whether or not in a particular case a promise should be so inferred.5

«Pt. I •«Ch. 1 »«§ 1.18 »•[1]»

1 Corbin on Contracts § 1.18[1] (2020)

[1] Implied Assumpsit

When a promise is said to be “implied in law,” the meaning is that neither the words nor the other conduct of the party involved are promissory in form or justify any inference of a promise. The term is used to indicate that the party in question is under a legally enforceable duty, just as he or she would have been if a promise had been made.

For a number of reasons the action of common law that was initiated by the use of the writ of assumpsit was a very convenient one, and justice was more likely to be satisfactorily attained than by utilizing some of the other forms of action. Pressure arose to allow the use of the action of assumpsit for the collection of non-contractual money debts--debts arising out of transactions that included no promise whatever, either express or tacit. The courts yielded to this pressure, and justified themselves by saying that in these cases a promise was implied in law. The legal duties that were enforced by use of this fictitious promise have come to be described as quasi-contractual. In other words, a promise “implied in law” is a constructive promise, a term that denotes a set of facts that will be treated as if a promise has been made.6

Such terms as “special assumpsit,” “express assumpsit,” “implied assumpsit” and “indebitatus assumpsit” came into use; but this does not indicate that they were different forms of action or that separate writs were invented for them. Since the action would be sustained if the plaintiff proved an express promise, or a promise inferred from acts other than verbal expression, or a money debt, or any quasi-contractual obligation that the court was willing to recognize, it became unnecessary to draw sharp lines among them or to distinguish clearly between contracts implied in fact and quasi contracts.7 The use of the form of action called assumpsit required the making of no such distinction; and in many reported cases it does not appear whether the court found that the defendant had promised or merely that the defendant ought to be compelled to pay money by which the defendant otherwise would be enriched or to redress the impoverishment of the other.

«Pt. I •«Ch. 1 »«§ 1.18 »«[2]»

1 Corbin on Contracts § 1.18[2] (2020)

[2] Indebitatus or General Assumpsit

The learning about this subspecies of the writ of assumpsit is vast and largely irrelevant to contemporary analysis of contract problems, but some familiarity with the subspecies can be an aid to understanding some of the old cases and textbooks, as well as some rules of law that might otherwise appear as enigmatic as the statutes of Easter Island.8 The writ of indebitatus assumpsit was available for the collection of debts, whether for reasonable value (quantum meruit for services, quantum valebant for goods) or for a sum certain. Under this writ, it was permissible to use a simplified form of pleading, the “common counts,” which have been used even in modern times in many jurisdictions that have abandoned other elements of common law pleading.9 The common counts in assumpsit are merely abbreviated and stereotyped statements that the defendant is indebted to the plaintiff for a variety of commonly recurring reasons, such as money had and received, money lent, work and labor done, and goods sold and delivered. They are allegations of indebtedness, and the action may properly be described as indebitatus assumpsit. Indebitatus was available for debts whether contractual or not and, in the tortured logic of yesteryear, was deemed to rest on an obligation implied in law even if a promise, express or implied in fact existed.10 The common counts could be used for the enforcement of express promises if they were such as to create a money debt, as well as for the enforcement of implied promises and quasi contracts. It cannot be said that the line between express assumpsit and the common indebitatus counts is also the distinguishing line between express promises and implied promises or between actual promises and quasi contracts. There was no reason why a quasi contract should not be enforced in an action of “special” assumpsit—an action on the special case—rather than in “general” assumpsit in which the case is stated in one or more of the common counts.11

«Pt. I •«Ch. 1 »«§ 1.18 »«[3]•

1 Corbin on Contracts § 1.18[3] (2020)

[3] Special Assumpsit

Special assumpsit lay for the recovery of damages for breach of an informal contract whether express or implied in fact. It had little role in the enforcement of “implied in law” obligations. Because it was the predicate for an action for damages, it could not be the basis for collection of a debt and the “common counts” could not be used. Rather the facts had to be specially pleaded. The essential allegations were (1) the statement of the making of the contract and the terms of the promise, (2) the consideration, (3) the performance by plaintiff of all conditions precedent, (4) the breach, and (5) the damages.12 This rule of pleading has not changed in any essential way.13

Footnotes — § 1.18:

1 The distinction between formal and informal contracts is discussed in § 1.5 above.

The Common Law was threatened by its “barbarous” image not only because of the widespread reception of Roman law, but also because of flaws in its own procedures. Chief among these was wager of law—an archaic procedure, originally used in local courts all over England and a very popular defense method in cases of unpaid debt. When sued for not paying their debt, the defendants could ask to “wage,” that is make their law by taking an oath that they do not owe the money or the goods in question. The defendant would then bring eleven neighbors or friends, compurgators, to strengthen the initial oath by taking a secondary oath that the defendant is trustworthy and their oath was good. As time passed, this procedure expanded from the local courts to the central courts in Westminster, where it became increasingly unfeasible to bring close neighbors or friends to support the defendant’s claims. A fictional practice of using “professionals,” hired oath-helpers, also known as “knights of the post,” was developed to cope with this problem.

Hila Keren, Textual Harassment: A New Historicist Reappraisal of the Parol Evidence Rule With Gender In Mind, 13 Am. U.J. Gender Soc. Pol’y & L. 251, 306 (2005).

3 Slade’s Case, 4 Coke, 92b (1602).

4 While the term appears in the judicial decisions far less frequently than it once did, a Lexis search of the word is evidence of its surprising vitality in modern times—mainly because of its wide use in Pennsylvania, a fact pleading jurisdiction.

See the concurring opinion in Olson v. Synergistic Techs. Bus. Systems, 628 N.W.2d 142 (Minn. 2001).

Jogani v. The Superior Court of Los Angeles County, 165 Cal. App. 4th 901, 81 Cal. Rptr. 3d 503 (Cal. Ct. App. 2008). The court cited this treatise, § 1.8, 1993 ed., in concluding that quantum meruit was recognized as a common law form of the writ of assumpsit long before 1850 and that parties to a quantum meruit action consequently had a right to a jury trial.

5 This treatise (§ 17 from a prior edition) is cited in Lewis v. Hill, 409 S.W.2d 946 (Tex. Civ. App.1966) where the appellate court disagreed with the trial court’s view of whether the facts supported the inference of an implied promise. It was also cited in Emmer v. Phillips Petroleum Co., 668 S.W.2d 487 (Tex. Civ. App. 1984), the court noting that §§ 1.18 and 1.19 (then labeled §§ 17 and 18) take the view that there is no difference between “express” and “implied” contracts, there being only a difference in the manner of expressing assent. The court noted that, “The observation is valid, but the benefit of using commonly understood terms outweighs the detriment of tolerating the imprecise thought processes underlying the use of the terms.”

Ariz.

—Roberson v. Wal-Mart Stores, 44 P.3d 164 (Ariz. Ct. App. 2002). This section (§ 17, 1960 ed.) is cited as authority that an implied-in-fact contract is inferred by statements or conduct of the parties and becomes an enforceable express term. Such statements can be found in an employer’s policy statements, disciplinary procedures, personnel manuals, and similar documents—but these documents will not displace the at-will presumption where the employer disclaims that such documents have contractual significance.

Cal.

—Ramseyer v. Daly, No. B164124, 2004 Cal. App. Unpub. LEXIS 11200 (Dec. 10, 2004) cited Corbin’s description (§ 1.18, 1993 ed.) of the writ of assumpsit in concluding that an action to recover a specific sum as the reasonable value of services was an action at law in California in 1850, and, therefore, a claimant seeking quantum meruit is entitled to a jury trial.

Fla.

—Waite Dev., Inc. v. City of Milton, 866 So. 2d 153 (Fla. Dist. Ct. App. 2004). A contract implied-in-fact is based on a tacit promise, one that is inferred in whole or in part from the parties’ conduct, not solely from their words.

Iowa

—Union Pac. R.R. v. Cedar Rapids & Iowa City Ry., 477 F. Supp. 2d 980 (N.D. Iowa 2007) (contract implied in fact requires an expression of assent).

Md.

—Slick v. Reinecker, 154 Md. App. 312, 839 A.2d 784 (2003) (detailed discussion of differences between implied-in-fact and implied-in-law contracts).

N.J.

—S. Jersey Hosp., Inc. v. Corr. Med Servs., 2005 U.S. Dist. LEXIS 11693 (D.N.J. June 15, 2005) (implied-in-fact contract still requires agreement).

6 See Nehi Beverage Co., Inc. v. Petri, 537 N.E.2d 78, 85 (Ind. App. 1989), where the court states: “Our courts have used the phrases quasi-contract, contract implied in law, constructive contract and quantum meruit synonymously.”

Campbell v. TVA, 421 F.2d 293 (5th Cir.1969) is instructive. Daniel, the director of TVA’s technical library made an oral agreement with Campbell for him to reproduce technical trade journals. Campbell delivered the resulting microfilms to the library. After they were used for some months, they were returned and payment was refused. TVA pointed out that Daniel lacked authority to contract for TVA and had done so without his superior’s knowledge. Campbell sued for $30,000, the contract price, in “quantum meruit,” the original theory of the complaint being a contract implied in fact. When it was apparent that this could not be the basis of recovery because of Daniel’s lack of authority, the complaint was amended to express a theory of a contract implied in law. A judgment entered on a jury verdict for Campbell was affirmed, one judge dissenting on the ground that the court was in effect enforcing the unenforceable contract.

In Paffhausen v. Balano, 1998 Me. 47, 708 A.2d 269 (1998), the Supreme Court of Maine explained that quantum meruit involves recovery for services or materials provided under an implied contract. Unjust enrichment, by contrast, “describes recovery for the value of the benefit retained when there is no contractual relationship, but when, on the grounds of fairness and justice, the law compels performance of a legal and moral duty to pay, and the ‘damages analysis is based on principles of equity, not contract.’ ”

1998 ME at P6, 708 A.2d at 271. The court explained: “Damages in unjust enrichment are measured by the value of what was inequitably retained. In quantum meruit, by contrast, the damages are not measured by the benefit realized and retained by the defendant, but rather are based on the value of the services provided by the plaintiff.” 1998 ME at P7, 708 A.2d at 271. Confusion, the court said, has resulted from the court’s historical use of the term “quasi-contract” to describe both unjust enrichment and quantum meruit, when “quasi-contract” properly describes unjust enrichment only.

Mogavero v. Silverstein, 142 Md. App. 259, 790 A.2d 43 (Md. Ct. Spec. App. 2002). Citing this treatise, § 1.18, 1993 ed., the court suggested that quantum meruit may refer to either an implied-in-fact contract which is a genuine contract or an implied-in-law contract which is not a contract but a quasi-contractual device constructed by courts to avoid unjust enrichment by providing a restitutionary remedy.

7 In no event, however, should the claimant recover the same indebtedness twice under theories of express contract and quasi contract. Nehi Beverage Co., Inc. v. Petri, 537 N.E.2d 78 (Ind. App. 1989).

8 For example, the finding the appropriate statute of limitations may turn on knowledge of the old writs. See, e.g., Uhl v. Fox, 31 Colo. App. 13, 498 P.2d 1177 (1972). Also, a new promise to pay a debt (indebitatus assumpsit) is treated differently from a new promise to honor an executory contract or to pay damages (special assumpsit). Restatement of Contracts (Second) § 82 cmt. b (Am. Law Inst. 1981).

Cal.

—Interstate Group Administrators, Inc. v. Cravens, Dargan & Co., 174 Cal. App. 3d 700, 220 Cal. Rptr. 250 (1985). It was held that because the common counts reveal so little about the plaintiff’s claim, an affirmative defense can be proved although defendant merely served a general denial.

G. Hirsch & Company, Inc. v. AmerisourceBergen Corporation, 2006 U.S. Dist. LEXIS 32895 (N.D. Cal. May 17, 2006). The court cited this section from a prior edition (§ 20) to explain that this old common law count was a form of pleading indebitatus assumpsit which could be filed for work and labor done (quantum meruit), goods sold and delivered (quantum valebant) or for a sum certain. In California, the essential elements for a common court are (1) A statement of indebtedness in a certain sum; (2) consideration (i.e., goods sold); and (3) non-payment. The court determined that plaintiff sufficiently pled the common count claim.

Conn.

—Town of Westport v. Bossert Corp., 165 Conn. 410, 335 A.2d 297, 298 (1973) (“The principal issue raised and argued on this appeal is whether the common counts writ can be used to initiate an action to collect municipal taxes.” It was held proper to initiate the action in this way.).

Iowa

—Webster Indus. v. Northwood Doors, Inc., 234 F. Supp. 2d 981 (N.D. Iowa 2002) (discussion of quantum meruit and quantum valebant).

Nev.

—Certified Fire Prot. Inc. v. Precision Constr. Inc., 128 Nev. 371, 283 P.3d 250 (2012). The court reasoned there were simply too many gaps to fill in the asserted contract for quantum meruit to take hold. Precision never agreed to a contract for only the design-related work; the parties never agreed on a price; and they disputed the time of performance. Accordingly, the claim for quantum meruit failed.

10 See Joseph H. Koffler & Alison Reppy, Handbook of Common Law Pleading 337–367 (1969) for an in-depth discussion and thorough bibliography. See also, A.W.B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit (1975).

11 See James B. Ames, History of Assumpsit, 2 Harv. L. Rev. 1, 53.

In Western Machinery Co. v. Consolidated Uranium Mines, Inc., 247 F.2d 685 (10th Cir.1957), the court held that the jury’s verdict for a specific sum could be justified either on the ground of a contract implied in fact or on that of a quasi contract for reasonable value of services rendered.

See Commerce Partnership 8098 L.P. v. Equity Contracting Co., 695 So. 2d 383 (Fla. App. 4th Dist. 1997) (en banc), modified, No. 95-2619, 1997 Fla. App. LEXIS 6201 (1997) (good discussion of implied-in-fact and implied-in-law contracts and unjust enrichment, citing this treatise, §§ 1.18-1.20, 1993 ed).

12 See generally, Joseph H. Koffler & Alison Reppy, Handbook of Common Law Pleading 318–336 (1969) and the bibliography cited therein. See also, Alfred W.B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit (1975).

13 The pleading of conditions precedent has been simplified. Rule 9 of the Federal Rules of Civil Procedure states: “In pleading conditions precedent, it suffices to allege generally that all conditions precedent have occurred or been performed. But when denying that a condition precedent has occurred or been performed, a party must do so with particularity.”

«Pt. I •«Ch. 1 »«§ 1.19 »

1 Corbin on Contracts § 1.19 (2020)

§ 1.19. Express and Implied Contracts

Contractual duty is imposed by reason of a promissory expression. As to this, there is no difference between an express contract and an implied contract. All contracts are express contracts, subject to the rules of contract law. Thus, where a party is incompetent1 to make an express contract or lacks the authority to bind the principal, such incompetency or lack of authority2 is equally fatal to any theory of an implied in fact contract.3 There are different modes of expressing assent. Expression may be by the tongue, the eye, the hand, or by all of them at once.4 It may be by language, by words in any language, by words written or spoken. Yet there is also “sign language” which may consist of signs that are mere translations from a language of words, or of signs that convey ideas independently of any word language. A contract made by sign language is an express contract.

The language used to express assent, whether of words or of other signs and symbols, may be one invented by the parties themselves for their own private communications, or indeed for one communication only. They may use code words instead of English words or their own code. They may twist ordinary English words into code words, so that man signifies dog and tree signifies a thousand bushels of wheat. A contract made by a code communication is an express contract. Throwing up one’s hat is usually an expression of joy; but it may be made to express assent to an agreement to sell land for ten thousand dollars.

From the above, it appears that, not only are all contracts express contracts, but also that all contracts are implied contracts.5 The meaning to be given to any and all of these modes of expression is found by a process of implication and inference.6 There are implications in English words as well as in other signs and symbols. What your words imply is also what your words express.7 Assent may be expressed by acts that have no antecedent agreed meaning, although often no meaning can be attributed to them except in relation to the previous usage and conduct of humanity. The inference to be drawn from the acts is determined by what others reasonably understand them to express.8

The distinction between an express and an implied contract, therefore, is of little importance, if it can be said to exist at all. The matter that is of importance is the degree of effectiveness of the expression used.9 Clarity of expression determines the reasonableness of understanding and eases the court’s problem in case of dispute. The character of the evidence to be presented to the court depends on the mode of expression used.10 The more variant and obscure the mode, the more difficult the court’s problem. Nowhere is accomplished artistry worth more than in the drafting of an important contract. It may be an exaggeration to say that nowhere is it less often to be found.

When an expression of agreement is put into words that are frequently used with more than one meaning, it is difficult, and sometimes impossible, to decide that an express contract exists. Likewise, when conduct other than words is such as persons frequently perform with different meanings, it is difficult, and sometimes impossible to decide that an implied contract exists.

It is well understood that a contract may be unilateral; that is, that only one party makes a promise. The consideration for the promise is some non-promissory performance rendered by the promisee or the promise is binding without consideration. In such cases, it is nearly always the promisor who makes an offer of a promise and requests action or forbearance in return. If such is the offer that has been made, it is usually unreasonable to infer that the offeree has made a promise to render the requested performance. Generally, therefore, the implication of a return promise is directly bound up with the interpretation of the terms of the offer. If the offeror has not asked for a promise, the normal result is that the offeror doesn’t get one; but if the offeror does ask for a promise and the conduct of the offeree makes the offeror believe reasonably that the requested promise has been made, the court will generally find that it has been made, by implication if not expressly. This will be true, whether the plaintiff is trying to prove that the defendant made such an implied promise in order to maintain an action for its enforcement,11 or whether the plaintiff is trying to show that the plaintiff made such an implied promise in order to establish a consideration for the express promise of the defendant.12

Parties who have made an express contract to be in effect for one year (or any other stated time) frequently proceed with performance after expiration of the year without making any new express agreement, of extension or otherwise. From such continued action a court may infer that the parties have agreed in fact to renew the one-year contract for another similar period. Illustrations can be found in leaseholds, employment transactions, and contracts for a continuing supply of a commodity.13 Some of the cases finding an implied renewal, particularly of leasehold tenancies, base the renewal on a rule of law that the tenancy is automatically renewed, irrespective of the tenant’s intention, at the option of the landlord.14 To be distinguished are contracts which contain clauses that provide for automatic renewal unless notice of non-renewal is given by one party to another.15 Because such clauses in contracts of adhesion may be abused, as where a tenant has not read the lease to which he or she has adhered, some statutes regulate such provisions, for example, by requiring the propounding party to notify the adhering party of an impending renewal.16

In the field of illegal bargains the parties often take pains not to put in express words, either oral or written, a promise that is illegal but is in fact included by tacit understanding. Thus, where one party has a civil claim for damages or restitution against another by reason of the latter’s embezzlement or other crime, in making an otherwise proper settlement of the civil claim, the injured party may make an illegal promise not to prosecute criminally. Such a promise may not be provable by evidence of express words; and it may be difficult to determine whether or not it was made tacitly and should be inferred from conduct and circumstances. As between two inferences equally probable, the court should prefer the lawful rather than the unlawful one, but if the illegal promise is found by implication it has the same effect upon the bargain as if made in express words.17

(A) The following cases are noteworthy:

(1) Wilson v. Dnc Servs. Corp., 2018 U.S. Dist. LEXIS 104940 (D.D.C. June 22, 2018). Willie Lee Wilson, an African-American citizen, and his campaign committee sued the defendant, claiming that it discriminated against Wilson and thwarted his campaign for the U.S. presidency because of his race. The defendant moved to dismiss. Wilson claimed, among other things, that defendant breach an implied-in-fact contract. An implied-in-fact contract is one that has not been expressed in writing or orally but is inferred from the conduct of the parties. “To recover damages on an implied-in-fact contract, a plaintiff must establish: ‘(1) valuable services being rendered; (2) for the person sought to be charged; (3) which services were accepted by the person sought to be charged, used and enjoyed by him or her; and (4) under such circumstances as reasonably notified the person sought to charged that the [person rendering the services] expected to be paid by him or her.’ ” The complaint failed to state an actionable contract because plaintiff “did not offer valuable services to the DNC under circumstances that put the DNC on notice that [plaintiff] expected payment.” Further, plaintiffs failed to allege facts showing agreement on the material terms of the alleged contract. Specifically, plaintiffs claimed that “the DNC promised to provide Candidate Wilson with certain resources, logistical guidance and information in order to facilitate having his name placed on state ballots.” These general allegations failed to make clear what each party promised to do. Further, neither party manifested intent to be bound by a contract. Plaintiffs allege no conduct tantamount to assent on the part of defendant, and the only thing the plaintiffs did was register with the Federal Election Commission—a nonpartisan government agency—which does not establish a contract with a political party. The court dismissed the claim for breach of contract implied-in-fact.

(2) Sheedy v. Adventist Health Sys. Sunbelt Healthcare Corp., 2020 U.S. Dist. LEXIS 2131 (M.D. Fla. Jan. 7, 2020). Plaintiff alleged that defendants violated ERISA with respect to her pension plan. One of her claims was for a breach of an implied contract. The court granted defendants’ motion to dismiss this claim because it was clear that plaintiff’s claim was actually based on a written pension plan document—plaintiff herself described that document “as representing a contract between the parties.” The court added: “Nowhere does the Plaintiff allege that the written pension plan document does not exist.” A claim for breach of implied contract cannot stand in the face of an express contract. The court dismissed the claim for breach of implied contract.

Footnotes — § 1.19:

U.S.

—Curved Electrotype Plate Co. v. United States, 50 Ct. Cl. 258 (1915).

Ala.

—Ex parte Watts, 209 Ala. 115, 95 So. 502 (1923), affirming Board of Education v. Watts, 19 Ala. App. 7, 95 So. 498 (1922).

2 Haws & Garrett General Contractors, Inc. v. Gorbett Brothers Welding Co., 480 S.W.2d 607 (Tex.1972); Vahlsing Christina Corp. v. Ryman Well Service, 512 S.W.2d 803 (Tex. Civ. App. 1974 writ refused n.r.e.).

U.S.

—Curved Electrotype Plate Co. v. United States, 50 Ct. Cl. 258 (1915).

Ala.

—Ex parte Watts, 209 Ala. 115, 95 So. 502 (1923), affirming Board of Education v. Watts, 19 Ala. App. 7, 95 So. 498 (1922).

4 According to the Restatement (Second) of Contracts § 19(1) (Am. Law Inst. 1981): “The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.” See Ubysz v. DiPietro, 185 Conn. 47, 440 A.2d 830 (1981).

5 Thus an implied contract can be shown under a complaint alleging an express contract. First Security Bank & Trust Co. v. Merriman, 440 S.W.2d 256, 257 (Ky. 1969).

Morgan Truck Body, LLC v. Integrated Logistics Solutions, LLC, 2008 U.S. Dist. LEXIS 21962 (E.D. Pa. Mar. 20, 2008). A contract had expired under its written terms but the parties continued to perform pursuant to the terms of the contract and industry practice. The court cited Restatement (Second) of Contracts § 4 cmt. a (Am. Law Inst. 1981) noting that there is no difference in legal effect between express and implied contracts. The difference is found only in the mode of expressing assent. The court concluded that whether the contract is pled as an express or implied-in-fact contract is not controlling since the effect is the same.

6 An extended discussion of “Implication” is found in Chapter 26.

U.S.

—Where a coal company promised to ship its coal by a carrier’s ships for three years, the court found an implied promise by the carrier to continue running the ships. The court said: “Defendant contends that the obligation to carry coal westward is conditioned solely upon the Transportation Company’s uncontrollable willingness to run the boats on Lake Ontario … . The obligation to carry coal on all west-bound trips, fairly interpreted in the light of the context and of the relations of the parties … carries with it the further implied obligation to run the boats in a reasonable manner continuously … . Precedent can throw little light on the sound interpretation of such contracts, especially as to implying unexpressed obligations; each has its own individuality, its own background and surrounding circumstances. Words are only symbols, and at times, even the most formal agreement, but elliptical expressions of the mutual understanding.” Great Lakes & St. Lawrence Transp. Co. v. Scranton Coal Co., 239 F. 603 (7th Cir. 1917).

Implied promises were similarly found in Leventhal v. Stratford, 121 Conn. 290, 184 A. 587 (1936); Diamond Alkali Co. v. Tomson & Co., 35 F.2d 117 (3d Cir. 1929); Newark Publishers’ Ass’n v. Newark Typo. Union, 22 N.J. 419, 126 A.2d 348 (1956) (quoting various sections of this treatise).

Such a finding was refused in Hudson Canal Co. v. Pennsylvania Coal Co. 75 U.S. 276, 19 L. Ed. 349 (1868); Buzzelle’s Estate v. Colorado State Hospital, 176 Colo. 554, 491 P.2d 1369 (1971); Ives v. Willimantic, 121 Conn. 408, 185 A. 427 (1936); McGarrigle v. Green, 76 Conn. 398, 56 A. 609 (1904).

8 In days gone by, a mutual contract to marry could be made tacitly, by a course of conduct not including any express promissory words. See Homan v. Earle, 53 N.Y. 267 (1873), stating in detail the conduct of the defendant from which a promise was inferred. Today, litigation is more likely to concern implied contracts between parties who live together. In a leading case, Marvin v. Marvin, 18 Cal. 3d 660, 665, 134 Cal. Rptr. 815, 819, 557 P.2d 106, 122 (1976), appeal after remand, 122 Cal. App. 3d 871, 176 Cal. Rptr. 555, the court stated: “In the absence of an express contract, the courts should inquire into the conduct of the parties to determine whether that conduct demonstrates an implied contract, agreement of partnership or joint venture, or some other tacit understanding between the parties. The courts may also employ the doctrine of quantum meruit, or equitable remedies such as a constructive or resulting trusts, when warranted by the facts of the case.”

Alaska

—Martens v. Metzgar, 591 P.2d 541 (Alaska 1979). Defendant purchased unimproved land from a developer who was in the process of obtaining subdivision approval. The seller’s price, he thought, did not include the costs of expenses for the installation of street, sewers, drains, and water mains. The seller expected to assess the purchasers for their pro rata share of these costs, but the selling broker apparently did not communicate this to the purchasers and the contract was silent as to improvements. The trial judge ruled against the plaintiffs, finding that the purchasers believed that the purchase price included the cost of utility improvements and such belief was reasonable. On appeal, the court stated it had a definite and firm conviction that the trial court was mistaken in this finding and plaintiff should recover. In a twist of logic, the appellate court characterized this recovery as quasi-contractual. The distinction between contracts implied in law and in fact is well drawn in Nordin Constr. Co. v. City of Nome, 489 P.2d 455, 464 n. 9 (Alaska 1971).

Ariz.

—Swingle v. Myerson, 19 Ariz. App. 607, 509 P.2d 738, 740 (1973). “Swingle sat by idly, accepting Myerson’s efforts, and never indicated to Myerson rejection of his proposal.” A similar case is Turnkey Corp. v. Rappeport, 149 Ariz. 514, 720 P.2d 115 (1986).

Suggs v. Wichard, 2016 U.S. Dist. LEXIS 156238 (D. Ariz. Nov. 10, 2016). An implied in fact contract is a true contract manifested by conduct as opposed to spoken or written words, but an implied contract requires consideration the same as an express contract.

Del.

—Bunting vs. Citizens Financial Group, Inc., 2006 Del. Super. LEXIS 118 (April 13, 2006). Bunting, an acting branch manager of a retail branch of defendant’s bank, was fired for violating the bank’s written notary policy when she notarized a customer’s signature on a mortgage but did not see the customer actually sign it. Bunting was directed to violate the policy by her supervisors. The court held that a jury “certainly could find that Bunting and [the bank] entered into a contract modifying her employment-at-will status to provide that in exchange for Bunting notarizing documents in violation of the written notary policy, [the bank] would not fire her for doing so.” The court denied the bank’s motion for summary judgment to dismiss Bunting’s wrongful termination claim.

D.C.

—Vereen v. Clayborne, 623 A.2d 1190 (D.C. App. 1993) (rejecting express and implied-in-fact contract theories of maker of note who argued that he had reduced the outstanding balance by rendering services to payee).

The Equity Group, Ltd. v. Painewebber Inc., 839 F. Supp. 930 (D.D.C. 1993), aff’d, 48 F.3d 1285 (1995). In the absence of direct evidence of an express contract a court may imply a contract from the course of the parties’ performance when a reasonable person would view the acts and conduct of the parties as evidencing the existence of a contract. No such evidence existed here.

Fla.

—Baron v. Osman, 2010 Fla. App. LEXIS 9747 (July 2, 2010). Baron sued Osman based on an alleged oral agreement that the two would cooperate in the undertaking of a one-bus charter business. The court held that Baron’s complaint contained sufficient allegations to establish the existence of an express oral contract or, in the alternative, an implied-in-fact contract. The court cited this section of the Corbin treatise for the proposition that the only distinction between an express and implied-in-fact contract is the manner in which the parties’ assent is manifested or proven.

Ill.

—Gaslite Illinois, Inc. v. Northern Illinois Gas Co., 46 Ill. App. 3d 917, 6 Ill. Dec. 90, 362 N.E.2d 725, (1977). The jury could find an implied contract where there had been an exclusive relationship for ten years and informal discussions took place with respect to the next year’s campaign.

Iowa

—Newman v. City of Indianola, 232 N.W.2d 568 (Iowa 1975). A request for extension of electrical service an additional 500 feet implies a promise to pay for the extension.

Rucker v. Taylor, 828 N.W.2d 595 (Iowa 2013). In describing implied agreements, the court cited this § 1.19 (1993 ed.) and noted that intention to make a promise may be manifested in language or by implication from other circumstances, including course of dealing or usage of trade or course of performance.

Mass.

—Anisgard v. Bray, 11 Mass. App. Ct. 726, 419 N.E.2d 315 (1981). Plaintiff performed services for a partnership not yet formed. His co-venturers formed a partnership without him, appropriating plaintiff’s ideas and preparatory work.

Nev.

—Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636 (1973) (implied promise to pay interest to minority shareholders pending appraisal).

N.H.

—Morgenroth & Associates, Inc. v. Town of Northfield, 121 N.H. 511, 431 A.2d 770 (1981), makes two points. First, a jurisdictional statute allowing actions for “implied contracts” did not grant jurisdiction over quasi-contractual claims. Second, when a town asks for engineering services and gets them it must pay on the resulting implied in fact contract.

Tex.

—Kosher Zion Sausage Co. v. Roodman’s, Inc., 442 S.W.2d 543, 546 (Mo. App. 1969) (jury properly found an implied contract where there was a twenty year relationship between the corporations and the corporate agents who originally set up the deal were not available to testify).

Wis.

—In re Stromsted’s Estate, 99 Wis. 2d 136, 299 N.W.2d 226 (1980) is a conceptual mess. A married woman was admitted to a hospital. In an action by the hospital against her estate for the hospital bill, the estate defended on the ground that her husband alone was liable for the deceased’s necessaries. The hospital claims an implied contract, without specifying whether the claim is for an implied in fact or an implied in law claim. Although this is the simplest of all examples of an implied in fact contract, the court proceeds to assume the claim is for quasi-contractual liability, and also forges some new family law. The dissent by Shirley Abrahamson is on target.

Schwartz v. Federated Realty Group, Inc., 148 Wis. 2d 419, 436 N.W.2d 34 (App. 1988) is also on target. The Schwartzes submitted a loan application to a potential mortgage lender, which assured the Schwartzes that all information necessary to process the application had been received. The lender was aware of the projected closing date. Near the closing date, the lender required more financial information, and the closing never took place, the Schwartzes forfeiting their $2500 earnest money deposit. In the Schwartzes’ action, the trial court dismissed the contract cause of action, relying principally on the fact that the lender did not agree to make a loan to the Schwartzes. The Court of Appeals reversed, holding that the Schwartzes had stated a cause of action for breach of an implied contract to process the application in timely fashion.

10 “Contracts may be express or implied. These terms however do not denote different kinds of contracts, but have reference to the evidence by which the agreement between the parties is shown. If the agreement is shown by the direct words of the parties, spoken or written, the contract is said to be an express one. But if such agreement can only be shown by the acts and conduct of the parties, interpreted in the light of the subject matter and of the surrounding circumstances, then the contract is an implied one.” Skelly v. Bristol Sav. Bank, 63 Conn. 83, 26 A. 474 (1893).

It is said in Peters v. Poro’s Estate, 96 Vt. 95, 117 A. 244 (1922): “The terms ‘express contract’ and ‘contract implied in fact’ indicate a difference only in the mode of proof. A contract implied in fact is implied only in that it is to be inferred from the circumstances, the conduct, acts, or relation of the parties, rather than from their spoken words.”

To the same effect, see Trincia v. Testardi, 30 Del. Ch. 182, 57 A.2d 638 (1948).

In Desny v. Wilder, 46 Cal. 2d 715, 299 P.2d 257 (1956), the court wrote: “If it were not for precedent we should hesitate to speak of an implied-in-fact contract. In truth, contracts are either made in fact or the obligation is implied in law. If made in fact, contracts may be established by direct evidence. The only difference is in the method of proof. In either case they would appear to be express contracts.” This case is discussed at greater length in § 3.17.

See Van Rensselaer v. General Motors Corp., 223 F. Supp. 323 (E.D. Mich. 1962), aff’d, 324 F.2d 354 (6th Cir. 1963), cert. denied, 379 U.S. 874 (1964), reh’g denied, 379 U.S. 951 (1964), holding that the plaintiff who had submitted “ideas” for use in the interior of automobiles had alleged no facts showing either a promise by the defendant “implied in fact” or a quasi-contractual duty to pay for benefits received. Desny is distinguished.

11 Illustrative cases of this kind are:

U.S.

—Sylvan Crest Sand & Gravel Co. v. United States, 150 F.2d 642 (2d Cir.1945); Mills-Morris Co. v. Champion Spark Plug Co., 7 F.2d 38 (6th Cir.1925). Also, New York Cas. Co. v. Sinclair Refining Co., 108 F.2d 65 (10th Cir.1938), where a surety company’s assent to withdraw its reservation of a right to deny liability was, by implication, a promise to pay the judgment if it should be affirmed on appeal.

United Nat’l Ins. Co. v. SST Fitness Corp., 309 F.3d 914 (6th Cir. 2002). When SST was sued for patent and trademark infringement, its insurer, United National, sent a letter to SST reserving United’s rights for recoupment of defense costs and fees where United had no duty to defend. A declaratory judgment held that United had no duty to defend SST in the underlying action. United then sought recovery of $116,706.39 for costs under reservation and $29,633.41 in prejudgment interest. SST argued that it never expressly accepted United’s reservation of rights in its letter. The district court found that United was a mere volunteer in paying the costs. The Sixth Circuit reversed and found an implied-in-fact contract between the parties since United had explicitly reserved its right to reimbursement, SST was aware of this offer, and by accepting the payment from United, SST accepted the offer forming the contract. SST argued that its silence should not constitute acceptance. The court held, however, that SST’s acceptance of the payment with knowledge of such a clear reservation of reimbursement rights constituted acceptance of United’s offer forming the implied-in-fact contract. Citing the Restatement (Second) of Contracts, § 69 (Am. Law Inst. 1981), the court stated, “A party cannot accept tendered performance while unilaterally altering the terms on which it is tendered.” The court emphasized the need for an insurer such as United clearly to reserve its reimbursement rights and to provide the insured with adequate notice of such potential reimbursement. United met these requirements.

Minn.

—American Druggists Ins. v. Thompson Lumber Co., 349 N.W.2d 569 (Minn. App. 1984). A contractor bought lumber on credit. Monthly statements sent by the lumber supplier stated that all statements not paid within 10 days would be charged interest at a specified rate. The contractor was held to have impliedly agreed to pay interest. See also Butler Mfg. Co. v. Miranowski, 390 N.W.2d 380 (Minn. App. 1986) (late charges). And see Rotzien-Furber Lumber Co. v. Franson, 123 Minn. 122, 143 N.W. 253 (1913).

Mo.

—Wright v. Fuel Oil Co., 342 Mo. 173, 114 S.W.2d 959 (1938) (plaintiff’s effort failed to convince the court that the defendant had made the promise).

Pa.

—In Cohen v. Marian, 171 Pa. Super. 431, 90 A.2d 373 (1952), a bank honored a long series of overdrafts at the depositor’s request, at the same time notifying him of a service charge. The court found that the depositor had impliedly promised to pay such charges, justifying the charges against his account.

12 See Vol. 2, § 5.27.

Ark.

—Steed v. Busby, 268 Ark. 1, 593 S.W.2d 34 (1980). The court looks at the possibility of a tacit renewal from the perspective of a course of dealing and then states: “When an agreement expires by it’s own terms, if without more the parties continue to perform as before, an implication arises that they have mutually assented to a new contract containing the same provisions as the old, and the existence of the new contract is determined by an ‘objective’ test, i.e. whether a reasonable man would think from the actions, that they intended to make a new binding agreement … . In such a case, when the parties continue to do business together, their conduct may permit, or even constrain a finding that they impliedly agree that their rights and obligations should continue to be measured as provided in the old contract.”

Cal.

—British Motor Car Distributors, Ltd. v. New Motor Vehicle Bd., 194 Cal. App. 3d 81, 239 Cal. Rptr. 280 (1987). The court found an implicit extension of a Maserati dealership. Consequently, a clause of the dealership agreement that provided an automatic termination date could not be invoked and California’s statutory termination procedure had to be followed.

Mass.

—Steranko v. Inforex, Inc., 5 Mass. App. Ct. 253, 362 N.E.2d 222 (1977), appeal after remand, 8 Mass. App. Ct. 523, 395 N.E.2d 1303 (1979). The court, applying N.Y. law, states that when an employment relationship continues after the expiration of a contract, there is a presumption of renewal on a year to year basis, even where the original contract term was 18 months. Cf. Restatement of Contracts (Second) § 33 Ill. 6 (Am. Law Inst. 1981).

N.Y.

—This section (§ 18, 1963 ed.) is cited in Cinefot International Corp. v. Hudson Photographic Industries, 13 N.Y.2d 249, 246 N.Y.S.2d 395, 196 N.E.2d 54 (1963). In November, 1957, the defendant contracted orally to employ the plaintiff as “export manager” on a commission basis for one year to begin January 1, 1958. This contract was fully performed and performance continued through 1959 and into 1960, when the plaintiff was discharged. The court held that the conduct of the parties was admissible to support an implication of a renewed contract for another year at the same terms, even though there had been no new agreement in words and even though the original contract made in 1957 was within the statute of frauds and unenforceable while executory. See also, Schiano v. Marina, Inc., 2012 NY Slip Op 31203(U) (2012).

N.C.

—Smith v. Central Soya of Athens, Inc., 604 F.Supp. 518 (E.D.N.C. 1985) (year to year chicken raising contract).

If the contract originally made is within the Statute of Frauds, the enforceability of its implied renewal or extension will be affected in some measure by that Statute. Where there was a written contract for two years’ employment, a renewal for another two years would also require a written memorandum, whether made in express words or by implication. Jenkins v. King, 224 Ind. 164, 65 N.E.2d 121 (1946).

Dahman v. Embassy of Qatar, 2019 U.S. Dist. LEXIS 11865 (D. D.C. 2019)] cites a lot of authorities for the renewal principle. Plaintiff worked as an accountant for the defendant with an employment contract providing that it would expire when he reached the age of 64 in February 2011. But plaintiff continued working beyond February 2011, in fact, until January 2016 when he was terminated. He filed suit for discrimination. A default judgment was entered against defendants, and the instant court vacated the default judgment and dismissed the case on forum non conveniens grounds. The parties’ contract contained a forum selection clause requiring arbitration of disputes. Plaintiff claimed that the arbitration provision was not valid because the contract had already expired on its own by the time he was terminated from defendant’s employment. The court rejected this argument because “ ‘when a contract lapses but the parties to the contract continue to act as if they are performing under a contract, the material terms of the prior contract will survive intact unless either one of the parties clearly and manifestly indicates, through words or through conduct, that it no longer wishes to continue to be bound thereby, or both parties mutually intend that the terms not survive.’ Luden’s Inc. v. Local Union No. 6 of Bakery, Confectionery and Tobacco Workers’ Intern. Union of Am., 28 F.3d 347, 355–56 (3d Cir. 1994).” The court cited cases from various authorities and a prior edition of this treatise for the same proposition. When the parties continue a relationship beyond the time the contract was supposed to expire, they expect that the same terms will continue to govern the relationship. Therefore, “the terms of the contract—including the arbitration clause—continued to bind the parties beyond the enumerated expiration date and until [plaintiff’s] termination in 2016.” The court proceeded to apply the forum non conveniens standards and held that the arbitration clause should be enforced and the case dismissed.

When a contract lapses by its own terms and the parties continue to perform as if the agreement is legally operative, it is not just the term that extends, it is any material term. See Mannapova v. P.S.C. Cmty. Servs., 2020 U.S. Dist. LEXIS 137776 (E.D. N.Y. Aug. 3, 2020). Mannapova sued P.S.C. for claims based on the alleged underpayment of wages. P.S.C. moved to compel arbitration pursuant to its 2016 collective bargaining agreement (“CBA”) with a union,1199 SEIU United Healthcare Workers East (of which Mannapova was a member). Mannapova argued in opposition that the CBA had expired prior to the time she left P.S.C. Specifically, the CBA’s expiration date was March 31, 2017 while Mannapova’s last day of work was almost a year later. Nevertheless, the court held, the material terms of the CBA—including the arbitration agreement—remained intact because P.S.C. and the union intended to keep the existing CBA in place past its stated expiration date. The parties’ “continued compliance with the terms of the CBA after March 31, 2017, is consistent with that intent.” Indeed, after Mannapova’s departure, the CBA was extended. Since the parties continued to perform under the CBA, its terms were legally operative and binding on Mannapova. The court explained:

“General principles of contract law teach us that when a contract lapses but the parties to the contract continue to act as if they are performing under a contract, the material terms of the prior contract will survive intact unless either one of the parties clearly and manifestly indicates, through words or through conduct, that it no longer wishes to continue to be bound thereby, or both parties mutually intend that the terms not survive.” Luden’s Inc. v. Local Union No. 6 of Bakery, Confectionary and Tobacco Workers’ Int’l, 28 F.3d 347, 355–56 (3d Cir. 1994) (citing 2 Corbin on Contracts § 504 (1963)).

14 2 Formation of Contracts: A Study of the Common Core of Legal Systems 1587–1589 (Rudoph B. Schlesinger ed. 1968); Holding Over after Expiration of a Tenancy, 1959 N.Y.L. Revision Commission Report 149.

15 See the authorities in the previous footnote. An interesting case is First Capital Institutional Real Estate, Ltd. v. Pennington, 186 Ga. App. 617, 368 S.E.2d 165 (1988). The lease did not provide for automatic renewal but contained a provision requiring the payment of double rent in the event that the tenants remained in possession of the premises beyond the original lease period without entering a new lease. The majority rejected the contention that the clause was an unlawful penalty.

Domico v. Downey, 2007 U. S. Dist. LEXIS 52545 (E.D. Pa. July 19, 2007). A business broker may be entitled to commission even though original listing agreement had expired based on contract implied-in-fact.

Spectra-4, LLP v. Uniwest Commer. Realty, Inc., 290 Va. 36, 772 S.E.2d 290 (Va. 2015). The court relied on this § 1.19, 1993 ed., for the proposition that “the only difference between an express and implied-in-fact contract is the manner in which mutuality of assent is established … .” Beyond that, the court explained, “[w]ith implied-in-fact contracts, the parties’ conduct must also establish what the terms of the contract are.” In limited circumstances, the parties’ implied-in-fact contract may encompass the totality of an express contract, the court explained, “only when the parties to an express contract continue to act as if that contract is still operative even after it expires … .”

For other cases discussing this principle, see: Mill-Bern Assocs., Inc. v. Dallas Semiconductor Corp., 2002 Mass. Super. LEXIS 181 (Mass. Super. Ct. June 13, 2002); Sanford Housing Authority v. Perkins Propane, Inc., 2004 Me. Super. LEXIS 203 (Sept. 14, 2004); Iovanella v. Locascio, 2003 U.S. Dist. LEXIS 23011 (S.D.N.Y. Dec. 17, 2003).

16 So-call “evergreen” provisions are frequently found in contracts where the vendor’s obligation is to furnish a product or to perform a service on an ongoing and regular basis (simple examples include contracts for alarm, extermination, and lawn care services). Generally, in cases involving contracts between commercial entities, courts strictly enforce provisions calling for the automatic renewal of the contract absent notice of termination in accordance with the contract’s terms. To do otherwise, according to the prevailing view, would violate a cardinal canon of contract construction by reading a provision out of the contract. For example, the Third Circuit Court of Appeals has held that late notice pursuant to an automatic renewal provision in a contract is ineffective, even though the contract did not contain a time-is-of-the-essence clause and no prejudice was demonstrated. Otis Elevator Co. v. George Wash. Hotel Corp., 27 F.3d 903 (3d Cir. 1994).

In Whispering Pines of Royal Palm Beach Homeowners Assn. v. Comcast Cable Communications, LLC, 2014 U. S. Dist. LEXIS 84283 (S.D. Fla. June 20, 2014), the court noted that time is of the essence (1) where the contract so states, (2) where it may be determined from the nature of the subject matter or the contract, or (3) where notice is given to a defaulting party that performance must occur within a specified time (that must be reasonable). The court illustrated (2) by referring to leases where giving notice by a certain date is a condition precedent to the renewal of the lease. As in option contracts, no express provision making time of the essence is necessary. Thus, the court viewed automatic termination or renewal provisions as option contracts where time is of the essence.

Some state legislatures have articulated their concerns about the abuse of such clauses by enacting laws regulating their inclusion in contracts. These statutes typically have two requirements: (a) that the “evergreen” provision be conspicuous, and (2) that the vendor remind the customer that he or she must comply with the “evergreen” provision. By way of example: Illinois’ Automatic Contract Renewal Act, 815 ILCS 601/1 et seq.; NY CLS Gen Oblig § 5-903; Fla. Stat. § 501.165; and Wis. Stat. § 134.49. Even in states where there are no specific laws regulating automatic renewal of contracts, the use of such clauses has sometimes been challenged by the state’s attorney general as a deceptive business practice.

In addition, if such clauses are buried in the fine print boilerplate on a standardized pre-printed form and there is no evidence that the customer knew about or understood the clause at the time the contract was formed, it may be possible for a consumer to successfully argue, via the doctrine of unconscionability and related legal theories, that the clause is unenforceable due to unfair surprise and oppression.

U.S.

—“An implied agreement like an express one, must be based on the evidence. The difference between an express and an implied contract is largely in the manner of establishing that there was a manifestation of assent. Although an agreement to compound a felony or settle a prosecution may be implied from the facts and circumstances, yet the law will not impute a promise where it would be unjust to the party to whom it would be imputed and where, as in the instant case, it would imply a promise to do not only an illegal but a criminal act … . The mere expectation of the robbers that a criminal prosecution would not follow if the property were turned over, is not sufficient in itself to show either an express or an implied agreement to that effect.” Fidelity & Dep. Co. v. Grand N. Bank, 69 F.2d 177 (8th Cir. 1934).

Mo.

—This paragraph (§ 18, from a prior edition) is quoted in State ex rel. Dalton v. Miles Laboratories, Inc., 365 Mo. 350, 282 S.W.2d 564 (1955), holding that a manufacturer and its distributor made an illegal contract (in the form of an “understanding”) for resale price maintenance.

«Pt. I •«Ch. 1 »«§ 1.20 »

1 Corbin on Contracts § 1.20 (2020)

§ 1.20. Contract and Quasi Contract Distinguished

A distinction has long been suggested between contracts “implied in fact” and contracts “implied in law.” A contract that is implied in fact has just been discussed in the preceding sections. It is one sort of an express contract. Something very different is meant by the term contract “implied in law.” It is an obligation that is created by the law without regard to expressions of assent by either words or acts. Some confusion was caused by the use of the term “implied contract” to refer to such different kinds of obligation; and the tendency is now strong to substitute the term “quasi contract” in place of the term “contract implied in law,”1 and, perhaps adding to the confusion, is the tendency to substitute the term “restitution” for both of these terms. In this area there is a profusion of terms that are nearly, but not quite, synonymous. For example, although the Restatement (Second) of Contracts defines “quasi-contracts,”2 it seems never to use the term in its statement of the law. Instead, when it directly engages quasi-contractual rights and remedies, it employs the term “restitution.”3 In so doing, it widens the gulf between the academic lawyer and the majority of the legal profession. Only in relatively recent times, with the publication of the Restatement of Restitution in 1937, has “restitution” become a term of art. The term encompasses rights at law known as quasi-contractual rights and certain equitable rights that perform similar functions, particularly rights to the creation of constructive trusts. “Unjust enrichment” is occasionally used as a synonym for restitution; one sometimes hears of a “law of unjust enrichment.” Its primary use, however, should be to state an ultimate fact: “because X was unjustly enriched, X must make restitution.”

A contract “implied in law” is a fictitious contract. The fiction was created to fit certain actions into the writ of assumpsit. A contract “implied in fact” is a true contract that arises from the tacit agreement of the parties. Because students, practitioners, and even Blackstone were confused by the distinction between the two kinds of implied contracts, pioneering scholars Keener4 and Woodward5 sought to extirpate the term “contract implied in law” from legal usage and to substitute for it the term “quasi contract,” which was borrowed from Roman law and only rarely used in the common law before 1893.6 Although the new term “quasi contract” (or “quasi-contract”) took hold, the older term successfully resisted extirpation to the further confusion of law students and lawyers. Because so many quasi-contractual actions are brought in the common counts, the term quantum meruit is sometimes used as the equivalent of the term quasi contract.7 Of course, it is not an equivalent term.8

The term “quasi contract” is directly derived from the Roman law, in which obligations were classified as arising ex contractu or quasi ex contractu and ex delicto or quasi ex delicto. The term has the merit of helping to avoid the older confusion by reason of its unaccustomed and foreign form. It has the demerit of being wholly non-descriptive and also of actually continuing a similar confusion. The term quasi is introduced as a weasel word, that sucks all the meaning of the word that follows it; but this is a fact that the reader seldom realizes.

A quasi-contractual obligation is one that is created by the law for reasons of justice, without any expression of assent and sometimes even against a clear expression of dissent. Because this is true, it might be better not to use the word “contract” at all. Contracts are formed by expressions of assent. Quasi-contracts quite otherwise. The legal relations between contractors are largely dependent upon the interpretation of their expressions of assent. In quasi-contract the relations of the parties are not dependent on such interpretation. Where, however, there is an enforceable express or implied in fact contract that regulates the relations of the party or that part of their relations about which issues have arisen, there is no room for quasi-contract.9 Quasi-contract, however, often arises in the context of a true contract or of an agreement that is not a binding contract. If the true contract between the parties is avoided for duress, fraud or the like, or is discharged because of impossibility or frustration, or never came into being because of indefiniteness of its subject matter, or is unenforceable, quasi-contract is often employed to resolve the rights of the parties.

While there is a great variety of quasi-contractual obligations and probably numerous sound ways to classify them, one great and fundamental dichotomy should be deemed essential: quasi-contract as a source of primary rights versus quasi-contract as a remedy.10 This division is best clarified by illustration. If A, a stranger, unofficiously pays the funeral bill for the burial of X’s spouse, A may recover the reasonable costs from X.11 There was no antecedent right-duty relationship between A and X. The law of quasi contract dictates, however, that X must reimburse A despite the absence of any preexisting duty owed by X to A. It is, then, the body of law known as quasi contracts that is the source of X’s obligation, and the source of A’s correlative primary rights, as well as of A’s remedy. If X and A had entered into a contract whereby A had agreed to render services for X, A’s rights would be defined by the law of contracts. These rights may be termed primary rights. In the event that X breaches the contract, the law gives A certain secondary (remedial) rights which either supplement the primary rights or substitute for them entirely. One of the remedial rights is a right to restitution, often termed “quasi-contract.”

«Pt. I •«Ch. 1 »«§ 1.20 »•[1]»

1 Corbin on Contracts § 1.20[1] (2020)

[1] Quasi Contract as a Source of Primary Rights

It must be admitted, or indeed asserted, that considerations of equity and morality play a large part in the process of finding a promise by inference of fact as well as in constructing a quasi-contract without any such inference at all. The exact terms of the promise that is “implied” must frequently be determined by what equity and morality appear to require after the parties have come into conflict.12 Like most other boundary lines in legal classification, that between contract and quasi-contract is “wavering and blurred,” to borrow a phrase from Judge Cardozo. Nevertheless, the classification is logically sound, necessary, and useful.

Any successful attempt to explain and classify quasi-contracts would fill many pages.13 For present purposes, it will be enough to give a few illustrations.

Mistakenly believing that he owns Blackacre, A pays the taxes and makes permanent improvements thereon, without the knowledge or assent of the real owner B. When B is requested to reimburse A, B positively refuses. Nevertheless, the law will in some such cases make it B’s duty to reimburse A. B’s obligation is called quasi contract.14

B finds or steals A’s money and refuses restitution; he is under a quasi-contractual duty to make restitution. The common count in assumpsit for “money had and received” was sustained in cases such as these. In general, some form of assumpsit was sustainable as an alternative remedy for a tort by which the wrongdoer enriched himself at the expense of the plaintiff.15

Under compulsion of law, or in order to protect A’s own interest in property, A makes payment of money that it was B’s legal duty to pay. In spite of any express refusal, B is under a quasi-contractual duty to reimburse A.16

A finds B’s house afire and cattle starving and renders service and incurs expense in saving and feeding them. In some states, B is under a quasi-contractual duty of reimbursement.17

Suppose that a person is elected or appointed to fill a state or municipal office, created by law or ordinance with prescribed duties and powers, and takes the oath of office and renders services. These services are not rendered by virtue of a contract. After the rendition of the service, a money debt does indeed arise, for the enforcement of which a judgment can be obtained in a modern civil action. At common law, the action might have been an action of debt or of indebitatus assumpsit; and the court might say that there was an “implied promise” to pay. But the “implication” would not be an implication of fact. A judgment so obtained would create a “judgment debt,” likewise enforceable by action as well as by execution. Still, the right and duty are not created by mere agreement, by voluntary expressions. Usage permits the word “contract” to be used—at least if preceded by the word “quasi”; but the relationship is not one with which the present treatise is primarily concerned.18

Why should such cases as these be classified as contracts at all, even with such qualifying modifiers as “quasi” or “implied in law”? The chief reason that they came to be so classified, both in Roman law and in the English common law, is that no other suitable and really descriptive classification was available, and it was desired to make use of the remedial forms of action by which contracts were enforced. Public welfare required that an enforceable duty should exist without regard to assent or dissent; and the sanctions and remedies of contract law were convenient and effective. In English law, the writ of assumpsit was at hand and was appropriate to serve the purpose. While the word “assumpsit” means literally “he promised,” it was easy for the courts to create the fiction of a promise in these cases, to say that the law implied a promise, and then to refuse all opportunity to the defendant to deny it. The action of debt was older than assumpsit; and in very many instances a debt existed without being either created or accompanied by a promise to pay it. To avoid the much abused defense called “wager of law” that was available in actions of debt, the courts permitted the creditor to sue in assumpsit, an action in which that defense was not available, saying that a debt implies an assumpsit.19 This made it easily possible for the courts to expand the use of assumpsit to include new cases where obligation had not previously been recognized, making this one of the most important growing points in the evolution and expansion of law. So, under the head of quasi-contract are included numerous odds and ends of obligation, without other pigeon holes in which to place them, even though they have little in common with consensual agreement and may have great differences among themselves.20 Despite the fact that quasi contracts are imposed by law, they are not torts,21 except in the situations in which the victim of a tort may elect to treat the situation as if there were a contract. Despite the presence of unjust enrichment in most of these cases, unjust enrichment is not an essential prerequisite to quasi contractual relief; unjust deprivation or impoverishment of the claimant is often the gravamen of the cause of action.

«Pt. I •«Ch. 1 »«§ 1.20 »«[2]•

1 Corbin on Contracts § 1.20[2] (2020)

[2] Quasi Contract as a Remedial Device for Unwinding Failed Agreements

In certain cases, a restitutionary remedy is available as an alternative to money damages, either for breach of an express contract or for a tort. The measure of recovery in cases of this kind is generally the amount needed to restore the financial equilibrium of the aggrieved party to the economic state this party enjoyed prior to contracting.22 The recovery is designed to restore the status quo ante.23 This alternative remedy is very frequently described as quasi-contractual in character. Agreements also fall apart for reasons other than breach. The main role of quasi contracts is to provide remedies to unwind entanglements that may have been caused by part or full performance.24 Thus, where an agreement is too indefinite to be enforced, where it does not comply with writing requirements,25 where one of the parties is represented by an unauthorized agent,26 where no contract is made because each of the parties had a materially different understanding of its terms,27 where it is avoided for duress, misrepresentation, undue influence, mistake, incompetence, or infancy,28 where it is discharged because of impracticability or frustration,29 or where a condition precedent fails to occur,30 quasi contract is the body of law that determines the remedy, but the primary rights are contract rights. Although it is sometimes said that unjust enrichment is the criterion for allowing quasi-contractual relief, such a statement is a dogmatic over-generalization that is belied by the numerous cases where other criteria have been held to be appropriate. The court must determine the extent to which the status quo ante should be restored. Relevant factors include relative fault, the contractual risks assumed by the parties, any unjust enrichment or unjust impoverishment, and the fairness of alternative risk allocations not agreed upon and not attributable to the fault of either party.31

Footnotes — § 1.20:

1 In Grombach Productions v. Waring, 293 N.Y. 609, 59 N.E.2d 425 (1944), mot. denied, 294 N.Y. 697, 60 N.E.2d 846 (1945), the plaintiff submitted an “idea” by telephone to the defendant and asserted that the defendant used it in a radio program without paying for it. The jury found that there was no contract implied in fact. The court rightly held that no quasi contract or contract “implied in law” would exist by reason of a usage or custom either to pay for such ideas voluntarily submitted or not to use them. Such a usage or custom would be evidential of a promise implied in fact; but this was negatived by the jury’s verdict. Very likely the jury and the lower court were confused in mind as to the meaning of the terms.

The interplay between implied in fact contract, “idea theft” (quasi contract) and copyright violations are explored in Paul v. Haley, 183 A.D.2d 44, 588 N.Y.S.2d 897 (1992).

U.S.

—The distinctions made in this section are discussed at length in Hill v. Waxberg, 237 F.2d 936, 16 Alaska 477 (9th Cir. 1956), showing that in case of a contract “implied in fact” the remedy for breach is “damages” measured by the loss of the injured party, while in case of a contract “implied in law” there is no “breach” and the remedy, if any, is “restitution” of benefits received by the defendant. Although these distinctions were not observed in the judgment below, the court was able to affirm it on condition of assent to a specified reduction in its amount.

Cal.

—See Desny v. Wilder, 46 Cal. 2d 715, 299 P.2d 257 (1956), for a discussion of the differences between express contracts and contracts that are either “implied in fact” or “implied in law” (quasi contracts). This case is discussed at length in § 3.17.

See Weitzenkorn v. Lesser, 40 Cal. 2d 778, 792, 256 P.2d 947, 958 (1953), as to pleading and proof of contracts implied in fact and contracts implied in law.

Conn.

—Polverari v. Peatt, 29 Conn. App. 191, 614 A.2d 484 (1992).

Mich.

—See Moll v. Wayne Co., 332 Mich. 274, 50 N.W.2d 881 (1952), overruled on other grounds; Brown v. State, Dep’t of Military Affairs, 386 Mich. 194, 191 N.W.2d 347 (1971).

Minn.

—R.J. Marco Construction, Inc. v. SAMS Enterprises, LLC, No. A04-1433, 2005 Minn. App. LEXIS 610 (June 7, 2005) (citing this treatise, § 1.20, 1993 ed., the court noted that quasi-contract does not require any manifestation of agreement between the parties).

N.J.

—This section from a prior edition of this treatise (§ 19, 1950 ed.) is quoted in St. Paul Fire & Marine Ins. Co. v. Indemnity Ins. Co. of North America, 32 N.J. 17, 158 A.2d 825 (1960), holding that on the facts as proved the defendant insurer owed no quasi-contractual duty to reimburse the plaintiff insurer any part of the cost of defending an action against an insured who held policies in both companies. But the court ordered a new trial to determine whether or not the defendant was bound to contribute by reason of a promise implied in fact.

Ohio

—This section (§ 19 from a prior edition) is quoted in Hughes v. Oberholtzer, 162 Ohio St. 330, 55 Ohio Op. 199, 123 N.E.2d 393 (1954), quoting the author’s definition of quasi contract.

Or.

—Montez v. Roloff Farms, Inc., 175 Or. App. 532, 28 P.3d 1255 (2001). The term “implied contract” exists when the parties’ agreement is based in whole or in part upon their contract, and the term has also been used to refer to quasi contracts, which are those “created by the law for reasons of justice, without any expression of assent.” S.D.—In St. John’s First Lutheran Church v. Storsteen, 77 S.D. 33, 84 N.W.2d 725 (1957), implied contracts and quasi contracts are properly distinguished. The Church was held not to be liable quasi-contractually for services voluntarily rendered without expectation of payment.

Tex.

—This section and current § 1.18 (§ 17 and 19 from a prior edition) are quoted at length in Ferrous Products Co. v. Gulf States Trading Co., 323 S.W.2d 292, 296, 297 (Tex. Civ. App.1959), aff’d, 160 Tex. 399, 332 S.W.2d 310 (1960). The plaintiff shipped steel beams consigned to the M.B. Company. On arrival at destination, an unauthorized person told defendant that the beams were intended for it; and they were taken by defendant. The plaintiff sued the defendant and obtained judgment on the theory of an “implied contract.” The court sustained the action, properly regarding it as an action quasi-contractual in character. Assent was not required. The defendant was a tortfeasor; his tort could be waived and judgment for the value of the goods recovered in “assumpsit.”

Wash.

—When an overpayment under a contract has been made, there is a duty to make restitution. This duty is “quasi-contractual”; and an action for its enforcement is subject to a three-year statute of limitations pertaining to unwritten contracts, not to a six-year statute pertaining to written contracts. Halver v. Welle, 44 Wash. 2d 288, 266 P.2d 1053 (1954). See the discussion in Mill & Logging Supply Co. v. West Tenino Lbr. Co., 44 Wash. 2d 102, 265 P.2d 807 (1954) as to implied and quasi contracts, where the court holds that the use on its land by the defendant of machinery and supplies delivered by plaintiff under a contract with the previous owner of the land created a quasi-contractual duty to pay the reasonable value. Plaintiff did not know of the change of ownership.

Many similar cases are cited in § 1.19.

2 Restatement (Second) of Contracts § 4 cmt. b (Am. Law Inst. 1981).

3 Restatement (Second) of Contracts §§ 370-77 and passim (Am. Law Inst. 1981).

4 William A. Keener, A Treatise on the Law of Quasi-Contract (1893).

5 Frederick C. Woodward, The Law of Quasi Contracts (1913).

6 A famous early use of the term was by Lord Mansfield in Moses v. Macferlan, 2 Burr. 1005 (1760).

7 The common counts are discussed in § 1.18.

Shafer Elec. & Constr. v. Mantia, 626 Pa. 258, 96 A.3d 989 (2014). The court equated the common count of quantum meruit with quasi-contract, a not uncommon, though historically incorrect, view.

Stock v. Hafif, 2004 Cal. App. Unpub. LEXIS 5300 (Cal. App. 2d Dist. June 4, 2004). The court explained that quantum meruit over time has come to describe not only a claim but a measure of damages, and that quantum meruit is a form of restitution.

8 See § 1.18. In Nehi Beverage Co., Inc. v. Petri, 537 N.E.2d 78, 85 (Ind. App.1989) the court said “Our courts have used the phrases quasi-contract, contract implied-in-law, constructive contract and quantum meruit synonymously.” It quite correctly ruled that, whatever the terminology, the action was at law and not in equity, thereby triable by jury.

On the meanings and relationships of the terms “implied-in-law contract,” “quasi contract” and “quantum meruit,” see Sabin v. Graves, 86 Ohio App. 3d 628, 621 N.E.2d 748 (1993).

See also Young v. Young, 164 Wn. 2d 477, 191 P.3d 1258 (2008). Judith purchased property for the purpose of constructing an otter sanctuary. The property was discovered by her nephew, Jim, and his wife, Shannon. They performed considerable work on the property where they had lived with Judith’s knowledge before Judith ejected them. They reasonably understood that they would be compensated for their work, and the court agreed that it would be unjust for Judith to retain the value of the work on the property. Jim and Shannon characterized their recovery as restitution for the unjust enrichment of Judith. Judith characterized the damages as quantum meruit. The court distinguished these theories as the difference between a contract “implied in law” and a contract implied in fact. The implied in law contract is a creature of courts for the purpose of preventing unjust enrichment—“quasi contract.” The court characterized the quantum meruit action as one that should be relegated to real but implied in fact contracts, though admitting that the distinction is not carefully made since quantum meruit is sometimes used to refer to a quasi or implied in law contract. The court stated, “In sum, ‘unjust enrichment’ is founded on notions of justice and equity whereas ‘quantum meruit’ is founded in the law of contracts.” As applied to this case, the court recognized that Judith should not be unjustly enriched by taking the improvement to the property without paying for them, but Judith also authorized the improvements thereby allowing for the implication in fact of a promise to pay for them. Jim and Shannon sought a restitutionary recovery which may be measured by the cost of such benefits if conferred by a party in the plaintiffs’ position, or the increase in the value of the property through such conferred benefits. Here, the first measure would result in a recovery for Jim and Shannon of $760,382, while the second measure would allow a recovery between $750,000 and $1,050,000. Within the latter range, the trial judge had discretion to fashion a suitable remedy. The trial judge, however, had reduced the recovery because Jim and Shannon were not licensed professionals and did not incur the costs of such professionals. The case was remanded to the trial court to recalculate the award to Jim and Shannon without the deduction.

Al-Sabah v. Agbodjogbe, 2020 U.S. Dist. LEXIS 9698 (D. Md. Jan. 19, 2020). Al-Sabah filed this action alleging that Agbodjogbe engaged in a “fraudulent scheme to misappropriate millions of dollars from [Al-Sabah] while purporting to facilitate her personal investments and charitable endeavors.” Agbodjogbe asserted counterclaims, seeking recovery under unjust enrichment and quantum meruit theories for the reasonable value of the investment services he provided to Al-Sabah. Prior to trial, Agbodjogbe failed to produce evidence of his damages, so he attempted to proceed on his claims by proving nominal damages. The court entertained a motion for summary judgment to dismiss Agbodjogbe’s claims for unjust enrichment and quantum meruit. On the claim for unjust enrichment, the court rejected Agbodjogbe’s argument that he can recover nominal damages, and it granted summary judgment in favor of Al-Sabah on this claim. The court explained: “If Agbodjogbe cannot provide evidence as to the value of those services, then he cannot prevail on his unjust enrichment claim as a matter of law.” As for Agbodjogbe’s claim based on quantum meruit, to the extent this seeks recovery in a contract implied-in-law, it is a rehash of the claim for unjust enrichment and must be dismissed on that basis—no nominal damages would be allowed. To the extent the quantum meruit count can be read to state a claim for a contract implied-in-fact, “a different situation is presented.” The court explained that “an implied-in-fact contract is one in which the parties establish the existence of definite terms through their conduct.” The court suggested that the quantum meruit referenced by Agbodjogbe may be “simply a measure of recovery available in an action for breach of a contract implied-in-fact … .” If that is so, then the claim is equivalent to an express contract. The court could find no authority barring Agbodjogbe from recovering nominal damages for breach of a contract implied-in-fact. “Indeed,” the court wrote, “since implied-in-fact contracts are the legal equivalent of express contracts, it appears improper to prevent a claimant from receiving nominal damages for the breach of an implied-in-fact contract.” The court refused to grant summary judgment to dismiss this claim.

Alaska

—B.B. & S. Constr. Co. v. Stone, 535 P.2d 271 (Alaska 1975).

Mass.

—In Salamon v. Terra, 394 Mass. 857, 477 N.E.2d 1029 (1985) the express agreement together with the factual implications negated any possible quasi-contractual relief for a builder who, on speculation, made improvements to defendant’s land.

Conn.

—Rosick v. Equipment Maintenance & Service, Inc., 33 Conn. App. 25, 632 A.2d 1134 (1993) (subcontractor cannot raise a claim against contractor in quantum meruit for expenses that should have been the subject of a change order).

Harris v. Shea, 2002 Conn. Super. LEXIS 4142 (Conn. Super. Ct. Dec. 24, 2002). Citing this § 1.20 (1993 ed.), the court rejected the plaintiff’s claim for unjust enrichment since the finding of an express or implied contract precluded recovery in quasi contract.

Meaney v. Connecticut Hospital Ass’n, 250 Conn. 500, 735 A.2d 813 (1999). The court found no agreement on employee incentive contributions, and also held employees could not recover under a theory of unjust enrichment. “If there is, indeed, no rational basis for a fact finder to determine the incentive pay to which the parties might have agreed, how can there be a rational basis for determining how much the defendants were unjustly enriched by not having to pay such compensation? If some other calculation is an appropriate measure of benefits, what should that measure be? … Perhaps in contexts other than the employer/employee relationship such alternatives may be persuasive, but pinpointing and quantifying even a senior employee’s contributions to the profits of a complex enterprise is, as this case demonstrates, too fraught with uncertainty to prove unjust enrichment.”

Alliance Group Services v. Grassi & Company, 406 F. Supp. 2d 157 (D. Conn. 2005). Citing this treatise, § 1.20, 1993 ed., the court stated that where there is an enforceable express or implied-in-fact contract, “there is no room for quasi contract.” The court granted the defendant’s motion for summary judgment, explaining that the doctrine of unjust enrichment doctrine is designed to supply a remedy where no remedy exists under the contract, “not to provide two bites at the apple.”

D.C.

—Smith v. Rubicon Advisors, LLC, 2017 U.S. Dist. LEXIS 83765 (D.D.C. June 1, 2017). While a plaintiff cannot ultimately recover under claims for breach of contract and unjust enrichment pertaining to the subject matter of the contract, the claims may be pled in the alternative.

Fla.

—Doug Hambel’s Plumbing, Inc. v. Conway, 831 So. 2d 704 (Fla. Dist. Ct. App. 2002), rehearing denied, 2002 Fla. App. LEXIS 19390 (Dec. 12, 2002). “Quantum meruit” refers both to implied-in-fact contracts, which are genuine contracts, and implied-in-law contracts, which are not contracts.

Baycare Health Sys. v. Medical Saving Ins. Co., 2008 U.S. Dist. LEXIS 32468 (M.D. Fla. Mar. 4, 2008). It was premature to dismiss unjust enrichment claim that was pled in addition to a contract claim. If contract is unenforceable, then unjust enrichment would be a viable claim.

14th & Heinberg, LLC v. Terhaar & Cronley General Contractors, Inc., 43 So. 3d 877 (Fla. App. 2010). If a contract exists, it determines the rights and obligations of the parties, and damages are not premised on unjust enrichment.

Land Co. of Osceola Cnty., LLC v. Genesis Concepts, Inc., 169 So. 3d 243 (Fla. App. 2015), rehearing denied, 2015 Fla. App. LEXIS 12359 (Aug. 11, 2015). An express contract existed between the parties, so recovery in quantum meruit “was inappropriate.”

Ind.

—Wenning v. Calhoun, 827 N.E.2d 627 (Ind. Ct. App. 2005). A contract for the sale of land was too indefinite to be enforced because the exact parcel of property to be sold could not be identified from the terms of the contract. The would-be purchaser was entitled to quasi-contractual relief for money she spent to have utilities connected and a driveway constructed. Citing this treatise, § 1.20, 1993 ed., the court explained that this remedy is available if no contract exists. The court analogized the situation to a contract for the sale of goods that is unenforceable for indefiniteness where the buyer must return any goods that it has received or, if unable to do so, must pay the reasonable value at the time of delivery and the seller must return any portion of the price already paid. Here, the would-be purchaser had to forego any claim on the land and pay the reasonable value of her occupation of the land. The would-be seller must return any payments made in anticipation of entering into a contract.

Kan.

—Regal Ware, Inc. v. Vita Craft Corp., 2006 U.S. Dist. LEXIS 68104 (D. Kan. Sept. 19, 2006). Regal Ware claimed breach of contract and unjust enrichment. The court granted Vita Craft’s motion to dismiss the unjust enrichment claim, explaining that Regal Ware could not use the theory of unjust enrichment to enforce contractual duties undertaken by Vita Craft in the license agreement.

Mass.—

Smilow v. Southwestern Bell Mobile Sys., Inc., 323 F.3d 32 (1st Cir. 2003). A party who is not entitled to payment under the terms of an enforceable contract may not recover under quantum meruit (quasi contract).

McDonnell v. McDonnell, 2005 Mass. Super. LEXIS 221 (April 29, 2005). Where an owner of an interest in property deeded his interest to the other owners in exchange for consideration that was not evidenced in writing, the court cited this treatise, § 1.20, in support of the proposition that, where an agreement is too indefinite to enforce or where no contract is made because each of the parties had a materially different understanding of its terms, a claim of unjust enrichment is appropriate.

Eureka Broadband Corp. v. Wentworth Leasing Corp., 2004 U.S. Dist. LEXIS 2572 (D. Mass. Feb. 24, 2004). No claim of “unjust enrichment” available where a contract governs relationship.

Rist v. Reputation Inst., Inc., 2020 U.S. Dist. LEXIS 8419 (D. Mass. Jan. 17, 2020). Rist, a vice president of sales for Reputation Institute, was terminated before being paid commissions for 22 deals that were part of multi-year contracts. Rist’s arrangement with the company was that he would be paid when the money came in. Rist claimed that the company received payments owed to him after he was terminated, but that the company has failed to pay. Rist filed this action, seeking recovery for unjust enrichment. The court denied the motion because it was undisputed that Rist’s employment was governed by a “valid and binding” contract. There is no room for a claim of unjust enrichment in the face of an express contract covering the same subject matter.

Mich.

—Convergent Group v. County of Kent, 266 F. Supp. 2d 647 (W.D. Mich. 2003). The court held that an unjust enrichment claim in addition to a breach of contract claim would lie where the existence of an express contract had not been established by the admission of the defendant or by summary judgment. In this case, the court dismissed an unjust enrichment claim where it was undisputed that there was an express contract between the parties which the plaintiff claimed was breached.

Minn.

—Roth v. Life Time Fitness, Inc., 2016 U.S. Dist. LEXIS 92326, *7 (D. Minn. July 14, 2016) (“Claims for breach of contract and unjust enrichment are mutually exclusive: just as a party cannot obtain relief under a breach of contract claim if the at-issue conduct is not governed by the contract, a party seeking relief for conduct that is governed by a contract cannot succeed with an unjust enrichment claim.”).

N.J.

—Shalita v. Township of Washington, 270 N.J. Super. 84, 90-91, 636 A.2d 568, 571 (1994). “[T]here is no ground for imposing an additional obligation where there is a valid unrescinded contract.”

N.Y.

—Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987).

Violette v. Armonk Assocs., L.P., 872 F. Supp. 1279 (S.D.N.Y. 1995) (under New York law, the existence of a valid and enforceable contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter; settlement agreements between parties to a litigation did not expressly address the issue of attorneys’ fees, and New York practice is to assess each beneficiary for its share of counsel fees).

Mathias v. Jacobs, 238 F. Supp. 2d 556 (S.D.N.Y. 2002) (contract will not be implied where a written contract covers the transaction).

Friedman v. Wahrsager, 848 F. Supp. 2d 278 (S.D.N.Y. 2012). The existence of a valid and enforceable contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter. The defendants argued that the plaintiff’s unjust enrichment claim was an equitable claim that is unavailable where there is an adequate remedy at law. The court, however, explained that claims of unjust enrichment where an award of money would fairly compensate the party asserting the claim are “legal” in nature. They are actions at law even though the underlying rationale is based on fairness and equitable principles.

N.C.

—Talisman Software, Sys. & Servs. v. Atkins, 2015 NCBC 104 (N.C. Super. Ct. 2015). Atkins, former president of Talisman, filed a claim against Talisman for unjust enrichment but the court dismissed it because the Atkins provided services to Talisman pursuant to express contracts (a written one, and a contract implied in fact). Since the parties’ relationship was governed by actual employment contracts, as a matter of law, those contracts preclude Atkins’s claim for unjust enrichment.

Ohio

—Hitachi Medical Systems America, Inc. v. Advanced Medical Resources, Inc., 2011 U.S. Dist. LEXIS 13681 (2011). The court cited this treatise, § 1.20, for the proposition that where there is an enforceable express or implied in fact contract that regulates the relations of the parties, there is no room for quasi-contract.

Conaway v. Stark Truss Co., 2013 U.S. Dist. LEXIS 139372 (N.D. Ohio 2013). Where an express contract regulates the parties’ relations, it is inappropriate to claim a contract implied in law or quasi-contract (citing this treatise, § 1.20).

Pa.—

Schott v. Westinghouse Elect. Corp., 436 Pa. 279, 259 A.2d 443 (1969) is a difficult, but astute, decision. The defendant invited suggestions from employees, promising awards from $5.00 to $15,000 for each suggestion adopted. As a term of the plan the offer provided the decision of the committee “will be final.” Plaintiff’s suggestion was expressly rejected, but the plaintiff alleges that the company adopted and utilized the suggestion anyway. It was held that no cause of action was stated in contract, because the offer was expressly rejected, but the complaint stated a cause of action in quasi contract. If the complaint stated the true facts, surely the defendant should pay. Had an express contract been made, it may well be that the defendant could have paid $5.00 as full payment. The case can be likened to cases where a party takes offered property and exercises dominion over it, at the same time stating that the offer is rejected. It has long been held that this conduct constitutes tortious conversion, which the aggrieved party can, by election, treat as a contract or quasi contract. See § 3.7.

Vantage Learning (USA), LLC v. Edgenuity, Inc., 2017 U.S. Dist. LEXIS 48836 (E.D. Pa. Mar. 30, 2017). Plaintiff provided Defendant with software to be used in school classrooms. Defendant would administer an exam to students, and the completed exams were sent to Plaintiff to be graded. Defendant agreed to compensate Plaintiff on a per-essay-submitted basis. Over a short period of time in 2014, thousands of duplicate essays were wrongly submitted by Defendant and graded by Plaintiff as if they were separate unique essays. Plaintiff billed Defendant accordingly. Defendant did not pay the April or May billings. Plaintiff filed suit to recover the unpaid amounts and resulting interest. Defendant moved to dismiss plaintiff’s unjust enrichment claim because an express written agreement governed the parties’ relationship. The court granted the motion. Under Pennsylvania law, the existence of a contract precludes a party from asserting adjudicating an unjust enrichment claim for the same matter.

Curley v. Allstate Ins. Co., 289 F. Supp. 2d 614 (E.D. Pa. 2003) (under Pennsylvania law, a remedy for unjust enrichment is unavailable where the relationship of the parties is founded on an express contract).

Argue v. Triton Digital, Inc., 2017 U.S. Dist. LEXIS 64646, *6–7 (W.D. Pa. Apr. 28, 2017). “Argue admittedly signed a written employment agreement with Ando which specifically addressed Mr. Argue’s rights to his inventions. Because the relationship between Ando and Mr. Argue is founded on a written agreement, he cannot proceed against Ando for unjust enrichment.”

Yourway Transp., Inc. v. Sunovian Pharms., Inc., 2019 U.S. Dist. LEXIS 62422 (E.D. Pa. 2019). Yourway sued Sunovian for allegedly failing to pay Yourway for courier services. The parties’ Master Services Agreement provided: “[I]n no event will the maximum aggregate amount payable to Service Provider under any [Statement of Work] … exceed the maximum amount specified in such SOW.” For one SOW, Yourway alleged that Sunovian requested it to do work beyond the maximum amount specified in the SOW. The court explained: “Yourway alleges that Sunovion, ‘in order to induce Yourway to continue shipments in excess of the not to exceed amount [in the SOW] … represented that change orders would be executed for all additional work.’ … . Yourway continued performing ‘[i]n reliance on that promise’ in excess of the not-to-exceed amount provided in the SOW.” Yourway eventually sent an invoice that Sunovian disputed. Sunovian wanted to pay only a portion of the invoice, so Yourway sued for unjust enrichment. Sunovian filed a motion to dismiss. The court denied the motion and explained:

Unjust enrichment is generally inapplicable where the parties’ relationship is founded on a written agreement or express contract. Hershey Foods Corp. v. Ralph Chapek, Inc., 828 F.2d 989, 999 (3d Cir. 1987) (citations omitted) (“Where an express contract governs the relationship of the parties, a party’s recovery is limited to the measure provided in the express contract; and where the contract ‘fixes the value of the services involved,’ there can be no recovery under a quantum meruit theory.”). However, “an unjust enrichment claim may go forward if one party performs services wholly outside the scope of the contract.” … .

Sunovian argues that Yourway cannot state a claim for unjust enrichment because the SOW, which became part of the MSA once both parties signed it, governs the parties’ relationship. Yourway does not dispute the existence or enforceability of the SOW or the MSA, but rather contends that it conferred benefits on Sunovian, at Sunovian’s request, “beyond what was contemplated by the express terms of the Statement of Work”—thus “outside the scope of the contract.” … .

Yourway’s allegations plausibly give rise to a claim for unjust enrichment. According to Yourway, after the parties executed the SOW, Sunovian requested services outside the scope of their contract.

The court explained that to dismiss a claim for unjust enrichment, the court must find that the scope of the contract encompassed the work subject to the claim. Instantly, the court was unable to make that finding, given the procedural posture of the case. The court denied the motion to dismiss.

Whitefield v. Nationstar Mortgage, LLC, 2020 U.S. Dist. LEXIS 7352 (E.D. Pa. Jan. 16, 2020). Plaintiff claimed that defendant, her mortgage loan servicer, improperly assessed fees in breach of the parties’ loan agreement. Plaintiff filed this action, and one of her claims was for unjust enrichment. The court granted defendant’s motion to dismiss this claim with prejudice. It was undisputed that the note and the mortgage governed the parties’ relationship—the parties’ express agreement spelled out when fees were properly assessed. The court cited the law in Pennsylvania that “the quasi-contractual doctrine of unjust enrichment is inapplicable when the relationship between parties is founded on a written agreement or express contract.” But plaintiff claimed that an exception was applicable here—“when one party to a contract makes a demand of the other that is unjustified under the contract, and the other accedes because the demand cannot be contested before it is due, a claim in restitution can be made.” This exception is articulated in Restatement (Third) of Restitution and Unjust Enrichment § 35 cmt. a (Am. Law Inst. 2011) (“Where a valid contract defines the scope of the parties’ respective performance obligations, a performance in excess of contractual requirements—neither gratuitous, nor pursuant to compromise—results in the unjustified enrichment of the recipient and a prima facie claim in restitution.”). But the court held that this exception could not apply because it contravenes “the Pennsylvania rule … , which provides that unjust enrichment is not an available theory of recovery when the parties’ relationship is based on a contract.”

S.C.

—Limehouse (H.B.) v. Resolution Trust Corp., 862 F. Supp. 97 (D.S.C. 1994) (under South Carolina law, broker cannot recover brokerage commission of sale of savings bank’s inn in quantum meruit where a contract existed between RTC and broker for payment of 2% of the sales price).

Tenn.

—Ferguson v. Nationwide Prop. & Cas. Ins. Co., 218 S.W.3d 42 (Tenn. App. 2006). Where employee’s rights vis a vis employer were contractual, and since the employer had not undertaken to pay insurance premiums for employee’s personal property, employee could not recover for damage to her personal property under an implied in law claim.

Strickland v. Cartwright, 117 S.W.3d 766 (Tenn. Ct. App. 2003), appeal denied, 2003 Tenn. LEXIS 967 (Oct. 6, 2003) (insufficient evidence that the parties entered into an agreement, recovery in quantum meruit was appropriate).

U.S.—

See also Stitt v. Citibank, N.A., 2018 U.S. App. LEXIS 24378 (9th Cir. 2018), a case decided under New York and Alabama law. Appellants argued that the district court erred by granting summary judgment on their unjust enrichment claim. Appellants alleged that Citi was unjustly enriched by defrauding appellants into paying contractual fees that were not due and owing. The Ninth Circuit rejected the claim, explained that “the basis for an unjust enrichment claim is that the defendant obtained a benefit that in ‘equity and good conscience’ belongs to the plaintiff. … . An unjust enrichment claim is rooted in the principle that a person should not be able to enrich himself unjustly at the expense of another. … . But ‘an unjust enrichment claim is not available [when] it simply duplicates a conventional [breach of contract] or tort claim.’ ” The instant claim was precluded, the court held, because the appellants had an adequate remedy at law to contest these fees under contract law. In addition, the unjust enrichment claim was duplicative of appellants’ fraud claims. The district court held that there was no evidence of fraud, so appellants’ unjust enrichment claim based on fraud also failed. The Ninth Circuit affirmed.

10 See Joseph M. Perillo, Restitution in a Contractual Context, 73 Colum. L. Rev. 1208 (1973), and Joseph M. Perillo, Restitution in the Second Restatement of Contracts, 81 Colum. L. Rev. 37 (1981).

Eng.

—Jenkins v. Tucker, 1 H.Bl. 90, 126 Eng. Rep. 55 (C.P. 1788) (husband liable); Tugwell v. Heyman, 3 Camp. 298, 170 Eng. Rep 1389 (K.B. 1812) (Executors liable).

Cal.

—Estate of Kemmerrer, 114 Cal. App. 2d 810, 251 P.2d 345, 35 A.L.R.2d 1393 (1952). See also Annot. 82 A.L.R.2d 873, 899–91 (1962); Restatement of Restitution § 115 cmt. b (1937).

12 In Parev Products Co. v. Rokeach, 124 F.2d 147 (2nd Cir.1941), Judge C.E. Clark said: “Should, therefore, a covenant be implied under all the present circumstances? When we turn to the precedents we are met at once with the confusion of statement whether a covenant can be implied only if it was clearly ‘intended’ by the parties, or whether such a covenant can rest on principles of equity. Expressions can be found which insist on ‘intention,’ Brimmer v. Union Oil Co., 81 F.2d 437, 440, 105 A.L.R. 454 (10th Cir.1936), cert. denied, 298 U.S. 668, 56 S. Ct. 833, 80 L. Ed. 1391; which seem to combine both a requirement of ‘intention’ and of ‘equity and justice,’ Macloon v. Vitagraph, Inc., 30 F.2d 634, 636 (2nd Cir.1929); and which by-pass ‘intention’ and rely solely on equity. Dermott v. State, 99 N.Y. 101, 109, 1 N.E. 242 (1885); King v. Leighton, 100 N.Y. 386, 391, 3 N.E. 594 (1885); Genet v. Delaware & Hudson Canal Co., 136 N.Y. 593, 609, 32 N.E. 1078, 50 N.Y.St.Rep. 53, 19 L.R.A. 127 (1893); cf. Eustis Mining Co. v. Beer, Sondheimer & Co., 239 F. 976, 984 (S.D.N.Y.1917); Hotchkiss v. National City Bank, 200 F. 287, 293 (S.D.N.Y.1911), aff’d, 201 F. 664 (1912); Id., 231 U.S. 50, 34 S. Ct. 20, 58 L. Ed. 115 (1913). One may perhaps conclude that in large measure this confusion arises out of the reluctance of courts to admit that they were to a considerable extent ‘remaking’ a contract in situations where it seemed necessary and appropriate so to do. ‘Intention of the parties’ is a good formula by which to square doctrine with result. That this is true has long been an open secret. See 3 Samuel Williston on Contracts, 3d ed., § 825; Oliver W. Holmes, The Path of the Law, 10 Harv.L.Rev. 457, 466; Lon L. Fuller, Legal Fictions, 25 Ill.L.Rev. 363, 369; Zechariah Chafee, The Disorderly Conduct of Words, 41 Col. L.Rev. 381, 398. Of course, where intent, though obscure, is nevertheless discernible, it must be followed; but a certain sophistication must be recognized-if we are to approach the matter frankly-where we are dealing with changed circumstances, fifteen years later, with respect to a contract which does not touch this exact point and which has at most only points of departure for more or less pressing analogies.”

Although this case deals with the implication of a covenant in a true contract, rather than the creation of a quasi-contract, many of the same considerations go into the latter process.

This section (§ 19 from a prior edition) is quoted in Borough of West Caldwell v. Borough of Caldwell, 26 N.J. 9, 138 A.2d 402, 412, (1958), citing also Arthur L. Corbin, Quasi Contractual Obligations, 21 Yale L.J. 533 (1912).

This section (§ 19, 1963 ed.) is cited in Cox v. Shaw, 263 N.C. 361, 139 S.E.2d 676 (1965), in discussing the right of an employer found liable for employee’s negligence to recover over against the employee.

See also, A & B Construction, Inc. v. Atlas Roofing & Skylight Co., 867 F. Supp. 100 (D.R.I. 1994) (indemnity implied-in-law not allowed to defeat exclusive remedy provision contained in the Rhode Island Workers’ Compensation Act); Texaco Puerto Rico, Inc. v. Mojica Maldonado, 862 F. Supp. 692 (D.P.R. 1994) (plaintiff unreasonably delayed seeking restitution); Peace River Electric Cooperative, Inc. v. Ward Transformer Co., 116 N.C. App. 493, 449 S.E.2d 202 (1994), review denied, 339 N.C. 739, 454 S.E.2d 655 (1995) (if adequate remedy at law may be sought, court’s equitable intervention is obviated).

An example of thorny morality issues that can occur in deciding whether to imply a promise is Magwood v. Tate, 835 So. 2d 1241 (Fla. Dist. Ct. App. 2003), where Virginia Barrett and Anderson Tate, Sr. cohabited for several years. The union produced a son. Virginia informed Tate Sr. that he was the father of Anderson Tate, Jr. Five years later, the couple separated, and Virginia named a third party as the father of Tate Jr. Tate Sr. remained unaware of this fact and continued to see Tate Jr., providing him with money and gifts. Two decades later, Tate Jr. died in an accident and Tate Sr. was named as his father on the death certificate. Under a wrongful death settlement, Tate Jr.’s estate recovered $1,822,499, 70% awarded to the estate, 15% to the mother and 15% to the father. When a DNA test revealed Tate Jr.’s real father, his birth and death certificates were amended to reflect this change. Having learned these facts, Tate Sr. filed suit against the mother, the biological father, and the estate of the son for reimbursement under a theory of unjust enrichment for benefits conferred upon Tate Jr. Citing this section § 1.20(a), 1993 ed., the court held that Tate Jr. could not be held “liable for things that happened when he was a child between the adults who were charged with taking care of him.” It would have been inequitable to force the son to reimburse the plaintiff. The court recognized that the estate stood in the shoes of the decedent. Thus, the plaintiff was essentially attempting to recover support from the son. The son, however, was under no duty to support himself. Rather, it was the biological father’s duty that the plaintiff discharged and not that of the son. The circumstances were not such that it would be inequitable for the son to retain the benefit without paying for it. Courts are not inclined to find a contract implied in law for the recovery of child support paid under mistake.

Hurvitz v. Folkenflik, 2010 Mass. App. Unpub. LEXIS 148 (Mass. App. Ct. Feb. 19, 2010). After a bench trial, a judge found Folkenflik liable to Hurvitz for legal services rendered despite finding no formal contractual relationship. The trial court found Folkenflik liable in quantum meruit for some of Hurvitz’s asserted billable hours. On appeal, the court affirmed. The court explained that in the absence of an agreement between a lawyer and a client, the lawyer may charge “a fair and reasonable fee.” Citing this section (§ 19, 1963 ed.), the court explained: “A quasi contract or a contract implied in law is an obligation created by law ‘for reasons of justice, without any expression of assent … . [C]onsiderations of equity and morality play a large part … in constructing a quasi contract.’ ” Even though Folkenflik did not recover in his lawsuit, he still owed Hurvitz for services rendered on a quantum meruit basis.

13 See, e.g., the Restatement (Third) of Restitution and Unjust Enrichment (Am. Law Inst. 2011). The Restatement (Second) of Contracts (Am. Law Inst. 1981) treats restitution in §§ 370-377.

U.S.

—Bright v. Boyd, 4 Fed. Cas. 127, No. 1875, 1 Story 478 (C.C. 1841). See also the so-called “Betterment Acts” of various states.

There are innumerable cases and many doctrines dealing with a remedy for money paid or other performances rendered by mistake of law or of fact. It is enough to refer to a few cases such as:

Ill.

—Partipilo v. Hallman, 156 Ill. App. 3d 806, 109 Ill. Dec. 387, 510 N.E.2d 8 (1987). The county assessed plaintiff’s property, mistakenly adding the value of the improvements on neighboring property owned by the defendant. Plaintiff could recover from his neighbor that portion of the taxes he paid attributable to these improvements.

N.J.

—Deskovick v. Porzio, 78 N.J. Super. 82, 187 A.2d 610 (1963). Two brothers paid the medical bills of their deceased father in the mistaken belief he was unable to pay. These facts were a sufficient basis for a quasi-contractual right against the father’s estate for reimbursement.

N.Y.

—Wheadon v. Olds, 20 Wend. 174 (N.Y.1838); Continental Casualty v. Van Deventer, 277 A.D. 553, 101 N.Y.S.2d 342 (1950).

S.C.

—McDonald’s for three years negligently made monthly rent payments that were double the amount due. It was permitted to recover the overpayment. McDonald’s Corp. v. Moore, 237 F. Supp. 874 (W.D.S.C. 1965).

Consider Carlisle Med. Grp., LLC v. Eldohiri, 2016 U.S. Dist. LEXIS 62406 (M.D. Pa. May 11, 2016). Due to a clerical error, the defendant physician was overpaid by the medical practice that employed him in the sum of $350,769.69. The parties disagreed about a repayment plan, and the employer sued. The court dismissed the breach of contract claim, noting that the complaint failed to adequately allege that the agreement imposed obligations on defendant in the event of an overpayment. But the court refused to dismiss the claim for unjust enrichment. While a claim of unjust enrichment typically is inapplicable when the parties’ relationship is founded on a written or express contract, “the existence of a contract does not bar the application of restitution-based recovery theories as to disputes beyond the subject matter of the parties’ contract.” The overpayment at issue was “outside of the amount agreed upon in the contract occurred,” and, thus, was not covered by an express agreement.

15 See Arthur L. Corbin, Waiver of Tort, 19 Yale L.J. 221 (1910). In addition to the traditional torts discussed in the cited article, there is a quasi-contractual duty to reimburse the government where it incurs costs discharging a duty the wrongdoer had a duty to perform, for example, cleaning oil spills. United States v. P/B STCO 213, 756 F.2d 364 (5th Cir. 1985); United States v. C & R Trucking Co., 537 F. Supp. 1080 (N.D. W.Va.1982). These cases are important on the measure of recovery and the choice of the appropriate statute of limitation. So too is United States v. Neidorf, 522 F.2d 916 (9th Cir.1975), cert. denied, 423 U.S. 1087 (1976), holding that the liability of the transferee of a fraudulent conveyance, as well as the liability of a corporate shareholder who receives its assets, is a quasi-contractual liability governed by the six-year limitation statutes.

The decision in United States ex rel. Sunworks Div. v. Insurance Co. of North America, 695 F.2d 455 (10th Cir.1982), may rest on this ground. Sunworks contracted with Welco to deliver solar collectors to a government construction project. A month after delivery Welco walked off the job. Fortec, the general contractor, hired someone else to install the Sunworks collectors. The court said Sunworks could recover in quasi contract against Fortec and thus have protection under its bond. It is unclear whether Fortec’s use of the collectors was tortious. If it was, Sunwork could elect to waive the tort. If not, then an implied in fact contract would have arisen.

Where a broker produced a prospective customer pursuant to a contract with a corporation that would have entitled the broker to a commission if the corporation did business with the prospect, a corporate officer’s appropriation of that opportunity for the officer’s own benefit results in the officer’s quasi-contractual liability to the broker. Bradkin v. Leverton, 26 N.Y.2d 192, 309 N.Y.S.2d 192, 257 N.E.2d 643 (1970). This may or may not have been a tort.

CBS Surgical Group, Inc. v. Holt, 426 A.2d 819, 37 Conn. Supp. 555 (1981). The court missed an opportunity to rectify an injustice. A CBS surgeon amputated Holt’s leg. Medicare sent her a check for $2,000 for CBS’s fee. Maringola, her friend and agent, cashed the check and appropriated the money. The court reversed a judgment against Maringola on the grounds that (1) the benefit he received was from Holt and not from CBS and (2) no constructive trust could be raised as there was no confidential or fiduciary relationship between Maringola and CBS. Potential theories to rectify this injustice abound. Crime should not pay. For example, the court could have found that CBS had equitable title to the check.

16 See:

Ala.

—Mobile Light & R. Co. v. S.D. Copeland & Son, 15 Ala. App. 235, 73 So. 131 (1916).

Pa.

—Hogg v. Longstreth, 97 Pa. 255 (1881).

Eng.

—Exall v. Partridge, 8 T.R. 308 (1799).

Mass.

—Chase v. Corcoran, 106 Mass. 286 (1871).

Consider Melmark, Inc. v. Schutt, 169 A.3d 638, 2017 PA Super 272 (2017). The severely autistic adult son of the Schutts, who are residents of New Jersey, received care at Melmark, a Pennsylvania residential care facility. For many years, the son’s care was paid for by New Jersey public funding, but in 2011, the New Jersey Department of Developmental Disabilities announced it would no longer pay Melmark’s rates. The Schutts did not want the son moved, and for over a year, Melmark provided care to the son without being paid (at a cost in excess of $200,000). Melmark sued the son and Schutts in a Pennsylvania court, and the court held that New Jersey law applied because it had a greater interest in the matter than Pennsylvania. The court concluded that New Jersey’s filial support law shielded the Schutts from financial responsibility for the son’s care because they are over age 55 and the son is not a minor. The court held that the son, personally, was responsible for the obligations but that his parents were not. It rejected Melmark’s claim that it is entitled to recovery against the parents under a theory of quantum meruit. The Schutts had no legal obligation to care for their adult son, and the services were not rendered to the Schutts personally—“it follows that they experienced no personal enrichment” from Melmark’s care for their son.

Melmark, Inc. v. Schutt, 206 A.3d 1096 (Pa. 2019). The Pennsylvania Supreme Court reversed, holding that “Pennsylvania has the stronger interest in applying its law within the framework of this controversy.” Regarding the claim for quantum meruit and unjust enrichment, the court wrote: “The party seeking recovery under this theory must demonstrate that it conferred benefits on the defendant, those benefits were appreciated by the defendant, and it would be inequitable for the defendant not to pay for them.” The court found each of these elements instantly. The court explained that the “Parents appreciated Alex’s placement and receipt of services at Melmark in their individual capacities. As Alex’s parents, they cared a great deal about his welfare and wanted him to remain at Melmark.” Further, “in weighing the equities, we conclude that it would be inequitable for Parents to retain the benefits they received from Melmark without paying for them.”

18 See State v. Barthalow, 150 Ohio St. 499, 38 Ohio Op. 340, 83 N.E.2d 393 (1948), rightly holding that a city’s obligation to pay a judgment for the amount of an officer’s salary was included within the statutory phrase “judgments for personal injuries or based on other non-contractual obligations,” thus empowering a city to issue bonds for the payment of such a judgment. Of course, the meaning to be attributed to a legislature in a statutory provision must be determined with due regard to the purposes to be attained, often forcing “dictionaries” and many common “usages” to be disregarded.

A statute or regulation entitling assigned counsel to attorneys’ fees creates a quasi-contractual right to payment. State v. Law Offices of Coleman and Iacopelli, 716 P.2d 1 (Alaska 1986).

Eng.

—Slade’s Case, 4 Coke, 92b (1602).

20 The following cases illustrate and explain the difference between true contract and quasi contract:

U.S.

—City of New York v. Davis, 7 F.2d 566 (2d Cir.1925).

Ariz.

—Crane v. Franklin, 17 Ariz. 476, 154 P. 1036 (1916).

Ark.

—Caldwell v. Missouri State Life Ins. Co., 148 Ark. 474, 230 S.W. 566 (1921).

Conn.

—Fischer v. Kennedy, 106 Conn. 484, 138 A. 503 (1927); Gregory v. Lee, 64 Conn. 407, 30 A. 53 (1894).

Ill.

—People v. Dummer, 274 Ill. 637, 113 N.E. 934 (1916).

N.H.

—Sceva v. True, 53 N.H. 627 (1873).

Okl.

—First Nat. Bank v. Matlock, 99 Okla. 150, 226 P. 328, 36 A.L.R. 1088 (1924).

Pa.

—Hertzog v. Hertzog, 29 Pa. 465 (1857).

Vt.

—Underhill v. Rutland R. Co., 90 Vt. 462, 98 A. 1017 (1916).

Eng.

—Moses v. Macferlan, 2 Burr. 1005 (1760), by Lord Mansfield.

Just as in Slade’s Case, 360 years ago, a modern court may still properly say that a “duty” implies a promise. In Begovich v. Murphy, 359 Mich. 156, 101 N.W.2d 278 (1960) the court said: “This court has said that where some duty would justify a court in imputing a promise to perform it, a contract will be implied.” The following were the facts: An attorney undertook to defend a client who was charged with murder. The client made two payments of $2,500 and $4,000 to the attorney and then prevented performance by wilfully committing suicide. The court held that the client’s administrator was entitled to restitution of the fees insofar as they were not earned by the attorney. There was no evidence justifying a finding that the attorney made a promise implied in fact to repay any part of the fee.

Likewise, in Fetty v. Wenger, 36 P.3d 1123 (Wash. App. 2001), review denied, 147 Wn. 2d 1011, 56 P.3d 565 (2002), an attorney who agreed to perform services on a contingent fee arrangement was discharged. In his action to recover for services, the court found that though a client may terminate a contingent fee arrangement at any time and, therefore, no breach of the contingent fee contract occurs, a discharged attorney may sue in quantum meruit arising out of the contract for the reasonable value of the services rendered through the date of discharge.

See also the many cases cited in § 1.19.

21 Crist v. United Underwriters, Ltd., 230 F. Supp. 136 (D. Colo.1964), aff’d, 343 F.2d 902 (10th Cir. 1965); Collins v. United States, 532 F.2d 1344 (Ct. Cl. 1976); Berry v. Druid City Hospital Board, 333 So. 2d 796 (Ala. 1976). Simpson v. Sumner County, 669 S.W.2d 657 (Tenn. App. 1983).

22 This is the error into which some of the dogmatic treatments of the subject have fallen. See, e.g., Middle Atlantic Conference v. United States, 353 F. Supp. 1109 (D.D.C. 1972). The court stated that a trucking company’s claim to demurrage is not based on a benefit to the warehouseman, but on compensation to the carrier for detention of its truck. This is clearly correct, but not in itself a sufficient ground for denying quasi-contractual relief.

23 CBS, Inc. v. Merrick, 716 F.2d 1292 (9th Cir. 1983). Restitution as a remedy for breach is treated in Vol 12, Chs. 61 and 62.

Vila v. Inter-American Inves. Corp., 570 F.3d 274 (D.C. Cir. June 19, 2009). The court cited this § 1.20 to note that, like promissory estoppel, unjust enrichment provides a remedy to unwind entanglements that arise from failed agreements resulting from different situations such as the failure to comply with a writing requirement or one of the parties was not represented by an authorized agent or the agreement was otherwise too uncertain to be enforced. The court stated that, although actions in unjust enrichment are not true contract remedies, they give rise to obligations more akin to those stemming from contract than from tort.

Fail-Safe, L.L.C. v. A.O. Smith Corporation, 2010 U.S. Dist. LEXIS 138686 (E.D. Wis. 2010). Recovery under a theory of quasi-contract is different than recovery for a breach of contract in that the objective of recovery under a theory of quasi-contract is not to protect an injured party’s expectation or reliance interests. Rather, the goal is to restore the status quo ante (quoting this § 1.20).

24 Kearns v. Andree, 107 Conn. 181, 139 A. 695, 59 A.L.R. 599 (1928) (“The measure of recovery is the reasonable value of the services performed, and not the amount of benefit which actually accrued from them to him for whom they were performed.”).

25 Allard v. Favreau, 2012 Mass. Super. LEXIS 158 (2012); Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500, 465 N.Y.S.2d 917, 452 N.E.2d 1245 (1983).

Erickson v. Flynn, 64 P.3d 959 (Idaho Ct. App. 2002), citing this § 1.20 (1993 ed.).

26 Campbell v. Tennessee Valley Authority, 421 F.2d 293 (5th Cir.1969); Matarese v. Moore-McCormack Lines, 158 F.2d 631 (2d Cir.1946).

27 Estok v. Heguy, 44 W.W.R. 167 (Brit. Colum. 1963); Vickery v. Ritchie, 202 Mass. 247, 88 N.E. 835 (1909). In the last two cases recovery was based on the reasonable value of the plaintiff’s services and not on the amount of the defendant’s enrichment. In later litigation in the Massachusetts case, the dogmatic separation between contract and quasi contract led the court to refuse to subtract from plaintiff’s recovery a deduction of $10 a day as liquidated damages because such damages are contractual. Vickery v. Ritchie, 207 Mass. 318, 93 N.E. 578 (1911).

28 See John E. Murray, Murray on Contracts (5th ed. 2011), §§ 81, 116, 120, and 127. See Landmark Medical Center v. Gauthier, 635 A.2d 1145 (R.I. 1994) (finding quasi-contractual liability for medical services rendered to mentally impaired person).

29 Wall v. Altium Grp., LLC, Civil Action No. 16-1044, 2017 U.S. Dist. LEXIS 44857 (W.D. Pa. Mar. 28, 2017); Albre Marble and Tile Co. v. John Bowen Co., 338 Mass. 394, 155 N.E.2d 437 (1959).

30 Abrams v. Financial Service Co., 13 Utah 2d 343, 374 P.2d 309 (1962).

31 See Jefferey L. Harrison, A Case for Loss Sharing, 56 So. Cal. L .Rev. 573 (1983); Joseph M. Perillo, Restitution in a Contractual Context, 73 Colum. L. Rev. 1208 (1973); John E. Murray, Murray on Contracts § 127 (5th ed. 2011).

Reisenfeld & Co. v. Network Group, Inc., 277 F.3d 856, 860 (6th Cir. 2002): “Defining a given situation as either just or unjust [to retain a benefit] is subjective and not necessarily open to a clear and decisive answer … .” See also George C. Hall & Sons, Inc. v. Taylor, 628 A.2d 1037 (Me. 1993) (to sustain claim for unjust enrichment by property owner who benefited from contract between contractor and lessee of property, it must be inequitable for owner to retain benefit, as would result from owner’s fraud or collusion with lessee or if lessee were judgment proof). Ragland v. Sheehan, 256 Mont. 322, 846 P.2d 1000 (1993) (“Unjust enrichment is an equitable doctrine wherein the [plaintiff] must show some element of misconduct or fault on the part of [defendant] or that defendant somehow took advantage of plaintiff”).

In Aladdin Electric Associates v. Town of Old Orchard Beach, 645 A.2d 1142 (Me. 1994), a contractor was hired by the prospective purchaser of a stadium to do electrical repairs. The purchaser told the contractor that if the deal fell through, the seller—the town—would pay the contractor. The contractor did the work, the deal fell through, and the town didn’t pay. The trial court awarded the contractor about half the contract price. The Supreme Court of Maine vacated the damage award, on the ground that the trial court seemed to have used the measure of damages appropriate to quantum meruit (recovery for services or materials provided under an implied contract), rather than the equitable measure of damages for unjust enrichment. In particular, the trial court measured the enhanced value of the stadium by the cost of improvements, while excluding from consideration the contractor’s overhead expenses and profit. The court emphasized that the distinction between quantum meruit and unjust enrichment is legally significant.

«Pt. I •«Ch. 1 »«§ 1.21 »

1 Corbin on Contracts § 1.21 (2020)

§ 1.21. General Contract Law, The Uniform Commercial Code, and the United Nations Convention on Contracts for the International Sale of Goods.

«Pt. I •«Ch. 1 »«§ 1.21 »•[1]»

1 Corbin on Contracts § 1.21[1] (2020)

[1] General Contract Law and the Restatements

Contract law interlocks with and overlaps all other legal disciplines. In particular, labor, sales, commercial financing, agency, suretyship, quasi contracts, damages, personal property—to name but a few—are contract permeated subjects about which specialized treatises have been written.

For a time it was suggested that there is no law of contracts, or that if there was, it ought to be done away with. The thrust of the argument is that the variety of contractual contexts is so extensive and that the social and economic needs of each kind of transaction is so different that a disservice is done if one attempts to resolve transactional disputes by the application of supposed general principles of contract law.1 Critics of contract law find additional support in the fact that when disputes arise in business and non-business transactions the parties involved usually resolve the dispute without reference to rules of law.2 The latter argument is rather simple to dispose of. If neighboring children walk through one’s yard as a short-cut to school one has the choice of greeting them with a welcome or with a snarl, and if one wishes, one may resort to a variety of legal remedies to punish them for or stop them from trespassing. The fact that in this context legal remedies are rarely resorted to, hardly means that the law of property is irrelevant. Rather it is the weapon of last resort when other methods of attaining one’s goals fail. Similarly the reluctance of many to resort to law to resolve contract disputes may indicate a healthy social system rather than the irrelevance of contract law.

The first argument is much more serious however. Can general principles be formulated to regulate adequately such diverse transactions as military enlistments,3 credit card purchases,4 collective bargaining agreements,5 government construction contracts, maritime charters, house purchases, and the wide variety of other consensual transactions? The answer is, and for centuries has been, a broad mixture of yes and no. There are legal questions common to all of these transactions, particularly those involving the nature of consent, capacity of parties, methods of interpretation, necessary formalities, the relationship between the parties’ performances, rights of third parties, the discharge of obligations, as well as others. There are also questions unique to each kind of transaction, the business context of maritime charters requires that special rules should apply that do not apply to a contract for sale of a house.

Moreover, increasingly legislators and regulators have staked out various kinds of transactions for the enactment of special rules for the protection of the consumer, for economic regulation, or for other purposes. The coexistence of general rules common to all transactions and special rules for particular transactions was recognized in one of the earliest discussions of contracts available to us in English, by Hugo Grotius,6 and continues to be recognized in most of the current American literature. Possibly surprising to some, the same general problems addressed by Grotius are addressed in much the same way in the recodification of contract law in Russia at a time when the dominance of the Communist party was unquestioned.7 It is believed that the persistence of the method of approaching general problems of contract along with special rules for particular contracts throughout the centuries and in countries with diverse economic systems stems not from academic conservatism but from the persistence of similar problems that run hrough all consensual transactions. To study one kind of transaction in isolation from others would be to ignore the continuity of human behavior and the utility of generalizations.8 Those who rebel at generalizations might well be reminded of the tale of the empire whose exacting map makers produced a map so accurate that it coincided with the empire point by point.9 Its uselessness was, of course, total.

Serious criticism has been levelled of late against the adequacy of contract law. The criticism is of two kinds. First, that contract law has not forged adequate tools for coping with contracts of adhesion. This is discussed throughout this treatise.10 The second criticism is made by Professor Ian Macneil in several challenging books and articles.11 The thrust of the criticism is that traditional contract doctrine takes as its model the discrete transaction: the contract to sell a horse, a house, a plot of land, or short-term services. In today’s world such transactions continue but are overshadowed by long-term relational contracts: franchises, collective bargains, long-term supply contracts and the like. The need in the future is to recast much of contract doctrine to consider more adequately the needs of on-going relational contracts. In this he is surely right.

Except in a few American jurisdictions the basic law of contracts is not codified. Contract law is thus primarily common law, embodied in court decision. Many legislative enactments do, however, bear on the subject. Generally, only a few statutes purport to modify a principle running throughout contract law. For the most part legislatures have concentrated on regulating particular types of contracts such as insurance policies and employment contracts. Of particular relevance in recent legislation is Article 2 of the Uniform Commercial Code.

For the guidance of the bench and bar, the American Law Institute in 1932 published a code-like document called the Restatement of Contracts. The Restatement, having been issued by a private organization, does not have the force of law. Nevertheless, it is highly persuasive authority. Leaders of the profession analyzed the often conflicting maze of judicial decisions, attempted to cull the sound from the less sound and then state the sounder views in systematic form.12 The principal draftsman of the Restatement of Contracts was its Reporter, Samuel Williston. Arthur Corbin served as Reporter for the chapter on Remedies. He also served as one of Professor Williston’s advisors.

After a passage of some thirty years, it was felt that there had been sufficient developments in the law for a revised Restatement to be issued. In 1964 the first tentative draft of the initial portion of a second Restatement of Contracts was circulated. The chief draftsman of Chapters 1–9 of the proposed second Restatement was the Reporter for these chapters, Professor Robert Braucher, later a Justice of the Supreme Judicial Court of Massachusetts. Subsequent chapters were drafted primarily by its second Reporter, Professor E. Allan Farnsworth. The final draft was approved in 1979 and published in 1981. It is fair to say that just as the first Restatement largely reflected the views of Professor Williston, the Second Restatement has drawn heavily on the views of Professor Arthur L. Corbin.13 The views of others, including its Reporters, were influential and the Reporter’s Notes give frequent recognition to the sources upon which the provisions were based.

«Pt. I •«Ch. 1 »«§ 1.21 »«[2]»

1 Corbin on Contracts § 1.21[2] (2020)

[2] The Uniform Commercial Code

Alongside the Common Law, the Lex Mercatoria, the Law Merchant found a home in England. As one historian has noted: “The merchants carried their own law, as it were, in the same consignment as their goods, and both law and goods remained in the places where they traded and became part of the general stock of the country. With small variations, the law in all [European and Near Eastern] countries was homogenous, being perhaps the least adopted in our own [England].”14 There was a distinct substantive law applied to merchants and separate tribunals for its application. In the eighteenth century, however, the Law Merchant was absorbed into the main stream of the common law and traditional ways of determining mercantile disputes were discouraged. The notion that sales of goods deserved a regime separate from the general law of contracts never quite lost its grip. Similar thinking persisted as to other kinds of mercantile transactions. A Sale of Goods Act was enacted in England in 1893. In the United States the National Conference of Commissioners on Uniform State Laws commissioned and in 1906 proposed similar legislation for the States. Over 80% of our States enacted the Uniform Sales Act. In time, the Uniform Sales Act and other Uniform Acts dealing with commercial matters were seen as inadequate and steps were taken to prepare what eventually became the Uniform Commercial Code.

The Uniform Commercial Code is the product of a Permanent Editorial Board under the joint auspices of the American Law Institute and the National Conference of Commissioners on Uniform State Laws.15 A draft was approved by these bodies in 1952. In 1953, it was enacted by Pennsylvania as the law of that Commonwealth. No other state followed. In 1956 the New York Law Revision Commission recommended against enactment unless extensive amendments were made. Reacting to the New York report, the Permanent Editorial Board made extensive revisions. As so revised it was enacted by all the states except Louisiana between 1957 and 1967. The enactments were not wholly uniform, as many of the states have varied from the Uniform text at some points. In addition, the Code contained several optional provisions. These variations are noted in the “Uniform Laws Annotated” edition of the Code. Editions published in local state collections of statutes will usually indicate instances in which the local enactment varies from the uniform text.

The Uniform Commercial Code originally contained ten articles.16 Article 1 contains general provisions applicable to all transactions governed by the Code. Article 2 governs the sale of goods; Article 3, commercial paper; Article 4, bank deposits and collections; Article 5, letters of credit; Article 6, bulk transfers; Article 7, warehouse receipts, bills of lading and other documents of title; Article 8, investment securities; Article 9, secured transactions, sales of accounts and chattel paper. Article 10 is a transitional article, indicating the effective date of the Code in the jurisdiction and indicating which laws are repealed. In 1987 a proposed Article 2A was approved by the Permanent Editorial Board governing the topic of the leasing of goods.17 Subsequently, Article 4A governing electronic funds transfers was adopted. Since its initial approval, many amendments to the Code have been adopted by the Board and many more doubtless will be approved in the future.

Most of the provisions of the Code do not affect basic contract law; those that do are mostly contained in Article 2, which deals with the sale of goods18 and in Article 9 which deals, among other things, with the assignment (transfer) of some contract rights. As the most recent legislative statement of certain contract principles and rules, Article 2 of the Code has increasingly been looked to by courts for guidance in transactions other than the sale of goods. This phenomenon is explored in § 1.22.

The Code was published with official comments prepared by the Permanent Editorial Board. The “General Comment” introductory to the Code indicates that the purpose of the comments is to promote uniformity and “to aid in viewing the Act as an integrated whole, and to safeguard against misconstruction.” The Act itself is law in the 49 states that have adopted the Code, but the comments are not since they have not been enacted by the legislatures.19 The comments have proved valuable. The courts have repeatedly turned to them in resolving issues. Of course, if the Code and a comment are in conflict, the Code must prevail.

The contract provisions of Article 2 of the Code make many changes in traditional contract law with the result that very often there is a different rule for “contracts for sale” than for other contracts such as for labor, services and the sale of land.20 The Code does not change all the traditional rules; where it is silent, the traditional rules prevail even as to contracts for sale.21 As indicated below,22 there is a marked tendency to employ the Code by analogy, to transactions outside its coverage. In addition, the Restatement Second has recast many of the provisions of the Restatement First to harmonize them with the Code. The foreseeable result is that in future decades many of the principles underlying the contract provisions of Article 2 will be the law of the land even for contracts not governed by the Code.

Unlike the ancient Law Merchant, Article 2 of the Uniform Commercial Code governs contracts for the sale of goods, whether the seller is a merchant or a casual seller. However, some of its provisions treat merchants, sellers or buyers, differently. The Code defines a merchant, as paraphrased in a leading case,23 as follows:

A person is a “merchant” if he (1) deals in goods of the kind, or (2) by his occupation holds himself out as having knowledge or skill peculiar to the practices involved in the transaction, or (3) by his occupation holds himself out as having knowledge or skill peculiar to the goods involved in the transaction, or (4) employs an intermediary who by his occupation holds himself out as having such knowledge or skill, and that knowledge or skill may be attributed to the person whose status is in question.

Despite the clarity of this definition there are many borderline situations. For example, the courts are divided on the question of whether a farmer who sells his crop once a year is a merchant or a “casual seller.”24

«Pt. I •«Ch. 1 »«§ 1.21 »«[3]•

1 Corbin on Contracts § 1.21[3] (2020)

[3] The United Nations Convention

An attempt at world-wide unification of law is being made under the aegis of various branches of the United Nations. One of these, the United Nations Commission on International Trade Law, (UNCITRAL), was the body under whose auspices a treaty concerning international sales of goods was written, approved at a diplomatic conference and ratified by the United States. It, too, is the law of the land. For it to apply, the seller and buyer must have places of business in two different countries.25

Footnotes — § 1.21:

1 See Patrick S. Atiyah, Contracts, Promises and the Law of Obligations, 94 L.Q. Rev. 193, 199–201 (1978); Addison Mueller, Contract Remedies: Business Fact and Legal Fantasy, 1967 Wis. L. Rev. 833; see also Grant Gilmore, The Death of Contract (1974). For a good analysis of this thesis, see Richard E. Speidel, An Essay on the Reported Death and Continued Vitality of Contract, 27 Stanford L. Rev. 1161 (1975).

2 Lawrence M. Friedman and Stewart Macaulay, Contract Law and Contract Teaching: Past, Present and Future, Wis. L. Rev. 805 (1967).

3 Neil J. Dilloff, A Contractual Analysis of the Military Enlistment, 8 U. Richmond L. Rev. 121 (1974).

4 Stewart Macaulay, Private Legislation and the Duty to Read-Business Run By IBM Machine, the Law of Contracts and Credit Cards, 19 Vand. L. Rev. 1051 (1966).

5 Clyde W. Summers, Collective Agreements and the Law of Contracts, 78 Yale L.J. 525 (1969).

6 Hugo Grotius, The Rights of War and Peace, book II, chs. 11, 12 (Whewell trans. 1853).

7 Civil Code of the R.S.F.S.R., part III (Gray and Stults trans. 1965).

8 “[I]n any intellectual enterprise … there must always be a certain difference between theory and practice or experience. A theory must certainly be simpler than the factual complexity or chaos that faces us when we lack the guidance which a general chart of the field affords us. A chart or map would be altogether useless if it did not simplify the actual contours and topography which it describes … No science offers us an absolutely complete account of its subject matter. It is sufficient if it indicates some general pattern to which the phenomena approximate more or less. For practical purposes any degree of approximation will do if it will lead to a greater control over nature than we should have without our ideal pattern. But for theoretic purposes we need the postulate that all divergences between the ideal and the actual will be progressively minimized by the discovery of subsidiary principles deduced from, or at least consistent with, the principles of our science.” Morris R. Cohen, Reason and Law 63–64 (Free Press ed. 1950).

9 Jorge L. Borges, A Universal History of Infamy 141 (di Giovanni trans., E.P. Dutton & Co. 1972).

10 See § 1.4.

11 Among his most significant works are Ian R. Macneil, The New Social Contract (New Haven 1980); Macneil, The Many Futures of Contract, 47 So. Calif. L. Rev. 691 (1974); Macneil, Restatement (Second) of Contracts and Presentation, 60 Va. L. Rev. 589 (1974). Stewart Macauley has made much the same point in Macauley, Non-Contractual Relations in Business: A Preliminary Study, 28 Am. Sociological Rev. 55 (1963).

12 For a fuller discussion, see Preface, Restatement of Contracts (1932).

13 See Robert Braucher, Freedom of Contract and the Second Restatement, 78 Yale L.J. 598, 616 (1969).

14 W.A. Gewes, The Romance of the Law Merchant vi (London 1923). The coverage and scope of the law merchant can be garnered by looking at the topic headings in Consuetudo, vel, Lex Mercatoria, or the Ancient Law-Merchant, Divided in Three Parts, according to the Essential Parts of Traffick, by Gerard Malynes, Merchant (London 1685, 1981 reprint).

15 See William A. Schnader, A Short History of the Preparation and Enactment of the Uniform Commercial Code, 22 U. Miami L. Rev. 1 (1967); James J. White and Robert S. Summers, Uniform Commercial Code 1-22 (3d ed.1988).

16 The citation “U.C.C. § 2-238” indicates that the provision is in Article 2. The citation “U.C.C. § 3-211” indicates the provision is in Article 3.

17 Article 2A is the topic of a symposium. 39 Alabama L. Rev. 559 (1988).

18 The term “goods” is defined in U.C.C. § 2-105, with a cross reference to U.C.C. § 2-107.

19 See Miller v. Preitz, 422 Pa. 383, 221 A.2d 320 (1966); Comment, The Jurisprudence and Judicial Treatment of the Comments to the Uniform Commercial Code, 75 Cornell L. Rev. 962 (1990).

20 The result of having two sets of contract rules has been criticized. Samuel Williston, The Law of Sales in the Proposed Uniform Commercial Code, 63 Harv. L. Rev. 561 (1950); but see Arthur L. Corbin, The Uniform Commercial Code-Sales; Should it be enacted?, 59 Yale L.J. 821 (1950).

21 U.C.C. § 1-103.

22 See § 1.22.

23 Nelson v. Union Equity Co-op Exch., 548 S.W.2d 352, 355, 95 A.L.R.3d 471 (Tex. 1977).

24 See George I. Wallach, The Law of Sales Under the U.C.C. § 1.06[1][b] (1981); John F. Dolan, The Merchant Class of Article 2: Farmers, Doctors and Others, 1977 Wash. U. L. Q. 1, Annot., 95 A.L.R.3d 484 (1979). It has been held that a person who makes a yearly purchase and resale of a yacht is not a merchant. Czarnecki v. Roller, 726 F. Supp. 832 (S.D. Fla. 1989). Similarly, a bank that repossesses and resells five cars a year is not an automobile merchant. Joyce v. Combank/Longwood, 405 So. 2d 1358 (Fla. App. 1981).

Most courts define “merchant” expansively, but not all courts agree. See this treatise, § 3.37 notes 58 and 59.

25 The Convention is thoroughly analyzed in John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (1987).

«Pt. I •«Ch. 1 »«§ 1.22 »

1 Corbin on Contracts § 1.22 (2020)

§ 1.22. The Uniform Commercial Code as a Source of Common Law

In a dispute involving a wool-processing contract, the Third Circuit was confronted with the issue of the allocation of overhead in the calculation of damages. It found a clear answer in U.C.C. § 2-708, which, however, was not applicable to the service contract before the court. The court nevertheless applied the U.C.C. rule, explaining, “While this contract is not controlled by the Code, the Code is persuasive here because it embodies the foremost legal thought concerning commercial transactions.”1 Another court was faced with a dispute between a franchisee and its franchisor. The sale of goods was only a minor part of the arrangement. Under the much followed “predominant factor” test2 the court would normally follow the common law in such an instance. Nonetheless, the court looked to the sales article of the U.C.C. for guidance, saying, “we view the legislative statements of policy concerning good faith and unconscionability as fairly applicable to all aspects of the franchise agreement, not by subjecting the franchise relationship to the provisions of the sales article but rather by applying the stated principles by analogy.”3

A contract for the provision of electrical service may or may not be for the sale of goods, but the pricing provisions of article 2 provides an appropriate gap-filler where the agreement is silent as to price.4 Whether a company officer has signed an equipment lease in an individual capacity is a matter of commercial law of the highest importance. The legislative determination made in U.C.C. § 3-403 is an appropriate source for common law guidance.5 Such decisions are encouraged by Official Comment 1 to U.C.C. § 1-103, which provides in part:6

The courts have often recognized that the policies embodied in an act are applicable in reason to subject-matter that was not expressly included in the language of the act, and did the same where reason and policy so required, even where the subject-matter had been intentionally excluded from the act in general … . Nothing in the Uniform Commercial Code stands in the way of the continuance of such action by the courts.

One court has said, “Certainly the clearly emerging and recurring trend has been to synthesize commercial contract law by adopting new statutory principles from the Code into the body of the common law.”7 Interestingly, courts have cited provisions of the U.C.C. that are essentially restatements of the common law as additional support for a common law decision; the Code provision adding extra vitality to the common law rule.8

Because leasing involves an alternative method for marketing goods, courts frequently looked to Article 2 of the U.C.C. before the enactment of Article 2A for guidance in formulating rules of decision in equipment-leasing cases.9 When Article 2A of the Code was widely enacted, there was little reason to resolve equipment leasing disputes by drawing from other provisions of the U.C.C. by analogy. Even as to leases of goods, it was never the rule that all aspects of the transaction were to be governed by analogy from the Code.10

Some non-U.C.C. transactions, or rather, some issues in these transactions are not properly the subject of analogical reasoning from the U.C.C. because the policies underlying the resolution of the issues are not similar. A purchaser of a truck takes it to a tire dealer for servicing. A tire is mounted, the rim explodes, injuring the employees who are servicing the truck. It is rightly held that the truck owner made no warranty to the servicing dealer or its employees.11 The rationales for the products liability provisions of the Code, such as putting the liability on the party better able to guard against the injury, and spreading the risk of injury among the sellers and users of a given kind of product, simply have no relevance to a simple bailment. It would be otherwise, perhaps, if the bailor were the truck dealer or manufacturer. Similarly, when a University grants a degree in Chiropractic medicine it does not make the warranties of a seller of goods.12

On the other hand, in a labor dispute relating to the payment of royalties into a labor welfare fund, the U.C.C. provisions with respect to course of dealing and course of performance are appropriately borrowed,13 despite the generally non-commercial nature of labor contracts. Courts have held that, because insurance is not a “good,” a theft insurance policy contains no implied warranties under the U.C.C.14 This, however, should be the beginning, not the end of analysis. Certainly, the Code does not apply, but there is nothing to prevent the court from extending common law warranty protection to insureds.15 Warranty was a common law creation. The Code contains a modern statement of part of warranty law.

The sale of new housing bears many resemblances to the sale of goods, the seller usually being in many respects a merchant. Contemporary courts have thought that the old rule of caveat emptor as applied to new housing does not suit modern circumstances.16 The warranties of the U.C.C. have provided fruitful analogies for the development of common law in this regard.17 The U.C.C. provisions with respect to the power of an insecure party to demand assurances have appeared appropriate to land transactions.18 However, a court has appropriately said that U.C.C. § 2-309, providing for a reasonable time for delivery, “has little place in the field of fair housing decrees.”19

Landlord-tenant cases also provide fertile terrain for the application of the provisions of the U.C.C. by analogy.20 Although many of the cases involve the warranty of habitability, other issues, such as the power of an insecure party to demand assurances from the other, triggering a duty to provide them, are rationally decided with the aid of U.C.C. provisions.21

The courts have been reluctant to apply U.C.C. concepts of warranty to construction and other service contracts.22 However, other U.C.C. provisions have been usefully borrowed.23 The validity and effect of an express construction warranty that limits the remedy to replacement or correction of defects can be tested under criteria suggested by the U.C.C.24 Whether a repudiation has occurred, and the effect of a failure of essential purpose, have been assessed using U.C.C. criteria.25 Section 2-725(1), of the U.C.C. which regulates the effectiveness of a clause that shortens the statute of limitations, is a useful guide for interpreting such a clause in a fire insurance policy.26 The good faith27 and unconscionability28 provisions are perhaps the most frequently cited sections of the Code in cases where the Code is technically inapplicable.

Federal law, not the U.C.C., governs United States government contracts. Where there is no federal statute or regulation governing the issue before court, the Uniform Commercial Code is properly treated as a source of federal common law.29

Although the Uniform Commercial Code has been directly applied by analogy, the Restatement (Second) of Contracts has absorbed many ideas that underlie the provisions of the Code.30 Therefore, application of the Restatement (Second) will often result in the indirect application of the Uniform Commercial Code.

(A) The following case is noteworthy:

(1) A statute that affects a certain class of contracts is the Uniform Voidable Transactions Act, which allows a creditor to reach assets that a debtor has transferred to another in order to keep those assets from being used to satisfy a debt. This statute is discussed at length in chapter 85. See, e.g., Finn v. Cal. Anesthesia Med. Consultants, 2020 Cal. App. Unpub. LEXIS 4759 (July 27, 2020). Plaintiffs, employees of CAMC, sued CAMC and its shareholder and director Rico for failure to compensate them for anesthesiology services rendered. Plaintiffs claimed that they were owed $300,000 and alleged that Rico and CAMC violated the Uniform Voidable Transactions Act (UVTA) by transferring to Rico all but $800 of the funds in CAMC’s bank accounts in order to avoid paying them—this was after Rico was advised by the company that collected payments for CAMC that the money was due to plaintiffs. Plaintiffs sued Rico and CAMC, and the trial court granted defendants’ demurrer, but the appellate court reversed. Plaintiffs alleged that CAMC’s transfer of funds to Rico—an insider—was an effort to render CAMC judgment-proof and deprive CAMC of the funds necessary to compensate plaintiffs. Further, plaintiffs alleged that “CAMC did not receive a reasonably equivalent value in exchange for the transfer.” In addition, the transfer was done in secrecy. The court held that plaintiffs alleged sufficient facts to state a claim under the UVTA.

Footnotes — § 1.22:

1 Vitex Mfg. Corp. v. Caribtex Corp., 377 F.2d 795, 799 (3d Cir. 1967). The same language is found in Cucchi v. Rollins Protective Services, 377 Pa. Super. 9, 546 A.2d 1131, 1141 (1988), rev’d on other grounds, 524 Pa. 514, 574 A.2d 565 (1990). See also, Mitchell L. Enger, Pay for Play: The Compensated Leisure Flaw of Contract Damages, 22 Geo. Mason L. Rev. 297, 336, n. 200 (2015) (“While the U.C.C. does not govern service contracts, courts often look to the U.C.C. for guidance on service contracts given its reputation for a well-reasoned approach.”). This approach is supported by Daniel E. Murray, Under the Spreading Analogy of Article 2 of the Uniform Commercial Code, 39 Fordham L.Rev. 447 (1971); Note, Disengaging Sales Law from the Sale Construct: A Proposal to Extend the Scope of Article 2 of the UCC, 96 Harv. L. Rev. 470 (1982); Note, The Uniform Commercial Code as a Premise for Judicial Reasoning, 65 Colum. L. R. 880 (1965). A seminal precursor is E. Allan Farnsworth, Implied Warranties of Quality in Non-Sales Cases, 57 Colum. L. Rev. 653 (1957).

Cal.

—Kentwool Co. v. NetSuite Inc., 2015 U.S. Dist. LEXIS 19982 (N.D. Cal. Feb. 18, 2015). The court explained that while “mass-produced, standardized, or generally available software, even with modifications and ancillary services included in the agreement,” is generally regarded as a “good” under the U.C.C., “software adapted for specific customer needs” may or may not be considered a “good” under the U.C.C., depending on the facts. For example, “[w]here software is designed from scratch, or the transaction is mainly for one party’s knowledge and skills in creating software, the software is often found to be a service rather than a good.” In this case, the court concluded that the predominant purpose of the contract was the provision of services, and the U.C.C. did not apply. “Kentwool did not purchase pre-existing software that it could download and retain indefinitely or transfer to others. Rather, it contracted to access an online service customized for its needs, subject to updates at any time, and available only for a fixed term.” The agreement “required Defendant to sell, customize, configure, and, implement its ERP Software for Kentwool’s specific needs and uses [and] … to provide training and consulting services to enable Kentwool to utilize the Software in managing its business needs” over a one year term. The agreement stated that NetSuite “shall make the Service available to Customer,” and it explained that “NetSuite shall host the Service and may update the functionality, user interface, usability and other user documentation, training and educational information of, and relating to the Service from time to time in its sole discretion … .” All of this was indicative that the “services” aspect of the contract predominated over the sale of goods.

Ga.

—Venable v. SunTrust Bank, 335 Ga. App. 344, 780 S.E.2d 793 (Ga. Ct. App. 2015), aff’d. 299 Ga. 655, 791 S.E.2d 5 (2016) (conditional sales contracts for vehicles are predominantly contracts for the sale of goods governed by the U.C.C.).

Idaho

—Pittsley v. Houser, 125 Idaho 820, 875 P.2d 232 (App. 1994).

Ill.

—Surplus.com, Inc. v. Oracle Corp., 2010 U.S. Dist. LEXIS 136254 (N.D. Ill. Dec. 23, 2010) (software is a good).

Ind.

—In Noble Roman’s, Inc. v. Hattenhauer Distrib. Co., 2015 U.S. Dist. LEXIS 44392 (S.D. Ind. April 3, 2015), the predominate thrust of the franchise agreement was the granting of a franchise, that is, “to allow and enable Hattenhauer to set up and operate a Noble Roman’s … franchise and to use its marks and products.” The sale of Noble Roman’s products was not the “predominant thrust” of the contract but only an indirect aspect of it. Accordingly, the U.C.C., and the U.C.C.’s four-year statute of limitations, was inapplicable to the contract at issue.

Iowa

—Bonebrake v. Cox, 499 F.2d 951 (8th Cir.1974); RMP Industries, Ltd. v. Linen Center, 386 N.W.2d 523 (Iowa App. 1986).

Ky.

—Boardman Steel Fabricators, Ltd. v. Andritz, Inc., 2015 U.S. Dist. LEXIS 119562, *9–10 (E.D. Ky. Sept. 9, 2015): “Factors to consider in performing the predominant factor analysis include the (1) language of the contract, (2) payment terms, (3) the mobility of the goods, and (4) the value of the goods and services, and (5) the business of the seller.”

Neb.

—Digital Ally, Inc. v. Z3 Tech., LLC, 2010 U.S. Dist. LEXIS 103715 (D. Kan. Sept. 30, 2010) (software license not a sale since there was no passage of title).

N.Y.

—Newspin Sports Llc v. Arrow Elec., 2017 U.S. Dist. LEXIS 116506 (N.D. Ill. July 26, 2017) (applying New York law, the “essence of the contract is focused on … products,” thus the U.C.C. applied).

Ohio

—Tekfor, Inc. v. SMS Meer Serv., 2014 U.S. Dist. LEXIS 152155 (N.D. Ohio Oct. 27, 2014) (“predominant factor” or “predominant purpose” test is ordinarily a question of fact, but a question that can be ruled on as a matter of law if there is not a genuine dispute of material fact regarding the division between goods and services).

Ore.

—Gregory Funding LLC v. Saksoft, Inc., 2016 U.S. Dist. LEXIS 112740 (D. Ore. Aug. 24, 2016) (contract to develop custom software through “Concept to Completion” or “Concept to Realization” development was predominantly for services, not goods).

S.C.

—United States v. Southern Contracting of Charleston, Inc., 862 F. Supp. 107 (D.S.C. 1994).

Utah

—Hilsen v. Am. Sleep Alliance, LLC, 2016 U.S. Dist. LEXIS 94032 (D. Utah 2016) (agreement involving a patent and 510(k) interest was not a contract for the sale of goods).

Wash.

—Sutton v. Malibu Dev. Corp., 2009 Wash. App. LEXIS 2893 (Nov. 23, 2009).

The United Nations Convention on Contracts for the International Sale of Goods (CISG) adheres to a test similar to the “predominant factor” or “predominant purpose” test. See Syral Belgium N.V. v. U.S. Ingredients Inc., 2016 U.S. Dist. LEXIS 122118 (D. Del. Sept. 9, 2016).

U.S.—

Heiman v. Bimbo Foods Bakeries Distrib. Co., 902 F.3d 715, 2018 U.S. App. LEXIS 24740 (7th Cir. 2018). JTE, distributor of Bimbo Foods, claimed that Bimbo Foods breached the parties’ agreement in late 2011 by terminating it without cause, after manufacturing fake breaches. JTE sued but did not file its action until May 30, 2017. The district court held that suit was barred by the statute of limitations. On appeal, the Seventh Circuit affirmed, explaining that even though the contract’s choice of law provision states that New York law applies, “Illinois law—unlike federal law—considers statutes of limitations to be procedural issues governed by the law of the forum.” Illinois has a ten-year statute of limitations for breach of contract claims generally (735 ILCS 5/13-206), but a four-year statute for breach of contracts for the sale of goods (810 ILCS 5/2-102). If the contract was for services, then suit was timely. If it was for the sale of goods, it was filed too late. “Illinois courts have interpreted their state’s statute to mean that a contract is a ‘contract for sale’ subject to the UCC’s four-year limitations period if the contract ‘is predominately for goods with services being incidental, rather than predominately for services with goods being incidental.’ Zielinski v. Chris W. Knapp & Son, Inc., 277 Ill. App. 3d 735, 741, 214 Ill. Dec. 340, 660 N.E.2d 1289 (1995). And Illinois applies its own law in making that determination, even in the face of an express choice-of-law provision adopting the substantive law of a different state.” The court held that under the “primary-purpose” test, the contract “easily qualifies” as one for the sale of goods. This is consistent with the law elsewhere that holds that dealership and distributorship agreements are primarily for the sale of goods. The “significant” services offered under the agreement are incidental to the sale of goods. Thus, the contract claim was untimely.

3 Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 408 N.E.2d 1370 (1980). See also, Wang Laboratories, Inc. v. Docktor Pet Centers, Inc., 12 Mass. App. 213, 422 N.E.2d 805 (1981), where U.C.C. provision as to acceptance was applied to leased computer equipment.

4 Illinois Commerce Commission v. Central Illinois Public Service Co., 25 Ill. App. 3d 79, 322 N.E.2d 520 (1975).

5 EMX Leasing, Inc. v. Mahoney, C. A. No. 4329, 1988 Ohio App. LEXIS 4917 (Ohio App. Dec. 7, 1988).

6 See also U.C.C. § 2-313 comment 2.

7 Matter of Borne Chemical Co., Inc., 16 B.R. 514, 521 (D.N.J. 1981). The court looked to course of dealing and course of performance in a relationship not involving the sale of goods.

Toll v. Toll, 2015 U.S. Dist. LEXIS 86341 (D.N.J. July 2, 2015) (U.C.C.’s purpose is that of “simplifying and clarifying the law governing commercial transactions, fostering the expansion of commercial practices, and standardizing the laws of the various jurisdictions.”)

An obvious way for courts to “synthesize commercial contract law” is to apply the U.C.C.’s statute of limitations in cases involving analogous equitable claims. In Harden v. Autovest, L.L.C., 2015 U.S. Dist. LEXIS 98584 (W.D. Mich. July 29, 2015), the court held that an unjust enrichment claim was subject to the four-year statute of limitations found in the U.C.C. since statutes of limitation may apply by analogy to equitable claims such as unjust enrichment. The court stated: “Autovest’s equitable claim of unjust enrichment sought relief analogous to a breach-of-contract claim brought pursuant to the UCC. The same statute of limitations should apply to both claims; otherwise, Autovest would be able to ‘dodge’ the statute of limitations applicable to its contract claim by ‘resorting to an alternate form of relief provided by equity.’ ” Further: “A claim of unjust enrichment may be governed by the statute of limitations in the UCC where, as here, it relates to the sale of goods.” Autovest’s claim for unjust enrichment was “premised entirely on the underlying sales transaction,” so the four-year statute of limitations in the U.C.C. was applicable to that claim.

U.S.

—Triple-A Baseball Club Associates v. Northeastern Baseball, Inc., 832 F.2d 214 (1st Cir. 1987). The court, applying Maine law, cites out-of-state cases, this treatise (§ 1142 from a previous edition), and U.C.C. § 2-716 and comment 2 to that section to establish that a baseball franchise is unique and a contract for its sale an apt subject for specific performance.

Iowa

—Metropolitan Transfer Station, Inc. v. Design Structures, Inc., 328 N.W.2d 532 (Iowa App. 1982). In a construction case the court cites the U.C.C., as well as common law cases on point, to establish that interest on obligations to third parties may be awarded as consequential damages.

Courts have also used the U.C.C. to decide disputes governed by the CISG for the international sale of goods. See Hellenic Petro. LLC v. Elbow River Mktg. Ltd., 2019 U.S. Dist. LEXIS 199676 (E.D. Cal. Nov. 18, 2019). Plaintiff, a U.S. company with its principal place of business in Florida, purchased propane from Elbow River, a Canadian company with its principal place of business in Alberta, Canada. Plaintiff filed this action alleging breach of oral contract. Specifically, the parties orally agreed to limit Elbow River’s delivery of propane on Plaintiff’s account to a monetary value not exceeding $1 million. According to plaintiff, Elbow River breached the agreement by delivering $2.2 million in propane without plaintiff’s knowledge. Elbow River filed a motion to dismiss. The dispute was governed by the CISG. The court held that plaintiff “failed to allege a sufficient and plausible breach of oral contract claim.” Among its deficiencies was its failure to allege consideration. The court looked to Article 2 of the Uniform Commercial Code for guidance in resolving the dispute:

CISG is neither explicit nor specific on the element of consideration, but “[b]ecause caselaw interpreting the CISG is relatively sparse, [courts are generally] authorized to interpret it in accordance with its general principles, ’with a view towards the need to promote uniformity in its application and the observance of good faith in international trade.’” Hanwha Corp. v. Cedar Petrochemicals, Inc., 760 F. Supp. 2d 426, 430 (S.D.N.Y. 2011) (citation omitted). In particular, “[c]aselaw interpreting analogous provisions of Article 2 of the Uniform Commercial Code (‘UCC’)[] may … inform a court where the language of the relevant CISG provisions tracks that of the UCC.” Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995); see also Martini E Ricci Iamino S.P.A., 30 F. Supp. 3d at 965 (“CISG is the international analogue to Article 2 of the Uniform Commercial Code.”). The Court therefore looks to Article II of the UCC for guidance on the element of consideration.

The court concluded that under the U.C.C., the requisite consideration is any value that would support a simple contract. The court could find none here—plaintiff “fails to allege what was the consideration for limiting the delivery of propane on its account to $1 million.” There was no consideration to support an independent oral agreement.

U.S.

—Cole Energy Development Co. v. Ingersoll-Rand Co., 678 F. Supp. 208 (C.D. Ill. 1988). Under Illinois law, Article 2 remedies were applied.

Ariz.

—Broadmont Corp. v. Fashion Floors, Inc., 124 Ariz. 282, 603 P.2d 553 (1979). (U.C.C. provision on repossession applied by analogy to leased property).

Idaho

—All-States Leasing Co. v. Bass, 96 Idaho 873, 538 P.2d 1177 (1975).

Kan.

—Belger Cartage Service, Inc. v. Holland Constr. Co., 224 Kan. 320, 582 P.2d 1111 (1978).

Ky.

—Hertz Commercial Leasing Corp. v. Joseph, 641 S.W.2d 753 (Ky. App. 1982).

N.Y.

—Industralease Automated & Scientific Equipment Corp. v. R.M.E. Enterprises, Inc., 58 A.D.2d 482, 396 N.Y.S.2d 427 (1977). U.C.C. provisions with respect to warranties and unconscionability were applied to an equipment lease-purchase agreement.

Miss.

—Capital Associates v. Sally Southland, Inc., 529 So. 2d 640 (Miss. 1988). Three party lease. The “financing lessor” was the functional equivalent of a seller. U.C.C. warranties are relevant.

Or.

—All States Leasing Co. v. Ochs, 42 Or. App. 319, 600 P.2d 899 (1979).

Pa.

—Cucchi v. Rollins Protective Services, 524 Pa. 514, 574 A.2d 565 (1990). Warranties. The court also found persuasive the unenacted provisions of Article 2A.

Ill.

—In Knox v. North American Car Corp., 80 Ill. App. 3d 683, 35 Ill. Dec. 827, 399 N.E.2d 1355, 1358 (1980), questioned in part, Whitaker v. Lian Feng Mach. Co., 156 Ill. App. 3d 316, 108 Ill. Dec. 895, 509 N.E.2d 591 (1987), the court wrote: “[W]e believe the application of selected provisions of article 2 to leases by analogy is the most well-reasoned approach. Although leases may be as prevalent as sales in the commercial world, they are a distinct type of transaction. Leases may differ significantly from sales in the area of risk of loss and the duties of maintenance and repair. A refusal to apply article 2 directly and in toto to leases avoids the situation in which language particularly applicable to sales must suffer a strained interpretation in order to cover a lease transaction.” Having expressed this caveat, the court found a warranty of fitness by analogy to the U.C.C. See also Walter E. Heller & Co., Inc. v. Convalescent Home of the First Church of Deliverance, 49 Ill. App. 3d 213, 8 Ill. Dec. 823, 365 N.E.2d 1285 (1977); Dillman & Associates, Inc. v. Capitol Leasing Co., 110 Ill. App. 3d 335, 66 Ill. Dec. 39, 442 N.E.2d 311 (1982).

N.Y.

—Owens v. Patent Scaffolding Co., 50 A.D.2d 866, 376 N.Y.S.2d 948 (1975). The court found no reason to apply shorter U.C.C. statute of limitations to a scaffold lease.

11 Favors v. Firestone Tire & Rubber Co., 309 So. 2d 69 (Fla. App. 1975), appeal after remand, 354 So. 2d 895.

12 Moore v. Vanderloo, 386 N.W.2d 108 (Iowa 1986).

13 Galgay v. Gil-Pre Corp., 864 F.2d 1018 (3d Cir.1988).

14 Markline Co., Inc. v. Travelers Ins. Co., 384 Mass. 139, 424 N.E.2d 464 (1981).

15 See the plurality opinion in C & J Fertilizer, Inc. v. Allied Mutual Ins. Co., 227 N.W.2d 169 (Iowa 1975).

16 In Caceci v. Di Canio Constr. Corp., 72 N.Y.2d 52, 58, 530 N.Y.S.2d 771, 773, 526 N.E.2d 266, 268 (1988), the court stated that “[o]ver 25 States now recognize some form of an implied warranty of habitability or skillful construction in connection with the sale of homes.” The court proves the statement with citations. But see Board of Mgrs. of Beacon Tower Condominium v. 85 Adams St., LLC, 136 A.D.3d 680, 683, 25 N.Y.S.3d 233, 238 (2016) (“The common-law housing warranty embodied in Caceci v Di Canio Constr. Corp. (72 NY2d 52, 530 NYS2d 771, 526 NE2d 266 [1988]) was supplanted by General Business Law article 36-B (see Fumarelli v Marsam Dev., 92 NY2d 298, 680 NYS2d 440, 703 NE2d 251 [1998]).”)

N.H.

—Lempke v. Dagenais, 130 N.H. 782, 547 A.2d 290 (1988).

Ill.

—Foxcroft Townhome Owners Ass’n v. Hoffman Rosner Corp., 105 Ill. App. 3d 951, 61 Ill. Dec. 721, 435 N.E.2d 210 (1982), judgment aff’d, 96 Ill. 2d 150, 70 Ill. Dec. 251, 449 N.E.2d 125. The court refused to apply the warranty of merchantability patterned on that of the U.C.C. to a remote purchaser.

Wyo.

—Deisch v. Jay, 790 P.2d 1273 (Wyo. 1990).

A seller’s express warranty, as defined by the U.C.C., was applied by analogy to the sale of a publishing company in Ainger v. Michigan General Corp., 476 F. Supp. 1209 (S.D.N.Y.1979), aff’d, 632 F.2d 1025 (2d Cir.).

18 Romig v. De Vallance, 2 Haw. App. 597, 637 P.2d 1147 (1981).

19 Dotson v. U.S. Dept. of Housing and Urban Development, 731 F.2d 313 (6th Cir.1984).

Mass.

—In Berman & Sons, Inc. v. Jefferson, 379 Mass. 196, 396 N.E.2d 981 (1979), a warranty of habitability case, the court discusses the cure provision (U.C.C. § 2-508) of the Code.

Colo.

—Blackwell v. Del Bosco, 191 Colo. 344, 558 P.2d 563, 565 (1976). In a landlord-tenant dispute, the court rejects application of out-of-state cases and the analogous warranty provisions of the U.C.C. “[W]e believe its adoption should be preceded by the research and study of which the legislature is more competent.”

21 Conference Center Ltd. v. TRC, 189 Conn. 212, 455 A.2d 857 (1983).

22 See Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866 F.2d 752 (5th Cir.1989). Computer software is difficult to classify. A hybrid package of software and hardware has been treated as a good. Sierra Diesel Injection Service, Inc. v. Burroughs, 890 F.2d 108 (9th Cir. 1989); Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737 (2d Cir. 1979), appeal after remand, 651 F.2d 132; but see Geotech Energy v. Gulf States Tel. & Inf. Systems, 788 S.W.2d 386 (Tex. App. Houston [14th Dist.] 1990). From this it has been concluded that the licensing of software can be treated as a sale of goods. Schroders, Inc. v. Hogan Systems, Inc., 137 Misc. 2d 738, 522 N.Y.S.2d 404 (1987). This is a complex area. See Amelia H. Boss, Harold R. Weinberg & William J. Woodward, Scope of the Uniform Commercial Code: Advances in Technology and Survey of Computer Contracting Cases, 44 Bus.Law. 1671 (1989).

23 In Sunco Mfg. Co. v. Hargrove, 581 P.2d 925 (Okla. App. 1978), the court looked to U.C.C. § 2-206(2) as well as other authorities to determine whether a unilateral contract waiving a mechanic’s lien required notification to the offeror that the offeree had performed.

24 Magar v. Lifetime, 187 Pa. Super. 143, 144 A.2d 747 (1958).

In B.F. Goodrich Co. v. Honeywell, Inc., No. 47331, 1984 Ohio App. LEXIS 12729 (Ohio App. April 12, 1984), the court looked to the U.C.C. for guidance where an exculpation clause clashed with an express warranty.

In Carter Baron Drilling v. Badger Oil Corp., 581 F. Supp. 592 (D. Colo. 1984), involving an oil drilling contract, the U.C.C. provisions on parol evidence and trade usage were discussed.

25 Barrack v. Kolea, 438 Pa. Super. 11, 651 A.2d 149 (1994).

26 Fireman’s Fund Ins. Co. v. Sand Lake Lounge, Inc., 514 P.2d 223 (Alaska 1973).

U.S.

—Craft v. Economy Fire & Cas. Co., 572 F.2d 565 (7th Cir. 1978). The court found an implied duty that the insurer will handle an uninsured motorist claim promptly, fairly, and in good faith.

Del.

—Calloway v. E.I. Dupont Denemours & Co., 2000 Del. Super. LEXIS 374 (Aug. 31, 2000).

Mass.

—Cherick Distribs. v. Polar Corp., 41 Mass. App. Ct. 125, 669 N.E.2d 218 (1996).

Ark.

—Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005).

Kan.

—Sibley v. Sprint Nextel Corp., 2016 U.S. Dist. LEXIS 164669 (D. Kan. Oct. 15, 2016).

Mass.

—Commonwealth v. DeCotis, 366 Mass. 234, 316 N.E.2d 748 (1974).

Mont.

—Kelly v. Widner, 236 Mont. 523, 771 P.2d 142 (1989).

N.Y.

—Albert Merrill School v. Godoy, 78 Misc. 2d 647, 357 N.Y.S.2d 378 (Civ. Ct. 1974).

Wash.

—Miller v. One Lincoln Tower LLC, 2007 Wash. App. LEXIS 1664 (June 18, 2007) (expressly declining to apply the U.C.C. unconscionability standard to real estate matters).

The doctrine of unconscionability is treated in Vol, 7, Ch. 29. See also, John E. Murray, Murray on Contracts § 97 (5th ed. 2011).

29 United States v. Conrad Pub. Co., 589 F.2d 949 (8th Cir.1978) (foreclosure sale of collateral). See J. B. Painting & Waterproofing, Inc. v. RGB Holdings, LLC, 650 Fed. App’x 450 (9th Cir. 2016) (U.C.C. is a source of federal common law); Dann Marine Towing, LC v. General Ship Repair Corp., 2017 U.S. Dist. LEXIS 144614 (D. Md. Sept. 7, 2017) (U.C.C. considered a source of federal admiralty law); Tehama-Colusa Canal Auth. v. United States DOI, 819 F. Supp. 2d 956 (E.D. Cal. 2011) (U.C.C. a source of federal common law used to interpret contracts to which the federal government is a party); IAP Worldwide Servs. v. UTi United States, Inc., 2006 U.S. Dist. LEXIS 4766 (E.D. Pa. Feb. 8, 2006) (U.C.C. is often used as a source of federal common law). In United States v. Wegematic Corp., 360 F.2d 674, 676 (2d Cir.1966), the court explained:

We find persuasive the defendant’s suggestion of looking to the Uniform Commercial Code as a source for the “federal” law of sales. The Code has been adopted by Congress for the District of Columbia, 77 Stat. 630 (1963), has been enacted in over forty states, and is thus well on its way to becoming a truly national law of commerce, which, as Judge L. Hand said of the Negotiable Instruments Law, is “more complete and more certain, than any other which can conceivably be drawn from those sources of ‘general law’ to which we were accustomed to resort in the days of Swift v. Tyson.” New York, N.H. & H.R. Co. v. Reconstruction Finance Corp., 180 F.2d 241, 244 (2 Cir. 1950). When the states have gone so far in achieving the desirable goal of a uniform law governing commercial transactions, it would be a distinct disservice to insist on a different one for the segment of commerce, important but still small in relation to the total, consisting of transactions with the United States.

Accord, United States v. Humboldt Fir, 426 F. Supp. 292 (N.D.Cal.1977), aff’d mem., 625 F.2d 330 (9th Cir. 1980). Yet, where the U.C.C. rule imposed liability on the United States greater than existed under federal common law, the federal court applied the common law, ostensibly to further federal interests. This approach, equating federal interests with federal non-liability, is regrettably imperious. United States v. Bank of America Nat’l Trust & Sav. Ass’n, 288 F. Supp. 343 (N.D. Cal. 1968), aff’d, 438 F.2d 1213 (9th Cir. 1971).

30 See § 1.21.

«Pt. I •«Ch. 1 »«§ 1.23 •

1 Corbin on Contracts § 1.23 (2020)

§ 1.23. Unilateral Contracts Distinguished From Bilateral

The differences between a unilateral contract and a bilateral contract, as those terms are now commonly used, lie both in the operative acts of the parties and also in the legal relations created by them. A unilateral contract consists of a promise or group of promises made by one of the contracting parties only, usually assented to by the other. There are many cases in which such an assent is not required.1 A bilateral contract consists of mutual promises, made in exchange for each other by each of the two contracting parties. In the case of a unilateral contract, there is only one promisor. The legal result is that the promisor is the only party who is under an enforceable legal duty. The other party to this contract is the one to whom the promise is made, and this promisee is the only one in whom the contract creates an enforceable legal right. In a bilateral contract, both parties are promisors and both parties are promisees. The legal effect of such a contract is that there are mutual rights and mutual duties. The distinction between these two classes of contracts is of importance in the analysis of a contractual transaction, in determining its validity and its exact legal operation. A failure to recognize this distinction has in innumerable instances led to the making of such an erroneous statement as, “Both parties must be bound, or neither is bound”; and occasionally it has led to an unjust and erroneous decision.2

It is, of course, true that, as in the case of other legal expressions, the terms unilateral and bilateral have been used in senses other than those here adopted. Some courts and law writers, adopting a definition other than that here given and assuming that the definition so adopted is the one correct, absolute, and eternal definition, have declared that in the nature of things there can be no such thing as a unilateral contract. It has been said that a unilateral contract is a legal solecism.3 A very learned writer has declared that a unilateral contract is as impossible in its nature as “a unilateral elephant” or “unilateral twins.”4 A frequent statement is that, until an offer has been accepted, the contract is unilateral and cannot be enforced; obviously, in such a case, the term “contract” should not be used at all.5 Another common statement is that it takes two to make a contract. In the great majority of cases, that is, in the case of “bargains,” this is a true statement; but there are exceptions.

In a subsequent chapter there is a discussion of certain classes of promises that are enforceable without any consideration being given for them and without any expression of assent by the promisee. These are special classes, however, and cannot be considered at this point.

The term unilateral contract as defined herein does not mean that there is only one party to the contract. It does mean, however, that the promise or promises have been made by one party alone. In the great majority of cases, however, the promise of this party will not be an enforceable contract unless consideration has been given in return for it, or unless there has been some expression of assent to the delivery of a document containing the promise. In most cases, therefore, even though a contract may properly be described as unilateral, it takes two persons to make it. The action of a second party, usually the promisee, is in most cases necessary to make a promise binding; and, unless the promise that is made is enforceable at law, we do not call it a contract at all. In all cases of “bargain,” one party offers his promise in exchange for a specified consideration; and in order to “close the deal” and make a “contract” that consideration must be given. If this consideration is an action or forbearance instead of a promise, the resulting contract is “unilateral.” It nevertheless takes two to make it.

Of course, more than two individuals may participate in a contractual transaction. When such is the case, the persons involved are usually divided into two separate groups, each of which is contracting with the other group. For very many purposes, such a contract may be treated just as if it had been made by two individuals, and not by two groups of individuals; and the contract may be properly described as either bilateral or unilateral, in accordance with the promises that have been made. It must not be forgotten, however, that, as the number of participating individuals increases, the various legal relations among them will increase by geometrical progression. Many issues of law may arise amongst these individuals that could not possibly arise in the case of a contract made by only two individuals. This makes necessary a full discussion later on of those contracts that are commonly described as joint or joint and several.

No doubt three or more persons can participate in one contractual transaction, without being segregated into only two groups. This would make possible such classifications as “trilateral” contracts and “quadrilateral” contracts.

The distinction between unilateral and bilateral contracts will continually appear in the chapters dealing with offer and acceptance and with consideration. It may be useful at this point, however, to give some illustrations of a unilateral bargain and of unilateral contracts that are not “bargains.” Observe that in a unilateral contract there is only one promisor, who may be either the offeror or the offeree—the party who first proposes the making of such a contract, or the party to whom it is proposed and who is to accept the proposal.

(1) A makes a promise in writing to pay to B $100 and signs, seals, and delivers the document. At common law, and still today in a number of jurisdictions, this is a unilateral contract that creates a duty in A and a correlative right in B, just as soon as B, or someone acting on B’s behalf, receives delivery of the document. The promisor is the offeror. The transaction is not a “bargain”; nothing is exchanged for the promise.

(2) A delivers to B a promissory note or an I O U in return for $100, then lent to A by B. A is the only promisor, the only one under a contractual duty. The contract is unilateral.6 Cash is bargained for and received in exchange for the written promise.

(3) A accepts a bill of exchange drawn upon A by B in favor of C. This creates a right in C and a duty in A. The contract is unilateral. The promisor is the offeree.

(4) A offers a reward of $100 to anyone who will return a lost article. B returns the article with the intent to accept the offer. A unilateral contract has thus been made.7 The offeror is the only promisor.

(5) A writes to B, “Ship me 2 cars XX flour via B. & O., at once, price $100 per bbl. C.O.D.” B ships at once as requested. A unilateral contract seems to be created. However, because the law attaches a warranty of merchantability (and other warranties) to the transaction, there is more than one obligor and the contract is bilateral. Because in cases such as this the distinction may result in profitless hair-splitting, some have argued that the bilateral-unilateral distinction is more confusing than useful.

(6) A sends his brother, Harry, to B with the following letter of credit, “Let Harry have $1,000 and I will guarantee repayment in 30 days.” B advances $1,000 as requested. The contract is unilateral. There is only one promisor. As between A and B, only one party, A, is ever under an obligation.

(7) A promises B to pay a salary at the rate of $40,000 a year for B’s services as superintendent. B may recover at the specified rate for such service as B thereafter renders, but the hiring is a hiring at will. B has made no promise to continue in service and no such promise has been requested. If, by implication, a promise by B is found that the service shall be of a certain kind or quality, the contract is to that extent bilateral.

It has been said that unilateral contracts are made either by an offer of a promise for an act or by an offer of an act for a promise. This means, although the descriptive words are not exact, that the single duty may rest on the offeror, the right being in the offeree, or vice versa. The words are inexact because the making of a promise is itself an act. All offers are acts and all acceptances are acts, whether the resulting legal relations are property as in the case of a barter, or constitute a contractual obligation, either unilateral or bilateral. It would be more exact, and less confusing, to say that unilateral contracts are made either by an offer of a promise for a performance or by the offer of a performance for a promise. Yet, even this generalization fails to describe all of the cases. It accurately describes only the cases of “bargains.” In example (1) above, the offeror makes a promise and undertakes a duty, but requests no performance whatever as an equivalent. The only act on the part of the offeree is such an act of acceptance of the physical document as may be necessary to constitute a legally effective delivery by the offeror. The duty is on the offeror.

Example (2) is a case where it does not clearly appear which party made the offer. If A offered an I O U to be accepted by a transfer of money, it was an offer of a promise for a performance. If B offered a transfer of the money in return for the I O U, the only promise was made by the offeree, and it was the offeror who gave the bargained-for equivalent (the money).8

In example (3), C makes the offer by presenting the bill to A for acceptance. C thereby confers upon A the legal power of binding himself or herself alone to pay a sum of money. In presenting the bill C does an act, but is not offering this act as the legal equivalent and agreed return for A’s promise. There is no offer of a performance for a promise; but the act of the offeror was necessary before the offeree could undertake the duty. The acceptance of such a bill may, however, be only one act in a large and complex transaction in which mutual promises are made.

A bilateral contract is made in much the same way as is a unilateral bargain or a barter. The offeror does an act conferring a power upon the offeree, and the offeree does the act that constitutes the exercise of the power. The legal result, however, is a relation consisting of mutual rights and duties, special and personal in character. It is bilateral not because there are two parties. Unilateral contracts have at least two parties. Rather, it is bilateral because two parties come under an obligation. The following are examples of bilateral contracts:

(8) A says to B, “I promise to serve you as bookkeeper for one month in return for your promise to pay me $3,000.” B replies, “I accept.”

(9) A writes to B, “I promise to convey Blackacre to you on June 1st in return for your promise to pay me $100,000 at that time. You may accept by email, using the one word ‘Blackacre’.” B sends the email “Blackacre,” as requested.

In case (8) the acts of offer and acceptance are oral promissory words. In case (9) the offer is the act of writing and the further acts whereby this writing is sent to the offeree. The acceptance consists of acts by B, whereby B sends an email with the word “Blackacre.” These acts by B would not customarily amount to a promise to pay $100,000; but, in this case, they do become such a promise because A will so interpret them and B knows it. In the same way any other act, in itself meaningless, may be specified and may thereby become a return promise.

It is not always an easy matter to determine whether an offer looks to the creation of a unilateral or bilateral contract. Frequently, this determination will have very important results, especially where the offeror has attempted to revoke the offer, as explained elsewhere. The form of words used by the parties is not conclusive, especially when examined out of their setting and with the aid of nothing but a dictionary. The meaning of words, as used by the parties to a contract, cannot be determined with mathematical certainty. The judge who is most certain to do injustice is the pedant who holds contractors to meticulous accuracy in the usage of words and in the construction of sentences.9 Also, as in example (6) above, frequently the meaning of words are not in issue, but rather the appropriate legal analysis of words about the meaning of which there is no disagreement.

The distinction between unilateral and bilateral contracts has been criticized on several grounds. First, it groups several distinct situations under one heading. For example, the gift of a promise under seal has little in common with other kinds of unilateral contracts. Second, for the most part there is no difference in consequences between a unilateral and a bilateral contract. Third, “the effect of the distinction has been to exaggerate the importance of the type of bargain in which one party begins performance without making any commitment, as in the classic classroom case of the promise to pay a reward for climbing a flagpole.”10 Fourth, it has been contended that true unilateral contracts are rare and of little commercial importance, and they should be relegated to the “freak tent.”11

In response to these concerns, the Restatement (Second) of Contracts has abandoned the terms “unilateral” and “bilateral,” without, however, abandoning the concepts behind them.12 Rather, the abandonment appears to have been an attempt to deemphasize some of the consequences of these concepts. The deemphasis comes primarily from the adoption of the notion that, in perhaps the great majority of cases, the offeror is indifferent to the proper method of acceptance. Where the offeror makes it crystal clear that a promissory acceptance is desired, the Restatement (Second) makes it clear that freedom of contract prevails and the offeror is entitled to the requested promise for the offer to ripen into a contract. Conversely, if the offer is clear that a performance is requested as the only permissible means of acceptance, the offeror continues to be master of the offer.13

Despite the deemphasis in the Restatement (Second) of unilateral contract analysis, since the abandonment of the term in 1964 by the American Law Institute,14 one careful scholar documented an explosive growth of unilateral contract decisions in the courts. Rather than being confined to the “freak tent,” the use of unilateral contract analysis has been much in evidence. “The typical cases involve claims by employees against present or former employers for employment benefits of one kind or another. Employees may assert rights to pension benefits, bonus or incentive payments, profit sharing benefits, severance pay or other benefits.”15

It can hardly be said that courts are often pedantic in determining whether a contract (or an offer to one) is unilateral or bilateral, though it is possible that professors of law may have been. The distinction between unilateral and bilateral has not yet been very thoroughly grasped by some lawyers, a fact which has led to the erroneous statement that one cannot be bound unless the other is bound. The judges, therefore, are not in general too likely to hold that a proposed contract is unilateral when the parties meant it to be bilateral.16

Suppose A writes to B, “I will pay you $50,000 for Blackacre,” and B replies, “I accept your offer.” This seems to be bilateral, and it is too late for A to revoke. A clearly makes a promise to pay money; and, according to ordinary understanding, A requests B to make a return promise to convey the land. But if A has asked an actual conveyance of Blackacre as the equivalent of the promise to pay, B can accept only by executing a deed of conveyance, not by saying “I promise to convey.” This second situation is so unusual that only the clearest combination of language and circumstances will justify the conclusion that only a conveyance can create the contract.

A good example of a unilateral contract is found in Packard Englewood Motors v. Packard Motor Car Co.17 The defendant manufacturer offered to allot an additional car to each dealer in return for the dealer’s shipment of a ton of scrap iron, the iron to be paid for at the market price. Here the defendant made two promises: to allot cars and to pay for the iron. The Dealer accepted by actual shipment of the iron, without making any promise, either to ship iron or to order cars that might be allotted to him. His shipment bound the defendant to “allot” the cars (subject to his order) and to pay for the iron shipped. Such shipment created in the Dealer the correlative right to such allotment; that is, the right to have an option to buy cars. See Chap. 11, Option Contracts. If the Dealer ordered cars in accordance with the allotment, a bilateral contract would thereby be consummated, the defendant having promised to deliver the cars and the Dealer promising to pay for them.

In Freeport Sulphur Co. v. Aetna Life Ins. Co.,18 a group insurance policy was held to be a valid unilateral contract, the employer having an irrevocable option to enter new employees under the policy coverage though under no obligation to do so.

Footnotes — § 1.23:

1 See Vol. 3, Chs. 8 and 9, dealing with Informal Contracts without Mutual Assent or Consideration.

A unilateral option contract is discussed at length in Pace Corp. v. Jackson, 155 Tex. 179, 284 S.W.2d 340 (1955). See Davidson v. McLennan County Appraisal District, 2012 Tex. App. LEXIS 7482 (Aug. 30, 2012), review denied, 2013 Tex. LEXIS 252 (March 29, 2013) (citing Pace Corp. v. Jackson, supra).

This § 1.23, 1993 ed., is cited in Combs v. Int’l Ins. Co., 354 F.3d 568 (6th Cir. Jan. 6, 2004), reh’g denied2004 U.S. App. LEXIS 1954 (6th Cir. Jan. 27, 2004).

2 In the past, courts frequently used the term “unilateral” to refer to a promise that is without consideration especially in those cases where mutual promises have been given, but one of them is illusory; as where A offers a promise to carry all the milk that B may care to ship, at fixed rates, and B accepts the offer and promises to pay those rates for all milk shipped by him with A. This usage should be abandoned. Both A and B have made seeming promises, but neither one has resulted in either a right or a duty. There is no obligation, unilateral or otherwise. A has made an offer and perhaps B still has a power of acceptance. This one new relation might be described as unilateral; but the same may be said of any offer, and it is not customary to do so. See:

Ga.

—Morrow v. Southern Exp. Co., 101 Ga. 810, 28 S.E. 998 (1897).

Ill.

—American Refrig. Transit Co. v. Chilton, 94 Ill. App. 6 (1900).

Ky.

—Rehm-Zeiher Co. v. F.G. Walker Co., 156 Ky. 6, 160 S.W. 777 (1913).

Md.

—Ziehm v. Frank Steil Brewing Co., 131 Md. 582, 102 A. 1005 (1917).

N.Y.

—Meade v. Poppenberg, 167 App. Div. 411, 153 N.Y.S. 182 (1915).

Farago v. Burke, 262 N.Y. 229, 186 N.E. 683 (1933), illustrates the cases that repeat the statement that both parties must be bound or neither is bound. The court says: “One cannot enforce a contract that is not binding upon himself.” But in this case, as the court expressly held, there was no contract or agreement. The defendant signed a writing promising to sell land on stated terms. The plaintiff said orally that the terms were all right, but that he wanted his lawyer to see it; the defendant thereupon let the plaintiff take it away. Before any further expression by the plaintiff, the defendant gave notice of revocation. There was nothing except a revocable offer.

See Walji v. Met Ctr. NYCTEX, Ltd2002 Tex. App. LEXIS 5420 (Tex. App. July 26, 2002) (unpublished opinion). Walji entered into a contract contemplating the purchase of a portion of land under development from the defendant. Walji paid a $117,612 deposit to the defendant and was required to reimburse it for a percentage of engineering and professional fees within ten days of receiving a notice of the amount. When Walji was one day late making the payment, the defendant notified him that it was terminating the contract and retaining his deposit under a provision in the contract. Walji sought a declaratory judgment that the provision was void or an unenforceable penalty and sought the return of his deposit. He argued that the contract was one for the purchase of land rather than an option contract under which the seller’s sole remedy was retention of the deposit. This treatise, § 1.23, 1993 ed., was cited for the proposition that in a bilateral contract, both parties are promisors and both are promisees. The legal effect of such a contract is that there are mutual rights and mutual duties. An option contract, in contrast, allows a party the discretion to perform or not, i.e., the option holder has an irrevocable power of acceptance which he may or may not exercise solely as a matter of his discretion. In determining that the agreement here was an option contract, the court found that the sole remedy available to the seller in the event of the buyer’s default was the retention of the deposit. The explicit language of the contract limited the seller to this remedy. Walji’s payment within ten days of notice was a condition. An option can only be accepted through strict compliance with its terms; anything less is a rejection. Walji rejected the option by failing to meet the condition of timely payment.

Ind.

—High Wheel Auto Parts Co. v. Journal Co., 50 Ind. App. 396, 98 N.E. 442 (1912).

4 John S. Ewart, reviewing Anson on Contracts, 33 Harv. L.R. 626 (1919–20).

5 “The distinction between unilateral contracts and bilateral contracts is recognized. A unilateral contract is one in which there is a promise on one side only, the consideration on the other side being executed. A familiar illustration is an option, upon valuable consideration, to purchase land. The promisor only is bound, the promisee being at liberty to comply or not at his option, his consideration being executed. The proposition of Mrs. McMahan was but an offer to sell, which she had the right to revoke at any time prior to acceptance by McMahan, neither being bound up to that time, and both being bound thereafter. The fact that her offer may have been made upon conditions to be accepted by McMahan did not convert her proposal into any kind of contract, unilateral or bilateral … . After his acceptance, it was beyond the power of Mrs. McMahan to revoke her proposal.” McMahan v. McMahon, 122 S.C. 336, 115 S.E. 293 (1922).

6 The following is an example of a similar valid unilateral contract: K.M. paid $2,000 to the Society of Missionary Catechists of Our Blessed Lady of Victory, and in return the latter promised to pay interest thereon at six per cent during the life of K.M., and to repay any part of the principal sum on demand of K.M. during her life. It was properly held that the administratrix of K.M.’s estate had no right to any part of the $2,000 for which K.M. had made no demand, but had a right to interest to the date of K.M.’s death. Society of Missionary Catechists v. Bradley, 112 Ind. App. 556, 44 N.E.2d 209 (1942).

7 See § 3.8, Acceptance by Overt Act.

8 Where one sends a new idea or suggestion as to methods of advertising, hoping that the offeree will use it and pay for it, such use by the offeree may be held to be the acceptance of an offer. In such a case, neither party makes an “express” promise. It is clear that the offeree’s promise, if any, is an “implied” promise; the offeror may make no promise whatever. See:

Ind.

—Liggett & Meyer Tobacco Co. v. Meyer, 101 Ind. App. 420, 194 N.E. 206 (1934).

N.Y.

—Paul v. Haley, 183 A.D.2d 44, 588 N.Y.S.2d 897 (1992); Healey v. R.H. Macy & Co., 251 App. Div. 440, 297 N.Y.S. 165 (1937), aff’d, 277 N.Y. 681, 14 N.E.2d 388; Grombach Productions v. Waring, 293 N.Y. 609, 59 N.E.2d 425 (1944), rehearing denied, 294 N.Y. 697, 60 N.E.2d 846 (1945).

Pa.

—Thomas v. R.J. Reynolds Tobacco Co., 350 Pa. 262, 38 A.2d 61, 157 A.L.R. 1432 (1944).

The mere fact that one gives a valuable “tip” or information on which another acts to his profit is not a sufficient basis to justify the implication of a promise to pay. There must be reason to know that the information was offered for compensation. Anderson v. Distler, 173 Misc. 261, 17 N.Y.S.2d 674 (1940). A case falling within this note is Desny v. Wilder, 46 Cal. 2d 715, 299 P.2d 257 (1956), where the plaintiff submitted an idea for a photoplay, with a synopsis, and the court held that the jury might reasonably find an implied promise by the defendant to pay reasonable value in case he made use of the idea and synopsis. This case is discussed at length in § 3.17.

See also:

U.S.

—MLMC, Ltd. v. Airtouch Communs., Inc., 215 F. Supp. 2d 464 (D. Del. 2002) (citing § 2.5, 1993 ed.).

Conn.

—P. Berry & Sons v. Western Union Telegraph Co., 109 Conn. 371, 146 A. 501 (1929) (price quotation).

Ill.

—Jones v. Eagle II, 99 Ill. App. 3d 64, 54 Ill. Dec. 350, 424 N.E.2d 1253 (1981). A property report concerning condominium conversion, that listed apartment prices, was not an offer to sell in violation of an ordinance.

L.B. Foster Co. v. Tie & Track Sys., No. 07 C 3692, 2009 U.S. Dist. LEXIS 26962 (N.D. Ill. March 31, 2009) (quote lacked essential payment and delivery terms and could not have induced the addressee to reasonably believe its acceptance could bind the other party to a contract); Robert J. Riordan Co. v. Cigna Corp., 1987 U.S. Dist. LEXIS 559 (N.D. Ill. Jan. 23, 1987).

Ind.

—I.C.C. Protective Coatings v. A.E. Staley Mfg. Co., 695 N.E.2d 1030 (Ind. App. 1998).

Iowa

—Patton v. Arney, 95 Iowa 664, 64 N.W. 635 (1895) (defendant wrote that his steers “ought to be worth $4.25.”).

Md.

—Hall v. Kimbark, 11 Fed.Cas. 234 (E.D.Mo.1900). In Thos. J. Sheehan Co. v. Crane Co., 418 F.2d 642 (8th Cir. 1969) (a price list accompanied by a promise of “price protection” for the duration of the job was held to be a mere quotation); Maryland Supreme Corp. v. Blake Co., 279 Md. 531, 369 A.2d 1017 (1977) (appears to be to the contrary).

Me.

—State v. Peters, 91 Me. 31, 39 A. 342 (1897) (quotation of prices).

Mass.

—Mellen v. Johnson, 322 Mass. 236, 76 N.E.2d 658 (1948); Ashcroft v. Butterworth, 136 Mass. 511 (1884); Smith v. Gowdy, 90 Mass. (8 Allen) 566 (1864); I & R Mech. Inc. v. Hazelton Mfg. Co., 62 Mass. App. Ct. 452, 817 N.E.2d 799 (2004), review denied, 444 Mass. 1102, 826 N.E.2d 202 (2005).

Minn.

—Beaupre v. Pacific & A. Tel. Co., 21 Minn. 155 (1874).

N.Y.

—Saltzman v. Barson, 239 N.Y. 332, 146 N.E. 618 (1925), modifying 210 A.D. 84, 205 N.Y.S. 548; Blakeslee v. Nelson, 212 App.Div. 219, 207 N.Y.S. 676 (1925), aff’d, 240 N.Y. 697, 148 N.E. 763 (“I will not sell for less than $56,000”).

N.C.

—Cherokee Tanning Extract Co. v. Western Union Tel. Co., 143 N.C. 376, 55 S.E. 777 (1906).

Ohio

—Craft v. Elder & Johnston Co., 38 N.E.2d 416 (Ohio App.1941).

Or.

—Courteen Seed Co. v. Abraham, 129 Or. 427, 275 P. 684 (1929) (following the Nebraska Seed case).

Vt.

—Repro Digital v. Turtle Fur Co., 2011 Vt. Super. LEXIS 86 (Sept. 26, 2011) (the surrounding circumstances, including the fact that the quote was directed to one person and the parties’ former dealings indicated the quote was an offer).

In Richards v. Flower, 193 Cal. App. 2d 233, 14 Cal. Rptr. 228 (1961), the plaintiff wrote: “please advise us by return mail the cash price you would expect to receive” (for a specified lot), stating further that he wished to deal with the defendant directly instead of through agents. The defendant replied: “Thank you for your inquiry … I see no reason why we could not deal directly on this matter … . Considering what I paid for the lot, and the taxes which I have paid I expect to receive $4,500 for this property. Please let me know what you decide.” The plaintiff replied by wire, “Have agreed to buy your lot on your terms …”. The defendant disregarded the telegram and sold the lot to another person. In the plaintiff’s suit for specific performance the court held that the defendant’s reply was not operative as an offer. In the absence of extrinsic evidence, the defendant had no reason to know that the plaintiff would interpret his written words as an offer.

7 See Restatement (Second) of Contracts § 26, cmt. c (Am. Law Inst. 1981). In J.D. Fields & Co. v. United States Steel International, Inc., 690 F. Supp. 2d 487 (S.D. Tex. Feb. 17, 2010), the plaintiff moved for reconsideration of the trial court’s summary judgment for the defendant on the footing that the court did not limit its consideration of factors to those mentioned in Restatement (Second) of Contracts § 26, cmt. c, in determining whether a price quotation was an offer. The court denied the motion because that the factors mentioned in comment c are relevant but not exclusive factors to which the court may look in making that determination.

8 “[T]he letter: (1) advised Interstate of the availability; (2) specifically referred to its contents as a ‘price quotation’; (3) contained no language which indicated that an offer was being made; and (4) failed to mention the quantity, the time of delivery or payment terms. Under these circumstances, we are compelled to find that Barclay’s letter did not constitute an offer.” Interstate Industries, Inc. v. Barclay Industries, Inc., 540 F.2d 868, 873 (7th Cir. 1976).

Wis.

—Moulton v. Kershaw, 59 Wis. 316, 18 N.W. 172 (1884).

Ky.

—Fairmount Glass Works v. Grunden-Martin Woodenware Co., 106 Ky. 659, 51 S.W. 196 (1899) (“Please advise us the lowest price you can make us on our order for ten carloads of Mason green jars … .”).

U.S.

—Pechiney Rhenalu v. Alcoa Inc., 224 F. Supp. 2d 773 (D. Del. 2002).

Cal.

—Gibson v. De La Salle Institute, 66 Cal. App. 2d 609, 152 P.2d 774 (1944). The proposal did not use the term “offer.” Instead it read “Find it necessary to ask following prices … .” But it also said “Please wire today if interested in samples and sales contract will go forward.” (Emphasis by the court). The proposal was found to be an offer.

Haw.

—Earl M. Jorgensen Co. v. Mark Constr. Inc., 56 Haw. 466, 540 P.2d 978 (1975) (court stressed the detailed nature of the terms).

N.Y.

—In Enidine, Inc. v. Dayton-Phoenix Group, Inc., 2003 U.S. Dist. LEXIS 18493 (W.D.N.Y. Sept. 30, 2003), the parties engaged in preliminary negotiations resulting in a “final quotation” from the vendor of actuators. The court held that the quotation was an offer. The buyer’s purchase order response to the offer constituted an acceptance. The buyer’s faxed response omitted the purchase order terms that appeared on the reverse side of the original. The court found a contract on the seller’s terms (including the boilerplate terms on the quotation’s reverse side) and the buyer’s acceptance (excluding the boilerplate terms on its reverse side). While quotations are often viewed as preliminary to offers, the court relied on the factors set forth in Rich Products Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937, 955–58 (E.D. Wis. 1999), aff’d, 241 F.3d 915 (7th Cir. 2001), in determining whether the price quotation was an offer: the extent of prior inquiry, the completeness of the terms in the quotation, and the number of persons to whom the quote was sent. These factors are often mentioned in determining whether a statement constitutes an offer. The critical factor is whether the statement includes a commitment to sell the product to the buyer. Quotations, like advertisements, may contain detailed terms, may be sent to a particular party, and may have also been preceded by prior inquiries. These factors, alone, however, may only indicate what the vendor has for sale, including the prices of its products. Without more, it will not constitute an offer absent a commitment or promise by the vendor to sell the product to the buyer. Only such a commitment will provide the buyer with a reasonable understanding that its assent will form a contract. This factor is too often forgotten in pursuit of the fundamental issue of whether a statement creates a power of acceptance in the party to whom it is addressed.

Pa.

—Marjam Supply Co. v. BCT Walls & Ceilings, Inc., 2003 U.S. Dist. LEXIS 11088 (E.D. Pa. June 26, 2003). The defendant contractor requested a price quotation on 3-inch flange studs to be used in its construction of a building. The plaintiff’s quotation did not promise to deliver 3-inch studs. The delivered studs measured 158 inches and were used in the construction. Their use, however, did not meet the architect’s design. The plaintiff sued to recover the price of the delivered studs and the defendant counterclaimed for the cost of replacing the studs with studs that met the design specifications. The court held that the defendant’s request for a price quotation was not an offer, but the price quotation which did not promise 3-inch studs was an offer which the defendant accepted by using the 158-inch studs.

11 Editors Press, Inc. v. United States, 415 F. Supp. 407 (D. Md. 1975).

Conn.

—Jaybe Constr. Co. v. Beco, Inc., 216 A.2d 208, 3 Conn. Cir. 406 (1965).

Md.

—Maryland Supreme Corp. v. Blake Co., 279 Md. 531, 369 A.2d 1017 (1977).

Mass.

—Cannavino & Shea, Inc. v. Water Works Supply Corp., 361 Mass. 363, 280 N.E.2d 147 (1972), appears to be contrary to the statement in the text. However, it was artfully distinguished in Loranger Constr. Corp. v. E.F. Hauserman Co., 6 Mass. App. Ct. 152, 374 N.E.2d 306 (1978), aff’d, 376 Mass. 757, 384 N.E.2d 176.

Miss.

—C. E. Frazier Constr. Co., Inc. v. Campbell Roofing & Metal Works, Inc., 373 So. 2d 1036 (Miss.1979).

13 In Leo F. Piazza Paving Co. v. Bebek & Brkich, 141 Cal. App. 2d 226, 296 P.2d 368 (1956), the plaintiff, a general contractor, asked defendant to make a bid on a portion of the work so that plaintiff could use it in making his bid on the project. In various conversations, the defendant said he did not like the specifications and could not make a “firm bid.” Being pressed, however he named a figure per cubic yard that the plaintiff could use if he wished to take a chance on interpretation. The plaintiff used that figure and made his bid, but the defendant refused to perform after defendant attempted to accept his purported offer. The court held that their negotiations showed that the defendant had made merely a quotation and that the plaintiff was not justified in understanding it to be an offer.

14 McCarty v. Verson Allsteel Press Co., 89 Ill. App. 3d 498, 44 Ill. Dec. 570, 411 N.E.2d 936 (1980). See also the cases cited in § 2.9.

Iowa

—Denniston and Partridge Co. v. Mingus, 179 N.W.2d 748, 752 (Iowa 1970) (“An estimate is equivalent of ‘more or less’ and does not pretend to be based on absolute calculations. Use of the word precludes accuracy.”).

Minn.

—Malmin v. Grabner, 282 Minn. 82, 163 N.W.2d 39 (1968).

Mo.

—Klein v. Puritan Fashions, Inc., 439 S.W.2d 229 (Mo. App.1969).

N.Y.

—Lynch v. Fusco, 66 N.Y.S.2d 484 (City Ct. 1946).

Nev.

—Clark Sanitation, Inc. v. Sun Valley Disposal Co., 87 Nev. 338, 487 P.2d 337 (1971) (“An estimate is an opinion and an estimate of value is an opinion as to value upon which reasonable men may hold differing views.”).

Ohio

—Atelier Design v. Campbell, 68 Ohio App. 3d 724, 589 N.E.2d 474 (Ohio App. 1990); Tekfor, Inc. v. SMS Meer Serv., 2014 U.S. Dist. LEXIS 152155 (N.D. Ohio Oct. 27, 2014).

S.C.

—Hinson-Barr, Inc. v. Pinckard, 292 S.C. 267, 356 S.E.2d 115 (1987).

16 See Parker v. Meneley, 106 Cal. App. 2d 391, 235 P.2d 101 (1951) (estimate was clearly an offer to do the work, although estimated price was probably not a fixed price).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.6 »

1 Corbin on Contracts § 2.6 (2020)

§ 2.6. Authority or Instructions to an Agent

The mere statement, made to one’s own broker or other agent, of the terms on which one is willing to sell or to buy, is not in itself an offer that empowers anyone to accept. Thus, a “listing” of real property for sale with a broker is a contract or offer retaining the broker’s services and is not an offer to sell.1

The statement may empower the agent to make an offer;2 but it is not itself an offer to sell, even to one who may happen to read the statement. This has special importance in those cases where the agent later makes an oral contract as authorized, but that is not enforceable because of the statute of frauds. Had the directions to the agent been an operative offer to contract, the document would have been a sufficient memorandum to satisfy the statute; not being an offer, it is not such a memorandum.3

The agent, in making an offer, may use the letter of written instructions as a part of the offering process. In such a case, however, it is the agent who is making the offer, and not the principal in person. The agent must be shown to have adopted the written instructions as a mode of making the offer; and the writing itself is not sufficient for that purpose. Also, the principal’s signature to the instructions is not a signature to the contract, or to a memorandum of the contract, sufficient to satisfy the statute of frauds.

The more modern Statute of Frauds provisions of Articles 24 and 2A5 of the Uniform Commercial Code may produce a different result. They do not require the contract or a memorandum of the contract to be in writing. As stated in Comment 1 to § 2-201, “All that is required is that the writing afford a basis for believing that the offered evidence rests on a real transaction.” This language may be a bit hyperbolic as each of these sections has certain minimum requirements as to the description of the subject matter. However, written instructions to an agent could be the basis for crossing the threshold into a finding that there is sufficient written evidence to make the claim of a contract plausible.

Footnotes — § 2.6:

U.S.

—Gumbin v. Alexander, 22 F.2d 889 (7th Cir.1927); Bernstein v. Yee Wong, 236 F. Supp. 5 (D.D.C. 1964).

Kan.

—Schuhmacher v. Lebeck, 103 Kan. 458, 173 P. 1072 (1918).

N.J.

—Rose v. Minis, 41 N.J. Super. 538, 125 A.2d 535 (1956).

2 In Lacey v. Cardwell, 216 Va. 212, 217 S.E.2d 835 (1975), a property owner authorized a realty agent to auction a farm on or about June 30. The authorization further stated, “Sales agent is authorized under this contract to offer the entire property for the sum of $250,00 until June 15 … .” This was held to authorize the agent to make an offer. In Rochester Real Estate Co. v. Walhalla Sales Corp., 262 S.C. 676, 207 S.E.2d 100 (1974), a written document in the form of a sales contract was signed by real estate broker and purchaser. It provided that the “sale is subject to approval of owner.” It was properly held that this document contained an offer which became a contract when the owner approved.

R.I.

—MacKnight v. Pansey, 122 R.I. 774, 412 A.2d 236 (1980).

Tenn.

—Lusky v. Keiser, 128 Tenn. 705, 164 S.W. 777 (1914).

4 U.C.C. § 2-201.

5 U.C.C. § 2A-201.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.7 »

1 Corbin on Contracts § 2.7 (2020)

§ 2.7. Offers at the Supermarket or Self-Service Shop

Merchandising in modern supermarkets and other self-service stores poses the question of whether goods placed on display with a marked price are offered for sale or are they there merely as invitations to bargain? Apparently no case has been reported where the seller has refused to sell at the marked price. The issue has arisen in two contexts which, because they involve policy matters the gravamen of which are in criminal law and tort are not very illuminating for present purposes. In an English case the British Pharmaceutical Society attempted to make war upon a self-service drugstore by charging it with criminal violation of a statute requiring certain listed poisons to be sold by, or under the supervision of, a registered pharmacist. The argument was that a sale was effectuated when the customer accepted the seller’s offer by removing a product from the drugstore’s shelves. The court disagreed, holding that the offer and acceptance took place at the check-out where a pharmacist supervised the process.1

The American cases revolve around exploding soda-pop bottles. The supermarket customer removes a bottle from the shelf, places it in a shopping cart, and wheels the cart away. The bottle then explodes, injuring the customer. If there has been a sale, the customer is in privity with the supermarket and has a claim for breach of warranty. If there is no sale, there is no warranty. Traditionally, the courts have ruled there is no sale until the customer checks out.2

Some cases have held that a supermarket display constitutes an offer that is accepted by the customer’s act of placing the goods in his or her shopping basket, subject to the customer’s power to terminate the contract before going through the check-out counter.3 Once again, these are bursting bottle cases. Developments in products liability that allow an action against the bottler without privity and without proof of fault cause these decisions to be regarded largely as historical markers on the road to a modern system of products liability.4 But, even in products liability cases, the claimant may prefer a contractual warranty action against the retailer for several reasons. The retailer may have greater resources than the manufacturer with which to satisfy a judgment. In addition, the retailer may be more readily subjected to the jurisdiction of the court that is the most convenient for the plaintiff. Also, the passage of time may have barred a tort claim against the manufacturer, but not a contract claim against the retailer.

The reasonable customer has reason to believe that the supermarket merchant is offering goods for sale, subject to reasonable quantity limitations, and subject to the merchant’s ability to rectify any mistake made by a stock clerk in marking the price on the product. This reasonable belief is enacted in consumer protection legislation and should enter the general law of contracts. However, there are objections to this point of view. It has been noticed that supermarket customers remove goods from the shelves, place them in their market baskets, change their minds and return the goods to their original location or even to other locations. This custom would indicate that the reasonable expectations of customers is that no contract is formed until the goods are checked-out. Professor John E. Murray spelled out an intellectually satisfying theory under which supermarket customers’ expectations of being able to purchase goods at advertised prices can be squared with their expectations of being able to change their minds after selecting goods from the shelves.5 The self-service store can be regarded as having created the reasonable expectation that its offer of goods at a particular price is irrevocable. The customer has the irrevocable power to create a contract at the check-out. The customer’s decision to purchase, or not to purchase, is subject to change at or before that time.

Footnotes — § 2.7:

1 Pharmaceutical Society of Great Britain v. Boots, (1953) 1 Q.B.D. 401, affirming (1952) 2 Q.B. 795. The case is commented on in 16 Modern L. Rev. 369 (1953). See also, Fisher v. Bell, (1960) 3 All. E.R. 731, where the defendant displayed a knife in his shop window with a price tag attached. He was prosecuted for offering a “flick knife” for sale in violation of a statute. It was held the display was not an offer. See further, Groomes v. United States, 155 A.2d 73 (App. D.C. 1959), a shop-lifting case.

2 Lasky v. Economy Grocery Stores, 319 Mass. 224, 65 N.E.2d 305 (1946); Day v. Grand Union Co., 280 App. Div. 253, 113 N.Y.S.2d 436 (1952), aff’d, 304 N.Y. 821, 109 N.E.2d 609 (1952); Loch v. Confair, 361 Pa. 158, 63 A.2d 24 (1949).

3 Giant Food, Inc. v. Washington Coca-Cola Bottling Co., Inc., 273 Md. 592, 332 A.2d 1 (1975); Gillespie v. Great A. & P. Tea Co., 14 N.C. App. 1, 187 S.E.2d 441 (1972).

4 See Restatement (Second) of Torts § 402A.

In self-service contracts, the customer could be said to have an irrevocable power of acceptance, i.e., an “option contract,” for a reasonable time upon taking possession of goods from a shelf. The store would be seen as making an irrevocable offer for a reasonable (shopper’s) time in exchange for the customer shopping at its store rather than other stores. If the customer changed her mind and replaced the goods, it would simply be a decision not to exercise her irrevocable power of acceptance. The “option” contract could also satisfy the requirement of the implied warranty of merchantability under the UCC. Moreover, the bizarre possibility of others taking the goods from the customer’s possession would be eliminated since the customer would have the exclusive right to complete the purchase of the goods for a reasonable time. This analysis reflects the reasonable understanding of self-service stores and their customers.

John E. Murray, Murray on Contracts § 37 (5th ed. 2011).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.8 »

1 Corbin on Contracts § 2.8 (2020)

§ 2.8. Preliminary Agreements Part I—Agreements to Negotiate

Parties routinely enter into what are loosely called “preliminary agreements” where they agree on some matters under negotiation but intend to agree to additional terms or execute at least one additional writing. Disputes over the legal effect of preliminary agreements are legion and often raise thorny issues. “One of the most difficult areas of contract law concerns the enforceability of letters of intent and other preliminary agreements.”1 A well-known judicial decision observed: “Indeed, it is difficult to generalize about the legal effect of preliminary agreements. They can cover a broad scope of agreements, ranging in ‘innumerable forms and variations’ from letters of intent which presuppose that no binding obligations will be placed upon the parties until final contract documents have been signed, to firm binding commitments which, notwithstanding a need for more detailed documentation of agreement, can bind the parties to adhere in good faith to the deal that has been agreed.”2 Despite the breadth of the topic, certain issues crop up repeatedly.

To discern the legal effect of such documents, it is generally not helpful to place much stock in the labels parties put on them, or on how they are typically utilized in similar transactions. Contract formation does not always follow the same trajectory, and it does not always end with a signed, formal, written document with a heading that includes the words “agreement” or “contract.” Sometimes it ends with a document that, at first blush, might look “preliminary” in nature, and perhaps not even like a contract at all. Documents that typically are not intended to reach the parties’ ultimate contractual objective—including proposals and letters of intent—can, in fact, be legally operative contracts that do just that. Courts decide the legal effect of such documents based on “the keystone of all contract law,” the parties’ intent.3

The determination of whether a writing constitutes a binding agreement on the parties’ ultimate contractual objective, an unenforceable agreement to agree, or an agreement to negotiate in good faith, is often an issue of fact.4 But as is generally true with any document, if its terms are clear and unambiguous, interpretation is a question of law for the court.5 A court will interpret a preliminary agreement in accordance with the objective theory of contracts and well-settled contract law canons of construction and interpretation. As a general rule, courts will interpret preliminary agreements to mean what they say,6 a truism suggesting that much of the confusion surrounding preliminary agreements is engendered by infelicitous drafting.

In this volume, the preliminary agreement topic has been divided into two sections: this one, dealing with agreements to negotiate, and § 2.9, dealing with so-called “agreements to agree” and the common situation where the parties contemplate having a formal document in connection with their final agreement.7

1. Agreements to negotiate

The process of working to reach a final contract often involves attorneys, accountants, and others who are called upon to evaluate the economic soundness and legal obstacles to the consummation of a transaction. In the context of a prospective merger or acquisition or other complex or significant arrangement, negotiations may involve the sharing of sensitive financial information and trade secrets. Such a deal may require sufficient time to perform due diligence and to negotiate details. The parties may find it advantageous to execute preliminary agreements that, although clearly not intended to reach the parties’ ultimate contractual objective, will help facilitate the agreement process. For example, they may agree to protect the confidentiality of information exchanged, or to allow for a period of exclusive dealing. These agreements can be memorialized with consequences for their breach (liquidated damages may be appropriate) even though the parties leave themselves room to back out of the ultimate deal.

As a general rule, parties are permitted to back out of negotiations without liability at any time prior to the consummation of a contract.8 But parties sometimes agree to negotiate in good faith to reach their ultimate contractual objective. The judicial reaction to such agreements is mixed. Where parties manifest a clear intention to negotiate in good faith, some courts will enforce such a duty. The “trend line appears to be moving steadily in favor of recognizing a cause of action for breach of a contract to negotiate.”9 The polestar to answer whether there is an enforceable agreement to negotiate in good faith is the parties’ intent.10

a. The parameters of good faith

In one early case, Itek Corp. v. Chicago Aerial Industries, Inc.,11 a letter agreement outlined the bare bones of a corporate acquisition. One paragraph provided:

Itek and CAI shall make every reasonable effort to agree upon and have prepared as quickly as possible a contract providing for the foregoing purchase by Itek and sale by CAI, subject to the approval of CAI stockholders, embodying the above terms and such other terms and conditions as the parties shall agree upon. If the parties fail to agree upon and execute such contract they shall be under no further obligation to one another.

The parties met and reached oral agreement on every point that was raised. Meanwhile, however, CAI negotiators were also meeting with a third party who made a better offer. CAI accepted the other offer and abruptly terminated negotiations with Itek. The court ruled that the trier of fact could find that CAI failed to exercise “every reasonable effort to agree.” If such a finding had been made, CAI would have been liable—possibly even for expectation damages since the price terms had been resolved.12

In the decades that followed Itek, some jurisdictions have embraced the duty to negotiate in good faith, others have not. Among the courts that have embraced the theory, there is much division.

The parameters of the duty to negotiate in good faith were examined in L-7 Designs, Inc. v. Old Navy, LLC.13 L-7 agreed to provide Old Navy with creative design services, including “input” on “creative strategy.” The parties entered into a binding preliminary agreement, “a mutual commitment to negotiate together in good faith in an effort to reach final agreement.” The parties entered into negotiations to finalize the numerous open terms of the agreement, but eventually the negotiations fell apart. L-7 sued, claiming that Old Navy breached the contract “by failing to negotiate in good faith.” The court granted Old Navy’s motion for summary judgment on this point. The court cited § 2.8 (1993 ed.) for the proposition that the obligation to negotiate in good faith pursuant to a preliminary binding agreement is “not clearly delineated.” At the very least, good faith requires “honesty in fact.” But a failed negotiation does not equate to bad faith; neither does acting in one’s economic self-interest. Rather, “bad faith requires some ‘deliberate misconduct’—arbitrary or capricious action taken out of spite or ill will or to back out of an otherwise binding contractual commitment.” The court concluded that Old Navy engaged in extended negotiations in a serious effort to conclude a deal. Further, Old Navy’s decision not to enter into the agreement was motivated by its financial self-interest, given the company’s financial performance. No evidence showed that Old Navy acted with malice or ill will or for any reason other than its own financial self-interest.14

Another court explained:

The obligation to negotiate in good faith has been generally described as preventing one party from, “renouncing the deal, abandoning the negotiations, or insisting on conditions that do not conform to the preliminary agreement.” For instance, a party might breach its obligation to bargain in good faith by unreasonably insisting on a condition outside the scope of the parties’ preliminary agreement, especially where such insistence is a thinly disguised pretext for scotching the deal because of an unfavorable change in market conditions. The full extent of a party’s duty to negotiate in good faith can only be determined, however, from the terms of the letter of intent itself.15

When parties have evinced an intention to be bound by an agreement that spells out that other matters are to be agreed upon in the future, so long as the additional matters are collateral, courts may enforce the original agreement and require the parties to negotiate the additional matters in good faith. This is discussed in § 2.9 [3](b)(ii).

b. No duty to agree on ultimate contractual objective

Even courts that recognize a duty to negotiate in good faith recoil at the notion that the duty mandates a duty to enter into a final agreement on the parties’ ultimate contractual objective. The obligation of good faith “does not guarantee that the final contract will be concluded if both parties comport with their obligation, because good faith differences in the negotiation of the open issues may prevent the parties from reaching a final contract. It is also possible that the parties will lose interest due to changed circumstances and will mutually abandon the negotiation.”16

Another court explained: “[G]ood faith in negotiation requires parties to act honestly, take steps to try to reach agreement and refrain from engaging in deliberate misconduct.”17 It also noted: “While good faith in negotiations ‘requires an exchange of proposals and obliges each side to consider the other’s requests seriously, and to compromise when possible, … it does not compel either side to accept the other’s proposals.’ … . The fact that a ‘disagreement … could not be bridged does not imply that either side failed to bargain in good faith.’ ” Further: “Nor is there anything preventing a party from acting in accordance with its own financial interests in response to legitimate market changes, as long as the party is not using those interests as a pretext for undermining the deal or exploiting the other party’s sunken transaction costs.”18

c. Judicial hostility to generalized agreements to negotiate in good faith

While some courts write sympathetically about the duty to negotiate in good faith, there is also some judicial hostility to a generalized duty to negotiate in good faith that is posited without any parameters or standards attached to it. The Eighth Circuit held: “An agreement to negotiate in good faith is not sufficiently concrete to give rise to an obligation, but a provision that has more definite obligations, such as a confidentiality or nonsolicitation provision, can be binding even in a [memorandum of understanding].”19 Another example would be an agreement for an exclusive period to negotiate.

In one case,20 Navar and plaintiffs entered into a “Teaming Agreement” providing that if Navar were to be awarded a prime contract, it would negotiate with plaintiffs in good faith and, “upon arriving at prices, terms and conditions acceptable to the parties,” enter into subcontracts. Navar was awarded a five-year prime contract, but subsequently, negotiations broke down between Navar and plaintiffs over the subcontracts. Plaintiffs filed suit, claiming, inter alia, breach of the “Teaming Agreement.” The court rejected the suggestion that there was an obligation to negotiate in good faith. It held that the teaming agreement was nothing more than an unenforceable agreement to agree to negotiate at a future date. It did not contain a sum to be paid, or any reasonably certain method for determining a sum. Nor was there any agreement as to work share split or a requirement that plaintiffs and Navar mutually agree that plaintiffs would be the actual subcontractors hired by Navar once the prime contract was awarded.21

The Seventh Circuit was blunt in its hostility to generalized agreements to negotiate in good faith: “ ‘Good faith’ is no guide. In a business transaction both sides presumably try to get the best of the deal. That is the essence of bargaining and the free market. And in the context of this case, no legal rule bounds the run of business interest. So one cannot characterize self-interest as bad faith. No particular demand in negotiations could be termed dishonest, even if it seemed outrageous to the other party.”22

To make an agreement to negotiate in good faith effective, some courts require that it provide the court the tools to enforce it by spelling out what the parties are supposed to do. One court explained: “[A]n agreement to negotiate in good faith must include some ‘framework’ or ‘objective criteria’ by which a court can measure whether the agreement to negotiate in good faith has been breached.”23 While an agreement to negotiate may bind the parties to a specific course of conduct, failure to achieve a contract on the ultimate contractual objective is not, in itself, a breach of such an agreement. It is breached only by a failure to perform the specific conduct spelled out in the agreement.24

Another court wrote:

We will enforce an agreement to negotiate only if it contains a “specific way of resolving … differences,” as well as a “basis for determining … breach or for giving an appropriate remedy.” If we cannot “discern when the agreement to negotiate has been breached,” then we cannot enforce it. Even when an agreement meets this standard, each party “retain[s] the ability to say ‘no’ to the terms proposed by the other party,” and thus “an agreement to negotiate is not an agreement to agree.”25

If the parties agree to negotiate discrete matters in dispute26—or if they agree to meet, to participate in mediation, or to negotiate exclusively for a period of time, courts are likely to enforce such an agreement and imply a duty of good faith in connection with such obligations. The breach of such an agreement likely would not amount to a determination that the parties would have reached agreement on their ultimate contractual objective absent the breach.

d. Agreements expressly stating there is no duty to negotiate

Courts generally respect contractual provisions expressly providing that the parties have no enforceable obligation to negotiate. A letter of intent regarding a potential joint venture and loan provided that the parties “shall negotiate to arrive at mutually acceptable Definitive Agreements.” It further provided that the parties “each reserve the right to withdraw from further negotiations at any time if, in the sole judgment of either or both, it is in either Party’s best interest to do so, without further liability or obligation to the other.” Negotiations broke down, and the court held that the writing created no obligations to proceed to a deal or to act in good faith.27

e. Remedy for breach

Where agreements to negotiate in good faith are recognized, what remedy should be given in the event of a proven breach? It depends on the agreement, the breach, and the jurisdiction. Up through the late 20th Century, among courts that upheld agreements to negotiate in good faith, the prevailing thinking was that plaintiffs aggrieved by such a breach were restricted to reliance damages—their out-of-pocket costs and expenses. If no final agreement was reached, expectation interest damages were deemed inappropriate because it was not possible to know with certainty if an agreement would have been reached or the precise terms of such agreements.28 Expectation interest damages were deemed too speculative. To allow for damages based on the benefit of a bargain that had not yet been struck—and that may not have been struck even without bad faith—was a stretch courts generally were not willing to make.

But then, some judges began to question the appropriateness of a blanket rule foreclosing expectation interest damages. In Venture Associates Corp. v. Zenith Data Systems,29 the esteemed Judge Richard Posner explained that “if the plaintiff can prove that had it not been for the defendant’s bad faith the parties would have made a final contract, then the loss of the benefit of the contract is a consequence of the defendant’s bad faith, and, provided that it is a foreseeable consequence, the defendant is liable for that loss—liable, that is, for the plaintiff’s consequential damages.”30 But Judge Posner openly acknowledged the practical difficulty of awarding expectation interest damages in these cases: it may be impossible to determine what the terms of the contract would have been.

But in the groundbreaking SIGA Technologies, Inc v PharmAthene, Inc,31 the Delaware Supreme Court determined that it was not impossible, at least under the facts of that case. The court held that under Delaware law, expectation interest damages may be awarded for breach of an agreement to negotiate in good faith when the parties would have reached agreement on their ultimate contractual objective but for the breaching party’s bad faith. The facts of this decision, which has engendered controversy,32 are illuminating.

SIGA and PharmAthene entered into an unsigned License Agreement Term Sheet (“LATS”) that contained a footer on each page stating: “Non Binding Terms.” The LATS provided that PharmAthene would finance SIGA’s development of an antiviral drug to treat smallpox, and PharmAthene would have an exclusive worldwide license to sell the drug. Subsequently, the parties entered into a Merger Agreement providing that PharmAthene would acquire SIGA and an interim Bridge Loan agreement to assist SIGA financially. The Merger and Bridge Loan agreements obligated the parties to “negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the” LATS in the event the merger did not close. The LATS was incorporated into the Bridge Loan and Merger Agreements. Subsequently, however, SIGA received a $5.4-million-dollar grant from the National Institutes of Health, and “SIGA began experiencing ‘seller’s remorse’ during the merger negotiations for having given up control of what was looking more and more like a multi-billion dollar drug.”33 SIGA terminated the Merger Agreement. Then PharmAthene sent a proposed license agreement to SIGA with essential terms consistent with the LATS, but SIGA refused to negotiate in good faith. According to the court, SIGA proposed economic terms that differed dramatically from the LATS and that made the deal more attractive to SIGA. PharmAthene filed suit.

The Delaware Supreme Court concluded that SIGA breached a duty to negotiate in good faith. In the context of this case, the express obligation to negotiate in good faith meant that SIGA was not permitted to propose terms inconsistent with the parties’ preliminary agreement.34 The incorporation of the LATS into the Bridge Loan and Merger Agreements “reflect[ed] an intent on the part of both parties to negotiate toward a license agreement with economic terms substantially similar to the terms of the LATS if the merger was not consummated.”35 Moreover, the court concluded, “but for SIGA’s bad faith negotiations, the parties would have consummated a license agreement.”36

The court referenced other judicial authorities suggesting that benefit-of-the-bargain damages might be proper if a judge determines that the parties would have reached an agreement but for the breach.37 It conceded that the question was unsettled, but concluded that “where the parties have a … preliminary agreement to negotiate in good faith, and the trial judge makes a factual finding, supported by the record, that the parties would have reached an agreement but for the defendant’s bad faith negotiations, the plaintiff is entitled to recover contract expectation damages.”38 But, of course, where an aggrieved party is unable to establish that the contract would have closed but for the defendant’s breach, the plaintiff cannot recover damages based on the benefit of its bargain but is limited to reliance damages—the costs and expenses it actually incurred.

Even if expectation interest damages are allowed for breach of the duty to negotiate in good faith, such damages may only be recovered if there is reasonable certainty. SIGA Technologies represents that “rare case” in the preliminary agreement milieu where the court found that expectation interest damages were reasonably certain.39

Footnotes — § 2.8:

1 Venture Assocs. Corp. v. Zenith Data Systems Corp., 96 F.3d 275, 276 (7th Cir. 1996).

2 Burbach Broad. Co. v. Elkins Radio Corp., 278 F.3d 401, 406–07 (4th Cir. 2002).

3 Great Circle Lines, Ltd. v. Matheson & Co., 681 F.2d 121, 126 (2d Cir. 1982). See also, Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575 (3d Cir. 2009).

An excellent example of a case where a court disregarded the label the parties gave their agreement is found in Samet v. Bayview Loan Servicing, LLC, 2019 U.S. Dist. LEXIS 216591 (D. Nev. Dec. 17, 2019). Defendant moved to enforce a purported settlement agreement stemming from plaintiff’s claim that defendant wrongfully reported plaintiff’s deed of trust debt to credit reporting agencies in violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. The parties, through their counsel, negotiated a settlement and reached agreement on the essential terms (the court called them the “material” terms). Defendant agreed to pay plaintiff $7,000 and plaintiff agreed not to contest foreclosure on his property. Thereafter, the parties filed a Notice of Settlement indicating that the parties had reached a “tentative agreement.” Plaintiff subsequently claimed that no settlement had been reached, but the instant court disagreed and enforced the defendant’s motion to enforce settlement. “Ordinarily,” the court wrote, “the Court would hesitate to enforce an agreement the parties described as ‘tentative’ in the Notice of Settlement.” But not in this case. The communications of the parties’ counsel persuaded the court that the parties had agreed upon all material terms of the agreement and that the plaintiff intended to be legally bound prior to the parties’ filing the Notice of Settlement. The plaintiff requested a written settlement agreement memorializing the contract but did not condition the settlement agreement on the execution of a written settlement agreement.

4 Northington v. Michelotti, 121 N.C. App. 180, 464 S.E.2d 711 (N.C. Ct. App. Dec. 19, 1995); Audubon Indem. Co. v. Custom Site-Prep, Inc., 358 S.W.3d 309 (Tex. App. Houston 1st Dist. July 28, 2011).

5 Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (Md. Mar. 20, 2007).

6 Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (Md. Mar. 20, 2007).

7 Other sections of this treatise deal with various matters related to preliminary agreements, too, notably § 1.16 (letters of intent); § 2.1 (preliminary negotiations); and § 2.10, dealing, inter alia, with whether signatures are necessary to have a binding agreement.

8 See Barnes & Robinson Co. v. Onesource Facility Servs., 195 S.W.3d 637 (Tenn. Ct. App. Jan. 23, 2006) (letter of intent that allows negotiation over material terms does not impose duty to negotiate in good faith absent an expressed contractual agreement to the contrary and is merely a contract to make a contract—“not a contact at all.”).

9 Butler v. Balolia, 736 F.3d 609, 614 (1st Cir. 2013).

Not all courts agree, but those that do not appear to be in a dwindling minority. In Dallas/Fort Worth Int’l Airport Bd. v. Vizant Techs., 2019 Tex. LEXIS 467 (2019), the Supreme Court of Texas “acknowledge[d] that ‘many more jurisdictions have recognized the enforceability of contracts to negotiate than have repudiated that doctrine [and] the trend line appears to be moving steadily in favor of recognizing a cause of action for breach of a contract to negotiate.’ Butler v. Balolia, 736 F.3d 609, 614 (1st Cir. 2013) (listing cases). Perhaps a case may yet come before this Court that convinces us to overrule our precedent and join the trending majority of jurisdictions.” But this was not the case. In this case, the Airport Board, operator of the DFW International Airport, retained Vizant to analyze the airport’s payment-processing costs, with an eye toward reducing those costs. Vizant was to be paid pursuant to a formula based on the cost savings it generated, but the contract capped Vizant’s fee at $50,000. Nevertheless, the contract also provided that “[i]n the event” Vizant’s fee exceeds $50,000, the Board “will make a good faith effort to receive board authorization to increase the compensation,” and “if approved,” the parties would amend the contract to reflect the higher amount. Vizant claimed it only agreed to the $50,000 cap because the Board’s staff assured it that the Board always approve such increases. Vizant performed its work and claimed it generated significant savings in costs for the Board far in excess of the $50,000 cap. Vizant sought approval for an increase in its fees to $330,000, but the Board denied the request. This litigation followed. The Supreme Court of Texas held that the Board could waive its government immunity by entering into a written contract with Vizant stating the agreement’s essential terms. The question was “whether the good-faith effort clause states the ‘essential terms’ of the agreement Vizant seeks to enforce”? The court explained that “the Board did not agree to authorize or agree to make a higher payment; instead, it agreed to make a good-faith effort to agree to a higher payment.” The court affirmed Texas precedent holding that agreements to negotiate a future contract—even agreements to negotiate in good faith—are not legally enforceable under Texas law. Accordingly, the court concluded, “the contract here does not state the essential terms of a legally enforceable agreement requiring the Board to make a good-faith effort to authorize a higher payment to Vizant. As a result, the agreement Vizant seeks to enforce … does not waive the Board’s immunity.” The court held that Vizant’s breach of contract claim should have been dismissed.

10 Budget Mktg. v. Centronics Corp., 927 F.2d 421 (8th Cir. 1991).

11 Itek Corp. v. Chicago Aerial Industries, Inc., 248 A.2d 625 (Del. 1968).

12 Ultimately judgment was entered on a jury verdict for defendant. Itek Corp. v. Chicago Aerial Industries, Inc., 274 A.2d 141 (Del. 1971).

13 L-7 Designs, Inc. v. Old Navy, LLC, 2013 U.S. Dist. LEXIS 124085 (S.D.N.Y. Aug. 29, 2013).

14 See Butler v. Balolia, 2017 U.S. Dist. LEXIS 84662 (D. Mass. June 1, 2017); Meltzer v. Stier, 2017 U.S. Dist. LEXIS 182016 (S.D.N.Y. Nov. 2, 2017).

15 A/S Apothekernes Laboratorium v. I.M.C. Chemical Group, Inc., 873 F.2d 155, 158 (7th Cir. 1989) (quoting Teachers Insurance and Annuity Ass’n v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987)); Kandel v. Ctr. for Urological Treatment & Research, P.C., 2002 Tenn. App. LEXIS 260, *19 (Tenn. Ct. App. Apr. 17, 2002). One court explained:

"[A]n express contractual obligation to negotiate in good faith is binding on the contracting parties.” “At the very least,” an obligation to negotiate in good faith precludes either party from “insist[ing] on specific terms that directly contradict[] a specific provision found in” the instrument creating the good-faith obligation. “Under Delaware law, ‘bad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity.’” Bad faith “is different from the negative idea of negligence in that it contemplates a state of mind affirmatively operating with furtive design or ill will.”

Leaf Invenergy Co. v. Invenergy Wind, LLC, 2018 Del. Ch. LEXIS 126, *84 (April 19, 2018) (high opening bid not in and of itself sufficient to show bad faith since there was a reasoned basis for it).

16 Burbach Broad. Co. v. Elkins Radio Corp., 278 F.3d 401, 407 (4th Cir. 2002).

17 Butler v. Balolia, 2017 U.S. Dist. LEXIS 84662, *42 n. 7 (D. Mass. June 1, 2017).

18 Butler v. Balolia, 2017 U.S. Dist. LEXIS 84662, *41–42 n. 7 (D. Mass. June 1, 2017).

19 Meridian Invs., Inc. v. Fed. Home Loan Mortg. Corp., 855 F.3d 573, 580 (8th Cir. 2017).

20 Navar, Inc. v. Fed. Bus. Council, 291 Va. 338, 784 S.E.2d 296 (2016).

21 See Gammon v. State Farm Mut. Auto. Ins. Co., 2016 U.S. Dist. LEXIS 96216 (W.D. Va. July 22, 2016) (agreement to negotiate in good faith to reach a mutually acceptable contract “based on the terms and conditions outlined herein” was an “unenforceable agreement to agree”).

In Atl. Holdings, Ltd. v. Apollo Metals, Ltd., 263 F. Supp. 3d 526 (E.D. Pa. 2017), Atlantic sued Apollo, and the parties entered into a “tolling agreement” in which the parties agreed, among other things, that any statute of limitations-type defenses would be tolled for several months. The Tolling Agreement also stated: “The parties share a common interest in the resolution of the Civil Action.” Subsequently, on November 30, 2016, Atlantic filed suit, and Apollo’s counterclaim alleged, among other things, that Atlantic breached that agreement by never engaging in any good-faith efforts to settle the case. The court granted Atlantic’s motion to dismiss Apollo’s counterclaim holding that there was no duty breached. Despite the language about the parties’ “common interest” in achieving a resolution, the tolling agreement did not impose any duty regarding settlement. “The Tolling Agreement does not require either party to make a settlement demand, make a settlement offer, or even discuss settlement. Indeed, the Tolling Agreement does not require Atlantic or Apollo to take any action with respect to settlement. ‘A critical element of every claim for breach of contract requires a showing of a breach of some duty owed.’ ” Atl. Holdings, Ltd. v. Apollo Metals, Ltd., 263 F. Supp. 3d 526, 530 (E.D. Pa. 2017), quoting SmithKline Beecham Corp. v. Continental Ins. Co., 2004 U.S. Dist. LEXIS 15751 (E.D. Pa. Aug. 4, 2004).

22 Feldman v. Allegheny International, Inc., 850 F.2d 1217, 1223 (7th Cir. 1988). Feldman was written by Judge Coffey, who also wrote A/S Apothekernes Laboratorium v. I.M.C. Chemical Group, Inc., discussed in the text at note 15. The difference in the tone of the two decisions was due to the content of the two preliminary agreements. In Feldman, the duty to negotiate in good faith “simply bound the seller to negotiate exclusively with the buyer in good faith until they disagreed; this was the full extent of the parties’ obligation. In the absence of any agreed upon terms or even a general framework within which to conduct the negotiations, the parties were free to insist on or reject any proposed terms to the contract that they wished.” A/S Apothekernes at 159. See also, Venture Assocs. Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir. 1996) (self interest is not bad faith); West Palm Beach Hotel, L.L.C. v. Atlanta Underground, L.L.C., 2014 U.S. Dist. LEXIS 130710 (D. N.J. Sept. 17, 2014) (citing Feldman, the court held that a party’s refusal to come to final agreement on price set forth in preliminary agreement was not bad faith since the preliminary agreement did not manifest the parties’ intent that there would be no deviation on the price term).

23 Clark Res., Inc. v. Verizon Bus. Network Servs., 2011 U.S. Dist. LEXIS 46154, *15 (M.D. Pa. Apr. 29, 2011).

24 Keystone Land & Dev. v. Xerox Corp., 152 Wn. 2d 171, 94 P.3d 945 (Wash. July 22, 2004).

25 Alaska Fur Gallery, Inc. v. Hwang, 394 P.3d 511, 516 (Alaska 2017) (citations omitted).

26 Davis v. Dykman, 938 P.2d 1002 (Alaska 1997).

27 New York Military Academy v. NewOpen Group, 142 A.D.3d 489, 36 N.Y.S.3d 199, 2016 NY Slip Op 05706 (N.Y. App. Div. 2d Dep’t Aug. 3, 2016).

28 Goodstein Constr. Corp. v. New York, 80 N.Y.2d 366, 590 N.Y.S.2d 425, 604 N.E.2d 1356 (1992); L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 431 (2d Cir. 2011). See Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 74 n. 2 (2d Cir. 1989): “Arcadian’s alleged failure to bargain in good faith is not a but-for cause of API’s lost profits, since even with the best faith on both sides the deal might not have been closed. Because attributing API’s lost profits to Arcadian’s bad faith may be speculative at best, the district court may decide that damages based on API’s out-of-pocket costs are most appropriate.”

29 Venture Associates Corp. v. Zenith Data Systems, 96 F.3d 275, 278–79 (7th Cir. 1996).

30 See also Logan v. D.W. Sivers Co., 343 Or. 339, 169 P.3d 1255, 1265–66 (2007) and the cases cited therein (Kistler, J., concurring in part and dissenting in part); Fairbrook Leasing, Inc. v. Mesaba Aviation, Inc., 519 F.3d 421, 429 (8th Cir. 2008) (expectation damages may be appropriate “if it can be discerned what agreement would have been reached”); Columbia Park Golf Course, Inc. v. City of Kennewick, 160 Wn. App. 66, 84, 248 P.3d 1067, 1077 (2011) (“[W]e find no basis in Washington law to adopt a special rule that always forecloses the usual expectation measure of damages—essentially a conclusive presumption that expectation damages can never be proved with reasonable certainty—when a longstanding ‘reasonable certainty’ requirement already guards against speculative awards.”) It is well to note that while Judge Posner’s opinion in Venture Associates recognized at least the theoretical possibility of expectation interest damages for breach of the duty to negotiate in good faith, he also expressed marked qualms about the duty itself—he wrote that it rests on “somewhat shaky foundations,” it is “vague,” and that courts “are not well equipped to determine whether people are negotiating with each other in good faith … .”

A case that discusses Venture Assocs. Corp. v. Zenith Data Sys. Corp. is PSC Metals, Inc. v. Southern Recycling, LLC, 2019 U.S. Dist. LEXIS 34001 (M.D. Tenn. 2019). PSC and Southern entered into a letter of intent regarding the former’s potential purchase of the latter’s Nashville assets and business operations. The LOI was non-binding with regard to the terms and structure of the potential acquisition and was titled “Non-Binding Letter of Intent.” It included various disclaimers of any intent to be bound as to the substantive terms of the proposed deal. In addition: “No party shall in any way be bound to consummate the transaction until a definitive agreement is executed containing terms, conditions, representations, warranties [sic] as are appropriate and which are agreed upon by the parties.” But the LOI contained a binding exclusivity provision that granted PSC exclusive negotiating rights with Southern. The court previously granted PSC’s motion for summary judgment on the footing that Southern breached the LOI’s exclusivity provision. Instantly, the court was called upon to decide if PSC was entitled to expectancy damages for Southern’s breach of the parties’ preliminary agreement. Southern claimed that PSC was only entitled to seek reliance damages. The court framed PSC’s challenge: “PSC must … show that, when the parties signed the LOI, they reasonably should have understood that breach of the exclusivity provision might subject the breaching party to damages equal to the full expected value of the proposed deal.” The court answered this question in the negative: “The parties could not have reasonably contemplated that breach would expose them to full expectancy damages for a deal that did not exist in any enforceable form. Without formal agreement on any substantive terms, the parties had no basis from which expectancy damages could flow.” The court pointed to the LOI’s disclaimers, which “preclude[d] any reasonable contemplation that the LOI’s substantive terms might be enforceable. In light of these disclaimers, Southern could not have had ‘such notice as would give [it] to understand that a breach’ of the exclusivity provision would ‘probably result’ in injuries pegged to the LOI’s terms.” The court agreed with Judge Posner in Venture Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275 (7th Cir. 1996) that “it is hypothetically possible for breach of a preliminary agreement to foreseeably give rise to expectancy damages. However, … given the LOI’s categorical disclaimers, this is not that case. Moreover, … the LOI includes no duty to negotiate, in good faith or otherwise.”

Expectancy damages are not awarded in the absence of a duty to negotiate in good faith, the court held. The court draws a distinction between preliminary agreements to negotiate in good faith and exclusivity provisions: “[P]rovisions mandating good faith negotiations are tailored to facilitate successful completion of a deal, while exclusivity provisions protect the parties’ investments made in furtherance of negotiation.” But both kinds of preliminary agreements seem designed to facilitate reaching agreement on the ultimate contractual objective. Further, the court does not explain why the duty of good faith should not be implied in exclusivity provisions—why have a provision allowing exclusive negotiations if a party is allowed to act in bad faith?

The court concluded that “the Tennessee Supreme Court would not allow expectancy damages for breach of a letter of intent’s binding exclusivity provision based on other, non-binding terms within the letter of intent.” PSC was entitled only to prove reliance damages, not expectancy damages.

31 SIGA Technologies, Inc v PharmAthene, Inc, 67 A.3d 330, 333 (Del. 2013).

32 See, e.g., Violeta Solonova Foreman, Non-Binding Preliminary Agreements: The Duty to Negotiate in Good Faith and the Award of Expectation Damages, 72 U.T. Fac. L. Rev. 12 (2014).

33 SIGA Technologies, Inc v PharmAthene, Inc, 67 A.3d 330, 347 (Del. 2013).

34 SIGA Technologies, Inc v PharmAthene, Inc, 67 A.3d 330, 351 (Del. 2013).

35 SIGA Technologies, Inc v PharmAthene, Inc, 67 A.3d 330, 351 (Del. 2013).

36 SIGA Technologies, Inc v PharmAthene, Inc, 67 A.3d 330, 351 (Del. 2013).

37 Fairbrook Leasing, Inc. v. Mesaba Aviation, Inc., 519 F.3d 421, 426–27 (8th Cir. 2008); Venture Associates Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir. 1996).

38 SIGA Technologies, Inc v PharmAthene, Inc, 67 A.3d 330, 350–351 (Del. 2013).

39 See Stanford Hotels Corp. v. Potomac Creek Assocs., L.P., 18 A.3d 725, 739 (D.C. App. 2011). When it comes to the duty to negotiate in good faith, as Judge Posner wrote, “it may be impossible to determine what those terms would have been and hence what profit the victim of bad faith would have had.” Venture Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275, 278–279 (7th Cir. 1996). In Stanford Hotels, supra, after the plaintiff (Stanford) presented the highest bid ($48.75 million) to buy the defendant’s hotel, the parties entered into a preliminary agreement that contained the following clause: “Definitive Agreement. Buyer and Seller shall negotiate in good faith with a view to signing a Definitive Agreement within ten (10) days after execution of this letter, which agreement shall, inter alia, include the terms and conditions set forth in this offer.” While the complexities of the negotiation required months instead of days, the defendant presented a “definitive agreement,” which manifested the parties’ agreement to all material terms, and which the plaintiff signed. The defendant, however, refused to sign the agreement. The lower court found that the defendant violated the good faith requirement of the preliminary agreement by pursuing a separate negotiation with a third party. The defendant had no intention of signing the definitive agreement, which it pressed the plaintiff to sign, unless a more advantageous arrangement failed to materialize (e.g., a deal to refinance its property). The trial court concluded that the defendant was “covertly working both sides of the street.” The judge, however, rejected the plaintiff’s claim for the remedy of specific performance since the only contract signed by both parties was the preliminary agreement that did not evidence the purchase and sale of the property.

The court of appeals held that the trial court did not go far enough. It framed the issue as whether the remedy of specific performance should be available to enforce the preliminary agreement, which the court interpreted as manifesting the parties’ intent to create an obligation to sign a definitive agreement containing all material terms. Emphasizing the language in that agreement—“with a view to signing a Definitive Agreement”—the court concluded that the trial court could have granted that remedy. It remanded the case to determine if the other requirements of specific performance could be met to allow the preliminary agreement to be specifically enforced.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.9 »

1 Corbin on Contracts § 2.9 (2020)

§ 2.9. Preliminary Agreements Part II—Agreements to Agree, Formal Document Contemplated by the Parties

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.9 »•[1]»

1 Corbin on Contracts § 2.9[1] (2020)

[1] The Corbin Classification

Among the most litigated issues in the preliminary agreement milieu is whether the parties’ preliminary agreement is, in fact, a legally binding agreement on their ultimate contractual objective. Professor Corbin posited the following classification of cases:

(1) At one extreme, the parties may say specifically that they intend not to be bound until the formal writing is executed. (2) Next, there are cases in which they clearly point out one or more specific matters on which they must yet agree before negotiations are concluded. (3) There are many cases in which the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters that are not essential but that other people often include in similar contracts. (4) At the opposite extreme are cases like those of the third class, with the addition that the parties expressly state that they intend their present expressions to be a binding agreement or contract; such an express statement should be conclusive on the question of their “intention.”

If the facts of a case properly fall within either the third or the fourth class above, a valid contract has been made. This is true, even though one or both of the parties may be aware that the formal writing will when prepared contain such additional provisions as they may then agree upon. However formal and complete a written contract may be, it is always competent for the parties to vary the terms or to add new ones by mutual agreement. The existence of such a possibility as this has no effect upon the validity of any contract, formal or informal.1

Since Professor Corbin wrote those words, there has been a veritable explosion of litigation over preliminary agreements, but his classification retains its validity—it still works.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.9 »«[2]»

1 Corbin on Contracts § 2.9[2] (2020)

[2] Other Tests

Many other tests have been utilized by courts to assist in making the factual determination of whether a preliminary agreement is a legally binding contract on the parties’ ultimate contractual objective. A comment to the Restatement (Second) of Contracts identified factors helpful in making this determination:

Among the circumstances which may be helpful in determining whether a contract has been concluded are the following: the extent to which express agreement has been reached on all the terms to be included, whether the contract is of a type usually put in writing, whether it needs a formal writing for its full expression, whether it has few or many details, whether the amount involved is large or small, whether it is a common or unusual contract, whether a standard form of contract is widely used in similar transactions, and whether either party takes any action in preparation for performance during the negotiations. Such circumstances may be shown by oral testimony or by correspondence or other preliminary or partially complete writings.2

Judge Pierre Leval’s influential opinion in Teachers Ins. & Annuity Asso. v. Tribune Co.3 explained that there are two types of preliminary agreements—one of which is the agreement to negotiate, discussed above in § 2.8, and one where the parties have reached agreement to form a contract on all issues they perceive require negotiation, but they desire a more elaborate formalization, which is not necessary, only desirable, to the transaction.

Another list—the Winston factors—was suggested by the Second Circuit Court of Appeals:4 First, whether a party has expressly reserved the right to be bound only when a written agreement is signed; second, whether there has been any part performance by one party that the other party accepted; third, whether all essential terms of the alleged contract had been agreed upon; and fourth, whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.9 »«[3]•

1 Corbin on Contracts § 2.9[3] (2020)

[3] Two Overarching Questions

The aforementioned tests are helpful, but depending on the case, a multitude of factors might need to be examined to discern whether a preliminary agreement is a legally binding contract that reaches the parties’ ultimate contractual objective.5

A significant proportion of the cases can be resolved by answering two overarching questions: (1) Have the parties agreed on all essential terms of the transaction? (2) Whether a party knows or has reason to know that another party to the proposed transaction intends to delay contract formation until something else happens? The “something else” can be practically anything—including the execution of a more formal written memorialization of the deal, obtaining signatures on a document, or approval by that party’s home office.

A. Have the parties agreed on all essential terms of the transaction with sufficient clarity to allow a court to enforce the agreement in the event of a breach?

Every contract needs to have agreement on certain terms in order to be an enforceable contract, and the terms vary depending on the type of contract and the parties’ intentions as shown by surrounding circumstances of the proposed transaction. In order to have a binding contract, the parties must agree on all essential terms with enough certainty for a court to fashion a remedy in the event of a breach.6

i. What are “essential terms”?

In some cases, the parties’ negotiations yield something that resembles a contract but it is not legally operative because the parties have left open one or more essential terms, or one or more essential terms have not been expressed with the requisite clarity to allow a court to fashion a remedy in the event of a breach. In that case, there is no necessity to look further—there is no contract on the parties’ ultimate contractual objective.7 But when the parties have reached agreement on those terms necessary to provide a remedy in the event of a breach and intend it to be a binding contract, the agreement may be enforced even though the parties have left open all manner of non-essential terms.8

Aside from terms that are necessary for a court to fashion a remedy in the event of a breach, “essential” terms are the terms that one of the parties deems necessary to contract formation, so long as such understanding is reasonably known by the other party. “Whether a term is an essential element of a contract depends primarily upon the intent of the parties.”9 It is a question of fact.10 No final contract on the parties’ ultimate contractual objective is possible absent agreement on such terms.

In a case involving the question of whether a settlement agreement was enforceable,11 the court explained that the agreement is binding if the parties agree on all “material terms” (equivalent to the “essential terms” discussed here). The court proceeded to define the “material terms” in accordance with the parties’ intentions—based on the terms they actually negotiated:

The settlement negotiations in this case proceeded for several rounds of offers and counter-offers, and the process went on for months. During that time, the only issues discussed by the parties were the amount of damages, the attorney’s fees, the filing fee, and, as mentioned in passing, the approval of a current credit report. Given that these were the only topics for negotiation, the Court concludes that these were the material terms; it would be too much of a stretch to reason that an issue that was never even mentioned was nonetheless material to the agreement.12

ii. “Agreements to agree”

To say that something is an “agreement to agree” or a “contract to make a contract” is a legal conclusion that means there is no enforceable contract. It is, of course, quite possible for parties to make an enforceable contract obligating them to prepare and execute a subsequent final agreement. In order that such may be the effect, it is necessary that agreement is expressed on all essential terms that are to be incorporated in the document. The document the parties contemplate executing will be nothing more than a memorial of the agreement they have already reached.13

But where the parties agree to postpone agreement on a term essential to their ultimate contractual objective, there is no binding contract, and courts sometimes refer to it as an “agreement to agree” or a “contract to make a contract.” The parties’ intention to delay agreement on an essential term is determined by examining their outward manifestations of assent in light of all the surrounding circumstances.14

We must not jump too readily to the conclusion that a contract has not been made from the fact of apparent incompleteness. People do business in a very informal fashion, using abbreviated and elliptical language. A transaction is complete when the parties mean it to be complete. It is a mere matter of interpretation of their expressions to each other, a question of fact.15 An expression is no less effective that it is found by the method of implication. The parties may not give verbal expression to such vitally important matters as price,16 place, and time of delivery, time of payment, amount of goods, and yet they may actually have agreed upon them. This may be shown by their antecedent expressions, their past action and custom, and other circumstances.17 If the parties have manifested an intent to be bound, the agreement should not be struck down because of the difficulty of administration unless it is quite clear that the court can only fill in the gaps in the dark.

B. Does a party know or have reason to know that another party to the proposed transaction intends to delay contract formation until something else happens?

If a party knows or has reason to know that the other party does not intend to have an enforceable contract until something else happens—that “something else” can be all manner of things, including the execution of a more formal written memorial of the deal or approval by a party’s “home office”—“the preliminary negotiations and agreements do not constitute a contract.”18

There are many cases where the question of whether a preliminary agreement is, in fact, an enforceable contract on the parties’ ultimate contractual objective is easily answered. The express language of the preliminary agreement itself may manifest a clear intention to delay contract formation, or one or more parties may have expressly stated that there will be no legally operative contract until some future event occurs. In that case, there is no contract.19 Of course, many cases present thornier facts.

i. Where parties intend to execute a more formal agreement.

There is much litigation over one particular type of preliminary agreement. Frequently, parties envision that they will execute a formal written memorial of their preliminary deal. Does that intention, in and of itself, prevent contract formation until such formal written memorial is executed? The answer depends on the parties’ intentions as shown by the surrounding circumstances. If a party makes clear during negotiations that there will not be a legally operative contract unless and until the parties execute a more formal memorialization of the deal, that should be the end of the inquiry—there is no contract absent execution of a more formal document.20

It is common in the course negotiating a contract that the parties reach tentative agreement on specific matters, intending that there will not be a legally binding contract on any matter until the negotiations are completed and a final document is signed. The parties’ intentions to delay contract formation may not be expressed with clarity but may be found from the context of all the surrounding circumstances. In T&M Inventions, LLC v. Acuity Brands Lighting, Inc.,21 plaintiffs alleged that defendants breached an oral contract relating to ownership rights in connection with an invention for installing skylights on metal buildings. The alleged agreement supposedly created an independent entity to hold joint ownership rights in the invention, and a division of royalties that were expected to flow from sales of the product. Plaintiffs contended that the parties reached the purported oral agreement in the summer of 2009. In fact, throughout 2009, the parties exchanged numerous draft agreements, which consistently indicated that documents would be executed when agreed upon and signed. The court granted summary judgment for the defendants, explaining that there was no evidence to infer the parties had done anything more than agree to negotiate the terms of a mutually beneficial business relationship. The Plaintiffs’ own communications acknowledge that no agreement was reached. The court noted that “even if the parties had agreed in principle, they had intended to be bound only by a written contract executed after they had negotiated the terms. … . Under Wisconsin law, such ‘agreements to agree’ do not create binding obligations. … . Where parties do not intend to be bound until all negotiations are complete, no contract is formed.”22 The court cited a prior edition of this treatise for the proposition that no contract is formed “ ‘where two parties consider the details of a proposed agreement, perhaps settling them one by one, with the understanding during this process that the agreement is to be embodied in a formal written document and that neither party is to be bound until he executes the document.’ ”23

Often the parties reach agreement on all matters under negotiation but intend to memorialize their agreement in a subsequent formal written document. If they have agreed on all the essential terms with sufficient certainty that the agreement may be enforced and if no party manifests an intent to condition contract formation on the execution of the subsequent document, courts generally find that a binding contract has been entered into. In that case, the contemplated subsequent document is intended as a mere written memorial of the agreement already reached.24 Whether the subsequent document is eventually executed is of no importance to the court—the failure to execute the more formal document does not undo the parties’ existing agreement,25 which is fully enforceable as a legally operative contract.26

Whether the parties merely intend to execute a more formal document or, on the other hand, intend to condition contract formation on having a more formal document, is a question of the parties’ intent.27 Sometimes, the parties’ manifestations of intent are clear,28 but at other times they are murky, and it is not easy to tell whether contract formation is conditioned on the execution of a subsequent document.29 Even if a preliminary agreement says it is “subject to” the execution of a satisfactory additional document, this is not conclusive. To discern the parties’ intentions, it is often necessary to consider other factors.30

Various aids have been posited to assist in the process of discerning the parties’ intentions, such as those referenced in section [2] of this § 2.9. Usage and custom may be decisive of the issue. The greater the complexity and importance of the transaction, the more likely it is that the informal communications are intended to be preliminary only. In fact, depending on the particular case, a multitude of factors might need to be examined. Performance is among the best indicators of intent.31

O’Connor-Goun v. Weill Cornell Med. College of Cornell Univ.32 is an illustration of a court wading through the murky waters of surrounding circumstances to discern whether the parties intended to form a contract. Though a settlement agreement did not contain an express reservation of the right not to be bound, the language of the document (labeled “draft”) and surrounding circumstances indicated the defendant’s intention not to be bound until the agreement was finalized. In their settlement discussions, counsel for both parties referred to it as a “draft.” It contained blank spaces concerning how the settlement payment was to be allocated as well as blank signature blocks accompanied by language stating that the parties had executed this agreement. The plaintiff argued that the blank spaces were immaterial since a contract can be found notwithstanding some missing terms. The court recognized that uncertainty as to incidental or collateral matters is seldom fatal to conclude a bargain,33 but the question in this case was whether the parties intended to conclude a bargain, and the absence of one or more terms may suggest that there was no such intention. Even assuming the information in the blank spaces was immaterial, the draft agreement was facially incomplete. The draft also included a merger clause, which the court viewed as evidence that the parties did not intend to be bound until they executed the written agreement. There was no partial performance of the draft agreement. The parties had earlier indicated their intention to execute “a more formal agreement.” While the draft was somewhat “more formal,” the court concluded that it strains credulity to find a facially incomplete document prominently labeled as a “draft” to be a “more formal agreement.”

A related question arises when a proposed written memorial of a contract contains signature lines that are left unsigned by one or more parties. Whether there is a binding contract in that situation is governed by the intent of the parties. This is considered in § 2.10 of this treatise.

ii. Where the parties’ agreement specifically requires additional agreement on specific matters

A related question arises where the parties’ initial agreement expressly states that certain discrete and prescribed, but important, matters still need to be agreed upon. If the parties intend to have a contract prior to the resolution of such matters, and if the contract does not afford them unbridled discretion with respect to the subsequent matters to be agreed upon, the contract generally will not be denied enforcement because the subsequent matters have not been agreed upon. For example, the exact price may be left for future negotiation within a specified maximum and a specified minimum. In such a case it may be intended that the buyer shall have a binding option to buy at the maximum, or the seller may sell at the stated minimum.34

If an agreement manifests an intention to be a legally operative contract but leaves certain collateral documentation to be executed later—even if the documentation is important—the agreement should be binding so long as it spells out how the documentation is to be prepared. If, for example, the documentation is to be prepared at the discretion of one of the parties and is to take the form of standard documents utilized for such purposes in the trade, the party preparing the documentation cannot act in bad faith. In that case, a court may have little room for concern about enforcing the agreement even before the collateral documents are executed.

In Facebook, Inc. v. Pac. Northwest Software, Inc.,35 the Ninth Circuit Court of Appeals dealt with that scenario and resolved the dispute in a satisfying manner. Cameron and Tyler Winklevoss, along with Divya Narendra, claimed that Mark Zuckerberg stole from them the idea for the social networking site Facebook. The Winklevosses sued Facebook, and Facebook countersued them, and eventually the parties mediated their dispute and appeared to enter into a settlement agreement. Specifically, the Winklevoss’ competing social networking site, ConnectU, Facebook, and the Winklevosses signed a handwritten, one-and-a-third page “Term Sheet & Settlement Agreement” in which the Winklevosses agreed to give up ConnectU in exchange for cash and a percentage of Facebook’s common stock. The settlement agreement also stated: “Facebook will determine the form & documentation of the acquisition of ConnectU’s shares [ ] consistent with a stock and cash for stock acquisition.” The settlement agreement also purported to end all disputes between the parties. The parties agreed to grant each other “mutual releases as broad as possible,” and the Winklevosses represented and warranted that “[t]hey have no further right to assert against Facebook” and “no further claims against Facebook & its related parties.” The parties stipulated that the settlement agreement was “confidential,” “binding,” and “may be submitted into evidence to enforce [it].”

The settlement fell apart during negotiations over the form of the final deal documents. Facebook moved to enforce the settlement agreement and asked a district court to order ConnectU and the Winklevosses to sign more than 130 pages of documents, including a Stock Purchase Agreement, a ConnectU Stockholders Agreement, and a Confidential Mutual Release Agreement. Facebook’s transactional attorneys claimed that the terms in these documents were “required to finalize” the settlement agreement, and Facebook’s expert opined that they were “typical of acquisition documents.”

The district court enforced the settlement but refused to add the stack of documents drafted by Facebook’s lawyers. The Ninth Circuit Court of Appeals affirmed, rejecting the Winklevosses’ argument that because the parties had not come to agreement on the terms that Facebook claimed were “required” to complete the transaction, there was no legally operative settlement agreement. The court explained that, in fact, an agreement is enforceable so long as its terms are sufficiently definite for a court to determine whether a breach has occurred and to order damages or specific performance. The Ninth Circuit explained: “This is not a very demanding test, and the Settlement Agreement easily passes it: The parties agreed that Facebook would swallow up ConnectU, the Winklevosses would get cash and a small piece of Facebook, and both sides would stop fighting and get on with their lives.”36

What about the fact that the parties had not yet agreed on some important terms of the deal—terms that could affect the value of the bargain? The court explained that the Settlement Agreement itself specified how to fill in the “material” terms that the Winklevosses claim were missing from the deal: “Facebook will determine the form & documentation of the acquisition of ConnectU’s shares [ ] consistent with a stock and cash for stock acquisition. (emphasis added).” That clause, the court explained, “leaves no doubt that the Winklevosses and Facebook meant to bind themselves and each other, even though everyone understood that some material aspects of the deal would be papered later.”37 The court concluded that “[t]he Winklevosses’ contractual delegation is valid because the Settlement Agreement obligates Facebook to draw up documents ‘consistent with a stock and cash for stock acquisition.’ And, if Facebook should draft terms that are unfair or oppressive, or that deprive the Winklevosses of the benefit of their bargain, the district court could reject them as a breach of the implied covenant of good faith and fair dealing. … . The district court got it exactly right when it found the Settlement Agreement enforceable but refused to add the stack of documents drafted by Facebook’s deal lawyers.”38 Here, the parties intended to have a contract, they spelled out how the additional documents to be agreed upon would be added to the deal, and the court implied the duty of good faith to limit Facebook’s discretion in drafting the documents.39

iii. “Home office” approval clauses

Representatives of business entities commonly postpone contract formation by making clear that only a certain representative of that business (e.g., a high-ranking officer) or the “home office” has the power to enter into a contract.40 A proposal may look much like an offer but if it states that it may only be accepted by the “home office” or a high ranking officer of the party making it, it is nothing more than a solicitation for an offer that must be accepted by the party making the original proposal.41

In some cases, courts have found that the contractual clause requiring home office approval is an offer that does not prevent contract formation but only states a condition precedent on the offeror’s obligation to perform.42 In an appropriate case, it may be proper to find that a proposal conditioning contract formation on the approval of the home office creates a power of acceptance—if, for example, the facts support a finding of a waiver of such clause or if course of dealing or the like dictate such a result. But aside from such narrow exceptions, the overriding authority holds that when a business representative reserves the power to walk away from the deal—as, for example, when he or she conditions contract formation on the approval of the proposal by the company’s home office—a power of acceptance has not been created. There is no offer.

But a distinction must be made here. If the power to scuttle the deal lies with a third party—an outside engineer, or the attorneys of the parties43—then the proposal is rightly considered an offer stating a condition precedent to an obligation to perform. The Restatement (Second) of Contracts presents these two illustrations:

(1) “A and B sign a written agreement for an exchange of real property and leave it with C, an attorney, on the oral understanding that it is not to take effect until each has consulted his wife and notified C that he still wishes to close the exchange. There is no contract until each has notified C.”44

(2) “A and B agree that A will sell a patent to B for $ 10,000 if C, an engineer advising B, approves. A and B sign a written agreement covering all of the agreement except C’s approval, and agree orally that it will take effect only if C approves. There is an immediate contract, but B’s duty is conditional on C’s approval.”45

In the first illustration, there is no contract but in the second there is. The difference is that in the first illustration, the parties themselves have retained the power to back out of the deal after discussing it with their spouses, but in the second, performance under the contract is subject to “a condition not within the control of either party … .”46 In that case, “there may be a binding contract creating immediate conditional rights.”47 In the second illustration, C was not one of the contracting parties. The parties themselves did not contemplate any further expression of assent by either of them. Neither had a power of revocation. A made a promise to sell in exchange for B’s conditional promise to buy—the condition was the act of a third party, C.

(A) The following cases are noteworthy:

(1) Prods. & Ventures Int’l v. Axus Stationary Shanghai, 2018 U.S. Dist. LEXIS 124720 (N.D. Cal. July 25, 2018). Moving parties sought judgment on an oral settlement agreement made on the record before a United States Magistrate Judge. The parties agreed that the claimant would receive $ 4.4 million. They also agreed to have a written agreement and that the mechanics of the settlement—including the process for and timing of payment—would be resolved after good faith investigation. At issue were the mechanics of payment by Chinese companies into a U.S. Bank. As the instant court explained: “No party indicated that either of those issues was to be a condition precedent to the binding nature of the settlement reached.” The court noted: “The oral agreement contains no language that it is ‘subject to’ or ‘conditioned on’ resolving the mechanics of payment.” The “mechanics of payment” was, in fact, secondary to the claimant’s right to receive the agreed-upon $4.4 million. The parties agreed on the record in court that the settlement was final and binding. The instant court followed Facebook, Inc. v. Pac. Nw. Software, Inc., 640 F.3d 1034, 1037–38 (9th Cir. 2011) in holding in favor of the moving parties. As in the Facebook case: “[T]he oral agreement includes terms ‘sufficiently definite … to determine whether a breach has occurred, order specific performance[,] or award damages,’ including the amount to be paid by defendants to [claimant], that the parties would dismiss all claims and counterclaims with prejudice, and that the parties would bear their own fees and costs. The oral agreement’s failure to specify the ‘mechanics of payment’ does not mean that ‘there can be no contract.’” Here, the basic agreement was struck, and the parties agreed to work out the nonmaterial terms later. The parties had a settlement agreement, and the court granted the moving parties’ motion to enter judgment.

(2) Capital Equity Grp. v. Ripken Sports Inc., 2018 FED App. 0379N (6th Cir. July 30, 2018). Plaintiff, Capital Equity Group, helps fund business-development projects. Defendants are companies engaged in developing, building, and running sports complexes. The parties entered into letters of intent for a planned youth baseball complex and sports park to be built in Sandusky, Ohio. Plaintiff and defendant Ripken Sports entered into a 2014 letter of intent that provided: “[Capital Equity Group] shall exclusively procure all equity participation into the development of the Project,” that Ripken Sports would do market feasibility studies and be lead for design and construction, and that “the Parties agree[d] to reasonably cooperate with one another to facilitate each other’s performance.” Further, the term of the contract was “open-ended.” Importantly, as the Sixth Circuit later explained, the LOI “did not specify how profits were to be distributed or how to measure any party’s performance.” Plaintiff “worked tirelessly” to structure an agreement between Erie County, Ohio and a newly formed entity known as Cedar Point Park LLC. Thereafter, Cedar Point Park LLC, the county, and defendants continued working together on the project, breaking ground on the sports complex in 2016, but plaintiff was cut out of the project. Plaintiff sued, and the district court granted defendants’ motion to dismiss. On appeal, the Sixth Circuit affirmed. The Sixth Circuit noted that under Ohio law, to be enforceable, a contract must show agreement on the deal’s “essential terms”—for contracts not involving the sale of goods, this means the parties and the subject matter. The contract must provide a basis for determining that a breach occurred and for giving an appropriate remedy. Although the instant contract showed agreement on the essential terms, it failed to provide a basis for giving a remedy. “Nowhere within the agreement does it contemplate how any party would be compensated or how they would deal with a breach.” The court held that “the 2014 LOI lacked sufficiently definite terms of performance and remedy, and was thus unenforceable.”

(3) Allscripts Healthcare, LLC v. Etransmedia Tech., Inc., 2019 U.S. Dist. LEXIS 220183 (N.D. Ill. Dec. 24, 2019). Etransmedia was a reseller of Allscript’s software. The parties attempted to settle business disputes between them in mediation, and they signed a document that they called a “Term Sheet.” The Term Sheet was “an untitled, two-page list of bullet-pointed terms … . The Term Sheet purports to provide for Etransmedia to sell its Allscripts client base to Allscripts in exchange for the dissolution of the parties’ relationship and resolution of all outstanding disputes.” The term sheet dealt with all manner of matters that were in dispute. It left open several important matters, the court explained:

The Term Sheet … provides: “Parties will enter into comprehensive settlement agreement memorializing terms contained herein on or before October 1. Agreement will provide for filing of stipulations of dismissal with prejudice in all pending actions between the parties as soon as reasonably possible after execution.” … .

… . Another bullet point reads: “Parties agree to seek to extend the stay of Illinois and North Carolina litigations and arbitration for an additional 30 days (through October 15) or such further additional time as may be necessary to effectuate the terms hereof.” … .

The Term Sheet expressly leaves open several terms—including those regarding the mechanics of Allscripts’s payments and the release of certain claims—to be resolved in the comprehensive settlement agreement that the Term Sheet contemplated would be finalized by October 1. The Term Sheet states that “[p]ayment will be disbursed in accordance with terms of executed settlement agreement,” and “Timing of payment: [by X DATE].” … . As to mutual releases, it provides only that the “Parties will execute mutually satisfactory general releases of all claims.” … . And as to indemnification for claims brought by others, it states: “Issues related to cross-claims for indemnification arising from third-party claims not yet resolved. The parties will address these issues in the final settlement agreement.”

Allscripts filed this action, and the court granted Etransmedia’s summary judgment motion on Allscripts’s claim that Etransmedia breached the Term Sheet. The court held that there was no legally binding contract to enforce. The Term Sheet did not evince an intent to be bound. Beyond that, the parties failed to agree on all essential terms—it “leaves unspecified what is required for the contemplated general releases to be ‘mutually satisfactory,’ and expressly leaves for future negotiation over the ‘final settlement agreement’ all ‘issues relating to cross-claims for indemnification arising from third-party claims not yet resolved.’ ” Finally, the Term Sheet expressly conditioned some obligations on the execution of a future agreement—“the Term Sheet makes clear that the parties are not expected to dismiss their pending claims until after execution of the comprehensive settlement agreement.” Indicative of the parties’ intent that this document was not a binding contract was the fact that the Term Sheet “concerns a substantial transaction and the complex handover of business relationships.” The mere fact that the Term Sheet did not expressly state that an agreement was “subject to” execution of a subsequent document was not determinative—the parties’ intention not to be legally bound until another document is signed can be expressed by other means.

Footnotes — § 2.9:

1 Arthur L. Corbin, Corbin on Contracts, § 30 (one vol. ed. 1952). This classification was cited in Pribble v. Pribble, No. 0876, September Term, 2015, 2016 Md. App. LEXIS 546 (April 21, 2016); Falls Garden Condo. Ass’n v. Falls Homeowners Ass’n, 441 Md. 290, 107 A.3d 1183 (2015); Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (2007).

2 Restatement (Second) of Contracts § 27 cmt.c (Am. Law Inst. 1981). See also, Highland Capital Mgmt., L.P. v. Bank of Am., 698 F.3d 202 (5th Cir. 2012) (court reversed trial court and, after weighing evidence pursuant to Restatement (Second) of Contracts § 27 cmt. c, held that plaintiff stated a viable claim for breach of contract).

In Power v. Tyco Int’l (US), Inc., 2006 U.S. Dist. LEXIS 96188 (S.D.N.Y. May 29, 2006), the court applied § 27, cmt. c, of the Restatement (Second) of Contracts and held there was no evidence of any intention not to be bound absent a writing. There was clearly partial performance. While the agreement was incomplete in certain respects, the court found that no material terms were missing. The court recognized that while a severance agreement of the type under consideration is usually reduced to writing, this single factor weighing against enforcement of the oral agreement was not conclusive where the other factors clearly pointed to an enforceable contract.

One on One Basketball, Inc. v. Global Payments Direct, Inc., 38 F. Supp. 3d 44, 51 (D.D.C. Apr. 23, 2014) (“The Court’s conclusion that no oral contract exists here is … supported by the large amount of money involved.”).

Rosenbluth v. Prudential Sec., Inc., 134 Fed. App’x 124 (9th Cir. Cal. May 5, 2005) (the greater the complexity and importance of the transaction, the more likely it is that informal communications were intended to be only preliminary).

Public contracts sometimes have their own rules. See Ry-Tan Constr., Inc. v. Wash. Elem. Sch. Dist. No. 6, 210 Ariz. 419, 111 P.3d 1019 (2005). After the defendant school district board had voted to award a construction contract to the plaintiff and authorized the signing of the formal contract the next day, the defendant refused to sign the document. In the plaintiff’s action for breach of contract, the trial court held that the execution of the formal document was not a condition precedent to the formation of the contract. However, on appeal, the instant court reversed, holding that a public agency is not bound by a contract until a formal contract is executed.

3 Teachers Ins. & Annuity Asso. v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987).

4 Winston v. Mediafare Entertainment Corp., 777 F.2d 78 (2d Cir. 1985). See also, GSGSB, Inc. v. New York Yankees, 862 F. Supp. 1160 (S.D.N.Y. 1994); Krauth v. Executive Telecard, Ltd. 890 F. Supp. 269 (S.D.N.Y. 1995).

Kowalchuk v. Stroup, No. 4491, 2009 N.Y. App. Div. LEXIS 1029 (N.Y. Sup. Ct. Feb. 10, 2009) applied the criteria from Winston v. Mediafare Entertainment Corp. in determining that emails manifested an intent to be bound to a contract before formal documents were signed.

Hand v. N.Y. City Hous. Pres. & Dev., 2017 U.S. Dist. LEXIS 100497, *4 (E.D.N.Y. June 27, 2017) (applying Winston factors).

Denver v. Adolph Coors Co., 813 F. Supp. 1476 (D. Colo. 1993) (applying Winston factors).

QFA Royalties LLC v. A & D Foods, Inc., 2007 U.S. Dist. LEXIS 38388 (D. Colo. May 25, 2007) (applying Winston factors).

5 See, e.g., Consarc Corp. v. Marine Midland Bank, 996 F.2d 568 (2d Cir. 1993). To determine whether the parties intended to be bound absent a writing, no single factor may be decisive but, where applicable, each of sixteen factors may provide guidance. See also, Philips Credit Corp. v. Regent Health Group, 953 F. Supp. 482 (S.D.N.Y. 1997) (same).

Among the most reliable indicators of intent is performance. The court will be more willing to find that an apparently incomplete agreement was in fact complete where the parties have already rendered some substantial performance or have taken other material action in reliance upon their existing expressions of agreement. The fact that they have so acted is itself a circumstance bearing upon the question of completeness of their agreement. Fontainebleau Hotel Corp. v. Crossman, 286 F.2d 926 (5th Cir. 1961). An oral contract for a lease, with an option to renew for 5 years, was specifically enforced, even though the parties contemplated further negotiation as to various matters. The lease was reduced to writing but never signed. Possession was taken, $50,000 spent on improvements by the lessee, and rent was paid for months. (Citing a previous edition of this treatise, § 29.)

See also, Mid-Continent Telephone Corp. v. Home Telephone Co., 319 F. Supp. 1176, 1191 (N.D. Miss.1970), stating: “[W]here one party begins performance, with knowledge and approval of the other, it is nearly always evidence of intention to be bound.” (Citing a previous edition of this treatise, § 29.)

6 Falls Garden Condo. Ass’n v. Falls Homeowners Ass’n, 441 Md. 290, 107 A.3d 1183 (2015) (parties agreed on essential terms, though they left open other non-essential terms that others often include in these agreements, so they had a valid contract); Duffus v. IndyMac Mortg. Servs., 2014 Alas. LEXIS 15, *12 (2014) (“Courts generally do not find contracts unenforceable merely because the parties left nonessential terms or details to be addressed later.”).

3E Mobile, LLC v. Global Cellular, Inc., 2020 U.S. App. LEXIS 1914 (D.C. Cir. Jan. 22, 2020). Global and 3E were entangled in a copyright dispute but eventually settled that claim. Global and 3E then entered into a separate manufacturing agreement with the intent that 3E act as a manufacturer or middleman between Global and its Chinese suppliers. According to the instant court, “[a]ll of 3E’s obligations hinged on Global placing an ‘order’ for products, and 3E nowhere offers a coherent definition of the term.” No orders were placed, and this litigation followed, with dueling claims of breach of contract. The district court concluded that the contract was unenforceable because it lacked a definition of an “order,” an essential term, and on appeal, the instant court affirmed. 3E argued “that the manufacturing agreement was not a standalone contract because it was inextricably bound up with the settlement of the original copyright claim and therefore ‘order’ was not, in fact, an essential term.” The court rejected this argument, explaining that “[b]oth the manufacturing agreement and the settlement agreements contained integration clauses,” a “clear sign” that the document is the entire contract. When the essential terms are so uncertain that it cannot be determined whether a contract has been kept or broken, there is no enforceable contract.

7 Ind.—Mays v. Trump Ind., Inc., 255 F.3d 351, 359 (7th Cir. 2001) (no binding contract found where many material terms of a complicated transaction were “never reduced to the kind of solid contract that could be comfortably enforced in a court of law … .”); CR3 of Ind., LLC v. Specialty Surfaces Int’l, Inc., 2008 U.S. Dist. LEXIS 63537 (S.D. Ind. Aug. 19, 2008) (parties’ one page memorandum stated that if bidding on a project was successful, the parties would proceed with a joint venture-type relationship, but court held it lacked material terms necessary for enforceable contract); Sasso v. Warsaw Orthopedic, Inc., 45 N.E.3d 835 (Ind. Ct. App. 2015) (agreement not enforceable where plaintiff purported to transfer patent rights in medical devices that were to be listed on an addendum that was never created); Shirkey v. Future Enters., 2010 Ind. App. Unpub. LEXIS 32 (Jan. 10, 2010) (no enforceable contract since parties unable to agree on the essential term of how the business would be structured to give one of them a 25% ownership interest).

In Janky v. Batistatos, 559 F. Supp. 2d 923 (N.D. Ind. Apr. 24, 2008), the plaintiff’s lawyer forwarded an email to the defendant’s lawyer seeking a settlement of outstanding litigation between the parties. The defendant’s response agreed but added the following: “Although not explicitly mentioned in your proposal, the parties will enter into a mutual global release. We will provide the initial proposed release language in the near future.” The defendants forwarded to plaintiff a draft global release that was filled with terms that were not to the plaintiff’s liking. The parties exchanged drafts of the mutual global release but could not agree to terms. The plaintiff sought enforcement of what it claimed was a settlement agreement as set forth in the emails exchanged between the parties’ attorneys. The court held that no enforceable contract was entered into. It noted that because the defendant’s proposal indicated that further manifestations of assent were necessary, namely the mutual global release, no enforceable contract was formed. While parties can enter into an enforceable contract even when that contract references a future and final written agreement, the initial agreement is only enforceable if it expresses all essential terms that are to be incorporated into the document. The term “mutual global release” was not sufficiently definite to be enforced. Beyond that, numerous complicated extraneous issues were left unresolved, including the fact that certain defendants were not listed in the email response of the defendant’s attorney despite the fact they would have to sign off on any release if all the litigation between the parties was to be dismissed. The court cited the Corbin treatise (§ 2.8, 1993 ed.): “The more important the uncertainty, the stronger the indication is that the parties do not intend to be bound; minor items are likely to be left to the option of one of the parties or to what is customary or reasonable.” Absent definite terms, the court could not enforce the purported settlement agreement.

Fla.

—Hulse v. Orthodontic Educ., LTD, 2011 U.S. Dist. LEXIS 730 (M.D. Fla. Jan. 4, 2011) (parties’ agreement to execute contract that was to contain essential terms that the parties had not agreed on yet held unenforceable).

Haw.—

Provident Funding Assocs., L.P. v. Gardner, 2019 Haw. App. LEXIS 522 (2019). Gardner and Wittmeyer entered into a preliminary agreement to “cooperate” in the sale of their land in order to settle a dispute. The parties disagreed about whether the agreement was legally operative, and the lower court held that it was not. The instant court affirmed. The agreement left out an essential term—price. It provided that any proposed sale of the property to a prospective buyer required approval by a third party, Provident, but the agreement did not specify a minimum price that would be acceptable to the parties, and it also provided that “[t]he disposition of any excess proceeds will be for the remaining parties and the Court to determine/decide.” The agreement did not spell out a method to determine the price. Since an essential term had been left to be resolved by further negotiation, it was an unenforceable agreement to agree.

Mich.

—Ford Motor Co. v. Kahne, 379 F. Supp. 2d 857 (E.D. Mich. 2005) (Ford and racing driver entered into “Personal Service Agreement” providing that Ford would offer driver opportunities to drive in “one or more mutually acceptable racing series with a reasonably competitive team” and that “the specific series and team will be determined jointly.” The court relied on § 2.8 (1993 ed.) and held that since the parties agreed that the contract is to contain a material term to be negotiated, no contract was made).

Miss.

—King’s Daughters & Sons Circle No. Two v. Delta Reg’l Med. Ctr., 856 So. 2d 600 (Miss. Ct. App. June 17, 2003) (letter of intent captioned “No Contract” that stated it was not binding and left a number of terms to be agreed upon, including the purchase price, was not a contract. Citing the Corbin treatise (§ 29, 1963 ed.), the court held that a contract to make a contract is not recognized under Mississippi law unless the final agreement is a mere memorial of an agreement already reached).

Pa.

—City of Rome v. Glanton, 958 F. Supp. 1026 (E.D. Pa. 1997) (parties negotiated loan of art to City of Rome, but never agreed on payment).

P.R.

—Prisma Zona Exploratoria de P.R., Inc.v. Calderon, 310 F.3d 1 (1st Cir. 2002) (alleged contract to make a contract regarding a grant held unenforceable as many essential terms were left undecided, including the amount of the grant).

Utah

—C&Y Corp. v. General Biometrics, Inc., 896 P.2d 47 (Utah Ct. App. May 18, 1995) (parties did not agree on whether a proposed purchase of a corporate division included its liabilities; the parties disagreed over price; and the would-be seller indicated the need for board approval).

Va.

—Evans v. PlusOne Sports, 686 Fed. App’x 198 (4th Cir. 2017). The parties executed a term sheet for a non-exclusive licensing agreement providing that one party would utilize another’s patent to sell a product. The term sheet left material terms unresolved, including the definition of “gross sales,” the duration, and an arbitration provision. At the conclusion of the document, the following sentence appeared: “The undersigned parties agree to work in good faith to record the terms of this Term Sheet in a binding Non-Exclusive License Agreement.” The court held it was an unenforceable agreement to agree. (The result would be the same under Massachusetts law.)

8 In Ray v. Wooster, 270 S.W.2d 743 (Mo. 1954), the court held that a contract for the sale of land was specifically enforceable even though the writing contained no agreement on many items commonly included in such contracts. These included abstract of title, taxes, forfeiture of earnest money, curing of defects, and risk of loss.

Heritage Broadcasting Co. v. Wilson Communications, Inc., 170 Mich. App. 812, 428 N.W.2d 784 (1988) (nothing to be agreed upon but the mechanics of closing the sale of the television stations).

Four Seasons Hotels Ltd. v. Vinnik, 127 A.D.2d 310, 515 N.Y.S.2d 1 (1987).

See Stackpole Int’l Eng’g, Ltd. v. Angstrom Auto. Grp. LLC, 2018 U.S. Dist. LEXIS 167541 (E.D. Mich. September 28, 2018). AAG was the parent company of APM, an automotive parts supplier to Stackpole. Stackpole entered into a letter of intent (LOI) with AAG in which Stackpole awarded AAG and APM contracts to supply parts. The LOI included a description of the parts to be provided, the production volume, and the price per part. It authorized defendants to proceed with tooling in order to meet project milestones, but it contemplated that purchase orders “will be issued at a later date to allow for actual shipments.” Pursuant to the LOI, APM, not AAG, actually supplied the parts to Stackpole, and this arrangement continued for several years—Stackpole issued purchase orders to APM, as contemplated by the LOI, and the purchase orders reflected the terms of the LOI and referenced the LOI expressly. But the parties eventually had a falling out and Stackpole filed suit against AAG and APM for defendants’ alleged failure to fulfill their obligations under the orders. Defendants filed a motion to dismiss, and AAG argued that it was not a party to the contract. The court rejected this argument and denied the motion to dismiss on this point. The court held that Stackpole’s claim for breach of contract against AAG “has facial plausibility” because the parties intended the LOI to be a binding contract and to trigger performance by defendants, and it contained “all the essential elements to form a contract between AAG and Stackpole.” The fact that the LOI left actual shipments by APM to future orders did not render the LOI a nonbinding document. The court’s opinion seems correct since the complaint suggests that the parties intended the actual future orders to be governed by the LOI.

9 Burrus v. Reyes, 516 S.W.3d 170, 187–188 (Tex. App. El Paso 2017), petition for review denied, 2017 Tex. LEXIS 823 (2017). See also United States ex rel. Doe v. Health First, Inc., 2017 U.S. Dist. LEXIS 71221 (M.D. Fla. May 10, 2017); Aldora Aluminum & Glass Prods. v. Poma Glass & Specialty Windows, Inc., 2016 U.S. Dist. LEXIS 95280 (M.D. Fla. May 16, 2016); Water Transport Asso. v. Interstate Commerce Com., 722 F.2d 1025 (2d Cir. 1983).

10 Pantzer v. Shields Dev. Co., 660 F. Supp. 56 (D. Del. 1986).

11 Keumurian v. Equifax Info. Servs., LLC, 2016 U.S. Dist. LEXIS 149104, *9 (D. Mass. Oct. 27, 2016).

12 Keumurian v. Equifax Info. Servs., LLC, No. 15-cv-10481-ADB, 2016 U.S. Dist. LEXIS 149104, *10 (D. Mass. Oct. 27, 2016).

After the parties reach an agreement on all terms they deem essential, if one of them introduces a new issue and claims the deal that was struck was “incomplete” without agreement on this issue, such contention cannot undo their prior agreement. Rocco v. Khan, 2017 Minn. App. Unpub. LEXIS 147 (Minn. Ct. App. Feb. 13, 2017).

Del.

—Clark v. Bradford Gas & Power Corporation, 11 Del. Ch. 178, 98 A. 368 (1916).

Md.

—Peoples Drug Stores, Inc. v. Fenton Realty Corp., 191 Md. 489, 62 A.2d 273 (1948).

Mass.

—Parkway, Inc. v. U.S. Fire Ins. Co., 317 Mass. 428, 58 N.E.2d 646 (1944) (oral contract to execute and to pay premium on a renewal policy of insurance).

Mo.

—Young v. Lanyon, 242 S.W. 685 (Mo. App. 1922).

N.Y.

—Pratt v. Hudson R.R. Co., 21 N.Y. 305 (1860).

In Shepard v. Carpenter, 54 Minn. 153, 55 N.W. 906 (1893), the court wrote: “A contract between two persons, upon a valid consideration, that they will, at some specified time in the future, at the election of one of them, enter into a particular contract, specifying its terms, is undoubtedly binding, and upon a breach thereof the party having the election or option may recover as damages what such particular contract to be entered into would have been worth to him, if made. But an agreement that they will in the future make such contract as they may then agree upon amounts to nothing.”

In Ridgway v. Wharton, 6 H.L. Cas. 268, Lord Wensleydale said: “An agreement to be finally settled must comprise all the terms which the parties intended to introduce into the agreement. An agreement to enter into an agreement upon terms to be afterward settled between the parties is a contradiction in terms.”

A contract is not invalid by reason of a provision that its terms shall be subject to revision in case of changed conditions and for arbitration as to the change to be made in case the parties themselves cannot agree. On an application for a declaratory judgement, the court held that the parties were bound by the arbitration provision. Shepard v. Carpenter, cited in this note was distinguished. Zelle v. Chicago & N.W.R. Co., 242 Minn. 439, 65 N.W.2d 583 (1954).

14 In DCR Mtge. VI Sub I, LLC v. Peoples United Fin., Inc./, 50 N.Y.S.3d 144 (N.Y. App. Div. 2017), the parties executed letters of intent concerning the plaintiff’s possible purchase of a commercial mortgage from defendant. The letters set forth “minimal terms,” and each of them contained the following language: “All terms and conditions referenced herein are non-binding and subject to Purchaser’s satisfactory due diligence review of the loan in its sole discretion and negotiation of a mutually agreed upon Loan Sale Agreement between Purchaser and Seller.” The parties never finalized a mutually agreed upon loan sale agreement. Plaintiff sued, claiming the last letter of intent was a binding contract. The court disagreed. “[A] mere ‘agreement to agree,’ which is expressly conditioned on the execution of a definitive agreement satisfactory in form and substance to both parties, does not give rise to an enforceable contract … .” Id. at 146. Here, pursuant to the letters of intent, “the formation of an enforceable agreement for the purchase and sale of the subject loan was expressly conditioned, inter alia, on the finalization of a definitive agreement … .” Id. The letters of intent were nonbinding, and no contract was formed.

U.S.

—Aldora Aluminum & Glass Prods. v. Poma Glass & Specialty Windows, Inc., 2017 U.S. App. LEXIS 5268 (11th Cir. Mar. 27, 2017) (memorandum of understanding stating that parties were working out “acceptable agreements” for a lease was agreement to agree); Beech Aircraft Corp. v. Ross, 155 F.2d 615 (10th Cir. 1946) (specific prices of goods per unit to be subject to revision “by mutual agreement.”); Nebo Constr. Co. v. Southeastern Electric Constr. Co., 200 F. Supp. 582, 587 (W.D. La. 1961) (“sheer indefiniteness.”).

In Pure Oil Co. v. Petrolite Corp., 158 F.2d 503 (5th Cir. 1946), cert. denied, 330 U.S. 834, a lease of certain machinery provided that the lessee should have an option to buy it at a specific price, “subject to the terms of a sales and purchase agreement to be entered into between the parties.” Since the use of the machinery involved the use of a process owned by the lessor, the “agreement to be entered into” would involve terms as to license and royalty. On this supposition, the court would not supply those terms by “implication” or otherwise.

Richie Co., LLP v. Lyndon Ins. Group, Inc., 316 F.3d 758 (8th Cir. 2003) (letter was unenforceable “agreement to agree” since it spoke of future actions and contemplated agreements).

Converge, Inc. v. Topy Corp., 2005 U.S. Dist. LEXIS 32763 (E.D. Mich. Dec. 14, 2005) (consulting agreement between Consultant and Manufacturer held to be an agreement to agree since it provided that “if Manufacturer enters into a contract with Chrysler during the term of this Consulting Agreement to supply Chrysler with Manufacturer’s products (as a result of contacts made by Consultant with Manufacturer’s prior consent), Manufacturer will enter into an agreement with Consultant to pay Consultant a fee in such amount as Manufacturer and Consultant agree.”).

Ala.

—Hinrichs v. Tranquilaire Hospital, 352 So. 2d 1130 (Ala. 1977).

Ark.

—Somers v. Musolf, 86 Ark. 97, 109 S.W. 1173 (1908).

Cal.

—Louis Lesser Enterprises, Ltd. v. Roeder, 209 Cal. App. 2d 401, 25 Cal. Rptr. 917 (1962) (incomplete writing a mere part of complex negotiations); Dillingham v. Dahlgren, 52 Cal. App. 322, 198 P. 832 (1921); Fly v. Cline, 49 Cal.App. 414, 193 P. 615 (1920). In Gould v. Callan, 127 Cal. App. 2d 1, 273 P.2d 93 (1954), specific performance of a contract for the sale of land was denied because essential provisions were left for future agreement.

Colo.

—Baum v. Rock, 106 Colo. 567, 108 P.2d 230 (1940).

Ind.—R3 Composites Corp. v. G&S Sales Corp., 2019 U.S. Dist. LEXIS 96579 (N.D. Ind. 2019). The court was called upon to decide whether a non-disclosure agreement (NDA) entered into between R3 and G&S was legally operative. G&S claimed that R3 owed it commissions under the NDA, but R3 argued that the NDA was illusory. The court previously granted R3’s motion for summary judgment and held that the NDA was illusory. Instantly, the court declined to modify its previous ruling. The NDA provided, in pertinent part: “If G&S obtains jobs for R3, the parties will attempt to develop an agreement whereby G&S is paid a commission with a guideline being a 5% commission with the precise commission rate to be negotiated on a job-by-job basis.” The court’s previous holding stated: “For a contract to be enforceable, … the parties must demonstrate the ‘intent to be bound and definiteness of terms.’ Wolvos v. Meyer, 668 N.E.2d 671, 675 (Ind. 1996) (quoting 1 Arthur Linton Corbin & Joseph M. Perillo, Corbin on Contracts § 2.8 at 131 (rev. ed. 1993)) … .” The court affirmed its previous holding: the parties did not agree on a commission rate. “Instead, the NDA is explicit about providing the parties the chance to attempt to negotiate a commission rate in the future. Consequently, the Court would be unable to derive any remedy from the terms of the Agreement even if the Court were to find that R3 breached the NDA.” The court explained: “The Court would have no meaningful way to enforce the NDA provision that the parties ‘attempt to’ agree without also filling in terms that are not included in the NDA.”

Kan.

—St. Louis & S.F.R. Co. v. Gorman, 79 Kan. 643, 100 P. 647 (1909).

Mich.

—Socony-Vacuum Oil Co. v. Waldo, 289 Mich. 316, 286 N.W. 630 (1939).

Md.

—Simmons v. Simmons, 37 Md. App. 202, 376 A.2d 1147 (1977) (separation agreement contained provisions for the parties to review the question of support payments).

Minn.

—Shepard v. Carpenter, 54 Minn. 153, 55 N.W. 906 (1893).

Miss.

—Intrepid, Inc. v. Bennett, 176 So. 3d 775 (Miss. 2015) (lease provision allowing for extension but requiring parties to “renegotiate” based on indefinite formula was an agreement to agree).

J.A.M. Productions, Inc. v. Tunica County Arena & Exposition Ctr., Inc., 2012 U.S. App. LEXIS 4785 (5th Cir. Mar. 7, 2012). The plaintiff used the same arena over several years to conduct go-kart races. The “facility use agreement” contained an “Advance Payment/Deposit Policy” that allowed the user to leave a deposit to secure future dates to be decided, but not necessarily the same dates covered under the agreement. The deposit clause did not include a final price. The court found that the final price constituted a material term, which the court could not supply because the parties negotiated a final price each year based on negotiated specific prices and dates, as well as activities associated with the race. The court concluded that the missing terms were material and their absence precluded recognition of a contract.

Mo.

—Amaan v. Eureka, 615 S.W.2d 414 (Mo. 1981), cert. denied, 454 U.S. 1084; P.R.T. Inv. Corp. v. Ranft, 363 Mo. 522, 252 S.W.2d 315 (1952).

Mont.

—Livingston Waterworks v. Livingston, 53 Mont. 1, 162 P. 381 (1916); Esselstyn v. Meyer & Chapman State Bank, 63 Mont. 461, 208 P. 910 (1922).

N.J.—

Zegarski v. Zegarski, 2019 N.J. Super. Unpub. LEXIS 1163 (2019). The court considered whether the parties’ property settlement agreement (PSA) was sufficiently definite to constitute an enforceable agreement regarding the allocation of the college expenses of one of their children. The PSA stated: “All reasonable and agreed upon college and secondary education costs shall be divided between the parties after any and all financial aid is received by said children … .” The child selected a college to attend but the plaintiff father did not agree to it. Nevertheless, the lower court compelled plaintiff to bear half of the child’s expenses to attend the particular university. On appeal, the instant court held that “the parties’ PSA is too indefinite to constitute an enforceable agreement regarding college expenses,” and it remanded for further consideration. The court cited this portion of the Corbin treatise and suggested the PSA was a classic “agreement to agree”:

The PSA expressly left the issue of college costs for further negotiation. While the court is empowered to enforce an obligation to negotiate in good faith, it cannot enforce “an agreement to agree” that reflects the parties’ intention “to postpone agreement on a term essential to their ultimate contractual objective.”Corbin on Contracts § 2.9 [3](A)(ii) (Timothy Murray ed., rev. ed. 2018).

Since the PSA did not allocate college expenses absent the parties’ agreement, and since the parties did not agree to the allocation, the trial court should have allocated each parent’s share of college expenses based on factors having nothing to do with the PSA—the factors established by New Jersey statutory and case law. The lower court did not do that, so the instant court remanded for further consideration.

N.Y.

—New York Military Acad., 142 A.D.3d 489, 36 N.Y.S.3d 199 (2016) (letter of intent regarding potential joint venture and loan held to be unenforceable agreement to agree since it provided that the parties “shall negotiate to arrive at mutually acceptable Definitive Agreements” and that the parties “each reserve the right to withdraw from further negotiations at any time if, in the sole judgment of either or both, it is in either Party’s best interest to do so, without further liability or obligation to the other”).

In Brown v. New York Cent. R., 44 N.Y. 79 (1870), the plaintiff proposed to lease to the defendant a small railroad line for $60,000 a year, with an option to buy outright and terminate the rental “at a time to be agreed upon” by payment of $1,000,000. Rent was to commence on April 1, next. The letter further stated that the form and covenants of the lease and other details would require consideration and would be thereafter arranged. The defendant wrote accepting this proposal. Nothing more occurred until July, four months later, when all details were agreed on and the lease executed. This lease provided that rent should be payable as of May 1, but without prejudice to the plaintiff’s claim to the agreed rent for the month of April. The court held that this claim was unfounded because no contract existed prior to July.

In Ansorge v. Kane, 244 N.Y. 395, 155 N.E. 683 (1927), reh’g denied, 245 N.Y. 530, 157 N.E. 845, the parties signed a memorandum of agreement for the sale of land for the “price of $32,625; payable $12,625 cash, balance of $20,000 to remain on first mortgage for four years. The sum to be paid on signing of contract on March 26 to be agreed on. The balance of cash payment on passing of title on May 26.” The memorandum acknowledged receipt of $500 as a binder. The seller refused to convey, never having agreed on the amount to be paid on March 26. The court refused specific performance on the ground that the amount of the payment to be made on March 26 was an essential matter and that no contract had been made.

Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 436 N.Y.S.2d 247, 417 N.E.2d 541 (1981); Read v. Henzel, 67 A.D.2d 186, 415 N.Y.S.2d 520 (1979) (absence of intent to be bound is clear).

N.Y. –Agarunova v. Stella Orton Home Care Agency, Inc., 2019 U.S. Dist. LEXIS 49228 (E.D. N.Y. 2019). Plaintiffs, former employees of the defendant home health care agency, filed this action alleging that defendant failed to pay them overtime compensation, and defendant moved for arbitration. Defendant’s employees are covered by a collective bargaining agreement. In 2014, defendant and the Union entered into a memorandum of agreement (“MOA”) reflecting their intention to negotiate an alternative dispute resolution (“ADR”) provision. It provided that “the parties shall meet in good faith to negotiate such an alternative dispute resolution procedure.” In December 2015, the parties entered into an agreement on the ultimate contractual objective—they agreed on an arbitration provision. However, one of the plaintiffs was employed by defendant at the time of the MOA but not at the time a subsequent agreement was entered into. The question for the court was whether the memorandum of understanding was binding on this particular plaintiff. The court held that the MOA only obligated the parties to negotiate in good faith, not to the ultimate contractual objective—an arbitration provision. Such an agreement “ ‘buys a party an assurance that the transaction will falter only over a genuine disagreement’ ”—it is merely an unenforceable agreement to agree that could not bind the plaintiff to the subsequently executed arbitration provision.

N.C.

—Seawell v. Continental Cas. Co., 84 N.C. App. 277, 352 S.E.2d 263 (1987) (jury found no intent to contract).

Or.

—Dimitre Electric Co. v. Paget, 175 Or. 72, 151 P.2d 630 (1944); Holtz v. Olds, 84 Ore. 567, 164 P. 583 (1917), reh’g denied, 84 Ore. 567, 164 P. 1184.

Pa.

—Driebe v. Fort Penn Realty Co., 331 Pa. 314, 200 A. 62, 117 A.L.R. 1091 (1938).

S.C.

—Savannah Guano Co. v. Fogle, 112 S.C. 234, 100 S.E. 59 (1919).

Tenn.

—Huber v. Calloway, 2007 Tenn. App. LEXIS 435 (July 12, 2007). The buyers’ option to purchase property failed to establish a price. It provided: “Purchase price to be mutually agreed upon based on independent appraisal at time of notice to sell.” When the parties could not agree on a price, the court held it was an unenforceable agreement to agree because the language “price to be mutually agreed upon” meant that the parties will complete their transaction only after each agrees to a selling price.

Tex.

—Copeland v. Merrill Lynch & Co., 47 F.3d 1415 (5th Cir. 1995) (applying Texas law). An agreement to agree regarding debtor’s plan to be submitted to bankruptcy court was not enforceable as it left material matters open to future negotiation, including aspects of debt restructuring, amount of additional funding needed to bring debtors out of chapter 11, as well as an overall business management plan. The parties reached only an agreement to agree and that is not enforceable unless it resolves all essential terms and leaves no material matters open for future negotiation.

Betty Lee Shoes, Inc., v. Karl’s Shoe Stores, Ltd., 293 F.2d 429 (5th Cir. 1961) held that a provision in a written contract for the sale of stock-in-trade that the parties would execute a 5-year employment contract at $1,000 per month and “shall be drawn satisfactory to both parties” showed on its face that essential provisions were still to be agreed on. The plaintiff attempted to show that the “employment” provision was a “sham”; and the court held that this was not admissible, at the same time holding, however, that the evidence offered showed that the parties had never been able to agree upon the terms of the contemplated “employment” contract, whether it was “sham” or not. Of course, the “parol evidence rule” has no application unless the terms of a valid contract have been “integrated.”

Va.

—Navar, Inc. v. Fed. Bus. Council, 291 Va. 338, 784 S.E.2d 296 (2016) (agreement providing that if Navar were to be awarded a prime contract, it would negotiate with plaintiffs in good faith and, “upon arriving at prices, terms and conditions acceptable to the parties,” enter into subcontracts, held to be an unenforceable agreement to agree to negotiate at a future date).

Wash.

—In Sandeman v. Sayres, 50 Wash. 2d 539, 314 P.2d 428 (1957), the plaintiff was employed by the defendant as a sales manager, by a written contract at a stated salary of $750 per month with an “incentive provision” for payment of a “commission and/or bonus,” the amount to be determined after operation for three months should afford data as to business done. At end of three months the parties agreed that it was too soon to determine the amount. After a year’s operation, the defendant having operated without profit, the plaintiff sued for reasonable compensation (his stated salary having been paid). The court dismissed the suit, holding that this was merely an agreement to agree on any additional payment and not a contract to pay a “reasonable” amount. The decision would have been otherwise had the defendant’s promise been one to pay a “reasonable” bonus or to pay a bonus of “between $400 and $500” as in Sibley v. Stetson & Post Lumber Co., 110 Wash. 204, 188 P. 389 (1920). In this cited case there was a “fixed minimum” of $400, leaving uncertain only a further amount within a “range” of $100. In the case here noted, there was certainly a valid employment contract at $750 per month. It was merely the subsidiary provision for additional compensation that was void for the reason that it was conditional on mutual agreement as to the amount. The defendant’s failure to assent to a bonus was not in bad faith; and the plaintiff did not prove that his services rendered were reasonably worth more than the salary received.

Mich.

—Opdyke Invest. Co. v. Norris Grain Co., 413 Mich. 354, 320 N.W.2d 836 (1982).

In re Tyson Estate, 2015 Mich. App. LEXIS 2428 (Mich. Ct. App. Dec. 22, 2015), children of decedent squabbled over the division of property of the estate, and the matter proceeded to litigation. The parties seemed to resolve their differences with a settlement agreement entered on the record, but two of the children later claimed the trial court erred in finding that a settlement agreement had been reached due to the supposed absence of agreement on material terms necessary for a legally binding contract. The trial court rejected this contention, and the instant court affirmed on appeal. The appellate court readily concluded that virtually all the matters appellants claimed had not been resolved were, in fact, resolved at the time the settlement agreement was entered into. Appellants also pointed to the absence of agreement over “the manner in which they were to receive decedent’s personal property and how to verify that the property was delivered.” The court rejected the argument that a failure to agree on these matters rendered the settlement agreement legally inoperative. Relying on Michigan precedent that quoted this portion of the Corbin treatise from a previous edition (§ 29), the court wrote: “While the record is missing any agreement regarding delivery and verification, the Michigan Supreme Court has held, ‘We must not jump too readily to the conclusion that a contract has not been made from the fact of apparent incompleteness. … A transaction is complete when the parties mean it to be complete. It is a mere matter of interpretation of their expressions to each other, a question of fact.’ ” Id. at *7. At the time the settlement was entered into, the trial court insured, on the record, that the parties were satisfied with it, and that they understood the result might differ if the matter proceeded to trial. The trial court concluded that the parties meant the settlement to be complete at that time. The appellate court affirmed, noting that the settlement agreement was “meant to resolve all of the claims surrounding decedent’s estate.” Id. at *2.

N.Y.

—Four Seasons Hotels Ltd. v. Vinnik, 127 A.D.2d 310, 515 N.Y.S.2d 1 (1987).

U.S.

—Caddell Constr. Co. (DE), LLC v. Danmar Lines Ltd., 2018 U.S. Dist. LEXIS 215007 (S.D. N.Y. 2018). Caddell hired Danmar for its freight forwarding services. The parties negotiated a contract over the course of two years but it was never finalized or executed. Danmar nevertheless agreed to transport Caddell’s twenty-eight air handling units. Danmar issued its standard bills of lading for the shipments, which limited Danmar’s liability to $500 per package. Seventeen packages were damaged, and Caddell filed suit. Danmar moved for partial summary judgment to limit Caddell’s potential recovery to $8,500 per the terms of the bills of lading. Caddell argued that the unexecuted contract that had been under negotiation governed. The court rejected this argument because there was no mutual assent to abide by the terms of the unexecuted agreement. There was no evidence that the parties operated under the draft agreement’s terms and rates. On the contrary, the evidence showed that the negotiations had not ended-the parties intended “to continue revising and negotiating” and to come to terms on a formal document. The court noted the draft document’s two blank signature lines, demonstrating the parties’ intention to sign and execute it before it would be legally operative. The court granted the motion for partial summary judgment.

Tex.

—S & A Marinas, Inc. v. Leonard Marine Corp., 875 S.W.2d 766 (Tex. App. 1994) (in a suit for tortious interference with a lease, trial judge correctly granted summary judgment in favor of defendant, where the resolution of defendant’s board contemplated further negotiation with prospective tenant, conclusively establishing that the resolution did not form a contract as a matter of law).

16 See § 4.3.

17 In Fliger v. Pennsylvania Fire Ins. Co., 48 R.I. 274, 137 A. 470 (1927), the plaintiff asked for new insurance on furs to go into effect at once, and the defendant assented. This was held to make a contract at the customary rate for furs; for a “standard” policy, and for the customary period of one year.

In Roig v. Electrical Research Products, 57 F.2d 639 (1st Cir.1932), the court said: “Where parties make a preliminary agreement which deals with the subject-matter in a general way and provides that essential details shall be elaborated and defined in a later instrument, the parties are bound to what is expressly said in the preliminary contract, and to what is included in it by reasonable implication. Sanders v. Pottlitzer Bros.’ Fruit Co., 144 N.Y. 209, 39 N.E. 75. This latter is, to some extent at least a question of fact depending on the nature of the business to which the contract relates, the ordinary usage therein, the circumstances under which the parties dealt, and perhaps upon other surrounding facts. Neither party is bound to accept in the formal instrument anything to which he has not already assented, either expressly or by implication, in the preliminary agreement.”

In Ontario Downs, Inc. v. Lauppe, 192 Cal. App. 2d 697, 13 Cal. Rptr. 782 (1961), a long detailed escrow agreement was held to be a valid contract, the requirements of the statute of frauds being satisfied by the writing. It purported to be a contract for the conveyance of a 450-acre tract of land in specified installments on fully stated terms, the first instalment of 15.87 acres to be selected at the option of the purchaser “subject to approval by the optionor” (vendor). Since this limited tract was merely a part of the large tract that the vendor promised to convey, the fact that it remained to be identified by a selection did not cause the agreement to be mere preliminary negotiation or cause the writing to be insufficient to satisfy the statute. The vendor did not have the privilege to refuse his approval of a “reasonable” selection; he was bound to use reason and good faith. If the parties did not agree on selection, the purchaser could waive his “option”, and the vendor would be bound to make the selection. If the vendor refused to approve or to make a selection, the court could compel conveyance of a reasonable selection made by the purchaser.

In Associated Milk Producers v. Meadow Gold Dairies, 27 F.3d 268 (7th Cir. 1994), parties exchanged letters showing that they disagreed on price and intended not to be bound unless they could agree. However, the parties’ conduct considered in conjunction with the writings evidenced their intention to contract. The seller shipped conforming goods without protest after receiving a letter from the buyer stating it would pay only a “Super Pool price,” and after repeated warnings by buyer during two months of shipments that it would pay only that price. The seller was bound by buyer’s price.

18 Restatement (Second) of Contracts § 27 cmt. b (Am. Law Inst. 1981).

19 In Smissaert v. Chiodo, 163 Cal. App. 2d 827, 330 P.2d 98 (1958), there was an express provision that the validity of the agreement should be conditional on the reduction of all terms to writing. If it were not for this provision, the agreement might have been held to be complete and enforceable.

If one of the parties manifests the intent to reserve agreement pending additional negotiation—even though the parties are in agreement on the essential terms that have been discussed up to that time—this intention must be honored and there is no contract. In Keystone Land & Dev. v. Xerox Corp., 152 Wn. 2d 171, 94 P.3d 945 (2004), Xerox decided to sell and “leaseback” a facility it owned and sent information packets to prospective buyers. Negotiations with Keystone proceeded until Xerox replied to a Keystone proposal. The reply stated, “Xerox is prepared to negotiate a Purchase and Sale Agreement with Keystone Development subject to two modifications to your proposal” and, if Keystone acknowledges acceptance of the modifications to its proposal, “[w]e can then proceed immediately to draft the Purchase and Sale Agreement for review and execution.” Three days later, Keystone’s president acknowledged and accepted the modifications to its proposal. Keystone claimed that all of the terms of the agreement were settled by this acceptance, thereby obligating Xerox to prepare a purchase and sale agreement. Upon receiving a higher bid from another party, Xerox withdrew from further negotiations with Keystone. The Ninth Circuit certified the question to the Supreme Court of Washington of whether Washington contract law recognized an explicit or implicit agreement to negotiate a future contract under circumstances such as those in this case? The instant court held that the statement, “Xerox is prepared to negotiate,” manifested only an intent to negotiate rather than an intent to be bound if Keystone accepted the modifications. Xerox’s statement evidenced an intent not to be bound by expressly referencing future negotiations. As to the statement concerning the immediate drafting of the Purchase and Sale Agreement, the court found that it did not manifest an intent to be bound but, rather, an intent not to be bound because of its express reference to a future binding agreement being reviewed and executed. The court held that, at best, the facts illustrated an implied agreement to agree, which, in keeping with the long-standing view in Washington, was unenforceable.

King Penguin Opportunity Fund III, LLC v. Spectrum Group Mgt. LLC, 2019 N.Y. Misc. LEXIS 3604, 2019 NY Slip Op 31899(U) (2019). KP sought to refinance property so it entered into a term sheet with Spectrum that provided: “[T]his Term Sheet is for discussion purposes only and does not constitute a binding commitment to provide credit. Any such commitment is contingent upon satisfactory completion of Lender’s due diligence and execution of written loan documents. This Term Sheet is not comprehensive. The written loan commitment or loan agreement will contain provisions not included in this Term Sheet.” KP subsequently sued Spectrum for alleged fraudulent inducement, claiming it relied on certain representations to its detriment; specifically, “that the refinancing would close prior to February 1, 2018, the refinancing would be an equity neutral deal, the loan amount would be in excess of $26,000,000, and KP would not be required to encumber any additional property.” The court granted Spectrum’s motion to dismiss. It held that there was no justifiable reliance to support the fraudulent inducement claim because the express terms of the term sheet made “clear that it is for discussion purposes only and requires the execution of further written agreement.” The court wrote: “ ‘Where a term sheet or other preliminary agreement explicitly requires the execution of a further written agreement before any party is contractually bound, it is unreasonable as a matter of law for a party to rely upon the other party’s promises to proceed with the transaction in the absence of that further written agreement.’ (StarVest Partners II, L.P., v Emportal, Inc., 101 AD3d 610, 613, 957 N.Y.S.2d 93 [1st Dept 2012].)’ ”

20 Durable, Inc. v. Twin County Grocers Corp., 839 F. Supp. 257, 260 (S.D.N.Y. 1993) (“Where a writing sent by the party to be bound to the other specifically indicates that an additional agreed-upon writing is contemplated prior to entry into a binding contract, this indication of intent should be honored.”); Celmer v. McGarry, 412 S.W.3d 691 (Tex. App. 2013), petition for review denied, 2013 Tex. App. LEXIS 15562 (2013), petition for review denied, 2014 Tex. LEXIS 319 (2014) (insistence on agreement writing beyond electronic communications). See also, Doll v. Grand Union Co., 925 F.2d 1363 (11th Cir. 1991); Angelo Di Ponio Equipment Co. v. State, Dep’t of State Highways & Transp., 107 Mich. App. 756, 309 N.W.2d 566 (1981).

Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736 (8th Cir. 2002). The plaintiff sued for breach of an alleged contract to sell its rights to DirecTV television service in four Iowa counties to the defendant. The parties’ negotiations were evidenced by three letters from the defendant, each of which stated that they were nonbinding manifestations of intention with respect to entering into an asset purchase agreement with the plaintiff. The trial court afforded such statements conclusive effect and granted summary judgment for the defendant. The appellate court relied heavily on the Restatement (Second) of Contracts, § 27 (Am. Law Inst. 1981), in affirming the grant of summary judgment. Recognizing that parties may intend to be bound by their oral agreement notwithstanding their intention to memorialize that agreement in writing, where one party knows that the other does not intend to be bound until such a final document is executed, the preliminary negotiations do not form a contract. Here, the plaintiff knew or had reason to know that the defendant did not intend to be bound until such a final document was completed. The negotiations also revealed numerous unresolved matters upon which the parties would have had to have reached agreement. The plaintiff produced no evidence sufficient to overcome the clear statements in the defendant’s letters that it had no intention of being bound prior to the consummation of a final writing evidencing the complete agreement.

Junker v. Medical Components, 2019 U.S. Dist. LEXIS 1530 (E.D. Pa. 2019). Plaintiff claimed that defendants infringed a patent by selling medical devices embodying his design. Defendants sought summary judgment, claiming that the patent in question was invalid under the “on-sale bar” (35 U.S.C. § 102(b)) because a product embodying the patented design was offered for sale more than one year before plaintiff applied for the patent. In this case, if a product embodying the claimed design was offered for sale before February 7, 1999, then the patent is invalid. Before that date, plaintiff sent two letters to a company called Boston Scientific that, defendants maintain, constituted offers to sell. The parties filing dueling motions for summary judgment. The court rejected the defendants’ argument and held that the two letters constituted preliminary negotiations and not offers. The letters specifically used the word “quotation” and not offer. This, in itself, was not dispositive, but the letters also used language that invited further negotiation, indicating that they were not inviting Boston Scientific to conclude a contract by accepting offers. The letters used this language: “I appreciate the opportunity to provide this quotation and look forward to discussing your requirements in person.” Moreover, plaintiff “would like to have the opportunity to review your requirements and provide a project plan to complete this project.” The court granted plaintiff’s motion for summary judgment on this issue and denied defendant’s.

Attestor Value Master Fund v. Republic of Arg., 940 F.3d 825 (2nd Cir. 2019). The Republic of Argentina defaulted on certain bonds in 2001. Subsequently, the Republic and plaintiffs, holders of the defaulted debt, entered into settlement discussions, but the text of the draft settlement agreements circulated “unambiguously require[d] the Republic’s countersignature and exchange of executed copies of” agreement documents before either party would be bound. But there was no countersignature by the Republic. Plaintiffs filed this action seeking an order that the parties had entered into a binding contract, but the district court disagreed, and the Second Circuit affirmed. The court cited New York law holding that when the parties do not intend an agreement to be binding absent signatures by both parties, there is no agreement without the signatures. The court cited authority relying on a prior edition of this treatise for this principle. The court concluded: “By their own express terms, the unexecuted agreements between the Republic and plaintiffs were not binding contracts.” Other factors, consistent with Winston v. Mediafare Entm’t Corp., 777 F.2d 78, 80 (2d Cir. 1985), support this conclusion: there was no partial performance of the purported contract; the parties still had much to negotiate; and this was the type of agreement usually put in writing. It is clear from the court’s opinion, however, that these additional Winston factors were not necessary to the court’s opinion. This case illustrates the point made in the main text of this treatise: “If a party makes clear during negotiations that there will not be a legally operative contract unless and until the parties execute a more formal memorialization of the deal, that should be the end of the inquiry—there is no contract absent execution of a more formal document.” The court wrote: “Because the agreements required countersignatures to be effective, there were no complete written agreements.” In addition: “In sum, the parties intended not to bind themselves to any settlement agreement until the relevant documents were executed by both parties and exchanged. Because the Republic did not countersign the agreements, there were no binding settlement agreements between plaintiffs and the Republic.” The dissent noted that the Republic labeled its proposal an “offer,” but the majority rejected attaching conclusive effect to the label given the proposal, explaining:

If the surrounding circumstances indicate otherwise, even “the word ‘offer’ does not necessarily mean that an offer is intended.” Restatement, supra, § 26 cmt. c. Here, the express requirement that the Republic countersign the Agreement Schedule before either party would be bound gave plaintiffs “reason to know” that the writings did not constitute an offer.

Samet v. Bayview Loan Servicing, LLC, 2019 U.S. Dist. LEXIS 216591 (D. Nev. Dec. 17, 2019). Defendant moved to enforce a purported settlement agreement stemming from plaintiff’s claim that defendant wrongfully reported plaintiff’s deed of trust debt to credit reporting agencies in violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. The parties, through their counsel, negotiated a settlement and reached agreement on the essential terms (the court called them the “material” terms). Defendant agreed to pay plaintiff $7,000 and plaintiff agreed not to contest foreclosure on his property. Thereafter, the parties filed a Notice of Settlement indicating that the parties had reached a “tentative agreement.” Plaintiff subsequently claimed that no settlement had been reached, but the instant court disagreed and enforced the defendant’s motion to enforce settlement. “Ordinarily,” the court wrote, “the Court would hesitate to enforce an agreement the parties described as ‘tentative’ in the Notice of Settlement.” But not in this case. The communications of the parties’ counsel persuaded the court that the parties had agreed upon all material terms of the agreement and that the plaintiff intended to be legally bound prior to the parties’ filing the Notice of Settlement. The plaintiff requested a written settlement agreement memorializing the contract but did not condition the settlement agreement on the execution of a written settlement agreement.

Am. Mortg. & Equity Consultants, Inc. v. Everett Fin., Inc., 2020 U.S. Dist. LEXIS 34450 (D. Minn. Feb. 28, 2020). Supreme Lending and AMEC engaged in negotiations for Supreme Lending to acquire AMEC’s assets. The parties circulated and negotiated various drafts of a letter of intent relating to the transaction. Each draft contained this provision: “[E]xcept for the terms, provisions, and conditions of Paragraphs 6 (Confidentiality), 7 (Expenses and Fees), and 10 (Term and Termination) and this sentence, this LOI is not a binding agreement or contract and no binding legal agreement with respect to the subject matter of this LOI will arise until the execution by the parties of the Definitive Agreement.” Another provision that was included in one or more drafts was this one: “In the even[t] of a non-successful closing Supreme agrees to not solicit and no[t] hire [] AMEC employees for 24 months after the conclusion of the LOI without written consent from AMEC CEO. The information available to Supreme could be damaging to AMEC.” But the parties openly disagreed about this clause, and Supreme Lending removed the portion about not hiring AMEC employees only to have AMEC reinsert it. None of the provisions were ever agreed upon. AMEC’s CEO signed one draft but made significant changes to it in the process (this was tantamount to a rejection of it). Ultimately, Supreme Lending backed out of the proposed deal. Nevertheless, AMEC filed this action alleging that Supreme Lending breached the letter of intent by soliciting AMEC employees (using information Supreme Lending acquired during due diligence), and AMEC sought a preliminary injunction to stop Supreme Lending’s solicitations. The court denied the motion. The draft letters of intent were just that—drafts. None were accepted. The court explained:

The parties made the requirement of signatures a condition precedent to contract formation, and this condition was never activated because the parties never signed off on a document that they agreed on. In addition, “‘where the parties have agreed that an agreement to negotiate or letter of intent, in its entirety, is not a binding legal agreement, Minnesota courts have refused to enforce an individual provision of the letter as a freestanding contract promise.’ Richie Co., LLP v. Lyndon Ins. Grp., Inc., 316 F.3d 758, 761 (8th Cir. 2003) (citation omitted).’ ” Even if the parties did agree on one of the draft letters of intent, the inclusion of this clause made clear that the non-solicitation provision was not binding: “[E]xcept for the terms, provisions, and conditions of Paragraphs 6, … 7, … and 10 … and this sentence, this LOI is not a binding agreement or contract and no binding legal agreement with respect to the subject matter of this LOI will arise until the execution by the Parties of the” acquisition agreement. The non-solicitation provision was contained in section 1 of the draft letters of intent, and that section was not referenced by the quoted provision.

Realty Trust Servs., L.L.C. v. Mohammad, 2020-Ohio-3736 (Ohio App. July 16, 2020). Mohammad and Realty Trust entered into a residential lease agreement allowing Mohammad to occupy certain property. The term expired on June 30, 2019. The lease provided: “It is expressly understood that the Lease shall not be extended past the termination date stated herein, unless otherwise mutually agreed upon by the parties in writing at least sixty (60) days prior to the expiration of the Term.” On April 2, 2019, Realty Trust sent Mohammad an email stating as follows: “Just wanted to check in and ask if you were planning to stay in your home with us after that time? * * * We would like to communicate to the owner of your home, your plans well in advance and make sure either there is a smooth renewal, if that is mutually agreed to, or if you do for some reason feel the need to leave, that this is done smoothly as well with no hitches.” Mohammad did not respond, and Realty Trust sent a follow-up on April 27. On April 30, 2019, Mohammad replied that he wished to stay in the house “one more year.” That same day, Realty Trust advised Mohammad that the owners wished the sell the property and likely would not accommodate his request to extend the lease. On July 15, 2019, Realty Trust commenced a forcible entry and detainer action against Mohammad. The lower court granted judgment in favor of Realty Trust and ordered restitution of the property. On appeal, the instant court rejected Mohammad’s argument that the parties had an enforceable contract to extend the lease. Mohammad claimed that Realty Trust’s emails inquiring as to whether he intended to stay in the house for another year constituted an offer to extend the lease. He alleged that he accepted the offer when he responded with an email stating his desire to stay another year. Not so, said the court. An offer creates a power of acceptance. Among other things, an offer must have reasonably certain and definite terms. The lease expressly stated that any renewal would have to be “mutually agreed upon by the parties in writing.” Realty Trust’s emails, dated April 2, 2019, and April 27, 2019, advised Mohammad that it wanted to know his intentions about renewing so that it could communicate them to the owners and a renewal could be “mutually agreed to.” No definite terms were offered—nothing about rent or new termination date. In short, Realty Trust did not make an offer but an invitation to negotiate. Since there was no offer, there was no contract. The lease expired on June 30, 2019. The court affirmed.

21 T&M Inventions, LLC v. Acuity Brands Lighting, Inc., 2013 U.S. Dist. LEXIS 58026 (E.D. Wis. April 23, 2013).

22 Id. at *17.

23 Id. at *17–18 (quoting this treatise, § 30 from a prior edition).

24 Restatement (Second) of Contracts § 27 (Am. Law Inst. 1981) states: “Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.”

U.S.

—Tiburzi v. DOJ, 269 F.3d 1346 (Fed. Cir. 2001) (DEA agent’s oral settlement with the agency in court sponsored settlement conference held binding even though the agent refused to execute a written agreement containing the essential terms of the settlement).

Zong v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2014 U.S. Dist. LEXIS 134390, *19 (E.D. Pa. Sept. 22, 2014), aff’d 632 Fed. App’x 692 (3d Cir. 2015) (court enforced oral settlement agreement and stated: “The fact that a written settlement agreement was envisioned but has not been signed is immaterial.”)

Ala.

—Mims v. Bogan, 2015 U.S. Dist. LEXIS 99255, *6 (M.D. Ala. July 30, 2015) (“The mere fact that parties intend to memorialize an agreement in a more formal way does not make the initial offer and acceptance non-binding.”).

Conn.

—EEOC v. Beauty Enters., 2007 U.S. Dist. LEXIS 80590 (D. Conn. Oct. 31, 2007) (if only one party manifests an intention not to be bound until the parties have an executed document, no binding contract will exist until that intention is satisfied).

Ind.

—Wolvos v. Meyer, 668 N.E.2d 671 (Ind. 1996). The parties entered into a binding option to purchase real estate since they agreed on all essential terms, despite the fact that one paragraph of the writing expressly contemplated that the parties would “enter into” a subsequent written purchase agreement.

Kan.

—Hattan v. Schoenhofer, 214 P.3d 1226 (Kan. Ct. App. 2009) (settlement agreement binding even though written memorial went unsigned as court found no language in the agreement making it effective only if executed).

Wilson v. Landers McLarty Olathe Ks, 2019 U.S. Dist. LEXIS 75802 (D. Kan. 2019). Plaintiff claimed that the parties agreed to settle an action. Plaintiff executed and tendered the parties’ settlement agreement and general release to defendants but defendants failed to respond. Plaintiff sought a judicial decree that the matter was settled. The court was satisfied that the parties agreed on essential terms and intended to be bound, as shown by their outward manifestations of assent. The court explained: “ ‘The fact that the parties contemplate the subsequent execution of a formal instrument as evidence of their agreement does not necessarily imply they have not already bound themselves to a definite and enforceable contract.’ ” (Citations omitted.) The defendants did not dispute the plaintiff’s assertions, and the court enforced the settlement.

Ky.

—Jones v. Bank of Harlan, 2012 U.S. Dist. LEXIS 3873 (E.D. Ky. Jan. 12, 2012). After months of litigation, bank made “offer of settlement” via email to plaintiff that stated, “The settlement must be reduced to writing with such other terms as are acceptable to all parties.” Plaintiff proceeded to accept by email. The bank claimed the email exchange did not result in a contract. The court disagreed, explaining that absent a positive agreement that the parties intend not to be bound until a final writing is executed, the mere statement of an intended writing does not preclude the formation of the contract where all of the essential terms have been agreed upon.

Mass.

—Ghassemi-Tary v. Hami, 30 Mass. L. Rep. 522 (Mass. Super. Ct. 2012) (parties’ intent to contract held not to be frustrated by the fact that they intended to prepare and adopt a formal written memorial of their agreement).

Minn.

—Rocco v. Khan, 2017 Minn. App. Unpub. LEXIS 147 (Feb. 13, 2017). The fact that the parties understood that the settlement would be memorialized in a final writing did not prevent the consummation of a settlement agreement in the absence of a final writing at the conclusion of the pre-trial conference. The parties did not make the reduction of the agreement to a more formal writing a condition precedent to contract formation.

N.J.

—West v. IDT Corp., 241 Fed. App’x 50 (3d Cir. 2007). During plaintiff’s meeting with the defendant’s CEO/chairman of the board, the latter handwrote a two-page employment agreement for plaintiff, which the parties signed. The agreement stated that the parties “will complete formal contracts as soon as possible but this is binding.” In a subsequent dispute as to enforceability of the handwritten agreement, the court reversed and held that the district court’s order that no binding contract existed was error, especially in light of the express language in the agreement, “this is binding.”

N.Y.

—Municipal Consultants & Publishers, Inc. v. Ramapo, 47 N.Y.2d 144, 148–149, 417 N.Y.S.2d 218, 219-220, 390 N.E.2d 1143, 1144–1145 (N.Y. 1979). The court wrote:

Generally, where the parties contemplate that a signed writing is required there is no contract until one is delivered. This rule yields, however, when the parties have agreed on all contractual terms and have only to commit them to writing. When this occurs, the contract is effective at the time the oral agreement is made, although the contract is never reduced to writing and signed. Where all the substantial terms of a contract have been agreed on, and there is nothing left for future settlement, the fact, alone, that it was the understanding that the contract should be formally drawn up and put in writing, did not leave the transaction incomplete and without binding force, in the absence of a positive agreement that it should not be binding until so reduced to writing and formally executed … .

N.D.

—Holbach v. Holbach, 2010 ND 116, 784 N.W.2d 472 (N.D. June 30, 2010) (divorce judgment providing that the parties agreed that “they shall by separate agreement contract to devise said property to their four children … in equal shares” was an enforceable contract because it created a clear obligation to perform, and the essential terms were reasonably certain and definite).

Or.

—Hughes v. Misar, 189 Ore. App. 258, 76 P.3d 111 (2003), review denied, 336 Ore. 615, 90 P.3d 626 (2004). Homeowners reached an oral settlement agreement of their dispute regarding rights and obligations in connection with maintenance of a private road that serviced their subdivision. The parties contemplated that the agreement would be memorialized in a writing but were unable to agree on the terms of a final document. The court enforced the oral agreement since the parties agreed on essential terms.

Ken Hood Constr. Co. v. Pac. Coast Constr., Inc., 201 Ore. App. 568, 120 P.3d 6 (2005), review denied, 341 Ore. 366, 143 P.3d 239 (2006). A developer purchased property on which it intended to erect a restaurant, then invited bids for the construction of the restaurant. Pacific Coast submitted a bid, and the developer responded that “your company has been chosen” and “[i]t is my intention to sign a contract with you based on our verbal agreement … .” The contract was never signed, and Pacific Coast sued. The court reversed the trial court’s order that there was no valid contract. Where manifestations of assent are in themselves sufficient to conclude a contract, it will not be prevented from being recognized as a contract by the fact that the parties also manifest an intention to prepare and adopt a written memorial of their agreement.

Pa.

—Ingrassia Constr. Co. v. Walsh, 337 Pa. Super. 58, 486 A.2d 478, 483 n. 9 (1984). The court in a footnote discussed with approval a decision of the Third Circuit Court of Appeals: “Judge Goodrich, referring to Williston and Corbin wrote: ‘The emphasis of these two eminent writers is, it seems to us, inclined toward finding the formation of a contract prior to the signing of the document unless the parties pretty clearly show that such signing is a condition precedent to legal obligation. And since contract law has passed the formalism of elaborate doctrines pertaining to sealed instruments, it seems to us such emphasis is quite natural and quite correct.’ Smith v. Onyx Oil & Chemical Co., 218 F.2d 104 (3d Cir.1955).”

Camargo v. Alick Smith Gen. Contr., Inc., 2016 U.S. Dist. LEXIS 153157, *6 (E.D. Pa. Nov. 4, 2016) (“[I]f two parties intend to strike an enforceable bargain, ‘the mere fact that the parties also manifest an intention to prepare and adopt a written memorial thereof’ does not mean that their contract does not yet exist.”).

Meadows v. Harcum College, 2014 U.S. Dist. LEXIS 155906 (E.D. Pa. Sept. 30, 2014). The parties reached a settlement agreement in a court settlement conference. The subsequent draft written settlement agreement contained a term not agreed to at the conference, and the court held that a binding settlement was reached between the parties the day of the court settlement conference.

Law Offices of Bruce J. Chasan v. Pierce Bainbridge Beck Price & Hecht, 2019 U.S. Dist. LEXIS 74453 (E.D. Pa. 2019) is a cautionary tale of how the judiciary can go astray on this issue. An ex-football player hired the Chasan law firm to represent him in a suit against various defendants based on Hamilton’s claim that defendant misappropriated his likeness and voice in the Gears of War video game series. Hamilton later replaced the Chasan law firm with another firm, Pierce Bainbridge, and the Chasan firm threatened to sue Pierce Bainbridge for Hamilton’s unpaid fees. Chasan and Pierce Bainbridge entered into settlement discussions, and on September 10, 2018, Pierce Bainbridge made the following settlement offer in an email, which, Chasan noted, was “conditioned upon getting [Hamilton’s] approval”:

My … offer is the full $160,000—the same amount that you were willing to accept from a $400,000 [hypothetical] settlement in March of this year [of Hamilton’s right of publicity case.] There would be no further payment to you of any kind for any reason from our law firm or from Skip, regardless of the outcome of the case.

Five days later, on September 15, 2018, Chasan responded as follows—and the question at the center of this dispute is whether the following constituted an acceptance:

We have a settlement. I am accepting your first offer listed below, i.e. the full $160,000 with no further payment by you or your law firm or by Skip Hamilton, regardless of the outcome of the case.

We should be able to accomplish this speedily. The Mutual Release is simple in concept: in consideration of $160,000, Law Offices of Bruce J. Chasan, LLC and Bruce J. Chasan release all claims against John Pierce, the Pierce Bainbridge law firm, and Lenwood Hamilton. Also, you and Pierce Bainbridge and Lenwood Hamilton release all claims against Law Offices of Bruce J. Chasan, LLC and Bruce J. Chasan, Esq.

[Hamilton] should readily accept this, as it reduces his quantum meruit liability by at least half.

Do you want to draft the mutual releases? I believe this would be a relatively short document, just a couple of pages. No claims are reserved. I expect we can get it done within a week, and payment can be made promptly. Please advise. Good luck with the case.

After this, the parties engaged in additional negotiations and exchanged drafts of a settlement agreement. The settlement ultimately unraveled over the terms of the document, which led to the instant litigation. Chasan claimed that Pierce Bainbridge breached a contract, and Pierce Bainbridge filed a motion to dismiss. The court granted the motion, holding that there was no settlement agreement based on the court’s conclusion that the parties did not intend to have a contract via their email exchange—there was too much left undone, too many important matters left to be agreed upon. The court wrote: “ ‘An alleged acceptance is not unconditional, and is thus not an acceptance, if it alters the terms of the offer in any material respect.’ [Thomas A. Armbruster, Inc. v. Barron, 491 A.2d 882, 887 (Pa. Super. 1985)] (citing 1 Corbin, Corbin on Contracts § 82 (1963)).”

The result reached by the court might be correct—but not for the reasons the court posits. It might be correct because, in Pierce Bainbridge’s September 10th email, Pierce Bainbridge made its settlement offer “conditioned upon getting [the client’s] approval.” It is not clear whether that approval was ever obtained or why this condition of approval was not an issue discussed in the court’s decision. Numerous cases have held that a purported offer conditioning contract formation on approval of the “the home office” creates no power of acceptance, and those cases might be pertinent here—but the reader is not provided with any more information, or the court’s rationale on this issue.

The rationale that the court does provide is not satisfying. The court writes:

Immediately after Chasan and Pierce agreed that Chasan would be paid $160,000, Chasan began to “craft” a mutual release. … . The Parties had not yet agreed to the existence, scope, or specific or general terms of the release, which would have involved multiple claims by and against multiple parties … . Because Chasan added this additional release term to the initial agreement about the monetary term, his September 15th, 2018 email cannot amount to an acceptance under Pennsylvania law because it plainly “alter[ed] the terms of the offer in [a] material respect.” … .

More broadly, the Complaint indicates that no contract was formed on September 15, 2018 because the Parties explicitly anticipated that they would still need to “wrap up” the as-yet incomplete deal, Compl. ¶ 32, which the Parties would be able to “accomplish speedily.” See Compl. ¶ 31. These statements likely contemplated the negotiation of many outstanding terms to be introduced in the next phase of discussions: whether the Parties would admit liability; whether the parties would include a non-disparagement term; the terms of future modifications to the settlement agreement, if any; the inclusion of integration and severability clauses; the timing and format of payment; choice of law and forum; and warranties about the Parties’ knowledge of interested third parties. Compl. ¶¶ 34–35, Ex. C. At times during the negotiations, the Parties also disagreed and negotiated about whether to include certain conditions precedent to the agreement, including whether Hamilton would be required to sign off on the deal. See, e.g., Compl. ¶ 51.

But despite extended negotiations on the scope of the release and other terms in the agreement, Chasan’s Complaint admits that the Parties never signed or agreed on a final written agreement incorporating these plainly material terms. Id. ¶ 54. Because the negotiations never concluded and no agreement was signed, there was no “meeting of the minds” as to the terms of and consideration involved in Chasan’s alleged agreement with Defendants.

The court’s analysis misses the mark. There are two overriding questions that the court should have answered. First, did the parties agree on essential terms in the exchange of emails? The answer clearly appears to be that they did. Second, did the parties manifest an intent to delay contract formation until something else occurs? The overriding weight of judicial authority is that once the parties enter into an oral agreement on essential terms, the fact that they intend to memorialize the deal in a more formal contract—even one that would contain all manner of terms that the parties had not discussed or agreed upon—does not prevent contract formation on the oral agreement unless one of the parties conditions contract formation on having the parties sign off on a more formal agreement. Absent a scenario where a party conditions contract formation in this manner, there is a settlement on the basis of the informal agreement. If the parties have entered into a settlement, an inability to ultimately agree on the terms of a final document does not undo the prior, less formal agreement.

The court says that Chasan “added” a term to Pierce Bainbridge’s offer—having a formal release—but it is reasonable to assume that, at the time Pierce Bainbridge sent its September 10th offer, it anticipated that the parties would enter into a more formal memorial of the settlement agreement because that is a customary practice in commercial litigation involving significant sums of money. But again, and more importantly, there is no indication either party conditioned the settlement on having such a formal document. On the contrary, there was a definite offer, and the response—equally definite—declares that the parties have a settlement agreement. Merely expressing an intention to have a more formal memorial of the settlement is not enough to delay contract formation until the more formal memorial is executed. It comes back to the point emphasized above: in order to delay contract formation, a party to the transaction had to condition the settlement on having such a document.

The court also says that Chasan’s statements in its September 15th response to the offer show that Chasan “likely contemplated the negotiation of many outstanding terms to be introduced in the next phase of discussions”—but the “outstanding terms” cited by the court are in the nature of run-of-the-mill boilerplate provisions that would be included in pretty much any formal settlement agreement, not the essential terms that are needed for an agreement. These include—as the court noted—integration and severability clauses, which are quintessential non-essential terms that need not be included in a contract in order for a court to be able to enforce it. For any such non-essential terms left out of the contract, the law’s gap-filler provisions can supply the necessary terms. Chasan’s September 15th response asserts that the formal memorial of the parties’ agreement could be “short” and “accomplish[ed] … speedily,” precisely because it was “simple in concept.” This is correct, because there were no essential terms left to negotiate.

In short, the court’s opinion misfires because it assumes that routine boilerplate provisions that are not necessary to have an enforceable contract, and that the parties had not made a subject of negotiation, are essential terms that had to be agreed upon in order to have a settlement agreement. This decision is decidedly out-of-step with modern contract law.

An appeal of this decision was filed in June of 2019.

Tenn.

—In Gurley v. King, 183 S.W.3d 30 (Tenn. Ct. App. 2005), the plaintiff, a recording artist, signed a memorandum of agreement with a manager stating that the artist “will sign an exclusive management contract with [the manager] for three years” to begin when the contract with his current management company ends, or earlier if the manager could arrange it. The manager would receive a 15% commission on the artist’s gross income. The memorandum concluded, “The details of the agreement will be worked out later but basically will follow the same arrangement currently in place with [the artist’s current manager].” When the artist refused to honor the agreement, the manager sued. The court noted it is possible for parties to make an enforceable contract binding themselves to execute a subsequent final agreement, but only if the initial agreement expresses all essential terms to be incorporated in the final document. In that case, the subsequent agreement would be a mere memorial of the agreement already reached. The case presented issues to be resolved by the trier of fact as to whether the parties had a binding agreement.

Tex.

—1st Res. Grp., Inc. v. Olukoga, 2017 Tex. App. LEXIS 470 (Tex. App. Fort Worth Jan. 19, 2017). A settlement agreement stated that “[t]he parties contemplate the preparation of further documents in carrying out the performance” of the agreement, but this did not make the agreement unenforceable. The agreement also stated that it “is intended to be fully enforceable on its own terms,” and “[i]f the parties are not able to agree on the construction, terms, or conditions in future documents, then this Agreement is the Agreement between the parties.” The court held that the parties intended to be bound by the settlement agreement that they executed despite the fact that it allowed for additional documents to be executed later.

In Medallion Int’l Corp. v. Sylva, 2004 Tex. App. LEXIS 4974 (Tex. App. Waco June 2, 2004), plaintiff marketed the consulting services of associate firms to foreign governments and international organizations. It entered into an association contract with the defendant that included a provision stating that the parties “will agree, on an individual project basis, upon a formula for sharing revenue, taking into account” the costs and normal charges of performing work as well as overhead and other expenses. The trial court granted summary judgment in favor of defendant on the basis that this arrangement constituted an unenforceable agreement to agree. The appellate court reversed and remanded, noting that where the parties fully agree upon the terms of the contract but expect further negotiation on certain matters, such an expectation does not preclude a finding that they intended to be contractually bound. The critical issue is whether the parties intended to be bound.

Gen. Metal Fabricating Corp. v. Stergiou, 438 S.W.3d 737 (Tex. App. 2014) (agreement on additional documents not a condition to formation of binding agreement).

An excellent example of the point made in the main text is Turoczy Bonding Co. v. Mitchell, 2018-Ohio-3173 (8th Dist. 2018). Turoczy, a bail bonds company, sued one of its agents, Mitchell, for allegedly failing to turn over premiums. Mitchell filed a counterclaim for alleged unpaid commissions. Eventually, counsel for the parties agreed to a settlement via email. On July 18, 2017, Turoczy’s attorney wrote to Mitchell’s attorney: “Your client will agree to a mutual dismissal of all claims, with prejudice. Each party to bear their own costs with a broad release. You can draft the release.” Mitchell’s attorney responded: “Yes … provided it’s happening ASAP and not after I do a bunch more work.” But just thirteen days later, counsel for Mitchell sent Turoczy an email stating that Mitchell had changed his mind about the settlement. Turoczy moved to enforce the settlement, which the trial court granted. On appeal, the instant court affirmed. The court held that the parties’ July 18, 2017 email communications made clear that there was nothing left to be done—that is, there were no unresolved issues—to complete a settlement. Importantly, the fact that the parties agreed to memorialize their agreement in a more formal writing, and that the formal writing never got written, does not prevent the settlement from being effective since the parties did not condition their agreement on having a more formal writing. The latter point—the absence of a condition—is the critical factor in the court’s holding. The court explained:

Turoczy’s settlement offer contemplated a future memorialized agreement. However, as stated, the email communications reflect a definite offer and acceptance, bargained for consideration, and the parties’ clear understanding of the settlement terms. Significantly, the terms of the parties’ settlement agreement did not expressly state that the agreement would not become binding until it was formally executed. Thus, there is no evidence in this record to suggest that the parties did not intend to be bound by the terms of the settlement until formalized in a written document and signed by both parties. … . In the absence of conditional language stating otherwise, the terms of the written agreement did not lose their binding force merely because they were not reduced to writing as contemplated in the relevant emails. Under these circumstances, we find Turoczy satisfied its burden of establishing a valid settlement agreement.

The court held that the parties agreed to a settlement, and the fact that Mitchell later changed his mind cannot undo that agreement. The court affirmed the judgment of the trial court. In colorful language, the dissent disagreed: “The omelette never took shape nor did the jello ever form beyond the liquid state. If a clearly outlined, written, signed settlement agreement was the objective of both of the parties, then there would be one to show as the fruit of the discussions.” Further: “For reasons best known to the parties, they were unable to close this one out. We and the trial court should not step in and finish their work for them.” But the majority’s analysis is persuasive. Even though Mitchell’s attorney wrote “provided it’s happening ASAP and not after I do a bunch more work,” the record recited by the court does not show any equivocation regarding the settlement agreement, nor does it suggest that anything was left unresolved by the parties. Importantly, the comment by Mitchell’s attorney fails to suggest that a settlement was conditioned on having a formal agreement.

VACC, Inc. v. Davis, 2020 U.S. App. LEXIS 24831 (9th Cir. Aug. 6, 2020). VACC sued Davis for claims related to alleged patent violations and trade secrets theft. The parties negotiated a settlement agreement and planned to have its terms read into the record during a telephonic pretrial conference. Prior to the conference, VACC’s president, Bayat, purportedly advised his counsel that he wanted a representation put into the agreement that Davis had not had not taken VACC’s proprietary information. Despite his attorneys’ assurances that the clause would be included, it was not—and there is no evidence that VACC’s attorneys ever notified Davis that the terms was essential to the settlement. During the aforementioned court conference, the magistrate judge read the terms of the settlement into the record—the terms did not include the representation clause. Counsel for the parties—and Bayat—advised the court that the terms recited were the terns of the settlement. According to the court: “[T]he parties entered a joint stipulation stating that they had settled the matter and that the parties would ‘prepare a written settlement agreement, which shall be moderated by [the magistrate judge] in the event of unresolvable disagreements on its terms.’” VACC refused to sign Davis’s draft settlement agreement since it did not contain the representation that Bayat wanted. VACC sued Davis again, and the district court dismissed the suit. On appeal, the Ninth Circuit affirmed. It rejected VACC’s argument that the agreement recited on the record was a preliminary agreement to agree that needed a subsequent written settlement agreement in order to finalize the settlement. The court explained that “[e]ven if Bayat subjectively (and reasonably) believed—based on the advice of counsel—that additional terms could be inserted into the settlement agreement at a later time,” that is not enough. Bayat’s, and VACC’s, objective manifestations of assent to the court indicated that a binding agreement was entered into at the settlement conference. Bayat did not condition assent on having a subsequent writing. Further, there was no evidence that Davis even know of Bayat’s insistence on having the representation included in the agreement.

25 Foster v. United Home Improv. Co., 428 N.E.2d 1351 (Ind. Ct. App. Dec. 15, 1981); Camargo v. Alick Smith Gen. Contr., Inc., 2016 U.S. Dist. LEXIS 153157 (E.D. Pa. Nov. 3, 2016); Keumurian v. Equifax Info. Servs., LLC, 2016 U.S. Dist. LEXIS 149104 (D. Mass. Oct. 27, 2016).

26 Mims v. Bogan, 2015 U.S. Dist. LEXIS 99255 (M.D. Ala. July 30, 2015).

McGovern v. Enter. Restoration Servs., 2020 U.S. Dist. LEXIS 84883 (E.D. La. May 14, 2020). McGovern, a construction worker, sued his employer, defendant, for unpaid wages. The parties entered into settlement discussions that culminated in an agreement. The facts are a classic example of a binding, informal settlement agreement entered into in countless disputes:

On January 9, 2020, Alex Peragine, counsel for defendant, stated in an email that his “best offer is to pay $1,000 per month until we pay it off.” Adam Sanderson, counsel for plaintiff, … made a counteroffer: “$1,000.00/month until the total claim is paid off, and [defendants] agree to defend and indemnify [plaintiff]” in certain Kentucky state court litigation. Peragine said he would confer with his client. On January 20, 2020, … Peragine replied: “Ok and we are good to go on it. How do we want to handle this from here?” Sanderson followed up by stating that he would draft a settlement agreement letter to “confirm that settlement has been reached, along with a consent judgment … . I just ask that you review and propose any revisions by tomorrow afternoon.” The parties then agreed to use a promissory note instead of a consent judgment. But no settlement was formally executed. Instead, defendant filed a motion to dismiss the next day.

Plaintiff moved to enforce settlement, and defendant argued that no settlement was reached because certain unspecified terms were never agreed to. The court noted that when a party who has agreed to a settlement agreement changes its mind when the settlement agreement is presented to it, there is still a binding settlement. A settlement agreement is not invalidated by a subsequent failure to execute a formal settlement agreement. The facts are not close here—there is no legal basis whatsoever for defendant to refuse to settle based on the facts presented by this court. The court enforced the settlement.

27 Padula v. Wagner, 2015-Ohio-2374, P18, 37 N.E.3d 799, 806 (Ohio Ct. App., 2015), appeal not allowed, 144 Ohio St. 3d 1440, 2015-Ohio-5468, 43 N.E.3d 451 (2015) (While “an informal document that is sufficiently definite in its terms may constitute a binding agreement if the parties’ manifest intent is to be bound by the mutual promises contained therein,” courts nevertheless “give effect to the manifest intent of the parties when clear evidence demonstrates that they do not intend the terms of an agreement to bind them until the agreement is formalized in a written document that both parties sign.”).

28 See DCR Mtge. VI Sub I, LLC v. Peoples United Fin., Inc., 148 A.D.3d 986, 50 N.Y.S.3d 144 (N.Y. App. Div. 2017). The parties’ letters of intent dealt with the plaintiff’s possible purchase of a commercial mortgage from defendant. The letters set forth “minimal terms,” and each of them contained the following language: “All terms and conditions referenced herein are non-binding and subject to Purchaser’s satisfactory due diligence review of the loan in its sole discretion and negotiation of a mutually agreed upon Loan Sale Agreement between Purchaser and Seller.” The parties never finalized a mutually agreed upon loan sale agreement. Plaintiff sued, claiming that the last letter of intent was a binding contract. The lower court denied defendant’s motion for summary judgment, but the appellate court reversed because letters of intent made clear that there would be no agreement without the document to be drafted later.

29 Elec. Bankcard Sys. v. Retriever Indus., 2003 Tex. App. LEXIS 1007 (Jan. 30, 2003) is an example of a document that sent mixed and confusing signals regarding the parties’ intent.

See Mezher v. Schrand, 2018-Ohio-3787, 2018 Ohio App. LEXIS 4145 (2018). Mezher claimed that the Schrands breached a contract to sell property to him. The parties negotiated the purchase and sale via email, and eventually Mezher wrote to the Shrands: “I am good at $982,500 for a purchase price [b]ased on inception [sic] and customary closing. [W]e can get a simple contract drafted Monday and have it signed by us Tuesday with the earnest money cashier check to you upon acceptance of contract by Tuesday. Please let me know, Mike[.]” Karri Schrand responded, “We accept.” The lower court held that this transaction did not satisfy the statute of frauds, but the instant court reversed on appeal. The emails identified the parties, price, property, and they contained the electronic signatures of the parties. But the appellate court held that there was a fact question as to whether the parties intended to enter into a contract via the email exchange. The mere fact that the parties contemplated a formal document did not defeat contract formation, but the facts suggested that the parties may not have intended to have a final contract yet. Mezher drafted a formal document as contemplated in the email exchange and presented it to the Schrands, but it was never signed. That document contained various items that had not been agreed upon. Among other things, the identity of the buyer in the formal document had changed from Mezher to his wife. Given the circumstances, the court held that it was not clear whether the parties had a present intention to be bound to a contact at the time of the email exchange. The court remanded for further proceedings.

30 It is not uncommon for a party to express agreement upon one or more terms, either orally or by letter, “subject to the execution of a satisfactory contract.” In Wolf v. Galex, 2013 N.J. Super. Unpub. LEXIS 1053 (April 16, 2013), a settlement agreement provided that it was “subject to agreement by the parties on the language of the formal settlement agreement and releases to be exchanged by the parties, incorporating the provisions of this term sheet.” The court considered various factors and concluded: “Taken in context, the ‘subject to’ language in [the Term Sheet] paragraphs reflected an agreement to dot i’s and cross t’s, and not an acknowledgement that the case was not yet settled because an essential term was missing.”

See also:

Ill.

—West Coast Video Enterprises, Inc. v. Ponce de Leon, 1991 U.S. Dist. LEXIS 4209 (N.D. Ill. April 4, 1991).

N.Y.

—American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F. Supp. 597, 606 (S.D.N.Y. 1971); Sanders v. Pottlitzer Bros.’ Fruit Co., 144 N.Y. 209, 39 N.E. 75 (1894).

Ohio

—Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 (6th Cir.1976).

Pa.

—Field v. Golden Triangle Broadcasting, 451 Pa. 410, 305 A.2d 689 (1973), cert. denied, 414 U.S. 1158.

Tex.

—Foreca, S.A. v. GRD Dev. Co., Inc., 758 S.W.2d 744 (1988), rehearing of cause overruled.

Wis.

—Lambert Corp. v. Evans, 575 F.2d 132 (7th Cir. 1978). Defendant’s letter of confirmation referred to its acceptance as being “subject to completion of such documents, papers, and formal written agreement satisfactory to our counsel.” A contract was held to exist. “We cannot reverse as erroneous the district court’s implicit finding that the statement was nothing more than an inartful phrasing of the parties’ understanding that their agreement would be formalized by M-B’s counsel and submitted to Lambert’s.” 575 F.2d at 136.

31 See note 5.

32 O’Connor-Goun v. Weill Cornell Med. College of Cornell Univ., 956 F. Supp. 2d 549 (S.D.N.Y. 2013).

33 Citing Restatement (Second) of Contracts, § 33 cmt. a (Am. Law Inst. 1981).

U.S.

—Wood County Grocer Co. v. Frazer, 284 F. 691 (8th Cir. 1922).

Mass.

—Mutual Paper Co. v. Hoague-Sprague Corporation, 297 Mass. 294, 8 N.E.2d 802 (1937) (lessee given option for a renewal at rental not more than 10 per cent above present rental).

Minn.

—In Holt v. Swenson, 252 Minn. 510, 90 N.W.2d 724 (1958), a client agreed to pay his attorney a contingent fee “equal to one-third to one-half of the amount recovered.” This was enforceable as to the minimum of one-third even though any excess above that amount was left for further agreement.

See also:

Stevens v. Stevens, 798 S.W.2d 136 (Ky. 1990). A separation agreement provided that the husband would pay for a college education for his daughter “the amount and nature thereof shall hereafter be mutually agreed upon … .” The court found the agreement sufficiently definite. Although there are more and less expensive colleges, the daughter had enrolled in Northeastern and there was some evidence that the husband acquiesced in this choice. The courts below erred in finding that there was no binding obligation under this part of the contract.

State ex rel. Appleman v. Lake Circuit Court, 231 Ind. 378, 108 N.E.2d 898 (1952). A written “memorandum agreement” for the sale of a partnership interest, stating all necessary terms, was held enforceable even though it expressly stated that it “does not include in a detailed manner all of the terms of the dissolution agreement subsequently to be negotiated, drafted and executed.”

In May Metropolitan Corp. v. May Oil Burner Corp., 290 N.Y. 260, 264, 49 N.E.2d 13, 15 (1943), the court wrote: “[A] contract is not necessarily lacking in all effect merely because it expresses the idea that something is left to future agreement.”

35 Facebook, Inc. v. Pac. Northwest Software, Inc., 640 F.3d 1034 (9th Cir. 2011).

36 Facebook, Inc. v. Pac. Northwest Software, Inc., 640 F.3d 1034, 1038 (9th Cir. 2011).

37 Facebook, Inc. v. Pac. Northwest Software, Inc., 640 F.3d 1034, 1038 (9th Cir. 2011).

38 Facebook, Inc. v. Pac. Northwest Software, Inc., 640 F.3d 1034, 1038 (9th Cir. 2011).

39 See also In Mid-Continent Telephone Corp. v. Home Telephone Co., 319 F. Supp. 1176 (N.D. Miss. 1970), a merger agreement was subject to a named employee’s employment contract being settled to the mutual satisfaction of the parties. The court found that the merger agreement was binding, writing: “It is a long-standing rule of construction that the word ‘satisfaction’ will be construed by the courts to mean reasonable satisfaction. In fact the evidence shows that [the parties] were negotiating within well-defined limits and probably headed toward a final understanding.”

Another good example of a case where the parties’ initial agreement was enforceable even though it allowed for a subsequent collateral agreement on an important matter was Mr. Olympia, LLC v. Ultimate Nutrition, Inc., 2018 U.S. Dist. LEXIS 41000 (S.D.N.Y. Mar. 13, 2018). Mr. Olympia had the exclusive right to organize and conduct the “Olympia Weekend.” Ultimate Nutrition was the Title Sponsor for the 2016 Olympia Weekend and agreed to sponsor the 2017 event. Following the conclusion of the 2016 event, per the parties’ Agreement, Ultimate Nutrition had 60 days to exercise its “Opt-Out Option” in order to be relieved of its future obligations under the Agreement with respect to the 2017 Olympia Weekend. The Agreement provided that Mr. Olympia would provide to Ultimate Nutrition “the rights set forth in Schedule 1,” which listed certain promotional benefits and perks that Ultimate Nutrition would receive for being the Title Sponsor. Additionally, the Agreement provided that Schedule 1 would be “supplemented … as applicable” for the 2017 Olympia Weekends, “as mutually agreed by the parties.” Ultimate Nutrition did not exercise the Opt-Out Option within sixty days of the end of the 2016 Olympia Weekend or otherwise. Therefore, Mr. Olympia requested a payment from Ultimate Nutrition for the 2017 event, which Ultimate Nutrition did not make. Then, Ultimate Nutrition sent Mr. Olympia a proposed Schedule 1 to the Agreement. Mr. Olympia provided its comments to Ultimate Nutrition’s proposed Schedule 1. Ultimate Nutrition responded that the proposed Schedule 1 did not work for it, and since the “parties are not going to be able to agree on Schedule 1,” Ultimate Nutrition will not be able to be the Sponsor. Further communications with respect to Schedule 1 failed to result in Agreement as to it. Mr. Olympia filed suit alleging, among other claims, breach of contract. The court concluded that the Agreement was not an unenforceable preliminary Agreement. The parties intended to be bound, as shown by the words of the Agreement. They did not condition its enforceability on the successful negotiation of Schedule I. The Agreement provided that Schedule 1 was to be “supplemented … as applicable.” The word “supplement” means “to add,” and its use shows that the parties did not contemplate an entirely different schedule. It also used the words “as applicable,” which contemplated the possibility of no changes at all to Schedule 1. Further, the language of the Agreement requiring Ultimate Nutrition to opt out within 60 days of sponsoring the event in 2016 is inconsistent with finding that a new Schedule 1 was a precondition for enforceability of the Agreement. Such a construction would effectively render the opt-out provision superfluous. The court explained: “[T]he complaint alleges that the parties have agreed on all material terms and explicitly manifested their intent to be bound by those terms. The fact that they have left the implementation of Schedule 1 to be resolved in good faith negotiations at a later date is not an obstacle to pleading the existence of an enforceable contract.” Id. at *9.

40 Home office approval clauses are also dealt with in § 3.7. These provisions have a supervisory function. The home office can monitor whether the sales representative or local office has made improvident tentative commitments as to price, credit terms, delivery dates, and other matters. Whatever its purpose, such a clause indicates a lack of present commitment.

Fla.

—Meekins-Bamman Prestress v. Better Const., 408 So. 2d 1071, 1073 (Fla. Dist. Ct. 1982). Citing a prior edition of this treatise (§ 88, 1963 ed.), the court wrote: “It is universally held that a document … which specifically conditions the contractual effectiveness of a proposal by a projected seller upon its own subsequent approval, constitutes no more than a solicitation to the prospective purchaser to make an offer itself.”

Ind.—

City of Plymouth v. Michael Kinder & Sons, 2019 Ind. App. LEXIS 556 (Dec. 18, 2019). Kinder sued the City of Plymouth and the City of Plymouth Redevelopment Commission. At a mediation, the following agreement was executed:

At a mediation session held on January 25, 2019, the parties agreed to settle all litigation arising out of the above captioned case as follows:

1) The Defendant shall, subject to the approval of the City of Plymouth Redevelopment Commission keep its offer to settle this litigation for the payment of $130,000.00 to the Plaintiff open.

2) If the Plaintiff accepts the defendants [sic] offer to pay $130,000 to settle this case then the case shall be settled.

3) If the case is settled then the litigation shall be dismissed with prejudice and all parties shall execute a mutual release.

Subsequently, Kinder advised the defendants that he accepted the purported $130,000 offer. But after that, the Commission met and decided not to approve the settlement offer. Kinder moved to enforce the settlement, and the trial court granted Kinder’s motion. On appeal, the instant court reversed. The court held that the purported settlement was subject to a condition precedent—approval of the Redevelopment Commission—which never occurred. The court wrote: “The agreement clearly required that the Commission approve the offer before Kinder could accept it.” It declined to treat the contract language requiring the Commission’s approval as “mere surplusage.” Further: “The requirement that the City keep its offer to settle open was clearly and unambiguously subject to a condition precedent, namely, the approval of the Commission.” In sum: “Because the Commission did not approve the offer, there was no offer for Kinder to accept. The trial court erred when it granted Kinder’s motion to enforce the parties’ agreement.”

N.Y.

—Tri-County Motors, Inc. v. Am. Suzuki Motor Corp., 494 F. Supp. 2d 161 (E.D.N.Y. July 3, 2007) (no legally binding franchise agreement was formed based on the prospective dealer’s submission of a dealership application since Suzuki specifically advised the prospective dealer that the completion of the dealership application was necessary to “evaluate” the dealer and that final approval or disapproval of the application “will be at the sole discretion of” Suzuki’s executive management in Brea, California).

Pa.

—West Penn Power Co. v. Bethlehem Steel Corp., 236 Pa. Super. 413, 348 A.2d 144 (1975) (proposal requiring acceptance by home office was not an offer since the clause was intended to prevent formation of a contract by the unilateral action of the other party).

A so-called “home office acceptance clause” is one that “precludes the formation of a contract except upon approval by the relevant home office.” Technographics, Inc. v. Mercer Corp., 777 F. Supp. 1214, 1216 (M.D. Pa. Nov. 19, 1991).

W.Va.

—Fultz v. Connelly, 139 W. Va. 528, 80 S.E.2d 438 (1954) (contract to sell land made by an agent, subject to the owner’s confirmation or approval, is not an enforceable contract).

Wis.

—McWhorter v. Employers Mut. Casualty Co., 28 Wis. 2d 275, 137 N.W.2d 49 (1965) (customer’s signing of purchase order from used car dealer is not a contract when purchase order provided it was subject to seller’s acceptance. Therefore, dealer’s insurer still covered the car when prospective purchaser became involved in an accident).

But see:

Conn.

—Omega Eng’g, Inc. v. Omega, S.A., 432 F.3d 437 (2d Cir. 2005). A settlement agreement was reached at a court-sponsored settlement conference before trial, and the representative of defendant, a Swiss company, had authority to settle. The conference resulted in an agreement stating that the case was settled and the formal written agreement would be signed by an appropriate party in Switzerland. The Swiss officials, however, refused to sign the agreement. The court held that the agreement was valid. Evidence showed that the subsequent signing by a Swiss official was intended as only a “ministerial” act. A change of heart cannot unmake a valid agreement. This is not a classic “home office” approval case.

When a communication that otherwise would be an offer requires “home office” approval before a contract can be formed, this fact must be reasonably communicated to the other party or the communication may be construed as creating an immediate power of acceptance. See B. F. Sturtevant Co. v. Fireproof Film Co., 216 N.Y. 199, 110 N.E. 440 (N.Y. 1915). A clause in a proposal stating “all contracts or orders taken are subject to the approval of the executive office at Hyde Park, Mass.” was “printed in very small type and the first typewritten numeral that indicates the page number is typewritten over this printed matter.” The court concluded it could not be held, as a matter of law, that the clause became part of the proposal: “When an offer, proposal or contract is expressed in clear and explicit terms, matter printed in small type at the top or bottom of the office stationery of the writer, where it is not easily seen, which is not in the body of the instrument or referred to therein, is not necessarily to be considered as a part of such offer, proposal or contract.”

42 See Stelluti Kerr, L.L.C. v. Mapei Corp., 2017 U.S. App. LEXIS 11804, *25 (5th Cir. Tex. June 30, 2017) (citing Crest Ridge Constr. Grp., Inc. v. Newcourt Inc., 78 F.3d 146, 150 (5th Cir. 1996)).

43 Southwest Motel Brokers, Inc. v. Alamo Hotels, Inc., 72 N.M. 227, 382 P.2d 707 (1963).

44 Restatement (Second) of Contracts, § 217 ill. 2 (Am. Law Inst. 1981).

45 Restatement (Second) of Contracts, § 217 ill. 1 (Am. Law Inst. 1981).

46 Restatement (Second) of Contracts, § 217 cmt. a (Am. Law Inst. 1981).

47 Restatement (Second) of Contracts, § 217 cmt. a (Am. Law Inst. 1981).

The distinction noted in the text is not always acknowledged. See Vision Palm Springs, LLLP v. Michael Anthony Co., 2019 Fla. App. LEXIS 2959 (2019). Vision filed suit against Coscan over a failed real estate deal. The parties entered into settlement discussions, and the Coscan defendants claimed that a settlement was reached. They filed a motion to enforce settlement agreement, which the trial court granted. The appellate court reversed. The chronology of negotiations showed the parties trying to nail down the essential terms of a settlement. Coscan’s counsel made clear throughout the negotiations that its insurance carrier needed to sign off on any deal before any agreement could be finalized. The parties were waiting for this approval, but it had not come by July 9, 2015 at 6:59 a.m., when Vision’s counsel sent an email to Coscan’s counsel stating the following: “[Coscan’s] carrier has not approved or agreed [to] the proposed settlement deal at this point. … . I have to withdraw [Vision’s] consent to the proposed settlement agreement.” Then, on the same date less than one hour later, Coscan’s counsel responded to Vision as follows: “We have a settlement.” But this purported acceptance by the Coscan defendants was wholly ineffective because the Coscan defendants had lost their power of acceptance less than one hour earlier—Vision had terminated it with its counsel’s email. The court explained: “Because Coscan’s decision to accept the [settlement agreement] hinged on the carrier’s approval and consent, there was no deal.” In addition, the court held, the agreement expressly contemplated it could not be final without signatures. The drafter stated: “The Effective Date shall be the date upon which the last signatory executes the Settlement Agreement.” Since no signatures had been obtained, there was no settlement agreement.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.10 »

1 Corbin on Contracts § 2.10 (2020)

§ 2.10. What Constitutes a Written Contract—There May Be a Series of Communications

The term “written contract” has no single and uniform meaning, no one “correct” meaning. It is no different from all other terms that are in common use in any language and in any country. The meaning that is intended to be conveyed by such a term, when used by a party to a transaction or by a legislature in a statute, must be determined by the usual processes of interpretation in the light of all the relevant surrounding circumstances. The same is true as to the meaning that is in fact conveyed to one who hears or reads it. When such meanings, so determined, are at variance, it depends upon our opinions of policy and justice whether legal effect shall be given to any one of them or none. Often the choice will depend primarily upon the purpose with which the term is used, whether by contracting parties or by legislatures. The question whether a written contract has been made receives answers that vary with the purpose for which it is asked and with the effect that will be produced.

The term “written contract” is used in a variety of contexts. Some statutes of limitation provide for a longer period within which a claimant may commence an action on a “written contract” than on a contract that is not written.1 Various statutory provisions assume or require that a contract be in writing.2 The parol evidence rule gives special protection to the terms of a written contract.3 Certain statutes allow certain kinds of promises to be enforceable without consideration if the contract is in writing.4 Parties who have reached preliminary agreement may themselves agree that they will not be bound until a written contract is prepared and signed.5 The parties may have made a contract with a provision that it cannot be modified or rescinded except in writing: such a provision is given binding force by some statutes.6 Sometimes confused with questions arising under the aforementioned situations are questions arising under statutes such as the statute of frauds that require that there be written evidence of a contract of a specified kind: such written evidence may exist although there is no written contract.

Until the late 20th Century, “written contract” generally referred only to traditional contracts memorialized on paper with manual signatures, but that changed with the electronic revolution. Two statutes have made contracts in electronic form legally equivalent to traditional pen-and-ink contracts. In 1999, the National Conference of Commissioners on Uniform State Laws, or NCCUSL (now also known as the Uniform Law Commission) promulgated the Uniform Electronic Transactions Act (UETA)(as of this writing, it has been enacted in virtually every state, the District of Columbia, and the U.S. Virgin Islands). The following year, Congress enacted the Electronic Signatures in Global and National Commerce Act, or “E-Sign” (15 U.S.C. § 7001 et seq.). These statutes validated and effectuated electronic records and signatures and made them equivalent to contracts memorialized on paper and with manual signatures.

It is often said that a contract is not a “written contract” if parol evidence is necessary to establish any one of the terms actually agreed upon as a part of it.7 It is certainly true in such a case that a part of the contract is not in writing; and yet the “parol evidence rule” has often been said to exclude evidence of the unwritten term. If in fact the court enforces the “contract” in total disregard of the unwritten term, there is a “written contract” that is being enforced, and the unwritten term is not a part of it. The original statute of frauds required a “note or memorandum” for the enforcement of certain classes of contracts. It did not require a “written contract,” nor do similar modern enactments.8 No statute, neither the statute of frauds nor any other that serves an evidentiary purpose, should be held to prevent enforcement if the evidential writings are sufficient to attain the purpose of the statute in preventing fraud and error, even though some supplementary parol evidence is necessary.9

If a written draft of an agreement is prepared, submitted to both parties, and each of them expresses unconditional assent thereto, there is a written contract.10 So far as the common law is concerned, the making of a valid contract requires no writing whatever; and even if there is a writing, there need be no signatures unless the parties have made them necessary at the time they express their assent and as a condition modifying that assent.11 Statutes of limitation often use the term “contract in writing” in prescribing a time limit for enforcing actions. As noted above, shorter time limit is sometimes prescribed for enforcement of a contract that is not in writing than for the enforcement of a “written contract” (or a contract under seal). The application of the statute may be difficult for the reason that in the case before the court there may be one or more written instruments the character of which may be in dispute and difficult to determine. A plaintiff who insists that an action is not barred until the expiration of the longer time limit is asserting that the contract is a “contract in writing.” The plaintiff is not denying its genuineness or its execution and delivery or the fact of assent to it as such. The defendant may deny all of these or merely deny that the documents presented by the plaintiff were ever assented to as operative instruments.12 The application of a statute of limitations that distinguishes between written and unwritten contracts may turn upon descriptive words or definitions.

Even if two parties have expressly agreed that they shall not be bound by contract until a written document has been signed and delivered, this does not deprive them of the power to bind themselves by a subsequent oral contract. All that is necessary to eliminate the agreement requiring a writing is to make a new agreement not requiring one or to make a new agreement clearly expressing the intention to be legally bound. Of course, the subsequent expression of the parties will be interpreted in light of the prior agreement requiring a writing. The prior agreement is not lightly to be discarded in determining whether the parties have later agreed to be bound without a writing.

An unsigned agreement, all the terms of which are embodied in a writing, unconditionally assented to by both parties, is a written contract. Their expressions of unconditional assent must be proved by testimony since it is not evidenced by the writing itself. But the same is true of a writing that has been signed by both parties. The writing does not make a contract, not even if the writing bears both signatures. The fact that someone has signed an apparently complete expression of the terms of a contract is indeed strong evidence of that party’s expression of unconditional assent.13 In the absence of all other evidence to the contrary, it is almost enough; but if there is other evidence to the contrary, the signature itself is not conclusive.

Even if the writing is both signed and sealed, there may be no contract without delivery, and delivery, which is itself an expression of intention to give the document immediate binding effect, must always be proved by evidence extrinsic of the document itself. The necessity of such extrinsic evidence does not prevent the document from being a contract under seal. Nor does the necessity of extrinsic evidence of unconditional assent prevent an unsigned document from being a written contract.14 A memorandum of agreement, signed by one party and acted on by both is a binding written contract.15

The fact that an offer is fully written out and signed by the offeror does not establish a contract. Until acceptance by the offeree, such an offer remains revocable.16 Unless the offer prescribes the contrary, however, such an offer can be accepted by an oral communication; and when so accepted, the contract may properly be described as a written contract.17

In the process of making a contract, either orally or in writing, the parties may express their assent piecemeal, agreeing upon individual terms as the negotiation proceeds. These expressions are merely tentative and are inoperative in themselves; there is no contract until the parties close their negotiation and express assent to all the terms of the transaction together.18 In giving expression to such a final assent, however, the parties frequently do not restate the various terms that they have previously tentatively agreed upon. Those terms may be either formally or tacitly incorporated by reference. This is especially likely to be true when the negotiation has been conducted by letter or email. In such cases, in determining the existence of a contract and its terms, the entire correspondence or email chain must be searched and interpreted. There must be found a final closing of the deal, each party indicating by an overt expression that the process of negotiation is complete and that he or she now assents to all the terms already tentatively adopted. The correspondence or email chain must show what those terms are. That they were so adopted by both parties must be established. Here, the proof of the contract consists chiefly in a series of documents, more or less informal in character, no one of which would be legally operative standing alone. This proof is written proof, and the contract may properly be described as a written contract, even though there are several writings or records that the parties have never physically attached to each other.19

When multiple parties are found to have intended to reduce their agreement to a single complete writing and not to be bound by their antecedent communications, it will usually be found also that they intend not to be bound until the writing has been signed by every one of them.20 They may express the contrary intention, however, and if they do so, the lack of one or more signatures does not prevent consummation of a contract. They may bind themselves without any signatures whatever. One party may make a signed written offer, expecting no more than an oral acceptance; or there may be a signed written acceptance of an oral offer.21 Further, it may be clearly understood that all those who sign shall be bound by contract, even though others to whom the document is presented may fail to sign or assent.22 Thus, in a composition with creditors, it may be expressly provided that all creditors who sign shall be bound, even though others do not; or they may make their obligation conditional upon the signatures of a specified proportion, in number of creditors or in total amount of indebtedness.

If parties to an agreement who have signed, or otherwise expressed their assent, proceed to act under it, knowing that others on whose assent the contract was conditional have not signed, their action may be interpreted as an assent to a contract that is not thus conditional.23 It is evidence of a new and different agreement to this extent.

A signature may be operative without respect to its position on the document, although it is customary to sign at the end of the writing and beneath the written provisions. There must be satisfactory evidence that the signature was affixed with intent to authenticate and express assent to the entire document.24

One who signs a writing which purports to be a contract does an act that is strong evidence of one’s intention to make oneself a party thereto bound as a promisor and entitled as a promise.25 Even if one does not so intend, the principles of estoppel may bind notwithstanding. It should not be so held, however, if the other parties know or have reason to know that such is not the intention. If one signs the contract and accompanies the signature by such descriptive words as “agent” or “trustee,” the person so signing may nonetheless be held to have signed in a personal capacity as a party to the contract.26 However, it should not be so held if the other parties knew better or if the instrument as a whole indicates the contrary.

(A) The following case cites this section:

(1) Castaneda v. Volt Mgmt. Corp., 2020 U.S. Dist. LEXIS 81735 (W.D. Tex. May 8, 2020). Plaintiff sued defendant for employment discrimination and retaliation, and defendant moved to compel arbitration pursuant to an arbitration agreement contained in the plaintiff’s employment application and employment agreement. But plaintiff argued that neither the employment application (which plaintiff filled out electronically) nor the employment agreement (which defendant could not locate) contained Plaintiff’s signature. The court rejected this argument, explaining: “Texas contract law principles require only an intent by the parties to be bound, regardless of whether that intent is memorialized by signatures. In the absence of a signature, other evidence must be relied upon to prove the party’s unconditional assent.” The court quoted this section of the Corbin treatise: “An unsigned agreement, all the terms of which are embodied in a writing, unconditionally assented to by both parties, is a written contract. Their expressions of unconditional assent must be proved by testimony since it is not evidenced by the writing itself.” The defendants produced plaintiff’s email forwarding the “complete” application. The court explained:

It is clear from the email that Plaintiff intends the application to entitle her to consideration for employment with Volt. Plaintiff did not reject the terms in the employment application or qualify her interest in employment. Plaintiff’s only argument that she did not accept the arbitration provision in the employment application is the absence of her signature on the agreement. However, Texas law does not require a signature to show assent to be bound. In this case, Plaintiff’s acceptance of the terms in the application employment is clear from the context of the email exchange even without a signature. Therefore, Volt has met its burden of establishing a valid arbitration agreement in the employment application.

In addition, an email from plaintiff indicated that plaintiff accepted the terms of the arbitration agreement. The court held that there was a valid arbitration agreement.

Footnotes — § 2.10:

1 Kaminski v. Land Tec, 2011 Cal. App. Unpub. LEXIS 2142 (Mar. 23, 2011); Harris Tech. Sales v. Eagle Test Sys., 2008 U.S. Dist. LEXIS 76474 (D. Ariz. Sept. 12, 2008) (Illinois); Cassedy v. Alland Invs. Corp., 982 So. 2d 719 (Fla. App. 2008), rehearing denied, 2008 Fla. App. LEXIS 9994 (2008); Dixon v. Hassell & Folkes, P.C., 283 Va. 456, 723 S.E.2d 383 (2012); Szwarga v. Riverside Methodist Hosp., 2014-Ohio-4943, 23 N.E.3d 260 (Ohio App. 2014); Bogle & Gates, P.L.L.C. v. Zapel, 121 Wn. App. 444, 90 P.3d 703 (2004); Asian Am. Entm’t Corp. v. Las Vegas Sands, Inc., 324 Fed. App’x 567 (9th Cir. 2009).

2 For example, the Automobile Dealers’ Day-in-Court Act defines “franchise” as “the written agreement or contract between any automobile manufacturer engaged in commerce and any automobile dealer which purports to fix the legal rights and liabilities of the parties to such agreement or contract.” 15 USCS § 1221(b). In one decision, the court ruled that a dealer who had for some time been an authorized dealer was not under the protection of the Act because the 292 letters and other documents submitted by the dealer did not amount to “written agreement or contract.” Reliable Volkswagen Sales & Service Co. v. World-Wide Auto. Corp., 216 F. Supp. 141 (D.N.J. 1963). See also Gassett v. Nissan N.A., 877 F. Supp. 974 (D.V.I. 1994). Compare Kavanaugh v. Ford Motor Co., 353 F.2d 710 (7th Cir.1965).

3 See Vol. 6, Ch. 25, The Parol Evidence Rule.

4 Pennsylvania is the only state that has the Model (formerly Uniform) Written Obligations Act. 33 Pa. C.S. § 6. This act provides: “A written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.”

Under Article 2 of the U.C.C., “[a]n agreement modifying a contract within this Article needs no consideration to be binding.” U.C.C. § 2-209(1). In California “A contract in writing may be modified by a contract in writing.” Cal Civ Code § 1698(a).

5 See § 2.9.

6 There are statutes providing that when a contract expressly provides in writing that it cannot be modified or rescinded except by an agreement that is in itself written and signed, modifications and amendments that are not thus evidenced are inoperative. Uniform Commercial Code § 2-209 (with certain limitations); NY CLS Gen Oblig § 15-301 (1) (“A written agreement or other written instrument which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agents”).

7 In Wielander v. Henich, 64 Ill. App. 2d 228, 211 N.E.2d 775 (1965), it was held that a written guarantee of roofing work which omits the name of the obligee, which identifies the property as “1417 So. Harlem Ave.” whereas at the time of suit the holder of the guarantee lives at 1415 So. Harlem Ave., and which is undated, is not a written contract for purposes of the statute of limitations because parol evidence would be required to show that the holder of the guarantee was indeed the obligee, that the property at 1417 was owned by the obligee and that the suit was brought within the statutory period for written contracts.

In Distefano v. Hall, 218 Cal. App. 2d 657, 32 Cal. Rptr. 770 (1963), an instrument, duly signed, purporting to be a building contract, consisted of detailed typewritten provisions followed by a handwritten addendum that nullified preceding typed provisions that were to the contrary. The testimony was in conflict as to whether one of the typed provisions had been cancelled. It was a question of fact for the jury to determine what were the terms that had actually been assented to. The contract, as thus determined on the basis of extrinsic evidence, would be a “written contract.”

In Western Machinery Co. v. Consolidated Uranium Mines, Inc., 247 F.2d 685 (10th Cir. 1957), an oral agreement for services was consummated by telephone. This was confirmed by letter, assented to by both parties; but the letter omitted by mistake a provision for a 10 per cent engineering fee. The court said that on these facts a suit could not be maintained on the theory that there was a “written contract,” for the reason that “the letter did not contain all of the agreement between the parties.” Query, whether the omitted provision might not have been added by a decree for reformation, thus making the contract a “written contract.”

In Purdin v. Jenkins, 337 S.W.2d 418 (Tex. Civ. App. 1960), a written contract for the building of a house provided for certain brick floors. Later by oral agreement Mexican tiles were substituted for brick. The court held that this oral alteration caused the entire contract to fall within the “parol” category and to make applicable the statute of limitations on parol contracts.

If the terms of a contract are partly oral and partly written, the statute of limitations is the one applicable to oral contracts. Spratler v. Georgia Art Supply Co., 295 F.2d 379 (5th Cir.1961).

8 Johnson v. Nationstar Mortg., LLC, 2018 U.S. Dist. LEXIS 22829 (N.D. Cal. Feb. 9, 2018); In re Wilson, 2017 U.S. Dist. LEXIS 216182 (M.D. Tenn. Aug. 7, 2017). In Crowley v. Modern Faucet Mfg. Co., 44 Cal. 2d 321, 282 P.2d 33 (1955), the court distinguishes between a written contract and an oral contract evidenced by a written memorandum. It said: “The written document [a letter] is referred to only as a memorandum, and only one party is alleged to have signed it. A written memorandum is not identical with a written contract; it is merely evidence of it and usually does not contain all of the terms.”

9 In Sandobal v. Armour & Co., 429 F.2d 249, 256, 74 L.R.R.M. 2781, 75 L.R.R.M. 2027 (8th Cir. 1970), an employee was involved in a disturbance with a fellow worker. The latter then was fired. The former, the plaintiff, was suspended and later fired. The plaintiff had a right under a union contract not to be fired except for cause. Although plaintiff’s initial hiring was oral, the union contract was in writing. The court held that the longer statute of limitations for written contracts applied. Although plaintiff’s contract rights were partly oral and partly in a writing signed by others, the right at issue, not to be fired except for cause, was in writing and met the evidential purpose of the longer period of limitations.

10 Loloee v. Ali, No. 284881, 2010 Mich. App. LEXIS 590 (Mich. April 6, 2010) (citing this treatise, § 2.10, 1993 ed.).

In Pelletier v. Noel, 2005 Me. Super. LEXIS 63 (March 25, 2005) (citing § 2.10, 1993 ed.). the defendants, children of the decedent, challenged the terms of their father’s will on the footing that the plaintiff-widow interfered with their expectancy and exerted undue influence over their father. The defendants filed suit, but in September, 2002, the parties agreed to a settlement whereby the plaintiff would deed title to contested real estate to an irrevocable trust to be managed by attorneys for both parties. The attorneys for the parties notified the court of the settlement, and the suits against plaintiff were dismissed with prejudice. Two of the four defendants signed the documentation prepared in connection with the settlement, and spaces were left blank for the other two. The two defendants who did not sign authorized one of the other defendants to sign on their behalf, but the other defendant only signed on behalf of one of the two. When the plaintiff learned that not all the signatures were obtained, she made arrangements to sell the property and instructed her new attorney to notify the defendants that she was revoking the settlement agreement and trust because the documents had not been signed in a timely manner. She then sought a declaratory judgment that the settlement and related trust and deed were void because the documents had not been signed within a reasonable time, and that the plaintiff’s offer to settle had been properly revoked. The defendants filed a counterclaim, alleging that the plaintiff breached the terms of the settlement and trust agreements. Both parties filed motions for summary judgment. The court concluded there was no dispute that the parties negotiated an agreement to create a trust in the property named. There was no dispute that the parties negotiated an agreement to settle the lawsuits pending against the plaintiff. Moreover, the settlement agreements were sufficiently definite to allow the parties to inform the courts that a global settlement had been reached with all defendants. The two defendants who did not sign the documents resided or sometimes worked out of state. Nothing in the record suggested that the parties were operating under narrow time constraints, that “time was of the essence,” or that plaintiff was in any way prejudiced by the time needed to gather the signatures. The first two defendants signed the documents on September 11, 2003, and the plaintiff initiated suit seeking the declaratory judgment on July 12, 2004. The court noted that prior to the first two defendants signing, the parties negotiated a fairly complicated agreement to share interests in property, then took an additional year to craft all the terms of their agreement into a final written form. In light of these circumstances, the court concluded that it was not unreasonable for all of the defendants not to sign the documents within nine months, especially where all parties assented unconditionally to their terms and where substantial performance by both sides, including dismissal of the suits against the plaintiff to her benefit, was well underway. The plaintiff’s motion for summary judgment was denied.

See also, Simmons & Simmons Constr. Co. v. Rea, 155 Tex. 353, 286 S.W.2d 415 (1956). The court cited this treatise (§ 31 from a prior edition). It reviewed the evidence and held that the defendant clearly indicated an intention not to be bound until both parties signed and a bond executed. In re Beyond the Arches, Inc., 2004 Tex. App. LEXIS 6930 (Tex. App. Beaumont July 29, 2004) (citing § 2.10, 1993 ed.); In re Bunzl USA, Inc., 155 S.W.3d 202 (Tex. App. 2004) (citing § 2.10, 1993 ed.). Juric v. ***’s Sporting Goods, Inc., 2020 U.S. Dist. LEXIS 137299 (W.D. Pa. Aug. 3, 2020). Plaintiffs sued ***’s for alleged unpaid overtime compensation, and ***’s moved to compel arbitration pursuant to an arbitration agreement signed by plaintiffs. Plaintiffs challenge the enforceability of the agreement by arguing, inter alia, that ***’s never signed it. The court held that ***’s signature was not necessary, and it compelled arbitration. The court explained that it is not essential that signatures be included unless “signing is expressly required by law or by the intent of the parties.” Instantly, the Arbitration Agreement did not expressly require a signature as a condition precedent to enforcement. Indeed, the Federal Arbitration Act requires only that the agreement be in writing, not that it be signed. 9 U.S.C. § 2. “By the Agreement’s terms, receipt of the Agreement and continued employment constitute acceptance.” Thus, once there has been receipt and continued employment, there was a binding contract—***’s signature was not essential to creating a binding agreement. The fact that the agreement contains a signature line does not change this analysis.

U.S.

—Hardwood Package Co. v. Courtney Co., 253 F. 929 (4th Cir.1918).

In Mfg. Co. v. United States, 169 F. Supp. 483 (Ct. Cl. Jan. 14, 1959), the plaintiff submitted a bid for the purchase of specified property. The contracting officer for the Government replied by letter accepting the bid. With this letter were enclosed written contract forms in triplicate, requesting the plaintiff’s signature thereto and also a check for the price. The court held the acceptance effective, the forms being “sent to plaintiff merely to meet the requirements of the Government’s bookkeeping system.”

Ariz.

—Phoenix Concrete v. Indus. Comm. of Ariz., 2012 Ariz. App. Unpub. LEXIS 658 (May 24, 2012) (writing not essential to form settlement agreement, but parties must intend to be bound—a question of fact that was resolved by finding no contract).

Hawaii

—Fyffe v. Hue, 130 Haw. 349, 310 P.3d 1050 (2010) (the court cited § 2.10, (1993 ed.), held that unsigned contract not enforceable since parties expressly agreed they shall not be bound until a document was signed).

Ill.

—Bauer v. Qwest Communs. Co., LLC, 743 F.3d 221 (7th Cir. 2014). Where negotiations over a fee distribution agreement had been pursued for several years and the plaintiff attorney manifested assent to a final proposal after two minor items he raised were changed, the court found that he had manifested assent to the agreement though he later refused to sign the agreement.

Detroit Tigers, Inc. v. Ignite Sports Media, LLC, 203 F. Supp. 2d 789 (E.D. Mich. 2002) (applying Illinois law, court held mutual assent to terms of agreement could be evidenced by the conduct of the parties in performing their respective obligations, notwithstanding a lack of signatures).

Ind.

—Stardust Ventures, LLC v. Roberts, 65 N.E.3d 1122 (Ind. Ct. App. Dec. 28, 2016); Seco Chemicals, Inc. v. Stewart, 169 Ind. App. 624, 349 N.E.2d 733 (1976).

Iowa

—Reynolds v. Johnson, 199 Iowa 1055, 202 N.W. 881 (1925) (assumption of mortgage by grantee, though grantee did not sign the deed).

Cedar Rapids Lodge & Suites, LLC v. JFS Dev., Inc., 2012 U.S. Dist. LEXIS 1711 (N.D. Iowa Jan. 6, 2012) (unsigned agreement enforceable since parties manifested assent to it).

Neb.

—Coffey v. Mann, 7 Neb. App. 805, 585 N.W.2d 518 (1998) (quoting this section from a prior edition (§ 31)). A contractor argued that homeowners pled the existence of a written contract, while proof at trial indicated that there was an oral contract, and that proof consequently did not match the pleadings. The court held that both parties expressed mutual assent to the terms of the unsigned written contract through their respective acceptance of benefits.

Nev.

—In Pravorne v. McLeod, 79 Nev. 341, 383 P.2d 855 (1963), a detailed offer and escrow instructions were sent to the offeree for acceptance, but were not signed by the offeror. This was an operative offer creating a power to close the deal by acceptance.

N.Y.

—In Smith v. Onyx Oil & Chemical Co., 218 F.2d 104 (3d Cir. 1955), the court held that a valid contract was consummated, even though one of the parties never signed the final draft that it had prepared and sent to the plaintiff for his signature.

Pa.

—Shovel Transfer & Storage v. Pa. Liquor Control Bd., 559 Pa. 56, 66, 739 A.2d 133, 138 (Pa. 1999); Daniel Adams Associates, Inc. v. Rimbach Pub., Inc., 360 Pa. Super. 72, 519 A.2d 997 (1987), appeal denied, 517 Pa. 597, 535 A.2d 1056; THI of Pa. at Mountainview, LLC v. McLaughlin, 2015 U.S. Dist. LEXIS 59557 (W.D. Pa. May 6, 2015) ("’signatures are not required for a binding contract unless such signing is expressly required by law or by the intent of the parties.’").

Tex.

—Centennial Royalty Co. v. Byrd & Foster Drilling, Inc., 464 S.W.2d 420 (Tex. Civ. App. 1971); West Texas Hospitality, Inc. v. Enercon International, Inc., 2010 Tex. App. LEXIS 7178 (Aug. 31, 2010) (citing this section from a previous edition, § 31, the court held that in the absence of the written consent of the parties to a different mode of acceptance, the parties were expressly required to sign and deliver the agreement to each other in the manner prescribed before there was an enforceable contract); New York Party Shuttle, LLC v. Bilello, 414 S.W.3d 206 (Tex. App. 2013), rehearing denied, 2013 Tex. App. LEXIS 15487 (2013), petition for review denied, 2013 Tex. LEXIS 783 (2013) (both parties intended signatures to be a condition precedent to a valid, new agreement); Lujan v. Alorica, 445 S.W.3d 443 (Tex. App. 2014) (court cites § 2.10 (1993 ed.), holds that letter agreement expressly made employee’s signature a pre-condition to contract formation); RayMax Mgmt. L.P. v. New Cingular Wireless PCS, LLC, 2016 Tex. App. LEXIS 13309 (Dec. 15, 2016) (absence of signatures not an impediment to formation since there was no evidence that either party explicitly required signatures as a condition of mutual assent).

Va.

—Dixon v. Hassell & Folkes, P.C., 283 Va. 456, 723 S.E.2d 383 (2012) (citing § 2.10, (1993 ed.), the court held that a party’s failure to sign and return the writing did preclude the writing itself from becoming a written contract as contemplated by the statute of limitations).

Wis.

—Chudnow Constr. Corp. v. Commercial Discount Corp., 48 Wis. 2d 653, 180 N.W.2d 697 (1970). The court points out that the common law does not require a signature. While the parties by agreement, or an offeror by the terms of the offer can make a signature a condition precedent to the creation of a contract, this had not happened here.

Tex.

—Scaife v. Associated Air Center, Inc., 100 F.3d 406 (5th Cir. 1996) (no contract based on unsigned document where signatures to the writing were intended as a “condition precedent to the formation of a contract.”).

In Woodbury v. United States, 192 F. Supp. 924 (D.C. Or. 1961), aff’d, 313 F.2d 291 (9th Cir. 1963), the court said: “In my opinion the fact that the completion agreement was not signed by Lender [a federal agency] is of no significance. Contractual liability under a written contract may be assumed without signing it.” [Citing cases] The court held that although the federal agency assented to and was bound by the written instrument, its breach thereof did not make it liable as for a tort under the Federal Tort Claims Act.

Mielke v. South County Post & Beam, Inc., 2010 R.I. Super. LEXIS 153 (Oct. 29, 2010) is an excellent illustration of these principles. Mielke discussed hiring SCPB to construct a timber frame structure for Mielke. SCPB drafted an agreement that it sent to Mielke. The agreement stated that the parties had reached agreement, and it contained an itemized payment schedule for the work SCPB was to perform, including a provision that SCPB would be paid $15,000 upon signing. The agreement also contained an arbitration provision. Upon receiving the proposed agreement, Mielke dated and signed the agreement and mailed it to SCPB with a letter stating, “Enclosed is the signed contract and first installment payment of our Timber Frame project.” SCPB received the agreement and accepted Mielke’s payment. However, SCPB never signed the agreement. SCPB commenced work, and on three separate occasions, it sent Mielke billing invoices for its work. All three invoices stated: “Per approved and signed contract agreement dated May 11, 2005.” The invoices sought payment based on phases of the project referenced in the agreement. Thereafter a dispute arose between Mielke and SCPB concerning the latter’s work. Mielke filed an arbitration claim in accordance with the contract, and an arbitrator conducted hearings and entered an arbitration award in favor of Mielke. SCPB sought relief in state court, arguing that the arbitration clause does not satisfy state law requiring an arbitration provision to be in a written contract in order to be binding because SCPB never signed the document. The court disagreed. The court explained that the statutory requirement for a “written contract” did not contain a signature requirement. Rhode Island courts have recognized that parties can manifest assent to written agreements by means other than signature alone. The court cited the Corbin treatise (§ 31, 1963 ed.) for this proposition: “So far as the common law is concerned … there need be no signatures unless the parties have made them necessary at the time they expressed their assent.” Here, SCPB communicated its assent to the terms of the contract through its actions. SCPB drafted the agreement, sent it to Mielke, and received the signed agreement back along with Mielke’s first installment of $15,000 “due upon signing.” SCPB retained the contract, accepted Mielke’s payment, and at no point did SCPB indicate to Mielke that it was rejecting the signed agreement. In fact, SCPB represented to Mielke that the agreement was signed and approved. Then SCPB performed the work required under the contract. Each billing invoice contained the statement that the bills were “per [the] approved and signed contract agreement dated May 11, 2005.” Mielke made the payments, and SCPB accepted the payments. The court explained: “To hold that such a contract is invalid until SCPB signs it, would be to place every signatory to an agreement at the mercy of the last party to sign, who would remain free to deny the agreement whenever he or she chooses. In today’s world, where contracts are mailed, faxed, e-mailed, and digitally formed, parties must be able to rely on the representations and the actions of those they contract with.” Thus, the court found a valid written contract containing an arbitration clause.

In Wright v. Hernandez, 469 S.W.3d 744 (Tex. App. 2015), Erika Hernandez sued Wright and his law firm for wrongful termination, and Wright moved to compel arbitration on the basis of an arbitration contract that the law firm did not sign. The court cited § 2.10 (1993 ed.) for the principle that “parties to a contract may direct that a signature of each party is a prerequisite to the formation of a binding written contract.” But Wayne Wright’s signature was not a condition precedent to the enforceability of the arbitration agreement. The presence of a signature block in a contract, without more, is not enough to establish that a party’s signature is a condition precedent to the enforceability of a contract. In addition, Wright presented evidence that the parties assented to the agreement: “Wayne Wright presented the trial court with affidavits from two of its employees, averring that Wayne Wright prepared the parties’ arbitration agreement, presented the agreement to Hernandez for her signature, maintained the agreement as a business record after Hernandez was hired, and then sought to enforce the agreement after Hernandez filed her lawsuit.” Wright met its burden to establish the existence of a valid arbitration agreement.

In Remark, LLC v. Adell Broad. Co., 702 F.3d 280 (6th Cir. 2012), Adell and Remark negotiated an agreement to settle a dispute culminating in Adell presenting terms to Remark, which Remark found totally acceptable and asked Adell to put in final form. Adell agreed and submitted a final draft to Remark, which Remark signed but Adell chose not to sign. The court concluded that a contract had been made where Adell presented the final draft of terms, which Remark signed. The court rejected Adell’s argument that no contract was formed because it withheld its signature from the final document that it had drafted. When parties manifest assent to the material terms of an agreement, contract formation will not be prevented by the fact that the parties also manifest an intention to adopt a final writing evidencing their previously formed contract.

In Atlantique Prods. v. Ion Media Networks, 644 Fed. Appx. 800 (9th Cir. 2016), Atlantique Productions sued ION Media for, inter alia, breach of contract arising out of the negotiations to broadcast an Atlantique-produced television series. At issue was whether the term sheet that the parties were negotiating, but that ION did not sign, was a legally operative contract. The Ninth Circuit affirmed the summary judgment in favor of ION and held that there was no binding agreement. During negotiations, the parties understood that both parties would need to sign the document before it could have contractual significance. “ION communicated to Atlantique several times that the agreement would become binding only after both Atlantique and ION signed and that ION needed to obtain the requisite internal corporate approvals before signing.” The court explained that Atlantique agreed to this protocol as “evidenced by Atlantique’s sending ION the ‘partially executed term sheet for ION’s signature.” Further: “ ‘Where … there is a manifest intention that the formal agreement is not to be complete until reduced to a formal writing to be executed, there is no binding contract until this is done.’ ” The court affirmed the judgment of the district court.

The parties’ conduct manifests their intentions.

In 1 Oak Private Equity Venture Capital Ltd. v. Twitter, Inc., 2015 Del. Super. LEXIS 978 (Nov. 20, 2015). 1OAK, a wealth management firm, sued Twitter alleging that Twitter breached an Approved Buyer Agreement (“ABA”) for the purpose of designating 1OAK as approved buyers in procuring investors for a potential pre-IPO stock purchase. Twitter argued that it never agreed to the ABA because it never signed it. The court concluded that 1OAK pled sufficient facts to show that Twitter objectively manifested its assent to the ABA even though it never signed it. “Twitter allowed 1OAK to carry out extensive due diligence on Twitter’s financials … including various face-to-face meetings.” Thereafter, “Twitter drafted [the] proposed ABA, used its letterhead, and sent the proposal to 1OAK. It is reasonably conceivable that based on the circumstances, 1OAK believed this proposal to be an offer capable of acceptance by signing the ABA. 1OAK signed the ABA without changing any terms and sent it back to Twitter the next day. Twitter received the signed ABA. While Twitter never signed the ABA, it did not object to its existence after receipt. Instead, Twitter informed 1OAK that the ABA was on the desk of busy Twitter managers waiting to be signed.” Id. at **14–16. In addition, “Twitter encouraged 1OAK to begin raising funds assuring 1OAK that a fully-executed ABA would be forthcoming.” Id. at *16. And later, “after 1OAK continued to procure investors, Twitter offered to confirm 1OAK’s status, as specified in the ABA, to third parties in an email from Twitter to 1OAK.” Id.

12 This section from a prior edition (§ 31) is cited in Amen v. Merced County Title Co., 58 Cal. 2d 528, 25 Cal. Rptr. 65, 375 P.2d 33 (1962). The defendant, as escrow holder received and assented to the escrow instructions signed by the parties to the contract of sale but not by the defendant. Those instructions directed the defendant to pay certain debts out of money received from the buyer. It failed to do so and also failed to notify the buyer (plaintiff) that a tax claim existed. The court held that the defendant’s failure was the breach of a written contract, making a four-year statute of limitations applicable. That statute said nothing about signature. The defendant’s assent and promise to perform as directed were implied from its conduct.

In Stanley v. Chastek, 34 Ill. App. 2d 220, 180 N.E.2d 512 (1962), the plaintiff sued an orthodontist for damages for breach of a contract to straighten her teeth, alleging a written contract in possession of the defendant. The latter produced a document entitled “Professional Budget Plan” (a copyrighted form), signed by both parties. It provided for “professional services” by the “Doctor,” more particularly described in the patient’s “office record which is hereby made a part of this Plan by incorporation.” It specified the total price to be paid and the schedule of installments. The office record contained nothing more definite than “Impression, X-ray photo”; “Construction of appliance”; and “Adjustment”; with various dates. The court held that the documents thus produced constituted a “written contract” and that the 10-year period of limitation fixed by statute was applicable. They were a “written contract” within the statutory meaning, even though accompanying parol evidence was necessary to prove surrounding circumstances, the facts of delivery and acceptance of the writing, the exact character of the “services” (teeth straightening), and the implied warranties that the work and materials would be good and competent.

13 PSEG Energy Res. & Trade LLC v. Onyx Renewable Partners, L.P., 2017 N.J. Super. Unpub. LEXIS 524 (Mar. 6, 2017) (quoting § 2.10, 1993 ed.). The representative of a law firm who signs a proposed contract, admitting that he has read it, has unconditionally manifested assent to its terms.

In re People’s Choice Home Loan, Inc., 225 S.W.3d 35 (Tex. App. 2005). Mr. and Mrs. Jimenez received a home equity loan from People’s Choice. After the closing, Mrs. Jimenez realized that they had been overcharged in fees and costs. The Jimenezes sought declaratory relief and People’s Choice filed a motion to compel arbitration under an arbitration clause in the loan agreement. Citing § 2.10 (1993 ed.), the court found that the Jimenezes signed an arbitration agreement, and a party’s signature is “strong evidence” that the party assented to the contract terms. The court held that they were bound by the arbitration agreement.

14 McGrath v. Fogarty, 2015 U.S. Dist. LEXIS 86897 (D. Utah July 2, 2015) (citing § 2.10, 1993 ed.).

In the following cases, the action was held to be on a written contract:

U.S.

—New York Cent. R. Co. v. Mutual Orange Distributors, 251 F. 230 (9th Cir. 1918) (bill of lading, California statute).

Ark.

—Sims v. Miller, 151 Ark. 377, 236 S.W. 828 (1922) (letters and telegrams).

Fla.

—McGill v. Cockrell, 88 Fla. 54, 101 So. 199 (1924) (letters of employment).

Ind.

—Stardust Ventures, LLC v. Roberts, 65 N.E.3d 1122 (Ind. Ct. App. Dec. 28, 2016) (“Indiana courts have made clear that ‘the validity of a contract is not dependent upon the signature of the parties.’ … . Signatures of both parties would be required if ‘such [was] made a condition of the agreement,’ … . but there is nothing in the plain language of the Purchase Agreement to suggest such a condition existed here.”).

Kan.

—Fey v. Loose-Wiles Biscuit Co., 147 Kan. 31, 75 P.2d 810 (1937) (a letter).

Ky.

—Lyons v. Moise, 298 Ky. 858, 183 S.W.2d 493 (1944) (although the amount promised to be paid was not in the writing).

Miss.

—W.T. Raleigh Co. v. Fortenberry, 138 Miss. 410, 103 So. 227 (1925) (written guaranty of “all indebtedness incurred”).

Ohio

—Cleveland Trust Co. v. Elbrecht, 137 Ohio St. 358, 19 Ohio Op. 55, 30 N.E.2d 433 (1940).

Okla.

—First Nat. Bank v. Raymer, 180 Okla. 529, 71 P.2d 485 (1937) (deed delivered to but not signed by grantee). In Edwards v. Petross, 381 P.2d 1008 (Okl.1963), a written contract for the sale of land provided for a deposit of $1,000 with Petross, the broker. Below the signatures of the seller and the buyer was a paragraph, signed only by the seller in which the seller agreed to pay the broker a commission on closing, and to pay the broker one half of the down payment in case the buyer failed to close. In this action by the seller against the broker for half of the down payment, the court held that the action was on a written contract, even though it was not signed by the defendant broker, so that the two-year statute of limitations was not applicable.

Pa.

Tex.

—Houston & T.C.R. Co. v. Southern Architectural Cement Co., 112 Tex. 139, 245 S.W. 644 (1922) (bill of lading, Texas statute); Kerby v. Collin County, 212 S.W.2d 494 (Tex. Civ. App. 1948) (minutes of the commissioners’ court showing plaintiff’s appointment, acceptance, and qualification).

Vt.

—Norton & Lamphere Constr. Co. v. Blow & Cote, Inc., 123 Vt. 130, 183 A.2d 230 (1962).

Wash.

—W.T. Rawleigh Co. v. Graham, 4 Wash. 2d 407, 103 P.2d 1076, 129 A.L.R. 596 (1940) (contract of guaranty a written contract though amount of goods sold in reliance on it had to be proved by other evidence).

In Tow v. Miners Memorial Hospital Ass’n, 305 F.2d 73 (4th Cir.1962), after some preliminary negotiation, the Hospital wrote to Dr. Tow in New York a letter stating specifically the tenure of his employment. Dr. Tow did not sign this letter; but he expressed his assent to the employment and went to work at the hospital. He was bound by the provisions of a written contract.

In Brandt v. Beebe, 332 S.W.2d 463 (Mo. App. 1959), the defendant was held bound by the terms of a written contract between a Union and a number of employers, although he did not sign it. He knew all of its terms and expressly agreed thereto.

In Rubino v. Pray, 187 Cal. App. 2d 495, 9 Cal. Rptr. 651 (1960), a writing was prepared for the sale of a business. The purchaser made some interlineations on the first page and signed his name at the bottom of that page. The trial court’s finding, as a matter of fact, that the purchaser had assented to the entire writing and that it was a written contract (integration) was affirmed on appeal.

In Harrison v. Facade, Inc., 355 S.W.2d 543 (Tex. Civ. App. 1962), the defendant ordered goods to be shipped, and requested that invoices be sent to him. The plaintiff shipped the goods and sent signed invoices in which the prices and the place of payment were stated. The defendant accepted the goods and was silent as to the invoices. On these facts, the court held that there was a “written contract,” the invoices being a part thereof even though not signed by the defendant. The place of payment was determined by the invoice; and this determined the proper venue of suit. A contract is not prevented from being a “written contract” by the fact that extrinsic evidence of surrounding circumstances and the subsequent conduct of the parties is necessary to interpret it and to determine its legal effect.

Harlow Pub. Co. v. Patrick, 181 Okl. 83, 72 P.2d 511 (1937).

See also:

U.S.

—Willard v. Tayloe, 75 U.S. (8 Wall.) 557, 19 L. Ed. 501 (1869).

Shubert Theatrical Co. v. Rath, 271 F. 827 (2d Cir.1921).

Mini Melts United States v. Mini Melts, 2017 U.S. Dist. LEXIS 150541 (D. Conn. Sept. 18, 2017).

MH Pillars Ltd. v. Realini, 277 F. Supp. 3d 1077 (N.D. Cal. 2017).

In re III Enters., V, 163 B.R. 453 (Bankr. E.D. Pa. 1994).

Ala.

—McMillan, Ltd. v. Warrior Drilling & Engineering Co., 512 So. 2d 14 (Ala. 1986).

Ariz.

—Andrews v. Blake, 205 Ariz. 236, 69 P.3d 7 (2003).

Cal.

—City of Orange v. San Diego County Employees Ret. Ass’n, 103 Cal. App. 4th 45, 126 Cal. Rptr. 2d 405, (Cal. App. 2002).

Parker v. Beach, 176 Cal. 172, 167 P. 871 (1917); Smith v. Bangham, 156 Cal. 359, 104 P. 689 (1909).

Ga.

—Prior v. Hilton & Dodge Lumber Co., 141 Ga. 117, 80 S.E. 559 (1913).

Ind.

—North Side Asphalt & Material Transport, Inc. v. Foreman, 520 N.E.2d 457 (Ind.App.1988).

Iowa

—Sargent & Co. v. Heggen, 195 Iowa 361, 190 N.W. 506 (1922).

Mass.

—PowerComm, LLC v. Holyoke Gas & Elec. Dep’t, 81 Mass. App. Ct. 1123, 964 N.E.2d 368 (2012).

O’Brien v. Boland, 166 Mass. 481, 44 N.E. 602 (1896); Tucker v. Connors, 342 Mass. 376, 173 N.E.2d 619 (1961) (citing § 43 from a prior edition of this treatise).

Mo.

—Tebeau v. Ridge, 261 Mo. 547, 170 S.W. 871 (1914).

N.J.

—McCormick v. Stephany, 61 N.J. Eq. 208, 48 A. 25 (1900).

N.Y.

—Cortese v. Connors, 1 N.Y.2d 265, 152 N.Y.S.2d 265, 135 N.E.2d 28 (1956); Cochran v. Taylor, 273 N.Y. 172, 7 N.E.2d 89 (1937) (seal).

N.C.

—Thomason v. Bescher, 176 N.C. 622, 97 S.E. 654 (1918).

Or.

—Davidson v. Wyatt, 289 Or. 47, 609 P.2d 1298 (1980); Foulkes v. Sengstacken, 83 Or. 118, 163 P. 311 (1917) (death does not terminate power); Olympia Bottling Works v. Olympia Brewing Co., 56 Or. 87, 107 P. 969 (1910) (exclusive agency to sell beer, with option for 5-year extension).

Pa.

—Real Estate Co. v. Rudolph, 301 Pa. 502, 153 A. 438 (1930).

P.R.

—Mega Media Holdings, Inc. v. Aerco Broad. Corp., 852 F. Supp. 2d 189 (D.P.R. 2012).

R.I.

—Dawley v. Potter, 19 R.I. 372, 36 A. 92 (1896).

Tex.

—Karns v. Jalapeno Tree Holdings, L.L.C., 459 S.W.3d 683 (2015).

Vt.

—Laporte v. Blum, 2015 Vt. Super. LEXIS 12 (Mar. 17, 2015).

Wis.

—McLellan v. Charly, 313 Wis. 2d 623, 758 N.W.2d 94 (2017); Tammi v. Porsche Cars N. Am., Inc., 2009 WI 83, 320 Wis. 2d 45, 768 N.W.2d 783 (2009). In Soderholm v. Chicago Nat. League Ball Club, Inc., 225 Ill. App. 3d 119, 167 Ill. Dec. 248, 587 N.E.2d 517 (1992), appeal denied, 145 Ill. 2d 644, 173 Ill. Dec. 13, 596 N.E.2d 637, it was held purchase of season tickets for five consecutive seasons did not create an option to purchase season tickets for the subsequent season.

The holder of an option to purchase is entitled to specific performance as to the optionor, and also to injunctive relief to prevent a sale to a bona fide purchaser which might render performance under the option otherwise impossible. In cases involving sales to third parties “who took with actual or constructive notice of the “right of first refusal/option to purchase, the optionee may obtain specific performance against such third party.”

Greenfield Country Estates Tenants Ass’n v. Deep, 3 Mass. L. Rep. 300 (Mass. Super. 1995). See also, Wilson Courts Tenants Ass’n, Appellant v. 523–525 Mellon St., LLC, 924 A.2d 289, 295 (D.C. App. 2007) (“. … the sale to Mellon did not extinguish the tenants’ option to purchase since Mellon had at least constructive knowledge of the tenants’ rights … .); North Side Asphalt & Material Transport, Inc. v. Foreman, 520 N.E.2d 457, 460 (Ind. App. 1988) (“While a nonbreaching party under an option agreement may be entitled to damages, several jurisdictions recognize that when a tenant is extended an option to purchase and the landlord breaches the lease and option by conveying the property to a third party, the tenant may maintain an action for specific performance.”); Buckley v. Garner, 935 So. 2d 1030, 1032–1033 (Miss. App. 2005), rehearing denied, 935 So. 2d 1030 (Miss. App. 2006), cert denied, 936 So. 2d 367 (Miss. 2006) (holder of an option may have rights against a third-party purchaser if the later had actual or inquiry notice of the option).

In Galton v. Emuss, 1 Coll. 243 (1844), one Nash contracted with Galton that he should “have the offer, for twelve months, of both the estates … by the trustees under the will of the said John Nash.” Later Nash devised the estates to the trustees, defendants, for other uses and with no power to convey to the plaintiff. The trustees refused to offer the estates to the plaintiff on the agreed terms, but the plaintiff gave them notice of his intention to purchase. Vice Chancellor Knight Bruce decreed specific performance.

U.S.

—Iroquois Master Fund, Ltd. v. Quantum Fuel Sys. Techs. Worldwide, 641 Fed. App’x 24, 26 (2d Cir. 2016) (“The proper measure of damages for a breach of an option contract is the difference between the market value of the stock and the option price.”); Abdallah v. Abdallah, 359 F.2d 170 (3d Cir. 1966) (non-breaching party may sue for specific performance or damages); Advanced Recovery Sys., LLC v. Am. Agencies, LLC, 2016 U.S. Dist. LEXIS 140116, *29 (D. Utah Sept. 28, 2016) (“[T]he measure of damages for breach of an option contract is the “loss of the bargain”-the difference between the market value and the option price.”); Wilson Courts Tenants Association, Inc. v. 523–525 Mellon Street, LLC, 924 A.2d 289 (D.C. App. 2007) (a holder of an enforceable option is entitled to injunctive protection against conveyance to a bona fide purchaser).

Ala.

—Ford v. Canton, 530 So. 2d 217, 224 (Ala. 1988) (“The damages for breach of an option to purchase land are determined by the same rule that is applied in an action for breach of a contract for the sale of the land itself.”).

Cal.

—Oldenkott v. American Electric, Inc., 14 Cal.App.3d 198, 202, 92 Cal. Rptr. 127, 130–131 (1971) (employment contract).

Conn.

—State v. Lex Assocs., 248 Conn. 612, 730 A.2d 38 (1999) (material breach entitled non-breaching party to specific performance of option contract).

Minn.

—Space Center, Inc. v. 451 Corp., 298 N.W.2d 443 (Minn.1980) (damages warranted).

N.Y.

—Van Wagner Advertising Corp. v. S & M Enterprises, 67 N.Y.2d 186, 501 N.Y.S.2d 628, 492 N.E.2d 756 (1986) (damages warranted, not specific performance).

Or.

—Fullington v. M. Penn Phillips Co., 238 Or. 321, 327–28, 395 P.2d 124. 127 (1964) (“The option can be enforced in equity, or, if it eventually turns out that specific performance is impossible, damages can be allowed for non-performance.”).

Tex.

—Dixie Glass Co. v. Pollak, 341 S.W.2d 530, 541 (Tex. Civ. App. 1960), writ ref’d n.r.e., 162 Tex. 440, 347 S.W.2d 596. This was an employment contract with an option by the employee to extend it. The court said: “A substantial provision of the contract breached by appellant was the option of appellee to extend it. When the contract was breached, time had not arrived for the exercise of the option. When appellant repudiated the contract, he deprived appellee of his contract right. Too, since appellant had repudiated the contract and discharged appellee, it would be useless for appellee to exercise the option. The law does not require such a useless act. We think the fact there were options in the contract in favor of appellee is one element to be considered by the jury in determining damages, that is, the jury could consider the probability of the exercise of the options in determining the length of the term.”

Restatement (Second) of Contracts § 253 ill. 3 (Am. Law Inst. 1981).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.24 »

1 Corbin on Contracts § 2.24 (2020)

§ 2.24. Contract to Keep an Offer Open

Instead of making, in the beginning, a binding promise to convey on specified conditions, it is possible for one to make an offer of a contract with specified terms, and then to make, at the same time or later, a collateral contract not to revoke the offer. These are two separate transactions: an offer that creates a power of acceptance, and a contract that makes it the offeror’s legal duty not to revoke. The question is: does that collateral contract also create in the offeree an immunity from revocation—does it deprive the offeror of the power to revoke as well as the legal privilege to do so?

Such transactions as the above are different in form from the conditional contract discussed in the preceding section. The legal relations that they create are the same.1 The collateral promise not to revoke the offer may be made enforceable still in some jurisdictions by sealing and delivery, by a consideration given in exchange, by subsequent action in reliance, or by compliance with formal requirements of a statute. For example, A offers to sell Blackacre to B for $5,000. The next day, in return for ten dollars paid, A promises B not to revoke the offer for thirty days. These two transactions—an offer to sell and a subsequently made contract not to revoke—have the same legal operation as the single conditional contract previously discussed. By the contract not to revoke, the revocable offer is made irrevocable. B’s revocable option to buy has become a binding option.

Footnotes — § 2.24:

1 See Restatement (Second) of Contracts § 25 ills. 1 & 2 (Am. Law Inst. 1981).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.25 »

1 Corbin on Contracts § 2.25 (2020)

§ 2.25. Effect of the Rule Against Enhancement of Damages

There seems to be only one case in which the offeror can destroy the power of acceptance even where that power is created by a binding option contract. Suppose the following case: A wishes to induce B to destroy a valuable but unsightly building. B wishes to have thirty days in which to consider the matter and to have during that period an irrevocable option to earn the promised compensation. Thereupon, in return for ten dollars paid, A promises to pay $50,000 to B in return for B’s demolishing within thirty days of the building that obstructs A’s view. If in this case A gives notice of repudiation, B’s power of acceptance (or of creating new contractual relations by fulfillment of the condition) is destroyed. The act of acceptance is here a very expensive one and would greatly increase the loss. B cannot maintain an action of debt for $50,000, for the destruction of the building was the quid pro quo and its fulfillment would not be justifiable. B’s remedy is for damages, being $50,000, less the value of the building saved. The option contract is legally enforceable by this remedy, but B’s power of acceptance is gone.

Even in a case of this sort, if A has promised to convey Blackacre, instead of to pay money, and the breach of A’s promise is regarded as about to cause B irreparable injury, equity might well approve the destruction of the building and would decree specific performance of A’s promise. In such a case, A’s offer is clearly irrevocable, in the strictest meaning of that term.

The doctrine that is here applied is one that is applicable to all contracts alike. After a repudiation or other breach by one party, the non-breaching party’s damages are limited to compensation for such resulting harm as cannot be avoided by reasonable effort.1 Having been warned not to continue performance, the aggrieved party cannot thereafter increase the recovery of damages by making expenditures that are not necessary to avoid still greater loss.

Footnotes — § 2.25:

A plaintiff who suffers damage as a result of a breach of contract or of a tort has a duty to take reasonable steps to mitigate those damages and cannot recover for losses that could have been thus avoided. The plaintiff may not recover for damages avoidable through ordinary care and reasonable exertion, and “has an obligation to avoid an unwarranted enhancement of damages ‘through passive indifference or stubborn insistence upon a conceived legal right. … .’

Global Interprint, Inc. v. Burton, 2003 Cal. App. Unpub. LEXIS 8618, *32–33 (Sept. 10, 2003).

Mo.

—American Publishing & Engraving Co. v. Walker, 87 Mo. App. 503 (1901).

N.Y.

—Clark v. Marsiglia, 1 Denio 317 (N.Y. 1845). See also the sections dealing with Avoidable Consequences in § 57.11.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.26 »

1 Corbin on Contracts § 2.26 (2020)

§ 2.26. Offers Made Irrevocable by Statute and Public Policy

There are certain statutes that facilitate the making of irrevocable offers. One illustration is found in bids to provide goods or services for government projects. By statute, regulation, or precedent informed by public policy, such a bid is often irrevocable for some period.1

There are a few statutes affecting the private sector making a “firm” offer irrevocable if it is in writing and states that it shall remain open for a definite time, or for a reasonable time. The most important such statute is § 2-205 of the Uniform Commercial Code, the “firm offer” section, which provides that a merchant’s irrevocable offer for up to three months without consideration or other validation device must be in writing. It states: “An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.”2

Section 2-205 is not designed to apply to long-term options since it has an outer limit of three months regardless of whether the offer says it. After three months, the “firm” offer is no longer irrevocable absent some independent method for making it so (e.g., consideration to transform it into an option). The Official Comments to this section indicate that while three months is the maximum for any one firm offer, the firm offer can be renewed.

Merely stating a time for acceptance (e.g., an offer with a duration of the power of acceptance of 30 days) is not enough to constitute an irrevocable offer under U.C.C. § 2-205. If the statute had intended that an offer be irrevocable based on nothing more than a stated period of time, there would be no reason to tack on the additional requirement that the merchant give assurances that the offer will be held open. There must be an expressly stated assurance of irrevocability. Whether an assurance meets the requirement of the statute is a fact issue, which suggests the necessity for explicit drafting that leaves no room for doubt.3

Section 2-205 has limitations that traditional option contracts do not, including the requirement that the offer be for “goods” made by a “merchant” with a “signed writing,” and the irrevocability is limited to three months.4 To the extent the offer is wanting in any of these, it can be made irrevocable by turning it into a traditional option contract with consideration. Of course, the offer will also be made irrevocable if there is justifiable reliance on it.5

The last portion of U.C.C. § 2-205—providing that if the assurance that the offer will remain open is part of a form supplied by the offeree, it must be separately signed by the offeror—seeks to protect parties presented with the other party’s form containing considerable boilerplate. The signing party may not recognize that he or she is making an offer rather than forming a contract. To protect such a party from unwittingly making a “firm offer” under U.C.C. § 2-205, the statute requires separate authentication of the firm offer clause.6

Irrevocable offers are more common in civil law systems. In that tradition, the United Nations Convention on Contracts for the International Sale of Goods (CISG), which applies in the United States and virtually every other major trading nation in the world, contains a clause stating that “an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.”7

In New York, except for offers that fall under U.C.C. § 2-205, a written and signed offer stating that it will be irrevocable for a stated period will be irrevocable for that period, or if no time is stated, for a reasonable time.8 There is no three month limitation.9 The New York statute filled a void in the law that occurred when that state abolished the legal effect of the private seal. Despite the perception that the seal was an anachronism, it was thought that some device was needed to fill its role in facilitating the making of irrevocable offers.

Offers are not only made in commercial settings, they are also made in the administration of justice. Federal Rule of Civil Procedure 68(a) provides, in part: “At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.” The circuit courts are split as to whether such offers are irrevocable—some courts hold they are, and there is also some support for allowing them to be set aside, but only in “ ‘the most extraordinary circumstances,’ ” such as mistake or fraud.10

Footnotes — § 2.26:

1 “In the public bid context . … , bids are irrevocable upon opening in order to ‘protect the integrity of the bidding process,’ … not to protect bargained-for expectations. For in the typical case, a city has not given up anything in exchange for the lowest bidder’s performance when it first opens the bids. It remains free to select another contractor or to reject all of the bids and cancel the project.” Shoels v. Klebold, 375 F.3d 1054, 1068 (10th Cir. 2003).

“Under California contract law, as it relates to public works construction, a contractor’s bid is treated as an irrevocable offer. See Menefee v. County of Fresno, 163 Cal. App. 3d 1175, 1178, 210 Cal. Rptr. 99 (Cal. Ct. App. 1985). “Once a bid is accepted, it is transformed in to a binding contract.” Archer W. Contrs., Ltd. v. City of San Diego, 258 Fed. App’x 975, 976 (9th Cir. 2007).

It is the contractor, not the governmental unit, which acts at its peril in submitting bids and entering into a contract. As a general rule, one who files a bid pursuant to a competitive bidding statute has no right to withdraw the bid, the reason being that the benefits accruing to one submitting a bid under the public bidding statutes are a sufficient consideration to render a bid submitted irrevocable.

John K. Gisleson, Competitive Bidding of Municipal Contracts in Pennsylvania and the Litigation it Generates: Who is the Lowest Responsible Bidder?, 41 Duq. L. Rev. 513, 528 (2003). See also, A.J. Colella, Inc. v. County of Allegheny, 391 Pa. 103, 137 A.2d 265 (1958). No statute is cited, but the court holds that public policy demands that a bid on a public project be irrevocable once it is opened.

Steven W. Feldman, Government Contracts in a Nutshell (p. 241) (6th ed. 2016) (“[U]under the ‘firm bid rule,’ once the bids are opened, they may not be withdrawn or altered (except when there is a cognizable mistake in bid).”).

The public policy aspect of bids on government contracts was well explained in Scott v. United States, 44 Ct. Cl. 524, 527–28 (1909). “The agents of the Government stand upon a different footing from private individuals in the manner of advertising and letting contracts in behalf of the United States. They have no discretion. They must accept the lowest or the highest responsible bid, or reject all and readvertise. Private individuals are not required thus to act. Hence it is apparent that government agents should be allowed a reasonable time after the opening of bids before they are allowed to be withdrawn, so they can be afforded opportunities to ascertain whether collusion or fraud had been perpetrated against the United States by parties engaged in the bidding. It is also apparent that if the rule of allowing immediate withdrawals after the results of the bidding are made known, frauds innumerable could be perpetrated against the United States and thus public justice would be greatly hampered.”

2 Section 2-205 is discussed here: Miller v. McLean County Unit Dist. No. 5 (In re Modern Dairy, Inc.), 171 F.3d 1106 (7th Cir. 1999) (Posner, J.); Mid-South Packers, Inc. v. Shoney’s, Inc., 761 F.2d 1117 (5th Cir. 1985); Norca Corp. v. Tokheim Corp., 227 A.D.2d 458, 643 N.Y.S.2d 139 (N.Y. App. 1996); Complete Gen. Constr. Co. v. Kard Welding, Inc., 182 Ohio App. 3d 119, 2009-Ohio-1861, 911 N.E.2d 959 (2009); Brooklyn Bagel Boys v. Earthgrains Refrigerated Dough Prods., 212 F.3d 373 (7th Cir. 2000).

A similar provision is found in U.C.C. § 2A-205, dealing with equipment leasing.

Another provision of U.C.C. Article 2 facilitates another kind of firm offer. Under U.C.C. § 2-328, when goods are put up for auction “without reserve,” an irrevocable offer is made to sell to the highest bidder under the conditions stated in the provision.

3 See Friedman v. Sommer, 63 N.Y.2d 788, 481 N.Y.S.2d 326, 471 N.E.2d 139 (1984). A cooperative apartment offering stated: “Each tenant is granted the non-exclusive right to purchase his or her apartment … for a period of thirty (30) days … .” The New York courts treat the sale of securities in a cooperative corporation as if it were a sale of goods. There were no words of assurance that the offer would not be revoked for thirty days. Indeed, the term “non-exclusive” implies the contrary.

4 As Judge Posner put it, “The common law doesn’t have the deadline, but requires consideration.” Miller v. McLean County Unit Dist. No. 5 (In re Modern Dairy, Inc.), 171 F.3d 1106, 1110 (7th Cir. 1999).

5 Restatement (Second) § 87(2) (Am. Law Inst. 1981); Spectrum Sales v. Cobham Def. Elec. Sys., 32 Mass. L. Rep. 109 (Mass. Super. 2014); Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008). But see 2949 Inc. v. McCorkle, 2005 Wash. App. LEXIS 1167, *11 (May 23, 2005) (“The requirement for reliance of a substantial character is a higher standard than that found in the Restatement’s promissory estoppel rule … .”).

6 See 2949 Inc. v. McCorkle, 2005 Wash. App. LEXIS 1167 (May 23, 2005) (involving the companion lease section, U.C.C. § 2A-2-205).

7 CISG Article 16(2).

8 NY CLS Gen Oblig § 5-1109.

9 Schron v. Troutman Sanders LLP, 20 N.Y.3d 430, 963 N.Y.S.2d 613, 986 N.E.2d 430 (2013) (noting that 10 year stock option agreement without consideration is valid).

10 Coleman v. Wilson & Assocs., P.L.L.C., 320 F.R.D. 42, 45 (M.D. Tenn. 2017) (quoting C. Wright and A. Miller, 12 Federal Practice and Procedure § 3005.2, at 134 (2014)).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.27 »

1 Corbin on Contracts § 2.27 (2020)

§ 2.27. Deposits to Be Forfeited in Case of Revocation

If an invitation for offers requires money or property to be transferred by the offeror to the offeree, and forfeited if the offeror revokes its offer or refuses to execute a written contract, the offeror retains the power to revoke the offer.1 The offeree has given no consideration. Mere deliberation over the bid, along with the other bids, or a promise to give such deliberation, should not sufficient consideration for a promise, or sufficient action in reliance upon a promise, to make it binding.2

What becomes of the deposit in the case of a revocation is quite a different question from that of irrevocability of the offer. Even if the revocation is held to be effective, it is also usually held that the offeree may keep the deposit.3 “If it is agreed that the property may be forfeited in the event of revocation of the offer, the agreement is subject to the rules governing liquidated damages and penalties. See § 356; Uniform Commercial Code § 2-718. The agreement may be valid as a provision for liquidated damages, or as a provision of security for the payment of actual damages.”4

If the amount of this deposit is in excess of any injury that the offeree may be regarded as suffering because of the withdrawal—either as a forecast of the harm or determined in retrospect—there is no doubt that its forfeiture to the offeree operates as a penalty. A provision in a contract for the payment of a penalty for a breach is not now enforceable in the courts, payment of more than full compensation for harm suffered being regarded as more than justice requires. On this ground, there are cases holding that an offeree can retain no more of the deposit than the amount of harm suffered. This should be the holding, even though the bid is a binding option and is therefore irrevocable by contract, if the forfeiture of the deposit is in truth a penalty and not a reasonable liquidation of damages.5 The mere fact that the word “forfeit” is used is not conclusive as to the nature of the requirement. Harm suffered by the revocation of a bid is in some respects uncertain and difficult to estimate. Even though another bidder is found who will do the work for the same amount or less, it is not certain that the performance rendered by another will be equal to that promised by the bidder who revokes.

Of course, if the bid is effectively accepted before it is revoked, an attempted revocation is ineffective and the bidder is bound by contract.6 But “the courts are not in accord on the issue of whether a construction bid proposal and its acceptance constitute a legally binding contract for the performance of the work” in the absence of a more formal writing and indemnity bond.7 It may be understood that they shall not be bound by contract prior to the execution of a formal written instrument. If the attempted acceptance of the bid by the offeree is defective because it is conditional, or otherwise different from the terms of the bid, no contract has been consummated—the bidder is free to revoke and has a right to the return of the deposit.

An offer to buy or to sell is not made irrevocable by the mere fact that it is accompanied by a deposit or even payment in full, since there is no agreement with respect to its forfeiture. In such a case, the offer is revocable as in the ordinary case. Upon a proper revocation the offeror has a right to the return of the deposit.8

Footnotes — § 2.27:

1 The Restatement (Second) of Contracts § 44 (Am. Law Inst. 1981) provides: “An offeror’s power of revocation is not limited by the deposit of money or other property to be forfeited in the event of revocation, but the deposit may be forfeited to the extent it is not a penalty.” Of course, it may be that the bidder makes an irrevocable offer because of a statute or rule of public policy discussed in § 2.26 of this treatise.

2 See Boston & M. Railroad v. Bartlett, 57 Mass. 224, 3 Cush. 224 (Mass.1849) where, “in consideration that said corporation would take into consideration the expediency of buying said land for their use,” the defendant promised to sell for $20,000 if the corporation would accept within thirty days. The offer was accepted before notice of any revocation, so the court did not need to decide the question of irrevocability. The court wrote: “No importance is attached to the consideration set out in the bill, namely ‘that the plaintiff would take into consideration the expediency of buying the land.’’’ Mere deliberation over the terms of the offer is different from having an engineer investigate the character of the site. The latter, if agreed upon as a consideration, would be sufficient. The court rightly held that in the absence of any notice of revocation, the power of acceptance continued for thirty days.

U.S.

—Turner v. Fremont, 170 F. 259 (8th Cir. 1909).

Md.

—City of Baltimore v. J. L. Robinson Constr. Co., 123 Md. 660, 91 A. 682 (1914).

Mass.

—Daddario v. Town of Milford, 296 Mass. 92, 5 N.E.2d 23, 107 A.L.R. 1447 (1936) (regarded as liquidated damages); John J. Bowes Co. v. Milton, 255 Mass. 228, 151 N.E. 116 (1926). In Wheaton Building & Lumber Co. v. Boston, 204 Mass. 218, 90 N.E. 598 (1910), the retention of the deposit as liquidated damages was authorized by statute.

In Whitemarsh Township Authority v. Finelli Bros., Inc., 408 Pa. 373, 184 A.2d 512 (1962), the Authority advertised for sealed bids for sewer construction, with specific instructions that no bid would be considered unless made on a prescribed form signed by the bidding company’s president, and accompanied by five per cent of the bid as security. The defendant submitted a bid for $635,018, unsigned, and accompanied by a certified check for $18,000 and a surety bond for $24,000. On February 13, the bids were opened; and the defendant’s bid (the lowest one) was seen to be $125,201 less than the next higher bid. On February 20, the Authority’s engineer informed it that the difference was so great that “it was apparent that some error had been made.” On February 26, the defendant notified the Authority that “gross errors” were made and that the bid had been made by an employee without authorization and in the absence of the Company’s officers, and requested the return of the check and bond. On February 27, the Authority accepted the defendant’s bid; and later forwarded a formal contract and performance bond for execution, declared the $18,000 forfeited, and demanded $13,750 more to make up the full five per cent deposit. This suit was then brought against the bidder and the surety for $125,201 damages. The defendant counter-claimed for the amount of $18,000. The trial court properly gave judgment for the defendant. This judgment was affirmed on the grounds that the bid did not comply with the mandatory instructions, that the Authority could not “waive” the requirement, and that there was not “mutuality of obligation.” One judge, “concurs in the result.” So also does this treatise. An earlier case had held that a bid could not be withdrawn for a unilateral negligent mistake in calculation, but damages for the bidder’s repudiation were limited by the amount of the bid bond. A.J. Colella, Inc. v. County of Allegheny, 391 Pa. 103, 137 A.2d 265 (1958).

4 Restatement (Second) of Contracts § 44 cmt. a (Am. Law Inst. 1981).

5 See Vol. 11, Ch. 58, Liquidated Damages.

6 In Berkeley Unified School Dist. v. James I. Barnes Const. Co., 112 F. Supp. 396 (N.D. Cal. 1953), the detailed written bid of a building contractor to build for $1,377,700, promising to execute a formal contract on the same terms, was described by the court as an “irrevocable offer”; but the bid had been accepted by resolution and notice.

7 M Elec. Corp. v. Phil-Gets Guam Int’l Trading Corp., 2012 Guam 23, 2012 Guam 23 (2012).

N.Y.

—In Evans v. 2168 Broadway Corporation, 281 N.Y. 34, 22 N.E.2d 152 (1939), the court ordered a sale of a trust corpus. Plaintiff made an offer to purchase accompanied by a payment into court of $20,000 to be paid over to the trustee if the offer were accepted. The court did not authorize acceptance of the offer. It required that additional bids be obtained, and if the upset price was not exceeded the trustees were to return to court to seek authorization to accept the plaintiff’s offer. Plaintiff revoked. It was held that the revocation was proper and plaintiff was entitled to revocation. In dictum, the court indicated that the offer was perhaps irrevocable during the time necessary for judicial scrutiny. If so, it became revocable after the court’s decision withholding approval.

Section 47 from a previous edition of this treatise is quoted in Rossville Salvage Corp. v. S.E. Graham Co., 319 F.2d 391, 395 (3d Cir. 1963).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.28 »

1 Corbin on Contracts § 2.28 (2020)

§ 2.28. Irrevocable Offers Under Seal

The sealing and delivery of a writing has no legal effect unless the writing contains a promise or verbalizes some other legal transaction; but sealing and delivery cause a promise to be an enforceable contract, without the necessity of a consideration or of any action in reliance. At least, this has been the common law, handed down and approved for centuries, although in a considerable number of states it has been affected by statutes or decisions limiting or abolishing the legal efficacy of a seal.1 It is indeed a rare offer in writing that does not contain some kind of a promise, either express or implied. By the common law, sealing and delivery make that promise binding and the power of acceptance as safe from any revocation as would the payment of a consideration. Usually, the offer contains a promise to render the performance that is offered in exchange for some return performance, conditional on the rendition of that return within a specified time.2 On delivery of such a promise under seal, there exists at once a conditional unilateral contract to perform as stated. The offeree is not bound by anything but has a binding option, an irrevocable offer.3

On refusal of the offeror to perform, because of the attempted revocation, the offeree can get judgment for damages. If the offeror’s sealed promise was to make a conveyance of land, the better doctrine is that the offeree has a right to a decree for specific performance in the absence of other factors making such a decree inequitable. Some courts have thought that the absence of a consideration for the option is a sufficient reason for refusing specific enforcement, sealing and delivery not having the meritorious appeal that consideration has.4 It is believed that that is erroneous. The better decisions hold otherwise.5 In such cases, the decree is not one that compels the offeror to give something for nothing. Even though it is only a seal that makes the offer irrevocable, there is an agreed exchange that the offeree will be compelled to make in return for the land. The promise to convey is conditional upon the giving of this return performance. If it is not so grossly inadequate as to shock the court’s conscience, specific enforcement seems to be equitable and just.

Footnotes — § 2.28:

1 See, e.g., Israel v. Chabra, 12 N.Y.3d 158, 878 N.Y.S.2d 646, 906 N.E.2d 374 (2009). See Vol. 3, Ch. 10, Contracts Under Seal.

2 Thus, in McMillan v. Ames, 33 Minn. 257, 22 N.W. 612 (1885), Ames promised under seal to convey land to McMillan at any time prior to a specified date, for the sum of $3,500 to be paid on delivery of the deed. No consideration was given for this option. Before the period expired and before McMillan gave any notice of acceptance, Ames gave notice of revocation. Within the period, McMillan accepted and Ames refused the tender of the price. The court held the notice of revocation was ineffective and that the contract enforceable. The court stated:

If, however, his promise is binding upon the defendant, because contained in an instrument under seal, then it is not a mere offer, but a valid promise to convey the land upon the condition of payment. All that remained was performance by plaintiff within the time specified to entitle him to a fulfillment of the covenant to convey. As respects the validity or obligation of such unilateral contracts, the distinction between covenants and simple contracts is well defined and established … .

It is true that equity will not lend its auxiliary remedies to aid in the enforcement of a contract which is inequitable, or is not supported by a substantial consideration, but at the same time it will not on such grounds interfere to set it aside. But no reason appears why equity might not have decreed specific performance in this case, (had the land not been sold,) because the substantial and meritorious consideration required by the court in such cases would consist in that stipulated in the instrument as the condition of a conveyance, performance of which by the plaintiff would have been exacted as a prerequisite to relief, so as to secure to defendant mutuality in the remedy, and all his rights under the contract.

In complete accord with this, see Cochran v. Taylor, 273 N.Y. 172, 7 N.E.2d 89 (1937).

In Borst v. Simpson, 90 Ala. 373, 7 So. 814 (1890), a deed of conveyance, making title conditional on payment by a fixed date, was held to be revocable. This is believed to be erroneous, unless the effect of seals had been changed by statute. The deed created in the grantee an irrevocable option to buy.

3 See Restatement (Second) of Contracts § 25 cmt. c (Am. Law Inst. 1981).

4 See:

Conn.

—Hartford-Connecticut Trust Co. v. Divine, 97 Conn. 193, 116 A. 239 (1922).

Ill.

—Corbett v. Cronkhite, 239 Ill. 9, 87 N.E. 874 (1909).

Va.

—Graybill v. Braugh, 89 Va. 895, 17 S.E. 558 (1893).

Minn.

—McMillan v. Ames, 33 Minn. 257, 22 N.W. 612 (1885).

N.Y.

—Cochran v. Taylor, 273 N.Y. 172, 7 N.E.2d 89 (1937).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.29 »

1 Corbin on Contracts § 2.29 (2020)

§ 2.29. Revocation After Part Performance or Tender by the Offeree

There are many cases in which acceptance is to consist of the rendition of the performance for which the offeror offers a promise. This is often described as “the offer of a promise for a performance.” When the acceptance is complete the resulting contract is unilateral.1 As will again appear, in the chapter dealing with contracts without assent or consideration, a promise may become a binding contract by reason of a change of position by the offeree in reliance upon it. There can be no possible doubt of this, if the change of position is the very performance requested by the offeror. It is then the agreed equivalent for which the promise is exchanged and constitutes consideration therefor.

One question before us in the present section is whether an offer becomes irrevocable as soon as the offeree begins or tenders or has rendered some part of the performance for which the offeror is bargaining. A second question, closely related but not identical, is whether an offer becomes irrevocable as soon as the offeree has changed position in reliance upon it, such change being one that the offeror had reason to foresee but not constituting a part of the performance for which the offeror has bargained and for which the offered promise was made.

As to the first of these questions, decisions are now so numerous and so nearly uniform in result as to leave small doubt as to the general rule of law. Where one party makes a promissory offer in such form that it can be accepted by the rendition of the performance that is requested in exchange without any express return promise or notice of acceptance in words, the offeror is bound by a contract just as soon as the offeree has rendered part of the requested performance.2 Indeed, the American Law Institute has stated the rule that the offeror is bound by an option contract, and the offer becomes just as soon as the offeree has tendered the requested performance or has actually rendered a part of it.3 The Institute also supports the position that in some cases actions in reliance on an offer, even not involving part performance, can cause the offer to become irrevocable.4

The cases that justify the part performance doctrine, in at least one of its forms, have been decided in the very teeth of two other doctrines that have been repeated many times as representing the common law. The first of these is that both parties to a contract must be bound by it or neither is bound. Even the judges who have repeated this misleading doctrine have themselves often enforced unilateral contracts, although they may not have described them as unilateral and were not aware that the decision was inconsistent with the stated doctrine. The doctrine must either be abandoned or be expressly limited to the class of cases in which it is true. The second doctrine is to the effect that, in the case of an offer of a promise for a performance or series of performances, there is no contract until the performances constituting the acceptance are entirely completed. If the decisions now to be discussed are to be supported—and they must be—this second doctrine must be wholly abandoned.

In order to help promote the construction of a street railway, the defendant executed a promissory note for $2,000, payable to the Traction Company thirty days after completion of the railway to a specified street. This was given to a bank to hold in escrow and to deliver after completion of the railway as specified. No time was fixed within which the completion must occur. About four months after the note was executed, the Traction Company paid $1500 for a franchise. Some months later construction work was begun in a desultory manner. About two years after execution of the note, its maker notified the Traction Company that the offer was revoked and the note would not be paid. The company thereafter proceeded with the work to completion. It was held that the revocation was wholly ineffective, after part performance by the company. The offeree still retained its power to complete the requested performance.5 This exact conclusion may be questioned. An improper revocation is a repudiation of an obligation, one consequence of which is a right of action by the aggrieved party, another consequence of which is that the aggrieved party has no right to recover damages which could have been avoided by reasonable diligence to minimize damages. It may well be, however, that at the time of revocation, the Traction Company had so far proceeded as to have earned the promised bonus under a theory of substantial performance.

Another case bears close analysis. In Motel Services, Inc. v. Central Maine Power Co.,6 plaintiff entered into a contract with a housing authority to build two projects for the authority on a turnkey basis. Plaintiff subsequently prevailed upon the authority and the federal government to change the specifications of the construction project to provide for electrical rather than oil heat, in exchange for which the plaintiff lowered the contract price by $16,000. The plaintiff was motivated to take advantage of a promotional allowance offered by the defendant power company to the “owner of a home—either new or existing—which is initially built for or converted to the use of electricity as the primary method of heating … .” Before completion of the project, but after installation of the heating system, the premises were conveyed to the housing authority. Thereafter, plaintiff duly completed the projected construction. The question before the court was whether the promised allowance should be paid to the plaintiff or to the housing authority. The court held that the plaintiff was the deserving party. Clearly the housing authority had no rights under the promise. Prior to completion of the project, it did not know of the offer and could not have manifested any intent to accept. The court held that the power company’s promise of a promotional allowance was an offer to a unilateral contract which became irrevocable when plaintiff commenced performance. Although plaintiff was not the “owner” at the time performance was completed, defendant got precisely what it bargained for.

Often, in order to encourage employees to remain, an employer promises them a “bonus” if they are still in the company’s employ at the end of the year. The employer is especially likely to do this in cases where the employment is at will and the employee is not bound by any contract to remain at work. In such cases, the employer’s promise is an offer to pay the added sum of money in return for continuing to work for a whole year. Does the employer still have the power to revoke this offer after the employee has remained in service for almost the whole year, or for some lesser period? The courts have held that the employer is not privileged to revoke then, although a revocation would be effective as to deprive the employee of any power to complete the acceptance.7 In this respect, and in the remedies that are available, such a revocation is the same as any other wrongful discharge. In no such case can the employee continue at work against the employer’s will, and by completing the full period cannot make the employer a debtor for the full salary. The discharged employee has only a right to damages, measured by the full sum promised less what reasonably can be earned by reasonable effort elsewhere after the discharge. This should be the measure of damages in the case of the promised bonus.8 In all these cases, however, the discharged employee has the alternative remedy of quantum meruit.

No rule is absolute, possibly including the rule stated in the first part of this sentence. Although generally part performance by the offeree will make the offer to a unilateral contract irrevocable, offers of pensions may be somewhat different. Pension promises, like promises of bonuses, frequently are offers to unilateral contracts. The employer may promise that, if an employee remains in its employ for a given period of time, the employee has earned a specified pension. In such a case, it may be that substantial performance by the employee is needed to create an irrevocable offer.9 Mere part performance should not create pension eligibility in conflict with actuarial standards. Aside from contractual criteria, rights to pensions are generally defined by federal legislation.

By spelling out that acceptance only occurs when certain specified service requirements are met, a bright line is drawn. In McGrath v. Rhode Island Retirement Bd.,10 (applying the Contracts Clause, U.S. Const.), Rhode Island maintained a pension plan for municipal and state employees that allowed employees to purchase retirement credits for years served in the U.S. military. These credits accelerated an employee’s pension vesting date and enlarged the basis on which pension payments would be calculated. From its inception, the plan also contained a clause permitting the state legislature to alter the terms of participation or cancel the plan for employees not yet retired. A covered employee purchased credits to accelerate his vesting date, but before that date, the state legislature eliminated the acceleration provision of the plan.

The employee argued that the legislative change violated the Contracts Clause of the U.S. Constitution, which applies to contracts between states and private parties. Citing this section § 2.29 of the Corbin treatise (1993 ed.), the court treated the plan as an offer for a unilateral contract with an express provision permitting the offeror to revoke prior to acceptance. Acceptance would occur when the employee fulfilled the service requirements. Before then the state as offeror could revoke or modify, although afterwards it could not (despite its express power). Here the employer changed the terms before acceptance was effective, and therefore whatever rights the employee acquired by purchasing retirement credits were subject to the state’s reservation of authority to alter the plan. Accordingly, no contractual right to acceleration had been created and no obligation protected by the Contract Clause had been impaired.

Employees hired by an employer that issues a personnel manual have sometimes argued that promises in the manual are offers to unilateral contracts and part performance by them has made the promises irrevocable. This kind of case will be discussed in a subsequent section.11

In one case, the defendant offered a reward for the arrest and conviction of some criminals. The plaintiff arrested them and induced their confession, but they were not convicted because the defendant wished to use their testimony in other cases and so had the indictments dismissed. It was held that the plaintiff was entitled to the reward.12

Where a reward has been offered for the finding and return of lost property, the offer is not revocable after part performance in reliance upon it, even though the offeror gives notice before there has been actual return of the property. Even in such a case, the finder has a lien to secure payment of the reward.13

A charitable subscription is not revocable, by either death or notice, if the promisee has partly performed the condition of the subscription in reliance on the promise before the supposed revocation occurs.14 One who has offered a prize to the winner of a contest under stated rules cannot revoke the offer or change the rules against those who have already partly complied with its terms.15 In cases of this sort there is little possibility of finding that the contract is bilateral, but it has become irrevocable.

In some of the cases, the court denies effect to a revocation for the reason that the offeror was acting “in bad faith.”16 But the only ground for asserting the offeror’s bad faith is that the offeree has already acted in reliance on the offered promise. After such action, the court thinks it is unreasonable for the offeror to revoke. No doubt, the greater the action of the offeree and the greater the resulting benefit to the offeror, the more inequitable and unfair the revocation becomes. In general, it is not thought to be bad faith to revoke any offer before it has been accepted, even though the purpose is to avoid contracting with the offeree, but in the cases now under discussion, part performance by the offeree makes a subsequent revocation by the offeror a breach of contract.17

Footnotes — § 2.29:

1 Of course, there is no power of revocation after the requested act has been fully performed. A defendant who promised to pay a commission on all sales made to a person or corporation introduced by the plaintiff must continue to pay as long as any sales are made to a person who has been so introduced. The offeror has no power of termination. Alexander v. Capital Paint Co., 136 Md. 658, 111 A. 140 (1920). Somewhat similar is Potomac Chem. Co. v. Chapman, 146 F.2d 664, 79 U.S. App. D.C. 299 (1944), cert. denied, 324 U.S. 881. The offeror does not have to continue to pay the commission if the agreement expressly limits the duty to pay the commissions that fall due before termination. Ullmann v. May, 147 Ohio St. 468, 34 Ohio Op. 384, 72 N.E.2d 63 (1947).

Abbott v Schnader, Harrison, Segal & Lewis, LLP, 805 A2d 547, 2002 Pa. Super 247 (2002), appeal denied 573 Pa 708, 827 A2d 1200 (2003). The plaintiffs, retired partners of the defendant law firm, signed a 1984 retirement agreement that provided retired partners who had served for twenty-five years or more with certain income benefits. The plaintiffs continued their work with the firm for many more years. In 1999, the active partners substantially modified the retirement benefits pursuant to a provision allowing the partnership agreement to be amended. The plaintiffs brought an action for breach of contract, contending that their rights had vested upon their retirement, which had occurred prior to the amendment. The defendant claimed that the broad language of the amending power allowed it to change the benefits to retired partners. Faced with an issue for which there was little precedent, the court adopted the analysis suggested in Kemmerer v. ICI Americas Inc., 70 F.3d 281 (3d Cir. 1995). The retirement benefits promised in the partnership agreement constituted an offer that was accepted by the continued performance of the partners (a unilateral contract). Once that performance occurred, the offer became irrevocable. The rights of a retiring partner who had accepted the offer by continuing to perform vested upon retirement. To have allowed the amending provision of the agreement to interfere with such rights not only would be unfair but would necessarily make the retirement benefit promises illusory.

U.S.

—McGrath v. Rhode Island Retirement Bd., 88 F.3d 12, 18–19 (1st Cir. 1996) (pension plan a unilateral contract but there is disagreement as to when contractually enforceable rights accrue under such plans, but “once an employee fulfills the service requirements entitling him or her to retirement benefits under a pension plan, the employee acquires a contractual right to those benefits, and the employer cannot abridge that right despite its aboriginal reservation of a power to effect unilateral amendments or to terminate the plan outright.”).

Hollidge v. Gussow, Kahn & Co., 67 F.2d 459 (1st Cir.1933) (equally reasonable here to find a return promise making a bilateral contract).

Boswell v. Panera Bread Co., 2016 U.S. Dist. LEXIS 38232 (D. Mo. Mar. 24, 2016); Sateriale v. RJ Reynolds Tobacco Co., 2014 U.S. Dist. LEXIS 176862 (C.D. Cal. Dec. 19, 2014); Hegel v. Brunswick Corp., 2011 U.S. Dist. LEXIS 30514 (D.Wis. Mar. 23, 2011). A.B. *** Co. v. Fuller, 213 F. 98 (D.C.N.Y. 1914).

Evers v. Safety-Kleen Sys., 2012 U.S. Dist. LEXIS 36227 (D. Ariz. Mar. 19, 2012). An employer created a compensation plan for 2010 that was lower than the 2009 plan under which the plaintiff, a terminable-at-will employee, was working. The 2010 plan, however, was not announced until the end of January 2010, after the plaintiff had worked during that period with no knowledge of the new plan. The plaintiff claimed compensation under the 2009 plan. The court found that the plaintiff had a reasonable expectation of compensation at 2009 rates since the employer did not change compensation rates annually. The court noted that in the unilateral (“at-will”) context, once an offer of compensation is accepted by commencement of performance, the terms cannot be changed. If an employer offers a certain wage for a day’s work, the employer cannot reduce that wage after the work has begun (citing Restatement (Second) of Contracts § 45 (Am. Law Inst. 1981)). The principle attaches when the employee begins performance so long as he or she completes the performance according to the terms of the offer. But see, Bina v. Providence College, 844 F. Supp. 77 (D.R.I. 1994). A professor was offered a tenure track position that required him to respond in writing within ten days, but no written response was forthcoming within that time period. The court rejected plaintiff’s claim that he partly performed. The court wrote: “It is difficult to imagine how one could ‘partly perform’ a written response.” The professor “signed the one-year contract almost one month after he was informed that the offer had expired. Part performance makes an outstanding offer irrevocable, it does not revive an expired offer.”

Cal.

—Steiner v. Thexton, 48 Cal. 4th 411, 106 Cal. Rptr. 3d 252, 226 P.3d 359 (2010). In Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (1958), the court said: “In the analogous problem of an offer for a unilateral contract, the theory is now obsolete that the offer is revocable at any time before complete performance.”

Del.

—Eaton v. Eaton, C.A. 2005 Del. Ch. LEXIS 202 (Dec. 19, 2005).

Ga.

—Fontaine v. Baxley, 90 Ga. 416, 17 S.E. 1015 (1892); Piedmont Life Ins. Co. v. Bell, 103 Ga. App. 225, 119 S.E.2d 63, 69 (1961) (a case involving “anticipatory breach” and many other points).

Kan.

—Hoebener v. International Petroleum Servs., 1986 Kan. App. LEXIS 1551 (Dec. 11, 1986). In Sharpless v. J.B. Kirk Gas & Smelting Co., 128 Kan. 722, 280 P. 788 (1929), the plaintiff alleged that, “in consideration of plaintiff incurring the expense and inconvenience of having the gas properties owned by the Company inspected, investigated and appraised by engineers,” the defendants would upon arrival of the engineers in Iola make a written option giving plaintiff the right to buy at a stated price. Plaintiff employed engineers and they came to Iola; but defendants then refused to let them inspect and sold the property to others. On demurrer this was held not to allege a valid contract, because the plaintiff made no promise and mutuality of obligation was lacking. The decision should be disapproved. It clearly appears that the plaintiff employed engineers and sent them to Iola before any notice of revocation. This was a substantial beginning of the requested process of acceptance. The offer was thereby made irrevocable as stated in Restatement (Second) of Contracts § 45 (Am. Law Inst. 1981).

Ky.

—Louisville & N.R. Co. v. Goodnight, 73 Ky. 552 (1874). In Louisville & N.R. Co. v. Coyle, 123 Ky. 854, 97 S.W. 772 (1906), reh’g denied, 123 Ky. 854, 99 S.W. 237, the defendant offered to buy all railroad ties “you put on at Gap within the next twelve months.” The plaintiff had supplied 1,000 ties and had secured material for 5,000 more, when the defendant gave notice of revocation. The court held the plaintiff to be entitled to damages for failure to take the remaining 5,000 ties.

Mich.

—Ladd v. Teichman, 359 Mich. 587, 103 N.W.2d 338 (1960).

Mo.

—American Pub. & Engraving Co. v. Walker, 87 Mo. App. 503 (1901) (bilateral contract by implication).

N.Y.

—I. & I. Holding Corp. v. Gainsburg, 276 N.Y. 427, 12 N.E.2d 532 (1938).

N.D.

—Adams County Record v. Greater N.D. Ass’n, 1997 ND 116, 564 N.W.2d 304 (1997).

Ohio

—Precision Concepts Corp. v. General Empl. & Triad Personnel Servs., 2000 Ohio App. LEXIS 3322 (July 25, 2000); Cutshaw v. Allen Bradley Co., 1994 Ohio App. LEXIS 5397 (Dec. 1, 1994); Stout v. M. Aron Corp., 1993 Ohio App. LEXIS 2506 (May 13, 1993).

Or.

—Moro v. State, 357 Ore. 167, 351 P.3d 1 (2015).

Tex.

—Edwards v. Roberts, 209 S.W. 247 (Tex. Civ. App. 1919), reh’g denied, 212 S.W. 673; Halff Co. v. Waugh, 183 S.W. 839 (Tex. Civ. App. 1916) (sale of a truck to be paid for out of earnings, buyer having partly performed, although not bound).

Vt.

—Ragosta v. Wilder, 156 Vt. 390, 592 A.2d 367 (1991) (preparation to perform is not part performance).

Wash.

—Bel Air v. 1st Sec. Bank of Wash., 2014 Wash. App. LEXIS 776 (April 7, 2014) (preparation to perform is not enough to constitute part performance); Harding v. Rock, 60 Wash. 2d 292, 373 P.2d 784 (1962), citing and following Restatement, Contracts, § 45; Taylor v. Ewing, 74 Wash. 214, 132 P. 1009 (1913).

Wis.

—In Nelsen v. Farmers Mutual Auto. Ins. Co., 4 Wis. 2d 36, 90 N.W.2d 123 (1958), the defendant promised that the plaintiff should be a “district supervisor” as long as the defendant sold policies there. The plaintiff made no return promise; but he rendered performance for some years. The court held that thereafter the defendant had no power to modify or revoke and was liable in damages for terminating the arrangement without cause. Lazarus v. American Motors, 21 Wis. 2d 76, 123 N.W.2d 548 (1963); Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912).

Eng.

—In Errington v. Errington, [1952] 1 K.B. 290 (C.A.), the promisor bought a house, partly financed by a mortgage loan. He told his son and daughter-in-law that if they paid the loan, they would have title to the house, meanwhile they could live in it. The daughter-in-law was living there and making the payments when the promisor’s widow sought to evict her. It was held that the promise was an offer which could not be revoked once the promisees entered on performance of the act.

New South Wales

—In Abbott v. Lance, 2 Legge 1283 (1860), Lance offered to sell two cattle stations to Abbott on specified terms. The stations were located some 500 miles from the parties. It was agreed that Lance would keep the offer open for two months if plaintiff would make the journey to inspect the stations, and Lance would pay Abbott £100 if Lance were to sell to someone else in the meantime. When about half-way to the stations, Abbott received a letter from Lance stating, “I hasten to inform you that I have absolutely sold my stations to another party. Trusting this may overtake you before you have ridden far.” Despite Lance’s argument that the promise was merely a revocable offer, it was ruled that because “plaintiff incurred inconvenience by part-performing the journey” the offer had become irrevocable and the condition of visiting the stations excused.

In the very early case of Howe v. Beeche, 3 Lev. 244 (1685) the defendant promised to pay the plaintiff £100 if he would solicit a business with a third party and bring it to a conclusion. After the plaintiff partly performed, but before he could complete the performance, the defendant countermanded. The plaintiff obtained a verdict for £100 damages. The defendant argued that all the plaintiff was entitled to was quantum meruit for his part performance. The report continued: “[I]t was answered and agreed by the Court, that though the employment was countermandable, yet if after part of the business done the defendant countermands it, the plaintiff shall have his action for the whole; and upon the trial the jury shall give so much in damages as they find the business deserves; and although here it was not finished, yet that was by the defendant’s own default; and perhaps when all the pains and labour to finish it are passed, the defendant would countermand it in order to finish it himself without any labour or pains, thereby to defeat the plaintiff of his recompense: and after the case had been twice argued in the Exchequer-Chamber, the judgment was affirmed.”

In Quick v. Wheeler, 78 N.Y. 300 (1879), the defendant promised to pay four and a half cents per foot for from six to fifteen thousand feet of lumber, delivered at a stated place during the winter. The plaintiff made no return promise to deliver the lumber. But, with the knowledge of the defendant, he made purchases of lumber and delivered part of it at the agreed place. The defendant then told him that he did not want any more but remained silent when the plaintiff told him of further purchases already made. The plaintiff then delivered at the agreed place a total of more than 11,000 feet. The court held that there had been no effective revocation by the defendant and that the plaintiff could get judgment for the full price as a contract debt for goods sold and was not limited to an assumpsit for damages.

Boswell v. Panera Bread Co., 879 F.3d 296 (8th Cir. 2018). Panera had its at-will general managers sign an employment agreement that incorporated a compensation plan providing a one-time bonus, to be paid approximately five years after each manager executed the agreement. To be eligible, they had to be a manager on the date when the bonus was payable. Panera decided in 2010 to cap the bonus at $100,000—it informed the managers of the cap in 2011 and announced that it would become effective in January 2012. The managers filed a class action. The district court and the 8th Circuit on appeal concluded that Panera had made offers to its managers to enter into unilateral contracts—the consideration for the promised benefits was the managers’ performance. The question in this case was whether Panera could modify the terms of its offer to pay the one-time bonus by imposing a cap on it. The answer is no. The district court granted summary judgment in favor of the managers, and the 8th Circuit affirmed. The latter court held that an offeree must merely begin performance to make the offer irrevocable. On this point, the 8th Circuit parted company with the district court. The district court had held that the offer becomes irrevocable only if the employee has rendered substantial performance. The district court’s holding parrots several precedents that were influenced by an early edition of the Corbin treatise that mentioned the necessity for substantial performance. But the 8th Circuit points out that “Corbin has abandoned the locution, now saying that ‘the offeror is bound by a contract just as soon as the offeree has rendered part of the requested performance.’ 1 Corbin on Contracts § 2.29 (rev. ed. 1993 & Supp. 2017).” Other authorities agree with this. The court wrote: “Based on the current state of the law, therefore, we think that the Supreme Court of Missouri, if faced with the question, would conclude that the offeree’s beginning of performance would render the offer irrevocable. So Panera’s imposition of the cap would be an ineffective attempt to modify its unilateral-contract offer.” Further: “Since the managers had begun performing the unilateral-contract offer, Panera was not entitled to move the goalposts on them by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer.”

3 Restatement (Second) of Contracts § 45(1) (Am. Law Inst. 1981): “Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.” See Eaton v. Eaton, 2005 Del. Ch. LEXIS 202 (Dec. 19, 2005). Where a father executed a will devising his home to one of three sons but later offered to change the will and devise the property in equal shares to all three sons if they would make valuable improvements on the home, the sons made significant improvements but did not complete them when the father died, leaving the original will unmodified. Nonetheless, the sons proceeded to complete the improvements. The court found that the father’s offer could only be accepted by performance. Though recognizing that the Restatement (Second) of Contracts no longer employs the term “unilateral” to refer to such a contract, the court deemed the use of the term “efficient” for its analysis. The court held that under § 45 of the Restatement (Second) of Contracts, the beginning of the sons’ performance created an option contract conditioned on their completion of the performance within a reasonable time. The completion of the performance occurred, thereby concluding the contract which was specifically enforceable.

4 See § 2.31. At times, courts, in order to do justice, have found part performance where what apparently took place would be more accurately deemed action in reliance. E.g., Siegel v. Codner, 153 Ga. App. 438, 265 S.E.2d 287 (1980), aff’d, 246 Ga. 368, 271 S.E.2d 465, where the defendant was said to have offered to accept less than full payment of a debt in exchange for its payment in advance and the fulfillment of certain other conditions. Although no part payment was made, the court held that summary judgment for the creditor was in error and on remand it might be found that part performance had been rendered.

Cal.

—Los Angeles Traction Co. v. Wilshire, 135 Cal. 654, 67 P. 1086 (1902). The court said: “The contract at the date of its making was unilateral, a mere offer that if subsequently accepted and acted upon by the other party to it, would ripen into a binding enforceable obligation. When the respondent purchased and paid upwards of $1,500 for a franchise it had acted upon the contract, and it would be manifestly unjust thereafter to permit the offer that had been made to be withdrawn. The promised consideration had then been partly performed, and the contract had taken on a bilateral character.”

By saying that “the contract had taken on a bilateral character,” the court must have meant only that the promisor could no longer revoke. It is not stated that the Traction Company made any promise to the defendant that it would complete the construction of the railway. It was quite correct for the court to hold that the offer was absolutely irrevocable, because it was reasonable for the company to proceed with its public service. It could not reasonably be expected to stop performance for the purpose of mitigating damages.

6 Motel Services, Inc. v. Central Maine Power Co., 394 A.2d 786 (Me. 1978).

U.S.

—Joy Global, Inc. v. Wis. Dep’t of Workforce Dev. (In re Joy Global, Inc.), 381 B.R. 603 (Bankr. D. Del. 2007).

N.C.

—Irwin v. Fed. Express Corp., 2016 U.S. Dist. LEXIS 167312 (M.D.N.C. Dec. 5, 2016); Wray v. City of Greensboro, 787 S.E.2d 433 (2016); Cheek v. City of Greensboro, 152 F. Supp. 3d 473 (M.D.N.C. 2016); Roberts v. Mays Mills, Inc., 184 N.C. 406, 114 S.E. 530, 28 A.L.R. 338 (1922).

Pa.

—Snyder v. Hershey Chocolate Co., 63 Pa. Super. 528 (1916) (judgment for entire bonus). Oestreich v. Environmental Inks & Coatings Corp., 1990 U.S. Dist. LEXIS 17243 (E.D. Pa. Dec. 19, 1990).

Minn.

—Of course, if the period of employment stated in the offer is completed, the bonus is fully earned. Hartung v. Billmeier, 243 Minn. 148, 66 N.W.2d 784 (1954).

Wash.

—Scott v. J.F. Duthie & Co., 125 Wash. 470, 216 P. 853, 28 A.L.R. 328 (1923).

Wis.

—Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912).

8 In Sigrist v. Century 21 Corp., 519 P.2d 362 (Colo. App. 1973), Century 21 organized auto races and offered $2,000 to the point leader in each racing division at the end of the season. Sigrist was the point leader for the figure 8 competition. Before the end of the normal racing season, Century 21 cut short the season on figure 8 competition because in its opinion there were insufficient entries to put on a good show for the spectators, and refused to pay Sigrist, arguing that it had merely revoked an offer to a unilateral contract. The court ruled that the offer had become irrevocable and Sigrist was entitled to the full promised sum as the “season” consisted of the six races in which Sigrist had competed.

9 “In the case of pension offers, more than mere part performance may be necessary to render the offer irrevocable; some courts have sought substantial performance.” R.I. Council 94 v. Carcieri, 2011 R.I. Super. LEXIS 120, *60 (Sept. 13, 2011) (citing this section 2.29 (1993 ed.)).

“Wisconsin case law has recognized that employment policies can create contractual obligations from employers to employees. ‘Personnel policies, offering stated benefits in exchange for the employee’s service, are binding contracts upon the substantial performance of the requested services.’ ” Harnischfeger Indus. v. Wis. Dep’t of Workforce Dev. (In re Harnischfeger Indus.), 270 B.R. 188, 198–199, (D. Del. 2001).

Minn.

—Sylvestre v. State, 298 Minn. 142, 214 N.W.2d 658 (1973). The court applies Restatement of Contracts § 45, but it seems clear that substantial performance had been rendered. Note that the court found that the statutory pension plan was an offer.

Or.

—Miller v. Dictaphone Corp., 334 F.Supp. 840 (D.C. Or.1971). Miller worked for Dictaphone from 1934 until retirement in 1969. In 1966 Dictaphone announced changes in its existing pension plan by a letter which Miller heard about but did not read. He sent in a card to take advantage of those changes. Dictaphone continued to work on its plan until it came up with Plan G, an explanation of which in booklet form was given Miller in March 1969. Miller claimed he was entitled to the retirement benefits of the 1966 letter, instead of the less favorable Plan G. Held, for Miller. The court quoted from this treatise (§ 153, 1963 ed.) to show that a pension offer is enforceable when the employee substantially performs, and cited this treatise (§§ 49, 63, 153, 1963 ed.) to show that such an offer cannot be revoked after substantial performance has begun, and to support holding that Miller was entitled to the benefits of the 1966 letter. See also, Boswell v. Panera Bread Co., 2016 U.S. Dist. LEXIS 38232 (D. Mo. Mar. 24, 2016) (citing Miller v. Dictaphone Corp. with approval).

The decision of the court in Wallace v. Northern Ohio Traction & Light Co., 57 Ohio App. 203, 10 Ohio Op. 354, 13 N.E.2d 139 (1937), can be reconciled with the text above, but the reasoning of the court cannot. If the exigencies of the business honestly require the closing of a department and the discharge of workers, the existence of a pension system does not make such discharge a breach of contract. But the court definitely states that the employer has both power and privilege to revoke the promised pension system, even as against employees who have almost completed the prescribed pension period. It is believed that this is error. The court very justly says, “we deplore the result.”

Other cases that consider whether a statute setting up a pension plan is an offer to a contract are noted in Pineman v. Oechslin, 637 F.2d 601 (2d Cir. 1981).

10 McGrath v. Rhode Island Retirement Bd., 88 F.3d 12 (1st Cir. 1996).

11 See § 4.2.

U.S.

—Williams v. United States, 12 Ct. Cl. 192 (1876).

Similar cases:

Kan.

—Stone v. Dysert, 20 Kan. 123 (1878).

Ky.

—Mosley v. Stone, 108 Ky. 492, 56 S.W. 965 (1900); Louisville & N.R. Co. v. Goodnight, 73 Ky. 552 (1874); Stephens v. Brooks, 65 Ky. (2 Bush) 137 (1867).

A minority case in conflict with the foregoing is Biggers v. Owen, 79 Ga. 658, 5 S.E. 193 (1888), where a reward was offered for the arrest and conviction of the perpetrator of a crime. After the plaintiff had discovered the criminal but had not yet secured all the evidence necessary to convict, the offeror revoked. The plaintiff continued his efforts. As a result thereof there was a conviction. The court held the revocation to be effective. See also Gray v. Hinton, 7 F. 81 (C.C. Neb.1881).

Md.

—Wilson v. Guyton, 8 Gill 213 (1849).

Mass.

—Wentworth v. Day, 44 Mass. (3 Met.) 352 (1841).

Mich.

—Wood v. Pierson, 45 Mich. 313, 7 N.W. 888 (1881).

Or.

—MacFarlane v. Bloch, 59 Or. 1, 115 P. 1056 (1911).

See also:

Pa.

—Cummings v. Gann, 52 Pa. 484 (1866).

N.Y.

—Paul & Irene Bogoni Found. v St. Bonaventure Univ., 78 A.D.3d 616, 913 N.Y.S.2d 154, 2010 NY Slip Op 8801 (2010); I. & I. Holding Corp. v. Gainsburg, 276 N.Y. 427, 12 N.E.2d 532 (1938).

Vt.

—Eastern States Agricultural & Industrial League v. Vail’s Estate, 97 Vt. 495, 124 A. 568, 38 A.L.R. 845 (1924).

Under the terms of Restatement (Second) of Contracts § 90 (Am. Law Inst. 1981), a charitable subscription is binding without proof of reliance.

15 In Wachtel v. National Alfalfa Journal Co., 190 Iowa 1293, 176 N.W. 801 (1921), the defendant opened a circulation contest, offering prizes to those winning the most votes by securing subscriptions, but later discontinued the contest when the plaintiff was the leader. The plaintiff was held entitled to damages for breach of contract.

Other contest cases are:

U.S.

—Frankel v. United States, 118 Fed. Cl. 332 (2014).

United States v. Chandler, 388 F.3d 796 (11th Cir. 2004).

Fiorello v. Hewlett-Packard Co., 2003 U.S. Dist. LEXIS 20495 (D.N.H. Nov. 14, 2003).

Hoover v. Coca-Cola Co., 255 F. Supp. 2d 791 (M.D. Tenn. 2003).

Barnes v. McDonald’s Corp., 72 F. Supp. 2d 1038 (E.D. Ark. 1999).

Ala.

—Hertz v. Montgomery Journal Pub. Co., 9 Ala. App. 178, 62 So. 564 (1913).

D.C.

—Minton v. F.G. Smith Piano Co., 36 App. D.C. 137 (1911).

Fla.

—Ransom v. Fernandina Beach Chamber of Commerce, 752 So. 2d 118 (Fla. App. 2000).

Iowa

—Delier v. Plymouth County Agr. Soc., 57 Iowa 481, 10 N.W. 872 (1881).

Minn.

—Rogalski v. Little Poker League, LLC, 2011 Minn. App. Unpub. LEXIS 167 (Feb. 22, 2011); Mooney v. Daily News Co. of Minneapolis, 116 Minn. 212, 133 N.W. 573 (1911).

If power to change the rules is reserved, a published notice of change is not always effective against a contestant who does not see it. Long v. Chronicle Pub. Co., 68 Cal. App. 171, 228 P. 873 (1924).

Ohio

—Englert v. Nutritional Scis., LLC, 2008-Ohio-5062 (Ohio Ct. App. 2008).

S.D.

—Harms v. Northland Ford Dealers, 1999 SD 143, 602 N.W.2d 58 (1999).

16 In Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912), the court said: “It is true as a general proposition that a party making an offer of a reward may withdraw it before it is accepted. But persons offering rewards must be held to the exercise of good faith and cannot arbitrarily withdraw their offers for the purpose of defeating payment.”

See, also, Division of Labor Law Enforcement, Dep’t of Industrial Relations v. Mayfair Markets, 102 Cal. App. 2d Supp. 943, 227 P.2d 463 (1951); Goodman v. Marcol, Inc., 261 N.Y. 188, 184 N.E. 755, 88 A.L.R. 714 (1933), and other land brokerage cases cited in the following section.

17 Part performance does not operate as an acceptance if there was a specified mode of acceptance that was not used and if the offeror has no notice of the part performance. The offeror can still revoke by giving notice. Venters v. Stewart, 261 S.W.2d 444 (Ky. 1953); cf. U.C.C. § 2-206.

The defendant promised to furnish water for houses that the plaintiff contemplated building, but the plaintiff made no return promise to build or to take water. A notice of revocation by defendant before the houses were begun was held effective in Cowan v. De Witt, 284 App. Div. 998, 135 N.Y.S.2d 379 (1954).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.30 »

1 Corbin on Contracts § 2.30 (2020)

§ 2.30. Real Estate Brokerage and Other Agency Cases

Brokerage Transactions Classified—Bilateral and Unilateral Contracts and Mere Invitations for Offers

There has been an immense amount of litigation with respect to the commissions of real estate brokers and other agents. This is due in part to the character of the business itself. Vendors and purchasers often feel that the commission charged is disproportionate to the service rendered. In large part, however, it is due to the fact that the terms of agreement between principal and broker are often expressed in vague form with no clear provision as to matters that become subjects of dispute. Much must be supplied from usages of the business that are none too well known or too definitely proved. Gaps must be filled by that uncertain process called “implication,” a mixture of determining the meanings of the parties by interpretation of their words and actions and of doing justice according to the mores and practices of the community. The legal relations of the parties must vary with the operative facts of the particular transactions, their complexity and variation being increased by the fact that at least three parties are always involved—a seller, a purchaser, and a broker.

In some cases the transaction between the principal and the agent is a bilateral contract. In the past, because of inadequate analysis and unfamiliarity with the “unilateral” contract, a transaction was often assumed to be bilateral. An owner who puts land in the hands of a broker for sale usually promises to pay a commission for the service. The broker seldom promises in return to produce a purchaser, although the broker may promise, expressly or impliedly, to make diligent effort. Where there is no express contract, courts have often failed to take note that a return promise can easily be implied, particularly in cases where the owner grants the agent an exclusive.1 In many of these cases, however, the same result has been reached on the question of irrevocability.2 If the parties have thus made mutual promises, the transaction no longer has the status of an unaccepted offer, and neither party has a power of revocation. Any power of contracting with a third party in the principal’s name that may have been given to the agent can be withdrawn by the principal, even though the principal may have contracted not to withdraw it, but this is not the revocation of an offer made to the agent. It is possible also, even though principal and agent have made a bilateral contract, for the principal to reserve a power of termination either by notice or by effecting a sale through other channels.3

The cases discussed here include those in which an owner merely puts land in the broker’s hands, promising a commission for the service of producing an able and willing purchaser, but the broker makes no return promise that he can or will produce such a purchaser. Such a transaction as this is an offer of a unilateral contract—an offered promise by the owner creating in the broker a power of accepting by actual rendition of the requested service. Such an offer as this may become irrevocable even before the service is fully rendered. Under what circumstances is the power, or the privilege, of revocation lost, and to what extent?

Transactions Classified—Property Merely “Listed”

An owner who merely “lists” property with a real estate broker for sale or rent may thereby make no promise or offer of any kind. The communication to the broker may be no more than an invitation for the submission of proposals that the owner may or may not accept.4 In such a case, the owner is legally privileged to reject any proposal so made. Upon such a rejection the owner is under no duty to pay the broker for services rendered, either a broker’s customary commission or quantum meruit.5

If the owner when “listing” property for sale promises the broker to consummate the transaction and convey title to a purchaser whose offer may prove to be acceptable to the owner, it is not breach of contract to refuse to sell to a purchaser produced by the broker. The owner would be privileged to withdraw the “listing” at any time, the promise to convey being a mere “illusory” promise. But if the broker produces a purchaser whose offer is accepted by the owner, the broker has completed the service requested, the owner’s promise to the broker to consummate the deal has become a unilateral contract, and a refusal by the owner to convey would be a breach of contract creating in the broker a right to a commission.6 The promise to the broker is not within the real property statute of frauds;7 but usually the question is not even raised.

In short, the broker’s rights depend on the terms of the contract. If the contract allows the broker to recover merely for producing a ready, willing, and able purchaser, that is the end of the inquiry. In Silvio Benedetto Assocs. v. Porricelli,8 the contract provided that the broker was entitled to a commission only upon the closing of the transaction, and the owners had the right, in their absolute discretion, to decline to sell to a purchaser procured by the broker without incurring any obligation to pay the commission. The broker produced a ready, willing and able buyer, but the owner refused to go through with the transaction. The court explained that the particular contract omitted any language entitling the broker to a commission for producing a ready, able, and willing buyer and that no commission was warranted.9

Transactions Classified—Unilateral Contract, Promise of a Commission for Service Rendered

The most commonly recurring case is one in which the owner employs a broker to find a purchaser able and willing to buy, on terms stated in advance by the owner, and in which the owner promises to pay a specified commission for the service. This is an offer by the owner, the broker’s power of acceptance to be exercised by the actual rendition of the requested service. Here the only contemplated contract between the owner and the broker is a unilateral contract—a promise to pay a commission for services rendered.10

Cases are very numerous in which the owner, after the broker has fully performed the requested service, fails to make conveyance to the purchaser and refuses to pay the commission. Such a refusal is not the revocation of an offer. It is the breach of the fully consummated unilateral contract to pay for services rendered.11 If the parties are silent as to the conditions to payment, it is generally held that the requested service is merely the production of a purchaser able and willing to buy on definitely stated terms,12 and the broker has a right to the promised commission even though the owner at once refuses to accept the purchaser’s offer.13 It should never be forgotten, however, that the actual terms of the offer or contract, if inconsistent with the normal implications, control.14

In Mapes v. City Council of Walsenburg,15 Mapes, a real estate broker, entered into an open listing with the city for the sale of a city-owned ranch. The contract provided that Mapes was entitled to a commission if he was the first broker to procure a buyer ready, willing, and able to purchase the property on the City’s terms. Mapes did exactly that, and the City refused to enter into a purchase contract with the prospective purchaser Mapes had procured but instead subsequently sold the property to a third party. The court held that Mapes was entitled to his commission as spelled out in the contract. “[O]nce a broker has produced a buyer who is ready, willing, and able to purchase the property upon the terms set forth in the listing, the seller may no longer revoke the broker’s authority under the open listing and be relieved of the obligation to pay the commission.” The court cited § 2.30 of this treatise (1993 ed.) and explained this type of open listing:

With an open listing, a broker is not the exclusive agent for the sale of the property and is only entitled to compensation upon the sale of the property to a buyer whom the agent has introduced to the selling principal. The open listing is an offer for a unilateral contract creating in the broker the power of acceptance by procuring a purchaser ready, willing, and able to buy on the terms proposed by the owner. The broker earns a commission by finding a ready, willing, and able purchaser before other agents or the owner finds such a purchaser, and before the owner revokes the offer.16

If the terms proposed by the owner contemplate the production of a purchaser who is willing and able to contract to purchase on specified conditions, the broker has earned the promised commission by producing one who offers to purchase on those conditions. This is true even though the consummation of the sale fails by reason of nonfulfillment of those conditions.17 It is otherwise if the prospective purchaser produced is willing to purchase only on a condition not specified or assented to by the owner.18

The owner’s promise to the broker to pay a commission may itself be conditional, as where the promise is to pay “on closing of the deal,” or “on settlement by the purchaser,” or “out of money received from the purchaser.” The additional event thus specified is no part of the performance by the broker, but it normally will be viewed as a condition precedent to the right to the commission.19 Even in such a case the commission is earned if the owner prevents the fulfillment of the condition by refusing to convey on the terms to which the owner had previously assented.20 The wrongful act of the owner excuses the condition to the broker’s rights.21 There are cases holding that the broker has a right to a commission if failure to consummate the sale is due to the owner’s inability to convey the title agreed upon.22 Every contract of sale, in the absence of agreement to the contrary, contains an implied warranty that marketable title will be conveyed. Generally, a contract by an owner with a broker contains the same implied promise.

Unilateral Contract—Promise for Service Rendered: Revocation

An offer of a promise to pay a commission for service rendered is revocable by the owner by notice before the broker has rendered any part of the requested service,23 possibly also before rendering a “substantial” part of the service. A sale by the owner to a third party, with no notice thereof to the broker, is certainly not operative as a revocation.24

In a good many cases of this kind it has been held that the owner is no longer privileged to revoke the offered promise after the broker has taken substantial steps in the process of rendering the requested service, by advertising the property for sale, soliciting prospective buyers, showing the property, or otherwise. In such a case the revocation and discharge of the broker is held to be a breach of contract.25 There are cases contra to the foregoing and others not easily reconcilable with them.26 These involve the problem that has just been discussed in § 2.29. It should be noted that owners frequently will retain a number of brokers to find a purchaser for the same property. When this occurs to the knowledge of the brokers, their efforts toward finding a purchaser should not be deemed to create irrevocable offers. They are well aware of the totally contingent nature of their commissions and should not be allowed recovery unless the nearly successful broker is in bad faith frozen out of the final steps leading to the contract between the owner and the purchaser, or has taken such other foreseeable steps in reliance on the contract as to make revocation unjust.27

If the offer has been held open for a reasonable time, and the broker has failed to render the service after a definite attempt, the offer has been said to be revocable if the defendant is acting “in good faith.”28

The broker has often been held entitled to the commission (or to damages) in spite of the owner’s notice of revocation given prior to completion of the broker’s service because the attempted revocation was “in bad faith.” If the notice of revocation is given when the broker’s service has proceeded to the point where success is probable, the court may be convinced that it was given for the purpose of avoiding payment while at the same time enjoying the benefit of the service. Such a revocation is indeed “in bad faith,” and the broker may be held entitled to the agreed commission on the ground that the owner has wrongfully prevented fulfillment of the condition precedent to the right to payment.29 In some of these cases the court’s theory is that the contract has become bilateral, although the facts as stated indicate no promise by the broker for breach of which the owner could have maintained an action. Often, however, the court merely holds that part performance by the broker has made the owner’s promise binding.

In the cases as they are reported, it is often impossible to tell whether the court thinks that the agent promised to render services. Occasionally it is said that the contract becomes bilateral as soon as the agent has rendered part performance.30 In such case, if the action were one brought by the owner for damages for the agent’s failure to make diligent effort, it is far from certain that the court would be ready to find a promise by the agent. Such cases are best understood as groping towards the notion of an offer becoming irrevocable.

Even though the owner’s promise of a commission may have become irrevocable as an offer to the broker himself, the law of agency is such that the agent’s power to bring the principal into contract relations with third persons can be terminated by the principal even though it is a breach of contractual duty to terminate it. Although not legally privileged to do this, the owner has power to do it. After being notified not to proceed with efforts to sell, the agent’s power (in the absence of an estoppel) to bind the principal to a third person is destroyed. It does not necessarily follow from this that the agent’s power to complete the acceptance of the owner’s offer is also terminated. The termination of the agent’s power to bind the principal by a contract with a third person is an entirely different matter from the termination of the agent’s power to bind the principal to render a performance (commission) that the principal has promised to the agent.31

Amount Recoverable in Case of Wrongful Revocation

The amount recoverable is not the full amount of the promised commission unless the court is satisfied that the broker would have fully performed according to the owner’s offer and this would have entailed no material expense.32 In some cases the desired sale, or other specified result, is actually effected by the owner after the revocation, and the court is justified in finding that the broker’s efforts were the “producing cause” or “procuring cause” thereof.33 If it is not shown that successful completion of the requested service was highly probable but for the owner’s discharge, the broker can recover nothing. The owner’s promise to pay was conditional on substantial performance as specified.34 The contract itself may provide for liquidated damages.35 For example, it may provide, as quoted in one case, “in case I withdraw the authority hereby given prior to said expiration date, I agree to pay you said commission just the same as if a sale had actually been consummated by you.” Under some circumstances such a provision might be suspiciously akin to a penalty, but in the case quoted, the broker, at the time of discharge, had rendered substantial, and perhaps full performance.36

Unilateral Contracts and the Ellsworth Dobbs Doctrine

In the noteworthy case of Ellsworth Dobbs, Inc. v. Johnson,37 the Supreme Court of New Jersey, pronounced the general rule as to brokerage commissions to be “deficient as an instrument of justice.”38 In that case the defendants were owners of a 144-acre farm which they listed for sale on specified terms with the plaintiff and other brokers. Plaintiff produced an interested developer who, after some negotiations, entered into a contract of sale with defendant. The developer, however, defaulted because he was unable to raise the financing he had expected. Plaintiff sued both the sellers and the developer for a commission. Under prior precedents the plaintiff should have been successful against the sellers. The broker had fully performed, and the purchaser’s willingness and ability to perform was conclusively established by the seller’s entry into a contract with the developer produced by the broker. The court, quite consistently with the logic of the phrase “willing and able” to perform, overruled cases holding that the risk of the ability of the purchaser to perform shifts to the seller when the seller enters into a contract of sale. The risk quite properly belongs to the broker, and the financial ability of the purchaser should be part of the broker’s prima facie case. The court, however, went further than this, laying down a rule of much broader scope. The court stated: “When a broker is engaged by an owner of property to find a purchaser for it, the broker earns his commission when (a) he produces a purchaser ready, willing and able to buy on the terms fixed by the owner, (b) the purchaser enters into a binding contract with the owner to do so, and (c) the purchaser completes the transaction by closing the title in accordance with the provisions of the contract. If the contract is not consummated because of lack of financial ability of the buyer to perform or because of any other default of his … , there is no right to commission against the seller.” In other words, as a condition precedent to the broker’s right to a commission, the contract of sale must be performed, unless performance is thwarted by the seller’s breach. The court declared that a provision in a brokerage contract prepared by the broker that would attempt to circumvent this ruling would be deemed unconscionable. In another precedent-breaking holding in the case, the court held that the defaulting purchaser could be held liable on an implied promise to the broker that, absent a legal excuse, the contract of sale will be completed.39

Although it is still not the law throughout the land, those portions of the decision that hold, as between seller and broker, the broker has the burden of proof of the buyer’s ability to pay, and that places the risk of the purchaser’s default on the broker, have found wide support.40

“Exclusive Sale” or “Exclusive Agency”—Privilege to Sell Reserved by Owner; “Exclusive Right to Sell”—Privilege Not Reserved

If the owner has given the broker an “exclusive sale” or “exclusive agency,” the conclusion is almost irresistible that the owner-broker relationship is a bilateral contract.41 Even though the owner has made a bilateral contract with a broker, empowering the latter to find a purchaser and binding the former to pay a commission for the service, the actual understanding of the parties or the relevant usages of the business may be such that the owner remains legally privileged to find a purchaser and sell the property without liability to the broker. In such a case, the owner has no power to terminate the contract with the broker except by making an independent sale and giving notice of it to the broker. The owner has made no promise to the broker, expressly or by implication, not to make a sale to a purchaser found by the owner’s own efforts. A mere refusal to consummate a sale by the broker and to pay the agreed commission would be a breach of contract.42 Moreover, the owner’s withdrawal of the property from the market within the period of time stipulated in the contract with the broker would be a breach entitling the broker to damages.43

Again, the terms of the contract between the owner and the broker may be such that the latter does not have an “exclusive agency.” The broker may have reason to know that the owner reserves the privilege of employing additional agents and consummating a sale through them. In this, as in the case just stated previously, the owner has made no promise not to consummate an independent sale.44 In neither case, however, is the question one of revocability of an offer made by the owner to the broker. There was a contract between them, one not revocable by the owner. The question is merely as to the terms and conditions of the owner’s promise, one to be determined by the usual processes of interpretation and construction.

If the owner made a promise to the broker to pay a commission for a specific service to be rendered, the broker making no promise in return to render that service, the owner’s offered promise becomes an irrevocable unilateral contract as soon as the broker has rendered a substantial part of the requested service. This may be before the broker has procured a purchaser able and willing to buy on the owner’s terms. Even so, however, just as in the case of a bilateral contract, the terms and conditions of the owner’s promise to the broker must still be determined by process of interpretation and construction. That promise may not have excluded the owner’s privilege of making a sale by the owner’s own efforts or through another agent. If no such sale is made and the owner merely refuses to consummate a sale by the broker and to pay the agreed commission, the owner has committed a breach of contract. If the broker has been promised an “exclusive agency,” the promise is broken by making a sale through another agent but not by the owner’s negotiating a sale without the aid of another agent. A promise that the broker shall have the “exclusive right to sell” or the “exclusive sale” would usually mean that the owner is not privileged to make any sale without paying a commission to the broker.45

The principle applied in land brokerage cases is equally applicable to all offers to pay compensation for specified services to be rendered. It has been held that when a claim has been sent to a collection agency on a contingent basis, it is a breach of contract to withdraw the claim after efforts at collection already have been made.46 Of course, the duty not to withdraw the claim would last only a reasonable time, in case there was no definite time allowed in the offer. Similarly, the discharge of a sales representative for the purpose of depriving the representative of commissions on sales orders already placed is in bad faith, subjecting the employer to liability for damages.47

In Baumgartner v. Meek,48 the owner listed her property with the plaintiff broker for a stated time, with “the exclusive and irrevocable right to sell for $300,000,” promising to pay a commission of 5% if “the said property be sold by said broker or by me or by another broker.” The broker expressly promised “to use diligence in procuring a purchaser.” After the broker had made much effort, advertised at considerable expense, and listed with other brokers, and before expiration of the stated time, the owner notified the broker that the property was withdrawn from the market, and she sold the property herself. The court granted judgment in favor of the broker for $15,000. The court stated that the sale by the owner was not itself a breach and that the amount awarded was neither a penalty nor liquidated damages. A sale, whether by broker or by owner, was a condition precedent to the broker’s right to the promised commission. On fulfillment of this condition, the amount promised became a money debt for the broker’s services actually rendered. A sale by the broker herself would have created no such debt unless made on the terms stated in the contract. But on such a sale, or on any sale by the owner, the transaction became one fully performed by the broker and created a unilateral money debt.49

Producing a Purchaser on Different Terms

There are cases in which a broker has been held to have a right to payment of the promised commission even though the purchaser whom the broker produces is proposing to buy on slightly different terms from those authorized by the owner, in case the owner gives reasons for refusal to consummate the sale that are wholly different from the slight variation.50 It is probably assumed in most of these cases that the owner and broker have made a valid bilateral contract and that the production of a purchaser is merely the performance of a condition precedent to the broker’s right to the commission, and is not the acceptance of an offer to the broker resulting in a unilateral contract. On such an assumption, the slight variation may be regarded as immaterial, or else as a defect in performance that might have been cured but for the owner’s refusal. Even though there was no bilateral contract between owner and broker, the same result may well be reached, the broker having gone far enough toward full performance to make the owner’s offer irrevocable and to cause their transaction to take the form of a conditional unilateral contract. If the purchaser’s offer contains a provision or is on a condition that differs materially from the owner’s specified terms, the owner is justified in rejecting it without stating a reason, and the broker has not earned a commission.51

Footnotes — § 2.30:

1 Kahler, Inc. v. Weiss, 539 N.W.2d 86, 91 (S.D. 1995) (broker must perform with best efforts to collect a commission under an exclusive selling agreement).

2 Hutchinson v. Dobson-Bainbridge Realty Co., 31 Tenn. App. 490, 217 S.W.2d 6 (1946) is a case where part performance was held to make an offer to the broker irrevocable. Since the agency was exclusive, the court could have well held that the contract was bilateral and irrevocable at the outset. Had the bilateral contract been repudiated before any part performance, it is doubtful any damages could have been proved.

3 See Tahir Erk v. Glenn L. Martin Co., 116 F.2d 865 (4th Cir. 1941).

4 See Iacono v. Toll Bros., 217 N.J.Super. 475, 526 A.2d 256 (App. Div. 1987), aff’d, 225 N.J. Super. 87, 541 A.2d 1085 (1988).

Del.

—L.C. Parker Realtors, Inc. v. Dutch Village, Inc., 54 Del. 337, 179 A.2d 462 (1962).

Md.

—Rodblatt v. Fox, 191 Md. 620, 62 A.2d 548 (1948).

N.J.

—Bruni v. Posluszny, 56 N.J. Super. 525, 153 A.2d 739 (1959) (broker’s commission expressly conditional on owner’s signing of a lease and receipt of rent).

N.Y.

—Fava v. Rasweiler, 279 App. Div. 770, 109 N.Y.S.2d 71 (1951); Reiner v. Ellinger, 29 Misc. 2d 138, 216 N.Y.S.2d 560 (1961), aff’d, 17 A.D.2d 803, 232 N.Y.S.2d 1022 (N.Y. App. Div. 1st Dep’t Oct. 23, 1962); Emil v. Hamburg Heaven, Inc., 16 A.D.2d 778, 228 N.Y.S.2d 353 (1962) (broker not entitled to commission when the owner consummated a sale of the property at a price higher than that which the broker had induced the purchaser to offer, owner and a subsequent broker not acting in bad faith). Helmsley-Spear, Inc. v. Westdeutsche Landesbank Girozentrale, 692 F. Supp. 194, 202 (S.D.N.Y. July 14, 1988) (“. … since the conditions precedent to payment of the incentive fee under the Agreement were not met, Helmsley-Spear cannot recover on its claim for a commission.”).

In Devereaux v. Harper, 210 Cal. App. 2d 519, 26 Cal. Rptr. 837 (1962), the brokerage agreement provided for a commission of 5% for effecting a sale of a leasehold property on specified terms, some of these terms being such as to require further negotiation and assent by the seller. The broker produced an offer to purchase on the terms specified in the listing agreement. Since the seller and the purchaser were not alleged to have negotiated further and mutually assent, the broker had not earned his commission.

The text here is illustrated and supported by Ball v. Williamson, 336 Mass. 547, 146 N.E.2d 659 (1957), holding that a broker who has merely been requested to submit offers, subject to acceptance or rejection at will, has no right to compensation, either as a commission or as quantum meruit, unless and until an offer submitted by the broker has been accepted. The owner is privileged to fix terms of sale, to retain the property, or to sell to a third person not introduced by the broker.

In National City Bank of Rome v. Graham, 105 Ga. App. 498, 125 S.E.2d 223 (1962), the defendant owner informed the plaintiff broker that its property would be offered for sale through brokers and gave the broker a description of the property, who thereupon informed a third party that the property was for sale and offered his services in effecting a purchase. That party did not make use of his services, but made its own offer to buy the property direct to the defendant owner. The latter accepted the offer with no knowledge that the broker had contacted the purchaser. The owner was legally privileged to sell the property and was not bound to pay the broker a commission. Further, the purchaser was not bound to pay him a commission.

U.S.

—Calkins v. F.W. Woolworth Co., 27 F.2d 314 (8th Cir. 1928), cert. denied, 278 U.S. 645; T.C. Henry & Sons & Co. v. Colorado Farm & Live Stock Co., 164 F. 986 (10th Cir. 1908).

Ala.

—Morgan v. Whatley & Whatley, 205 Ala. 170, 87 So. 846 (1921).

Cal.

—Turner v. Waldron Realty, 209 Cal. App. 2d 376, 25 Cal. Rptr. 771 (1962); Justice v. Ackerman, 183 Cal. App. 2d 649, 6 Cal. Rptr. 921 (1960) (the owner negotiated his own terms with the broker’s prospect). In Alaimo v. Tsunoda, 215 Cal. App. 2d 94, 29 Cal. Rptr. 806 (1963), the defendant executed a writing in which “in consideration of your listing my property and your efforts to find a purchaser” the defendant gave the “exclusive sale” of the property to the plaintiff for six months and promised to pay a commission of 5% in case of finding a purchaser at such a price and on terms “to which I may consent.” The plaintiff found a purchaser at $240,000, but the defendant refused to sell at any price and withdrew the property from the market. The plaintiff sued for damages. The court held that the written agreement was too “indefinite” for enforcement. Even regarding the writing as an irrevocable offer, the defendant’s acceptance of purchaser’s offer was an express condition precedent to the plaintiff’s right to a commission. It is certain that the listing agreement was not “void”; the defendant would be bound to pay the commission if he made a contract to sell at any price during the 6-month period. Refusal of the $240,000 offer was not a breach, but the defendant’s repudiation of the agency could be so regarded, without liability for substantial damages.

Colo.

—Mapes v. City Council of Walsenburg, 151 P.3d 574 (Colo. App. 2006), cert denied, 2007 Colo. LEXIS 44 (2007) (discussed in the text accompanying note 15).

Brewer v. Williams, 147 Colo. 146, 362 P.2d 1033 (1961) (broker produced a purchaser with whom the owner consummated a sale on terms satisfactory to her, intentionally avoiding participation by the broker); Chutkow v. Wagman Realty & Ins. Co., 80 Colo. 11, 248 P. 1014 (1926).

Conn.

—Norde v. Malash, 206 A.2d 661, 3 Conn. Cir. 37 (1964), cert. denied, 152 Conn. 738, 205 A.2d 501 (owner orally accepted the buyer’s offer, later rejected it, held liable for commission).

Iowa

—Eells Bros. v. Parsons, 132 Iowa 543, 109 N.W. 1098 (1906).

Mo.

—Bird v. Blackwell, 135 Mo. App. 23, 115 S.W. 487 (1909).

N.Y.

—Pease & Elliman v. Gladwin Realty Co., 216 App.Div. 421, 215 N.Y.S. 346 (1926); Newman v. Pierson, 195 App. Div. 407, 186 N.Y.S. 388 (1921).

N.C.

—Atkinson v. Pack, 114 N.C. 597, 19 S.E. 628 (1894).

Ohio

—Lohr v. Ford, 94 Ohio App. 17, 51 Ohio Op. 256, 114 N.E.2d 300 (1952).

Wash.

—Livermore v. Crane, 26 Wash. 529, 67 P. 221 (1901).

In Bloomberg v. Greylock Broadcasting Co., 342 Mass. 542, 174 N.E.2d 438 (1961), the defendant’s president wished to sell its station to Hudson with whom his relations were such as to make a direct approach himself undesirable. He therefore employed the plaintiff to make the approach and to bring about a meeting, promising that if he did so and a sale was later consummated he would be paid a commission of 5%. The plaintiff procured the meeting, and much later a sale to Hudson was consummated, the plaintiff by express direction having no part in the negotiations. He was held entitled to the commission.

In Costilla Land Co. v. Robinson, 238 F.2d 105 (10th Cir. 1956), the defendant promised to pay a broker’s commission to the plaintiff if he would find a purchaser ready and willing to buy on stated terms. One of these terms was that the balance above a cash payment should be payable in annual installments “for such terms of years as may be agreed upon” between buyer and seller. A buyer was produced able and willing to buy on the stated terms and to negotiate the terms of the delayed installments. The defendant refused to negotiate as to these terms. A judgment for the plaintiff for the promised commission was sustained. Although actual agreement by the defendant on the terms was a condition precedent to the right to the commission, its fulfillment was prevented by the defendant’s refusal in bad faith to negotiate with the buyer. The trial court found that the buyer “was willing to negotiate on any reasonable terms as to the balance of the payments.” Presumably, this means that he was “willing to agree” on any reasonable terms.

In Humphrey v. Knobel, 78 Nev. 137, 369 P.2d 872 (1962), a broker was given “exclusive sale” of property for 60 days, by a written contract that specified “Price, $31,500,” without stating particular terms of payment. The broker procured a purchaser who offered $30,000 on stated terms. The owner at first refused this offer and referred the purchaser to the broker. The latter suggested that the purchaser try again. The latter did so, and 14 days after expiration of the 60 days, the owner accepted an offer identical with that originally made. The court held that the broker had a right to the agreed 5% commission. The contract was described as a “general” listing, the stated price being merely an “asking price,” such that the commission was promised if the broker produced a purchaser on terms satisfactory to the owner. See also § 559.

Even though a vendor’s contract to sell may not be enforceable against the vendor for lack of a writing, the broker is entitled to a commission for producing a buyer able and willing to perform the contract of purchase, if the failure to consummate the sale is due to the vendor’s refusal to sell. Curtis v. Mortensen, 1 Utah 2d 354, 267 P.2d 237 (1954); Woodbridge Realty v. Plymouth Development Corp., 130 Cal. App. 2d 270, 278 P.2d 713 (1955).

7 In Vaughn v. McCarthy, 59 Minn. 199, 60 N.W. 1075 (1894), the owner promised the broker that he would convey the land to a purchaser for $1 per acre net. It was expressly held that this promise was not within the statute of frauds.

See Associated Agency of Bozeman, Inc. v. Pasha, 191 Mont. 407, 625 P.2d 38 (1981).

8 Silvio Benedetto Assocs. v. Porricelli, 2007 Conn. Super. LEXIS 1748 (July 2, 2007).

9 “While in the normal course to recover a commission, a real estate broker ordinarily must show it has produced a customer who is ready, willing and able to purchase on the terms and conditions prescribed by the seller, the listing contract may, however, make the broker’s right to a commission dependent upon specific conditions, such as the consummation of the transaction and the full performance of the sales contract.” Londregan v. Piccollo, 2001 Conn. Super. LEXIS 1402, *4 (May 18, 2001).

10 Although the text focuses on real estate brokerage contracts, similar principles govern other brokerage cases. Yasuna v. National Capital Corp., 273 Md. 617, 331 A.2d 49 (1975) (broker retained to obtain financing).

11 Larson v. Syverson, 84 S.D. 31, 166 N.W.2d 424 (1969). On full performance by the broker, although the agency power of the broker is revocable, the offer is no longer revocable. It has ripened into a contract.

12 The law in New Jersey is quite different from that stated in the text. The decision in Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 236 A.2d 843, 30 A.L.R.3d 1370 (1967), established new doctrine that has found acceptance elsewhere. Thereafter, to earn a commission, in addition to procuring a ready, willing, and able buyer, the buyer must actually enter into a binding contract with the seller, and the buyer must complete the transaction by closing the deal in accordance with the contract terms.” See text at notes 37–40 below.

Cal.

—Rivadell, Inc. v. Razo, 215 Cal. App. 2d 614, 30 Cal. Rptr. 622 (1963). Broker held not entitled to commission for failure to produce a specific purchaser on the exact terms of the listing, especially because the offer presented was on behalf of a named company “or its nominee.” The terms were in large part credit terms. The court thought that the broker was guilty of sharp practice in dealing with the less experienced owner. The listing had ambiguities justifying extrinsic explanatory evidence. The owner was justified in refusing the offer presented to him, even though he specified only part of the reasons and did not mention the “nominee provision.”

Conn.

—Tartoria v. Manko, 134 Conn. 345, 57 A.2d 493 (1948); Lawrence v. Hamilton, 111 Conn. 493, 150 A. 690 (1930); Leete v. Norton, 43 Conn. 219 (1875).

D.C.

—Gill v. American Security Corp., 209 A.2d 629 (D.C. App. 1965); Deibler v. Graham, 62 A.2d 553 (D.C. 1948).

Ill.

—Levit v. Bowers, 2 Ill. App. 2d 343, 119 N.E.2d 536 (1954) (the owner may still refuse to sell, but he does not thereby escape from his legal duty to pay the agreed commission).

Iowa

—Scott v. J.C. Ferguson R. Co., 206 Iowa 1158, 221 N.W. 785 (1928) (owner and purchaser rescinded).

La.

—Womack Agencies, Inc. v. Fisher, 86 So. 2d 732 (La. App. 1956) (entitled to the commission, even though the final contract of purchase and sale was not made until after the date of expiration of the broker’s contract).

Md.

—Cowal v. Marletta, 216 Md. 222, 139 A.2d 712 (1958) (whether broker was the producing cause is a question of fact).

Minn.

—Kaercher v. Schee, 189 Minn. 272, 249 N.W. 180, 88 A.L.R. 294 (1933).

N.M.

—Hatch v. Strebeck, 58 N.M. 824, 277 P.2d 317 (1954) (court carefully compares the terms of the written contract between owner and broker with those of the written contract of purchase signed by the purchaser and presented to the owner).

R.I.

—Judge v. Roy, 90 R.I. 29, 153 A.2d 522 (1959) (defendant who promised commission even though not himself owner of the land).

If the broker produces a willing purchaser on the specified terms and the owner then executes a contract with the purchaser, the requirement of ability to pay is regarded as satisfied. The broker has a right to the commission even though the purchaser later defaults, unless the owner’s promise was conditional on consummation of the sale. Retterer v. Bender, 106 Ohio App. 369, 7 Ohio Op. 2d 105, 154 N.E.2d 827 (1958); Wauwatosa Realty Co. v. Paar, 274 Wis. 7, 79 N.W.2d 125 (1956).

As to method of proving customer’s ability to pay, see Driscoll v. Bunar, 328 Mass. 398, 103 N.E.2d 809 (1952).

This treatise (§ 454, 1950 ed.) is cited in Benway v. Cole, 99 N.H. 51, 104 A.2d 734, 735 (1954), holding that the owner must pay commission to one whose services as agent in finding a purchaser were accepted with knowledge that a commission was expected.

14 Childs v. Ragonese, 296 Md. 130, 460 A.2d 1031, 38 A.L.R.4th 160 (1983); Londregan v. Piccollo, 2001 Conn. Super. LEXIS 1402, *4 (May 18, 2001); Silvio Benedetto Assocs. v. Porricelli, 2007 Conn. Super. LEXIS 1748 (July 2, 2007).

15 Mapes v. City Council of Walsenburg, 151 P.3d 574 (Colo. Ct. App. July 13, 2006), cert denied, 2007 Colo. LEXIS 44 (2007).

16 Mapes v. City Council of Walsenburg, 151 P.3d 574, 577 (Colo. Ct. App. July 13, 2006).

Mich.

—Lee v. Desenberg, 2 Mich. App. 365, 139 N.W.2d 916 (1966) (seller settled specific performance action for a sum of money and retention of the land).

Cal.

—Dexter v. McManus, 188 Cal. App. 2d 312, 10 Cal. Rptr. 336 (1961) (tenant produced by the plaintiff broker refused to execute a lease unless a new provision not satisfactory to the defendant owner was included).

D.C.

—Pastor v. Williams, 135 A.2d 460 (D.C. App.1957); see also Jacobs v. Schneider, 152 Cal. App. 2d 452, 313 P.2d 142 (1957).

Conn.

—Menard v. Coronet Motel, Inc., 152 Conn. 710, 207 A.2d 378 (1965) (on condition that purchaser sell his own property by a specified date).

Md.

—Borowski v. Meyers, 195 Md. 226, 72 A.2d 701 (1950), citing Dotson v. Milliken, 209 U.S. 237, 28 S. Ct. 489, 52 L. Ed. 768 (1908); Cooper v. Liberty Nat. Bank, 332 Ill. App. 459, 75 N.E.2d 769 (1947); Bell v. Siwoff, 124 N.J.L. 563, 12 A.2d 881 (1940), aff’d, 123 N.J.L. 11, 7 A.2d 826.

Miss.

—Shemper v. Latter & Blum, 214 Miss. 113, 58 So. 2d 359 (1952) (promise of a commission for obtaining a building construction loan, commission not earned by obtaining a loan good only after completion).

Of course, a broker does not earn his commission by finding one who merely takes an option to buy and never exercises it. Hedges v. Keas, 180 Kan. 540, 306 P.2d 181 (1957), opinion amended and reh’g denied, 181 Kan. 503, 313 P.2d 264. A broker, who produces a purchaser for a tract of land whose offer is conditional on the vendor’s giving him an option to buy other land, was held not entitled to a commission on the sale of such other land when the purchaser exercised the option so given by the vendor. The broker did not produce a purchaser of the other land. He did not even produce a party who offered to buy it or who bound himself in any way. The option was merely an irrevocable offer by the vendor, an offer later accepted by the purchaser when it so pleased him. Baldwin v. Carroll, 101 So. 2d 762 (La. App. 1958).

19 See Amies v. Wesnofske, 255 N.Y. 156, 174 N.E. 436, 73 A.L.R. 918 (1931); Tarbell v. Bomes, 48 R.I. 86, 135 A. 604, 51 A.L.R. 1386 (1927).

In Hersh v. Kelman, 104 N.E.2d 35, 61 Ohio L. Abs. 363 (Ohio App.1951), the broker’s right to a commission was conditional on “consummation” of the sale.

Vernon D. Cox & Co. v. DiMarco, 201 Pa.Super. 596, 193 A.2d 842 (1963), involved an agreement by owner to pay broker a commission “at the time of final settlement” merely fixed a time for payment and did not make completion by the purchaser a condition precedent to the owner’s duty to pay the commission. The purchaser had been held justified in refusing to complete by reason of the owner’s breach of warranty against restrictions. As an alternative ground, the court could properly have found that a similar warranty was implicit in the owner’s contract with the broker.

Ala.

—Penney v. Speake, 256 Ala. 359, 54 So. 2d 709 (1951) (prevention by owner).

Cal.

—Sill v. Ceschi, 167 Cal. 698, 140 P. 949 (1914); White v. Reskin, 90 Cal. App. 512, 265 P. 1016 (1928).

Colo.

—Scott v. Huntzinger, 148 Colo. 225, 365 P.2d 692 (1961) (owner gave an option and promised to pay a commission if the party consummated a purchase in accordance with the option).

Conn.

—Home Banking & Realty Co. v. Baum, 85 Conn. 383, 82 A. 970 (1912).

Fla.

—Hart v. Pierce, 98 Fla. 1087, 125 So. 243 (1929); Lindquist v. Burklew, 123 So. 2d 261, (Fla. App. 1960) (commission only on condition of performance by the purchaser).

Ill.

—Podolsky & Assocs. L.P. v. Discipio, 297 Ill. App. 3d 1014, 697 N.E.2d 840 (1998), appeal denied, 179 Ill. 2d 616, 235 Ill. Dec. 575, 705 N.E.2d 448. Affirming trial court’s granting judgment as a matter of law against plaintiff broker on breach of contract claims, but using the case to explain that Illinois’s duty of good faith and fair dealing entitles brokers to a commission if the broker shows that its principal intentionally delayed forming a contract for sale to avoid paying a commission. The court also noted that a principal’s failure to notify the broker of a possible buyer would, under the terms of the agreement in this case, be a failure to perform, i.e., a breach, not an anticipatory repudiation.

Mass.

—Ward v. Cobb, 148 Mass. 518, 20 N.E. 174 (1889); Cf. is Staula v. Carrol, 312 Mass. 693, 45 N.E.2d 822, 144 A.L.R. 919 (1942) (a “net price” case).

Mich.

—Tyson v. Herrle, 354 Mich. 298, 92 N.W.2d 292 (1958) (commission “on completion of the deal.”).

N.Y.

—Amies v. Wesnofske, 255 N.Y. 156, 174 N.E. 436, 73 A.L.R. 918 (1931).

Pa.

—Blau v. Kettling, 94 Pa. Super. 411 (1928).

In Weber v. Dobyns, 193 Cal. App. 2d 402, 14 Cal. Rptr. 103 (1961), the court held that a broker does not lose the right to a commission, merely because the vendor and purchaser rescind their contract of purchase and sale after the broker has fully performed the service for which the commission was promised. Even if the commission was payable out of the purchase price as received, the voluntary act of the owner in assenting to a rescission, thus preventing such receipt, should eliminate the condition precedent unless the owner clearly reserved the privilege of such prevention.

The decision in Benchmark Group, Inc. v. Penn Tank Lines, Inc., 612 F. Supp. 2d 562 (E.D. Pa. 2009) is problematic. Plaintiff Benchmark was an investment banker that agreed to assist defendant Penn Tank in discovering a buyer that would be interested in purchasing the defendant’s business. Plaintiff and defendant agreed that the plaintiff would be entitled to a “success fee … upon the closing of a transaction.” The total amount of the fee was structured upon the total price paid for the business. The plaintiff’s efforts led to the discovery of a potential buyer that met the terms required by the defendant, but then the defendant’s founder and principal owner had a change of heart and chose not to sell a majority interest in the company. The plaintiff sought a recovery of the fee. The court characterized the issue as the determination of whether the contract language, “upon the closing of a transaction,” constituted an express condition. The court held that the broker’s commission language was conditional. Plaintiff argued that the defendant should not be excused from paying the fee since it was the defendant that precluded the consummation of the sale. The court rejected this argument based on its emphatic reading of the contract, which stated that the fee was payable only “upon the closing of the transaction.” The court emphasized that this language was quite sufficient unto itself to support the holding that the plaintiff was not entitled to any fee, though it noted other evidence of the parties’ own statements indicating that the plaintiff had assured the defendant that there would be no fee unless the defendant got “a deal he wanted.”

While the defendant was certainly entitled to the deal he wanted, the issue is whether he could reject the deal he wanted because he simply changed his mind. The court noted that the contract document could have included a provision dealing with this issue. That argument proves too much. If the parties stated their intentions with pristine clarity in all contracts cases, only a small percentage of extant contracts cases would exist. Why not require the defendant to insist on language indicating that it would not be liable for a fee even if the plaintiff produced the ideal prospective buyer? While the plaintiff may be faulted for not including such a provision to deal with its own fee and while the court correctly indicated that no specific words are necessary to create a condition rather than promise, the court avoids the usual presumption that, absent clear language, a provision will be construed as a promise rather than a condition since conditions may cause forfeitures. The efforts of the plaintiff in this case to discover the kind of purchaser that would meet the defendant’s stated requirements were prolonged and significant. They were performed with the awareness and cooperation of the defendant. Though the court refers to the “contract” signed by the plaintiff, its interpretation of the phrase “upon closing of a transaction” as allowing the defendant to completely change its mind—for no reason or any reason—in effect finds that there never was any contract at all. The defendant’s “obligation” did not even rise to the level of a party whose duty was subject to a condition of personal satisfaction that would require a good faith judgment. Indeed, the defendant did not complain about the prospective buyer in any respect. The defendant simply changed its mind about selling the business or a majority interest in the business. The court’s narration indicates that the reason for that mind change was the founder’s second son entering the business. That kind of risk reallocation is almost stunning if the only basis is a phrase in a document that is anything but crystal clear and could very well be deemed to deal with the timing of the payment, as suggested by the plaintiff, rather than making a duty enforceable.

21 This basic principle seems to have been lost sight of in Centerco Properties, Inc. v. Boulevard Investment Co., 795 S.W.2d 521 (Mo. App. 1990). The owner promised a commission “if and only if, closing occurs and Seller receives payment of” a specified post-closing installment. Closing took place, but the buyer discovered defects and successfully brought a rescission action based on the seller’s fraud. It was held that the failure of condition (payment of the installment) precluded the broker’s recovery. No argument seems to have been made that the condition was excused.

Chambers v. Pingree, 351 S.C. 442, 570 S.E.2d 528 (S.C. App. 2002) (no showing that the prevention of the condition precedent was intentional or wrongful).

U.S.

—Weltman’s, Inc. v. Friedman, 102 F. Supp. 485 (D.D.C. 1952) (wife refused to join).

Conn.

—Clark v. H. G. Thompson Co., 75 Conn. 161, 52 A. 720 (1902).

N.Y.

—Stern v. Gepo Realty, 289 N.Y. 274, 45 N.E.2d 440 (1942).

Tex.

—Peters v. Coleman, 263 S.W.2d 639 (Tex. Civ. App. 1953) (ref. n.r.e., vendor’s wife refused to join in conveyance).

In Sherwood v. Gerking, 209 Or. 493, 306 P.2d 386 (1957), a broker procured a purchaser able and willing to buy on the owner’s stated terms. Actual sale to this purchaser was prevented because a lessee had a preference right to buy on those terms and purchased the property. The broker was held to have been the efficient cause of the sale to the lessee and was entitled to his commission.

U.S.

—See Tahir Erk v. Glenn L. Martin Co., 116 F.2d 865 (4th Cir.1941).

N.J.

—Rose v. Minis, 41 N.J.Super. 538, 125 A.2d 535 (1956) (so-called “option” was not a contract; it was merely a revocable offer).

Tenn.

—In Jenkins v. Vaughan, 197 Tenn. 578, 276 S.W.2d 732 (1955) (irrevocable as soon as the broker “has spent time and money” and “rendered a substantial part of the requested performance.”).

Va.

—Hummer v. Engeman, 206 Va. 102, 141 S.E.2d 716 (1965) (exclusive listing for 30 days held revocable before performance as unilateral contract with no consideration to support holding offer open for that period).

Wis.

—Schoenmann v. Whitt, 136 Wis. 332, 117 N.W. 851 (1908) (revocation before any substantial action by the broker).

In Giraldin Bros. Real Estate Co. v. Stiansen, 315 S.W.2d 636 (Mo. App. 1958) an owner signed a writing appointing plaintiff an exclusive agent to procure tenants and promising a stated commission. The plaintiff made no return promise and made no effort to procure a tenant, claiming a commission as to a lease otherwise procured by the owner.

Conn.

—Tartoria v. Manko, 134 Conn. 345, 57 A.2d 493 (1948).

Bartlett v. Keith, 325 Mass. 265, 90 N.E.2d 308 (1950) (the owner made a sale to a party not contacted by the broker and notified the broker).

U.S.

—Tahir Erk v. Glenn L. Martin Co., 116 F.2d 865 (4th Cir.1941); Calkins v. F.W. Woolworth Co., 27 F.2d 314 (8th Cir.1928), cert. denied, 278 U.S. 645 (1929); Gaylen Machinery Corp. v. Pitman-Moore Co., 273 F.2d 340 (2d Cir. 1959) (order for goods received the next day after notice revoking the agency).

Ark.

—S. Blumenthal & Co. v. Bridges, 91 Ark. 212, 120 S.W. 974 (1909).

Cal.

—Sill v. Ceschi, 167 Cal. 698, 140 P. 949 (1914); Kimmell v. Skelly, 130 Cal. 555, 62 P. 1067 (1900); Blumenthal v. Goodall, 89 Cal. 251, 26 P. 906 (1891); Wilson v. Roppolo, 207 Cal. App. 2d 276, 24 Cal. Rptr. 437 (1962).

Conn.

—Firszt v. Wdowiak, 104 Conn. 744, 133 A. 586 (1926); Harris v. McPherson, 97 Conn. 164, 115 A. 723, 24 A.L.R. 1530 (1922).

Iowa

—Attix v. Pelan, 5 Iowa 336 (1857).

Kan.

—Russell v. Combs, 108 Kan. 411, 195 P. 605 (1921).

Md.

—In Sanders v. Devereux, 231 Md. 224, 189 A.2d 604 (1963), the defendant owner listed property with a number of brokers for sale on stated terms. The plaintiff broker was requested to try to effect a sale to a specified purchaser to whom the plaintiff had already shown the property. The wife of that prospect was herself a broker and tried to get the plaintiff to split the commission; her request was refused. Thereafter, a sale to this purchaser was consummated, without notice to the plaintiff, the purchaser’s wife taking the commission and returning one half of it to the owner. The latter, however, required the purchaser to indemnify him against a claim by the plaintiff. The jury was justified in finding that the plaintiff was the producing cause of the sale and was entitled to judgment even though the owner “in bad faith” revoked the agency before final consummation of the sale.

Mass.

—Goward v. Waters, 98 Mass. 596 (1868).

Mich.

—Axe v. Tolbert, 179 Mich. 556, 146 N.W. 418 (1914); Ladd v. Teichman, 359 Mich. 587, 103 N.W.2d 338 (1960) (broker had right of “exclusive sale,” entitled to commission when owner sold an “easement of way” to a power company).

Minn.

—Lapham v. Flint, 86 Minn. 376, 90 N.W. 780 (1902).

Miss.

—Sunflower Bank v. Pitts, 108 Miss. 380, 66 So. 810 (1914) (the owner had promised to pay if he should himself make a sale).

Mo.

—Mercantile Trust Co. v. Lamar, 148 Mo. App. 353, 128 S.W. 20 (1910).

N.J.

—Kruse v. Ferber, 91 N.J.L. 470, 103 A. 409 (1918).

N.Mex.

—Marchiondo v. Scheck, 78 N.M. 440, 432 P.2d 405 (1967).

N.Y.

—Stillman v. Mitchell, 2 Rob. Sup. Ct. R. 523 (1864), affirmed 36 N.Y. 235 (1867).

N.D.

—Argabright v. Rodgers, 2003 ND 59, P5, 659 N.W.2d 369, 371 (2003) (“A real estate agent who has an exclusive listing agreement and substantially performs is entitled to a commission. In that context, substantial performance means the expenditure of time, effort, or money. The Rodgers concede that Argabright substantially performed under the listing agreement and is entitled to a commission.”); Schlossman & Gunkelman, Inc. v. Tallman, 1999 ND 89, P36, 593 N.W.2d 374, 382 (1999) (“[T]he original broker was entitled to damages based on the commission stated in the contract if the broker substantially performed the contract through the expenditure of time, effort, or money in marketing the property.”).

Ohio

—Richter v. First Nat. Bank, 82 Ohio App. 421, 38 Ohio Op. 69, 80 N.E.2d 243 (1947); Bell v. Dimmerling, 149 Ohio St. 165, 36 Ohio Op. 505, 78 N.E.2d 49 (1948).

Okla.

—Cloe v. Rogers, 31 Okla. 255, 121 P. 201 and note (1912) (owner has power to revoke, but not the privilege).

Tex.

—Park v. Swartz, 110 Tex. 564, 222 S.W. 156 (1920).

Va.

—Epes v. Hardaway, 135 Va. 80, 115 S.E. 712 (1923).

W.Va.

—Alexander v. Sherwood Co., 72 W.Va. 195, 77 S.E. 1027 note (1913).

In Great Lakes Steel Corp. v. Baysoy, 52 Del. 340, 157 A.2d 902 (1960) the court held that there was evidence to sustain a verdict for a broker to the effect that he was the producing cause of a sale by the defendant of Quonset storage houses to the Turkish Government. The defendant had authorized plaintiff to induce such a sale with a promise of 5% commission. Negotiations continued throughout four years, with bids, rejections, new specifications, until finally a contract of sale was consummated directly between defendant and Turkish officials. The plaintiff had been active throughout, but there had been lulls in the process. The jury was justified in finding that there had been no “substantial break in the negotiations,” no termination of the plaintiff’s efforts, and no termination of his authority as agent. The broker’s authority was not limited to the procurement of an order on any specified terms. See Bell v. Dimmerling, 149 Ohio St. 165, 36 Ohio Op. 505, 78 N.E.2d 49 (1948): “In consideration of your agreement to use your efforts in finding a purchaser … I hereby grant you the exclusive right for 90 days to sell … . If you are successful in finding a purchaser or if the same is sold within the term of your exclusive agency … I agree to pay commission of 5%.” It does not appear whether the agent, as well as the owner, signed the instrument; but the court treats the contract as “unilateral,” made binding and irrevocable by the agent’s mere “efforts” to find a purchaser.

“It is true the instrument appointing plaintiff agent was not signed by it, but the testimony shows it acted under the instrument and advertised the property extensively; this made the agreement bilateral”. Mercantile Trust Co. v. Lamar, 148 Mo. App. 353, 128 S.W. 20 (1910).

See Restatement (Second) of Contracts § 45 and cmt. g (Am. Law Inst. 1981).

Mass.

—Zakszewski v. Kurovitzky, 273 Mass. 448, 173 N.E. 503 (1930) (opinion very short and inadequate). See also Elliott v. Kazajian, 255 Mass. 459, 152 N.E. 351 (1926).

Minn.

—Stensgaard v. Smith, 44 N.W. 669, 19 Am. St. Rep. 205 (1890). In Tetrick v. Sloan, 170 Cal. App. 2d 540, 339 P.2d 613 (1959), the defendant gave to the plaintiff broker a writing authorizing him “to negotiate a new lease … on my property,” on stated terms, without time limit. After the broker had contacted several possible lessees but before any agreement on terms or any specific offer by anybody, the defendant gave written notice to the plaintiff revoking his authority. About four months thereafter, the defendant himself leased the property to a company that had been contacted by the plaintiff. The court held that the revocation was effective and that the plaintiff had no right to any commission or compensation. It held that the authority was an offer of a unilateral contract but was not made irrevocable by the broker’s efforts to “negotiate” a lease. The court differentiated a “general listing,” such as this one, from promises by an owner to a broker giving to the latter either an “exclusive agency” or an “exclusive right of sale” for a specified period. In these latter cases, although they too involved an offer of a unilateral contract, the offer would be rendered irrevocable by the broker’s substantial action in reliance.

In Slaughter v. Stafford, 51 Del. 168, 141 A.2d 141 (1958), the owner’s revocation of his broker’s authority to sell land on stated terms was held to be effective if notice was given before the broker actually produced a purchaser on those terms. The revocation was held not to be in bad faith even though the broker produced the purchaser very soon after the notice and even though the owner later sold the property to the same purchaser at a larger price through another broker. The owner had some cause for dissatisfaction with the first broker’s conduct. The “authority” was not in writing, was not “exclusive,” and did not specify the commission. But compare Phs. Van Ommeren Shipping, Inc. v. International Bank, 196 F. Supp. 200 (S.D.N.Y. 1961), a complex case in which the plaintiff, on the defendant’s advice, began work at once and obtained one contract of affreightment but not yet a ship charter. The court said, contra to Restatement, Contracts, § 45, that the offer was revocable as long as the offeree (plaintiff) had not “completed performance.” The plaintiff asserted that it would have found the ships except that it was prevented by the defendant’s refusal to finance. The court holds that this was immaterial for the reason that the defendant was privileged to revoke even after plaintiff’s part performance. This reasoning is not supported by this treatise.

27 Nily Realty v. Wood, 272 Md. 589, 325 A.2d 730 (1974). Nily asked the court to apply the rule of Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917), implying a promise by the broker to use best efforts to sell, so as to make the contract bilateral, and prevent the lister from withdrawing the agency after the broker had gone to trouble and expense to interest a buyer. The court refused because the agency here was not an exclusive agency, unlike the agency in Wood v. Lucy. The court pointed out that the owner might be subject to multiple liability. In this case the owner had listed with nine other brokers and had cancelled them all.

In Rellinger v. Bremmeyr, 180 Mich. App. 661, 448 N.W.2d 49 (1989), the plaintiff-broker learned from a multiple listing service, of which he was not a member, that defendant had certain business property for sale. He produced an offer. The defendant made a counter-offer, giving the plaintiff three days in which to obtain an acceptance. During this period, the vendors obtained an offer, which they accepted, from another party and revoked the counter-offer they had committed to plaintiff. The court ruled that the plaintiff was not entitled to a commission. The broker throughout must have known the highly contingent and competitive situation.

U.S.

—Wood v. Hutchinson Coal Co., 85 F. Supp. 1010 (N.D. W.Va. 1949).

Md.

—Livezy v. Miller, 61 Md. 336 (1883).

Mass.

—Cadigan v. Crabtree, 186 Mass. 7, 70 N.E. 1033 (1904); Livingston v. George McArthur & Sons, 332 Mass. 83, 123 N.E.2d 379 (1954) (revocation in good faith held effective although after indefinite negotiations by the agent with a purchaser who bought much later).

N.Y.

—Sibbald v. Bethlehem Iron Co., 83 N.Y. 378, 38 Am. Rep. 441 (1881).

W.Va.

—Alexander v. Sherwood Co., 72 W.Va. 195, 77 S.E. 1027 (1913).

Compare Roudebush Realty Co. v. Toby, 99 Ohio App. 524, 59 Ohio Op. 421, 135 N.E.2d 270 (1955). The defendant, by a written instrument, gave to the plaintiff an “exclusive agency” for the sale of lots on which the defendant should build houses. The writing stated nothing as to its duration; and no promise by the plaintiff is alleged. Two houses were so built and were sold by the plaintiff. A third house was begun; and for several months the plaintiff “expended time, effort and money in an attempt to sell.” The defendant then wrote saying that if the house was not sold by a stated time, he would terminate the agency. The plaintiff continued efforts after that date and until the defendant gave definite notice of termination. At that time the defendant sold the house to a purchaser not produced by plaintiff. The court held that the plaintiff had a right to a commission of $1,000. The agency was held to be irrevocable for a “reasonable time.” The court said: “By reason of the extensive services of plaintiff, mutuality of consideration is not lacking, and defendant was estopped to revoke the agreement before the expiration of a reasonable time.” In addition the court held that parol evidence was admissible to prove that at the time the writing was executed the defendant had agreed orally that the agency should continue until the property was sold; this was on the theory that the writing was incomplete on its face, since no time or method of termination was stated.

Colo.

—Fender v. Brunken, 534 P.2d 347 (Colo. App. 1975).

Mass.

—In Malloy v. Coldwater Seafood Corp., 338 Mass. 554, 156 N.E.2d 61 (1959), the court held that it was for the jury to say whether or not the defendant’s revocation of the plaintiff’s authority and termination of his agency was “in bad faith” to avoid payment of commissions on sales about to be consummated by reason of plaintiff’s negotiations then in process. The plaintiff was employed to render continuous service as defendant’s broker for the sale of frozen fish for a 5% commission. The plaintiff had approached some large prospective customers, without yet consummating a sale; but the market demand was such that the defendant felt assured that it could obtain this business without employing a broker. It, therefore, gave notice that no commission would be paid on sales to these specified customers. Large sales to them were soon thereafter effected by the defendant.

Minn.

—This treatise (§ 50, 1950 ed.) is cited in Olson v. Penkert, 252 Minn. 334, 90 N.W.2d 193 (1958), holding that although a broker may be entitled to a commission if the broker’s authority is revoked by the owner in bad faith in order to avoid paying, there is no entitlement to a commission if the sale fails of consummation due to a dispute over the commission engendered by the broker.

Mont.

—Associated Agency of Bozeman v. Pasha, 191 Mont. 407, 625 P.2d 38 (1981).

N.J.

—In McCue v. Deppert, 21 N.J. Super. 591, 91 A.2d 503 (1952), property had been “listed” with plaintiff broker for sale at $30,000, commission 5 per cent. Defendant was shown the property by plaintiff. The defendant thereupon sought out the owner and bought the property for $25,000, expressly warranting that no broker was involved. The broker was held to have a remedy in tort.

N.Y.

—In Goodman v. Marcol, Inc., 261 N.Y. 188, 184 N.E. 755, 88 A.L.R. 714 (1933), the dismissal of the agent was to avoid paying the commission, and the land was at once sold through another agent. The court said: “The evidence here is not only sufficient; it strongly impels to the conclusion that the plaintiff was acting within a reasonable time when he submitted the last offer received of $177,500; that his labor to procure the stipulated price of $180,000 was about to prove successful; that he was dismissed from his employment by the defendant, not because a reasonable time had elapsed, but solely that the defendant might save itself from the payment of the customary commissions … . We think that questions of fact arose which required a submission of the case to the jury.”

In Sibbald v. Bethlehem Iron Co., 83 N.Y. 378, 384 (1881), the court said: “Where no time for the continuance of the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith. Usually the broker is entitled to a fair and reasonable opportunity to perform his obligation, subject of course to the right of the seller to sell independently. But that having been granted him, the right of the principal to terminate his authority is absolute and unrestricted, except only that he may not do it in bad faith, and as a mere device to escape the payment of the broker’s commissions.”

SPRE Realty, Ltd. v. Dienst, 2016 NY Slip Op 30186(U), 6–7 (N.Y.S 2d 2016), aff’d 155 A.D.3d 433, 65 N.Y.S.3d (“A broker is entitled to recover a commission where the owner terminates her employment in bad faith, as a mere device to escape payment of the commission … .”).

Okla.

—In Harris v. Conway, 343 P.2d 1069 (Okla. 1959) (the owner sold the property to her son after she knew or had reason to know that the broker had found a ready and willing purchaser. See also Oro Verde Groves, Inc. v. Fuchs, 136 So. 2d 12 (Fla. App. 1962); Air Conditioning v. Harrison-Wilson-Pearson, 250 S.W.2d 274 (Tex. Civ. App. 1952), rev’d, 151 Tex. 635, 253 S.W.2d 422. It is not made clear why the power of the broker had not lapsed by reason of the express time limit set in the original “listing.”

Or.

—Taylor v. Gaudry, 46 Or. App. 235, 611 P.2d 336 (1980); Red Carpet Real Estate of Aloha, Inc. v. Huygens, 270 Or. 860, 530 P.2d 46 (1974).

Wyo.

—Grommet v. Newman, 2009 WY 150, 220 P.3d 795 (2009) (broker was procuring cause, seller acted in bad faith).

30 In Mercantile Trust Co. v. Lamar, 148 Mo. App. 353, 128 S.W. 20 (1910), although the agent made no promise and did not sign, the court said that “it acted under the instrument and advertised the property extensively; this made the agreement bilateral.” The court held a revocation ineffective, if given before the end of the agreed period. See, also, Braniff v. Blair, 101 Kan. 117, 165 P. 816 (1917).

In the case of Stensgaard v. Smith, 43 Minn. 11, 44 N.W. 669 (1890), the defendant signed a written document containing the following language: “In consideration of L.T. Stensgaard agreeing to act as agent for the sale of the property hereinafter mentioned, I have hereby given to said L.T. Stensgaard the exclusive sale, for three months from date … . I further agree to pay said L.T. Stensgaard a commission of two and one-half per cent on the first $2,000, and two and one-half per cent on the balance of the purchase price, for his services rendered in selling [the property].” Stensgaard himself did not sign this document, and in his complaint it was not alleged that he made the promise “to act as agent” that was the stated consideration for the owner’s giving him “the exclusive sale.” Probably such a promise should be implied in fact. Stensgaard at once posted notices on the land, published advertisements, and solicited purchasers. One month later, the defendant sold the property himself, and the agent sued for damages. The court held that there was no binding contract, for lack of consideration. The owner’s promise of a commission was “for his services in selling,” and no sale by plaintiff was ever made. Until such a sale, the court thought the offered promise of a commission to be revocable. The case is disapproved in Braniff v. Blair, 101 Kan. 117, 165 P. 816 (1917).

31 Although this section does not deal with the extent of the broker’s power to bind the principal, or with interpretation of the broker’s written authority, the case of Solana Land Co. v. National Realty Co., 77 Ariz. 18, 266 P.2d 739 (1954) is of interest. The owner signed a standard “listing contract” with the broker, reading: “In consideration of your agreement to list in your office and of your efforts to find a purchaser for the same you are hereby authorized to sell (and are given the exclusive right to sell) … .” The terms of sale were then stated in full. The broker interpreted this as giving him power to bind his principal by contract with the buyer; but the court held otherwise and denied the purchaser a decree for specific performance. Observe that the broker was a real estate broker, not a stock broker and also that the word “listing” was used.

See Bernstein v. Yee Wong, 236 F. Supp. 5 (D.D.C. 1964) where the undisclosed purchaser of realty procured under an exclusive listing sought specific performance after seller refused to accept purchaser’s acceptance. It was held that the exclusive broker could not bind seller to complete sale to any particular purchaser. The question of seller’s liability for the commission was not before the court.

Kan.

—Isern v. Gordon, 127 Kan. 296, 273 P. 435, 64 A.L.R. 391 (1929).

N.Y.

—Thoens v. Kennedy Realty Corp., 279 App. Div. 216, 108 N.Y.S.2d 882 (1951), aff’d, 304 N.Y. 753, 108 N.E.2d 616 (commission not due unless broker shows buyer’s assent).

Tex.

—Sunshine v. Manos, 496 S.W.2d 195 (Civ. App. 1973).

Eng.

—Trollope v. Caplan, [1936] 2 K.B. 382 (C.A.). A broker who fails to produce a buyer on the terms specified has no right to the commission. If the broker asserts that the production of such a buyer was prevented by collusion between the owner and a second broker, the broker must affirmatively prove it. In re Fox’ Will, 126 N.Y.S.2d 158 (Sur. 1953).

This section from a previous edition of this treatise (§ 50, 1950 ed.) is cited in Harding v. Rock, 60 Wash. 2d 292, 373 P.2d 784 (1962), and the analysis made herein is followed in some detail. The defendant listed his property with the plaintiff broker, with the right of exclusive sale until September 26, 1958, promising to pay a 5% commission if a sale should be consummated within 190 days after expiration of the listing with any one with whom the plaintiff had negotiated. The plaintiff produced a purchaser who offered to buy on stated terms, on the express condition that he should be granted a specified “soil bank” contract by the Government. The defendant accepted this offer. The purchaser applied for the “soil bank” contract, but nothing further was done with respect to it. After about 3 months, the defendant sold the property to a third party with whom the plaintiff had not negotiated. The plaintiff sued for the 5% commission. The plaintiff’s purchaser had steadily refused to complete the purchase without fulfillment of the condition, the obtaining of the “soil bank” contract. The court held that the defendant’s action in selling without notifying the plaintiff and giving him the chance to fulfil the condition was a breach of his promise to the plaintiff, for which the latter was entitled to damages. The defendant’s promise to pay the commission was an offer of a unilateral contract, to be accepted only by consummating a sale (and not merely producing a valid contract to sell); but this offer had become irrevocable by the very substantial part performance of the plaintiff. The court cited Restatement, Contracts, § 45. However, the plaintiff had no right to the 5% commission without showing that the condition of the purchaser’s contract to complete the purchase (the “soil bank” contract from the Government) would have been fulfilled except for the act of the defendant in selling to a third party. The plaintiff had offered no evidence on this point; and the case was remanded to determine whether the fulfillment of the condition was in fact prevented by the defendant. The latter asserted that the facts were such that the obtaining of the “soil bank” contract was an impossibility. If this is true, the plaintiff was entitled to merely nominal damages.

In Cone v. Pedersen, 131 Conn. 374, 40 A.2d 274 (1944), the broker was given a right of “exclusive sale” for 60 days. The owner’s revocation, after substantial action by the broker, was held to be a breach of contract; but the broker was denied damages because he failed to show that he could have found a purchaser.

33 In Steele v. Seth, 211 Md. 323, 127 A.2d 388 (1956), a broker was held entitled to his commission even though the owner had revoked his authority before any agreement with the buyer had been consummated. But the broker was held to have been the “procuring cause” of the sale that was consummated by the owner after the revocation. The broker had obtained a down payment; and he was prevented from participating in final negotiations by his discharge and the employment of another broker.

In Galbraith v. Johnston, 92 Ariz. 77, 373 P.2d 587 (1962), the defendant listed his property with the plaintiff broker for sale on stated terms, for an indefinite period “until cancelled in writing.” The listing was “non-exclusive”, and the property was listed with other brokers. The printed-form contract expressly promised a 5% commission for making a sale “or if sold within one year after the expiration of this listing to anyone with whom you had negotiation prior to expiration.” The plaintiff advertised the property and had promising negotiations with Kenworthy. Six weeks after the date of the listing, the defendant gave written notice to the plaintiff and other brokers that the property was taken “off the market.” One month thereafter, the defendant authorized another broker (Paterno) to sell the property, promising to pay him a commission of 5%; and within another month, through Paterno’s efforts, the defendant contracted to sell the property to Kenworthy. On these facts, the court held that it was error for the trial court to hold that the plaintiff could not establish a right to the commission without proving that he was the “producing cause” of the sale. The jury had found that Paterno and not Galbraith was the producing cause. Observe, that the defendant had in express terms promised the commission if the property was sold to [Kenworthy] within one year after the end of the listing period. The printed promissory words are not “ambiguous” to anybody; and the defendant offered no evidence as to their interpretation. Here, the defendant’s offered promise had become irrevocable because it had become a unilateral contract; the plaintiff had rendered the full performance necessary to earn the commission. An actual sale to [Kenworthy] was an express “condition precedent” to the plaintiff’s right to a commission; but it was not a part of the agreed “consideration” for that commission. Observe further, that the court did not render judgment against the defendant; it merely reversed and remanded to the trial court. On the new trial, it would be open to the defendant to show that the promissory words quoted above were not deleted, purely by mistake. The printed form was one prepared for use in an “exclusive” agency. To make it suitable in this case, various other provisions had been crossed out. But if the promise was intentionally left in, it was a binding promise.

In SPRE Realty, Ltd. v. Dienst, 119 A.D.3d 93, 986 N.Y.S.2d 92 (2014), the court held that a fact issue existed over whether the broker was procuring cause of the sale of an apartment, given an 18-month gap between the buyer’s abandonment of the earlier transaction and the buyer’s purchase of another apartment in the same building. On remand, SPRE Realty, Ltd. v. Dienst, 2016 NY Slip Op 30186(U), 6–7 (N.Y.S 2d 2016) aff’d 155 A.D.3d 433, 65 N.Y.S.3d, the court entered summary judgment against the broker because there was no evidentiary support to show a direct and proximate link between the negotiations as to the one apartment and the sale of the other.

34 If the promise to pay commission was clearly conditional on the consummation of performance by a fixed time, the agent’s power ceases at that time in spite of his rendition of substantial part performance theretofore. See Zeimer v. Antisell, 75 Cal. 509, 17 P. 642 (1888).

The same is true where the limitation was a reasonable time which expires before consummation of the required performance. Livezy v. Miller, 61 Md. 336 (1883); Cadigan v. Crabtree, 186 Mass. 7, 70 N.E. 1033 (1904); Sibbald v. Bethlehem Iron Co., 83 N.Y. 378, 38 Am. Rep. 441 (1881).

The power of the broker may be extended by the principal’s mere assent. Baker v. Curtis, 105 Cal. App. 2d 663, 234 P.2d 153 (1951); Pyles v. Cole, 34 Tenn. App. 601, 241 S.W.2d 841 (1951). Comment c to Restatement (Third) of Agency, § 8.13 includes the following:

The “procuring cause” question is relevant … to claims for commissions due under sales-representation agreements when the representative is discharged prior to the culmination of a sale but after the agent has completed everything necessary to procure the sale. Regardless of context, it is the agent’s burden to show that the agent’s efforts procured the sale.

In some states, statutes govern issues that arise under compensation agreements between sales representatives and principals. In particular, a principal may be subject to liability for double or triple damages when the principal fails to pay commissions within a stated period of time following termination of the relationship.

Restatement (Second) of Agency, § 454, reads as follows: “An agent to whom the principal has made a revocable offer of compensation if he accomplishes a specified result is entitled to the promised amount if the principal in order to avoid payment of it, revokes the offer and thereafter the result is accomplished as a result of the agent’s prior efforts. The philosophy of Restatement (Third) of Agency differs by dispensing with the bad faith element. See Restatement (Third) of Agency, § 8.13 Reporters Notes a.

The language of the first Restatement of Agency—which was very similar to the Second Restatement—is quoted and applied in Tahir Erk v. Glenn L. Martin Co., 116 F.2d 865 (4th Cir.1941), and Potomac Chem. Co. v. Chapman, 146 F.2d 664 (1944), cert. denied, 324 U.S. 881 (1945). It is quoted and rightly distinguished in Ullmann v. May, 147 Ohio St. 468, 34 Ohio Op. 384, 72 N.E.2d 63 (1947), and Wood v. Hutchinson Coal Co., 85 F. Supp. 1010 (N.D. W. Va. 1949).

In Landow-Luzier Co. v. Grey, 34 Misc. 2d 1061, 232 N.Y.S.2d 247 (1962), defendant was alleged to have acted in bad faith in acquiring the property through another broker in order to profit by plaintiff’s efforts without paying for them. The court cited Williams & Co., Inc. v. Collins, Tuttle & Co., 6 A.D.2d 302, 176 N.Y.S.2d 99 (1958), appeal denied, 6 A.D.2d 1006, 178 N.Y.S.2d 212. The court there had said that “for a broker to state a cause of action sufficient to avoid dismissal, he is not required to establish that he would inevitably have been successful but for the wrongful acts of the defendant.” See also §§ 26.15.

In Sandler v. Denston, 183 A.2d 392 (D.C. 1962), the plaintiff broker had an “exclusive listing” of the defendant’s property for 90 days, at the price of $13,000. In disregard of this, the defendant sold the property through another broker. The plaintiff had already “sought purchasers and showed the property to at least three interested persons. We have held previously that when a broker uses reasonable efforts to locate a purchaser, this constitutes consideration to effect a mutual contract.” The court gave judgment for 5% of $13,000, the defendant not having shown that the property was sold for less (or any other facts in mitigation of damages). It is not stated that the broker made any promise. If he did, the promise was the consideration, and if he did not, the broker’s “reasonable efforts” to effect a sale were sufficient to make the “exclusive listing” an irrevocable offer to a unilateral contract.

35 See Mansfield v. Smith, 88 Wis. 2d 575, 277 N.W.2d 740, 12 A.L.R.4th 1069 (1979). A liquidated damages clause drafted by broker allowed for zero dollars under the facts. In the absence of this clause, the broker would have been entitled to $15,000.

36 Associated Agency of Bozeman, Inc. v. Pasha, 191 Mont. 407, 625 P.2d 38 (1981).

In Jameson Realty Group v. Kostner, 286 Ill. Dec. 431, 813 N.E.2d 1124 (App. Ct. 2004), the defendant agreed to give the plaintiff an exclusive one-year agency to sell condominium units for a commission of five percent. A liquidated damages clause provided that the plaintiff would receive this commission if its authority was revoked or if the property was withdrawn from the market during the period of the agency. Five and one-half months later after four units had been sold and thirteen remained unsold, the defendant terminated the agreement. The circuit court found the clause to be enforceable. On appeal, the instant court recognized that, assuming the usual requirements as set forth in the Restatement (Second) of Contracts, § 356 (Am. Law Inst. 1981) are met, such clauses are generally enforced in contracts for the purchase and sale of real estate. It found no precedent in Illinois, however, for the enforcement of such clauses in real estate brokerage contracts. Following case law in other jurisdictions, the court concluded that, though real estate contracts involve the exchange of property, while real estate brokerage agreements are contracts for services, there was no reason to treat a liquidated damages clause in such a contract differently. The court found the instant clause to be clear and unambiguous. The defendant had argued that it failed to specify the dollar amount of damages, but the court pointed to a list of asking prices for each unit that was explicitly referenced in the agreement and concluded that the plaintiff was entitled to 5 percent of the asking prices. The defendant claimed that the damages set forth in the clause did not bear any relationship to the damages that might be sustained since it assumed that the plaintiff would have succeeded in selling all of the units during the contract period and would, therefore, receive a “windfall” if the clause were enforced. The instant court disagreed in holding that the clause simply provided the plaintiff with what it would have received had it been afforded an opportunity to sell all of the units. The defendant’s “windfall” argument supported the validity of the clause in the court’s view since it demonstrated the uncertainty in calculating damages at the time the contract was formed. The court upheld the circuit court’s decision that the clause was enforceable.

37 Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 236 A.2d 843, 30 A.L.R.3d 1370 (1967).

38 50 N.J. at 547, 236 A.2d at 853.

39 Followed in Donellan v. Rocks, 22 Cal. App. 3d 925, 99 Cal. Rptr. 692 (1972), where, however, the buyer had retained the broker. Also in Clark v. Wright, 699 S.W.2d 174 (Tenn. App.1985). Rejected in Professional Realty v. Bender, 216 Va. 737, 222 S.E.2d 810 (1976).

U.S.

—In re L.D. Patella Constr. Corp., 23 Collier 2d 315, 114 B.R. 53 (D.N.J. 1990).

Conn.

—Potter v. Ridge Realty Co., 259 A.2d 758, 28 Conn. Sup. 304 (1969) (it was the broker’s burden to show that the purchaser was financially able to perform).

Idaho

—Margaret H. Wayne Trust v. Lipsky, 123 Idaho 253, 259–60, 846 P.2d 904 (Idaho 1993); In re Anderson, 558 B.R. 369, 373 (Bankr. D. Idaho 2016).

Iowa

—Mullenger v. Clause, 178 N.W.2d 420 (Iowa 1970). The contract was conditioned on buyer’s obtaining financing, which the buyer was unable to get. Under any view of the matter, the broker had not rendered the performance of finding a willing and able buyer.

Kan.

—Winkelman v. Allen, 214 Kan. 22, 519 P.2d 1377 (1974), adopting in dictum the entire quotation from Ellsworth Dobbs in the text. The holding is merely that the broker cannot establish a claim to a commission without proving the financial ability of the prospective purchaser. It is not enough to show that the purchaser’s father would gratuitously pledge his credit on behalf of his son.

Mass.

—Tristram’s Landing, Inc. v. Wait, 367 Mass. 622, 327 N.E.2d 727 (1975). The court construed the broker’s contract rights to a commission to be conditional on the sale of the property. Nevertheless, it stated: “We believe, however, that it is both appropriate and necessary at this time to clarify the law, and, we now join the growing minority of states who have adopted the rule of Ellsworth Dobbs, Inc. v. Johnson … .” 327 N.E.2d at 730. It was subsequently held that a broker does not earn a commission if the seller refuses to enter into a binding contract with the buyer who has agreed to meet the seller’s terms. Capezzuto v. John Hancock Mut. Life Ins. Co., 394 Mass. 399, 476 N.E.2d 188 (1985). This seems an unwarranted extension of the protection given to sellers under the Ellsworth Dobbs rule. See also Coldwell Banker / Hunneman v. Shostack, 62 Mass. App. Ct. 635, 818 N.E.2d 1079 (2004).

Neb.

—Cornett v. Nathan, 196 Neb. 277, 242 N.W.2d 855 (1976) (buyer defaulted because of financial inability; commission was not earned).

N.Dak.

—Goetz v. Anderson, 274 N.W.2d 175 (N.D. 1978) (entry into a contract of sale does not estop the vendor from challenging the broker on the question of the financial ability of the buyer to complete the purchase).

Or.

—Brown v. Grimm, 258 Or. 55, 481 P.2d 63 (1971) (the broker could not recover where the trial record shows no evidence of the buyer’s financial ability to make the purchase).

Vt.

—Osler v. Landis, 138 Vt. 353, 415 A.2d 1316 (1980); Staab v. Messier, 128 Vt. 380, 264 A.2d 790 (1970) (the broker has the burden of showing the buyer’s financial ability, successfully met in the first case but not the second).

Eng.

—Lord Denning’s opinion in Dennis Reed, Ltd. v. Goody, [1950] 2 K.B. 277, 1 All E.R. 919 (1950), was very influential in the reasoning of the Ellsworth Dobbs Court.

See Annot., Modern View as to Right of Real Estate Broker to Recover Commission from Seller-Principal where Buyer Defaults Under Valid Contract of Sale, 12 A.L.R.4th 1083.

Strangely enough, defendant vendors who had refused to sell to willing and able buyers have invited the court to apply Ellsworth Dobbs, obviously misunderstanding its thrust. Bennett v. McCabe, 808 F.2d 178 (1st Cir. 1987); Drake v. Hosley, 713 P.2d 1203 (Alaska 1986); Drake v. Conkling, 129 N.H. 660, 531 A.2d 333 (1987).

41 This conclusion was resisted in Dixon v. Betten, 2 Ill. App. 3d 708, 277 N.E.2d 355 (1971). The court stated that the broker had exerted no efforts. It might logically have found a bilateral contract that was cancelled for material breach. See Mark Realty, Inc. v. Rogness, 418 So. 2d 373, 375 (Fla. App. 1982), where the court characterizes the contracts as bilateral and remands for a finding whether they had been materially breached by the broker, justifying the owner’s actions of selling the properties without liability to the broker.

Ala.

—Conway v. Matthews, 37 Ala. App. 513, 70 So. 2d 827 (1954) (broker had no right to a commission where his production of a purchaser was after the owner had himself consummated the sale).

Colo.

—Lambert v. Haskins, 128 Colo. 433, 263 P.2d 433 (1953) (“sole and exclusive agent” to sell property on stated terms for a commission, for two months, owner had privilege of selling during that time).

Mass.

—Bradley v. Donahue, 343 Mass. 774, 178 N.E.2d 871 (1961) (independent sale by owner, broker no right to commission).

N.Y.

—Levy v. Isaacs, 285 A.D. 1170, 140 N.Y.S.2d 519 (1955), mot. to resettle denied, 286 App. Div. 855, 143 N.Y.S.2d 642 (exclusive agency to sell; but no right to a commission or to damages if the owner himself effected a sale without the broker’s aid).

Tex.

—Baker v. Skipworth, 244 S.W.2d 299 (Tex. Civ. App. 1951) (exclusive agency but not “exclusive right to sell.”).

Eng.

—Prickett v. Badger, 1 C.B. (N.S.) 296.

In Ballard v. Tingue Mills, 128 F.Supp. 683 (D. Conn. 1954), the court said: “Here the plaintiff’s agency to procure Government contracts was an exclusive agency. There is utterly nothing in the facts to justify the inference that the defendant delegated to the plaintiff an exclusive right or power to secure Government contracts. By granting an exclusive agency the defendant promised only that in securing Government contracts the plaintiff should be free from competitive endeavor by other agents of the defendant: the defendant was not itself precluded from competing with the plaintiff for the achievement of that objective.”

In Hammond v. C.I.T. Financial Corp., 203 F.2d 705 (2d Cir. 1953) the contract between broker and owner was found to be bilateral, the owner expressly promising exclusive sale to the broker impliedly promising to work intensively and to handle the matter with the utmost discretion.

In Shorten v. Mueller, 206 Okl. 62, 241 P.2d 187 (1952), an owner listed his property with an agent for a specified period and promised to pay a commission if the property should be sold, within three months after expiration of the period of listing to any buyer with whom the broker had negotiated. The owner was privileged to sell to any other buyer, or to sell to the broker’s prospect after the expiration of three months unless the delay was “in bad faith.”

Tex.

—In McDonald v. Davis, 389 S.W.2d 494 (Tex. Civ. App. 1965), the owner withdrew the property from an exclusive sale agency before the expiration of the sale period. There was no evidence of a subsequent sale. A directed verdict for the owner was reversed, the court remanding for trial on the issue of the plaintiff’s damages, which prima facie were the amount of the agreed upon commission.

Wash.

—Seattle Investment Co. v. Kilburn, 5 Wash. App. 137, 485 P.2d 1005 (1971). The Kilburns gave Seattle an exclusive listing, but then revoked it. They asked the court to rule Seattle’s recovery could only be in quantum meruit, apparently thinking that Seattle had done nothing of value. The court gave damages based on the broker’s expectancy interest, citing this section from a previous edition of this treatise (§ 50, 1963 ed.) for the proposition that the Kilburns could withdraw Seattle’s authority to sell, but could not revoke the “offer” as the exclusive listing was a bilateral contract.

Cal.

—Edens v. Stoddard, 126 Cal. App. 2d 56, 271 P.2d 610 (1954) (printed words giving him the “exclusive sale” had been stricken out by the owner before signing); Harcourt v. Stockton Food Products, 113 Cal. App. 2d 901, 249 P.2d 30 (1952) (an “exclusive agency,” the principal held to have privilege of selling his goods direct to buyers).

Del.

—Matas v. Green, 53 Del. 473, 171 A.2d 916 (1961) (several brokers were authorized to offer defendant’s property for sale, owner remained privileged to sell).

Fla.

—Nicholas v. Bursley, 119 So. 2d 722, 88 A.L.R.2d 929 (Fla. App. 1960) (an “exclusive agency to sell” not an “exclusive right to sell.”).

Eng.

—Simpson v. Lamb, 17 C.B. 603 (1856); Bentall, H. & B. v. Vicary [1931] 1 K.B. 253.

In Neece v. A.A.A. Realty Co., 159 Tex. 403, 322 S.W.2d 597 (1959), the issue was whether an agency contract, signed by the owner, created an “exclusive agency” or a mere “open” agency. The contract (a printed form) had two printed headings: “Open Listing Agreement” and “Exclusive Listing Agreement.” The first of these two headings was stricken out. The owner had sold the property, through another agent, to a person who had never been listed by the plaintiff even as a “prospect.” It was held by a divided court that the jury was justified in finding that the owner reasonably understood the words of the contract as creating a mere nonexclusive agency. The court’s discussion (and that of the dissenters) deals chiefly with “interpretation” and “ambiguity.”

A shipbroker negotiated a charter-party for a specified period, being promised a commission of 2½ per cent on hire paid and earned under it. The court held that the owner was privileged to sell the ship during that period and was not bound to pay a commission after such sale. French & Co. v. Leeston Shipping Co., [1922] 1 A.C. 451.

U.S.

—Arthur H. Richland Co. v. Harper, 302 F.2d 324 (5th Cir. 1962) (broker’s right to a commission was dependent on whether he was given an “exclusive right to sell” or a “mere exclusive agency to sell.”).

Ind.

—Brown v. Maris, 128 Ind. App. 671, 150 N.E.2d 760 (1958) (“the exclusive right to sell” land for a period of 7 months, with promise of commission of 5% if during that time the land should be sold “through you or otherwise.”).

Iowa

—A contrarian position was taken in Stromberg v. Crowl, 257 Iowa 348, 132 N.W.2d 462 (1965) (“an exclusive right to sell” contract impliedly reserves to the owner a right to sell the property without paying a commission therefor).

Mass.

—Des Rivieres v. Sullivan, 247 Mass. 443, 142 N.E. 111 (1924) (“exclusive agency” only). Cf. Bartlett v. Keith, 325 Mass. 265, 90 N.E.2d 308 (1950).

Mich.

—Ladd v. Teichman, 359 Mich. 587, 103 N.W.2d 338 (1960).

Mo.

—South Side Realty Co. v. Hamblin, 387 S.W.2d 224 (Mo. App. 1964). An exclusive right to sell contract was treated as a bilateral contract because it was made as part of a prior sale by broker to seller of the land in question and because the court found an implied promise by broker to make efforts to sell the lots. Exclusive right to sell was taken to mean that broker receives a commission no matter who makes the sale.

Ohio

—Bell v. Dimmerling, 149 Ohio St. 165, 36 Ohio Op. 505, 78 N.E.2d 49 (1948).

R.I.

—DeFelice Realtors, Inc. v. Delfino, 504 A.2d 1007 (R.I. 1986). Connors v. Dagiel, 88 R.I. 113, 143 A.2d 297 (1958) (“Exclusive Right To Sell” the defendants’ property for $11,800 and that he should have a right to a commission if the property should be sold by the defendants or by any person other than the plaintiff, owner’s sale for $11,000 was not a breach).

Tex.

—Ferree v. De Ely, 265 S.W.2d 860 (Tex. Civ. App. 1954) (broker was given an “exclusive agency,” but the owner remained legally privileged to make his own sale).

Cf. Roberts v. Harrington, 168 Wis. 217, 169 N.W. 603 (1918).

In Cone v. Pedersen, 131 Conn. 374, 40 A.2d 274 (1944), the owner gave to the broker “the sole and exclusive right to sell for the period of 60 days” and promised to pay a commission of 7½ per cent in case of a sale made by the agent, the owner, or any third person during that period. The owner’s notice of revocation was held to be wrongful; but no damages were awarded because the broker failed to show that he could have found a purchaser.

In Harris v. McPherson, 97 Conn. 164, 115 A. 723, 24 A.L.R. 1530 (1922), the owner signed the following document: “This is to certify that on this date I have given to M.S. Harris the exclusive sale of my property … for the sum of $8,000, and do agree to pay the said M.S. Harris 5% of the purchase price at transfer of deed.” The owner sold the property within a few days and notified the agent, after the latter had already rendered substantial services. The court held that by giving “exclusive sale” the owner promised not to make a sale himself, and that the efforts of the agent to find a purchaser constituted a sufficient acceptance, binding the owner not to revoke for a reasonable time.

In Stewart-Warner Corp. v. Remco, 205 F.2d 583 (7th Cir. 1953), a distributor of radio sets was given exclusive rights of sale within a stated territory except under “special circumstances.” A closing-out sale of obsolete sets by the manufacturer for resale to “premium” houses other than regular dealers was held to be no breach.

In Mattingly v. Bohn, 84 Ariz. 369, 329 P.2d 1095 (1958), a contract granting an “exclusive” agency was broken by the owner’s making a sale through another agent. The court held that it was not error to award damages measured by the amount of the agreed commission even though the plaintiff broker had actually produced no purchaser. Sale through another agent had prevented the fulfillment of the condition precedent. Apparently, no question was raised on appeal as to the plaintiff’s ability to produce a purchaser within the time limited or as to whether the production of such a purchaser would have involved expense that has been avoided.

In Potts v. Thompson, 61 N.J. Super. 424, 161 A.2d 284 (1960), an owner who had authorized a broker to find a purchaser on stated terms was also legally privileged to negotiate a sale himself on such terms as he wished. Immediately after the owner had made an oral contract to sell the property and before it was reduced to writing, the broker produced a purchaser on the stated terms. The broker was held not entitled to a commission. The owner’s oral contract was not void; and the broker, a third party, had no right that the owner should repudiate his contract even though the statute would have been a good defense if he had done so.

46 Pa.—United Mercantile Agencies v. Slotsky, 107 Pa. Super. 467, 164 A. 349 (1933) (probably an unusual case).

47 Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977).

48 Baumgartner v. Meek, 126 Cal. App. 2d 505, 272 P.2d 552 (1954).

49 In Flynn v. McGinty, 61 So. 2d 318 (Fla. 1952), the defendant gave to a broker the “exclusive right to sell” and promised to pay a commission in case a sale should be made by the broker or otherwise. The writing began, “In consideration of your endeavor to procure a purchaser.” The broker inserted an advertisement costing $2; but it was not seen. The next day the defendant made his own sale. The court held that the broker gave sufficient consideration and had a right to the commission.

In harmony with Flynn v. McGinty, supra, see Brown v. Maris, 128 Ind. App. 671, 150 N.E.2d 760 (1958), following Singleton v. O’Blenis, 125 Ind. 151, 25 N.E. 154 (1890).

50 See Moss v. Warns, 245 Wis. 587, 15 N.W.2d 786, 156 A.L.R. 598 (1944).

In Bonn v. Summers, 249 N.C. 357, 106 S.E.2d 470 (1959), the defendant, in writing, gave to the plaintiff an exclusive right to sell certain land on stated terms, “for a period of three months from date of the agreement and thereafter until the agreement should be revoked by ten days’ notice in writing.” About four months later the plaintiff produced a purchaser able and willing to purchase on the specified terms. The defendant refused to sell. The court held that the plaintiff had a right to the promised commission. No notice of revocation had been given, and the broker’s power of acceptance continued. The purchaser offered cash in full on delivery of deed, instead of part cash and part on mortgage, the original terms; but the defendant’s refusal to sell was not for that reason. Cf. Sterk & Vogel v. Kuzee, infra n. 51.

Kaufmann v. Nilan, 207 Cal. App. 2d 1, 24 Cal. Rptr. 225 (1962). The owner refused to convey to the purchaser procured by the agent merely because she had “changed her mind,” with no reference to any variation between the purchaser’s offer and the owner’s authorization to the broker. The supposed “variation” might have justified the owner’s refusal to accept the purchaser’s “offer”; but the broker’s work was so nearly completed that the owner’s flat refusal to sell should be regarded as an unjustified prevention of the broker’s completion of the performance necessary to earn the promised commission.

Ala.

—Ar-Con Bldg. Specialties, Inc. v. Famco, 480 F.2d 162 (5th Cir. 1973). Plaintiff was defendant’s exclusive agent in certain counties. Plaintiff produced a buyer for defendant’s products who agreed to buy, contingent on approval of its architect. The architect required a bond that seller was unable to get. A directed verdict for the plaintiff was reversed.

Ariz.

—Bishop v. Norell, 88 Ariz. 148, 353 P.2d 1022 (1960). In Diamond v. Haydis, 88 Ariz. 326, 356 P.2d 643 (1960), the defendant listed property with the plaintiff broker for sale on specified terms for cash. The broker produced a purchaser ready and willing to pay part cash and part by a note to be discounted by a third party. The defendant and the purchaser executed a “Purchase Contract and Receipt” in which the defendant agreed to convey the property on these terms, but expressly conditional on the third party’s discounting the purchaser’s note by assignment from the defendant “without recourse.” This condition was never fulfilled, since the third party required the defendant’s regular indorsement. The defendant refused to convey. The court held that the broker was not entitled to the commission, saying that “no binding contract was ever consummated between the purchasers and the sellers.” The decision is correct, even though the “Purchase Contract and Receipt” was exactly what it purported to be—a binding contract. It was merely a contract by which the seller was conditionally bound, the condition being the discount by the third person of the purchaser’s note to the seller indorsed “without recourse.” But this contract of purchase and sale, irrevocable though it was, was not a contract on the execution of which the broker was entitled to his commission. After signing the “Purchase Contract,” no party thereto had any power of revocation, and no party’s assent would have been necessary to enforcement. What was necessary was the third party’s payment of cash for the note, assigned to him “without recourse.” Had this condition been fulfilled, the condition of the broker’s right to the commission would also have been fulfilled. On the facts existing, neither condition was fulfilled. The case is consistent with the Ellsworth Dobbs doctrine discussed at notes 37–40 above.

Cal.

—In Williams v. United California Bank, 223 Cal. App. 2d 309, 35 Cal. Rptr. 788 (1963), the plaintiff broker negotiated a lease of property in which the lessor gave to the lessee an option to buy for $500 per acre cash. The broker received no commission, but both in a written contract with the broker and in the lease with option the lessor promised to pay the broker a commission of 6% “in the event the option is exercised hereunder.” The lease and option were assigned to Island Farms. The defendant bank, representing the estate of one of the lessors tried in good faith to induce Island Farms to exercise the option and failed. Later, the property was sold to Island Farms for $350 per acre on terms. The court held that the broker had no right to a commission, the express condition precedent not having occurred.

Ill.

—Nardi, Pain & Podolsky, Inc. v. Vignola Furniture Co., 80 Ill. App. 2d 220, 224 N.E.2d 649 (1967) (purchaser’s written offer omitted an oral condition subjecting contract to seller’s obtaining a mortgage for the acquisition of new property).

Mich.

—In Sterk & Vogel v. Kuzee, 334 Mich. 249, 54 N.W.2d 219 (1952), it was held that the broker had not earned a commission by producing a buyer willing to pay cash when the terms of sale specified by the owner provided for a definite credit period with interest. The element of profitable investment is material. Cf. Bonn v. Summers, supra n. 50.

N.H.

—Bell v. Warren Development Corp., 114 N.H. 267, 319 A.2d 299 (1974).

Va.

—In Rotella v. Lange, 202 Va. 575, 118 S.E.2d 516 (1961), the defendant listed a restaurant business with plaintiff, promising to pay a commission of 10% if plaintiff found a purchaser at $9,000 cash. The plaintiff produced a buyer at $9,000 cash, conditional on the buyer’s obtaining an A.B.C. license, a health permit, and a 5-year lease on the building. The defendant rejected the offer, giving no reason. The court held that the broker was not entitled to a commission.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.31 »

1 Corbin on Contracts § 2.31 (2020)

§ 2.31. Effect of Action in Reliance That Is Not Part Performance

There are cases holding that action by the offeree in reliance on the offered promise does not make it irrevocable if such action is not part performance of the exchange requested by the offeror. Expense incurred in preparation to render the requested performance or in investigating whether or not it is desirable to accept the offer are, under these holdings, not sufficient to prevent effective revocation or to make a revocation wrongful.1 But the courts hold that a promise is made enforceable by substantial and definite action in reliance, if that action is reasonable and that the promisor had reason to foresee it as the result of the promise. Surely, one who offers a promise in return for a requested performance in exchange has reason to foresee that the offer may cause part performance.2 The offeror may equally foresee that the offeree will make expenditures in preparation to render the requested performance. In many such cases, the offer should be held to have become irrevocable, as that term is explained herein. In order to make a promise binding, action in reliance should not have to be part of a requested consideration. Indeed, promises to make a gift, where no consideration of any kind is contemplated, may become enforceable by reason of action in reliance upon them.3 The approach discussed here is codified in the United Nations Convention on Contracts for the International Sale of Goods, § 16(2)(b), which provides: “[A]n offer cannot be revoked: … if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.”4

If the action by the offeree is not part performance of the requested consideration and also is not such action as the offeror had reason to foresee as the result of the offer, it will not make the offer irrevocable in any sense. One who makes an offer to a contract normally has no reason to foresee that the offeree will take any action or inaction in reliance upon the offer, other than part performance of an act requested by the offeror.5

Often, however a subcontractor (or supplier) may submit a bid to a general contractor for the purpose of the latter’s using it, as the bidder knows or hopes, in determining the amount of a bid to be made on a larger general contract. When made, the bid is, of course, a revocable offer, but after the subcontractor’s bid has been so used, and the general contractor’s bid has been accepted, binding the general contractor to perform in accordance with it, many cases have held that the bid has become irrevocable even though the subcontractor has as yet received no notice of acceptance.6 The facts of these cases are not identical and must be weighed separately in determining the just decision.7 The fact that the subcontractor’s bid is oral (often by telephone) does not diminish the reasonableness of the general contractor’s reliance.8

Because there is no requirement of mutuality of obligation, it does not follow that the subcontractor whose bid has been used in calculating the general contractor’s bid can hold the general contractor to contractual liability.9 Use of the bid is not an acceptance. A request for bids is not a commitment to accept the lowest bid.10 This one-sided relationship puts the general contractor in a position of dominance. For this reason, it is generally agreed that the general contractor cannot, after being awarded the contract, reopen the bidding with the subcontractors to chisel down the bids, while at the same time maintaining that the low-bidding subcontractor remains liable.11 Terms of opprobrium such as bid shopping and bid chiseling are used to label such conduct. Moreover, the offer, although irrevocable, remains open only for a reasonable time. In addition, the general contractor who unduly delays notifying the subcontractor of acceptance cannot bind the subcontractor.

An illustrative case is Complete Gen. Constr. Co. v. Kard Welding, Inc.12 To prepare a general contractor’s bid on a highway project, Complete solicited quotes from subcontractors including Kard, which faxed a quote constituting an offer for structural steel stating that it was firm for 30 days and was made expressly conditional on Complete’s assent to Kard’s terms and conditions. Complete relied on Kard’s offer in making its bid on the project and was awarded the contract. Though it was Complete’s general practice to issue its purchase order to the lowest bidding subcontractor in such a situation, it departed from this practice by sending Kard a sheet containing Complete’s terms and conditions with a letter stating that these terms and conditions would be part of a forthcoming purchase order, replacing Kard’s terms and conditions in its original quote. Kard, however, did not accept these changed terms and conditions, and Complete never issued a purchase order to Kard. When Kard issued a revised quote with an increased price in exchange for Kard assuming certain liabilities under Complete’s proposed terms and conditions, Complete contracted with another supplier of structural steel at a higher price than Kard’s original quote and brought this action for breach of contract against Kard.

Pursuant to a magistrate’s findings, the lower court ruled in favor of Kard. On appeal, the instant court reviewed the application of promissory estoppel to offers by subcontractors in the context of the “seminal case” of Drennan v. Start Paving Co. While approving the Drennan analysis, the court emphasized that neither Drennan nor the many cases following it held that the general contractor’s reliance on the subcontractor’s bid constitutes acceptance of an offer creating enforceable contract. The court explained Drennan’s requirement that the general contractor may not delay acceptance of the subcontractor’s offer by negotiating for different terms. Citing Restatement (Second) of Contracts § 59, the court noted that Complete’s substitution of its terms for the terms in Kard’s original offer suggests a counteroffer (“a reply to an offer that purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but a counter offer.”) Despite Complete’s claimed reliance on Kard’s original quote, while never accepting that original bid, Complete also resumed negotiations with other subcontractors regarding the structural steel subcontract. The court quoted Corbin’s explanation in this section (§ 2.31, 1993 ed.) of the general agreement that a general contractor cannot claim reliance on a subcontractor’s bid while simultaneously reopening the bid with other subcontractors.

The general contractor’s reliance on nothing more than an estimate will not generally be reasonable,13 nor can the general contractor rely on a bid that is so palpably low as to indicate that it was based on a mistake.14 In short, the reliance must be reasonable.15

The Restatement (Second) of Contracts § 87(2) states a rule of far broader scope than the subcontracting cases. It provides: “An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.” In Spitzli v. Guth,16 a landowner gave a lessee an “option,” without consideration, to purchase real property on specified terms. In reliance on the offer, the lessee expended—as the lessor knew the lessee was planning to expend—some $5,000 in making improvements on the land. The lessor’s attempt to revoke the offer was ineffective. Although the court purported to find consideration, it is quite clear that the irrevocability of the offer was a consequence of the heavy expenditures in reliance upon the offer.17 The very term “option” creates a reasonable expectation of irrevocability. Consideration, in the context of option contracts, is merely an obsolescent historical blot on our legal system. The buyers had a reasonable belief the offer was irrevocable, as the seller should have known.

In Coffman Industries, Inc. v. Gorman-Taber Co.,18 a general contractor defaulted and a surety company began to pay suppliers and subcontractors. The surety refused to pay Gorman-Taber, a subcontractor, because it had refused to pay for some goods received from Coffman, a supplier, that had been damaged in transit. The surety, however, promised to pay Gorman-Taber when and if it arranged a settlement with Coffman, which had sued Gorman-Taber, the general contractor, and the surety. The claim was settled by payments made to Coffman by Gorman-Taber and the insurer of a common carrier. However, before the settlement was made final, the surety purported to revoke its offer to pay Gorman-Taber, its obligation on the bond having expired by the passage of time. The court held the offer to be irrevocable. While it cited a previous edition of this treatise and § 45 of the Restatement of Contracts dealing with part performance under an offer to a unilateral contract, it clearly recognized that reliance on the offer was the thrust of its rationale for finding the offer irrevocable.

In American Handkerchief Corp. v. Frannat Realty Co.,19 a lessor signed a document (without consideration) purporting to give the tenant an option to renew, on stated terms, “in the event of a bona fide and approved sublease by the tenant.” In reliance on this, the tenant secured a subtenant for part of the building, but failed to notify the lessor of this or to obtain the lessor’s approval. The court held that the lessor’s notice of revocation was effective, citing the predecessors to §§ 2.29–2.31 of this treatise (§§ 49–51 from a prior edition). The court wrote: “[T]he defendant had no reason to expect that the plaintiff would enter into a binding sublease prior to obtaining its approval of the new subtenants and subleases, so it cannot be said that the plaintiff’s change of position here made the offer irrevocable.” Moreover, even if the option had been accepted, the right to a renewal was expressly conditional on the lessor’s approval, a condition that was not fulfilled. The decision is consistent with Restatement (Second) of Contracts, §§ 45, 87(2) and 90 (Am. Law Inst. 1981).

At times, courts have indulged in a fiction that action in reliance on, or part performance of, an offer creates an implied promise by the offeree making the relationship a bilateral contract. Realizing that it is inequitable to allow an offeror to revoke after part performance by the offeree, but supposing that neither party can be bound unless both parties are bound, courts have been very ready to find that the rendering of part performance is an acceptance that implies a promise to perform the balance.20 The contract so made is then described as bilateral, so that a subsequent notice of revocation is too late to be effective. If the implication of a return promise by the offeree is reasonable and in accord with the terms of the offer, the reasoning and decision of the court are not open to criticism.21 But it may be that the implication of such a promise is a pure fiction and solely for the purpose of holding revocation to be ineffective. To indulge in such a fiction when it is contrary to the fact is wholly unjustifiable unless the result of it is one that ought to be reached without it. In the present instance the result is desirable and correct. However, it is the part performance or other action in reliance that makes the offer irrevocable and not the fictitious promise of the offeree to render the requested performance. The fiction is one of many fallacies that derive from the attempt to force all of contract law into the mold of promise.

Footnotes — § 2.31:

U.S.

—Sucrerie Central Coloso v. Fajardo, 248 F. 432 (1st Cir. 1918).

In re Eubanks, 1994 U.S. Dist. LEXIS 17204 (E.D. La. Nov. 29, 1994).

Ill.

—Corbett v. Cronkhite, 239 Ill. 9, 87 N.E. 874 (1909) (expense incurred, and offer under seal).

Iowa

—An order for goods is not made irrevocable by the fact that the offeree paid the soliciting agent a commission on the order, when offeree had neither shipped the goods nor started a notice of acceptance. Doll & Smith v. A. & S. Sanitary Dairy Co., 202 Iowa 786, 211 N.W. 230 (1926).

N.Y.

—Ganss v. Guffey Petroleum Co., 125 App.Div. 760, 110 N.Y.S. 176 (1908).

Ohio

—Ribovich v. Miele Bros. Enters., 1999 Ohio App. LEXIS 5711 (Dec. 2, 1999); Bretz v. Union Central Life Ins. Co., 134 Ohio St. 171, 11 Ohio Op. 587, 16 N.E.2d 272 (1938).

Tex.

—Texas Co. v. Dunn, 219 S.W. 300 (Tex. Civ. App. 1920) (one to whom land was offered paid $25 for examination of title).

Vt.

—Ragosta v. Wilder, 156 Vt. 390, 592 A.2d 367 (1991) (preparation to perform is not part performance).

Wash.

—Bel Air v. 1st Sec. Bank of Wash., 2014 Wash. App. LEXIS 776 (April 7, 2014) (preparation to perform is not enough to constitute part performance); Brown Brothers Lumber Co. v. Preston Mill Co., 83 Wash. 648, 145 P. 964 (1915).

2 See § 2.29, 2.30.

3 Restatement (Second) of Contracts § 90 (Am. Law Inst. 1981).

See McPhail v. L.S. Starrett Co., 257 F.2d 388 (1st Cir. 1958), where the defendant gave a stock purchase option to its employees on favorable terms, requesting no agreed equivalent, but hoping for and receiving continuance in service by the employees in reliance on the promise.

In Ray-Hof Agencies, Inc. v. Petersen, 123 So. 2d 251 (Fla. 1960), the plaintiff received an offer of employment from Atlanta and at once gave up his job in Florida and started for Atlanta. The court held that, while the worker’s action in Florida might have made the defendant’s offer of employment irrevocable (Restatement, Contracts, § 45), it did not consummate an employment contract in Florida, without which the Florida Worker’s Compensation Act was not applicable. If the defendant’s offer, made irrevocable by the worker’s action in Florida, was regarded as a unilateral contract, the court thought that this contract was merely “an implied subsidiary or collateral promise that if part of the requested performance is given the offeror will not revoke his offer and that if tender is made it will be accepted.” This “subsidiary” contract would not be a “contract of employment” made in Florida. The suggestion of such an “implied subsidiary” contract that was made in the Comment to Restatement, Contracts, § 45, is of doubtful value.

See also, In re Bashas’ Inc., 2011 Bankr. LEXIS 5510 (Bankr. D. Ariz. Sept. 29, 2011) (discussing charitable subscription aspect of promissory estoppel).

See Vol. 3, Chs. 8 and 9, Informal Contracts Without Assent or Consideration.

4 For an interesting discussion of this provision of the CISG, see Asia Telco Techs. v. Brightstar Int’l Corp., 2015 U.S. Dist. LEXIS 178099, *15 (S.D. Fla. Aug. 21, 2015), which concluded: “Plaintiff sufficiently pleads the existence of a contract between two parties, located in CISG signatory nations, which have not expressly opted out of the CISG. This well-pled complaint preempts a state law breach of oral contract claim, but not the alternative promissory estoppel claim.”

Mo.

—Sharp Bros. Contracting Co. v. Commercial Restoration, Inc., 334 S.W.2d 248 (Mo. App. 1960) (subcontractor’s “quotation” on cement work was expressly “subject to acceptance within 10 days”; contractor’s attempt to accept later was ineffective).

It is on the reasoning stated in the text that the decision in Petterson v. Pattberg, 248 N.Y. 86, 161 N.E. 428 (1928), is to be supported if it can be approved at all. A mortgagee offered to accept a sum, less than the debt secured, in full payment, provided that it should be paid by a specified date before maturity. The mortgagor raised the money, probably by some effort and sacrifice, and came to the mortgagee’s door and knocked. The mortgagee asked who was there and the mortgagor said, “It is Petterson. I have come to pay off the mortgage.” The mortgagee at once replied that he had already sold the mortgage and could not receive payment. Not until thereafter was a tender of the money actually made. The mortgagor’s raising of the money and bringing it to the door was action in reliance, but it was not part performance, being neither payment nor part payment. The court held that the offer was withdrawn before its acceptance was tendered. See also, Matter of Covel v. Town of Peru, 123 A.D.3d 1244, 999 N.Y.S.2d 228 (N.Y. App. Div. 2014) (citing Petterson v. Pattberg with approval).

Ala.

—McKenzie v. Stewart, 196 Ala. 241, 72 So. 109 (1916), is similar to Petterson v. Pattberg, except that the mortgagor’s action in reliance was the making of a sale of the land for 30 shares of stock in order to obtain the 15 shares of the stock that the mortgagee had promised to accept in discharge of the mortgage and also the actual tender of the 15 shares. Specific performance by the mortgagee was rightly enforced.

Ga.

—Skb Indus. v. Insite, 250 Ga. App. 574, 551 S.E.2d 380 (2001); Siegel v. Codner, 153 Ga. App. 438, 265 S.E.2d 287 (1980), aff’d, 246 Ga. 368, 271 S.E.2d 465. The defendant offered to accept less than the face amount of a mortgage indebtedness provided it was paid in 60 days. Under Georgia law, an accord and satisfaction whereby the debtor pays less than the full amount due is binding if payment is actually made. Before the expiration of the sixty days Turner Communications agreed to purchase the premises. Defendant revoked the offer. The court ruled that summary judgment for the defendant was improper. There may have been a bilateral contract for a consideration. Alternatively, the offerees may have “partially performed by efforts to satisfy the conditions.” Since performance was to be payment, and no part payment had been made, it seems that the court is ruling that actions in reliance upon the offer may have made it irrevocable.

Ohio

—Bretz v. Union Central L. Ins. Co., 134 Ohio St. 171, 11 Ohio Op. 587, 16 N.E.2d 272 (1938), is similar to Petterson v. Pattberg. Citibank (S.D.), N.A. v. Paluch, 2012-Ohio-334 (Ohio App. 2012) (citing Bretz v. Union Central L. Ins. Co. with approval).

U.S.

—C.G. Schmidt, Inc. v. Permasteelisa North Am., 825 F.3d 801 (7th Cir. 2016); Montgomery Indus. Int’l, Inc. v. Thomas Constr. Co., Inc., 620 F.2d 91 (5th Cir. 1980) (Texas law); Apac-Southeast, Inc. v. Coastal Caisson Corp., 514 F. Supp. 2d 1373 (N.D. Ga. 2007); Air Conditioning Co. of Hawaii v. Richards Constr. Co., 200 F. Supp. 167 (D. Hawaii 1961), following Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (1958) and applying Restatement, Contracts, § 45, § 90, affirmed on other grounds, sub nom. Richards Constr. Co. v. Air Conditioning Co. of Hawaii, 318 F.2d 410 (9th Cir. 1963). James Baird Co. v. Gimbel Bros., 64 F.2d 344 (2d Cir. 1933), is to the contrary in its reasoning although distinguishable because the bid was revoked prior to the award of the general contract.

Alaska

—Alaska Bussell Electric Co. v. Vern Hickel Constr. Co., 688 P.2d 576 (Alaska 1984). This rationale was restated in George Crook et al. Investment & Development, Inc. v. Mortenson-Neal, 727 P.2d 297 (Alaska 1986), although there appeared to be an acceptance of the subcontractor’s bid.

Ark.

—Jackson County Grain Drying Co-op. v. Newport Wholesale Electric, Inc., 9 Ark. App. 41, 652 S.W.2d 638 (1983).

Ariz.

—Double AA Builders, Ltd. v. Grand State Constr., L.L.C., 114 P.3d 835 (2005). In anticipation of submitting a bid for the construction of a new Home Depot store, the plaintiff solicited subcontractor bids for various aspects of the work. On December 18, 2001, the defendant faxed an unsigned bid for the exterior insulation system that included the phrase, “Our price is good for 30 days.” The plaintiff used the defendant’s bid along with other subcontractor bids in arriving at the total bid submitted to the owner. On December 31, 2001, the owner awarded the contract to the plaintiff. On January 11, 2002, the plaintiff sent a contract to the defendant which the defendant refused to sign. Pursuant to court rules, an arbitrator heard the case and ruled in favor of the defendant. The trial court, however, held for the plaintiff and this appeal followed. The instant court relied upon the classic case of Drennan v. Star Paving, discussed in this note, citing numerous cases from other jurisdictions in accord in holding that the promise of a subcontractor upon which a general contractor relies in using the subcontractor’s bid makes the subcontractor’s promise enforceable under the doctrine of promissory estoppel (Restatement (Second) of Contracts, § 90). The court rejected the defendant’s claim that its faxed bid was not a promise since the “quote” contained all of the material terms involved in the project and a definite price that was “good for 30 days.” Moreover, the defendant’s general manager acknowledged that the defendant submitted the bid to obtain work if the plaintiff was the successful bidder as the general contractor. The court also rejected the defendant’s claim that the bid was not accepted promptly since the bid stated that it was “good for 30 days” and the plaintiff’s acceptance occurred within 30 days.

Cal.

—Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757 (1958) is the leading case on this point. The plaintiff, when preparing his bid for the total construction of a large building, requested the defendant to submit a bid as a subcontractor for the necessary paving work. The plaintiff was required in his own general bid to name his subcontractors. The defendant bid $7,131, and this bid being the lowest, was used by the plaintiff in determining the total amount of his own bid. The defendant said nothing about his bid being revocable or otherwise, but it was not a mere “estimate,” and he had reason to know that it would be used by the plaintiff. The plaintiff’s general bid was accepted, and the next morning he stopped at the defendant’s office to notify him. At once, however, the defendant told him that the bid was based on a mistake and that he would not do the work for less than $15,000. The plaintiff, after making reasonable efforts to find a substitute subcontractor, was obliged to pay $10,948 for the work. The court held, with a thoroughly reasoned opinion, that the defendant’s bid was made irrevocable by the plaintiff’s substantial action in reliance—action that the defendant had reason to foresee, even though that action was not any part of the agreed equivalent requested as consideration for the defendant’s promise to do the work. (That consideration was $7,131.) The court cited § 634 from an earlier edition of this treatise for this proposition: “The very purpose of section 90 is to make a promise binding even though there was no consideration ‘in the sense of something that is bargained for and given in exchange.’ ” It also cited and applied Restatement, Contracts, § 45 and 90. After discussing with approval Restatement, Contracts, § 45, and the comment to that section as to the implication of a promise not to revoke an offer after part of the agreed equivalent has been performed, the court wrote: “Whether implied in fact or law, the subsidiary promise serves to preclude the injustice that would result if the offer could be revoked after the offeree had acted in detrimental reliance thereon. Reasonable reliance resulting in a foreseeable prejudicial change in position affords a compelling basis also for implying a subsidiary promise not to revoke an offer for a bilateral contract.” The cause of the defendant’s alleged “mistake” does not appear; but the plaintiff had no reason to know that such mistake existed. He had changed his position in good faith and could not be put in status quo except by awarding as damages the difference between the amount of the defendant’s bid and the amount that the plaintiff had to pay for the work.

In Norcross v. Winters, 209 Cal. App. 2d 207, 25 Cal. Rptr. 821 (1962), the Drennan case is followed. The defendant’s bid was low; but the plaintiff had no reason to know that it was by mistake. In Saliba-Kringlen Corp. v. Allen Engineering Co., 15 Cal. App. 3d 95, 92 Cal. Rptr. 799 (1971), the subcontractor notified the general contractor of the mistake 10 minutes prior to the opening of the bids. The general contractor was justified in not revoking its bid.

D.C.

—Solway Decorating Co., Inc. v. Merando, 264 A.2d 501 (D.C. App. 1970).

Ill.

—Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 233 Ill. 2d 46, 906 N.E.2d 520 (2009); Illinois Valley Asphalt, Inc. v. J.F. Edwards Constr. Co., 90 Ill. App. 3d 768, 45 Ill.Dec. 876, 413 N.E.2d 209 (1980).

Ind.

—Lyon Metal Products, Inc. v. Hagerman Constr. Corp., 181 Ind. App. 336, 391 N.E.2d 1152 (1979).

Ky.

—Harry Harris, Inc. v. Quality Constr. Co., 593 S.W.2d 872 (Ky. App. 1979).

La.

—See Harris v. Lillis, 24 So. 2d 689 (La. App. 1946) (bid held to be irrevocable pursuant to local custom).

Neb.

—Weitz Co. v. Hands, Inc., 294 Neb. 215, 882 N.W.2d 659 (2016).

N.J.

—E.A. Coronis Assoc. v. M. Gordon Constr. Co., 90 N.J. Super. 69, 216 A.2d 246 (App. Div. 1966).

N.M.

—Strata Prod. Co. v. Mercury Exploration Co., 1996 NMSC 016, 121 N.M. 622, 916 P.2d 822 (1996). But see Tatsch v. Hamilton-Erickson Mfg. Co., 76 N.M. 729, 418 P.2d 187 (1966), holding that a general contractor’s reliance on a bid does not make it irrevocable.

N.Y.

—James King & Son, Inc. v. DeSantis Constr. No. 2 Corp., 97 Misc. 2d 1063, 413 N.Y.S.2d 78 (1977). There was an oral acceptance; nonetheless, the court applied a promissory estoppel rationale. This case relied on Debron Corp. v. National Homes Constr. Co., 493 F.2d 352 (8th Cir.1974) (Mo. law), which also could have been decided as a simple case where the general contractor accepted the subcontractor’s bid.

Minn.

—Rochon Corp. v. McGuire Mech. Servs., 1998 Minn. App. LEXIS 1365 (Dec. 15, 1998); Constructors Supply Co. v. Bostrom Sheet Metal Works, Inc., 291 Minn. 113, 190 N.W.2d 71 (1971).

Nev.

—Dynalectric Co. of Nev., Inc. v. Clark & Sullivan Constructors, Inc., 127 Nev. 480, 255 P.3d 286 (2011).

Ohio

—Complete Gen. Constr. Co. v. Kard Welding, Inc., 182 Ohio App. 3d 119, 2009-Ohio-1861, 911 N.E.2d 959, (2009); Wargo Builders, Inc. v. Douglas L. Cox Plumbing & Heating, Inc., 26 Ohio App. 2d 1, 55 Ohio Op. 2d 23, 268 N.E.2d 597 (1971).

Pa.

—Hedden v. Lupinsky, 405 Pa. 609, 176 A.2d 406 (1962); H.B. Alexander & Son, Inc. v. Miracle Recreation Equipment Co., 314 Pa. Super. 1, 460 A.2d 343 (1983).

S.C.

—Powers Constr. Co. v. Salem Carpets, Inc., 283 S.C. 302, 322 S.E.2d 30 (1984).

S.D.

—Northwestern Engineering Co. v. Ellerman, 69 S.D. 397, 10 N.W.2d 879 (1943) was a seminal case that the court relied on in California’s Drennan decision. A bilateral express agreement provided that if the general contractor was awarded the general contract, it would accept the subcontractor’s offer and the subcontractor would do the work. The agreement was wanting in consideration because the general made no promise to bid for the general contract.

Utah

—See R.J. Daum Constr. Co. v. Child, 122 Utah 194, 247 P.2d 817 (1952).

Wash.

—Leo Finnegan Constr. Co. v. Black Hawk, Inc., 2001 Wash. App. LEXIS 234 (Feb. 9, 2001); Arango Constr. Co. v. Success Roofing, Inc., 46 Wash. App. 314, 730 P.2d 720 (1986).

Wis.

—C.G. Schmidt, Inc. v. Permasteelisa North Am., 825 F.3d 801 (7th Cir. 2016); Seater Constr. Co. v. Rawson Plumbing, Inc., 239 Wis. 2d 152, 619 N.W.2d 293 (2000); Janke Constr. Co. v. Vulcan Materials Co., 386 F. Supp. 687 (W.D. Wis.1974), aff’d, 527 F.2d 772 (7th Cir.)

A strong contrarian opinion is expressed in Margaret Kniffin, Innovation or Aberration: Recovery for Reliance on a Contract Offer, as Permitted by the New Restatement (Second) of Contracts, 62 U. Det. L. Rev. 23 (1984).

Wyo.

—Jackman Constr., Inc. v. Rock Springs Winnelson Co., 2016 WY 118, 385 P.3d 311 (2016).

See also, Pavel Enters. v. A. S. Johnson Co., 342 Md. 143, 156, 674 A.2d 521, 527–528, (1996), which noted the influence of Drennan v. v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (1958), discussed in this note, but also noted criticisms of that decision based on “the lack of symmetry of detrimental reliance in the bid process, in that subcontractors are bound to the general, but the general is not bound to the subcontractors.” The court suggested that this could lead to unethical practices.

Professor John Murray wrote:

Where the subcontractor simply presents a bid to the general contractor, the overwhelming majority of courts considering this question have adopted the Traynor position [Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757 (1958)]. It is also supported by the Restatement 2d [Restatement (Second) of Contracts § 87(2) and comment e] which characterizes an offer by a subcontractor made irrevocable by detrimental reliance as another form of option contract. In keeping with its general concept of detrimental reliance to be explored later in this volume, the Restatement 2d limits the option contract protection “to the extent necessary to avoid injustice.” Presumably, any nefarious activity on the part of the general contractor after being awarded the general contract by, for example, unnecessarily delaying the acceptance of the subcontractor’s offer or attempting to renegotiate with the subcontractor for a lower price, would eliminate the protection of an irrevocable offer enjoyed by the general contractor under this Restatement provision.

John E. Murray, Murray on Contracts § 44 (5th ed. 2011) (citing Fletcher-Harlee Corp. v. Pote Concrete Contrs., Inc., 482 F.3d 247 (3rd Cir. 2007).

7 In N. Litterio & Co. v. Glassman Const. Co., 319 F.2d 736 (D.C. Cir. 1963), the defendant Litterio submitted a bid as a subcontractor to Glassman who became prime contractor on a building. Glassman told Litterio that its bid seemed low and asked that it be rechecked. This was done and the bid was confirmed. Glassman then told Litterio that its bid would be used in determining the prime bid. On obtaining the prime contract, Glassman sent to Litterio a written contract draft containing some provisions not consistent with the latter’s bid and requesting signature and return within 10 days. Litterio did not sign and refused to perform, having concluded that its bid was too low. The court reviewed the Drennan and other cases and distinguished them. Glassman’s action was not clearly an acceptance, if the bid was an offer. The instrument it submitted to Litterio was clearly a counter-offer and no bilateral contract resulted. The court left open the question whether Glassman had so acted in reliance on the bid as to make the rule of Restatement, Contracts § 90, applicable. The fact of Glassman’s counteroffer bears against a finding of such reliance. The court holds that summary judgment would be inappropriate on the facts.See also, Hedden v. Lupinsky, 405 Pa. 609, 176 A.2d 406 (1962) (facts similar to Litterio).

See also:

Preload Technology, Inc. v. A.B. & J. Constr. Co., Inc., 696 F.2d 1080 (5th Cir. 1983) (Texas law). The general contractor accepted the offer on the letterhead of a different corporation (Preload Company) than the one that had solicited the bid (Preload Technology). The subcontractor, when refusing to perform, did not make this fact an issue. If there was no contract by a process of offer and acceptance, there was one by promissory estoppel.

R.P. Carbone Constr. Co. v. North Coast Concrete, Inc., 88 Ohio App. 3d 505, 624 N.E.2d 326 (1993) (justice did not require enforcement of subcontractor’s erroneous bid even though general contractor used the bid in its successful bid on the general contract because the general contractor never accepted the subcontractor’s bid).

3D Enterprises Contracting Corp. v. National Electric Co., 2008 U.S. Dist. LEXIS 4153 (E.D. Ky. Jan. 18, 2008). 3D Corporation builds wastewater and water treatment plants. To create a bid for such a facility at Beaver Creek, 3D solicited a bid on the electrical work from NEC, which requested an American Institute of Architects (AIA) subcontract form be used to evidence any subsequent contract. 3D indicated that it used its own subcontract form. Two days later, NEC submitted its bid, which did not refer to the form of the subcontract. 3D used the bid and was awarded the Beaver Creek Contract. It immediately notified the NEC representative (Jones) that 3D had received the contract and Jones would later testify that he understood 3D intended to sign a subcontract with NEC as the electrical contractor. 3D later submitted its contract form to NEC, which refused to sign it citing differences in the scope of work and its objections to 3D’s subcontract form. Upon confirmation that NEC would not perform, 3D contracted with another electrical subcontractor at a cost of some $570,000 more than the NEC bid. Under a promissory estoppel theory, 3D sought a recovery of this differential plus other costs. The court noted that NEC knew that 3D would rely on NEC’s bid. 3D did rely and immediately communicated the award of the contract to NEC, manifesting the intention to formalize the subcontract with NEC. The NEC bid contained a 75 day time for acceptance and the 3D formal subcontract was submitted within 60 days. NEC emphasized the discussions concerning the form of the subcontract, which did not result in any agreement about the type of form—AIA or 3D’s form—and claimed that 3D could not reasonably rely on NEC’s bid absent such agreement. The court was not persuaded, particularly since Jones admitted that, at the time NEC submitted its bid, it understood that 3D intended to use its own subcontract form. Jones also admitted that he could have but did not condition the use of NEC’s bid on a future contract evidenced by an AIA form. The court found that 3D reasonably relied on NEC’s bid. NEC’s claim that the subcontract involved differences in the work as described in the NEC bid was overcome by evidence of 3D’s assurances to NEC that 3D would not hold NEC to any work not included in NEC original proposal. Moreover, the court noted that insignificant differences in the described work are not uncommon in such agreements and do not excuse a subcontractor from performing. The court granted 3D’s motion for partial summary judgment, denied NEC’s motion for summary judgment, and ordered a settlement conference on the issue of damages.

8 See Hoel-Steffen Constr. Co. v. United States, 684 F.2d 843, 847–849, 231 Ct. Cl. 128 (1982) (collecting cases). In H.B. Alexander & Son, Inc. v. Miracle Recreation Equipment Co., 314 Pa. Super. 1, 460 A.2d 343 (1983), the bidder was a supplier. It was held that the telephone bid was binding despite the U.C.C. statute of frauds. Telephone bidding was the usage of the trade “waiving” the statute. Note that the bid was in fact accepted prior to its withdrawal.

U.S.

—Seacoast Elec. Co. v. Franchi Bros. Constr. Corp., 437 F.2d 1247 (1st Cir. 1971); Weimerskirch v. Patriot Servs. Corp., 2012 U.S. Dist. LEXIS 81621 (N.D. Ohio June 13, 2012); Davis Moreno Constr., Inc. v. Frontier Steel Bldgs. Corp., 2010 U.S. Dist. LEXIS 116566 (E.D. Cal. Nov. 2, 2010).

Andersons, Inc. v. Consol, Inc., 348 F.3d 496 (6th Cir. 2003). Where the plaintiff lessor of railroad cars repaired its cars and prepared a bid which the defendant used in creating its bid to obtain a coal supply contract with a utility, the defendant secured the contract with the utility and, discovering another supplier of cars at a lower rate, terminated negotiations for the lease contract with the plaintiff. The plaintiff sought to enforce, under the doctrine of promissory estoppel, an alleged promise by the defendant to lease cars. The trial court granted summary judgment for the defendant. On appeal, the instant court reviewed the elements of promissory estoppel, focusing on the initial requirement of a clear and unambiguous promise. The defendant’s letter indicated an intent to lease 131 railroad cars from the plaintiff, conditioned on the “successful negotiation” of a “definitive” lease agreement. The evidence indicated that the plaintiff’s decision to repair its cars to meet the minimal physical requirements of the defendant occurred absent any unconditional promise by the plaintiff to lease the cars. The plaintiff was not required to incur these expenses prior to the consummation of a lease acceptable to the defendant. The negotiations failed to produce such a lease. The court affirmed the judgment below on the ground that the plaintiff failed to show the necessary clear, unambiguous and unconditional promise required to enforce a promise based on expected and reasonable detrimental reliance.

But see, Clark Resources, Inc. v. Verizon Business Network Services, Inc., 2010 U.S. Dist. LEXIS 127137 (M.D. Pa. Dec. 1, 2010). Defendant Verizon Business Network Services contacted plaintiff Clark Resources to assist it in submitting a bid for a project with the Pennsylvania Department of General Services. Clark produced a subcontract proposal and contended that Verizon provided it with oral assurances that Verizon would use Clark as subcontractor if awarded the contract. When Verizon’s proposal was subsequently accepted by the Department, Verizon replaced Clark with a different subcontractor, and Clark filed suit. The court explained that a solicitation of bids by a general contractor coupled with the submission of a bid by a subcontractor does not give rise to a contract binding on the general contractor. Citing § 2.31 (1993 ed.), the court further explained that use of the bid is not an acceptance. Clark, however, argued that although the request for proposal process did not give rise to a contract, its contract claim was based on the existence of an oral contract, presumably independent of the request for proposal. The court, therefore, concluded, in light of Pennsylvania’s liberal pleading standards and the existence of some facts in the complaint that may, upon more thorough pleading, reveal the plausible existence of a contract, that Clark should be granted leave to file an amended complaint.

Ala.

—In Southeastern Sand & Gravel Co. v. Newell Roadbuilders, Inc., 282 Ala. 431, 212 So. 2d 598 (1968), post bid discussions between the parties showed that neither party understood there was a contract.

Ariz.

—Corbin-Dykes Electric Co. v. Burr, 18 Ariz.App. 101, 500 P.2d 632 (1972). The sub-contractor sought to prove that there was a custom by which contractors would accept bids upon which they had relied. The court ruled, erroneously it is believed, that custom and usage cannot establish a contract. Compare Washington, below. Mirage Homes, L.L.C. v. Headlee Roofing Co., 2006 Ariz. App. Unpub. LEXIS 364 (Sept. 21, 2006) (follows Corbin-Dykes Electric Co.)

Cal.

—Southern California Acoustics Co. v. C.V. Holder, Inc. 71 Cal. 2d 719, 79 Cal. Rptr. 319, 456 P.2d 975 (1969); Norcross v. Winters, 209 Cal. App. 2d 207, 25 Cal. Rptr. 821 (1962).

Fla.

—W. Constr., Inc. v. Fla. Blacktop, Inc., 88 So. 3d 301 (Fla. App. 2012), rehearing denied, No. 4D11-408, 2012 Fla. App. LEXIS 9963 (2012), review denied, 115 So. 3d 999 (2013).

Idaho

—Mitchell v. Siqueiros, 99 Idaho 396, 582 P.2d 1074 (1978).

Ky.

—Finney Co., Inc. v. Monarch Constr. Co., Inc., 670 S.W.2d 857 (Ky.1984).

Mass.

—Loranger Constr. Corp. v. E.F. Hauserman Co., 376 Mass. 757, 384 N.E.2d 176 (1978) (court holds alternatively that the offer may have been accepted on conventional offer and acceptance principles).

Mo.

—City of Cape Girardeau v. Jokerst, Inc., 402 S.W.3d 115, 120 (2013), citing § 2.31 (1993 ed.) the court explained: “[T]he general contractor’s simple use of a subcontractor’s bid is not analogous to the promise to perform if accepted contained in the subcontractor’s bid. A general contractor, by soliciting bids, makes no promise inviting detrimental reliance to a subcontractor because there is no guarantee the general contractor will be awarded the project.”

N.Y.

—Cortland Asbestos Products, Inc. v. J. & K. Plumbing & Heating Co., 33 A.D.2d 11, 304 N.Y.S.2d 694 (1969).

Minn.

—Holman Erection Co. v. Orville E. Madsen & Sons, Inc., 330 N.W.2d 693 (Minn. 1983). “In contrast, the subcontractor does not rely on the general and suffers no detriment. A subcontractor submits bids to all or most of the general contractors that it knows are bidding on a project. The subcontractor receives invitations to bid from some generals and submits bids to others without invitation. The time and the expense involved in preparing a bid is not segregated to any particular general. Thus, whether or not a particular general wins the contract is of little or no concern to the subcontractor. The subcontractor engages in the same work and expense in preparing its bid regardless of who wins the general contract and whether the subcontractor wins the contract on which it bid. No further expense is incurred until a formal agreement is reached with the general and actual work commences. Clearly the promissory estoppel concept is not applicable in this situation. With no detrimental reliance there can be no estoppel claim. Ample justification exists for binding the subcontractor and not binding the general. The two situations are very different.”

Pa.

—Ribarchak v. Mun. Auth., 44 A.3d 706 (Pa. Cmwlth. 2012).

S.C.

—Electro-Lab of Aiken, Inc. v. Sharp Constr. Co. of Sumter, Inc., 357 S.C. 363, 593 S.E.2d 170 (2004). The defendant mistakenly used the plaintiff’s oral subcontract bid (having inadvertently overlooked a lower bid) for electrical work in its general contractor bid on a project and listed the plaintiff as the electrical subcontractor. As low bidder, the defendant was awarded the contract and telephoned the plaintiff to inquire as to the plaintiff’s bond rate and to direct the plaintiff to send its written bid to the defendant. Shortly thereafter, the defendant discovered its mistake and asked the plaintiff if it could do the work at the price of the lower subcontract bid. The plaintiff responded that it would match the lower bid. The defendant submitted a fax to the plaintiff stating that it would be issuing a subcontract to the plaintiff and urged the plaintiff to pursue shop drawings and the issuance of payment and performance bonds. The message concluded, “We look forward to working with you.” When the plaintiff could not obtain the bonds, the defendant contracted with another subcontractor. The plaintiff claimed that the parties had a contract, which the defendant had breached. The trial judge found that no contract existed and ruled for the defendant. On appeal, the instant court agreed in holding that the mere use of a subcontractor’s bid does not constitute acceptance of the subcontractor’s offer. Nor did the court find an acceptance in the defendant’s request that the plaintiff submit its bid in writing. The court was also unpersuaded that there was an acceptance of the plaintiff’s offer by the defendant’s fax to the plaintiff. Up to the point of the defendant’s fax, the court’s analysis is sound. The opinion, however, concludes that the defendant’s fax was simply another preliminary negotiation. Having first elicited the plaintiff’s agreement to the lower price followed by the fax stating that a subcontract was forthcoming, the defendant’s urging of the plaintiff to begin shop drawings and stating that it looked forward to working with the plaintiff suggest much more than a mere preliminary negotiation. Indeed, the facts suggest manifested mutual assent with the promised subcontract operating as a mere memorial of the parties’ contract. On these facts, the court’s holding would appear to be more justified by the plaintiff’s inability to meet the condition of providing the bonds under an existing contract.

Wash.

—See Milone & Tucci, Inc. v. Bona Fide Builders, 49 Wash. 2d 363, 301 P.2d 759 (1956), holding that a prime contractor, who had requested and received a bid on a part of the work from the plaintiff, did not accept it and become bound by a subcontract by merely using the plaintiff’s bid in the process of making his bid on the contemplated larger contract with a third party. But in Industrial Electric-Seattle, Inc. v. Bosko, 67 Wash. 2d 783, 410 P.2d 10 (1966), it was proved to the satisfaction of the trial court that there was a trade usage to the effect that the general contractor must use the subcontractor whose bid was relied upon. This was affirmed.

In Merritt-Chapman & Scott Corp. v. Gunderson Bros. Engineering Corp., 305 F.2d 659 (9th Cir. 1962), the court followed Milone & Tucci as to Washington law. But here, the prime contractor had merely named the plaintiff as a subcontractor in its bid on the principal contract with respect to matters quite different from those covered by the subcontractor’s bid to the prime contractor. The action of the prime contractor in this case was certainly not an “acceptance” of the subcontractor’s bid enabling the subcontractor to maintain action for breach of contract. Furthermore, it is clear that its action was not such action in reliance on the subcontractor’s bid as would support an action against the subcontractor for breach.

A statute may command that the general contractor deal with the subcontractor whose bid was used in the general’s calculation. See, e.g., Cal Pub Contract Code § 4107; Fla. Stat. § 255.0515.

10 St. Luke’s Hospital v. Midwest Mechanical Contractors, Inc., 681 S.W.2d 482 (Mo. App. 1984). Here the hospital searched for contractors that were large enough to handle a major project and invited them to bid. This invitation did not carry with it a promise to accept the lowest bid. See also, Skyline Contractors, Inc. v. Spokane Hous. Auth., 172 Wn. App. 193, 289 P.3d 690 (2012); Clark Res., Inc. v. Verizon Bus. Network Servs., 2011 U.S. Dist. LEXIS 46154 (M.D. Pa. April 29, 2011); Vincent Constr. & Insulation, Inc. v. Milton-Freewater Orchard Homes, Inc., 2004 U.S. Dist. LEXIS 6985 (D. Ore. April 12, 2004).

11 Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757, 760 (1958); Preload Technology, Inc. v. A.B. & J. Constr. Co., Inc., 696 F.2d 1080 (5th Cir. 1983) (Texas law). In C.G. Schmidt, Inc. v. Permasteelisa North Am., 825 F.3d 801, 808 (7th Cir. 2016), the court distinguished Drennan and its progeny, explaining: “[C]ourts generally distinguish cases in which a general contractor attempts to renegotiate the subcontractor’s bid, a practice known as “bid chiseling.” See Corbin on Contracts, § 2.31 (2015) (‘[I]t is generally agreed that the general contractor cannot, after being awarded the contract, reopen the bidding with the subcontractors to chisel down the bids, while at the same time maintaining that the low-bidding subcontractor remains liable.’).” Complete Gen. Constr. Co. v. Kard Welding, Inc., 182 Ohio App. 3d 119, 2009-Ohio-1861, 911 N.E.2d 959 (2009) (citing Corbin on Contracts § 2.31 for the same principle). LAHR Constr. Corp. v. J. Kozel & Son, 168 Misc. 2d 759, 640 N.Y.S.2d 957 (1996) (contrasting bid chiseling from bid shopping, both of which are improper). See also, R.C. Constr. Co. v. National Office Systems, Inc., 622 So. 2d 1253 (Miss. 1993) (general contractor used subcontractor’s bid in submitting its own successful bid but subsequently sought to extract a lower bid from the subcontractor without ever communicating acceptance to the subcontractor; failure of the general contractor to communicate its acceptance was “fatal to [its] contention that a valid contract existed”).

12 Complete Gen. Constr. Co. v. Kard Welding, Inc., 182 Ohio App. 3d 119, 2009-Ohio-1861, 911 N.E.2d 959 (2009).

13 Robert Gordon, Inc. v. Ingersoll-Rand Co., 117 F.2d 654 (7th Cir. 1941); Leo F. Piazza Paving Co. v. Bebek & Brkich, 141 Cal. App. 2d 226, 296 P.2d 368 (1956).

U.S.

—Chernick v. United States, 372 F.2d 492, 178 Ct. Cl. 498 (1967) (court’s adjustment of the bid was most unusual); Robert Gordon, Inc. v. Ingersoll-Rand Co., 117 F.2d 654 (7th Cir. 1941).

Cal.

—Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (1958) (dictum). Diede Construction, Inc. v. Monterey Mechanical Co., 125 Cal. App. 4th 380, 391, 22 Cal. Rptr. 3d 763, 771 (2004) (“[U]nder the theory of promissory estoppel, the subcontractor is liable for the costs of the mistake only if the general contractor reasonably relied on the mistaken bid. If the mistake should have been apparent to the general contractor because there was a substantial variance between that bid and the next lowest bid, or for any other reason, the general contractor is not entitled to rely on that bid.”) In C & K Engineering Contractors v. Amber Steel Co., Inc., 23 Cal. 3d 1, 151 Cal. Rptr. 323, 587 P.2d 1136 (1978), the subcontractor was notified that its bid was substantially below its competitor’s bids. Nonetheless, it reiterated its bid. Reliance was justified.

Minn.

—City of Lonsdale v. NewMech Companies, 2008 Minn. App. Unpub. LEXIS 31 (Jan. 22, 2008).

Neb.

—Weitz Co. v. Hands, Inc., 294 Neb. 215, 882 N.W.2d 659 (2016).

Ill.

—Pickus Constr. & Equip. v. Am. Overhead Door, 326 Ill. App. 3d 518, 761 N.E.2d 356 (2001); S.N. Nielsen Co. v. National Heat & Power Co., 32 Ill. App. 3d 941, 337 N.E.2d 387 (1975).

Utah

—Tolboe Constr. Co. v. Staker Paving & Constr. Co., 682 P.2d 843 (Utah 1984). The general contractor was not justified in relying on a bid that was 290% lower than the next lowest bid. Although the general asked the subcontractor to check its bid, it did not indicate the apparent error.

15 In Haselden-Langley Constructors, Inc. v. D.E. Farr & Assocs., Inc., 676 P.2d 709 (Colo. App. 1983), the subcontractor submitted a bid for masonry. The general contractor unreasonably understood the bid to include in-wall insulation. The reliance was held to be unjustified.

16 Spitzli v. Guth, 112 Misc. 630, 183 N.Y.S. 743 (1920).

17 Iceland S.S. Co. v. U.S. Dep’t of Army, 201 F.3d 451 (D.C. Cir. 1999) (applying general principles of contract law). Army procurement contract solicitation required bidders to furnish evidence to establish control or an irrevocable right to gain control of certain vessels for the project. In reviewing the validity of the procurement officer’s bid award decision under an “arbitrary and capricious” standard, the majority opines that it was unnecessary for the court to weigh the quantum of evidence needed to establish the legal requirements of an irrevocable option. It was enough to justify the rationality of his decision for the officer to rely upon four letters from marine companies to the successful bidders pledging availability of vessels. A judge concurring on this point opined that it was at least necessary for the court to reach a legal conclusion that the letters could have constituted an option contract sufficient to satisfy the bid solicitation requirements and, citing § 11.7 of this treatise (1996 ed.) (“An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.”), finds that they did so.

In Malmquist v. Peterson, 149 Minn. 223, 183 N.W. 138 (1921), the holder of a three months’ option was properly held to have a right to specific performance after a long period of years because of waiver, occupancy, payment of taxes, and making of improvements; and this in spite of the option giver’s death and the objection of the heirs. The limited option had become irrevocable.

In Kucera v. Kavan, 165 Neb. 131, 84 N.W.2d 207 (1957), an option to purchase, given to a tenant, was held to be irrevocable both because of a consideration of $1 and because the tenant had made extensive improvements in reliance on the option. The court again cited and approved Restatement, Contracts, § 90 (Am. Law Inst. 1981). By way of contrast, in Friedman v. Tappan Development Corp., 22 N.J. 523, 126 A.2d 646 (1956), the owner gave the buyers a sixty day “option,” without consideration, to purchase some land. The buyers ordered an expensive title search which, according to the court, the offeror had no reason to believe would be made. The court found no estoppel. The court was a prisoner of obsolete reasoning. Because the buyers had a reasonable belief that the offer was irrevocable, it was neither unforeseeable nor unreasonable for the buyers to have made a title search. In Berryman v. Kmoch, 221 Kan. 304, 559 P.2d 790 (1977), the owner gave the broker an “option” to purchase, with a sham recital of consideration. The broker expended efforts in attempting to locate interested investors. When making preparations to accept, the broker learned from the land bank that the owner had sold to someone else. It was held that the efforts undertaken by the broker were not such as to justify a finding of irrevocability. Once again, the layman reasonably believes an offer describing itself as an option to be irrevocable. The fact that the recited token $10 was not paid does not change those reasonable expectations upon which the offeree can reasonably rely. Perhaps here, the acts of reliance were not substantial enough to lead to a finding of irrevocability. But see Bouton v. Byers, 50 Kan. App. 2d 34, 321 P.3d 780 (2014), petition for review denied, 2015 Kan. LEXIS 148 (2015), where Bouton sued Byers on a promissory estoppel claim after Byers sold the property he had promised her as a bequest, which induced her to give up her job as a law professor to oversee the ranching operations. The appellate court reversed the summary judgment granted in Byers’ favor.

In Abbott v. Stephany Poultry Co., 44 Del. 513, 62 A.2d 243 (1948), the defendant wrote promising to buy “poultry grown by you” at specified prices. No notice of acceptance was sent and no promise was made by the plaintiff, but, as defendant no doubt had reason to expect, the plaintiff bought and began feeding 7,000 baby chicks in reliance on the offer. This action was held sufficient to make the offer irrevocable, even though it was not a part of the performance that was bargained for. The judge said: “As I interpret the agreement, the defendant was interested in the delivery of ‘broilers’ from time to time, not in the offeree’s act of putting in baby ‘chicks’ for future delivery if, indeed, he thereafter chose to make delivery at all.” After reviewing authorities, pro and con, the court wrote: “After careful reflection I have concluded that a part performance of the terms of a unilateral offer affords the consideration necessary to support a binding contract. While to some extent disturbing the ancient principles of law applicable to unilateral offers, this result not only has the support of the weight of authority but also is in accord with common principles of justice. The degree of performance necessary to constitute a valid consideration must necessarily rest upon the facts of each case. Here, acting in reliance upon an unrevoked unilateral offer, Plaintiff purchased and put into houses 7,000 baby “chicks” for future delivery to Defendant, thereby incurring a substantial detriment. I am of the opinion that this act constituted a part performance sufficient to convert the unilateral offer into a binding, bilateral agreement from which Defendant could not extricate himself by the subsequent revocations on October 13, 1945 and January 1, 1946.” The court made no reference to Restatement, Contracts § 45, 90. Today, the same result, with a different analysis would obtain under U.C.C. § 2-206.

See also, 2949 Inc. v. McCorkle, 2005 Wash. App. LEXIS 1167 (May 23, 2005). Among other efforts to convince the court that the defendants’ offer to lease a sign was irrevocable, the plaintiff relied on the Restatement (Second) of Contracts, § 87(2) (Am. Law Inst. 1981) that allows that is a paraphrase of the promissory estoppel Section 90 except for one distinguishing element that the court emphasized. Section 90 which allows expected and reasonable reliance to make a promise enforceable does not expressly require that the reliance be of a “substantial character” as does § 87(2). The court viewed the “substantial character” element as important since it is addressed to situations where the offeree undergoes substantial expense or commitments or foregoes substantial alternatives which the offeror should have reasonable expected. The plaintiff argued that the defendants should have expected the plaintiff to perform a credit check and reference check as a result of the offer. The court did not view such a detriment to be of a “substantial character.” Reversing a summary judgment for the plaintiff below, the court found the defendants offer to be revocable.

18 Coffman Industries, Inc. v. Gorman-Taber Co., 521 S.W.2d 763 (Mo. App. 1975).

19 American Handkerchief Corp. v. Frannat Realty Co., 17 N.J. 12, 109 A.2d 793 (1954).

Cal.

—Los Angeles Traction Co. v. Wilshire, 135 Cal. 654, 67 P. 1086 (1902).

Ga.

—In Fontaine v. Baxley, Boles & Co., 90 Ga. 416, 17 S.E. 1015 (1892), the defendant promised to fill all orders for cross-ties at a fixed price that the plaintiff could obtain in New York. Thereupon, as defendant expected and desired, plaintiff opened an office in New York, incurred expenses, and obtained orders. The defendant refused to fill some of these orders. The court held that the plaintiff had a right to damages for breach of contract. The court said: “One of the objections urged to the third plea was the want of mutuality in the contract which that plea sets up and alleges. Grant that this objection would have been good if any question as to its binding force had arisen upon the contract before either party had partly performed it, yet after Fontaine had in pursuance of the agreement gone to New York and opened there the contemplated business, he had performed so far that it would be a fraud in the other party to repudiate the contract … . The cases are numerous in which a mere proposition may be withdrawn before it is acted upon to the hurt of another, but cannot be withdrawn afterwards. Reducing this agreement to the rank of such a case as that, there would be no want of mutuality after Fontaine went to New York and opened business. And if this would serve to bind the other party to supply and deliver to Fontaine such cross-ties as he might sell in conducting his business, Fontaine would be equally bound to order and receive the whole of them from this particular party, to the exclusion of all others. While he did not expressly promise to do so, such was the fair import of the agreement, according to its tenor and spirit.”

In Blount v. Seckinger Realty Co., 167 Ga. App. 778, 307 S.E.2d 683 (1983), an owner gave a broker an exclusive listing. The court ruled that, if the broker took some action by advertising or showing the property, the unilateral agreement would have become bilateral.

Mo.

—American Publishing & Engraving Co. v. Walker, 87 Mo. App. 503 (1901).

U.S.

—Hollidge v. Gussow, Kahn & Co., 67 F.2d 459 (1st Cir. 1933), is a case accepting the theory that an offer may be made irrevocable by beginning the requested performance.

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.32 »

1 Corbin on Contracts § 2.32 (2020)

§ 2.32. Part Performance and the Indifferent Offer

For a considerable period of time it was believed that any offer had to be characterized either as an offer to a bilateral contract or to a unilateral contract, although it was recognized that clever draftsmanship could be employed to create a hybrid.1 If the offer was not clearly designed to lead to acceptance by performance or by promise, the first Restatement of Contracts took the position that it could be accepted only by a return promise.2 In the second half of the twentieth century it came to be recognized that it was not so much clever draftsmanship that needed to be dealt with realistically, but indifferent draftsmanship. In the case of Brackenbury v. Hodgkin,3 Mrs. Hodgkin was a widow and mother of six children living in Maine. She sent a letter to her daughter and son-in-law, the Brackenburys, who were living in Missouri. The precise wording of the letter does not appear in the opinion. The substance was that if they “would move to Lewiston, [Maine], and maintain and care for Mrs. Hodgkin on the home place during her life, and pay the moving expenses, they were to have the use and income of the premises … .” The letter closed, by way of postscript, with the words, “you to have the place when I have passed away.” In response, the Brackenburys moved from Missouri to Maine and commenced performance of the contract. Within weeks, the relations of the parties became troubled and litigation ensued. It was held that the parties were bound by a contract. Relief in the nature of specific performance was granted the Brackenburys.

One could argue that Mrs. Hodgkin’s offer was to a unilateral contract, the performance of which was moving to Maine and accomplishing the yet incomplete task of taking care of the offeror for life. Under this interpretation of the offer, the offer could be regarded as having become irrevocable by part performance.4 There is another interpretation, which is more consistent with the court’s opinion. The offer was to a unilateral contract, the performance of which was moving to Maine, the further acts of taking care of Mrs. Hodgkin being merely conditions to earning the continuing right to stay on the premises and to have them after her death. A third possibility is that the offer was to a bilateral contract and the plaintiff’s conduct manifested acceptance.

The difficulty of determining into which of these three categories the facts should be placed becomes understandable if we consider the unlikelihood that Mrs. Hodgkin gave, or more importantly, manifested any thought about what she wanted by way of an acceptance of her offer. Certainly, she expressed her wishes to receive services for life, but how plausible is it that she expressed any wishes as to how she wanted the offer accepted? Non-lawyers rarely think in terms of what kind of action they desire to mark the creation of a contract. If such lack of thought or expression of thought was lacking in this case, the offer should be regarded as an “indifferent” offer.5 If this truly describes the offer, according to the Restatement (Second) of Contracts, the offer can be accepted by promise or by performance.6 Where the offeree has this choice of modes of performance, commencement of performance or a tender of it operates as a promise to render complete performance: a bilateral contract is created.7

These rules formulated in the Restatement (Second) followed the guidance of the Uniform Commercial Code. Section 2-206 of the Code provides:

(1) “Unless unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

This Code provision is designed to allow for greater flexibility in the offer and acceptance process. Without destroying the principle of the offeror’s mastery over the offer, it creates a presumption that the offeror is indifferent as to the appropriate form of acceptance. Therefore, the offeror who has a firm idea of what form the acceptance must take has the burden of unambiguously manifesting this idea. If not, the offeree may choose the manner of the acceptance.

Subdivision 1(b) gives a concrete application of the general rule expressed in 1(a). If the offer consists of an order for the prompt or current shipment of goods, the seller may accept by a prompt promise to ship or by an actual shipment. This is believed to be consistent with ordinary commercial understanding.8

Note that whether the seller accepts the indifferent offer by action or by words, a bilateral contract is formed. Thus, the shipment of non-conforming goods can be at once the acceptance of the offer and the breach of the contract. The seller can, however, ship substitute goods, including goods of a lesser quality, as a counteroffer, rather than as an acceptance and breach. But to accomplish this, the seller has the burden of notifying the buyer that the substitution is offered as an accommodation.9 Of course, the buyer need not accept the accommodation.

Under the provisions of the Restatement (Second) and U.C.C. § 2-206, commencement of performance that unambiguously indicates a commitment to the deal by the offeree creates a bilateral contract. The commencement, however, may not come to the attention of the offeror. Unless the offeror is notified by the offeree of the acceptance, or otherwise learns of the offeree’s actions, the offeror may treat the offer as having lapsed. In other words, a contract has been formed on commencement of performance, subject to a condition that notice be given within a reasonable time. Because the condition is for the sole protection of the offeror, it is waivable by the offeror.

Footnotes — § 2.32:

1 For example, an offer may be drafted with the following effective language: “This agreement shall become binding only upon written acceptance or upon complete performance of the work.” By its written commitment the offeree pledges performance of the requested act. A bilateral contract is formed. By completely performing the work, a unilateral contract has been made. As discussed in § 2.29, part performance will make the offer irrevocable.

If the offer provides “this agreement shall become binding only upon written acceptance by the home office or upon commencing performance of the work,” the offer is to a bilateral contract. Commencement of performance, by the terms of the offer, creates a “binding” contract. See Ever-Tite Roofing v. Green, 83 So. 2d 449 (La. App. 1955).

2 Restatement of Contracts § 31 (Am. Law Inst. 1981) provided: “In case of doubt it is presumed that an offer invites the formation of a bilateral contract by an acceptance amounting in effect to a promise …”. The rationale was that a bilateral contract “immediately and fully protects both parties.” Id. comment a.

3 Brackenbury v. Hodgkin,116 Me. 399, 102 A. 106 (1917).

4 See § 2.31.

5 “Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.” Restatement (Second) of Contracts § 30(2) (Am. Law Inst. 1981).

In Kagan v. Ismail, 92 Mass. App. Ct. 1106, 89 N.E.3d 1205 (Sept. 28, 2017), plaintiffs rented property from defendants, and their lease contained the following right of first refusal: “If and when the LESSOR decides to sell the home during the term of the lease, then the LESSEE has the right of first refusal to purchase the property, said right of first refusal must be exercised within one week of presentation of offer to LESSEE.” Plaintiffs received notice of a third party offer for the property and responded in a timely fashion by sending the defendants written notice of their intention to purchase the property under the terms specified in the third-party offer. The defendants claimed the notice was not a proper acceptance because acceptance supposedly was conditioned upon the plaintiffs tendering the full purchase price. The lower court rejected this argument and entered summary judgment for the plaintiffs, and the appellate court affirmed. The option was silent as to the manner of its acceptance. “By failing to specify a manner of acceptance, therefore, the defendants ‘invite[d] acceptance in any manner and by any medium reasonable in the circumstances.’ ” The manner of plaintiffs’ acceptance of the right of first refusal was reasonable.

6 Restatement (Second) of Contracts § 32 (Am. Law Inst. 1981) provides: “In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance as the offeree chooses.” See also:

U.S.

—United States ex rel. N. Coast Iron Corp. v. Global Metals Corp., 2015 U.S. Dist. LEXIS 189641 (C.D. Cal. Jan. 12, 2015).

Arenberg v. Central United Life Ins. Co., 18 F. Supp. 2d 1167 (D. Colo. 1998).

United Brotherhood of Carpenters & Joiners, etc., Local Union 1519 v. Backman Sheet Metal Works, Inc., 598 F. Supp. 212 (S.D. Ohio 1984).

Ohio

—Brown v. Lagrange Dev. Corp., 2015-Ohio-133 (Ohio App. 2015).

Or.

—Strunk v. Public Emples. Ret. Bd., 338 Ore. 145, 108 P.3d 1058 (2005).

Pa.

—Beroes v. Haberman, 33 Pa. D. & C.3d 442 (Somerset County 1981).

Va.

—Hart v. Hart, 35 Va. App. 221, 544 S.E.2d 366 (2001).

7 Restatement (Second) of Contracts § 62 (Am. Law Inst. 1981) provides:

(1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.

(2) Such an acceptance operates as a promise to render complete performance.

8 See U.C.C. § 2-206, comment 2.

The following are interesting applications of § 2-206:

Crossroads Ford Truck Sales, Inc. v. Sterling Truck Corp., 275 Ill. Dec. 257, 792 N.E.2d 488 (Ill. App. Ct. 2003), reh’g denied, 2003 Ill. App. LEXIS 1009 (Ill. App. Ct. July 31, 2003). As a franchised dealer of the defendant’s trucks, the plaintiff signed an agreement promising to maintain an appropriate inventory of the trucks as well as repair parts and competent technicians. The agreement incorporated addenda including the addendum specifying the dollar amount of parts to be purchased and the dollar amount of trucks and parts to be kept in inventory. The plaintiff did not sign the addendum and claimed it was coercive. Finding nothing coercive in the defendant’s specifications of that which the plaintiff, as a franchised dealer, had agreed to in general terms, the court held that the agreement made the addendum effective regardless of whether the plaintiff signed it. Relying on § 2-206(1)(a) of the Uniform Commercial Code in this contract, which was primarily a contract for the sale of goods, the court recognized that an offer may be accepted in any reasonable manner. Since the agreement signed by the plaintiff referred to addenda, the plaintiff accepted the offer for addenda by signing the main agreement. The signature line on the addendum was merely a suggested rather than prescribed manner of acceptance.

Home Basket Co. L.L.C v. The Pampered Chef, Ltd., 2005 U.S. Dist. LEXIS 513 (D. Kan. Jan. 12, 2005). The plaintiff basket company sold baskets to the defendant TPC. The transaction involved e-mails from TPC offering to buy baskets. The e-mails contained the quantity, price, shipment information, and delivery dates. Each e-mail required acknowledgment through the TPC website that would include the terms and conditions on the TPC purchase order. The plaintiff would then go to TPC’s website and complete TPC’s purchase order through TPC’s purchase order management system. Clicking the “Accept P.O.” button revealed TPC’s terms and conditions which the plaintiff could then request to be changed. The plaintiff had requested changes in certain terms but not clause 17 that selected the Northern District of Illinois as the forum for any dispute. When a dispute arose, the plaintiff claimed that the forum selection clause was not part of the contract. The court began its analysis by restating the offer and acceptance mechanism under U.C.C. § 2-206 that allows an offer to be accepted in any reasonable manner, absent an unambiguous direction by the offeror as to a particular manner of acceptance. The court found that the TPC e-mails were offers to buy baskets, but the offers required a specific manner of acceptance, i.e., the use of the TPC website purchase order process. The plaintiff used this process at least nine times. The e-mail offer was not ambiguous because it alerted the plaintiff to the inclusion of the terms and conditions on the website. The plaintiff argued that it thought the e-mail terms and conditions were all inclusive. The court rejected this argument on the footing that parties have a duty to learn the terms of a contract before manifesting assent to it. The website required action by the plaintiff by clicking the “Accept P.O.” button that revealed the terms and conditions and allowed the plaintiff to reject them or request a change in them. The plaintiff manifested its assent to the terms and conditions, including the forum selection clause, and was bound thereby.

9 See Magi-Metal Corp. v. United States Steel Corp., 1978 U.S. Dist. LEXIS 16165 (N.D. Ill. Aug. 4, 1978) (seller’s shipment did not conform to the offer, but the court held it was an acceptance because the seller failed to notify buyer it was merely an accommodation and not an acceptance).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.33 »

1 Corbin on Contracts § 2.33 (2020)

§ 2.33. When a Standing Offer of a Series of Separate Contracts Is Irrevocable

There is one sort of case in which the offer is not made irrevocable either by part performance or by an express notice of acceptance. This is the case in which an offer has been made in such terms as to create a power to make a series of separate contracts by a series of separate acceptances. The closing of one of these separate contracts by one acceptance leaves the offer still revocable as to any subsequent acceptance. The two most common instances of such offers are continuing guarantees of the credit of another and offers made by credit card agreements.1 Yet, offers of this type are not limited to these two situations.2

In the continuing guarantee, typically a party offers to guarantee the repayment of such loans as the offeree may make from time to time to a third party, or the payment by a third party for such goods as the offeree may thereafter sell to this third party, or the payment of such drafts as the offeree may discount for a third person. The making of one loan or one credit sale or one discount is final as regards that one performance but does not prevent revocation by notice before any further act of acceptance.3

The typical credit card fits the mold of an offer by the issuer to a series of unilateral contracts. While all credit cards are not necessarily the same,4 typically the issuer makes an offer to pay the cardholder’s bill at designated merchants. The offer is revocable. The first major case analyzing the contractual nature of the credit card agreement is City Stores Co. v. Henderson,5 where the court wrote:

The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason, or, indeed, for no reason at all, and its withdrawal breaches no duty—for there is no duty to continue it—and violates no rights. Acceptance or use of the card by the offeree makes a contract between the parties according to its terms, but we have seen none which prevents a termination of the arrangement at any time by either party. If notice of termination is required by either party, it must be so provided in the contract. As a rule there is no requirement of prior notice for termination by the issuer. A request to the person holding the card that it be surrendered upon termination of the extension of credit by the issuer is reasonable, and if he has the card it should be surrendered.

Although conceptually accurate in its broad contours, the language of the court arguably goes too far in its conceptual purity, ignoring issues of good faith and fair dealing that are inherent in any civilized contractual relationship. Even if the offer indicates it can be revoked at any time, without notice, what of the restaurant patron who consumes a meal with guests then presents a credit card only to be told, without prior notice, that the restaurant has been notified that the card is no longer to be honored? Clearly, the revocation should not be effective as to a transaction (the sale of meals to the cardholder and guests), that has occurred prior to notification,6 unless the revocation is for good cause as in the case of overdue accounts.7 The payment of an annual fee for certain credit cards makes traditional analysis difficult. It is rare that one pays a price for a revocable offer. In return, there can be found an implied promise of good faith and fair dealing, nothing less, but also nothing more.

Just as in the case of an offer for a single acceptance, an offer to a series of contracts can be made irrevocable. It will create a binding option if a consideration is given for the offeror’s promise to do the series of acts. The offer may itself specify that making one loan, or giving credit on one bill of goods, or discounting one bill of exchange, will be a consideration making the offer irrevocable as to further transactions. Thus, if a guarantor writes: “In consideration of your discounting the bill for $1000 that my son presented to you today, I will guarantee the repayment of all bills drawn by him and accepted by you in the next six months,” the discounting of the specified bill is enough to prevent revocation as to subsequent bills drawn by the son.

If a dealer writes: “In return for your buying twelve carloads of glass flasks, I promise to sell to you at the same price as many more carloads as you may care to order during the year, up to a maximum of ten additional carloads.” On assenting to a contract for the twelve carloads, the buyer gets an irrevocable option on ten other carloads.8

It is a question of interpretation, sometimes difficult, whether the offer contemplates a single transaction with one acceptance, involving a series of performances, or a series of independent transactions, concluded by a series of separate acceptances. If the performances are so interrelated that the cost and the risks overlap, the former interpretation generally is the more reasonable one.9

Footnotes — § 2.33:

1 “Although there is some dispute among commentators, credit card contracts can be compared to a series of unilateral contracts.” Unifund CCR Assignee of Providian v. Ayhan, 2008 Wash. App. LEXIS 1922, *21-22 (Aug. 5, 2008) (the court cited this treatise, § 2.33, 1993 ed.). See also, Bank of Am. v. Jarczyk, 268 B.R. 17 (Bankr. W.D.N.Y. 2001) (citing § 2.33, 1993 ed.); Taylor v. First N. Am. Nat’l Bank, 325 F. Supp. 2d 1304, 1313–1314 (M.D. Ala. 2004) (“[W]hen First North American mailed Taylor her credit card and the cardmember agreement, she was under no obligation to do anything; there was no contract. However, when she used the credit card, she accepted the bank’s terms contained in the cardmember agreement, including the arbitration provision.” The court cited § 2.33, 1993 ed.).

See Bank of Am. v. Jarczyk, 268 B.R. 17 (W.D.N.Y. 2001). The plaintiff bank sought to have the defendant credit cardholder’s debt declared nondischargeable in bankruptcy due to fraud. Courts have struggled in applying the traditional elements of fraud in credit card transactions because, at the time the credit card debt is incurred, there is typically no express representation to a credit card issuer such as the plaintiff. The debtor simply presents the card to the merchant, who obtains approval for the transaction from the issuer. The majority of courts have developed an “implied representation” theory which holds that each time a cardholder uses the card, he impliedly represents to the issuing bank that he intends to repay the debt incurred. The bankruptcy court rejected this theory, apparently on the assumption that issuance of the credit card forms a contract between the issuer and cardholder. Thus, any representations concerning an intent to repay would be made at the time the card was issued when the bankruptcy court deemed the contract to be formed. The district court, however, disagreed with this assumption since the mere issuance of a credit card does not create a binding contract. Relying upon Corbin at § 2.33, the court held that issuance of the card is an offer that can be withdrawn at any time. Use of the card is an acceptance of the offer in accordance with its terms. Thus, the offer created by issuance contemplates a series of unilateral contracts that are formed each time the cardholder uses the card. The fraud issue, therefore, is whether the cardholder had no intention of repaying the debt when he used the card.

2 Moro v. State, 357 Ore. 167, 351 P.3d 1 (2014) (describing employer’s salary offer as a continuing offer that remained open for a series of acceptances and a series of contracts—each day becomes a new offer of employment that the employee is free to accept by working). Conger Life Ins. Co. v. Deimel, 441 So. 2d 1116 (Fla. App. 1983) (the insurance company’s offer to a broker was to a series of annual contracts and could be revoked or modified).

Ala.

—Consolidated Portrait & Frame Co. v. Barnett, 165 Ala. 655, 51 So. 936 (1910), letter of credit for future purchases of goods; Christie, Lowe & Hayworth v. Patton, 148 Ala. 324, 42 So. 614 (1906).

Ariz.

—Georgia-Pacific Corp. v. Levitz, 149 Ariz. 120, 716 P.2d 1057 (1986). The defendant signed a continuing guaranty while he was chief executive officer. He sold his interest in the business and severed all ties with it as the plaintiff well knew. It was held that the power of acceptance was terminated. The plaintiff could not take advantage of defendant’s obvious mistake in neglecting to revoke the offer, citing this treatise (§ 610, 1960 ed.). It also cited Restatement of Security § 124(1) concerning the creditor’s knowledge of the financial condition of the debtor that is unknown to the guarantor.

Ga.

—J. L. Lester & Son, Inc. v. Smith, 247 Ga. 710, 280 S.E.2d 732, 733 (1981), appeal after remand, 162 Ga. App. 506, 291 S.E.2d 251, cert. denied, 459 U.S. 1039, 103 S. Ct. 454, 74 L. Ed. 2d 607. The deceased grocer had entered into an “operating statement” agreement with a wholesaler. This was held to be an agreement fixing the terms and conditions upon which purchases could be made from time to time. The grocer’s promise to be responsible for the purchases of his successors did not bind his estate as the standing offer in the operating agreement was terminated by his death of which the wholesaler had notice.

Mass.

—Jordan v. Dobbins, 122 Mass. 168, 23 Am. Rep. 305 (1877) (death of offeror acts as revocation).

Mo.

—Merit Specialties Co. v. Gilbert Brass Foundry Co., 362 Mo. 325, 241 S.W.2d 718 (1951). In Mercantile Trust Co. v. Carp, 648 S.W.2d 920 (Mo. App. 1983), one of the continuing guarantors argued that there was no consideration for the guaranty. The court rejected this, providing a lucid consideration analysis. In Hoffman v. Franklin County Mercantile Bank, 666 S.W.2d 446 (Mo. App. 1984), the court reiterates the nature of the offer of guarantee.

N.J.

—Swift & Co. v. Smigel, 115 N.J. Super. 391, 279 A.2d 895 (1971), aff’d, 60 N.J. 348, 289 A.2d 793 (1972) (death of offeror does not revoke the offer until the offeree has notice); Grob v. Gross, 83 N.J.L. 430, 84 A. 1064 (1912).

N.M.

—WXI/Z Southwest Malls Real Estate Liab. Co. v. Mueller, 137 N.M. 343, 348, 110 P.3d 1080, 1085 (N.M. App. 2005). “Some courts have described a continuing guaranty as a series of offers that are accepted by the creditor upon the extension of further credit to the debtor.” In addition: “In a continuing guaranty, the guarantor can intervene to stem potentially limitless liability by terminating the guaranty as to future debts, so it naturally follows that the guarantor must be given notice of a default.”

N.Y.

—American Chain Co. v. Arrow Grip Mfg. Co., 134 Misc. 321, 235 N.Y.S. 228 (1929).

Wis.

—Hopkins v. Racine Malleable & Wrought Iron Co., 137 Wis. 583, 119 N.W. 301 (1909) (standing offer to supply goods at named prices as ordered by the offeree).

Eng.

—Great Northern R. Co. v. Witham, 9 L.R.C.P. 16 (1873); Offord v. Davies, 31 L.J.C.P. 319, 12 C.B. (N.S.) 748 (1862) (guaranty of bills to be discounted as presented).

See Restatement (Second) of Contracts § 31, 47 (Am. Law Inst. 1981).

4 In Gray v. American Express Co., 743 F.2d 10, 20 (D.C. Cir. 1984), the court states that the parties “did agree, in their briefs and at oral argument (as did the District Court in its memorandum opinion) that the Cardmember Agreement is a [bilateral] contract.” No explanation is given as to how this credit card agreement differs from others.

5 City Stores Co. v. Henderson, 116 Ga. App. 114, 120–21, 156 S.E.2d 818, 823 (1967). Similar analysis is found in Garber v. Harris Trust & Sav. Bank, 104 Ill. App. 3d 675, 60 Ill. Dec. 410, 432 N.E.2d 1309 (1982).

Cavalry SPV I, LLC v. Krantz, 2012-Ohio-2202 (Ohio App. 2012). The plaintiff claimed it was the assignee of a debt owed by the defendant on a credit card issued by Citibank. The defendant argued that the account was a note. The court relied on precedent distinguishing a promissory note from a credit card agreement, which is an offer by the issuer for a series of unilateral contracts formed when the user purchases goods or services or obtains cash (citing Restatement (Second) of Contracts § 31). The terms of the contract are the terms to which the user agreed at the time the card was issued. A negotiable promissory note, however, is an unconditional promise to pay a certain sum of money, on demand or at a definite time, to the order of a particular person or entity or to the bearer. The court held that the trial court properly awarded judgment to the plaintiff.

6 Reliance on an offer to one or more unilateral contracts is justifiable until notice of revocation is received.

D.C.

—Gray v. American Express Co., 743 F.2d 10, 19 (D.C. Cir. 1984).

Or.

—Flowers v. Bank of America Nat’l Trust & Sav. Asso., 67 Ore. App. 791, 679 P.2d 1385 (1984), review denied, 297 Or. 601, 687 P.2d 795, was an action for intentional infliction of emotional harm. Plaintiff was an authorized user, not a contracting party. There was no cause of action when the card was cancelled because of a computation error by the issuing bank of a Visa card.

N.J.

—Novack v. Cities Service Oil Co., 149 N.J.Super. 542, 374 A.2d 89 (1977), aff’d, 159 N.J. Super 400, 388 A.2d 264, cert. denied, 78 N.J. 396, 396 A.2d 583. The account was 40 days in arrears.

N.Y.

—Feder v. Fortunoff, Inc., 114 A.D.2d 399, 494 N.Y.S.2d 42, 53 A.L.R.4th 227 (1985). Lawyer-cardholder had exceeded the credit limit. Seizure of the card by a merchant to which the card was tendered was not a tort or a breach of contract.

Or.

—Flowers v. Bank of America Nat’l Trust & Sav. Asso., 67 Ore. App. 791, 679 P.2d 1385 (1984), review denied, 297 Ore. 601, 687 P.2d 795 (1984).

Minn.

—Koehler & Henrichs Mercantile Co. v. Illinois Glass Co., 143 Minn. 344, 173 N.W. 703 (1919).

In Dambmann v. Lorentz, 70 Md. 380, 17 A. 389 (1889), the court treats the case as if there were a conditional contract to deliver at the buyer’s option. The defendant promised to deliver from 300 to 500 tons of phosphate, and the plaintiffs were to give 24 hours’ notice of orders. No promise by the plaintiff, or other consideration, is stated. After 300 tons had been delivered, the defendants repudiated further obligation, but the court held that the defendants were bound to fill later orders.

9 Orders for publication of a series of advertisements at a specified rate for each often present this problem of interpretation. See Hollidge v. Gussow, Kahn & Co., 67 F.2d 459 (1st Cir.1933) where a dealer ordered “160,000 copies” to be divided into 8 monthly issues of 20,000 each, “price $940 per issue, $7,520 complete for 8 issues.” The first issue was published, the dealer then becoming bankrupt. A claim for profits lost on the other 7 issues was allowed. Similarly, in American Publishing & Engraving Co. v. Walker, 87 Mo.App. 503 (1901), defendant agreed to pay for one engraving cut per month for use in advertising in newspapers in defendant’s locality. It was held to be one contract with a series of performances. The conclusion appears simple enough but is buttressed by the additional fact that plaintiff’s salesman was paid a commission of 33% when defendant’s order was accepted.

In Rague v. New York Evening Post, 164 App. Div. 126, 149 N.Y.S. 668 (1914), the defendant requested Rague to discontinue distribution of a rival newspaper and offered to pay $10 per week for so long as Rague abstained from such distribution. (This was before the state had an antitrust law). If one were to look at the words alone, one might conclude that it was an offer to a series of contracts. However, the initial act of discontinuance substantially jeopardized Rague’s ability to reinstitute a relationship with the rival. The court holds that one contract had been formed with a weekly condition of non-resumption of the distribution of the rival paper. See Restatement (Second) of Contracts § 54 ill. 3 (Am. Law Inst. 1981).

«Pt. I •«TOPIC A ••Ch. 2 »«§ 2.34 •

1 Corbin on Contracts § 2.34 (2020)

§ 2.34. Effect of Death or Insanity on Power of Acceptance

It is very generally said that the death of the offeror terminates the offeree’s power of acceptance even though the offeree has no knowledge of such death.1 Such general statements arose out of the earlier notion that a contract cannot be made without an actual meeting of minds at a single moment of time, a notion that has long been abandoned. The rule has also been supposed to follow by some logical necessity from the dictum that it takes two persons to make a contract. It is not contrary to that dictum to deny that death terminates power to accept. The offer was made by a living human and is accepted by another living human. One and one make two. The rule has also been explained on the ground that the surviving offeree intended to contract with the deceased offeror and cannot be forced into relations with a personal representative, a different person. This explanation is not applicable in case the surviving offeree is the one who is insisting on the validity of the contract. It is somewhat more plausible if it is the surviving offeree who is defending against the contract. The acceptance was in reliance on the promise and credit of a specific living person, and the shift to those of a personal representative may be materially disadvantageous. In practically all cases, however, the accepting offeree is sufficiently protected by the rule that makes any contractor’s duty constructively conditional on the ability of the other party to render substantially in full the agreed exchange for which the offeree bargained. If the offeror’s personal representative can sufficiently assure the performance of this condition, there is little reason for refusing to enforce the contract against the offeree whose position is exactly the same as if the offeror’s death had occurred the moment after acceptance instead of just before it. In either case, if the personal representative is unwilling or unable to render the agreed exchange substantially in full, the promises made by the offeree will not be enforced.

The Restatement (Second) of Contracts grudgingly continues the general rule to the effect that “[a]n offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.”2 Grudgingly, because the commentary adds: “[t]his rule seems to be a relic of the obsolete view that a contract requires a ‘meeting of the minds,’ and it is out of harmony with the modern doctrine that a manifestation of assent is effective without regard to actual mental assent.”3

In Rojo v. Loeper Landscaping, Inc.,4 the decedent was injured at work. A lump-sum worker’s compensation settlement was agreed to and signed by the parties. It was, however, subject to approval by a hearing officer. The day after signing the settlement agreement, the worker was murdered. Although the hearing officer concluded that the agreement was fair from the viewpoint of the day it was made, the agreement was disapproved. The Supreme Court of New Mexico reversed. The worker’s death prior to approval did not terminate an agreement already made.

If the offer that was made is an irrevocable offer, being in essence a binding option contract, the rights and powers of the option holder are assignable without the offeror’s consent. They are not terminated by the death of the offeror.5 Likewise, it should be held that if the offer is so made that it can be accepted by the performance of a series of acts, the beginning of those acts before death of the offeror prevents the death from terminating the power of the offeree. By such action the offer has been made irrevocable.6 Even irrevocable offers may fail to survive the death of the offeror or offeree if the terms of the offer indicate that the offer is personal.7

It has even been held, and justly so, that the doing of the requested acts after the death of the offeror, but in ignorance thereof, consummates a contract. Thus, where through an agent an offeror orders the shipment of goods to the agent, and the offeree ships the goods in ignorance that the offeror has died, the offeree can collect the price from the offeror’s estate.8 So, also, where one has promised to guarantee payment for goods to be sold, money to be lent, or service to be rendered to another, the sale or loan or service in ignorance of the promisor’s death has been held to enable the promisee to enforce the promise of guaranty against the guarantor’s estate.9 Some cases have held the contrary, however,10 and also it has been held that the offeree cannot accept after learning that the offeror is dead.11

If the offer is one that is accepted by a mere expression of assent, as by the mailing of a letter of acceptance, there is no very serious objection to refusing to give effect to such an acceptance if it occurs after the offeror’s death, as long as the offeree has not materially changed position in reliance on the contract and without knowledge of the death. A good illustration of this is Yosco v. Aviva Life & Annuity Co.,12 where the defendant issued a term life insurance policy on June 1, 2004 in the amount of $500,000 to Mark Papa. The policy named Papa’s two children as beneficiaries. On June 18, 2009, Papa orally requested cancellation of the policy, but the defendant informed Papa that such a request had to be in writing. The same day, the defendant received a facsimile from Papa requesting cancellation. At that time, Papa had already paid the full June premium on the policy through 11:59 P. M. on June 30. The defendant did not remit premiums in such circumstances; it simply continued the insurance as required under the policy through the end of the billing cycle. Papa died on July 1. On July 2, the defendant sent a letter to Papa stating that it had received Papa’s cancellation request, which it granted effective July 1. The defendant denied the plaintiffs’ claim as beneficiaries of the policy. In the ensuing litigation, the court noted the absence of a cancellation provision in the policy. It treated Papa’s June 18 request for cancellation as an “offer” that terminated upon the death of the offeror (July 1), citing Restatement (Second) of Contracts, § 48. The offer to cancel was no longer effective as of July 2, the date the defendant purported to exercise its power of acceptance by mail. There was no allegation that the insurer had changed its position in reliance on the cancellation. The defendant argued that the policy coverage had ended at 11:59 P. M. on June 30 when the last premium payment was exhausted. The court, however, noted a provision in the policy providing a grace period of thirty-one days for the payment of the premium allowing the policy to “continue in force during the grace period.” Thus, the policy was effective as of July 1, when Papa died.

There are cases in which the offeror’s death will make performance impossible, and where that would be the case even though the death occurs after acceptance has taken place. Thus, if A offers to render personal services to B, A’s death makes performance impossible and operates as a discharge of contractual duties, whether B’s acceptance occurred before or after A’s death. If A’s promised performance is not one that is personal, death does not operate as a discharge. If B had accepted before A’s death, the contract is binding upon both B and A’s personal representative. There is no necessary reason to deny a similar effect to an acceptance by B in ignorance of A’s prior death. Thus, if A promises to pay money asking for a promise by B to deliver goods or to render services that do not require A’s personal cooperation, acceptance by B in ignorance of A’s prior death could be held to consummate a contract binding on B and A’s representative. Probably, this result would not be reached, however, if B learns of A’s death before making any material change of position.

There is some analogy between the power of an offeree and the power of an agent. Just as in the case of an offer, it has been held that the death of the principal terminates the agent’s power to contract, even though the agent acts in ignorance of the principal’s death. This result, also, has been criticized, and it may cause severe injustice. In those cases in which the agent’s power is said to be “coupled with an interest,” it is not terminated by the principal’s death.

The death of the offeree, before acceptance, has also been held to terminate the power of acceptance, so that a subsequent acceptance by the offeree’s representative is ineffective.13 There is not much reason to criticize this result, since the representative has knowledge of the death and there can be no change of position with unforeseen injury. Here too, if the offer was a binding option contract or has become so by the offeree’s action before the offeree’s death, and if the contract is not one that has become impossible of performance by reason of the death, the offeree’s personal representatives can accept the offer and consummate a contract.14

It has been held that the insanity of the offeror, supervening after making the offer, terminates the power of acceptance.15 This is even more doubtful than the rule as to the offeror’s death. Insanity is far less easily determinable as a fact than is death, either by the contracting parties themselves or by a court. In Swift & Co. v. Smigel,16 Swift extended credit under a contract of continuing guarantee signed by Smigel. Thereafter Smigel was adjudicated incompetent. The court cited this section from a prior edition of this treatise (§ 54, 1963 ed.) as supporting the rule that the adjudication did not revoke the offer unless the offeree knew or should have known of it. Contract liability is based to a large extent on the reasonable expectations of the parties. It is certainly reasonable for the offeree to expect that the offeror’s liability will attach to the extensions of credit it may make in reliance on the offer. It is certainly more reasonable to require that the incompetent’s guardian notify the offeree of the adjudication of incapacity than to place the burden on the offeree to make inquiry prior to each extension of credit.17

Some kinds and degrees of insanity have been held not to make an agreement void, or even voidable, even though the insanity existed before the offer was made. In these cases supervening insanity of the same kind and degree should not terminate the power of acceptance. It seems reasonable to say that supervening insanity should have no greater effect than it would have if it existed prior to the making of the offer.18

Footnotes — § 2.34:

Cal.

—Watt’s Estate v. Dickerson, 162 Cal. App. 3d 1160, 208 Cal. Rptr. 846 (1984). After a statutorily-prescribed compromise offer in a tort case, but within the non-expiration period, Watts died. Her administrator tried to accept the offer, and won below in the ensuing litigation. The Court of Appeals reversed. The court recognized that a different result would follow if an option were involved, but prior case law had established that this statutory offer was not an option.

In Shaw v. King, 63 Cal. App. 18, 218 P. 50 (1923), A wrote to B promising to support her for life if she would come and live with him. A suddenly died; and in ignorance of that fact B started on the trip to A’s place of residence. The court held that A’s offer had lapsed before B’s attempt to accept. There were other grounds of decision.

Ill.

—Beach v. First Methodist Episcopal Church, 96 Ill. 177 (1880); Pratt v. Trustees of Baptist Soc. of Elgin, 93 Ill. 475, 34 Am.Rep. 187 (1879).

Ky.

—New Headley Tobacco Whse. Co. v. Gentry’s Ex’r, 307 Ky. 857, 212 S.W.2d 325 (1948).

La.

—Union Sawmill Co. v. Mitchell, 48 So. 317, 122 La. 900 (1909).

Mass.

—Pearl v. Merchants-Warren National Bank, 9 Mass. App. Ct. 853, 400 N.E.2d 1314 (1980); Jordan v. Dobbins, 122 Mass. 168, 23 Am. Rep. 305 (1877).

Me.

—Vantassel v. Hathaway, 53 Me. 18 (1864).

Md.

—Beall v. Beall, 291 Md. 224, 434 A.2d 1015 (1981) (husband died, terminating the power of acceptance made by the spouses as tenants by the entirety).

Miss.

—American Oil Co. v. Estate of Wigley, 251 Miss. 275, 169 So. 2d 454 (1964).

N.Y.

—Twenty-Third Street Baptist Church v. Cornwell, 117 N.Y. 601, 23 N.E. 177 (1890).

Ohio

—Wallace v. Townsend, 43 Ohio St. 537, 3 N.E. 601 (1885).

Pa.

—In re Helfenstein’s Estate, 77 Pa. 328, 18 Am. Rep. 449 (1875).

R.I.

—National Eagle Bank v. Hunt, 16 R.I. 148, 13 A. 115 (1888).

Tenn.

—Hutsell v. Citizens’ Nat’l Bank, 166 Tenn. 598, 64 S.W.2d 188 (1933).

2 Restatement (Second) of Contracts § 48 (Am. Law Inst. 1981). See O’Neil v. Bunge Corp., 365 F.3d 820 (9th Cir. 2004). Where the decedent died before signing a settlement agreement for a lump sum payment from his former employer in lieu of biweekly payments, the court cited the Restatement (Second) of Contracts, § 48 in holding that the decedent’s brother and representative of his estate did not have a power of acceptance since a party’s power of acceptance terminates when the offeree or offeror dies or is deprived of the capacity to enter into a contract.

3 Id., cmt. a.

4 Rojo v. Loeper Landscaping, Inc., 107 N.M. 407, 759 P.2d 194 (1988).

U.S.

—Ankeny v. Richardson, 187 F. 550 (8th Cir.1911).

Ala.

—Cowin v. Salmon, 244 Ala. 285, 13 So. 2d 190 (1943).

Ariz.

—Mubi v. Broomfield, 108 Ariz. 39, 492 P.2d 700 (1972).

N.Y.

—Rockland-Rockport Lime Co. v. Leary, 203 N.Y. 469, 97 N.E. 43 (1911).

Eng.

—Dibbins v. Dibbins, 65 L.J. Ch. 724, 2 Ch. 348 (1896); In re Adams, 24 Ch. D. 199 (1884); Nicholson v. Smith, 22 Ch. D. 640 (1882); Townley v. Bedwell, 14 Ves. Jun. 591 (1808); Lawes v. Bennett, 1 Cox 167 (1805).

Restatement (Second) of Contracts § 37, § 48 cmt, d (Am. Law Inst. 1981).

6 In Bard v. Kent, 19 Cal. 2d 449, 122 P.2d 8, 139 A.L.R. 1032 (1942), an option for renewal of a lease was not made irrevocable by an untrue recital that $10 had been paid for it nor by the fact that the offeree had employed an architect to draw plans. The option contained no promise that it should continue for any time; and it was terminated by death of the option giver. The employment of the architect was not an attempt to accept.

In Eaton v. Eaton, 2005 Del. Ch. LEXIS 202 (Dec. 19, 2005), a father executed a will devising his home to one of his three sons. Shortly thereafter, the father orally offered to devise the home to the three sons in equal shares if valuable improvements were made on the home. The father signed an application for a building permit and the sons pursued significant improvements to the home. Before the improvements were completed, the father died. His original will was unmodified. The plaintiffs (the two sons not named in the will) completed the improvements after the father’s death. Though the third son (the defendant who was named in the will) had stated that he would honor his father’s promise to all three sons, he refused to do so. The plaintiffs asserted their claims against the estate. The defendant, in his capacity as executor of the estate, rejected the plaintiffs’ claims. The plaintiffs claimed that they had a contract with the father and sought specific performance of that contract as well as other claims that the court did not address because of its analysis of the specific performance claim. The court noted that Delaware law recognizes a contract to make a will, but the enforcement of such contracts requires clear and convincing evidence. Moreover, the plaintiffs also faced the burden of proving an oral contract for specific performance of property absent a written will. The court held that the evidence of the plaintiff’s performance was sufficiently clear and convincing to allow the remedy of specific performance. Having satisfied these preliminary issues, the court confronted the issues of contract formation where an offer such as that made by the father can only be accepted by performance. Employing the analysis of § 45 of the Restatement (Second) of Contracts (Am. Law Inst. 1981), the court found that the beginning of performance by the improvement work on the house created an option contract to allow the offerees to complete the performance within a reasonable time. Since the old common law rule that death revokes an offer (Restatement (Second) of Contracts, § 48) continues to prevail, the court noted that, absent an exception to that rule, the father’s death would have revoked the offer since he could not be bound by any reciprocal duty until the act of acceptance (completion of the improvements) occurred. Since, however, an option contract was created upon the beginning of performance in response to an offer that can only be accepted by performance, such an option contract makes the offer irrevocable, even with respect to the death of the offeror. The death of the offeror did not revoke the offer here since, as suggested in the Restatement (Second) of Contracts, § 37 (Am. Law Inst. 1981), the power of acceptance under an option contract is not terminated by death or other acts or events that would normally revoke an offer. The court held that the plaintiffs were entitled to specific performance. It directed the defendant to convey title to the property in fee simple to each of the plaintiffs and the defendant in equal shares as tenants in common.

7 In Brauer v. Hobbs, 151 Mich. App. 769, 391 N.W.2d 482 (1986), a right of first refusal was held to be terminable on the death of the offeror.

In Fisher v. Fisher, 23 Mass. App. Ct. 205, 500 N.E.2d 821 (1986), the power of acceptance created by a right of first refusal was terminated by the death of the optionees, not by operation of law, but by interpretation of the option.

Ala.

—Davis v. Davis, 93 Ala. 173, 9 So. 736 (1890); Garrett v. Trabue, 82 Ala. 227, 3 So. 149 (1886).

Conn.

—Gay v. Ward, 67 Conn. 147, 34 A. 1025 (1895).

S.C.

—Knotts v. Butler, 10 Rich. Eq. 143 (S.C.1858) (even though the offeree knew of the death).

Eng.

—Bradbury v. Morgan, 1 H. & C. 249, 31 L.J. Ex. 462 (1862); Harriss v. Fawcett, 8 L.R. Ch. 866 (1873). These and other English cases are reviewed in 1 Formation of Contracts: A Study of the Common Core of Legal Systems 880–886 (Rudolph B. Schlesinger ed. 1968).

Can.

—Fennel v. McGuire, 21 U.C.C.P. 134 (1870).

Ky.

—Aitken v. Lang’s Adm’r, 106 Ky. 652, 51 S.W. 154 (1899).

Mass.

—Hyland v. Habich, 150 Mass. 112, 22 N.E. 765 (1889); Jordan v. Dobbins, 122 Mass. 168, 23 Am. Rep. 305 (1878) (even though the guaranty was under seal).

N.J.

—L. Teplitz Thrown Silk Co. v. Rich, 13 N.J. Misc. 494, 179 A. 305 (1935).

Mich.

—Bedford v. Kelley, 173 Mich. 492, 139 N.W. 250 (1913).

Pa.

—In re Estate of Lorch, 284 Pa. 500, 131 A. 381, 42 A.L.R. 922 (1925).

R.I.

—National Eagle Bank v. Hunt, 16 R.I. 148, 13 A. 115 (1888).

Eng.

—Coulthart v. Clementson, 49 L.J.Q.B. 204, 5 Q.B.D. 42 (1879).

12 Yosco v. Aviva Life & Annuity Co., 753 F. Supp. 2d 607 (E.D. Va. 2010).

13 In Kennedy v. Thomassen, [1929] 1 Ch. 426, one bound to pay an annuity offered to pay a lump sum for his discharge and sent a form of release to be executed. The annuitant signed the release and died five days later before sending any notice of acceptance. Later, the attorneys for the annuitant forwarded the release and received the lump sum without informing the payor of the death. The court held that the amount so received must be repaid. The question here is whether execution of the release, without more, constituted an acceptance.

Ala.

—Estate of Jones v. State Farm Mut. Auto. Ins. Co., 829 So. 2d 170 (Ala. Civ. 2002) (noting rule).

Kan.

—Ritchie v. Rawlings, 106 Kan. 118, 186 P. 1033 (1920). Where a letter, including an agreement for the division of property left by a decedent, was signed by all heirs except one, his signature after the death of one of the other signers did not make the letter a binding contract.

Pa.

—Achenbach v. Kurtz, 306 Pa. 384, 159 A. 718 (1932). In this case, no argument was made as to the effect of the offeree’s long forbearance, in reliance on the offeror’s promise, to sell the bonds that the offeror had promised to buy. It might well have been held to make the offer irrevocable. The offeror, after selling bonds to the deceased, promised to buy them back for $2,850 if the buyer held them one year, for $3,000 if he held them two years, and for $3,300 if the buyer held them until the seller called for them after four years. The buyer died after six years, still holding the bonds.

U.S.

—Ankeny v. Richardson, 187 F. 550 (8th Cir. 1911).

Eng.

—In re Adams, 24 Ch. D. 199, 52 L.J. Ch. 758 (1884).

Ill.

—Beach v. First Methodist Episcopal Church, 96 Ill. 177 (1880) (church subscription voided by insanity occurring before action by the church in reliance).

Iowa

—Union Trust & Sav. Bank v. State Bank, 188 N.W.2d 300 (Iowa 1971) (the court cited a prior edition of this treatise to support a holding that the appointment of a conservator over an incompetent guarantor served to revoke a continuing guarantee over which no credit had as yet been extended).

Minn.

—In Cooke v. Belzer, 413 N.W.2d 623 (Minn. App. 1987), the decedent had offered the appellant a partnership interest; appellant’s failure to manifest acceptance prior to decedent’s incapacitation prevented the effectiveness of the assignment.

16 Swift & Co. v. Smigel, 115 N.J. Super. 391, 279 A.2d 895 (1971), aff’d, 60 N.J. 348, 289 A.2d 793.

17 Union Trust & Sav. Bank v. State Bank, 188 N.W.2d 300, 55 A.L.R.3d 336 (Iowa 1971). The appointment, with the knowledge of the offeree, of a conservator for guarantor terminated the power of acceptance.

18 If the offer was a binding option, the option holder’s guardian has been held to have power to accept. Dibbins v. Dibbins, [1896] 65 L.J. Ch. 724, 2 Ch. 348.

«Pt. I •«TOPIC A •«Ch. 3 »

1 Corbin on Contracts Ch. 3 (2020)

CHAPTER 3

ACCEPTANCE AND REJECTION OF OFFER

Table of Sections

§ 3.1. Two Parties Necessary for a Contract, a Promisor and a Promisee

§ 3.2. In a Bargaining Transaction, Only the Offeree Has Power to Accept

§ 3.3. Assignment of Power by an Option Holder—Irrevocable Offers

§ 3.4. Motive With Which Offeree Renders Performance

§ 3.5. Knowledge of Offer as a Pre-requisite to Acceptance

§ 3.6. Knowledge of the Offer After Part Performance Already Rendered

§ 3.7. Acceptance “Subject to Approval” by a Third Party

§ 3.8. Acceptance by Overt Act

§ 3.9. Unilateral Contract—Acceptance by Beginning Requested Performance

§ 3.10. Acceptance of a Published Offer of a Reward for Action or Contest Prize

§ 3.11. When the Words “I Accept Your Offer” Would Be Ineffective

§ 3.12. Acceptance by Forbearance From Action

§ 3.13. When Notice of Acceptance Is Necessary

§ 3.14. Notice as a Requisite of Guaranty and Letters of Credit

§ 3.15. Notice as a Condition Distinguished From Notice as an Acceptance

§ 3.16. Offer of a Promise, Requesting Non-promissory Action in Return

§ 3.17. Offer of an “Act” for a Promise

§ 3.18. Silence as a Mode of Acceptance

§ 3.19. Can Offeror Make Silence Operate as Acceptance?

§ 3.20. Belated or Conditional Acceptance Followed by Offeror’s Silence

§ 3.21. Silence Plus Additional Circumstances

§ 3.22. Multiple Acceptances

§ 3.23. Alternative Modes of Acceptance

§ 3.24. Acceptance by Post

§ 3.25. Acceptance by Telephone or Electronic Means

§ 3.26. Withdrawal of a Letter of Acceptance From the Mails

§ 3.27. Acceptance by Telegraph—When Operative

§ 3.28. Acceptance Must Manifest Assent and Be Unconditional

§ 3.29. An Acceptance May Be Unconditional Even Though the Acceptor Makes a Conditional Promise

§ 3.30. Acceptance Not Conditional, Even Though Grumbling or Accompanied by a Request or by a New Offer

§ 3.31. Subsequent Erroneous Interpretation Does Not Make an Acceptance Conditional

§ 3.32. Attempts by the Offeree to Restate in the Acceptance the Terms of the Offer

§ 3.33. Attempts by the Offeree to State in the Acceptance the Legal Operation of the Agreement

§ 3.34. Mode of Acceptance Can Be Prescribed by the Offeror

§ 3.35. Counter-Offers and Their Effect

§ 3.36. Power to Accept an Offer Is Terminated by a Counter-Offer or Conditional Acceptance

§ 3.37. The “Battle of the Forms”; “Terms Later” Contracting

§ 3.38. A Counter-Offer or Rejection by One Who Has a “Binding Option” or an Irrevocable Offer Does Not Terminate the Power of Acceptance

§ 3.39. Power of Acceptance Not Terminated by a Counter-Offer if Either Offeror or Offeree So Prescribes

§ 3.40. Inquiries and Separate Offers Distinguished From Counter-Offers

§ 3.41. Effect of Rejection of an Offer

«Pt. I •«TOPIC A •«Ch. 3 »•§ 3.1 »

1 Corbin on Contracts § 3.1 (2020)

§ 3.1. Two Parties Necessary for a Contract, a Promisor and a Promisee

A contract does not necessarily involve reciprocal promises or reciprocal duties. It may be “unilateral” in that only one party makes a promise, with the result that the promisor alone is under a legal duty and the other party alone has a legally enforceable right. It does indeed take two to make a “bargain.” There must be mutual assent to the exchange of performances. It takes only one to make a promise, but there must be another one to whom the promise is made. For any executory contract, there must be at least two parties, a promisor and a promisee.

It has often been said that one cannot contract with oneself.1 This is a mere truism if we have first defined contract as requiring the existence of legal rights and duties. If we define a legal relation as a relation existing between persons, it is obvious that there must be at least two persons for such a relation to exist.2

The statement, that one may not contract with oneself, however, truism though it is, may be so used as to lead to unfortunate and incorrect results. As is the case with most absolute statements, it fails to take into account the whole universe of human behavior. Corporate entities controlled by the same owners have distinct legal personalities and may bind themselves to each other by contract.3 Humans can have more than one legal capacity, and thus can have more than one legal personality. Restatement (Second) of Contracts § 9 cmt. b (Am. Law Inst. 1981), provides, in part: “One person may have different capacities, as for instance as trustee, as executor, as partner, and as individual. If he purports to make a promise in one capacity to himself in another capacity, there may be legal consequences … . Even if his intention is manifested by execution of a formal document, or by other conduct, it may not be technically accurate to say that in one capacity he holds a claim against himself in another capacity, but that may be substantially the effect of his acts.” If the effect of the conduct is to create contractual liability, the supposed “technical” inaccuracy stems from an overgeneralization about the inability to contract with oneself. The discussion about capacity in Restatement (Second) of Contracts § 9, comment b is a departure from the blanket statement found in the Restatement of the Law, Contracts (1932) § 15 some five decades earlier: “Even though a man has different capacities, as for instance as trustee, as executor, as partner, as an individual, it is impossible as [a] matter of substantive law for him by his own individual will or expression to contract with himself.”4

Where the United States retained the defendant as its agent to manage a government-owned merchant ship, and the defendant, as agent, contracted with its own stevedoring division for services, it was ruled that the contract was binding on the defendant upon its ratification by the United States.5 Even a corporation can have more than one legal personality. Thus, a bank acting as executor may borrow money for the estate from its loan division.6 Such rulings are in conformity with the realistic approach under which one department of the executive branch of government may sue another.7

It may be supposed, for example, that an agreement is entirely inoperative if it purports to be made by a partnership or other unincorporated association with a member of such association. There is no reason why such an agreement should not operate as a valid and enforceable contract between the individual member and the other members of the association that purports to make the agreement.8 For the purpose of giving a judicial remedy and for other practical purposes, there is nothing to prevent a court from treating the association of individuals as if it were an independent unit.

It may well be that an agreement made in this way should be subjected to severe scrutiny in the search for fraud and illegality. Yet the mere fact that the agreement purports to be made between the unincorporated association and one of its members does not in itself prove either fraud or illegality. The narrow rules of pleading and procedure at common law may have been such as to prevent the direct enforcement of such a contract as this, but such difficulties did not exist in equity and do not exist under modern procedure. The legal relations of the actual persons involved in the contract can easily be determined and a proper decree entered.

The early common law courts themselves did not treat such a contract as this as absolutely void. An unincorporated association could force the payment of dues in accordance with a promise by a member to pay such dues.9 A negotiable instrument given by a member of a partnership to the firm or by the firm to the individual member is not a void document, although a direct action at earlier common law by one of the contracting parties against the other perhaps could not be maintained. An indorsee of such an instrument could maintain an action against the maker.

An individual whose name appears on both sides of a contract transaction is contracting with the others. The individual gets no rights against himself or herself in the same capacity and owes himself or herself no duties. Neither law nor equity ever recognized such relations. The individual’s rights and duties with respect to the others are determined just as their rights and duties are determined. Suppose that A and B execute a contract whereby they promise to sell land to A and C. In such case A will have an enforceable right against B that B shall make the promised conveyance. B will have a correlative right against A. And C, as a third party beneficiary, may have rights against both A and B.10

Footnotes — § 3.1:

1 “It is a first principle that, in whatever different capacities a person may act, he can never contract with himself, nor maintain an action against himself. He can in no form be both obligor and obligee.” Eastman v. Wright, 23 Mass. (6 Pick.) 316 (1828); Gorham’s Adm’r v. Meacham’s Adm’r, 63 Vt. 231, 22 A. 572 (1891). Dogmatic generalizations of this kind are almost always wrong. The universe is too large to be governed by such generalizations.

2 FT Travel—N.Y., LLC v. Your Travel Ctr., Inc., 112 F. Supp. 3d 1063 (C.D. Cal. 2015) (citing New York law); Leber Assocs., LLC v. Entm’t Group Fund, Inc., 2003 U.S. Dist. LEXIS 13009 (S.D. N.Y. July 29, 2003). In Schmaeling v. Schmaeling, 127 Misc. 2d 763, 487 N.Y.S.2d 494 (1985), the landlord purported to lease certain premises to himself, doing business as “Hilltop Service Station.” He then purported to sublease the premises to one Coven. He then brought proceedings to evict himself and Coven on the grounds that the sublease, being for a longer term than the lease, expired with the termination of the lease to himself. The court ruled that the lease was a nullity and that the purported sublease was a lease for the term provided in the writing between the landlord (in the guise of a lessee) and Coven.

3 In re Caveney, 761 F.2d 671 (Fed. Cir. 1985).

4 Morgan Wightman Supply Co. v. Smith, 764 S.W.2d 485 (Mo. App. 1989), involved the complexities of Missouri’s Mechanics’ lien statutes and turns on a determination of whether the particular lienor was an original contractor or a subcontractor because the notice requirements applicable to subcontractors differ from those applicable to original contractors. The owners, Robert and Elizabeth owned property as tenants by the entirety. Robert was developing the land through his wholly owned business, the R.C. Smith Construction Co. The court was willing to accept the possibility that there was a binding contract between Robert and Elizabeth as owners and Robert as construction contractor but found no evidence of such a contract. The dissent thought that an implied contract had been proved.

A lessor sued a lessee for breach of a lease provision requiring the lessee to procure liability insurance naming the lessor as an additional insured. The fact that the same individual signed the lease on behalf of both lessor and lessee posed no legal infirmity since the lease was executed in his different capacities as a 50% stakeholder in the lessor and the sole shareholder of lessee. The court cited this § 3.1 in support of this proposition. Kim v. D & W Shin Realty Corp. 47 A.D.3d 616, 2008 NY Slip Op 90 (N.Y. 2008).

Similarly, in Petri v. GeaCom, Inc., 2018 U.S. Dist. LEXIS 58868 (N.D. Ill. April 6, 2018), minority shareholders of GeaCom sued GeaCom and various of its representatives. Plaintiffs alleged that defendants violated the right of first refusal clause in the company’s Subscription Agreement when GeaCom issued more than $800,000 worth of stock without notifying plaintiffs. Defendants moved to dismiss this claim as to one of the plaintiffs, Chris Petri. Defendants admitted that Petri was a party to the Subscription Agreement, but they claimed that Petri subsequently entered into a contract called the Key Investor Agreement, which provided that upon signing, “all prior agreements of the parties” were “null and void.” The court rejected this argument. Chris Petri signed the Subscription Agreement in his capacity as trustee of a trust, but he signed the Key Investor Agreement in his individual capacity. “An individual may enter into contracts in various capacities without binding the individual in another capacity.”

But see Austin v. Preferred Commun. Sys., Inc., 2015 U.S. Dist. LEXIS 170345 (C.D. Cal. Dec. 18, 2015). A company’s sole director (but not sole owner) purported to enter into an employment contract with himself to serve as the company’s CEO. The contract purportedly was formed by talking to himself. The court refused to recognize the contract’s validity, reasoning that a legally operative contract requires the assent of at least two separate, independent minds. It was not enough that this individual was acting in different capacities—on the one hand, as a director acting for the company, and on the other, as an individual—it is still a legal impossibility. A “contract” entered into by talking to oneself “is literally the opposite of an arm’s-length transaction. The only arms in this purported agreement belonged to” the individual who supposedly contracted with himself.

A more interesting question was posed by Frank Lloyd Wright Foundation v. Town of Wyoming, 267 Wis. 599; 66 N.W.2d 642 (1954), where the Frank Lloyd Wright Foundation sought an exemption from local property taxes based on its alleged character as a benevolent, educational institution. The court ruled against the Foundation, explaining that “[t]o meet the test of exemption of an educational institution, there must be a complete dedication to educational purposes and a divorce from gain to those who control the ownership.” The court found two insurmountable problems: the Foundation’s principal purpose was to assist Wright’s business, and the Foundation was merely an extension of Wright. The Foundation claimed it was an independent entity, and in support of that proposition, it pointed to the fact that the Foundation had the exclusive right to the architectural services of Frank Lloyd Wright, and the right to all fees from those services. The court found that argument unavailing. Even if such a contract existed between Frank Lloyd Wright, the individual, and the Foundation, the court suggested that under the present setup—because the Foundation was “completely dominated in every detail of its life by Frank Lloyd Wright the individual”—such a contract would be between Frank Lloyd Wright and himself. The court was concerned that Wright was not acting in separate capacities.

Where a director or officer enters into a transaction with a corporation, there may, of course, be special considerations to insure the fairness of the deal. See e.g., McGraw v. Andes, 978 S.W.2d 794, 803 (Mo. App. 1998): “Where it appears that a director or officer has obtained any personal profit from dealing with the corporation, and the transaction is drawn into question as between him and the stockholders of the corporation, the burden is upon the director or officer to show that the transaction has been fair, open and in the utmost good faith.”

5 United States v. Alaska S.S. Co., 491 F.2d 1147 (9th Cir.1974).

6 Breedlove v. Freudenstein, 89 F.2d 324 (5th Cir. 1937), cert. denied, 302 U.S. 701.

U.S.

—United States v. Nixon, 418 U.S. 683, 94 S. Ct. 3090, 41 L. Ed. 2d 1039 (1974).

Cal.

—Yosemite Portland Cement Corp. v. State Bd. of Equalization, 59 Cal. App. 2d 39, 138 P.2d 39 (1943). The City by competitive bidding “contracted” with a department, the “Hetch Hetchy Project.” This was held to be a contract within the meaning of a tax exemption statute, the court stating, however, that this was not a matter of “general contract law.” This realistic approach was achieved despite the dogma that the court considered to be general contract law.

8 Restatement (Second) of Contracts § 11 (Am. Law Inst. 1981), provides: “A contract may be formed between two or more persons acting as a unit and one or more but fewer than all of these persons, acting either singly or with other persons.” Thus, a partner can contract with the partnership. Forsyth v. Butler, 152 Cal. 396, 93 P. 90 (1907).

9 Anderson v. Amidon, 114 Minn. 202, 130 N.W. 1002 (1911).

10 In Welling v. Crosland, 129 S.C. 127, 123 S.E. 776 (1924), A and B contracted to sell land to A and 19 others, each of these buyers promising severally to pay separate sums. It was held that A and B could get a decree for specific performance by the 19 others. “It is true that A was a party to the trust agreement, one of the syndicate. How this fact may relieve the other members from their obligations we cannot conceive. They were aware of it when they entered into the agreement, and as it has turned out, the entry of A was a benefit to them rather than otherwise, for he bears his proportion of the purchase price, to that extent relieving the others.”

In Barlow v. Gregory, 31 Conn. 261, 265 (1863) it was said: “A contract is an agreement between two or more persons … .” But where one person has different capacities, as in the case of a trustee, executor, administrator, agent, or other fiduciary, he has the power to contract in his representative capacity with himself as an individual, the contract being voidable, however, at the instance of the beneficiary. See Mallory v. Mallory-Wheeler Co., 61 Conn. 131, 138, 23 A. 708, 711 (1891).

In Moore v. Denslow, 14 Conn. 235 (1841), it was held that an action at law could not be maintained by A against B and C on a promissory note made to A’s order by A, B and C; but it was recognized, on the authority of Nevins v. Townsend, 6 Conn. 5 (1825), that if the note had been endorsed by A to X, the latter might have sustained an action against all the makers. The court said that, in such a case, “the technical rule of law that a party cannot be both plaintiff and defendant would be obviated.” The inference to be drawn from the opinion is that the obstacle in the path of A’s action was a procedural one and not any infirmity in the contract; for, if an action by X against A, B and C would be sustained, the power of A, B and C to contract with A is recognized.

Compare, however, People’s Bank of Butler v. Allen, 344 Mo. 207, 125 S.W.2d 829 (1939) and McGraw v. Andes, 978 S.W.2d 794 (Mo. App. 1998), which questioned the validity of People’s Bank of Butler v. Allen, supra. In keeping with the modern rule, McGraw held that a person may contract with himself or herself in different capacities.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.2 »

1 Corbin on Contracts § 3.2 (2020)

§ 3.2. In a Bargaining Transaction, Only the Offeree Has Power to Accept

In making an offer of a bargain, the offeror controls not only all the terms of the agreement but also the person or persons in whom a power of acceptance is created. An offer may be made by A to one specific person, B. In such case B is the sole person who can accept A’s offer. The power of acceptance is not assignable by B to C or any third person; nor can any third person who learns of A’s offer substitute for B as the second party to the contract.1 This is true even though the offer is one that requires no personal performance by B and no financial responsibility is to be assumed by B. It is true even though A is not acquainted with B and would be equally willing to contract with C instead. In such case A may be content with the substitution and may proceed with performance without objection, but C’s attempt to accept in place of B operates as a new offer to A and not as an acceptance. A can accept this new offer by words or conduct as in the case of other offers.2 Generally it would not be necessary for A to send a reply to C, since C’s communication purports to be an acceptance and assumes that no reply is required. Nevertheless, there is no contract made until A has in some sufficient manner expressed assent to C’s proposal.

The rule stated above is based in part upon the fact that in many cases it actually makes a difference to A who the other party to the contract shall be. In even larger measure it may be based upon the once prevailing notion that “contract” involved a strictly personal relation, so personal indeed that contract rights were thought to be impossible of assignment. Even after the decline and final demise of that notion, the non-assignability of the power of acceptance created by a revocable offer (but not an option contract) persists. It persists, also, in spite of the fact that in nearly all cases B can accept A’s offer and at once thereafter assign the contract rights and delegate the performance of the duties to C without A’s assent.3

There are many contracts requiring personal performance by B, but even in these, B’s rights against A are assignable. In no case has B the power to rid himself or herself of duties by assigning them to C, even though their performance is not personal and can be delegated. This leads to the observation that when B attempts to assign the power of acceptance or when C attempts to act in substitution as acceptor, their action is usually to be interpreted as an attempt to substitute C for B in all respects as party to the contract with A. They mean not only that C shall have the rights against A, but also that performance shall be by C in place of B and that the duty to render that performance shall be in C alone, with no duty whatever in B. Such a result as this cannot be brought about, even today, by the process of assignment without A’s assent, nor can it be brought about by substituting C for B as acceptor.4

There are some offers by A that do not provide that B shall render any personal performance or undertake any legal duty whatever. The proposed contract is to be unilateral, as where A promises B a sum of money for the rescue of A’s child or for procuring a buyer for Blackacre. In such a case, B can accept A’s offer by causing C to rescue the child or to procure the buyer, and at the same time B can assign to C the right to the money.5 It may be that the law will so develop that in cases like this the offeree can assign the power to accept, but thus far it has not been suggested by the courts.

An offer may be made in such terms that the offeree can accept by tendering the full performance for which the offeror is bargaining. In this case the resulting contract is unilateral, and if the performance is not a “personal” one, the offeree can accept by making the tender of performance by other hands than his or her own. In such a case an assignment of the right to the promised payment is not invalidated by the fact that the delegation of performance and the assignment of the right are by a single instrument or otherwise made simultaneously.6

The offeror, A, can restrict the power of acceptance to a single offeree B, but also can instead create such a power in more than one offeree. The offeror can make the offer to a group of offerees who must accept all together,7 or to several specific persons who can each accept separately, or to a large number of unspecified persons, any one of whom can accept or all of whom can separately accept. This is wholly within the offeror’s power when making the offer. But in all these cases alike, no one of the offerees has any power to substitute a new acceptor, creating a power of acceptance in any one who did not already have it direct from A.

If the offeree is acting for an undisclosed principal and this is known to the offeror, the offer is made to that principal and the agent’s acceptance is the principal’s acceptance. But if the offeree does not disclose the fact of the existence of a principal, the latter has no power to accept the offer that was made to the person who was secretly acting for the principal. It is true that if the agent personally accepts the offer, the undisclosed principal can enforce the contract thus made, but such enforcement does not deprive the other party of any defense that would be good as against the agent nor does it deprive the other of the benefit of the agent’s personal responsibility.8

Footnotes — § 3.2:

U.S.

—Ott v. Home Savings & Loan Ass’n, 265 F.2d 643 (9th Cir. 1958), holding that the offeree’s power of acceptance cannot be assigned, citing § 56, 1950 ed. The defendant wrote a letter to Shaw as follows: “Home agrees to purchase from you or your nominee up to $7,500,000 of permanent real estate loans.” of a specified kind on stated terms. Thereafter, Shaw in writing designated Ott as his “nominee” and assigned to Ott all his “right, title and interest” in the said agreement by Home. Ott in writing accepted the designation and assignment, notified the defendant, and tendered to the defendant in acceptance of its agreement loans of the specified kind amounting to $7,500,000. The court held that the defendant’s letter was a mere offer to Shaw and was not assignable to Ott. The words “or your nominee” were interpreted as authorizing Shaw to name a representative on his own behalf and not as empowering him to name a substituted offeree. On this interpretation, the decision is correct; but it makes the quoted words mere surplusage, since any offeree can accept an offer by a representative, unless the offer expressly declares otherwise. Very likely, the defendant’s promise was improvident, sharp advantage being taken of it by plaintiff.

In Aurora Gasoline Co. v. Coyle, 174 F. Supp. 331 (E.D. Ill. 1959) an offer of a settlement was made to certain heirs of a decedent. The attorney for the administrator inserted another name as offeree. An attempted acceptance by the party so named was operative as no more than an offer by him to the party making the offer to the heirs.

In Merrill v. Fidelity & Casualty Co. of N.Y., 304 F.2d 27 (6th Cir. 1962), the defendant maintained a vending machine at an airport, containing a liability insurance policy on the life of an intending passenger who would personally sign the application therefor and cause a quarter to be dropped into the slot. In this case, the plaintiff obtained such a policy from the machine on the life of his son who was the intending passenger. He signed his son’s name to the application, knowing and understanding that the insurer required the application to be signed by the passenger in person. The son was killed on the flight, and the plaintiff testified that the son had directed him to sign his son’s name. The court held that the requirement that the passenger sign was clear and reasonable and was understood by the plaintiff, and that the policy so obtained was not a valid contract.

In Byest v. No. Wal-Mart Stores, Inc., 2014 U. S. Dist. LEXIS 108890 (N.D. Miss. Aug. 7, 2014), after the defendant’s termination of plaintiff’s employment, the plaintiff filed a complaint stating that the defendant violated its own policy of providing time off for employees who were victims of sexual assault or other violations. The policy was posted on the defendant’s internal computer system under a heading, “Time Off Policy–Illinois.” The policy also explicitly stated, “[T]his policy applies only to associates who work … in Illinois.” The plaintiff did not work in Illinois. Quoting § 29 of the Restatement (Second) of Contracts, the court noted that “the manifested intention of the offeror determines the person or persons in whom is created a power of acceptance.” The offer was restricted to employees in Illinois. Thus, the plaintiff had no power of acceptance and her claim for breach of the policy failed.

Great Lakes Commun. Corp. v. AT&T Corp., 124 F. Supp. 3d 824 (N.D. Iowa 2015).

Ariz.

—Daru v. Martin, 89 Ariz. 373, 363 P.2d 61 (1961).

Cal.

—Grieve v. Mullaly, 211 Cal. 77, 293 P. 619 (1930).

Estate of Watts, 162 Cal. App. 3d 1160, 208 Cal. Rptr. 846 (1984).

Del.

—Carey’s Home Constr., LLC v. Estate of Myers, C.A. 2014 Del. Super. LEXIS 206 (April 16, 2014). Court calls rule that offer is generally not assignable a “familiar maxim[ ] of contract law.”

Kan.

—Von Hillman v. Colonial Penn Ins. Co., 19 Kan. App. 2d 375, 869 P.2d 248 (1994), review denied, 255 Kan. 1001 (1994).

Ky.

—Rotondo Weirich Enters. v. Rock City Mech., Inc., 2006 U.S. Dist. LEXIS 19177 (E.D. Ky. April 11, 2006).

Md.

—Routzahn v. Cromer, 220 Md. 65, 150 A.2d 912 (1959) (offer to Binus to sell a tract of land, whose name was scratched out by buyer’s broker and Cromer substituted. Seller would not assent to the change).

Sunbeam Prods., Inc. v. 148977 Can., Inc., 2004 Md. Cir. Ct. LEXIS 24 (Mar. 8, 2004).

Mass.

—Baker v. Goldman Sachs & Co., 656 F. Supp. 2d 226 (2009).

N.Y.

—See In re Zacoum’s Estate, 115 N.Y.S.2d 42 (1952). The administrator addressed a letter to Alexander Mango, an English lawyer in Istanbul, requesting a search for certain adoption records. The administrator received a reply on the stationery of “Alex A. Mango, M.A., LL.B. (Barrister-at-Law of Lincoln’s Inn).” After further correspondence, the requested records were furnished and a bill for services was submitted. The cover letter was signed “A. Mango.” The administrator became aware that Alexander Mango had died prior to receipt of any of the correspondence and that the “A. Mango” with whom he had corresponded was Alexander’s son, Anthony. It was held that no contract was formed. (Death of the offeree might have been an alternative ground for the same result.) Moreover, no quasi-contractual relationship was created inasmuch as Anthony had rendered the services as a volunteer.

Ohio

—Univ. of Toledo Chapter of Am. Ass’n of Univ. Professors v. Univ. of Toledo, 2013-Ohio-1517, (2013).

Pa.

—Strauss & Co. v. Berman, 297 Pa. 432, 147 A. 85 (1929) (An offeree cannot substitute a corporation that the offeree controls).

Telxon Corp. v. Smart Media of Del., Inc., 2005-Ohio-4931 (2005).

Wash.

—Hazelrigg v. Northwest Quality Props., Inc., 2000 Wash. App. LEXIS 551, *8 (April 3, 2000). “The power of acceptance under an option contract is assignable by the option holder without the assent of the option giver … .”

An interesting application of this rule is found in Blackford v. Prairie Meadows Racetrack & Casino, Inc., 778 N.W.2d 184 (Iowa 2010). In 2006, the plaintiff won $9,387 at the defendant casino, which refused to pay him. The casino had issued a “trespass ban” against the plaintiff in 1996 after he had struck a slot machine and broke its glass. In the ensuing legal action, the court viewed the casino as the offeror promising to pay a wager on condition that the wagerer wins. Did the casino make an offer to the plaintiff? The offeror, as master of the offer, decides to whom it chooses to extend an offer. The plaintiff was banned from the casino for life—he had been provided clear notification of this fact. Since no offer was extended to the plaintiff, he had no power of acceptance, and no contract could result.

2 In Orcutt v. Nelson, 67 Mass. (1 Gray) 536 (1854), an order was placed for some alcoholic beverages. The recipient notified the offeror that he had taken over his brother’s business and was making the requested shipment. The court ruled that “receipt of the goods pursuant to notice, and payment of the freight, are decisive proof of the assent … to the change.”

This elementary principle stated in the text is sometimes lost sight of. In Apostolic Revival Tabernacle v. Charles J. Febel, Inc., 131 Ill. App. 2d 579, 266 N.E.2d 545 (1970), defendant, a masonry contract, made an offer to perform work to a pastor in his individual capacity. The offer was accepted by the pastor on behalf of his church, a not-for-profit corporation. This was held to be ineffective. The court ignored the fact that the defendant’s refusal to perform had nothing to do with the substitution of offerees. Defendant attempted to get out of the contract by sending the pastor a release indicated that defendant had assented to the contract with the corporation. The decision is an excellent example of “afterthought law.” The parties’ dispute had absolutely nothing to do with the point the court found to be decisive. Compare Preload Technology, Inc. v. A.B. & J. Constr. Co., Inc., 696 F.2d 1080 (5th Cir. 1983) (Texas law), where the general contractor accepted the offer on the letterhead of a different corporation (Preload Company) than the one that had solicited the bid (Preload Technology). The subcontractor, when refusing to perform, did not make this fact an issue. If there was no contract by a process of offer and acceptance, there was one by promissory estoppel.

3 See, for example, Carluccio v. 607 Hudson St. H. Co., 141 N.J. Eq. 449, 57 A.2d 452 (1948) (assignee was denied specific performance for inequitable conduct); Macke Co. v. Pizza of Gaithersburg, Inc., 259 Md. 479, 270 A.2d 645 (1970); S & L Vending Corp. v. 52 Thompkins Ave. Restaurant, Inc., 26 A.D.2d 935, 274 N.Y.S.2d 697 (1966); Weathers v. M.C. Lininger & Sons, Inc., 68 Or.App. 30, 682 P.2d 770 (1984), review denied, 297 Or. 492, 683 P.2d 1372 (1984).

In Polhamus v. Roberts, 50 N.M. 236, 175 P.2d 196, 170 A.L.R. 991 (1946), an owner made an offer to lease property to A. The latter accepted, requiring however that the lease should be executed in the name of B. This was not an effective acceptance. This would be correct even though A would have had power to assign the lease to B by first accepting the terms of the lease.

4 Restatement (Second) of Contracts § 52 (Am. Law Inst. 1981) provides: “An offer can be accepted only by a person whom it invites to furnish the consideration.” Comment a thereto states: “The rule that the power of acceptance is personal to the offeree is applied strictly, even in cases where the offeree after acceptance could assign his rights and delegate performance to the assignee … .”

An offeree cannot substitute a corporation that the offeree controls. Strauss & Co. v. Berman, 297 Pa. 432, 147 A. 85 (1929).

An offer of guaranty to J.M. & Co., a partnership, cannot be accepted by J.M. & Co., a corporation later formed, even though its incorporators and stockholders are identical with the partners. Jordan-Marsh Co. v. Beals, 201 Mass. 163 (1909).

If a corporation makes an offer with reason to know that the offeree believes it is a different corporation with a similar name it cannot hold the offeree who accepts under the mistaken belief. Nutmeg State Mach. Corp. v. Shuford, 129 Conn. 659, 30 A.2d 911 (1943).

A bid made to a partnership cannot be accepted by a corporation. Brook v. Oberlander, 49 Ill. App. 2d 312, 199 N.E.2d 613 (1964).

This section (§ 3.2, 1950 ed.) was cited in Schneider v. Pioneer Trust & Savings Bank, 26 Ill. App. 2d 463, 168 N.E.2d 808 (1960). The plaintiff made an offer to the defendant to buy property held by it in trust for Harmon. It was Harmon, the beneficiary, who gave notice of acceptance, not the defendant trustee to whom the offer was made. The court held that only the trustee had power to accept. The court said: “Retaining the nature of his interest in order to be entitled to the advantages of a land trust, he [the beneficiary] may not then deal with the property as if no such trust existed.” This is a close case, since it seems that the plaintiff knew that Harmon was the trust beneficiary, and Harmon had power to order a conveyance by the trustee.

Mass.

—Huntington v. Knox, 61 Mass. (7 Cush.) 371 (1851).

5 Such cases as Boston Ice Co. v. Potter, 123 Mass. 28, 25 Am. Rep. 9 (1877), may possibly belong to this class, so that the decision should be disapproved. If, however, the offeree was requested not only to deliver ice or goods of a specified kind and quality, but was also asked to make a promise that ice or other goods would be delivered over some period of time, or a promise guaranteeing quality, there could be no operative acceptance by the mere delivery of goods unaccompanied by B’s promise as requested. The making of this promise by B might properly be implied from the fact that B causes the delivery of the goods by C in response to A’s offer, but no such promise can be “implied” if the offer is intercepted, or otherwise directly received, by C, and he or she delivers the goods wholly of his or her own motion in substitution for B.

An offer to guarantee payment, made to H, cannot be accepted by K, by supplying the principal with the goods for which credit was to be given. King v. Batterson, 13 R.I. 117 (1880).

6 See Petroleum Products Distributing Co. v. Alton Tank Line, 165 Iowa 398, 146 N.W. 52 (1914). Order for goods turned over to another who made proper delivery. The offeree both accepts and performs by an agent. In such a case, however, for the breach of any warranty that goes with the goods the original offeree would be liable.

D.C.

—Clayman v. Goodman Properties, Inc., 518 F.2d 1026 (D.C. Cir.1973), an option made jointly to three optionees could not be accepted by two. The court stressed that the creditworthiness of the optionees was a material matter.

Iowa

—An offer to three joint owners of land to buy the tract for a stated price is not accepted by the signatures of two only, the third refusing to sell. Of course, a contract for the sale of the interests of the two, without including the interest of the third, would be enforceable, but evidence that such was the intention is necessary. Jasperson v. Bohnert, 243 Iowa 1275, 55 N.W.2d 177 (1952).

N.Y.

—An offer made to two joint lessees cannot be accepted by either of them individually. The court points out that the landlord would possibly be enmeshed in litigation by selling to one of them individually. Spitalnik v. Springer, 59 N.Y.2d 112, 463 N.Y.S.2d 750, 450 N.E.2d 670 (1983), reargument denied, 60 N.Y.2d 702. The result would be different if one of the lessees had the authority to bind the other and was acting on behalf of both.

Ore.

—Meister v. Arden-Mayfair, Inc., 276 Or. 517, 555 P.2d 923 (1976). An offer was made to sell a business to three couples acting as a group. A purported acceptance by two of the six offerees was ineffective.

U.S.

—Queen Ins. Co. of America v. Citro, 58 F.2d 107 (7th Cir. 1932).

Kans.

—Powers v. Coffeyville Livestock Sales Co., Inc., 665 F.2d 311 (10th Cir. 1981).

La.

—Intercontinental Engineering-Manufacturing Corp. v. C. F. Bean Corp., 647 F.2d 621 (5th Cir. 1981).

Mich.

—American Enam. B. & T. Co. v. Brozek, 251 Mich. 7, 231 N.W. 45 (1930).

N.Y.

—Kelly Asphalt B. Co. v. Barber Asphalt P. Co., 211 N.Y. 68, 105 N.E. 88 (1914).

See Restatement (Third) of Agency, § 6.03 (3rd 2006); Randy Barnett, Squaring Undisclosed Agency Law with Contract Theory, 75 Calif. L. Rev. 1969 (1987).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.3 »

1 Corbin on Contracts § 3.3 (2020)

§ 3.3. Assignment of Power by an Option Holder—Irrevocable Offers

In the case of an irrevocable offer, the power of acceptance can generally be assigned without the assent of the offeror.1 The general rule can be derogated by a lawful provision in the offer restricting assignability.2 An irrevocable offer is both an offer and a binding contract. The offeree has what is called a “binding option,” and the transaction has already created a contract. The holder of the option has contract rights, and usually is as yet under no duties because the option contract is unilateral. The transaction also involves an offer to the holder of the option, who has an irrevocable power of acceptance. The courts have treated such a transaction as a unit, with the result that the option holder’s power, as well as rights, are assignable without the assent of the other party.3

Just as in the case of other contracts, however, if the exercise of the option involves the undertaking of a legal duty by the option holder, the rights of any assignee will be conditional upon the undertaking of that duty by the contemplated party. Likewise, if the contract made by the exercise of the option is one that requires a personal performance by the option holder, the rights of the assignee will be conditional on such personal performance. Thus, if A gives to B a binding option to buy land for a sum of money in cash, B can assign the option to C and the latter can compel conveyance by A on proper tender of the cash; no credit is involved and it is immaterial who pays the money.4 On the other hand, if the option given to B is to buy land for B’s note for $1,000 and for B’s services as an attorney, B can assign the option to C, but C’s right to a conveyance will be conditional on giving B’s note and the readiness of B to act as attorney. C cannot compel performance by A by tendering C’s own note and services in place of B’s.5

Footnotes — § 3.3:

1 See, e.g., Hazelrigg v. Northwest Quality Props., Inc., 2000 Wash. App. LEXIS 551, *8 (April 3, 2000). “The power of acceptance under an option contract is assignable by the option holder without the assent of the option giver … .”

Cal.

—Masterson v. Sine, 68 Cal. 2d 222, 65 Cal. Rptr. 545, 436 P.2d 561 (1968).

Ky.

—Campbell v. Campbell, 313 Ky. 249, 230 S.W.2d 918 (1950).

U.S.

—Liberty Dialysis—Hawaii, LLC v. Fresenius Med. Care Holdings, Inc., 2009 U.S. Dist. LEXIS 51906 (D. Haw. June 19, 2009).

Minn.

—Koehler & H. Mercantile Co. v. Illinois Glass Co., 143 Minn. 344, 173 N.W. 703 (1919); McMillan v. Ames, 33 Minn. 257, 22 N.W. 612 (1885).

N.Y.

—Cochran v. Taylor, 273 N.Y. 172, 7 N.E.2d 89 (1937) (assignee of option given specific performance).

Ohio

—Himrod Furnace Co. v. Cleveland & M.R. Co., 22 Ohio St. 451 (1872).

Or.

—House v. Jackson, 24 Or. 89, 32 P. 1027 (1893) (option in a lease).

Wash.

—Hazelrigg v. Northwest Quality Props., Inc., 2000 Wash. App. LEXIS 551 (April 3, 2000).

Eng.

—Whiteley v. Hilt, [1918] 2 K.B. 808, 119 L.T.R. 632. Restatement (Second) of Contracts § 320, ill. 2 (Am. Law Inst. 1981).

4 Restatement (Second) of Contracts § 310 ill. 1 (Am. Law Inst. 1981).

Ga.

—Franklin v. Jordan, 224 Ga. 727, 164 S.E.2d 718 (1968). Although the option to purchase land was assignable, indeed explicitly so, the assignee’s ability to demand performance was conditioned on the tender of the note of the original optionee. Because of the lack of such tender, specific performance was denied.

Mass.

—E.M. Loews, Inc. v. Deutschmann, 344 Mass. 765, 184 N.E.2d 55 (1962).

N.Y.

—Lojo Realty v. Estate of Johnson, 253 N.Y. 579, 171 N.E. 791 (1930).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.4 »

1 Corbin on Contracts § 3.4 (2020)

§ 3.4. Motive With Which Offeree Renders Performance

Ordinarily the motive that induces one to offer a reward is the desire to procure the requested performance. By the same token, ordinarily the motive that induces someone to render the requested performance is the desire for the reward, knowing of the offered reward. Even in the case of the offeror, however, the desire for the performance may not be the offeror’s sole motive, and in the case of an acceptor, the requested service may be rendered from motives wholly other than a desire for the offered reward.

In a well-known English case a reward was offered for information leading to the arrest of a criminal. After having been severely beaten by the criminal in question, one Mary Ann Williams gave the requested information. In one report of this case, it does not appear whether or not Mary knew of the offer when she gave the information, but it does appear that she gave it for reasons other than a desire for the reward. She believed that she was about to die, and she gave the information in order to ease her conscience because she had previously lied about what she knew about the crime, and perhaps to get even with the man who had beaten her, or perhaps to avoid discomforts in the after-life. The court said that her motives were immaterial and held that she was entitled to the reward.1 In another report of the case, counsel are said to have admitted that Mary “must have known of it as it was placarded all over Hereford where she lived.”

We shall not here attack this decision, although some courts have stated a contrary opinion,2 and some persons who have rendered the requested service from other motives than a desire for the offered reward may forbear to seek the reward or even refuse it when tendered.3 Generally, however, a bargaining contract is explained as the result of mutual expressions of agreement or as requiring the intentional acceptance of an offer. Like other definitions and rules, these are generalizations from the decided cases. They are useful, but they are not consistent with all past court decisions and they do not necessarily control future decisions. Contracts are not always consummated by the machinery of offer and acceptance. If two persons repeat in unison, and in each other’s presence, the terms of a contract prepared for them by a third person, they make a valid contract.4 So also, if two persons simultaneously sign duplicate copies of a proposed contract prepared for them by a third person, they will have a contract. In these cases, no doubt they are consciously expressing mutual assent to the same terms. Usually the motive of each is the desire for what the other gives or promises.5

In a well-known English case,6 a manufacturer published an advertisement promising to pay £100 to anyone who should use its carbolic smoke ball according to directions for two weeks and thereafter catch the influenza. The plaintiff did as requested and caught the influenza. Judgment was rendered for the £100. Without doubt the paramount motive of the offeror was the desire to make sales and receive money. Probably the paramount motive of the plaintiff, the offeree, was to gain immunity from a disease. If the plaintiff attained this chief objective, plaintiff would receive no money at all. That these were the motives of offeror and offeree did not prevent the formation of a valid unilateral contract.

Whatever the motive or motives may be, it is generally asserted that to have a contract there must be mutual expressions of intention to agree upon definite terms. Even this, however is not always true. When a debtor makes a new promise to pay a debt barred by the statute of limitations, this promise is a binding contract without any expression of assent by the creditor.7

In any case, it is certain that in rendering a requested performance it is not necessary that the sole motive of the offeree must be the desire for the offered reward. It need not even be the offeree’s principal or prevailing motive. The motivating causes of human actions are always complex and are frequently not clearly thought out or expressed by the actor. This being true, it is desirable that not much weight should be given to the motives of an offeree and that no dogmatic requirement should be embodied in a stated rule of law.8

The Restatement of Contracts, promulgated in 1932, took the position that: “If an act or forbearance is requested by the offeror as the consideration for a unilateral contract, the act or forbearance must be given with the intent of accepting the offer.”9 The rationale was that the performance of an act is ambiguous in that the offeror has no way of knowing whether or not the offeree performed with an intent to accept. The Restatement (Second) takes a position that is more consistent with mixed springs of human conduct. It provides in § 53:

(2) Except as stated in § 69,10 the rendering of a performance does not constitute an acceptance if within a reasonable time the offeree exercises reasonable diligence to notify the offeror of nonacceptance. (3) Where an offer of a promise invites acceptance by performance and does not invite a promissory acceptance, the rendering of the invited performance does not constitute an acceptance if before the offeror performs his promise the offeree manifests an intention not to accept.11

The difference in application in the two provisions is illustrated by Industrial America, Inc. v. Fulton Industries, Inc.12 Plaintiff, a broker specializing in mergers, was retained by B-H, Inc., and succeeded in becoming the procuring cause of a merger whereby the defendant, Fulton, acquired B-H. Fulton had advertised its interest in acquiring other business and had pledged in these advertisements that brokers would be protected. In considering the liability of Fulton, the court, relying on the provisions of the Restatement (Second), rejected the argument that plaintiff had the burden of proof of its subjective intention to accept the offer of guaranty published by Fulton. No inquiry should be made into the motivation of the offeree absent a disclaimer by the offeree.13

A similar result was reached in Jennings v. Radio Station KSCS.14 The plaintiff was a convict and his complaint stated that his only contact with the outside world was the radio and that he regularly listened to the defendant station. The station frequently stated that it played “at least three [recordings] in a row, or we pay you $25,000. No bull, more music on KSCS.” The plaintiff on a number of occasions reported to the station that it frequently played three songs, a commercial and then only two songs before the next commercial. It was held that the complaint stated a cause of action. The court deemed that listening to the station was the requested performance.15 The fact that the plaintiff would listen to the same station regardless of the offer should not bar his claim.

Footnotes — § 3.4:

1 Williams v. Carwardine, 4 B. & Adol. 621 (1833). The opinions of the judges were as follows:

Denman, C.J. “The plaintiff, by having given information which led to the conviction of the murderer of Walter Carwardine, has brought herself within the terms of the advertisement, and therefore is entitled to recover.”

Littledale, J. “The advertisement amounts to a general promise, to give a sum of money to any person who shall give information which might lead to the discovery of the offender. The plaintiff gave that information.”

Parke, J. “There was a contract with any person who performed the condition mentioned in the advertisement.

Patteson, J. “I am of the same opinion. We cannot go into the plaintiff’s motives.”

According to these statements, it is the motive of the plaintiff that is immaterial; nothing is said about knowledge of the offer.

The second report of this case is in 5 Car. & Payne 574, 172 E.R. 1101.

In Simmons v. United States, 308 F.2d 160 (4th Cir. 1962), the American Brewery sponsored the “American Beer Fishing Derby” in which it tagged a specific rock fish (like millions of others) with the name “Diamond Jim III,” and let him loose in Chesapeake Bay. It then publicly offered a prize of $25,000 to any person who would catch Diamond Jim and present him to the Company along with the tag and with an affidavit that he was caught on hook and line. With knowledge of the prize offer, but without thought of winning, Simmons went fishing and caught Diamond Jim on hook and line. On discovering the tag, he first “appropriately marked the happy event” with his fishing companions, and then presented the fish, tag, and affidavit to the Brewery and received his just reward of $25,000. The Internal Revenue Service then assessed and collected from Simmons a deficiency of $5,230 on his income tax. In this suit to compel a refund, while admitting that the $25,000 prize was “income,” Simmons argued that it was within an express statutory exemption of prizes and awards given “in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement” and also of money received as a “gift.” The court held that this prize was not within either exemption. It was not a “gift” because the Brewery’s offer was in consideration of specific action by the fisherman. His acts as requested, even though not at first motivated by the offer, consummated when fully performed a unilateral contract by which the Brewery was legally bound to pay. Also, the prize was not one for a “civic achievement,” the statutory meaning of which was determined in part by the “legislative history,” in part by its statutory companions (noscitur a sociis), and in part by the dictionaries. [The fact that the party paying the money was bound by a contract to pay it shows that he was not making a gift, but the party receiving the money would nevertheless be receiving it as a “gift” in the following case: A conveys property to B in return for B’s promise to pay $1,000 to A’s son C. The son is a “donee beneficiary” and receives the money as a “gift”; but the donor is A, not B.] Observe that in this case the plaintiff was motivated by the reward in returning the fish, but not so motivated in catching it.

“The offeree’s conduct ordinarily constitutes an acceptance in such cases only if he knows of the offer. His rendering of the invited performance with knowledge of the offer is a sufficient manifestation of assent, and inquiry into his motives is unnecessary.” Restatement (Second) of Contracts, § 53 cmt. c (Am. Law Inst. 1981).

“A city ordinance provides that a standing reward of $ 1000 will be paid for information leading to the arrest and conviction of anyone guilty of arson within the city limits. A furnishes such information. A is entitled to the reward whether or not he knew of the reward or was motivated by hope of reward.” Restatement (Second) of Contracts, § 23 ill. 3 (Am. Law Inst. 1981).

N.Y.

—Reynolds v. Eagle Pencil Co., 285 N.Y. 448, 35 N.E.2d 35 (1941), reversing 260 A.D. 482, 23 N.Y.S.2d 101; Vitty v. Eley, 51 App. Div. 44, 64 N.Y.S. 397 (1900). To be compared is Braun v. Northeast Stations & Services, Inc., 93 A.D.2d 994, 461 N.Y.S.2d 623 (1983). The defendant employer posted a notice that read “NOTICE $5,000 REWARD.” Elsewhere the notice in print ⅛ the size of the headline, read: “A reward of up to $5,000 will be paid for information leading to the arrest and conviction of anyone robbing this station or attendant on duty.” An employee who was the victim of a robbery provided information leading to the arrest and conviction of the robber. In holding for the plaintiff, the court stated: “It is well settled, however, that ‘motivation of a person performing the acts required by an offer of reward is immaterial, but consent to the offer is vital.’ ”

Austl.

—R. v. Clarke, 40 C.L.R. 227 (1927); see 1 Austl. L.J. 287 (1928). Clarke was arrested for the murder of two policemen. After four days he revealed information implicating two others and exonerating himself. After his release he claimed a reward of £1,000, of which he was aware at the time of his arrest but which was not a motivating factor in inducing him to provide the desired information.

Vitty v. Eley, supra, involved much the same sort of facts as R. v. Clarke. There seems to be much justification for treating self-exculpatory cases differently from the run-of-mill unilateral contract formation cases. They can be distinguished from the general run of cases on the ground that the performances were not voluntary. Sheldon v. George, 132 App. Div. 470, 116 N.Y.S. 969 (1909). It is perhaps more accurate to say “the right to claim a reward may be limited by equitable principles,” including the doctrine of “clean hands.” Alexander v. Russo, 1 Kan. App. 2d 546, 571 P.2d 350 (1977).

3 The following item appeared in a newspaper: “Little Rock, Ark., Dec. 12.—James Howard, convict who killed Tom Slaughter, notorious outlaw, in a communication to Gov. McRae today relieved the state from any and all obligations of paying him the $500 reward offered for the apprehension and killing of Slaughter. Howard declared that when he shot and killed the bandit he did not know that any reward had been offered.” No Reward For Killing of Bandit Slaughter, Norwich Bull., Dec. 13, 1921, at 8.

4 See § 1.12.

5 It is rare indeed for a promisor in a bilateral agreement to urge that the motive for promising was something other than the desire for the return performance. Such a motive is, of course, irrelevant. See Hamilton v. Oakland School Dist., 219 Cal. 322, 26 P.2d 296 (1933), where the school district entered into a compromise agreement with a general contractor with whom a bona fide dispute had arisen. The district sought to renege, unsuccessfully arguing that its sole motive in entering into the compromise agreement was to make certain that the contractor would perform its already existing duty to pay its subcontractors.

Eng.

—Carlill v. Carbolic Smoke Ball Co., [1893] Q.B. 256, 62 L.J.Q.B. 257.

7 See Restatement (Second) of Contracts § 82 (Am. Law Inst. 1981).

8 Professor John Murray wrote: “If … the act requested in the offer is performed by a party who has knowledge of the offer, the presumption is very strong that he or she acted with some reference to the offer though perhaps having had one or more superior motivations for performance of the requested act. Absent a clear manifestation of an intention not to accept the offer, the performance evidences acceptance of the offer.” John E. Murray, Murray on Contracts § 45 (5th ed. 2011).

Ga.

—Consolidated Freightways Corp. v. Williams, 139 Ga. App. 302, 228 S.E.2d 230 (1976). Freightways posted a sign offering a reward of “up to $5,000” for information leading to the conviction of a thief of company property, telling employees to “Contact your supervisor or manager.” Williams, a supervisor, gave such information, but the company refused to pay. The trial court awarded Williams the full $5,000 and the judgment was affirmed. The court cited this § 3.4 to show that Williams’ admission that he was not thinking of the reward at the time of recovery was irrelevant to his recovery.

Iowa

—Schlosser v. Allis-Chalmers Corp., 86 Wis. 2d 226, 271 N.W.2d 879, 884–885 (1978) (collecting Iowa cases and adopting the terms of Restatement (Second) of Contracts § 53 (Am. Law Inst. 1981)).

N.J.

—In Klockner v. Green, 54 N.J. 230, 254 A.2d 782 (1969), plaintiff admitted that he would have taken care of his stepmother even without her promise to leave him her estate on her death. The court held, citing this treatise (§ 58, 1963 ed.) that the motive which induced Klockner to perform the contract was immaterial. Substantially to the same effect is Ballard v. Schoenberg, 224 N.J. Super. 661, 541 A.2d 258 (App. Div. 1988), cert. denied, 113 N.J. 367, 550 A.2d 473.

9 Restatement of Contracts § 55 (1932).

10 This section deals with acceptance by silence and by conduct.

11 The language of § 53(3) of the Restatement (Second) “is a major shift from the First Restatement requirement that the offeree manifest an intention to accept to a rebuttable presumption of acceptance arising from performance by the offeree.” John E. Murray, Murray on Contracts § 45 (5th ed. 2011).

12 Industrial America, Inc. v. Fulton Industries, Inc., 285 A.2d 412 (Del. 1971).

13 See Cobb v. Texas Distributors, Inc., 524 S.W.2d 342 (Tex. Civ. App. 1975); Restatement (Second) of Contracts § 53(3) and cmt. c (Am. Law Inst. 1981). See also, Whitewood v. Robert Bosch Tool Corp., 323 Fed. App’x 397 (6th Cir. 2009).

14 Jennings v. Radio Station KSCS, 708 S.W.2d 60 (Tex. Civ. App. 1986).

15 Query whether this was the requested performance. Arguably the offer challenged the listener to disprove the station’s boast that it maintained a certain policy.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.5 »

1 Corbin on Contracts § 3.5 (2020)

§ 3.5. Knowledge of Offer as a Pre-requisite to Acceptance

Probably most contracts are bilateral in character—a promise is exchanged for a return promise. Unless one party offers an exchange and requests another party to make the return promise, no return promise is likely to be made. As a practical matter, communication of the offer is necessary. “It is essential to a bargain that each party manifest assent with reference to the manifestation of the other.”1 But there is an exception:

The mutual reference required by this Section is ordinarily intended by both parties to a contract, but if one party believes that there is such reference and the other knows that his conduct creates that appearance, the requirement is satisfied. Similarly, if one party believes that there is such reference and has no reason to know that the other has a different understanding, the requirement is satisfied if the other has reason to know that his conduct creates the unintended appearance.2

In unilateral contracts also, if the offeror makes a promise for a performance to be rendered by a specific person, it is very seldom that the performance will be rendered by that person unless the promise of compensation and request for action is communicated to that person.3 Here, too, as a practical matter, communication of the offer is necessary.

But there is one class of unilateral contracts about which this cannot be said. There are many offers of reward published or broadcast for the rendition of a service by any person who may be fortunate enough to be able to do it. Thus, rewards are publicly offered for the discovery and return of lost articles, for the invention of new devices, for the capture and conviction of some person charged with crime. In these cases, it may happen that someone is engaged in rendering the exact performance requested, either before the offer is published or before having heard of it. Sometimes, the person has completed the performance in entire ignorance of the offer. It has been held in a number of cases that the offeror’s promise of compensation is not enforceable by one who has done this.4 There is no power of acceptance by one to whom the offer is wholly unknown.

This is quite logical and is consistent with the assumption that “contract” requires conscious assent to terms proposed by another. It is probable, indeed, that the chief reason for enforcing a promise is that it has induced the promisee to act in reliance upon it. One who has rendered a service without knowledge of an offered promise has not so acted. But the chief reason is not necessarily the only reason for enforcing a promise. If it seems good to the courts to enforce a promise when the promisor has received the desired equivalent, even though the one rendering it knew nothing of the promise and rendered the service from other motives, there is no sufficient reason for refusing to call that enforceable promise a contract.

There are cases in which the courts have taken this latter view and have enforced the promise, even though the person rendering the required service did so in ignorance of the promise.5 Most, but not all, of these have been cases in which the promise was made by some public corporation such as a state or a city. They have been explained on the theory that the published promise of reward was a public grant and not within the field of contract.6 But whether it is within the field of contract depends on the way we define the field. Whether the promise of reward is public or private, it may equally well be called a “grant.” In either case the result is that we have an enforceable promise. The recovery is the amount or value of the performance promised, not the value of the performance rendered by the plaintiff and received by the defendant. The remedy is the customary contract remedy.

Moreover, to call the offer of a state or municipality a “grant,” whether by statute or ordinance, is to describe it in a way that it is not commonly regarded.7 Often, the offer of reward is made by the proclamation of some public officer and not by an act of legislation. But whether made in one way or the other, it is generally regarded and recognized for what it is—a promise to pay for service—made as many other public contracts are made, and made in the same way that private persons and associations make their contracts.

In an old case, a court came to the conclusion that where two offers, identical in terms, cross in the mail—as where A writes B offering to sell Blackacre for $5,000, and at the same time B writes A offering to pay $5,000 for Blackacre—there is no contract.8 There are very few examples of identical offers that have crossed in the mails, and in the electronic age there are even fewer examples, still the question must be regarded as unsettled.9 A legal system that accepts the notion that a contract involves the concurrence of the intentions of the parties has no problem accepting that identical cross offers create a contract.10 The common law generally has taken an objective approach to the effect that a contract involves an objective manifestation of mutual assent rather than a concurrence of intentions. This approach is for the convenience of courts and parties, making unnecessary a searching inquisition into actual intention. Where objective evidence of an actual concurrence of intentions is available, justice is well served by giving effect to those intentions. Identical cross offers provide such objective evidence.11 It may be that a little confusion would ensue if crossed offers were to be held to make a contract. In any case, it is certain that if such cross offers do not create a contract each such offer creates a power of acceptance in the other party and that an acceptance by either one closes the deal and makes the contract that each of them offered to make.12

Footnotes — § 3.5:

1 Restatement (Second) of Contracts § 23 (Am. Law Inst. 1981).

See Accadia Site Contr. v. Northwest Sav. Bank, 2016 U.S. Dist. LEXIS 168680 (W.D.N.Y. Dec. 5, 2016). Unauthorized drafts were drawn against Accadia’s commercial banking account with the defendant bank by Accadia’s corporate secretary, and Accadia sued the bank. At issue was whether Accadia received and acknowledged a Deposit Account Agreement and Disclosure (“DAAD”) at the time the account was opened. The DAAD included a provision absolving Northwest of liability unless notified within 60 days of a forged signature, or within 30 days for any “subsequent items paid, in good faith, containing an unauthorized signature or alteration by the same wrongdoer.” Accadia disputed that it received sufficient notice of the DAAD since it was not provided to Accadia until after its representative signed all of the account documents, including the signature pad. The court held that an offeree cannot assent to an offer unless the offeree knows of its existence. All the terms of an offer “ordinarily precede acceptance.”

2 Restatement (Contracts) § 23 cmt. b (Am. Law Inst. 1981).

3 In employment situations, publication of promised terms of employment may occur in circumstances where not all eligible employees will be aware of the promises. See § 4.2. For the present, see Schlosser v. Allis-Chalmers Corp., 86 Wis. 2d 226, 271 N.W.2d 879, 885 (1978). “The company’s admission that it distributed literature to its employees describing the plan is enough to permit an inference that the employees worked with general knowledge of the offer.”

Owen v. MBPXL Corp., 173 F. Supp. 2d 905 (N.D. Iowa 2001). Though a disclaimer of any legal effect in an employee handbook was upheld in Anderson v. Douglas and Lomason Co., 540 N.W.2d 277 (Iowa 1995), the court held that statements in the handbook, which the employee had not read, constituted an offer that the employee accepted by continuing as an employee after the handbook was distributed, even though he had never read those handbook sections on which he later relied to claim a unilateral contract that precluded his dismissal without cause. The court explained that this holding was a “narrow divergence” from the usual rule that it is impossible to become an offeree without knowledge of the offer, and that performance must be induced by the promise to form a unilateral contract. It justified this divergence on the grounds that employee handbooks distributed to all employees are not individually negotiated agreements but are standardized agreements between the employer and a class of employees, and the use of such standardized agreements is interpreted as treating alike all those who are similarly situated. The instant case relegates Anderson to the narrow situation of the formation of a unilateral contract. Where the offer requires acceptance by promise rather than performance (a “bilateral” contract), the traditional rule applies, i.e., a failure to communicate the terms of a proposal (here, arbitration) cannot constitute an effective offer and no contract would result from the continued employment of the plaintiff.

4 “If a person acted without knowledge of the reward, he was not induced to act by the reward offer and had no expectation of receiving payment under the reward offer when he completed the act. He had, therefore, no power of acceptance; he was not an offeree. The case law is clear that no contract can come into existence unless the offeree knew of the offer when he or she performed the act required by the offer.” John E. Murray, Murray on Contracts § 45 (5th ed. 2011).

U.S.

—Otworth v. The Florida Bar, 71 F. Supp. 2d 1209 (M.D. Fla. 1999).

Thelen v. Loomis, Fargo & Co., 1999 U.S. Dist. LEXIS 22827 (W.D.N.C. July 20, 1999).

Drown v. Howlett, 1999 U.S. Dist. LEXIS 19834 (D. Neb. Dec. 21, 1991).

Ala.

—Gadsden Times v. Doe, 345 So. 2d 1361, 86 A.L.R.3d 1136 (Ala. Civ. App. 1977). A curious case. The newspaper printed a news item to the effect that “Mayor Les Gilliland announced today a total of $5,000 is offered for information leading to the conviction of the slayers of the Reverend Edward Pace.” Other similar news articles concerning rewards in the case preceded this item. The news was apparently totally inaccurate. No one in city government knew of a reward offer. It was held that the newspaper made no offer by printing these news items. Clearly, it did not claim to be an offeror. However, shouldn’t the newspaper have tort liability if it manufactured news concerning the alleged offer? The court was willing to consider the contractual liability of the newspaper based on a later article that appeared after the information had been supplied by the plaintiff.

Ark.

—Arkansas Bankers’ Ass’n v. Ligon, 174 Ark. 234, 295 S.W. 4, 53 A.L.R. 534 (1927).

Cal.

—Hewitt v. Anderson, 56 Cal. 476 (1880).

D.C.

—Glover v. Jewish War Veterans, 68 A.2d 233 (Mun. Ct. D.C. 1949).

Fla.

—Sumerel v. Pinder, 83 So. 2d 692 (Fla. 1955) (a reward was offered for information leading to an arrest and conviction. Before the offer was made, the plaintiff had already given the information to the proper authorities).

Ill.

—Williams v. West Chicago St. R. Co., 191 Ill. 610, 61 N.E. 456 (1901); Board of Trustees of Police Pension Fund v. Railway Ticket Protective Bureau, 175 Ill. App. 464 (1912); Chicago & A.R. Co. v. Sebring, 16 Ill. App. 181 (1885).

Iowa

—Anderson v. Douglas & Lomason Co., 540 N.W.2d 277, 284 (Iowa 1995). Court “decline[d] to follow the traditional requirement that knowledge of the offer is a prerequisite to acceptance in the limited context of employee handbook cases.”

Kan.

—In Alexander v. Russo, 1 Kan. App. 2d 546, 571 P.2d 350 (1977), some platinum had been stolen. The thief’s mother could not recover the reward as she did not know of the offer at the time she made a statement to the police. Her attorney could not recover despite the fact he knew of the offer at the time he reported information to the police supplied by her and told her to make a complete statement to the police. An attorney must not use a confidence of his or her client for self-advantage unless the client consents after full disclosure.

Miss.

—Fidelity & Deposit Co. of Maryland v. Messer, 112 Miss. 267, 72 So. 1004 (1916).

Mo.

—Smith v. Vernon County, 188 Mo. 501, 87 S.W. 949 (1905).

N.J.

—Mayor, etc., of City of Hoboken v. Bailey, 36 N.J.L. 490 (1873).

N.Y.

—Howland v. Lounds, 51 N.Y. 604 (1873); Fitch v. Snedaker, 38 N.Y. 248 (1868); Sheldon v. George, 132 App. Div. 470, 116 N.Y.S. 969 (1909); Vitty v. Eley, 51 App. Div. 44, 64 N.Y.S. 397 (1900). See also Braun v. Northeast Stations & Services, Inc., 93 A.D.2d 994, 461 N.Y.S.2d 623 (1983).

N.D.

—Couch v. State, 14 N.D. 361, 103 N.W. 942 (1905).

Tenn.

—Stamper v. Temple, 25 Tenn. 113 (1845).

Tex.

—Broadnax v. Ledbetter, 100 Tex. 375, 99 S.W. 1111 (1907).

Restatement (Second) of Contracts § 23 cmt. c; § 51 cmt. a (Am. Law Inst. 1981).

This rule is supported by inference in Marvin v. Treat, 37 Conn. 96 (1870). In that case, A offered a reward of $50 to anyone who should recover the horse and wagon stolen from him. B, in ignorance of the offer, recovered the horse and wagon and turned it over to A and accepted $2 for his services. It was held, in an action by B to recover the amount of the reward, that if he ever had a cause of action it was satisfied by his acceptance of the $2. This indicates that his right to $50 was at least doubtful.

In State v. Malm, 143 Conn. 462, 123 A.2d 276 (1956), the State published an offer of a reward for information leading to the arrest and conviction of the person guilty of a particular crime. Prior to this publication, the claimant had given to the police all the information in her possession and the guilty party had been arrested. Later, he confessed and was convicted. The court held that the claimant was not entitled to the reward.

U.S.

—Drummond v. U.S., 35 Ct. Cl. 356 (1900).

Del.

—Eagle v. Smith, 4 Houst. 293 (1871).

Ind.

—Sullivan v. Phillips, 178 Ind. 164, 98 N.E. 868 (1912); Everman v. Hyman, 26 Ind. App. 165, 28 N.E. 1022 (1891); Dawkins v. Sappington, 26 Ind. 199 (1866).

Iowa

—Anderson v. Douglas & Lomason Co., 540 N.W.2d 277, 284 (Iowa 1995). “[W]e decline to follow the traditional requirement that knowledge of the offer is a prerequisite to acceptance in the limited context of employee handbook cases.”

Kan.

—Stone v. Dysert, 20 Kan. 123 (1878).

Ky.

—Coffey v. Com., 37 S.W. 575 (1896); Auditor v. Ballard, 72 Ky. (9 Bush) 572 (1873).

Nev.

—Smith v. State, 38 Nev. 477, 151 P. 512 (1915).

Pa.

—Cummings v. Gann, 52 Pa. 484 (1866).

Tex.

—Choice v. City of Dallas, 210 S.W. 753 (Tex. Civ. App. 1919).

Vt.

—Russell v. Stewart, 44 Vt. 170 (1872).

Eng.

—Gibbons v. Proctor, 64 L.T. 594 (1892); Neville v. Kelly, 12 C.B. (N.S.) 740 (1862).

In Stone v. Dysert, supra, the plaintiff knew that a reward had been offered, but did not know its exact terms or who had made the offer. There seems little reason for refusing enforcement in such a case, even though in rendering the service the plaintiff cannot be said to have assented to the exact offer.

6 In Choice v. City of Dallas, supra, in part quoting from Broadnax v. Ledbetter, 100 Tex. 375, 99 S.W. 1111 (1907), the court says: “While we have seen no such distinction suggested, it may well be supposed that a person might become legally entitled to a reward for arresting a criminal, although he knew nothing of its having been offered, where it was offered in accordance with law by the government. A legal right might in such a case be given by law without the aid of contract.” A suggestion of such a distinction was also made in the cases of Clinton County v. Davis, 162 Ind. 60, 69 N.E. 680 (1904), and Drummond v. United States, 35 Ct. Cl. 356 (1900). The distinction was actually applied in Smith v. State, 38 Nev. 477, 151 P. 512 (1915).

7 In contrast to the tenor of the text, it has been suggested that reward offers could be separated from the concepts of offer and acceptance and enforced regardless of whether the party performing the service was aware of the offer. John E. Murray, Murray on Contracts § 45 (5th ed. 2011).

8 Brett, J., in Tinn v. Hoffmann & Co., 29 L.T. (N.S.) 271 (1873). With him agreed Blackburn, Keating, Archibald and Grove, JJ. Contra were Honyman and Bramwell, JJ. Honyman, J., wrote: “I cannot see why the fact of the letters crossing each other should prevent their making a good contract. If I say I am willing to buy a man’s house on certain terms, and he at the same moment says that he is willing to sell it, and these two letters are posted so that they are irrevocable with respect to the writers, why should not that constitute a good contract? The parties are ad idem at one and the same moment.”

James v. Marion Fruit Jar Co., 69 Mo. App. 207, 219 (1897), is in accord with Brett, J., that there is no contract.

9 Morris Asinof & Sons v. Freudenthal, 195 App. Div. 79, 186 N.Y.S. 383 (1921), aff’d, 233 N.Y. 564, 135 N.E. 919, appears to be a case in which it was held that identical offers crossing in the mails made a binding bargain for the sale of goods, without the necessity of a reply to either offer. On the facts as reported the decision should be approved. It was in fact affirmed without opinion, by the Court of Appeals. The parties seem to have agreed on terms through a broker, although possibly not so as to be bound by contract. They had written notes of confirmation that agreed on all matters except the time for payment, which was to be either before January 1 or before January 5. In two subsequent letters that crossed in the mails, they agreed on the later date. After receiving this letter from the seller, the buyer repudiated the deal on the ground that his own letter was not acknowledged and assent expressed.

10 Spiers v. Seal, 426 So. 2d 631 (La. App. 1982), writ denied, 432 So. 2d 269 (La.).

11 The Restatement (Second) of Contracts § 23 cmt. d. and ill. 5 (Am. Law Inst. 1981), hedges by suggesting that two parties could assent in advance to cross offers and suggests that such assent may be inferred when both parties think a contract has been made.

12 In Tinn v. Hoffmann & Co., supra, Blackburn, J., said: “Either of the parties may write and say, ‘I accept your offer, and, as you perceive, I have already made a similar offer to you,’ and then people would know what they were about; I think either side might revoke.”

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.6 »

1 Corbin on Contracts § 3.6 (2020)

§ 3.6. Knowledge of the Offer After Part Performance Already Rendered

It has been vigorously argued that, where a reward is offered in return for specified acts, it is necessary to a valid acceptance that the offeree should have knowledge of the offer during the whole time that the requested acts were being performed and that part performance without knowledge followed by a completion of performance with knowledge makes no contract. This view was adopted by the American Law Institute in the original Restatement of Contracts.1

The normal person who learns of an offer of reward after having already partly performed will proceed with the performance in reliance on the offer and with expectation of the reward. Thus, this individual has assented to the offer, has acted in reliance upon it, the entire benefit that the promisor promised to pay for has been received. The offeror does not prescribe the rendition of the entire service as the mode of expressing assent to his offer, but merely promises the reward as compensation for the entire service.

Even if the part performance rendered without knowledge is of such character that it can be repeated, it seems foolish to require the acceptor to repeat it in order to earn the reward. If A offers $100,000 to anyone who will scale a wall and bring down a person threatened with death by fire, shall one who has already scaled the wall climb down and scale it again in order to earn the reward? If A offers a sum of money for the plowing of a field, shall B, who has already plowed part of it by mistake, plough that part over again when he learns of the offer? There seems to be no established rule of law that the entire performance by one party shall be consciously given in exchange for the promise of the other, although there is a rule that a promise is not enforceable unless the promisor gets substantial performance of that which the promisor has asked in return.

It should be borne in mind that preparation to perform is not identical with the requested performance. If one offers a reward for the return of a lost article, the fact that the party returning it had found it prior to the making of the offer, or prior to this party’s knowledge of it, is immaterial. A contract is created by rendering the specific service requested (the return) with knowledge of the offer. The same result should be reached even though the part performance rendered without knowledge is a part of the very performance requested by the offeror.

The views advocated by Professor Corbin in a prior edition of this treatise have been accepted by the drafters of the Restatement (Second) of Contracts. Its Section 51 provides: “Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance.”2 Illustration 1 to that section reads:

“A offers a reward for the apprehension and delivery into police custody of a criminal. Before learning of the reward, B arrests the criminal. After learning of the reward, B delivers the criminal into police custody. B is entitled to the reward.”

This illustration represents a total reversal of illustration 1 of the former Restatement.

Although the problem of the timeliness of the offeree’s acquisition of knowledge of the offer has most often been litigated in reward cases, it also surfaces in the employment relationship. An employer has developed and announced a program of fringe benefits, and severance pay or bonuses based on longevity. An employee is hired without being told of the existence of the promised benefits. The employee later discovers the existence and details of the promise. All of the employee’s time on the job counts toward earning the promised benefits, including the period of time during which the employee was ignorant of the promise.3

Footnotes — § 3.6:

1 Restatement, Contracts, § 53: “The whole consideration requested by an offer must be given after the offeree knows of the offer.” “Illustration 1. A offers a reward for information leading to the arrest and conviction of a criminal. B, in ignorance of the offer, gives information leading to his arrest and later, with knowledge of the offer and intent to accept it, gives other information necessary for conviction. There is no contract.” In accord with the original Restatement:

Ill.

—Williams v. West Chi. St. Ry., 191 Ill. 610, 61 N.E. 456 (1901); Price v. City of East Peoria, 154 Ill. App. 3d 725, 107 Ill. Dec. 564, 507 N.E.2d 228 (1987).

N.Y.

—Fitch v. Snedaker, 38 N.Y. 248 (1868); cf. Greene v. Heinrich, 59 Misc. 2d 655, 300 N.Y.S.2d 236 (Civ. Ct. 1969), aff’d, 65 Misc. 2d 622, 319 N.Y.S.2d 275, aff’d, 38 A.D.2d 691, 327 N.Y.S.2d 996 (1971).

Contra:

Mich.

—Genesee County v. Pailthorpe, 246 Mich. 356, 224 N.W. 418 (1929).

Mo.

—Smith v. Vernon County, 188 Mo. 501, 87 S.W. 949 (1905); Hoggard v. Dickerson, 180 Mo. App. 70, 165 S.W. 1135 (1914).

2 Aon Risk Servs. v. Meadors, 100 Ark. App. 272, 267 S.W.3d 603 (2007), rehearing denied, 2007 Ark. App. LEXIS 888 (2007), review denied, 2008 Ark. LEXIS 212 (2008) (citing § 51 with approval). Kreimeyer v. Hercules Inc., 892 F. Supp. 1364 (D. Utah 1994) (adopting § 51 in the context of employment setting).

“Even if Sharp began the performance invited by Deutsche Financial’s counteroffer by requesting the $ 2.2 million of financing without knowledge that the ‘old deal’ had been terminated and that new conditions had been demanded, its core actions continuing performance in the manner invited by the offer—i.e., the shipping of merchandise—occurred after it had actual knowledge of Deutsche Financial’s counteroffer.” Sharp Elecs. Corp. v. Deutsche Fin. Servs. Corp., 216 F.3d 388 (4th Cir. 2000) (adopting the principles of § 51).

Ala.

—Henderson Land & Lumber Co. v. Barber, 17 Ala. App. 337, 85 So. 35 (1920). The employer posted a notice promising a 5% bonus to everyone in its employ who worked four continuous months. Plaintiff was hired after the notice was posted but was unaware of it for some time. He afterwards read the notice and upon completion of four months from the date of his hiring he was held to be entitled to the bonus.

Ohio

—Helle v. Landmark, Inc., 15 Ohio App. 3d 1, 472 N.E.2d 765 (1984). The timing of some of the events in this case is somewhat obscure. The employer had printed up a personnel manual, the existence of which was not known to the plaintiff employees for some time. It contained generous severance provisions. When it appeared that the plant was scheduled to close down and the employees began to search for other employment, the plaintiff employees were told that they had earned considerable severance pay, which they would jeopardize by quitting. Their continued employment was sufficient performance to act as acceptance of the offer, which included credits during their entire career with the company and its predecessor. Disclaimers of liability contained in the manual were ineffective because the promises were revealed to them orally.

Utah

—Kreimeyer v. Hercules Inc., 892 F. Supp. 1364, 1368 (1994). An employee sought recovery based on policies of his employer he had never seen. The court cited Restatement (Second) of Contracts § 51 (Am. Law Inst. 1981), which provides that an “offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance.” The court wrote: “[a]n employee accepts the offer of a unilateral contract in a policy handbook or manual ‘by remaining in his employment with knowledge of the terms of the offer.’ ” But to recover, the employee has to have knowledge of the offer before he or she completes performance, and in this case, the employee did not have such knowledge.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.7 »

1 Corbin on Contracts § 3.7 (2020)

§ 3.7. Acceptance “Subject to Approval” by a Third Party

Generally, a purported acceptance that adds conditions to the terms of the offer is not a good acceptance.1 Thus, there is no contract if an offer to sell land is accepted “subject to” approval of title by the offeree or the offeree’s attorneys.2 The meaning usually attributed to such words as “subject to” is that a promise that is so limited is a conditional promise, one that is different from that for which the offeror bargained. An acceptance “subject to a formal contract” or “subject to a proper contract to be prepared by our solicitors” has been held in a number of cases not to be an operative acceptance.3

If a purported acceptance, “subject to the approval of title by my solicitor” means only that my duty to pay shall be conditional on your transferring to me the marketable title that you promise in your offer, the acceptance may properly be held to be unconditional. The condition is only that the solicitors verify if the promised title can be conveyed. The solicitor has no veto over the terms of the deal. But the quoted words do not necessarily have so limited a meaning. Instead, they seem to indicate that the acceptance is conditional on the opinion of “my solicitor” on the question of title.4 If so, there is no contract.

In Patel v. Burt Dev. Co.,5 Patel agreed to purchase property for $1,050,000. The contract under which he made the purchase, however, was subject to the condition that Patel receive the financing necessary to purchase and renovate the property. Patel was required to pursue such financing with due diligence and notify the seller (Burt) if he was unable to obtain the financing by the closing date. The closing date was later extended by an agreement requiring Patel to deposit additional earnest money. Patel neither notified the seller that he was unable to secure financing nor did he deposit the additional earnest money. The property was sold to another party for $850,000 and Burt brought this action to recover damages from Patel. Patel admitted that several lending institutions were willing to lend him sufficient funds but he rejected these opportunities because of the terms and conditions in such proposals. The trial court directed a verdict for Burt on the ground that Patel breached the contract by failing to obtain financing and notify Burt to that effect. On appeal, Patel argued that the trial court erred in directing a verdict and the instant court agreed. The facts disclosed a valid contract for the purchase and sale of the property subject to a condition precedent of obtaining financing to the duties of both parties to render their promised performances. The court, however, manifested confusion in stating that, “The contract was not binding on the parties until [Patel] obtained a loan, for not until the occurrence of that event did the contract have mutuality.” This suggests a misanalysis of the buyer obtaining financing as a condition precedent to the formation of the contract. A contract for the sale of property conditioned on the purchaser obtaining financing is binding from the moment the promises are exchanged. There is mutuality in that the seller must take the property off the market and the buyer has a good faith obligation to pursue financing.

The court then redeemed its analysis by recognizing the good faith obligation of the buyer to diligently seek financing, which is typically implied in such contracts but was expressed in the contract before the court. The court held that if Patel failed to pursue his good faith obligation of obtaining financing, a directed verdict for the seller would be proper. If he did pursue that obligation diligently but failed to obtain the financing, there would be no breach of contract. Since the record indicated that Patel had opportunities to obtain the financing but rejected them, there was a material issue of fact as to whether Patel was reasonable in rejecting them in light of the broadly-worded contingency clause in the contract that did not include specific amounts or financing terms.

While the court finally arrived at a plausible analysis, it is important to clarify the respective obligations of the parties under such common contracts for the sale of real property subject to obtaining financing. The parties are bound to purchase and sell the property on the agreed terms. Their duties, however, are postponed until an event—a condition precedent—either occurs or does not occur. The event is the obtaining of financing. If that event occurs, the existing duties under the contract are activated. If the event does not occur, the duties are discharged. The buyer has an implied obligation (albeit on these facts, it was an express obligation) to diligently seek financing. This is a duty created by the buyer’s implied promise to operate in good faith and to cooperate in an effort to fulfill the duties under the contract.

A transaction that consists of an unconditional offer followed by a conditional acceptance must be distinguished from one in which neither party has yet made an operative offer. In the process of negotiation an agreement may be expressed on certain matters, both parties knowing that on other matters of importance agreement has not been reached. In such a case, the expected contract is still “subject to” expressions of agreement by both parties.6

The topic under consideration is not the same as the situation where the mutual agreement of the parties contains a provision that it is subject to the approval of a third party. Rather, the topic here is a subspecies of the topic of conditional acceptances. It must be borne in mind that an acceptance subject to the assent or “permit” of a third party is not a conditional acceptance if the offer was in identical terms subject to that very assent or “permit.”7 It is quite possible for the parties to make a valid contract in which the rights and duties of each are conditional on the happening of some event not within their control, such as the expression of opinion by a third party. For such a result it must be shown that the parties intend that negotiation between themselves is closed, leaving no power of revocation or withdrawal in either one. This being shown, the acceptance is not a “conditional acceptance” varying from the offer, but the rights and duties created by such a contract are conditional rights and duties.8 Thus an offer that states that it is “subject” to the approval of the attorneys of both parties creates a contract the moment it is accepted.9

On the other hand, if one who initiates a transaction or one who solicits offers expressly provides that any contract is subject to “approval at the home office,” there will be no contract until that approval takes place,10 unless there are subsequent expressions of agreement to be bound without it. Such a solicitation is simply not an offer. This is quite different from a provision in a proposition that performance will be subject to the approval of a third person. One who has imposed the home office requirement should not be permitted to trick the other party into a contract by “waiving” it,11 as long as the other party reasonably believes that its own expression of assent is revocable until it occurs. The obverse if that situation does not involve trickery. Instead, it sometimes happens that the party who has imposed the “home office” provision acts, with the knowledge of the other, as if the contract had been approved. Thereafter a dispute arises and the party who had imposed the provision for its own protection12 seeks to escape from the deal for other reasons, but seeks refuge in the “home office” provision. It should not be allowed to do this, and “waiver” is an appropriate term to explain how a contract has been created.13 At other times the case may be analyzed under the heading of “acceptance by silence.”14

In Markmann v. H.A. Bruntjen Co.,15 the plaintiff made a written offer to purchase the distribution rights for defendant’s product and accompanied it by a down payment of $1,000. Also, plaintiff and defendant’s agent both signed a distributor’s agreement. These documents were sent to defendant’s home office for approval. This approval came back, with a change in the territory. The documents sent to the home office operated only as an offer. The reply was a counter-offer. The plaintiff got restitution of his down payment.

Footnotes — § 3.7:

1 See § 3.35.

2 Dickey v. Hurd, 33 F.2d 415 (1st Cir. 1929), cert. denied, 280 U.S. 601 (acceptance of offer to sell land held conditional when made “subject to examination of titles by my attorneys and survey of property to show acreage you claim.”).

Richardson v. Greensboro W. & S. Co., 223 N.C. 344, 26 S.E.2d 897, 149 A.L.R. 201 (1943) (“subject to the approval of the title of our attorneys.”).

In Gumbin v. Alexander, 22 F.2d 889 (7th Cir. 1927), in accepting an offer to sell land, the offeree added “with the understanding that the 99 year lease is to be canceled.” There was no contract made.

Where the purported acceptance is subject to the approval of a third person, a contract is formed when the third person expresses approval, provided that neither party has notified the other of a change of mind. See Housing Authority v. Foster, 237 So. 2d 569 (Fla. App. 1970), where the approval was communicated inferentially.

Consumer Opinion LLC v. Frankfort News Corp, 2017 U.S. Dist. LEXIS 159251 (N.D. Cal. Sept. 27, 2017) (no acceptance where attorney told other attorney: “Well I can’t agree without my clients consent but that sounds fine to me. I’ll get their approval when I talk to them today.”).

U.S.

—Burwell v. American Coke & Chem. Co., 7 F.2d 435 (1st Cir. 1925). In Dooley v. West, 210 F.Supp. 239, 245 (W.D. Ark. 1962), the defendant’s letter concluded with: “I want my attorney to pass on all papers before I accept.” It was held that the letter could not be an acceptance. The further statement by the court that it could not be an offer is dubious.

Conn.

—Atlantic Terra Cotta Co. v. Chesapeake Terra Cotta Co., 96 Conn. 88, 113 A. 156 (1921).

Ga.

—Southern Bell Tel. & Tel. v. John Hancock Mut. Life Ins. Co., 579 F. Supp. 1065 (N.D. Ga. 1982). (“Subject to the review of the contract by our legal counsel”).

N.J.

—Stallings v. Eypper & Beckmann, 5 N.J. Misc. 671, 137 A. 784 (1927).

Wolf v. Galex, 2013 N.J. Super. Unpub. LEXIS 1053 (May 6, 2013). A settlement agreement provided that it was “subject to agreement by the parties on the language of the formal settlement agreement and releases to be exchanged by the parties, incorporating the provisions of this term sheet.” The court considered various factors and concluded: “Taken in context, the ‘subject to’ language in [the Term Sheet] paragraphs reflected an agreement to dot i’s and cross t’s, and not an acknowledgement that the case was not yet settled because an essential term was missing.”

N.Y.

—Chain Locations of America, Inc., v. T.I.M.E. DC, Inc., 81 A.D.2d 993, 440 N.Y.S.2d 69 (1981).

In DCR Mtge. VI Sub I, LLC v. Peoples United Fin., Inc., 148 A.D.3d 986, 50 N.Y.S.3d 144 (N.Y. App. Div. 2017), the parties executed letters of intent concerning the plaintiff’s possible purchase of a commercial mortgage from defendant. The letters set forth “minimal terms,” and each of them contained the following language: “All terms and conditions referenced herein are non-binding and subject to Purchaser’s satisfactory due diligence review of the loan in its sole discretion and negotiation of a mutually agreed upon Loan Sale Agreement between Purchaser and Seller.” The parties never finalized a mutually agreed upon loan sale agreement. Plaintiff sued, claiming the last letter of intent was a binding contract. The lower court denied defendant’s motion for summary judgment, but the appellate court reversed. “[A] mere ‘agreement to agree,’ which is expressly conditioned on the execution of a definitive agreement satisfactory in form and substance to both parties, does not give rise to an enforceable contract … .” Here, pursuant to the letters of intent, “the formation of an enforceable agreement for the purchase and sale of the subject loan was expressly conditioned, inter alia, on the finalization of a definitive agreement … .” The letters of intent were nonbinding, and no contract was formed.

N.D.

—Davis v. Satrom, 383 N.W.2d 831 (N.D. 1986). A purported acceptance by seller contained a condition that the agreement be approved by the seller’s attorney. This was a counter-offer. If the buyer in turn accepted the counter-offer, the issue is whether the attorney fraudulently withheld approval. In this case there were good tax grounds to disapprove.

Eng.

—Lockett v. Norman-Wright [1925] 1 Ch. 56; Chillingworth v. Esche [1924] 1 Ch. 97 (C.A.); Proctor v. Pugh [1921] 2 Ch. 256; Coope v. Ridout [1921] 1 Ch. 291 (C.A.); Rossdale v. Denny [1921] 1 Ch. 57 (C.A.).

4 Richardson v. Greensboro, W. & S. Co., supra.

The opinion of the Court of Appeal in Hussey v. Horne-Payne, L.R. 8 Ch.D. 670 (1878) agrees with this text. See however the case on appeal in 4 A.C. 311 (1879), where the decision is affirmed on another ground.

5 Patel v. Burt Dev. Co., 261 Ga. App. 436, 582 S.E.2d 495 (2003), cert. denied, 2003 Ga. LEXIS 875 (2003).

6 Pure Oil Co. v. Petrolite Corp., 158 F.2d 503 (5th Cir. 1946), cert. denied, 330 U.S. 834 (“subject to the terms of a sales and purchase agreement to be entered into between the parties.”). See § 2.9.

In Brown v. N.Y. Central R. Co., 44 N.Y. 79 (1870), there was a proposal to lease a railroad to the defendant on stated terms including an option to buy at a named price and “at a time to be agreed upon,” stating also that the form and covenants of the lease and other details would require consideration and would be thereafter arranged. An acceptance of this “proposal” was held to make no contract. See the similar case of Ansorge v. Kane, 244 N.Y. 395, 155 N.E. 683 (1927).

A document that on its face purported to be a contract for the sale of land was signed by both parties and was taken away by the plaintiff (buyer). In a suit for specific performance, the defendant testified that there was an oral agreement not contained in the writing that the document was not to be legally operative until a payment of $500 was made and until the written and oral agreements were approved by her attorney. The vendor’s notice of revocation before payment or approval was held effective. Good v. Robinson, 85 Ohio App. 91, 40 Ohio Op. 77, 88 N.E.2d 200 (1949). On this evidence, it appears that neither party made an operative offer.

7 In Henderson & Corbin, Inc. v. West Carteret Water Corp., 107 N.C. App. 740, 421 S.E.2d 792 (1992), it was held that acceptance of a bid subject to approval of the Farmer’s Home Administration was not an acceptance and the bidder was entitled to withdraw its bid. Atlas Trading Corp. v. S.H. Grossman, 169 F.2d 240 (3d Cir. 1948), judgment for damages because the defendant caused the failure to obtain the “permit.” In Morse v. Tillotson & Wolcott Co., 253 F. 340 (2d Cir. 1918), the court said: “There is a clear difference between an agreement to sell ‘subject to the approval’ of title by counsel and an agreement which declares that the entire writing is not to be binding unless a certain thing happens which never happens.” It must be asserted, with deference to the court, that this is a “difference” without a distinction. If there is in fact an “agreement” between two parties making a sale, subject to an approval of title by counsel, the parties are already irrevocably, but conditionally, bound. The same result is reached if they agree on a sale, “this agreement not to be binding unless counsel approves title.” In both cases alike, the duty to pay will never be enforceable unless the condition is performed; but in both cases, that duty will be enforceable, without any further expression of assent, if the condition is performed.

This treatise (§ 61 from a previous edition) is cited in Langdon v. Sibley, 100 N.H. 373, 127 A.2d 156 (1956) where it appears that the parties mutually agreed upon a sale, the only memorandum saying: “contract to have consent of Mrs. Edna Colbath.”

8 In Indoe v. Dwyer, 176 N.J. Super. 594, 424 A.2d 456 (1980), the agreement provided: “This contract, except as to price and financing terms (if any) is contingent upon approval by the respective attorneys for purchasers and sellers within three (3) business days of the date hereof.” This is clearly a contract, the issue being the standard by which the attorney’s disapproval must be judged.

9 Southwest Motel Brokers, Inc. v. Alamo Hotels, Inc., 72 N.M. 227, 382 P.2d 707 (1963).

See Patel v. McGrath, 2007 Ill App. LEXIS 747 (June 29, 2007), rehearing denied, 2007 Ill. App. LEXIS 5761 (2007). McGrath accepted the Patels’ offer to buy McGrath’s real estate. The contract contained an attorney-approval clause allowing the attorney for either party to approve, disapprove, or make modifications to the contract except modifications concerning the price, within five business days of the date of acceptance. Failure of the parties to agree on modifications within ten business days of the date of acceptance would nullify the contract and required the return of earnest money to the buyer. Within five business days, the Patel’s attorney (PA) sent a letter to McGrath’s attorney (MA) seeking modifications that did not relate to price and also stated that the modifications were not to be construed as a “revocation of the current contract” or as a “counter-offer.” The same day, MA sent a letter not only rejecting the modifications but disapproving the contract. The property was then re-listed at a substantial increase over the original listing price. The Patels sought specific performance of the contract. The court held that the complaint should not be dismissed. It found that, since PA expressly stated that the modifications were not intended as a “revocation” or a “counter-offer,” they were mere suggestions or proposals which, if not accepted, would allow the existing contract to remain in effect. MA, however, not only rejected the modifications but disapproved the contract without stating reasons for the disapproval. While the contract did not require either attorney to state reasons for disapproval, disapproval could not be based on the purchase price. The court held that the failure to state a reason and the subsequent relisting at a higher purchase price raised an issue of fact as to what role, if any, the purchase price played in MA’s disapproval.

U.S.

—A so-called “home office acceptance clause” is one that “precludes the formation of a contract except upon approval by the relevant home office.” Technographics, Inc. v. Mercer Corp., 777 F. Supp. 1214, 1216 (M.D. Pa. Nov. 19, 1991).

Tri-County Motors, Inc. v. Am. Suzuki Motor Corp., 494 F. Supp. 2d 161 (E.D.N.Y. July 3, 2007) (the court held that no legally binding franchise agreement was formed based on the prospective dealer’s submission of a dealership application since Suzuki specifically advised the prospective dealer that the completion of the dealership application was necessary to “evaluate” the dealer and that final approval or disapproval of the application “will be at the sole discretion of” Suzuki’s executive management in Brea, California).

But see Omega Eng’g, Inc. v. Omega, S.A., 432 F.3d 437 (2d Cir. 2005). A settlement agreement was reached at a court sponsored settlement conference before trial, and the representative of defendant, a Swiss company, had authority to settle. The conference resulted in an agreement stating that the case was settled and the formal written agreement would be signed by an appropriate party in Switzerland. The Swiss officials, however, refused to sign the agreement. The court held that the agreement was valid. Evidence showed that the subsequent signing by a Swiss official was intended as only a “ministerial” act. A change of heart cannot unmake a valid agreement. This is not a classic “home office” approval case.

Fla.

—Meekins-Bamman Prestress v. Better Const., 408 So. 2d 1071, 1073 (Fla. Dist. Ct. 1982) (citing a prior edition of this treatise, § 88, 1963 ed., the court wrote: “It is universally held that a document … which specifically conditions the contractual effectiveness of a proposal by a projected seller upon its own subsequent approval, constitutes no more than a solicitation to the prospective purchaser to make an offer itself).

Md.

—Chertkof v. Philadelphia, B & W.R. Co., 254 Md. 557, 255 A.2d 14 (1969). An “option” provided that the buyer’s payment would be refunded “In the event the Grantor’s Board of Directors fails to approve the sale.” In the chain of internal review, the grantor’s Vice President, Operations, opposed the sale. The matter never got to the Board and the buyer was notified of disapproval. No contract was ever formed. The Board could delegate the power to disapprove to an official of the company.

N.J.

—Synnex Corporation v. ADT Security Services, Inc., 394 N.J. Super. 577, 928 A.2d 37 (2007). The contract provided, “This Agreement is not binding unless approved in writing by an authorized Representative of ADT.” The instant court held that ADT’s performance of the contract by delivery and installation of a burglar alarm system constituted its acceptance of the contract despite the absence of a signature by an authorized Representative of ADT. Citing a prior edition of this treatise (§ 61, 1963 ed.), the court recognized that a party may condition its acceptance of a contract upon approval of the “home office” or a higher level company official, but if that party indicates its unqualified acceptance in some other manner, such as performance in accordance with a contract, the parties will be bound by the contract.

Pa.

W.Va.

—Fultz v. Connelly, 139 W. Va. 528, 80 S.E.2d 438 (1954) (contract to sell land made by an agent, subject to the owner’s confirmation or approval, is not an enforceable contract).

Wis.

Tex.

—But see Stelluti Kerr, L.L.C. v. Mapei Corp., 703 Fed. App’x 214 (5th Cir. 2017) (home office approval clause may not prevent contract formation but may create a condition precedent on an obligation to perform).

11 Venters v. Stewart, 261 S.W.2d 444 (Ky. 1953). The defendant placed an order with the plaintiff’s sales representative. It provided: “This contract is not binding on Eagle Home Insulation Co. [plaintiff seller], until accepted by signature of Branch or District Manager.” The seller’s managers did not sign but fabrication of the ordered goods started at the factory. It was held that the buyer could revoke. Cf. U.C.C. § 2-206.

Kuzmeskus v. Pickup Motor Co., 330 Mass. 490, 115 N.E.2d 461 (1953). The purchase order provided: “This order is not binding unless authorized by an officer of the company and purchaser’s credit has been OK’d by Finance Company.” The buyer was empowered to revoke.

In both of these cases, the party who had imposed the “home office” clause sought to avoid its impact.

12 Home office approval clauses have a supervisory function. The home office can monitor whether the sales representative or local office has made improvident tentative commitments as to price, credit terms, delivery dates, etc. Whatever its purposes, such a clause indicates a lack of present commitment.

13 Neal-Cooper Grain Co. v. Texas Gulf Sulphur Co., 508 F.2d 283 (7th Cir. 1974) (N.Y. law applied). The defendant seller’s printed form provided, “contract shall not be binding upon the seller until duly accepted at its New York office.” It was signed in Chicago by the seller’s sales manager. Shipments were ordered out by buyer, shipped, and accepted. Seller refused to make further shipments because market prices were higher. The “New York office” clause was held to be waived.

14 See § 3.18.

15 Markmann v. H.A. Bruntjen Co., 249 Minn. 281, 81 N.W.2d 858 (1957) (the court quoted this section from a prior edition of this treatise, § 61, 1963 ed.).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.8 »

1 Corbin on Contracts § 3.8 (2020)

§ 3.8. Acceptance by Overt Act

Can an offer ever be accepted in any other way than by an “overt act”? Before discussing this question, it should be noted that some promises may become binding without any acceptance at all. They are promises that are not offered as a part of any bargaining exchange. Suppose a buyer has purchased a product and has fully paid for it. Subsequently, the seller or manufacturer sends a notice to the buyer that certain problems with this model of the product have occurred and if the buyer will take the product to the place of purchase the manufacturer will make certain preventive repairs. The promise is enforceable without any process of bargaining and without any consideration.1 Further, a new promise to pay a debt that has been barred by statute of limitations is binding just as soon as it is communicated to the promisee. No expression of assent by the latter is necessary.2 The promisor has made no bargaining offer. Similarly, at common law, a sealed written promise delivered to the promisee is binding without any process of acceptance of an offer.

Unilateral contracts, of the kind discussed above, involving no bargaining element require no expression of assent called an acceptance. In bargaining contracts such an expression is required. In these instances, expression nearly always requires overt action. There may be a few cases in which silence alone—total inaction—is an expression of assent that is legally operative as an acceptance, because of the antecedent conduct of the parties and the surrounding circumstances. The problem of silence as an acceptance is dealt with elsewhere.3

The offer creates a power in the offeree to create a contract by accepting. The terms of this power are dictated by the offeror. It is commonly said that the offeror is master of the offer. If the offer unequivocally states the manner of acceptance, absent special circumstances, acceptance must take place, if at all, in the specified manner. Where the offer fails to prescribe unequivocally the appropriate manner of acceptance, the rule of reasonableness prevails.

Acceptance by words or by conduct from which a promise may be inferred. Acceptance by words, whether written or oral, is acceptance by overt action. The words “I accept your offer” spoken by the offeree are overt action by the offeree. It will be seen, therefore, that acceptance is by overt act, without regard to whether the resulting contract is bilateral or unilateral, whether the acceptance is promissory or non-promissory. Ordinarily, the making of a promise is by overt action.

Nevertheless, it is important to consider different types of overt action, their significance as expressions of assent, and their effect on the legal relations of the parties.

In the beginning, it must be made clear that in the cases often described as an “offer of a promise for an act” the act that is requested may constitute the making of a promise, and the resulting contract may be bilateral. If an offer is made by A to sell to B a parcel of land for $5,000, at the same time specifying that B may accept by hanging out a flag so that A can see it as he goes by, the offer is one empowering B to make a bilateral contract, not a unilateral one. A offers a promise of a conveyance in exchange for B’s promise to pay $5,000. The hanging out of the flag is, to be sure, an “act,” but also it is sign language by which B makes, and communicates to A a promise to pay $5,000. Except for the promissory significance of the act of hanging out the flag, A would never offer the promise of a conveyance for it.4 It is not the performance bargained for.

Acceptance by performance or by commencement of performance. If, on the other hand, A desires that a flag be hung on a certain flagpole and offers a promise to pay $10 to B for hanging the flag there, the act of hanging the flag constitutes B’s acceptance, just as in the case above. However, now it is not sign language and B makes no promise. In the present case, the act of hanging out the flag is not only the act for which A offers to exchange the promise, but also the performance for which A promises to exchange ten dollars. In the first case, A offered to exchange a promise for a promise by B. The conveyance of the land was to be exchanged for $5,000. There was an exchange of promises, and also an exchange of performances.

Many cases can be found in the reports illustrating the offer of a promise for an act, in which the act is promissory and the resulting contract bilateral. It must suffice here to make reference to a very few. A carrier promised to receive 10,000 staves and transport them to Mobile, at a specified freight rate, if the owner would place them on a certain wharf and have them ready on arrival of the carrier’s ship.5 Here, the specified acceptance was to consist of the act of piling the staves on the wharf, after which the carrier’s offer became irrevocable, but the piling of the staves was not all that the offeree was eventually to do. The offeree was later to do the very important act of paying the agreed freight. At some point in the accepting action, the offeree made a promise to pay the freight. If the offeree did not do this, no contract was ever made. Cases of this sort have been made the centerpiece of the Uniform Commercial Code’s provisions on acceptance. Section 2-206 of the Code provides:

(1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that shipment is offered only as an accommodation to the buyer.

A premise to this section of the Code, the rule of which has been incorporated in substance into the Restatement (Second) of Contracts,6 is that many, and probably most, offers are indifferent as to the manner of acceptance. Consequently, in the case of an indifferent offer, any reasonable manner chosen to accept will create the contract. If the beginning of performance is reasonable and sufficiently indicates an intent to accept, a contract is created even without communication.

Some confusion has been engendered by § 2-206’s discussion of notice. Section 2-206(2) states: “Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.” But the question presents itself: what offer? The beginning performance constituted an acceptance, so there is no longer an offer to lapse. “Both the offer and acceptance have merged into a contract. To suggest, therefore, that an offer is accepted by performance but, because the former offeree failed to provide the notice that should have been provided, the ‘offer lapses,’ is theoretically impossible.”7 Comment 3 to this section compounds the error by providing that “[f]or the protection of both parties it is essential that notice follow in due course to constitute acceptance.” This is analytically unsound, and the better view is to speak about notice as a condition precedent. “The contract is formed upon the start of performance in that situation as both the UCC and the Restatement 2d indicate. Where notice is necessary because the offeror would not become aware of the acceptance promptly, notice is not part of the acceptance; it is a condition precedent to the duty of the former offeror.”8

The Code provision preserves the common law idea that the offeror is master of the offer. However, it reflects an underlying assumption that the offeror is often indifferent as to what words or non-verbal conduct will create an acceptance. Subdivision 1(b) is a concrete example of the rule expressed in 1(a). It should be noted that the general principle of 1(a) may override the specific example given in 1(b). Consequently, a buyer’s offer for the current shipment of goods may be accepted not only by shipment or promise to ship, but also by commencement of performance, as, for example, the preparation of the goods for shipment.9

In another case, a dealer wrote to the plaintiff, who was running an exhibition, “Please reserve for us 234 sq. ft. for which we agree to pay $234.” The plaintiff held the space reserved, but sent no notice to the dealer. Before the show opened, the dealer gave notice of revocation. This notice was held ineffective and the dealer had to pay.10 If we accept the court’s holding that the actual reservation of the space was a sufficient acceptance, a bilateral contract was made. If the defendant was bound by the promise to pay, we must interpret the plaintiff’s action as being a promise that the space would be kept open for the defendant’s use. It may be that, if the dealer had no convenient way of learning of the reservation with reasonable certainty and promptness, the court should find an implied condition that the plaintiff notify the dealer of the reservation.11

There are numerous cases in which one offers to transfer ownership of chattels and authorizes the offeree to take possession on certain terms. The taking possession by the offeree is an acceptance by an act, and it is also a promise to comply with the specified terms.12

Often it is not easy to determine whether or not the act of acceptance is promissory in character. This is merely another way of saying that it is often difficult to interpret the offer. For the power of acceptance is created by the offer, and the acceptance must comply with its expressed terms. Let us consider in detail the following case. The defendant wrote a letter to her daughter and son-in-law, the plaintiffs, promising that if they would move from Missouri to Maine and would care for the defendant during her life, they should have the ownership of the home place after the defendant’s death and the use of it during her life. The plaintiffs moved as requested and cared for the defendant for a few weeks. Trouble ensued, caused, as the court finds, by the unreasonable demands and bad disposition of the defendant, whereupon she conveyed the premises to her son—a co-defendant. The plaintiffs filed a bill in equity to compel a reconveyance from the son to his mother, to restrain the prosecution of a statutory ejectment suit brought by the son, and to obtain a decree that the mother should hold the land in trust for the plaintiff. The relief asked was granted in full.13

The court wrote: “The offer was the basis, not of a bilateral contract, requiring a reciprocal promise, a promise for a promise, but of a unilateral contract requiring an act for a promise … . The plaintiffs here accepted the offer by moving from Missouri to the mother’s farm in Lewiston and entering upon the performance of the specified acts … . The existence of a completed and valid contract is clear.”

In this case the defendant was the offeror, and by her letter she created in the plaintiffs the power to form a contract by accepting. What was this power and how was it to be exercised? The defendant has clearly offered to undertake the duty of allowing the plaintiffs to enjoy the use of certain lands during her life and of conveying to them the fee therein at her death. Did she in return ask the plaintiffs to promise to support her until her death? No such promise was asked for in express terms, nor was such a promise expressly made. Nevertheless, it would not be unreasonable to find an implication of such a promise both in the offer and in the acceptance. In such case, the contract would be bilateral, for each of the parties would be undertaking to perform certain acts in the future. The contract would include mutual rights and mutual duties. The act of the plaintiffs in moving to Maine might have been understood by the parties as an expression of an intention to undertake the duty of supporting the defendant during her life, that is, this act would be a promissory act. If such was the fact, the decision is justifiable because the contract was fully completed,—the requested promissory acceptance had been given, and the offeror had knowledge of it.14

In cases of this sort, the parties may not be at all clear in their own minds as to the legal relations that they desire to create. The court must determine their legal relations, not because the parties have clearly assented to them but because they have done certain acts that ought to result in such relations. It is quite likely that the defendant had no notion of what she wanted by way of acceptance of the offer. The court concludes, however, that the contract was unilateral. This means that the plaintiffs were requested to make no promise, either by words or by other action. They undertook no duty for breach of which they would be bound to pay damages. They could have abandoned the place in Maine and ceased to support the defendant, without committing any breach of contract. It does not follow from this, however, that the defendant was not bound, and still had the power and privilege of revoking her offer.

Since the court was willing to hold that the defendant’s offer became irrevocable after the plaintiff rendered the substantial part performance of moving from Missouri to Maine, this made it unnecessary to decide whether or not the plaintiffs had, by their action, promised to render complete performance for the defendant’s life. In either case, the plaintiffs were entitled to the remedy that they sought. But if the parties had been reversed, the plaintiff having wilfully abandoned performance, before the defendant could obtain a judgment for damages it would have been necessary to find that the plaintiffs had, by implication, promised to render all the requested service.15

Whether the expressions of the parties be interpreted as making either a bilateral or a unilateral contract, in either case the defendant’s duty to convey the land should be held to be conditional upon performance substantially in full by the plaintiffs, and the defendant’s duty to permit continued occupancy by the plaintiffs should be held to be conditional upon the plaintiffs’ continuing to render the support requested. If the plaintiffs promised to perform, the defendant’s duty is constructively conditional on substantial performance of that promise. If the plaintiffs did not promise to perform, the defendant’s duty is constructively conditional upon the substantial performance of the requested service.16 In the actual case, therefore, the final decree should have been a conditional decree, making proper provision for the continued support of the defendant. If, even because of the defendant’s own wilful breach, it had become impracticable to carry out the purposes of the agreement, the decree should have been restricted to compensatory damages only, or should have required the land to be held in trust for the plaintiff subject to proper provision for the defendant’s continued support for life.

It is sometimes said, in cases like the foregoing, that the contract is consummated as soon as the first substantial act has been done.17 This is reasonable and just, and our contract theories should be molded in harmony therewith. If the facts justify it, a promise to complete the requested performance can be found by implication, and the contract is bilateral.18 If the facts do not justify such an implication, then a unilateral contract exists in which the defendant’s duty is conditional upon continued performance by the plaintiff.19

Although the beginning of the action requested by the offeror may make the offer irrevocable, the substantial completion of the requested action is necessary before the offeror’s promise is immediately enforceable. If the offeree performs in part and then delays completion beyond a reasonable time, the offeror’s promise cannot be enforced. In determining how soon the offeror is discharged by the offeree’s failure to complete the requested acts, the terms of the offer must be interpreted with the same regard to usage and to customary practices as in the case of any other kind of contract. If the offeror has not expressed an intention to the contrary, it may be reasonable for the offeree to ship the goods in separate parcels and at different times. In the absence of a clear requirement that the requested action shall be completed within a definite time, completion within a reasonable time is enough.

One who makes an offer to sell land for a stated price “if paid within 15 days” thereby promises to deliver a deed of conveyance concurrently with payment. For this reason an operative acceptance is possible without an actual delivery of the money. If within the 15 days the buyer appears and gives notice of acceptance and readiness to procure the money by drawing a check on a sufficient bank account, but the vendor is not then able to deliver the required deed within the 15 days, a contract has been consummated without actual payment.20 It should be regarded as bilateral.

In Ever-Tite Roofing Corp. v. Green,21 the defendant made a written offer to pay for specified roofing work, providing that acceptance must be either in writing or “upon commencing performance of the work.” Before the end of a reasonable time for acceptance, the plaintiff sent its workers with two trucks loaded with materials for roofing to the defendant’s residence. The defendant then forbade them to do the work. The action of the plaintiff was held to be an operative acceptance in accord with the terms of the offer. Observe that although the acceptance was by the “act” of commencing performance without other communication, the contract that was consummated was a bilateral contract. The drafter of the roofer’s form accomplished by draftsmanship what the U.C.C. and Second Restatement seek to accomplish by legislation and education.22

Acceptance by shipment of non-conforming goods. At common law, if a buyer orders the shipment of six hogsheads of rum at once, the shipment of three hogsheads is not an acceptance.23 Under the Uniform Commercial Code, the shipment is both an acceptance and a breach. Under the circumstances, it may be a curable breach, but it is nonetheless a breach by shipment of non-conforming goods. The seller may avoid this result by informing the buyer that the nonconforming shipment is intended merely as an accommodation.

In Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories,24 the buyer placed a larger than normal order of 1,000 vials of DPT vaccine at the seller’s then current selling price of $61 per vial. The seller notified the buyer that its selling price had been increased to $171, and normally it would invoice the order at the price in effect at the time of shipment. However, the letter continued, because of the magnitude of the price increase, it was shipping 50 vials at the old price and would ship the rest at the new price. The buyer claimed that the shipment of the nonconforming quantity constituted an acceptance of the offer and a breach. The court, however, ruled, quite correctly, that adequate notice had been given that the shipment was intended as an accommodation.

Acceptance by wrongful act of dominion. Suppose a seller offers certain goods at a specified price. Suppose the buyer takes and uses the goods but clearly and firmly communicates to the seller a lack of intention to accept, perhaps saying, “I have taken the goods, but I will pay you one-half of your price. I am not accepting your offer.” Clearly the offeree has committed the tort of conversion. The course of history has given the seller three optional remedies: a tort action for conversion; the ability to “waive the tort” and sue in quasi-contract; or, under an ancient theory of estoppel, an action in contract wherein the tortfeasor is estopped from claiming the status of a tortfeaser where the tortious conduct could have been the rightful acceptance of an offer.25

(A) The following case is noteworthy:

(1) Transp. Sys., LLC v. Pace Runners, Inc., 2018 U.S. Dist. LEXIS 130262 (E.D. Mich. Aug. 3, 2018). Transport, a company located in Dearborn, Michigan that provides transportation services in the shipping industry, sued Pace, a company located in Alabama, claiming that Transport performed transportation services under a contract with Pace but that Pace terminated the contract without the requisite 30 days’ notice and owes Transport $80,608.28 for work performed. The contract contained the following forum selection clause: “This Contract and all rights and obligations of the parties shall be construed in accordance with the laws of the state of Alabama and any action shall be commenced in that jurisdiction in the closest state court.” Transport sued Pace in Michigan, and Pace moved to dismiss pursuant to the forum selection clause. The court noted that none of the settled exceptions to enforcing a contractual forum selection clause apply here. Among other things, Transport argued that the forum selection clause was “invalid” on the footing that the contract did not contain the signatures of both parties. The court rejected this argument out of hand, explaining that it “falls flat in light of the fact that Transport is suing to enforce the contract. It cannot argue that one provision-the forum selection clause-is invalid because of missing signatures and other provisions—the 30 day notice and payment obligations—are not.” The court added: “[I]t is clear that the parties performed under the contract for some period of time. It is well-established in contracts law that when both parties perform under the contract, performance constitutes acceptance even if there is an irregularity with the signatures or other formal acceptance details.” (Citing Restatement (Second) of Contracts § 19 (Am. Law Inst. 1981).) The motion to dismiss was granted.

Footnotes — § 3.8:

1 See Uniform Commercial Code § 2-209.

2 See Vol. 3, Chs. 8 and 9 dealing with Informal Contracts Without Assent or Consideration.

3 See §§ 3.18 –3.21.

4 There are many cases in which the only acceptance of an offer was the performance of some action from which a promise would be inferred. See the sections dealing with Implied Promises in Chapter 25 on Interpretation.

The acceptance of delivery of a deed poll in which the conveyance is on some condition involving action by the grantee or in which the grantee “assumes payment” of a debt is ordinarily held to be a sufficient basis for inferring a promise to perform the condition or make the payment. An illustrative case is Goodwin v. Tyson, 167 Ark. 396, 268 S.W. 15 (1925), finding an implied promise to support the grantor and his family.

An excellent illustration is Autographic Register Co. v. Philip Hano Co., 198 F.2d 208 (1st Cir. 1952). In resolving a dispute as to a patent license, the licensee sent a check for royalties, specifying that retention of the check “would constitute an undertaking to repay” in the event of an affirmance on appeal of another case. The licensor cashed the check without any communication to the licensee. This was held to be an operative acceptance, whatever may have been the licensor’s “intention.” Observe, too, that the licensor’s “act” was a “promise.”

In Northern Natural Gas Co. v. Landon, 212 F. Supp. 856 (D. Kan. 1961), judgment aff’d, 338 F.2d 17 (10th Cir.), cert. denied, 381 U.S. 914, the plaintiff had a contract for the purchase of gas from defendant at 5¢ per mcf. The legislature then passed a law fixing a minimum price of 11¢. Thereafter, the plaintiff informed the defendant that it would pay 11¢ under protest, on condition of a refund in case the law was held to be invalid. The defendant accepted and cashed the plaintiff’s checks bearing a similar endorsement. The court held that the defendant was bound by contract to refund the overpayment, the letter of plaintiff being an offer and defendant’s actions an acceptance. Observe that the defendant’s “act” was promissory.

The defendant received a purchase order for work and materials. The defendant performed the work and demanded payment. By this conduct, the defendant expressed assent to the terms of the order, including a promise to indemnify the other party. Joseph v. Atlantic Basin Iron Works, 132 N.Y.S.2d 671 (Sup. 1954), aff’d, 285 App. Div. 1147, 143 N.Y.S.2d 601. Observe that by the “act” of acceptance the offeree made a promise.

In George Pridemore & Son, Inc. v. Traylor Bros., Inc., 311 S.W.2d 396 (Ky. 1958), the defendant sent a “purchase order” to plaintiff, a subcontractor, expressly covering plumbing, heating, and air conditioning, and authorizing beginning work. Acting under it, the plaintiff began work, completing the plumbing and heating but wholly overlooking the air conditioning. Beginning work was an authorized mode of acceptance, but only of the offer as made in the written order. Even though the plaintiff overlooked the air conditioning, as it asserted, its beginning work bound it to do all the work covered by the order, at the price specified. Its acceptance was by an “overt act”; but the contract thereby made was a “bilateral” contract. In Acadia, California, Ltd. v. Herbert, 54 Cal. 2d 328, 5 Cal. Rptr. 686, 353 P.2d 294 (1960), the plaintiff sent its check for $1,000 expressly stating that its acceptance would confirm the understanding that existing facilities for supply of water by the defendant would be continued. The defendant cashed the check but wrote that it was accepted under a previous written contract. The court held that the cashing of the check operated as an assent to the conditions on which it was tendered. Here the plaintiff specified the act by which its offer could be accepted and also the significance thereof. That significance was a promise to continue the water service. The resulting contract was unilateral, because the sending of the check was itself the offered performance—a non-promissory act. The acceptance (the cashing of the check) was also an “act,” but it was a promissory act.

In William H. Morris Co. v. Group W., Inc., 1995 U.S. App. LEXIS 28158 (9th Cir. Sept. 27, 1997), the defendant accepted benefit of goods shipped but ignored the invoices making clear that shipments were made on condition of payment. The court held that defendant was bound by the conditions in the invoice).

In Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir. 1960), a purchase order for installation of machinery stated certain promises by the seller, including a promise of indemnification, and suggested a mode of acceptance by signing and returning a duplicate copy. The court held that the offeree’s beginning work, with the knowledge and assent of the buyer, was an operative acceptance of the purchase order on all of its terms. The resulting contract was bilateral, including the promise to indemnify. Here, the offer required a promissory acceptance, but not an acceptance by the “act” of beginning work. Yet such an act was operative as a promise.

Pleines v. Franklin Constr. Co., 30 Conn. App. 612, 621 A.2d 759 (1993) (by requesting subcontractor to perform and by accepting without objection an invoice stating the price and specifying the work to be done, contractor and contractor’s agents led subcontractor, a stone and brick mason, reasonably to conclude that they had accepted his offer to construct a patio at $2.50 per square foot, despite absence of express acceptance).

In Young v. Glaze, 66 Ohio Misc. 2d 74, 643 N.E.2d 186 (Mun. 1994), a collector and seller of antique toys had his father bring some toys and their boxes to defendant for shipment. Defendant’s employee showed the father a shipping form used by defendant for shipping packages via UPS. The form, which was preprinted, had a clause exculpating the defendant from any liability. The father did not read the form, nor was the exculpatory clause pointed out to him by the employee. The father filled out the top part of the form indicating the names and addresses of the shipper and the recipient, declared that the contents had a value of $1,000, and paid the charge of $13.52. Though the form had a place for the signature of the shipper and/or his agent, the father did not sign it. The toys and boxes were shipped, and the boxes, which are often more valuable in this business than the toys themselves, were damaged. The buyer rejected, and plaintiff sued defendant for the reasonable value of the toys and boxes. The defendant pleaded exculpation. The court found that the plaintiff accepted defendant’s offer to perform shipping services by paying the fee. The court characterized this contract as unilateral. A signature is not necessary to show acceptance of the terms of a contract, said the court, absent a requirement that the contract be signed. The presence of a signature line did not by itself indicate that the contract was one that requires a signature, and defendant’s employee accepted the fee. Plaintiff was bound under Ohio law whether or not he knew the terms of the contract, so long as he or his agent had the opportunity to read it.

5 Mott v. Jackson, 172 Ala. 448, 55 So. 528 (1911). In the actual case, it may well be that in the oral conversation between the shipper and the carrier, the former promised to ship the staves and to pay the freight, the latter promising in exchange to carry to Mobile if the staves were on the wharf ready for loading. In such case, the act of piling the staves on the wharf was not an acceptance at all. It was merely a condition of the carrier’s duty. But no such promise by the shipper was alleged by the plaintiff.

6 Under the Restatement (Second), “in case of doubt, an offer is interpreted as inviting the offeree to choose between acceptance by promise and acceptance by performance. See §§ 30, 32, 58.” Restatement (Second) of Contracts § 62 cmt. a (Am. Law Inst. 1981). In such a case the “tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.” Restatement (Second) of Contracts § 62(1) (Am. Law Inst. 1981). In such a case, the contract so formed is bilateral. Id. § 62(2). Notice of the beginning of performance would generally be a condition of the contract, not a condition to formation. Id. §§ 54 cmt. b; 56 cmt. a.

Woods v. ERA Med LLC, 2009 U.S. Dist. LEXIS 3965 (E.D. Pa. Jan. 21, 2009). From 2005–2007, the defendants tried to hire Woods, a helicopter pilot in the UK, under a skill-based work visa. In April, 2007, the defendants formally offered Woods a position as a helicopter line pilot. After receiving the offer, Woods pursued an FAA-ATP course and hired immigration counsel. Despite contrary assurances, the defendants failed to assist Woods in his application for the visa and otherwise interfered with Woods’ effort to pursue the visa. Woods had foregone other employment opportunities. The defendants claimed that Woods never expressly accepted their offer. The court noted that an acceptance may be effected by conduct. Woods’ conduct objectively manifested his assent to the defendants’ offer. Since only the prospective employer could complete the necessary visa application in this situation, the defendant’s failure to cooperate in this fashion constituted a breach of the contract.

Kagan v. Ismail, 2017 Mass. App. Unpub. LEXIS 844 (Sept. 28, 2017). Plaintiffs rented property from defendants, and their lease contained the following right of first refusal: “If and when the LESSOR decides to sell the home during the term of the lease, then the LESSEE has the right of first refusal to purchase the property, said right of first refusal must be exercised within one week of presentation of offer to LESSEE.” Plaintiffs received notice of a third party offer for the property and responded in a timely fashion by sending the defendants written notice of their intention to purchase the property under the terms specified in the third-party offer. The defendants claimed the notice was not a proper acceptance because acceptance supposedly was conditioned upon the plaintiffs tendering the full purchase price. The court rejected this argument. The option was silent as to the manner of its acceptance. “By failing to specify a manner of acceptance, … the defendants ‘invite[d] acceptance in any manner and by any medium reasonable in the circumstances.’ Yiakas v. Savoy, 26 Mass. App. Ct. 310, 314, 526 N.E.2d 1305 (1988), quoting from Restatement (Second) of Contracts § 30(2) (1981).” The manner of plaintiffs’ acceptance of the right of first refusal was reasonable.

New Asset Subsidiary, LLC v. Zelms, 331 B. R. 907 (D. Ariz. 2005) (seeking government approval of a property development plan may be a reasonable manner of acceptance when coupled with negotiation between the parties and later conduct demonstrating that the parties have formed an agreement).

Suss Pontiac-GMC, Inc. v. Boddicker, 208 P.3d 269 (Colo. App, 2008) (per the Restatement, offerors may insist on a particular method of acceptance, though they rarely do; in this case, the court allowed delivery by mail though the contract required certified mail since the parties attached no special significance to the use of certified mail, and it was undisputed that notice was received).

Rhoades v. Cash Store, Inc., 2009 Bankr. LEXIS 1487 (E.D. Tenn. July 10, 2009). When the plaintiffs defaulted on a pawn contract under which they had pledged their 1997 pickup truck, the defendant, a title pawnbroker, waited for the prescribed statutory period before repossessing the truck. “As a courtesy,” the defendant then offered to allow the plaintiffs to recover their vehicle by paying the full amount due by January 16. Instead of paying this amount, the plaintiffs filed a chapter 13 bankruptcy petition before January 16. They then filed this action claiming that the defendant waived its rights to the truck and violated the automatic stay provisions of the bankruptcy act by refusing to return the truck, which it had repossessed prepetition. The defendant’s offer stated a manner of acceptance (payment in full) that the court deemed to be the exclusive manner intended under the circumstances. At the time the debtors filed for bankruptcy, the truck was not part of the bankrupts’ estate and the defendant’s subsequent sale of the truck did not violate the automatic stay provisions of the bankruptcy act.

Fluor Enters. v. Orion Ref. Corp. (In re Orion Ref. Corp.), 372 B.R. 688 (Bankr. D. Del. 2007). The court cited § 3.8 in stating that, “If one offers a promise to pay for specified construction or for service over a period of time, the beginning of the work so that it is known by the offeror may be a sufficient acceptance to bind both parties by mutual promises.”

7 John E. Murray, Murray on Contracts § 47 (5th ed. 2011).

8 John E. Murray, Murray on Contracts § 47 (5th ed. 2011).

9 Wheaton Glass Co. v. Pharmex, 548 F. Supp. 1242 (D.N.J. 1982); Joseph Muller Corp., Zurich v. Commonwealth Petrochemicals, 334 F. Supp. 1013 (S.D.N.Y. 1971). Packgen v. Berry Plastics Corp., 973 F. Supp. 2d 48 (D. Me. 2013) quotes this portion of the treatise.

10 High Wheel Auto Parts Co. v. Journal Co., 50 Ind. App. 396, 98 N.E. 442 (1912). It seems probable that the plaintiff solicited the order for space. Indeed, the order may have been an acceptance of an offer by the manager of the exhibition. But the court regards the order as an offer, not as an acceptance. In any case, it seems probable that the defendant was assured when it gave the written order that the space would be reserved.

11 See § 3.13.

U.S.

—In Pyrate Corp. v. Sorensen, 44 F.2d 323 (9th Cir. 1930), the defendant was a licensee and sales agent under a contract by which he promised to buy and dispose of a stated amount of the product and in which he was given the option of a renewal for five years. About the end of the original term, he made new contracts with sub-agents for a new period of five years. This was known to and acquiesced in by the plaintiff, and the defendant continued to act under the contract, but no express notice of renewal was ever given by the defendant. The court held that the conduct of the defendant was an assent to renewal and was a promise to continue performance for five years.

Conn.

—In Ostman v. Lee, 91 Conn. 731, 101 A. 23 (1917), the defendant was put in possession of an old automobile under an agreement to buy it, if he found it useful for his business. He kept the machine for nearly two years, in the meantime having offered it for sale, and then notified the plaintiff that he did not wish to buy it. It was held that the defendant’s acts constituted an acceptance and a promise to pay the price.

Ga.

—Classic Restorations, Inc. v. Bean, 155 Ga. App. 694, 272 S.E.2d 557, 562 (1980). Bean’s house burned. Classic’s sole stockholder, Floyd, arrived in the same car with Bean’s insurance adjuster, just after Thanksgiving. The adjuster recommended Floyd’s work to Bean, promised that Floyd would restore her house to its pre-fire condition, told her she would not get a penny more than Floyd’s price if she used anyone else, and that Floyd would not be paid a penny by the insurer until he had done the work to her satisfaction. Floyd promised to finish the work by Christmas. In April, dissatisfied with the work (which at trial Floyd admitted he would not have in his house), tired of living in a motel with her pets boarded out, Bean told Floyd to get off the property. Classic sued for $7,000. Bean counterclaimed for a like amount, claiming “Mr. Floyd did more damage to the house than the fire did,” winning a jury verdict for $5,200. This was affirmed. The court noted that Bean had signed a “proposal/contract.” It concluded that Classic’s assent could have been manifested by the beginning of performance. A bilateral contract resulted.

Ill.

—In Calo, Inc. v. AMF Pinspotters, Inc., 31 Ill. App. 2d 2, 176 N.E.2d 1 (1961), the plaintiff as lessee of a building was bound under the lease to make certain alterations. The defendant prepared a purchase order to be executed by the plaintiff and given to the defendant as an offer to purchase and to lease certain equipment to be used in the alterations. The plaintiff informed the defendant that it had secured the necessary license and signed and delivered to the defendant the purchase order. The defendant then requested and received an additional payment of $5,000 on account. The court held that the defendant’s action constituted an acceptance of Calo’s offer, even though it had never signed the purchase order. The contract thus made was a bilateral contract. The court quoted § 62 from a previous edition.

Wash.

—In Bicknell v. Henry, 69 Wash. 408, 125 P. 156 (1912), the court wrote: “The telegram was a refusal to permit the delivery of the sheep unless the claim was paid or assumed. He thereupon took the sheep. It is true he made no verbal or written promise to assume or pay the note … . He acted upon the authority of the telegram, and is bound thereby as much as if he had answered back in writing: ‘I will take the sheep and pay the note.’ ”

Me.

—Brackenbury v. Hodgkin, 116 Me. 399, 102 A. 106 (1917). A similar case is Clark v. Coulson, 351 S.W.2d 538 (Tex. Civ. App. 1961).

14 In Davis v. Jacoby, 1 Cal. 2d 370, 34 P.2d 1026 (1934), the facts were similar and the court held that a bilateral contract was consummated by the offeree’s action in closing up business in Canada and moving to California. The offeree’s action was promissory by implication.”

15 In Hollidge v. Gussow, K. & Co., 67 F.2d 459 (1st Cir. 1933), the defendant made a written order for 160,000 copies of an advertising paper, in 8 monthly issues of 20,000 each. The court held that this order was made irrevocable by the publisher’s delivery of the first issue. The publisher was held entitled to damages for the defendant’s failure to take the other 7 issues. A promise by the publisher to deliver them might easily have been implied, and no doubt would have been if the publisher had been the one committing the breach.

The case of Durasteel Co. v. Great Lakes Steel Corp., 205 F.2d 438 (8th Cir. 1953), in which an analysis of the facts will show that the case is similar to the Hollidge case cited here. The acceptance relied on by the court was the actual shipment of some installments of the goods ordered. Without doubt, the seller thus bound itself to ship the remainder of the goods, and the contract was bilateral.

Or.

—In Walker v. American Optical Corp., 265 Or. 327, 509 P.2d 439 (1973) (en banc), American’s sales incentive plan promised bonuses to employees exceeding a certain quota provided they were still working for American at the time of distribution. Walker far exceeded his quota, but voluntarily left American before distribution. He sued for his bonus. The court affirmed a judgment for American, citing § 63, 1963 ed., and others for the proposition that an employer’s duty to pay a bonus which is subject to a condition precedent of performance arises only when the condition is fulfilled. Here the purpose of the plan was to secure the continued services of employees producing high levels of sales. The promise of a bonus helps advance that purpose—but so does the denial of a bonus to an employee who leaves the company, contrary to the terms of the offer. The same principle was involved in State ex rel. Roberts v. Duco-Lam, Inc., 72 Or. App. 473, 696 P.2d 561 (1985), review denied, 299 Or. 313, 702 P.2d 1110. The employer told its employees that it could not operate at current labor costs. As an alternative to ceasing operations, it offered to continue if the employees would agree to a wage reduction of 30% for two months. The withheld sums would be paid in the event market conditions later improved to the point where profits would allow such a payback. The employees agreed. It was held that the wage reduction agreement was valid and did not violate a worker’s protection statute.

17 In Martin v. Meles, 179 Mass. 114, 60 N.E. 397 (1901), where the defendant subscribed money to be used by a committee in rendering a requested service, Mr. Justice Holmes said: “If necessary, we should assume that the first substantial act done by the committee was all that was required in the way of acts to found the defendant’s obligation. But, if that were true, it would follow that as to the future conduct of the committee their promise not their performance was the consideration.” Here the learned Justice seems to say that a promise to complete the performance by the committee would be implied. In the case before him, such an implication may have been justified, but the same result should be reached in the absence of such an implication.

Substantial performance is a fact issue. See Arenberg v. Central United Insurance Co., 18 F. Supp. 2d 1167 (D. Colo. 1998). Dr. Arenberg specialized in otologic and neurotologic surgery, known to lay-persons as “microsurgery.” He purchased an Injury and Sickness Income Replacement Policy from Central United’s predecessor. On January 24, 1995, Dr. Arenberg sent a letter to Central United asking them to cancel his policy effective February 1 and stop automatic withdrawal. Central United received the letter on January 30 and entered it into its computer system on February 2. Also on February 2, Central United withdrew the February premium from Dr. Arenberg’s account. Central United kept the February payment and did not respond to the January 24 letter. On February 7 Dr. Arenberg learned that he had suffered a stroke in December 1994. The stroke severely reduced his ability to continue microsurgery, and on February 21 he discontinued his practice. On March 16 Dr. Arenberg sent a second letter to Central United, advising them that he wished to discontinue automatic withdrawal and enclosing a check for the March premium. Central United returned the check and told him that effective February 28 his policy was canceled. Dr. Arenberg sued for breach of contract. The court explained that Dr. Arenberg’s January 24 letter did not qualify as a cancellation under the terms of the policy. The policy was canceled only if the parties agreed to cancel it. The January 24 letter was an offer by Dr. Arenberg to cancel the policy on February 1. Central United did not, in fact, accept by canceling the policy on February 1 as Dr. Arenberg requested, but there was a fact question as to whether Central United substantially performed to effect a cancellation as of February 28 by rendering substantial performance.

18 An excellent illustration is found in Wood & Brooks Co. v. D.E. Hewitt Lbr. Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921). The plaintiff sent an order for 500,000 feet of lumber on fully stated terms, saying “If you cannot deliver as ordered please advise us immediately.” The defendant made no reply; but within the time limited for performance it shipped 160,000 feet and notified plaintiff as to inspection. There were additional circumstances. The jury was held justified in finding that the defendant had impliedly promised to fill the order as given.

If one offers a promise to pay for specified construction or for service over a period of time, the beginning of the work so that it is known by the offeror may be a sufficient acceptance to bind both parties by mutual promises.

In Rode Oil Co. v. Lamar Adver. Co., 2008 Tenn. App. LEXIS 532, *29 (Sept. 18, 2008), the court found an enforceable agreement for the lease of land to be used for the placement of a roadside billboard even though offeree did not sign the lease. Acceptance of the offer was found based on the offeree’s beginning of performance. The court noted that “the evidence does indicate that [the agents of the offeror, Rode Oil] were at least aware of (and agreed to) the marking of the spot where the billboard was to be placed, and they knew that billboard permits were being applied for.”

U.S.

—Fujimoto v. Rio Grande Pickle Co., 414 F.2d 648 (5th Cir. 1969).

Ga.

—In Silvey v. Wynn, 102 Ga. App. 283, 115 S.E.2d 774 (1960), the parties made a profit-sharing agreement and reduced it to writing. The defendant did not sign it, but he performed as it required until there was a falling-out. The court held that the defendant had expressed assent and that an action lay for breach of his promise so made. See also Allied Steel above, note 4.

N.Y.

—White v. Corlies, 46 N.Y. 467 (1871); Post v. Albert Frank & Co., 75 Misc. 130, 132 N.Y.S. 807 (1912).

Wis.

—Albright v. Stegeman Motorcar Co., 168 Wis. 557, 170 N.W. 951, 19 A.L.R. 463 (1919).

19 The offer might be clearly so worded as to require this interpretation. In the case above discussed, the defendant might have written: “I ask you to leave Missouri and move to Maine. You need make no promises of any kind to me. In consideration of your moving here as I have requested, I promise to leave the land to you at my death, on condition that you have lived upon it and supported me until that time.”

W.Va.

—Barrett v. McAllister, 33 W.Va. 738, 11 S.E. 220 (1890).

21 Ever-Tite Roofing Corp. v. Green, 83 So. 2d 449 (La. App. 1955).

22 This case also raises the question of “when performance begins”—and “reasonable minds could differ as to that question.” BASF Corp. v. Man Diesel & Turbo North Am., Inc., 2015 U.S. Dist. LEXIS 63975, *33 (M.D. La. May 15, 2015).

N.Y.

—Bruce v. Pearson, 3 Johns. 534 (1808). The precise holding was that, because the shipment did not constitute an acceptance, the risk of loss did not pass to the buyer. Query: if the issue were different, might not an implied promise to complete performance be inferred from the circumstances?

No contract is consummated if the offeree when making any shipment indicates that it is made on terms other than those specified in the order. Baird v. Pratt, 148 F. 825 (8th Cir. 1906); Goodspeed v. Wiard Plow Co., 45 Mich. 322, 7 N.W. 902 (1881). As a general principle, this statement, while true at common law, is subject to the qualifications legislated in Uniform Commercial Code § 2-207, discussed at § 3.37. But even under § 2-207, the offeree’s purported “acceptance” by agreeing to ship a lesser quantity than set forth in the offer would not constitute an acceptance since quanity is one of the “dickered terms” of the deal. In addition, in the modern retail world, “in-the-box” contracts, akin to shrink-wrap contracts, allow for enforceable “terms later,” discussed in § 2.12.

24 Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories, 724 F. Supp. 605 (S.D. Ind. 1989).

25 In Sinclair Refining Co. v. May Bros. Oil Co., 118 Ohio App. 263, 25 Ohio Op. 2d 96, 194 N.E.2d 75 (1963), the plaintiff offered to sell to defendant all of its equipment at a service station at stated terms. The defendant replied by a counter-offer to buy certain specified items of the equipment at the prices the plaintiff had stated, and enclosed its check for this amount. The plaintiff cashed the check without word to the defendant, but at a later time sued the defendant for the value of all of the items specified in its original offer, less the amount received. The plaintiff, by its act of cashing the check, accepted the defendant’s offer, irrespective of its intention, and effectuated transfer of ownership of the articles. The transaction was a fully executed cash sale.

In Valiant Steel Equipment, Inc. v. Roadway Exp., Inc., 205 Ga. App. 237, 421 S.E.2d 773 (1992), tenant offered to enter into a new lease on different terms than the expiring lease. The lessor made a counter-offer. The tenant continued in possession. It was held that continued possession with knowledge of the counter-offer would constitute acceptance of the counter-offer.

Salt Lake City Corp. v. Kasler Corp., 842 F. Supp. 1380 (D. Utah 1994), amended and superseded, 855 F. Supp. 1560 (1994). Buyer had reasonable opportunity to inspect defective concrete aggregate, delivered in lots, and actually inspected it on a regular basis. Buyer notified seller of its desire to reject the aggregate only after buyer had incorporated it into concrete, an act inconsistent with seller’s ownership. Hence, buyer failed to make an effective rejection, and under U.C.C. § 2-606 accepted the aggregate.

Ford v. Starr Fireworks, Inc., 874 P.2d 230 (Wyo. 1994). A buyer properly rejected fireworks, but took actions inconsistent with the claim that the fireworks were rejected by placing the rejected fireworks in inventory at his retail outlets, holding them at his retail outlets for at least two months after providing the notice of rejection, indicating a desire to return only part of the entire order, and signing an acknowledgment of his remaining debt to the seller. Hence, under U.C.C. § 2-602(b)(i) the buyer wrongfully exercised ownership of the rejected fireworks.

Hanwha Azdel, Inc. v. C&D Zodiac, Inc., 2015 U.S. App. LEXIS 9602 (4th Cir. June 9, 2015). Azdel, the manufacturer of a thermoplastic composite sheet product called “Aero-Lite,” entered into an agreement with aircraft sidewall manufacturer C&D for the latter to use Aero-Lite to manufacture aircraft sidewalls for American Airlines. On June 5, 2008, Azdel delivered a total of 144 sheets to C&D Without testing the sheets for conformity with the contract’s specifications and to determine whether to reject the product, C&D forwarded the sheets to C&D’s forming facility to be molded into sidewalls. At some point, C&D determined that the sheets Azdel delivered were warped. On July 2, 2008, C&D sent a detailed e-mail to Azdel outlining problems with the sidewalls. C&D never paid Azdel for the 144 sheets of Aero-Lite it shipped, and Azdel filed suit for, inter alia, the contract price for the sheets. The Fourth Circuit reversed an order of summary judgment in C&D’s favor, noting that when C&D forwarded the sheets of Aero-Lite to its forming facility to be molded into sidewalls, C&D acted inconsistently with Azdel’s ownership of the sheets and thereby accepted them per U.C.C. 2-606. Molding the Aero-Lite into sidewalls was a substantial modification that irreversibly altered the condition of Azdel’s product. The parties contemplated that the molding of the sheets of Aero-Lite constituted a point of no return with respect to ownership of Azdel’s product. Azdel lost title as soon as they were no longer in sheet form. Azdel was entitled to the contract price of the 144 sheets of Aero-Lite it shipped to C&D, and which C&D forwarded to its forming facility to be molded into aircraft sidewalls.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.9 »

1 Corbin on Contracts § 3.9 (2020)

§ 3.9. Unilateral Contract—Acceptance by Beginning Requested Performance

Some generations ago, the American Law Institute approved the rule that when a promise is offered in exchange for specified action or forbearance the promise becomes binding and irrevocable as soon as part of the requested performance has been actually rendered or a proper tender of performance has been made. It stated: “If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time.”1 The Restatement (Second) of Contracts, promulgated in 1979, continues the same idea under somewhat different terminology.2 It should be understood, however, that the new Restatement provisions are in a somewhat altered conceptual context. The first Restatement was written in a context where it was assumed that all offers looked to either to a promissory acceptance or to an acceptance by performance. If there was any doubt as to the appropriate mode of acceptance, a promise was needed to create the contract. This treatise never accepted that rigid dichotomy, as § 3.8 of the treatise demonstrates. The profession has come to realize that frequently the offeror has only indifferently contemplated or expressed, if at all, the desired manner of acceptance. In such cases any reasonable response—express promise, performance, or the beginning of performance, if reasonable—creates the contract. In such a contract, unless the offeree has fully performed, both parties are bound by a bilateral contract.3 Yet, there is still a wide range for unilateral contracts; cases in which the offeror has made it clear that only a performance will do. Reward offers are of this nature, but there are also a broad range of commercial contracts of this kind.4 It is to this kind of offer, the offer that can only be accepted by performance, that this section of the treatise addresses itself.

In order to make this rule applicable it must be a part of the requested consideration that is given or tendered. It is not enough that the offeree has begun the preliminary preparations for performance. It is not always easy to find an exact dividing line between the performance requested and preparations to perform it. It may not be necessary to draw the line in most cases, for, as the Institute recognizes, a promise may become binding and irrevocable by reason of substantial action by the promisee in reliance upon it.5 Preparations to render a requested performance may be substantial and expressive, and the promisor may have ample reason to foresee that they will be made.

The reason for the rule above laid down is not that part performance or tender is the “equivalent” of full performance, but that honorable persons do not repudiate their promises after part performance has been given or tendered. The Institute stated that “it is obviously unjust to allow so late withdrawal.”6 In a number of countries where the Civil Law prevails, an offered promise is irrevocable, for either the expressly stated or a reasonable time, even without any part performance or tender. Our own businesses are becoming accustomed to making “firm offers” (meaning irrevocable for some period). The Uniform Commercial Code and certain other state statutes recognize and regulate the making of “firm offers”7 The United States has ratified the United Nations Convention on Contracts for the International Sale of Goods which permits the making of firm offers without consideration8 and which also provides for the irrevocability of offers “if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.”9

Holding that the offered promise has become binding and irrevocable involves no injustice to the promisor. Although now bound by an option contract, the duty to render the performance that the offeror has promised is conditional on completion of the consideration as the offeror requested in the offer. This is exactly as it would have been if the bargain had been bilateral. There can be no actionable duty on the part of the offeror until he has received all that he demanded, or until the condition is excused by his own prevention of performance by refusing a tender.10

The court quoted this treatise in Lazarus v. American Motors.11While the court approved of first Restatement sections 45 and 90, it held that the offer was revoked by notice prior to any substantial change of position by the offeree. This treatise would put more weight on the offeree’s change of position, but its main difference with the decision is that the act of acceptance should be interpreted as a promise to complete the performance, making a bilateral contract.

Footnotes — § 3.9:

1 Restatement, Contracts, § 45. “Revocation of Offer for Unilateral Contract; Effect of Part Performance or Tender.”

The common “listing” arrangement whereby a land owner promises to pay a commission to a real estate broker for finding a purchaser (or other specific service) is an offer of a promise to be accepted by the broker’s actual performance. The resulting contract is unilateral and is made at the place where the service is performed. Richardson v. Rose, 197 Cal. App. 2d 318, 17 Cal. Rptr. 84 (1961). See also, New Eng. Retail Props. v. Maturo, 102 Conn. App. 476, 925 A.2d 1151 (2007), appeal denied, 284 Conn. 912, 931 A.2d 932 (2007); Walsenburg Sand & Gravel Co. v. City Council of Walsenburg, 160 P.3d 297 (Colo. App. 2007); Roger Crane & Assocs. v. Felice, 74 Wn. App. 769, 875 P.2d 705 (1994). See fuller discussion and other cases cited under § 2.30.

2 Restatement (Second) of Contracts § 45(1) (Am. Law Inst. 1981) provides: “Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.”

3 U.C.C. § 2-206(3) provides: “Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.” The comment that follows this shows that the draftsmen had in contemplation only cases in which the offeree is reasonably expected “to engage himself,” that is, to promise performance.

An illustrative supporting case is Mid-Continent Petroleum Corp. v. Russell, 173 F.2d 620 (10th Cir. 1949), where the acceptance consisted of actions by the offeree, and a suit for damages was sustained against him for breach of the promise implied therein. See also Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir. 1960); Classic Restorations, Inc. v. Bean, 155 Ga. App. 694, 272 S.E.2d 557, 562 (1980).

4 See § 1.23.

Magnusson Agency v. Public Entity Nat’l Co.—Midwest, 560 N.W.2d 20 (Iowa 1997). An offer for a unilateral contract was made when an insurance company informed an insurance agent that it would be awarded the bid if it was the first to submit an application containing the insured’s budget and the insured’s signature. The agent accepted this offer upon submission of such a completed application, as the submission constituted the agent’s act of performance and was induced by the promise made in the offer.

Abbott v. Schnader, Harrison, Segal & Lewis, LLP, 805 A.2d 547 (Pa. Super. Ct. 2002). The plaintiffs, retired partners of the defendant law firm, signed a 1984 retirement agreement that provided retired partners who had served for twenty-five years or more with certain income benefits. The plaintiffs continued their work with the firm for many more years. In 1999, the active partners substantially modified the retirement benefits pursuant to a provision allowing the partnership agreement to be amended. The plaintiffs brought an action for breach of contract, contending that their rights had vested upon their retirement, which had occurred prior to the amendment. The defendant claimed that the broad language of the amending power allowed it to change the benefits to retired partners. The court held that the retirement benefits promised in the partnership agreement constituted an offer that was accepted by the continued performance of the partners (a unilateral contract). Once that performance occurred, the offer became irrevocable. The rights of a retiring partner who had accepted the offer by continuing to perform vested upon retirement. To have allowed the amending provision of the agreement to interfere with such rights would not only be unfair but would necessarily make the retirement benefit promises illusory. See also, Navlet v. Port of Seattle, 164 Wn. 2d 818, 194 P.3d 221 (2008).

Poage v. Computer Scis. Corp., 2015 U.S. Dist. LEXIS 167545 (D. Ariz. Dec. 14, 2015). Poage worked as account general manager for CSC. On August 22, 2013, CSC sent an email to all of its employees detailing a new compensation incentive opportunity called the Million Dollar Challenge (“MDC”). The MDC provided that employees “who achieve $1M in FY14 revenue above the full-year forecast” would receive $15,000 for the first $1 million of incremental revenue and an additional 1.5% of every additional $1 of revenue above the initial $1 million. Further, the “[i]ncentive will be calculated and paid at end of FY14,” or March 28, 2014. Under the MDC, based on his performance, Poage was to receive approximately $250,000 in incentive payments. In April 2014, Poage resigned at CSC’s insistence, and CSC did not pay him the monies due under the MDC so Poage filed an action for, inter alia, breach of contract. Poage filed a motion for summary judgment. The court held that the MDC email constituted an offer for a unilateral contract, which Poage accepted by generating approximately $17 million in additional revenue above his normal forecast, entitling him to an incentive payment of roughly $250,000. “Poage had no reason to believe he would not be compensated if he participated.” The court granted Poage’s motion for summary judgment.

5 Restatement (Second) of Contracts § 87(2) (Am. Law Inst. 1981) provides: “An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to prevent injustice.” This section found support in comment b, to Section 45 of the first Restatement, where it is said: “Moreover, merely acting in justifiable reliance on an offer may in some cases serve as a sufficient reason for making a promise binding.” See § 2.31.

6 Restatement of the Law of Contracts § 45 cmt. b (1932).

7 Such offers have been declared to be irrevocable by statute in New York. NY CLS Gen Oblig § 5-1109. The Uniform Commercial Code § 2-205 lays down the same rule, now adopted in New York and many other states. There are some differences among the statutes. The particular statute needs close examination. See § 2.26.

8 Article 16(2).

9 Article 16(2)(b).

10 Restatement (Second) of Contracts § 45(2) (Am. Law Inst. 1981) provides: “The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.” Restatement, Contracts, § 45 comment b agreed. In this Comment, the Institute further argued: “The main offer includes a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promise.” See Boswell v. Panera Bread Co., 2016 U.S. Dist. LEXIS 38232 (E.D. Mo. March 24, 2016). Such an “implication” as this may not be based on pure fiction, but the rule may be justified on the basis of business morality and actual practice. The law enforces many obligations in the contract field that the parties themselves never clearly expressed or contemplated.

11 Lazarus v. American Motors, 21 Wis. 2d 76, 73, 123 N.W.2d 548, 552 (1963): “[I]f an offer for a unilateral contract is made, the offeror may be bound if the offeree gives or tenders part of the consideration. Restatement, 1 Contracts, p. 53, sec. 45. The reason for the rule is stated by Corbin in his treatise on contracts:

“ ‘The reason for the rule … is, not that part performance or tender is the ‘equivalent’ of full performance, but that honorable men do not repudiate their promises after part performance has been given or tendered.’ 1 Corbin, Contracts, p. 264, sec. 63.”

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.10 »

1 Corbin on Contracts § 3.10 (2020)

§ 3.10. Acceptance of a Published Offer of a Reward for Action or Contest Prize

A published offer of a reward for some desired action is nearly always an offer of a unilateral contract.1 The offeror makes a promise in exchange for which the requested return is action or forbearance, not for a promise to act or to forbear. Usually, the offeror does not specify the particular acts by which the desired result is to be attained; it is the attainment of the result that is sought. As is always the case, such offerors can limit the power of acceptance exactly as they see fit.2 The offer can require the specific mode of producing the result, as well as the result itself. In the absence of such a requirement, the particular mode used is not material, but success in producing the result is essential.

The limits on the power of acceptance—the result that must be attained and the required mode of attaining it—are ascertained by interpretation of the terms of the published offer. This interpretation requires common sense instead of pedantry. It must be reasonable, so as to accord with the understanding of ordinary people to whom the offer is addressed and whose action is invited. The words of the offer are seldom so clear and detailed as to exclude all variation in interpretation and in the exact form of acceptance.3

Thus, rewards are frequently offered for the “arrest and conviction” of some specified person charged with crime. In the absence of expressions showing a contrary intention, this will be interpreted so that acceptance is possible by one who does not himself do the physical acts constituting the “arrest.” It is obvious that acceptance does not require the acceptor to perform in person an act or group of acts called “conviction.” Arrest can be made vicariously by one whom the offeree employs for the purpose, and conviction is a result that can be brought about only by court procedure and the action of public officers. It may even be sufficient to give information to the public officers whose official duty it is to arrest and to prosecute, if as a result thereof the arrest and successful prosecution follow.4 A different interpretation of the offer has been made where two separate rewards were offered, one being for the “apprehension” of the fugitive and the other being for “information” leading to the fugitive’s apprehension.5

Plenty of difficulty will be found in determining what is meant by “information” and whether the communications by the claimant have in fact caused the arrest and conviction. The claimant may have supplied but a single clue, one that would have been insufficient without the addition of other clues supplied by others. The information supplied will not be sufficient if the arrest and conviction would, without it, have occurred exactly as they did occur. But it may be sufficient even though, standing alone, it would not have produced the arrest and conviction. The relation of cause and effect must be established.6 The claimant’s communication must be what is generally called, perhaps unhappily, the “proximate cause.” However unhappy this expression may be, and whatever may be the difficulties of applying it, we cannot avoid the problem itself, or escape the labor and difficulty of decision, by merely adopting another form of words.

It is, of course, not sufficient to give information to some private citizen who is under no public duty to act upon it.7 If the citizen is not induced thereby to act, the result for which the reward was offered is not produced and the condition of the offer not performed. If the citizen is induced thereby to act, and the desired result follows, the action of that citizen is almost certain to be regarded as such an intervening cause as to exclude the claimant. It would be otherwise if that other citizen purports to act as the agent and in behalf of the claimant who provided the clue. In the absence of some fiduciary relation, the citizen is free to act selfishly and to earn the reward by complying with the terms of the offer.

A reward for “information” is not earned by making a communication of facts that are already known to the offeror or to the public officers whose duty it is to perform the action and to produce the result for which the “information” is desired.8

In very many of the reward cases, the requested service has been rendered by more than one person, no one of whom has done enough to justify entitlement to the whole reward. If they have consciously collaborated in their performance, so that they have produced the requested result as a “joint enterprise,” they are jointly entitled to the reward.9 Frequently, however, they have acted without collaboration, each one supplying some necessary piece of information or doing some one of the requested acts, the result being produced by the sum total of their independent acts. It has been held that in such a case no one is entitled to the reward or to any part of it,10 but there are sound cases to the contrary.11 In some such cases, however, the offeror actually regards himself as bound and pays the money. The litigation, if any, is then as to the proper division of the reward, the action being in the nature of an interpleader, whether brought by the offeror or by some of the claimants. In these cases, the courts have divided the reward in proportion to the service rendered, roughly estimated.12 If the claimants are found not entitled to the reward, either jointly or severally, the money is retained by the offeror, even though it may have been paid into court.13

In view of the actual custom in these cases, courts may well forbear to apply the supposed rules of mutual assent with narrow severity. Even in case the offeror fights all the claimants, a division of the reward among them is just and equitable, without regard to their collaboration or having acted in a “joint enterprise.” This is because they have produced the requested result and each has been induced, or apparently induced, to render part of the service by the promise of reward.

Where a reward is offered for the finding and return of a sum of money or other lost property, and only a part of it is found and returned, there are cases holding that the claimant is entitled to a pro tanto share of the reward.14 This seems just and reasonable, unless the offer is so worded as to make it clear that the apportionment of the reward is contrary to the offeror’s intention, so long as the performance requested is readily divisible and the ratio of benefit received by a part performance is determinable. Apportionment was refused where a reward was offered for the capture of two persons and the claimant captured only one of them.15

It is universally held that a public officer who renders a service for which a reward is offered has no legal right thereto if the service was in no respect different from that which was required by the officer’s legal duty.16 This is on grounds of public policy, and it is discussed more at length in the sections dealing with consideration. The reason that the offeror’s promise is not binding is not that the officer has not expressed an intention to accept or has not rendered the desired service. The law deprives the officer of the power of acceptance, even if the offeror actually intended to confer such a power on the officer.

On much the same grounds, an attorney who in response to a reward offer supplies information to the authorities provided by a client cannot claim entitlement to the promised reward.17 However, it has been held that a private detective who commenced an investigation on behalf of a client may collect a reward offer for the information leading to arrest and conviction of the culprit when the detective’s efforts persisted beyond the scope of duties to the client.18 The public policy problem does not appear in the private detective case. Similarly, employees have been held entitled to rewards offered by their employers. Absent a danger that, in the absence of a reward offer, employees will withhold cooperation with employers concerning crimes affecting the employer’s interest, neither public policy nor the doctrine of consideration ordinarily prevents the employee from being entitled to the reward.19

There is no doubt that rewards are often voluntarily paid to faithful and efficient public officers who have rendered a requested service that was wholly within the scope of their official duties. Today, the rules of many police departments forbid police officers to accept a reward or gratuity for the performance of their official functions. Under the law of contracts, they are held to be legally entitled to such payment if the requested service rendered by them is in any material respect outside the scope of their official duties.20 Whether the acceptance of such an entitlement is forbidden by regulations of their office depends on the terms of the regulations.

Other cases illustrating the kinds of action for which public offers of reward are often made are: the rescue of person or property in danger;21 the winning of a race or other contest;22 the use of the offeror’s medicine followed by the catching of a disease.23 These cases are further considered in the sections explaining unilateral contracts.

Footnotes — § 3.10:

1 Particularly relevant to the topic of rewards are §§ 3.4 and 3.5. “In the contest context, the majority of courts have long interpreted announcement of a contest as a contractual offer by a sponsor and entry into the contest by a contestant as acceptance of that offer.” Frankel v. United States, 842 F.3d 1246, 1250 (Fed. Cir. 2016).

2 An offer of a prize to the one forming the most words out of the letters included in the word “determination,” in accordance with stated rules, is an offer of a unilateral contract. To be a valid acceptance, the performance must comply with the stated rules. The submission of a list of 4,137 words, of which only 1,457 were formed as required by the rules, is not a valid acceptance, even though no other competitor submitted as large a list of correctly formed words. Scott v. People’s Monthly Co., 209 Iowa 503, 228 N.W. 263, 67 A.L.R. 413 (1929).

In Schreiner v. Weil Furniture Co., 68 So. 2d 149 (La. App. 1953), the defendant published a prize offer to the one who would count correctly the number of dots in the printed advertisement. The plaintiff was the winner. The court held that the defendant could not alter the terms of the offer after the plaintiff’s reply was submitted. See also, Alexander v. Lafayette Crime Stoppers, Inc., 28 So. 3d 1253 (La. App. 2010), rehearing denied, 2010 La. App. LEXIS 339 (2010).

Contest judges are afforded discretion in selecting winners so long as they do not act outside the bounds of the contest rules. See Frankel v. United States, 842 F.3d 1246 (Fed. Cir. 2016). The FTC sponsored a prize competition called the “Robocall Challenge.” Members of the public were invited to participate by “creat[ing] innovative solutions to block illegal robocalls.” The competition rules provided that each submission would be evaluated by a panel of judges based on three criteria—(1) whether the solution would successfully block robocalls; how easily could a consumer use the solution; and whether the solution could feasibly be implemented in practice. Contestants agreed to release the FTC from “any and all liability in connection with the Prizes or Contestant[s’] participation in the Contest.” After judging, the submission with “the highest overall scores” would be awarded a $50,000 prize. In judging the entries, the judges decided that the front-runners would be entries that proposed using filtering as a service (“FaaS”) to block robocalls even though this was not stated in the competition rules. Plaintiff’s entry did not use filtering, and he was not successful. Plaintiff filed suit. The court granted the U.S.’s motion to dismiss. The court concluded that the judges were allowed to use discretion in judging the contest even though the discretion they used was not expressly stated in the published judging criteria. The exercise of their discretion did not mean that they failed to act in accordance with the published judging criteria. Even if the judges were mistaken in not crediting plaintiff’s entry, this does not amount to actionable grounds to allow recovery.

See the entertaining case of Simmons v. United States, 308 F.2d 160 (4th Cir. 1962). See also Waible v. McDonald’s Corp., 935 F.2d 924 (8th Cir. 1991).

U.S.

—Frankel v. United States, 842 F.3d 1246 (Fed. Cir. 2016) (judges are afforded discretion so long as they do not act outside the bounds of the contest rules).

La.

—Schreiner v. Weil Furniture Co., Inc., 68 So. 2d 149 (La. App. 1953) (involves essentially the same reasoning as the N.D. case below).

Md.

—Rosenthal v. Al Packer Ford, Inc., 36 Md. App. 349, 374 A.2d 377 (1977). Al’s ad in the paper offered $20,000 to anyone who could prove it was not “absolutely true” that Al was selling cars for $89 over factory invoice, freight and dealer preparation included. Rosenthal told Al to replace the standard AM with an AM-FM radio. Al charged $114 for this change. Rosenthal sued for the promised $20,000, claiming Al’s profit on the AM-FM radio was in addition to the $89 over factory invoice. In interpreting the offer, the court concluded that the additional charge was not a breach of the promise made in the offer.

N.D.

—In Grove v. Charbonneau Buick-Pontiac, Inc., 240 N.W.2d 853 (N.D. 1976), a posted offer promised an automobile “to the first entry who shoots a hole-in-one on Hole No. 8.” The occasion was an 18-hole tournament on a 9-hole golf course, meaning that a participant would have two opportunities to shoot for hole no. 8. Plaintiff shot a hole-in-one on the second opportunity (hole no. 17, according to defendant). Finding no golf rules, usages, or parol evidence as to whose meaning was preferable, the court construed the offer against the drafter, the party who created the ambiguity. See also, Harms v. Northland Ford Dealers, 602 N.W.2d 58 (S.D. 1999) (discussing Grove v. Charbonneau Buick-Pontiac, Inc.).

N.Y.

—In Johnson v. N.Y. Daily News, 114 Misc. 2d 1, 450 N.Y.S.2d 980 (Sup. Ct. 1982), a grandmother submitted a winning contest entry, using, however, the name of her minor grandson. The court dealt with two rules of the contest (printed in minuscule type). First, that all entrants must be over the age of 18 and second, that the decision of the judges would be final. As to the first rule, the court found no barrier to an adult entering a contest under a pseudonym. As to the second, the court stated that while it would not override the decision of the contest judges as to matters of content, it would review their decision as to validity of an entry. The case was reversed on the second point in 97 A.D.2d 458, 467 N.Y.S.2d 665 (2d Dept. 1983), aff’d, 61 N.Y.2d 839, 473 N.Y.S.2d 975, 462 N.E.2d 152, reargument denied, 62 N.Y.2d 803.

Or.

—Walker v. American Optical Corp., 265 Or. 327, 509 P.2d 439 (1973) (en banc). This is not a reward case, but is instructive on the interpretation of an offer to a unilateral contract.

Pa.

—Cobaugh v. Klick-Lewis, Inc., 385 Pa. Super. 587, 561 A.2d 1248 (1989). Another hole-in-one case. The offeror posted the offer on or near the golf course. It intended it to be effective only during a charity tournament, but neglected to remove the sign after the tournament. Plaintiff, who made a hole-in-one was held to be entitled to the offered prize, notwithstanding defendant’s unrevealed intention. A dissenting judge thought the ensuing bargain was illegal gambling.

For an interesting “hole-in-one” case, see Wayment v. Schneider Auto. Group Llc & Nate Wade Subaru, 2019 Utah App. LEXIS 19 (2019). Plaintiff, a professional golfer, played in a charity golf tournament sponsored, in part, by defendant. Rule sheets place on the participants’ golf carts, identified a hole-in-one contest at the eighth hole. “When golfers arrived at the eighth hole, they saw a new … Subaru XV Crosstrek parked next to the tee box along with a sponsorship sign with [defendant’s] name and logo.” Plaintiff claimed he was entitled to the car after he hit a hole-in-one on the 8th hole. Even though the defendant had not notified participants that professional golfers would be excluded from eligibility, defendant refused to award the car, and plaintiff sued. Each side obtained opinions from professional golfers about whether it was reasonable for Wayment to believe he was eligible to win the Subaru under the circumstances. The trial court granted summary judgment for plaintiff, but on appeal, the instant court reversed, concluding that a reasonable trier of fact might not find a contract from these facts. The court explained that “the difficulty in this case is that there was no express promise. There is a sponsorship sign, a parked car, and a rule sheet. There is also testimony that, while not necessarily unreasonable to believe otherwise, some professional golfers do not consider themselves eligible for prizes unless explicitly told they are eligible.” Further: “A reasonable jury could conclude that, based on [defendant’s] objective manifestations, [defendant] intended to exclude professional golfers from winning the Subaru. Or it could conclude otherwise.” The court held that “the existence of an implied-in-fact contract depends on objective manifestations—conduct—and is typically a jury question. Where reasonable minds could differ on the meaning of the parties’ objective manifestations, summary judgment is not an option.”

Kan.

—Elkins v. Board of Com’rs of Wyandotte County, 91 Kan. 518, 138 P. 578 (1914); Stone v. Dysert, 20 Kan. 123 (1878).

S.D.

—Madsen v. Dakota State Bank, 79 S.D. 495, 114 N.W.2d 93, 100 A.L.R.2d 569 (1962) (plaintiff supplied the number of the get-away automobile. The reward was for “capture.”).

Tex.

—Choice v. Dallas, 210 S.W. 753 (Tex. Civ. App. 1919).

Wash.

—Hall v. State, 102 Wash. 519, 173 P. 429 (1918).

Other cases have interpreted the offering words narrowly and have held that giving information is not acceptance. McClaughry v. King, 147 F. 463 (8th Cir. 1906).

U.S.

—Shuey v. United States, 92 U.S. (2 Otto) 73, 23 L.Ed. 697 (1876). Some such awards are discretionary: Goldings v. United States, 98 Fed. Cl. 470 (2011); Cornejo-Ortega v. United States, 61 Fed. Cl. 371 (2004).

Tenn.

—Stair v. Heska Amone Cong., 128 Tenn. 190, 159 S.W. 840 (1913).

Ark.

—Chambers v. Ogle, 117 Ark. 242, 174 S.W. 532 (1915).

In Lockhart v. Barnard, 14 M. & W. 674, 153 Eng. Rep. 646 (1845), Parke, B., said: “According to the true construction of the advertisement, the information must be given, with a view to its being acted on, either to the person offering the reward, or his agent, or some person having authority by law to apprehend the criminal.”

Compare Reynolds v. Charbeneau, noted below at note 11.

Eng.

—Lancaster v. Walsh, 4 M. & W. 16, 153 Eng. Rep. 1324 (1838).

“The manifest purpose” of such reward is “to elicit information not already available.” State v. Weinberg, 1991 Conn. Super. LEXIS 552, *2 (Mar. 14, 1991).

McGuigan v. Conte, 629 F. Supp. 2d 76 (D. Mass. 2009). In 2000, a 16-year old girl disappeared. Nearly three years later, her remains were found in a wooded area, but her murder was not solved. At the time of the girl’s disappearance, defendant Conte was the district attorney. According to the complaint, Conte offered $100,000 as a reward for information regarding the missing girl. McGuigan provided the state police with information that led to the discovery of the girl’s remains, but he did not receive the reward. He sued Conte for breach of contract and attached to his pleading a flyer offering a reward for information about the missing girl. Conte stated that it was always his intent that the reward should go to the person who gave information leading to the arrest and conviction of the person responsible for the girl’s abduction, and that each and every reward poster that he authorized indicated that intent and used language to that effect. Citing this treatise (§ 3.10, 1993 ed.), the court explained that a standing offers of rewards by governmental bodies may be accepted even where the claimant acted without knowledge of its existence (Restatement (Second) of Contracts § 23 cmt. c (Am. Law Inst. 1981)). Here, however, the court found that the complaint in question suffered from multiple unrelated deficiencies that warranted granting in part defendants’ motion for judgment on the pleadings.

Ark.

—Chambers v. Ogle, 117 Ark. 242, 174 S.W. 532 (1915) (the relation among the claimants was here very slight).

Tenn.

—Stair v. Heska Amone Cong., 128 Tenn. 190, 159 S.W. 840 (1913).

But cf. Goldsborough v. Cradie, 28 Md. 477 (1868). Cornejo-Ortega v. United States, 61 Fed. Cl. 371 (2004) (award discretionary).

11 Reynolds v. Charbeneau, 744 S.W.2d 365 (Tex. Civ. App. 1988). Reward “to anyone who can help solve the baffling murders …” Plaintiff was given information by Charbeneau as to a confession by Charbeneau’s roommate. Plaintiff urged Charbeneau to tell the authorities and told the authorities that Charbeneau had information about the murders. Thus compelled by plaintiff’s initiatives, Charbeneau divulged the information to the authorities. Both the plaintiff and Charbeneau were entitled to some part of the reward although the offeror apparently resisted payment to either.

Iowa

—Maggi v. Cassidy, 190 Iowa 933, 181 N.W. 27 (1921).

Kan.

—Board of Com’rs of Montgomery County v. Johnson, 126 Kan. 36, 266 P. 749 (1928).

Mich.

—Bloomfield v. Maloney, 176 Mich. 548, 142 N.W. 785 (1913).

N.H.

—Whitcher v. State, 68 N.H. 605, 34 A. 745 (1895).

N.Y.

—Fargo v. Arthur, 43 How. Pr. 193 (N.Y. 1872).

Or.

—Umatilla County v. Estes, 105 Or. 248, 208 P. 761 (1922).

Tex.

—Rochelle v. Pacific Exp. Co., 56 Tex. Civ. App. 142, 120 S.W. 543 (1909).

Wis.

—Kinn v. First Nat. Bank, 118 Wis. 537, 95 N.W. 969 (1903).

In Story v. United States, 105 F. Supp. 693, 123 Ct. Cl. 265 (1952), the land of the defendant was sold through the efforts of two separate brokers. The defendant recognized that the commission should be paid to someone and put the amount in trust for the purpose. The court thereupon divided the commission equally between the two brokers.

Kan.

—Taft v. Hyatt, 105 Kan. 35, 180 P. 213 (1919), reh’g denied, 181 P. 561.

Iowa

—Hawk v. Marion County, 48 Iowa 472 (1878).

La.

—Deslondes v. Wilson, 5 La. 397 (1833).

Mass.

—Symmes v. Frazier, 6 Mass. 344 (1810).

Tex.

—Blain v. Pacific Express Co., 69 Tex. 74, 6 S.W. 679 (1887).

U.S.

—In United States v. Matthews, 173 U.S. 381, 384, 19 S. Ct. 413, 414, 43 L. Ed. 738 (1899), the court said: “It is undoubted that both in England and in this country it has been held that it is contrary to public policy to enforce in a court of law, in favor of a public officer, whose duty by a virtue of his employment required the doing of a particular act, any agreement or contract made by the officer with a private individual, stipulating that the officer should receive an extra compensation or reward for the doing of such act. An agreement of this character was considered at common law to be a species of quasi extortion, and partaking of the character of a bribe.” Although this quotation focuses on reward offers by private individuals, the same vice attaches to attempts by public officers to claim reward offers by public entities.

Fla.

—Slattery v. Wells Fargo Armored Service Corp., 366 So. 2d 157 (Fla. App. 1979). A polygraph operator retained by the state attorney or police department cannot provide information developed in the scope of his retainer and claim entitlement to a reward therefor.

Iowa

—Maggi v. Cassidy, 190 Iowa 933, 181 N.W. 27 (1921).

Kan.

—Taft v. Hyatt, 105 Kan. 35, 180 P. 213 (1919), reh’g denied, 181 P. 561; Thacker v. Smith, 103 Kan. 641, 175 P. 983 (1918).

Ky.

—Denney v. Reppert, 432 S.W.2d 647 (Ky. 1968). A deputy sheriff acting outside his county was entitled to claim a reward, but policemen working within their area of jurisdiction were not.

Mass.

—Pool v. Boston, 59 Mass. (5 Cush.) 219 (1849).

N.J.

—Gray v. Martino, 91 N.J.L. 462, 103 A. 24 (1918).

Ohio

—Somerset Bank v. Edmund, 76 Ohio St. 396, 81 N.E. 641 (1907).

W.Va.

—Maryland Cas. Co. v. Mathews, 209 F. Supp. 822 (S.D. W. Va. 1962). The claimant was an investigator employed in the office of the county prosecutor. Working after hours, and during lunch periods, claimant investigated a robbery that had occurred in the state capitol building. After piecing together sufficient information to implicate the perpetrator, the investigator turned over this information to the police investigating team that was also looking into the robbery. Claimant did not turn over the pieces of information developed along the way because the goal was to solve the case singlehandedly so as to collect the reward. Recovery was denied on grounds of public policy. This was affirmed in 361 F.2d 899 (4th Cir. 1966), which makes the further point that another claimant, the wife of the culprit, was not barred by her marital status from making her own claim.

Receiving a reward for acts done in an official capacity may be prohibited by statute. E.g., “A public officer who knowingly asks or receives any emolument, gratuity or reward, or any promise thereof, excepting those authorized by law, for doing any official act, is guilty of a class 6 felony.” A.R.S. § 38-444.

“The pre-existing duty rule also protects employers or the public against failures of performance absent additional incentives. Thus, employees of a bank or a police department who provide information requested in a reward offer are performing their pre-existing duties rather than providing consideration for the reward promise.” John E. Murray, Murray on Contracts § 65 (5th ed. 2011).

“[P]ublic officials and even some private employees whose employment imposed a duty to the public later were deemed ineligible to claim a reward offered to anyone who did what the officials were already bound to do.” J. Goldstein, Teaching Important Concepts: The Legal Duty Rule and Learning About Rules: A Case Study, 44 St. Louis L.J. 1333, 1338 (2000).

“The pre-existing duty rule bars enforcement of new obligations based on prior legal or contractual obligations. For example a law enforcement official generally cannot claim a reward for capturing a criminal within the official’s jurisdiction because the official, having an existing duty to apprehend criminals, did not provide new consideration to support a contractual claim for the reward.” R. Adler, The Last Best Argument For Eliminating From Express Warranties: “Real World” Consumers Don’t Read Warranties, 45 S.C. L. Rev. 429, 441 (1994).

17 Alexander v. Russo, 1 Kan. App. 2d 546, 571 P.2d 350 (1977). The thief’s mother supplied information to her attorney. The attorney supplied the information to the authorities. The mother without any knowledge of the offer and under compulsion confirmed the information. Neither the mother nor the attorney were allowed to recover.

18 State v. Avis, 577 A.2d 1146, 41 Conn. Sup. 385 (1990). The detective was retained by the attorney for a codefendant.

Ga.

—Consolidated Freightways Corp. v. Williams, 139 Ga. App. 302, 228 S.E.2d 230 (1976). The jury found that despite claimant’s supervisory status the services went beyond the claimant’s employment duties.

Ky.

—Denney v. Reppert, 432 S.W.2d 647, 649 (Ky. 1968). The court wrote:

At the time of the robbery the claimants Murrell Denney, Joyce Buis, Rebecca McCollum, and Jewell Snyder were employees of the First State Bank of Eubank. They were under duty to protect and conserve the resources and moneys of the bank, and safeguard every interest of the institution furnishing them employment. Each of these employees exhibited great courage, and cool bravery, in a time of stress and danger. The community and the county have recompensed them in commendation, admiration and high praise, and the world looks on them as heroes. But in making known the robbery and assisting in acquainting the public and the officers with details of the crime and with identification of the robbers, they performed a duty to the bank and the public, for which they cannot claim a reward.

N.Y.

—Braun v. Northeast Stations & Services, 93 A.D.2d 994, 461 N.Y.S.2d 623 (1983). Employee who was the victim of a robbery was eligible for reward for information leading to the arrest and conviction of the robber.

Ark.

—Chambers v. Ogle, 117 Ark. 242, 174 S.W. 532 (1915).

Iowa

—Maggi v. Cassidy, 190 Iowa 933, 181 N.W. 27 (1921).

Ky.

—Denney v. Reppert, 432 S.W.2d 647, 649 (Ky. 1968) (deputy sheriff Rockcastle County could claim reward since arrest and recovery of stolen money took place in Pulaski County, out of his jurisdiction—he “was thus under no legal duty to make the arrest, and is thus eligible to claim and receive the reward.”).

Mass.

—Hartley v. Granville, 216 Mass. 38, 102 N.E. 942 (1913).

Pa.

—McCandless v. Allegheny Bessemer Steel Co., 152 Pa. 139, 25 A. 579 (1893).

Eng.

—England v. Davidson, 11 A. & E. 856 (1840).

Wis.

—Reif v. Paige, 55 Wis. 496, 13 N.W. 473 (1882).

Ind.

—Alvord v. Smith, 63 Ind. 58 (1878).

Iowa

—Scott v. People’s Monthly Co., 209 Iowa 503, 228 N.W. 263, 67 A.L.R. 413 (1929).

In Las Vegas Hacienda, Inc. v. Gibson, 77 Nev. 25, 359 P.2d 85, 87 A.L.R.2d 645 (1961), the owner of a golf course offered to pay $5,000 to any person who, having paid the admission fee of 50 cents, shot a hole-in-one. The plaintiff complied with the conditions and was given judgment for the amount promised. The court held that the contract so made was not a wager. This appears not to have been an offer of a prize to the winner of a contest. The offer could be accepted by more than one person at any time before it was revoked by adequate notice. The payment of the 50 cent fee would make the offer irrevocable as to parties paying it until they had the opportunity to make the trial as specified in the offer. See Leonard v. Pepsico, Inc., 88 F. Supp. 2d 116 (S.D.N.Y. 1999) (distinguishing reward cases from typical advertisements).

Brown v. State of Wisconsin, 230 Wis. 2d 355, 602 N.W.2d 79 (1999). An issue of first impression, in which the State of Wisconsin joined virtually every other state that has considered the question in holding that “the relationship between a lottery ticket holder and the state lottery agency is primarily contractual in nature, and that the purchase of a ticket in the proper manner constitutes acceptance of an offer, forming a binding contract.”

Eng.

—Carlill v. Carbolic Smoke Ball Co., [1893] 1 Q.B. 256.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.11 »

1 Corbin on Contracts § 3.11 (2020)

§ 3.11. When the Words “I Accept Your Offer” Would Be Ineffective

An offer may be so worded that the offeree gets no power to accept by the words, written or spoken, “I accept your offer.” There is a variety of such situations. The clearest is where the offer unequivocally looks to an acceptance by performance and only by performance. Most reward offers are in this category. There are many other such offers which look purely to unilateral contracts. In Anthony v. Jersey Central Power & Light Co.,1 the defendant adopted and distributed a “severance pay” rule. Later, when its business was sold, it refused to pay the plaintiff the amount promised, asserting that it was a mere gratuity. The court held that the plaintiff’s continuance in service up to the termination of employment was both an acceptance and a sufficient consideration.2 A promise to remain in the employer’s employ for the period indicated in the offer would not have created a contract.

As earlier discussed,3 there are offers that create power in the offeree to make a series of separate contracts by a series of independent acceptances. Where one party wrote to another offering to supply specified goods at certain prices for the period of twelve months in such quantities as the latter might order from time to time, a reply by the offeree saying “I accept your offer as made” did not make a contract.4 This is not for lack of mutual expressions of assent, but because the form of the offer (if indeed it was an offer)5 is such as to make the offeree’s expression insufficient as a consideration or as to definiteness of subject matter. By using the quoted words, the offeree has made no promise to buy any quantity and has given no other consideration. Yet the proposal by the first party may have been found to be an operative offer and remain so for a year unless sooner revoked. If it can properly be characterized as an offer, the offeree can effectively accept at any time within the year by ordering some specific quantity, thereby consummating a bilateral contract to sell and to pay for that quantity.

In another case the defendant promised the plaintiff that if the plaintiff placed its orders for gasoline through the defendant, and the latter accepted such orders, the defendant would pay the plaintiff a specified rebate per gallon sold. If the plaintiff had replied, “I accept your offer,” no contract would have been made. However, a contract was made each time the defendant sold gasoline to the plaintiff.6 Perhaps no offer had been made by the defendant. Its statement of selling price, including a rebate, was an implicit term of each order placed by the buyer.

In an earlier case, the defendant signed a writing headed “Hopkins Gate Contract,” saying “The Racine Iron Company hereby agrees with Floyd Hopkins to furnish, at any time hereafter during the life of the patent, castings for the patent farm gate of said Hopkins … for forty cents per set.”7 This was a standing offer, but it was not itself a contract.8 Nor could it be accepted by Hopkins by merely signing the document itself, or by saying “I accept your offer.” An order for a specific number of castings would be an effective acceptance and would consummate a bilateral contract to make and to pay for the number of castings ordered. The order for definite goods is an acceptance that is invited, and it is a sufficient consideration for the reason that it is a promise to pay the specified price.

In another case, the state of Louisiana had set a minimum price at which milk could be sold by producers to processors. Previously, the parties had a long relationship involving the purchase and sale of milk. The association of producers notified the processor that they would bill at more than the minimum price and “[y]our acceptance of milk from members of this association … will constitute your agreement to these announced prices.” The processor replied that it would pay only the minimum set by the state commissioner or federal market order. Discussions ensued and each party testified that it stuck to its position and had the last word prior to delivery of milk. Despite the absence of an express agreement on price, deliveries took place on almost a daily basis. The court ruled that the each delivery was a separate offer at the seller’s terms and that the acceptance of each shipment created a contract on these terms. This may be explained on the ground that a fictitious contract is created when the purchaser exercises dominion over the offered goods despite the purchaser’s express refusal to pay the seller’s price.9 The court’s explanation is different.10 The buyer’s expressed willingness to take delivery at the minimum price had no quantity term and thus was not an offer. The seller’s delivery of specific quantities with the demand for its price constituted the offer. The processor’s acceptance of delivery constituted the acceptance of the offer. Because of the clearly expressed disagreement as to price, perhaps it would have been better to find that no contract price had been agreed upon and that the obligation of the buyer was to pay reasonable value. This would be the probable result in a jurisdiction that had adopted the Uniform Commercial Code. There was no definite expression of assent by the offeree—whichever party might be deemed the offeree. Consequently, a contract was formed without a price term and the Code would fill the price gap by imposing a reasonable price.11

Again, if an employer offers employment at specified wages, and on stated conditions to continue for an indefinite period and to be terminable at the will of either party, a mere statement “I accept your offer” creates no binding contract. This is because neither party has yet made a promise that can be enforced or that purports to bind the party to render any performance whatever. By express provision, performance is still to be subject to the promisor’s will. A refusal to render any performance at all would be no breach of duty.

Nevertheless, the employer’s offer creates a real power of acceptance, one that exists before any verbal acceptance and that continues to exist after such an acceptance. The words “I accept your offer” are certainly not a rejection.

The employee may be fully authorized by the employer’s proposal to proceed with performance without any further assent by the employer, and if the employee does so proceed, the employer will be bound to pay the specified wages for services rendered. If this is true, the employee had power to accept by action, though not by the words “I accept your offer.” If the offer was one to pay one thousand dollars per week, the provision for termination at will might be meant to reserve the privilege of termination only at the end of a weekly period. In such case, actually beginning work may reasonably be held to create a bilateral contract for one week’s service and pay.12 If the provision is not so interpreted, then acceptance by rendering service makes only a unilateral contract to pay for service actually rendered before notice of revocation.13

Footnotes — § 3.11:

1 Anthony v. Jersey Central Power & Light Co., 51 N.J. Super. 139, 143 A.2d 762 (1958).

2 A similar case is Gronlund v. Church & Dwight Co., 514 F. Supp. 1304 (S.D.N.Y. 1981) (N.J. law). The jury could properly have found that the employer informed plaintiff that pursuant to a reorganization the employee’s job would be eliminated. At the same time, the employer promised 12 weeks severance pay if the employee continued working until the end of the year, but if the employee found a new job the severance pay would be paid anyway. On such a finding a unilateral contract would exist. The court collects many cases so holding. The plaintiff’s claim for a bonus rested on the same basis, but there was no showing that the denial of the bonus was arbitrary.

Sparveri v. Town of Rocky Hill, 656 F. Supp. 2d 297, 310 (D. Conn. 2009) (providing services despite being free to discontinue them constitutes good consideration for contract modification).

3 See §§ 2.18 and 2.33.

Eng.

—Great Northern R. Co. v. Witham, L.R. 9 C.P. 16 (1873).

In Morrow v. Southern Exp. Co., 101 Ga. 810, 28 S.E. 998 (1897), the defendant promised to carry at specified rates all the milk that the plaintiff would offer for shipment as long as the plaintiff desired. Such an offer could be accepted only by tendering milk, not by words of acceptance. As to the milk not yet tendered, the offer remained revocable.

Other similar cases are:

Mass.

—Thayer v. Burchard, 99 Mass. 508 (1868) (standing offer to carry freight at stated rates).

N.Y.

—Railroad Service & Adv. Co. v. Lazell, 200 App. Div. 536, 192 N.Y.S. 686 (1922).

Wash.

—Mowbray Pearson Co. v. Stanton Co., 109 Wash. 601, 187 P. 370 (1920), adhered to, 109 Wash. 601, 190 P. 330 (standing offer to sell ice at named prices).

5 Where a proposal for the sale of goods contains no quantity term, only rarely will it be deemed to create a power of acceptance. It is, however, the contract, not the offer, that ordinarily requires a quantity term, provided that the offer sets a mechanism for its establishment. Thus a proposal to sell a buyer, “up to 15 widgets @ $1,000 a widget,” qualifies as being sufficiently definite.

6 Nat Nal Serv. Stations, Inc. v. Wolf, 304 N.Y. 332, 107 N.E.2d 473 (1952).

Wis.

—Hopkins v. Racine M. & W. Iron Co., 137 Wis. 583, 119 N.W. 301 (1909).

See also Strang v. Witkowski, 138 Conn. 94, 82 A.2d 624 (1951), where there was a standing promise to pay a commission of 5% on all orders obtained by the promisee. No promise was made by the latter, but the sending in of each order consummated a separate unilateral contract.

8 Query. The plaintiff had assigned the patent to the defendant. This could have been consideration for an irrevocable promise to sell. Yet, it does not appear that the parties bargained for an irrevocable offer in exchange for the assignment.

9 See § 3.8.

10 North La. Milk Producers Ass’n v. Southland Corp., 352 So.2d 293 (La. App. 1977), cert. denied, 354 So. 2d 200 (La.).

11 U.C.C. § 2-207(3). See § 3.37.

12 In Roessler v. Burwell, 119 Conn. 289, 176 A. 126 (1934), an express agreement of employment left the wages to be paid to be determined later on. They were so determined and paid for a period of four years. It was held that this was sufficient to justify enforcement of a subsidiary promise of the employee not to solicit customers for one year after termination of the employment. By rendering service as requested, the employee was binding himself by a promise not to solicit in addition to binding the employer to pay wages.

13 Such seems to have been the case in General Paint Corp. v. Kramer, 57 F.2d 698 (10th Cir. 1932), cert. denied, 287 U.S. 605. If this is true, a subsequent oral agreement, applicable only to services not yet rendered, changing the terms and conditions, was merely the revocation of an offer and the making and accepting of a new one. The decision that it was made invalid by a statute prohibiting the alteration of a written contract by oral agreement seems erroneous.

The Restatement (Second) of Contracts § 34(2) (Am. Law Inst. 1981) says:

“Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed.” Section 34(3) goes on to say “Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.”

The question of curing indefinite agreements is further considered in §§ 4.7 –4.8.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.12 »

1 Corbin on Contracts § 3.12 (2020)

§ 3.12. Acceptance by Forbearance From Action

An acceptance may be by forbearance to act as well as by action, if it is forbearance that is requested by the offer. Thus, if an officer of a bank offers to guarantee a depositor against loss if the depositor will leave a deposit with the bank, the acceptance of the offer and the requested consideration are merely the depositor’s forbearance to withdraw the deposit. The depositor makes no return promise, and is privileged to withdraw the deposit at any time, but in the absence of any notice of revocation, the guarantor is bound to indemnify the depositor against loss as long as any part of this money remains on deposit.1 The same result was reached where a publisher promised to pay a distributor a weekly sum as long as the distributor forbore to handle a rival publication.2 An insurer’s promise to an injured party to effect a full settlement if the party refrained from retaining a lawyer creates a contract if the offeree refrains from retaining counsel.3 Forbearance from suit constitutes the consideration for, and acceptance of, any offer, express or implied, that the offeror will refrain from certain action.4

In the field of suretyship and guaranty, where a creditor is pressing for payment and some form of legal action is threatened or is imminent, it is not at all uncommon for the debtor to obtain the indorsement of a third party on the note or a written guaranty by a third party, for the purpose of inducing the creditor to forbear from action. In many such cases, it is reasonable for the creditor to understand that the debtor and guarantor are asking for forbearance in fact and not for a promise of forbearance. If the creditor so reasonably understands, the presentation of the indorsed note or the written guaranty creates in the creditor a power of acceptance by actual forbearance as expressly or impliedly requested, without making any promise to forbear or giving any notice of acceptance.5 The actual forbearance is itself an expression of acceptance by the creditor and is the requested consideration for the promise of the indorser or guarantor. If no time of forbearance is specified, forbearance for a reasonable time is sufficient to bind the indorser or guarantor.6 And it is believed that if the question is whether the promisor has power to revoke the offer, the “reasonable time” necessary to make the offer irrevocable may be considerably shorter than the reasonable time required before the indorser or guarantor can be considered in default and subject to immediate action by the creditor. The request for forbearance need not be put into words; the creditor may be quite reasonable in inferring such a request from the mere fact that an indorsement or guaranty is made.7

Such a case as this may seem to be one in which mere silence by the creditor operates as an acceptance, but there is something more than “mere silence”. The creditor’s inaction, the creditor’s forbearance to take action against his debtor, is itself an expression of assent, one that under the existing circumstances should be understood as such. This does not mean that it is to be understood as an expression of a promise to forbear. Just as much as in the case where an offeree accepts by overt action, non-promissory in character, the offeror has reason to know that the offeree’s actual forbearance is in response to the creditor’s request. This makes the offered promise a valid unilateral contract. Sometimes the creditor may be requested to make new advances as well as to forbear. The making of such advances is, of course, an expression of assent by overt action.8

If the creditor is requested by the debtor or the debtor’s surety to forbear for a definite, specified period, forbearance for the full period is certainly a condition precedent to any action on the surety’s promise. But forbearance for the full period, without promise or notice, may be sufficient to sustain an action against the surety if payment is not made.9 The specification of a definite period is a factor of some weight in deciding whether or not the creditor was asked to promise such length of forbearance, and not merely to forbear without promising.

When forbearance follows after a promise of a guaranty of credit, it is almost certainly in reliance upon the promise. In such cases, the concepts of unilateral contract and promissory estoppel overlap. The Restatement (Second) of Contracts has singled out such guarantees for separate treatment.10 The Restatement provision explicitly refers to the existence of statutes under which guarantees are enforceable by virtue of a signed writing alone and indorsements on instruments require no consideration.11

There are cases holding that if an offeree merely acts or forbears as requested, without making any promise thereof, there is no valid contract for lack of mutuality of obligation. These cases usually show a lack of understanding of the unilateral form of contract. They are discussed in Chapters 5–7 on consideration.

Footnotes — § 3.12:

1 Va.—Looney v. Belcher, 169 Va. 160, 192 S.E. 891 (1937).

The grantee of mortgaged land offered his promise to pay the debt if the mortgagee would not foreclose. The mortgagee thereupon forbore to foreclose for ten years. There was a sufficient acceptance by the mortgagee. Carter v. Burns, 332 Mo. 1128, 61 S.W.2d 933 (1933).

2 Rague v. New York Evening Journal Pub. Co., 164 A.D. 126, 149 N.Y.S. 668 (1914). The court held in this case that the defendant’s offer had been accepted when the plaintiff had ceased to sell the rival paper. An alternative explanation is that the offer became irrevocable at that point.

3 Allen v. Aetna Cas. & Sur. Co., 222 Va. 361, 281 S.E.2d 818 (1981). The court’s holding that the agreement was too vague and indefinite, however, is dubious at best. Certainly the promise could have been valued by what a jury thought the value of the original claim.

N.M.

—Spray v. City of Albuquerque, 94 N.M. 199, 608 P.2d 511 (1980). The homeowner’s forbearance from suit was impliedly the agreed exchange for the City’s implied promise to change the specifications for fencing a City owned golf course.

Tex.

—Estes v. Oilfield Salvage Co., 284 S.W.2d 201 (Tex. Civ. App. 1955). Forbearance can constitute consideration.

Forbearance from filing suit to contest a will was implied in In re Estate of Hoobler, 1996 OK 56, P6, 925 P.2d 13, 15–16 (1996): “[A]ttorneys for both the children and the grandchildren addressed the issue of consideration in the form of forbearance from bringing suit. Even if this issue had not been directly presented, forbearance to bring suit may be fairly inferred from a common-sense reading of the language of a document or from the circumstances surrounding its execution. Although the agreement does not specifically provide that the grandchildren are agreeing not to contest Hoobler’s will in exchange for a share of her estate, it is implicit in the contract that the children and grandchildren are attempting to avoid litigation through division of the estate.”

But where a town’s police dog bit a girl and the police chief told the girl’s mother the police department would pay the medical bills, the court refused to imply an agreement to forbear from suit: “[W]hen the Chief told Plaintiff that the Department would take care of the medical bills, the parties did not discuss forbearance from suit at all, let alone come to an express agreement. Because nothing in the circumstances surrounding the making of the promise suggests anything but generosity or a simple sense of moral obligation on the part of the Village when making its promise to pay, we will not imply an agreement to forbear.” Smith v. Village of Ruidoso, 128 N.M. 470, 478, 994 P.2d 50, 58, 1999-NMCA-151 (1999).

5 In Kidwell & Kidwell, Inc. v. W.T. Galliher & Bro., Inc., 282 A.2d 575 (D.C. App. 1971), the plaintiff, an unpaid subcontractor, threatened to file a mechanics’ lien and asked the owner and the surety for a written agreement “protecting the $925.00 due.” They complied. Although plaintiff made no promise to forbear from filing a lien, it in fact forbore. There was a valid unilateral contract.

Ind.

—Wills v. Ross, 77 Ind. 1 (1881).

Vt.

—Hakes v. Hotchkiss, 23 Vt. 231 (1851).

Eng.

—Oldershaw v. King, 2 H. & N. 517 (Ex. Ch. 1857).

7 Crears v. Hunter, 19 Q.B.D. 341 (C.A. 1887), a demand note, with interest payable semi-annually.

Pa.

—Eddowes v. Niell, 4 U.S. (4 Dall.) 133, 1 L. Ed. 772 (1793).

Eng.

—Oldershaw v. King, 2 H. & N. 517 (Ex. Ch. 1857).

Mass.

—Lent v. Padelford, 10 Mass. 230 (1813).

N.Y.

—Muir v. Greene, 191 N.Y. 201, 83 N.E. 685 (1988).

Okla.

—Ross v. Russell, 1970 OK 175, 475 P.2d 152 (1970). Debtor fled the state owing many creditors, including plaintiff, an insurance agent, who located him, and hired an attorney at the place to which he had fled. Debtor’s wife wrote the attorney asking for time and stating she personally intended to pay the agent “when it gets his turn.” The plaintiff terminated the attorney’s retainer and did not sue. Later, the wife again assured plaintiff that payment would be forthcoming, saying, “We now only owe you and the 1st State Bank.” When about four years had gone by and the bank had been fully paid, plaintiff sued. The court relied on § 66, 1963 ed., to show that a guaranty may be accepted by performance. The implicit conditions that the agent forbear for a reasonable time and perhaps also that he wait until the bank had been paid had been fulfilled.

10 Section 88 provides:

“A promise to be surety for the performance of a contractual obligation, made to the obligee, is binding if

(a) the promise is in writing and signed by the promisor and recites a purported consideration; or

(b) the promise is made binding by statute; or

(c) the promisor should reasonably expect the promise to induce action or forbearance of a substantial character on the part of the promisee or a third person, and the promise does induce such action or forbearance.”

11 NY CLS Gen Oblig § 5-1109 an offer of guarantee is made irrevocable if the offer is in a signed writing and contains language of irrevocability. Similar results can be obtained by similar statutes elsewhere. See § 2.26. A guarantee of a preexisting debt, without forbearance or other consideration, can be effectuated under NY CLS Gen Oblig § 5-1105.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.13 »

1 Corbin on Contracts § 3.13 (2020)

§ 3.13. When Notice of Acceptance Is Necessary

Notice of acceptance may be a necessary requirement to the creation of a contract. At other times notice of acceptance may be a condition to the performance of the contract after it has been made.1 It has been sometimes argued that notice of acceptance is always necessary, except when the offeror clearly indicates otherwise, and that “notice” means knowledge brought home to the offeror. This was thought to be applicable especially in the case of contracts made by correspondence. Thus, it was said by Bramwell, L.J.: “It is necessary, as a rule, to constitute the contract that there should be a communication of acceptance to the proposer. As a consequence of or involved in the first proposition, if the acceptance is written or verbal—i.e., is by letter or message, as a rule, it must reach the proposer or there is no communication and so no acceptance of the offer.”2

It is not easy to discover where Bramwell found this “rule” that there must be communication, or why it is a “consequence” of that rule that “communication” necessarily means “receipt.” It looks very much like the assumption of a major premise and a begging of the question as a means of proving a desired conclusion. Such a rule as he assumed does not come down out of the sky. It must be found, if at all, in our judicial and legislative history. The fact is that such a general requirement is not to be found,3 and a majority of the court disagreed with him. Such a rule can indeed be found applied in certain types of cases, and it is necessary to classify the cases and to determine boundary lines and reasons for adhering to them.

In the first place, there is no question that the offeror can require notice of acceptance in any form.4 The offeror can require that it shall be in any language and transmitted in any manner. The requirement may be that notice is to be given by a nod of the head, by flags, by waving arms, by a smoke signal on a high hill. The offeror may require that notice be by letter, facsimile, email, or text message, and that there shall be no contract unless and until the offeror is made conscious of it.5 The offeror can instead dispense with the requirement of communication of the acceptance.6

Secondly, the offeror can specify a mode of making an acceptance of the offer, without making that method exclusive of all others. If the mode that the offeror specifies is one that may not bring home the knowledge that the offer has been accepted, then such knowledge is not a requisite. The offeror can specify a mode of acceptance without any knowledge of the law of contract and without thinking in terms of offer and acceptance at all. This will be considered hereafter.

Thirdly, if the offeror specifies no mode of acceptance, the law requires no more than that the mode adopted shall be in accord with the usage and custom of humanity in similar cases.7 If proof of such usage and custom is wanting or uncertain, the court must consider probable convenience and results and then help by its decision to establish a custom for the future and a rule of law. The Uniform Commercial Code has helpful definitions that can provide guidance even outside the scope of its coverage. “A person ‘notifies’ or ‘gives’ a notice or notification to another person by taking such steps as may be reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it.”8 Nothing in the definition precludes an offeror from requiring actual receipt of notice. “Actual receipt” also requires definition.9 The Uniform Commercial Code provides: “[A] person has “notice” of a fact if the person: (1) has actual knowledge of it; (2) has received a notice or notification of it; or (3) from all the facts and circumstances known to the person at the time in question, has reason to know that it exists.10

In cases of this third class,—where the offeror has not specified a mode of acceptance—it has been suggested that notice need not be given if the proposed contract is unilateral and must be given if it is bilateral. This is not a safe classification. Where the offeror makes a promise and requests some non-promissory action in return, the performance of that action will generally be enough without the giving of any notice to the offeror, but if the offeror offers some performance and requests a promise in return, the necessity of a notice of acceptance is usually the same as if the contract were to be a bilateral one. It should also be recalled that many offers are indifferent as to the proper manner of acceptance and can be accepted by promise or other reasonable means including performance or commencement of performance.11 It is generally, but not always,12 true that in cases in which the offer cannot be accepted without the making of a return promise, custom and the law require some notice of acceptance.13 The effect of a communication of acceptance that fails to arrive at its destination will be discussed elsewhere.14

The most reasonable rule, applicable in cases of the third class, seems to be that if the offer is of such a kind that the offeror needs to know of the acceptance in order to plan for performance or other subsequent action, and the offeree has reason to know this, a notice of acceptance must be given. The offeree’s general words of satisfaction with an offer may be insufficient to indicate that the offeree accepts.15 If the offer asks for a promise, it is not enough for the offeree to express assent secretly,16 or to tell his or her spouse or neighbor of the acceptance, or to take the train expecting to go to the offeror’s place of business,17 or to begin work in preparation to perform.18 It is important to stress that this paragraph deals strictly with cases in which the offeror has unambiguously bargained for a return promise. One who asks for a promise is asking for an expressed assurance for the purpose of guiding future conduct.

One who offers to pay or to become guarantor for the debt of another, in order to induce forbearance to enforce payment, and specifies with clarity that a promise of such forbearance within a specified or a reasonable time is wanted, merely beginning to forbear is not operative as an acceptance.19 The requested promise must be made within the required time.

Even if the offeree is not asked to make a promise, the facts may be such as to show clearly the need of the offeror to know that acceptance has taken place in order to plan for the future. This is often the case where the offeror is a debtor who is seeking a discharge by a substituted contract, a release, or an accord and satisfaction. One against whom a claim for unliquidated damages is being made offers to substitute a definite promise of a sum of money, or of services, in return for immediate discharge. To accept, the offeree must send notice to the offeror.20 Here, acceptance is not a promise; it is a mere expression of assent that operates to discharge his claim to unliquidated damages. As indicated in § 1.3, not all contracts involve promises. But the offeror needs to know that whether there is a discharge and freedom from duty, just as much as any offeror would need to know of the acquisition of new rights by means of a promise.

Whenever the case is such as to require a notice of acceptance, it is not enough for the offeree to express mental assent, or even to do some overt act that is not known to the offeror and is not one that constitutes a customary method of giving notice. If the overt act is one that clearly expresses an intention to accept the specific offer and is in fact known by the offeror, there is an effective acceptance. Here the offeror has actual knowledge.21

Ordinarily one who makes an offer to sell property on stated terms contemplates a bilateral contract and expects a notice of acceptance. This is true even though the offer is in the form of an irrevocable option to buy at a price. Nevertheless, in such a case the offeree can make an operative acceptance by tendering the price without other notice. If the offeror accepts the tendered price, the buyer may have fully performed at once, so that the resulting contract is unilateral from the time it is made. If the offeree’s tender is rejected, the seller is at once guilty of a breach of contract, for which the buyer can maintain suit for damages or for specific performance.22

So a carpenter cannot accept an offer of a building contract that looks to a promissory acceptance only merely by buying materials and starting work on them in the carpentry shop.23 But it would probably be enough if the carpenter had begun unloading such materials in the offeror’s presence at the place of performance.24

A subscription for shares probably cannot be accepted merely by passing a vote of the board of directors and entering the vote on the minutes of the corporation.25 It may be that the vote and record thereof would make the subscriber a participating and voting shareholder, but the subscriber expects to be informed that the subscription offer has been accepted.

For similar reasons, it has been held that the vote of an official board to accept a bid is not operative as an acceptance. It must be officially communicated.26 The vote of a school board, or other official board, electing to a position one who has made application for the appointment, has been held to be revocable by the board prior to the sending of an official notice to the applicant.27 This is justifiable if the election is regarded as the acceptance of an offer, but it may be regarded otherwise and may be held to be an irrevocable act.

Many offers are made in such terms that they request the offeree to do specified acts constituting the entire consideration and exchange for the offered promise. These are considered elsewhere in discussing unilateral contracts. In these cases a notice is not required as the mode of acceptance, unless the offeror prescribes otherwise. The contract is consummated by the performance of the requested act. They are the acceptance as well as the performance of the requested subject of exchange.28

Footnotes — § 3.13:

1 See §§ 3.14 and 3.15.

2 Household Fire & C. Acc. Ins. Co. v. Grant, 4 Ex. D. 216 (C.A.1879).

3 In Lennox v. Murphy, 171 Mass. 370, 50 N.E. 644 (1898), Mr. Justice Holmes said: “There is no universal doctrine of the common law that acceptance of an offer must be communicated.”

See Thomson v. United States, 357 F.2d 683, 174 Ct. Cl. 780 (1966) where government authorization of plaintiff’s bid for realty appraisal contract was given but notice as to one parcel was not sent to plaintiff. Government agents, however, encouraged plaintiff to commence work in the belief that the bid would be authorized. It was held that plaintiff was entitled to recover the contract price for services. Actual notice of acceptance was not necessary where offeree’s conduct led offeror to believe that acceptance would be forthcoming.

4 In International Longshoremen’s & Warehousemen’s Union v. Cargill, Inc., 372 F. Supp. 807 (N.D. Cal. 1974), an arbitrator’s award ordered the employer to pay back to the union. It was unclear whether the award included fringe benefits. To satisfy the award, the employer sent a check to the union with a cover letter and a statement, in the nature of a release, that it asked the union official to sign. The check was deposited but the statement was not signed. It was held that the offer of settlement had not been accepted. It should be noted that labor cases are often treated differently from commercial cases. Generally, it would be held that the cashing of the check without the acceptance of the offer would be a conversion, and, at the option of the offeror, the offeree would be estopped from denying that it had accepted.

One court wondered if an offer was at liberty to deviate from “the rule” and dispense with notice. The court decided it did not need to decide the issue, but stated: “We note that several jurisdictions have recognized that an acceptance need not be communicated to form a binding contract where the language of the offer dispenses with this requirement.” Keller v. Bones, 260 Neb. 202, 207, 615 N.W.2d 883, 887 (2000).

Mass.

—Lewis v. Browning, 130 Mass. 173 (1881).

Mo.

—In Shortridge v. Ghio, 253 S.W.2d 838 (Mo. App. 1952) the court held that the defendant’s written offer to buy required in terms that acceptance must be by the signature of the seller.

Mont.

—In Union Interchange, Inc. v. Allen, 140 Mont. 227, 370 P.2d 492 (1962), a written offer provided: “This agreement shall become effective only when accepted by your office in Seattle, Washington and you shall notify me of such acceptance by letter.” The plaintiff alleged no such notice by letter. Its complaint was demurrable.

Tenn.

—In Lexington Housing Authority v. Continental Cas. Co., 210 F. Supp. 732 (W.D. Tenn. 1962), the plaintiff advertised for bids, reserving the privilege of rejecting all bids but requiring that a bid should be irrevocable for 30 days after opening of bids and bid bond. The defendant surety’s principal made the lowest bid and the bond was executed by the defendant. The bid expressly required that acceptance should be in writing. The bids were opened on July 21. The bidder was at once notified orally that its bid was accepted subject to approval by the Public Housing Authority. The next day, the bidder withdrew its bid, alleging a mistake. The court held there was no operative mistake but the withdrawal was effective because (1) there was no consideration for the promise of irrevocability; (2) the ‘acceptance’ was conditional; (3) it was not in writing as required by the offer; (4) there was no action in reliance by the offeree.

6 International Filter Co. v. Conroe Gin, Ice & Light Co., 277 S.W. 631 (Tex. Com. App. 1925). But see Kendel v. Pontious, 261 So. 2d 167 (Fla. 1972). The proposed contract provided: “this contract shall be binding on both parties … when this contract shall have been signed by both parties and their agents.” The document was signed by one party and sent to the other for signature. The other signed. It was held that no contract could exist without communication—a dubious result indeed. The dissenting opinion was on target.

7 Ferguson v. West Coast Shingle Co., 96 Ark. 27, 130 S.W. 527 (1910) (usage required notice by telegram).

This treatise, § 67, 1950 ed., is cited in Spenard Plumbing & Heating Co. v. Wright, 370 P.2d 519, 523 (Alaska 1962). The court held that the defendant’s bid was so worded that it required a written notice as the only mode of acceptance and did not merely specify a written notice as one possible mode. It found, also, that, in the absence of a contrary provision, a written notice was required by the usage of contractors in like cases. The bidder had orally asked for an extension of time for filing a bond, but this was not the making of an oral offer or a waiver of the requirement of written notice. The bidder was entitled to the return of his deposit.

In Fine v. Property Damage Appraisers, Inc., 393 F. Supp. 1304 (E.D. La. 1975), a franchise agreement contained an option to renew but was silent as to the proper manner of renewal. The franchisee continued to operate the franchise after the expiration of the period. It was held that this conduct sufficiently manifested acceptance of the option.

8 U.C.C. §§ 1-202(d).

9 It is usage and custom that justify giving notice of acceptance by mail or telegraph. See § 3.24.

In Howard v. Daly, 61 N.Y. 362 (1875), the offeree dropped her written acceptance in the private letter box of the offeror, kept by him for receipt of communications at his theater. This was held to be effective, even though the offeror did not get the letter. “The plaintiff complied with the usual, or occasional, practice and left the acceptance in a place of deposit recognized as such by the defendant.” Assuming actual receipt of the acceptance had been required, it was “received.”

10 U.C.C. §§ 1-202(a). As to the effective moment of receipt by an organization, see U.C.C. §§ 1-202(e), which for the most part points to the moment when it has been or should have been brought to the attention of the individual conducting the transaction.

In United Leasing v. Commonwealth Land Title Agency, 134 Ariz. 385, 656 P.2d 1246 (App. 1982), the offeree’s agent hand-delivered a letter of acceptance to the offeror’s office. The receptionist checked with the offeror and informed the agent that the offeror could not be disturbed. The agent left the acceptance with the receptionist, writing a note on the envelope, which said, in part that it “is an acceptance.” The unopened envelope was returned with the endorsement, “Refused unopened by Loyd [the offeror].” There clearly was an effective acceptance. The Uniform Commercial Code was inapplicable, but the common law approach is the same. See VC Mgmt., LLC v. ReliaStar Life Ins. Co., 195 F. Supp. 3d 974 (N.D. Ill. 2016) (court contrasts United Leasing to cases where offeree makes no attempt to notify offeror).

In Greater Bloomfield Real Estate Co. v. Braun, 64 Mich. App. 128, 235 N.W.2d 168 (1975), the parties dealt through a real estate broker. The buyer made an offer through the broker that was rejected. Subsequently, through the same broker, the buyer made a new offer on a cash basis. The seller made a counter-offer in writing which was delivered to the buyer by the broker. The buyer told the broker he accepted and signed the counter-offer. The evidence conflicts whether the broker informed the seller of the acceptance prior to the seller’s calling the deal off, that is, revoking the offer if there was no contract or repudiating a contract if there was a contract. The court rules that the communication of the acceptance to the broker created a contract, stating that the offeror takes the risk of the effectiveness of the communication if the acceptance is made in a manner implicitly authorized by the offeror. Here all communications between the parties had been through the medium of the broker. See Magnetic Prods. V. Puritan Magnetices, Inc., 1998 Mich. App. LEXIS 2016, *12 (July 31, 1998) (“[I]t is the agent’s duty to disclose to the principal … all material matters within the agent’s knowledge … .”).

11 “[T]he [Uniform Commercial Code] and Restatement 2d proceed on the assumption that the doubtful offer, i.e., the offer not requiring a particular manner of acceptance, is the normal or typical offer … .” John E. Murray, Murray on Contracts § 46 (5th ed. 2011). Hauk v. First Nat’l Bank, 680 S.W.2d 771 (Mo. App. 1984). The defendant, a junior lienholder, offered prepayment to a senior lienholder. In exchange it asked for documents and a release. No manner of acceptance was specified. A promissory acceptance created a contract. See also § 2.32.

12 See, e.g., § 3.21.

Conn.

—Lyon v. Adgraphics, 14 Conn. App. 252, 540 A.2d 398 (1988). The counter-offer was signed, but this fact was not communicated to the other party. No contract was formed.

Ky.

—Kentucky Portland Cement & Coal Co. v. Steckel, 164 Ky. 420, 175 S.W. 663 (1915).

N.Y.

—In Mactier’s Adm’r v. Frith, 6 Wend. 103 (N.Y. 1830), Frith sent an offer by mail to sell certain brandy, already on shipboard consigned to Mactier, asking that Mactier credit him with the amount of the invoice price. This requested “credit” is a promise to pay. It is obvious that Frith expected some notice of the fact that Mactier accepted and promised to pay. It is believed that no contract existed until Mactier mailed his letter of acceptance.

Restatement (Second) of Contracts § 56 (Am. Law Inst. 1981) provides: “Except as provided in § 69 [Acceptance by Silence or Exercise of Dominion] or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.”

14 See §§ 3.24 –3.27.

15 Mintzberg v. Golestaneh, 390 So. 2d 759 (Fla. App. 1980); Zamore v. Whitten, 395 A.2d 435 (Me. 1978), overruled in part on other grounds Bahre v. Pearl, 595 A.2d 1027 (Me. 1991); Dunn v. Shane, 195 A.2d 409 (D.C. App. 1963). See also, Employee Painters Trusts Health & Welfare Trust Fund v. *** Bros., Inc., 2009 U.S. Dist. LEXIS 37699 (W.D. Wash. May 1, 2009).

Md.

—Norkunas v. Cochran, 168 Md. App. 192, 895 A. 2d 1101 (2006), affirmed, 398 Md. 1, 919 A.2d 700 (2007). The defendant signed a letter of intent concerning the sale of her property that the court found to be a preliminary negotiation. Pursuant to the letter of intent, the defendant received printed real estate contract forms which she signed. The defendant, however, did not return the forms to the plaintiff buyers. The court held that, to create a contract, an acceptance of an offer must be communicated to the offeror. Citing § 56 of the Restatement (Second) of Contracts, the court noted that a mere secret intent to accept an offer is not sufficient. Thus, even if the defendant’s signature on the printed forms was intended to be an acceptance of the offer, the acceptance would not take effect until they were either mailed by her, in which case the postal dispatch rule would apply, or otherwise transmitted to the buyers.

Mo.

—Wiseman v. Junior College District of St. Louis, 916 S.W.2d 267 (Mo. App. 1995). A college made an offer—by issuing a “Certificate of Administrative Appointment” for a three-year term—to Wiseman, who purported to accept it by writing “Above accepted by Ralph J. Wiseman 4/26/90” on the certificate. Wiseman did nothing more with the Certificate. The court announced that an “acceptance must be communicated” to the offeror to be effective and “without notice of acceptance to the offeror, a contract is not created.” While the court was correct to hold that no contract was formed, its reasoning is somewhat overbroad. Sometimes notice is not necessary for an acceptance to become effective. Notice probably was necessary in this case because the offeror would reasonably need to know of an acceptance in order to meet its administrative staffing needs in coming years.

R.I.

—In Ardente v. Horan, 117 R.I. 254, 366 A.2d 162 (1976), after negotiations, vendors sent vendee a proposed written contract to sell realty. Vendee returned the executed document with a cover letter expressing an understanding that certain furniture was included in the sale. The vendors denied any intention to include furnishings and returned the deposit check that vendee had attached to the document. Vendee sued for specific performance, but the court held there was no contract. Vendee apparently argued that he intended to accept unconditionally, but the court pointed out that it is the overt communication that determines whether there is an acceptance. Common sense determines whether any particular communication is an acceptance. See also Greenhalgh v. Keegan, 2015 R.I. Super. LEXIS 148 (Dec. 15, 2015) (intention alone does not constitute an acceptance). See § 3.28.

Tex.

—In Lee v. Stroman, 470 S.W.2d 783 (Tex. Civ. App. 1971), writ denied n.r.e., Stroman offered to buy Lee’s house, conditioned that Lee accept by a certain deadline. On the last day, Lee’s agent told Stroman that Lee accepted and the acceptance had been signed by one Nadine Thomas who claimed to have a power of attorney from Lee. Stroman insisted upon seeing the power of attorney. It was not presented to him until well after the deadline. It was held that there was no contract. He did not have the requisite assurance that Lee had accepted.

D.C.

—In Dunn v. Shane, 195 A.2d 409 (D.C. App. 1963), purchaser submitted a counter-offer conditioned on his ability to procure a specified loan. Because of delay in being notified of acceptance, he gave oral notice of revocation to the broker. Knowing that a written notice was on the way, the broker obtained the vendor’s assent to the counter-offer. No contract was consummated because the offeror needed to know of the acceptance in order to proceed with the negotiations for the loan, as the broker knew. His written revocation was received before the broker gave him any notice of the acceptance of the counter-offer.

Kan.

—Trounstine v. Sellers, 35 Kan. 447, 11 P. 441 (1886).

Ohio

—In Toro v. Geyer, 117 N.E.2d 620 (Ohio App.1951), plaintiff made an offer to buy defendant’s property for acceptance on or before March 1, accompanying the offer with his check for $5,000. The defendant cashed the check on Feb. 23, but gave no notice to plaintiff. This was not operative as an acceptance. Plaintiff gave notice of revocation on March 1 and got judgment for restitution of $5,000.

N.Y.

—White v. Corlies, 46 N.Y. 467 (1871).

Under the rule in Uniform Commercial Code § 2-206 the beginning of the performance prescribed in an offer may make the offer irrevocable even though the offer contemplates a promise by the offeree. The provision is, “(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.”

In Armour & Co. v. Celic, 294 F.2d 432 (2d Cir. 1961), after negotiations, the plaintiff prepared a written contract for the consignment of goods to defendant for sale on commission, providing expressly that it should not be binding on plaintiff until confirmed in writing by plaintiff’s division manager. The defendant signed the instrument and sent it to plaintiff for confirmation. The plaintiff’s division manager approved and signed it; but no copy or other notice was sent to the defendant. However, performance proceeded thereafter, the plaintiff shipping goods with invoices referring to “Agent’s Contract.” The defendant received and sold the goods but did not remit the proceeds. The court held that the evidence showed that defendant had knowledge that the plaintiff had confirmed and that the plaintiff shipped the goods to the defendant as a mere consignee and not as a purchaser on credit. No formal “notice” was necessary. It seems probable that the written “Contract of Limited Agency” was a mere statement of the terms on which the plaintiff was willing to supply goods to the defendant (a Cooperative Association). Even if it did not itself constitute a binding bilateral contract, it made the defendant fully aware that goods thereafter received had been shipped on consignment and were not being offered to the defendant for purchase by it on credit. Having such knowledge, the defendant’s receipt of the goods operated as an acceptance as agent and not as purchaser.

N.Y.

—Strong v. Sheffield, 144 N.Y. 392, 39 N.E. 330 (1895).

Brzezinek v. Covenant Ins. Co., 74 Conn. App. 1, 810 A.2d 306 (App. Ct. 2002), appeal denied, 815 A.2d 674 (Conn. 2003). The plaintiffs intended to accept the offer of the defendant insurer to settle all claims resulting from a car accident with the defendant’s insured. The plaintiffs’ attorney, however, did not forward the signed releases to the insurer until after the statute of limitations had run. The court rejected the plaintiffs’ argument that their conduct in forbearing from suit prior to the expiration of the statute constituted an acceptance. Citing this treatise (§ 3.13, 1993 ed.), the court noted that an offeror can require an offer to be accepted in a particular manner and that manner will control. Where a promisor bargains for a promise of forbearance, but doesn’t receive the promise, actual forbearance does not accept the offer.

Eng.

—In Gaunt v. Hill, 1 Starkie 10 (1815), the defendant wrote: “Sir—That it may not be said that I have made no effort to save my brother from prison, I wish to know if you will give him a full discharge if I will pay one moiety of his debt. I have specified what I will pay and no more; if you will accept this, call upon me tomorrow morning.” The creditor did nothing for a week, and then wrote: “I have taken an opinion on your letter, and am informed that I can recover upon it against you, therefore I shall not proceed against your brother.” The court held that the defendant was not bound. This should be sustained. The expected acceptance was a “promise,” not a mere forbearance, and the words “tomorrow morning” indicate a time limit.

20 Such a case is Trounstine v. Sellers, 35 Kan. 447, 11 P. 441 (1886). Goods had been sent by Trounstine to a local merchant, with respect to which some misunderstanding arose. The merchant wrote proposing to return the goods in settlement, paying for the part already disposed of. Intending to accept this offer, Trounstine started on a trip that would eventually take him to the merchant’s place of business. Before his arrival there, the merchant had mortgaged his entire stock, including the goods in question. To accept the merchant’s offer, it was necessary to send some notice to him, although the notice, if sent, would not have been a promise. It would have been a discharge of the merchant and the acquisition of new rights by Trounstine.

21 Sometimes the question is whether the offeree, by starting performance without giving notice of acceptance, has made an implied promise to complete the performance begun. As against the offeree, such an inference may readily be drawn. An excellent case is Wood & Brooks Co. v. D.E. Hewitt Lbr. Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921). The plaintiff ordered 500,000 feet of lumber on stated terms, saying: “If you cannot deliver as ordered please advise us immediately.” There was no notice of acceptance, but several months later the defendant shipped 160,000 feet, and requested inspection. From these and other circumstances, the jury was held justified in finding an implied promise to fill the order. The contract was bilateral. The decision is thoroughly consistent with the provisions of Uniform Commercial Code § 2-206 which provide that an offer which does not unequivocally provide for one manner of acceptance may be accepted in any reasonable manner, including the beginning of performance. Where the beginning of performance is reasonably chosen, a bilateral contract is formed, subject to a condition of notice. Clearly the delivery and receipt of part of the goods provided sufficient notice if no other had been given. See also, West Virginia Hosp. Ins. Corp. v. Broaddus Hosp. Ass’n (In re Broaddus Hosp. Ass’n), 159 B.R. 763 (Bankr. N.D. W.Va. 1993).

U.S.

N.Mex.

—In Keirsey v. Hirsch, 58 N.M. 18, 265 P.2d 346 (1953), the plaintiff wrote a letter to the defendant’s agent saying: “I wish to submit an offer of $4,800 for the Hurst place.” A month later, the defendant executed her warranty deed for the place, to the plaintiff by name, and sent it to a bank for delivery on payment of the price. The bank notified the defendant. Later, because of some defect, the defendant executed a second warranty deed. This was sent by her attorneys, along with abstract of title, to the defendant’s agent who had found the purchaser, saying that it was “to complete the transaction under the terms of our last letter” which had accompanied the first deed. The court said: “The number of written exhibits here in evidence … tends to obscure the few that are vital. Those few create a binding written contract. First, there is the written offer to purchase signed by Keirsey, dated Oct. 2, 1944, stating a price of $4,800; the fact that it was addressed to Milton Florsheim is immaterial so long as it was communicated to Viola Hirsch. Her subsequent execution of the warranty deed makes the fact of communication obvious. Second, there is the warranty deed dated Dec. 30, 1944, … naming Keirsey as grantee … which deed and abstracts were submitted on behalf of Hirsch to Keirsey’s attorney for examination. Corbin on Contracts, Vol. 1, § 67 [§ 3.13], p. 210, [373], … states: “ ‘If the overt act is one that clearly expresses an intention to accept the specific offer and is in fact known by the offeror, there is an effective acceptance.’ “We consider the execution and delivery to purchaser’s attorney of the warranty deed for examination such an acceptance. Both the offer and acceptance are in writing, and together constitute a written contract.”

Tex.

—Fujimoto v. Rio Grande Pickle Co., 414 F.2d 648 (5th Cir. 1969). Fujimoto supervised defendant’s plant and Bravo recruited its labor. They wanted more money and threatened to quit. Rio Grande orally promised a bonus equal to 10% of the profits, but they demanded a writing. So Rio Grande wrote them a letter offering the bonus. The letter said nothing as to how the offer should be accepted. Each of them retained the document and continued working. Their continuing to work without further complaint about compensation effectively communicated acceptance.

Fluor Enters. v. Orion Ref. Corp. (In re Orion Ref. Corp.), 372 B.R. 688 (Bankr. D. Del. 2007). The court cited this treatise, § 3.8, 1993 ed., in stating: “If one offers a promise to pay for specified construction or for service over a period of time, the beginning of the work so that it is known by the offeror may be a sufficient acceptance to bind both parties by mutual promises.” See also, Hollywood Fantasy Corp. v. Gabor, 151 F.3d 203 (5th Cir. 1998).

Idaho

—Kessler v. Pruitt, 14 Idaho 175, 93 P. 965 (1908).

N.Y.

—White v. Corlies, 46 N.Y. 467 (1871). Similar in effect is Beckwith v. Cheever, 21 N.H. 41 (1850).

Gyabaah v. Rivlab Transp. Corp., 22 N.Y.3d 1018, 1019, 981 N.Y.S.2d 349, 349, 4 N.E.3d 359, 359–360, (2013) (“This action was not settled because the general release and the hold harmless agreement were never delivered to defendant, nor was the acceptance of the settlement offer otherwise communicated to defendant or its carrier … .”).

24 When one by letters requests another to take care of their incompetent brothers and promises to make a monthly payment, the fact that the promisee begins service as requested and the promisor knows it consummates a contract. In re Bate’s Will, 225 Wis. 564, 275 N.W. 450 (1937).

25 In re London & Northern Bank [1900] 1 Ch. 220. And see Household Fire & C. Acc. Ins. Co. v. Grant, 4 Ex.D. 216 (1879), holding that it is enough that the company mailed a notice of allotment of shares, even though the letter was never delivered to the offeror.

See Estate of Tomei v. H&H Mfg. Co., 2019 U.S. Dist. LEXIS 70073 (E.D. Pa. April 25, 2019). In 1969, Marie Tomei entered into an agreement with the president of the defendant company spelling out what would happen to 1,000 shares of stock in the defendant company that Tomei owned upon her death:

(a) In the event of the death of Stockholder, the … legal representatives of Stockholder’s estate shall, within thirty (30) days after their qualification as such in the probate court having jurisdiction of the estate, offer in writing to the Company to sell all of the Company’s stock owned and held by said decedent at the time of the decedent’s death to Company in accordance with the price and terms hereinafter stated. Whether or not written notice is given pursuant to this paragraph, the death as aforesaid shall, in and of itself, constitute such an offer to sell to Company.

(b) After receiving such written offer or after such death as aforesaid, whichever is later, Company shall have thirty (30) days within which to accept said offer in writing in accordance with the price and terms hereinafter specified. If Company shall fail to accept and purchase as aforesaid, or if Company shall reject such offer, then said offeror and shares of stock shall be free of the restrictions and obligations contained in this Agreement.

Tomei died on March 21, 2017, in the midst of a dispute involving the Tomei family over the ownership of the shares. On November 30, 2017, the Delaware County Court resolved this dispute when it published Findings of Fact and Conclusions of Law holding that “the estate of Marie Tomei owns the [ ] 1,000 shares” of defendant’s stock. Less than thirty days later, on December 28, 2017, defendant held a shareholder meeting where the majority shareholder approved the decision to buy-back at book value “all shares of [defendant stock] owned by the late Marie L. Tomei” that “shall take effect immediately.” The Estate was invited to attend this meeting but did not. Despite the defendant’s decision at the shareholder meeting, the defendant failed to communicate a written acceptance to the Estate until January 17, 2018 when the defendant sent a cashier’s check in the amount of $16,117.15 to the Estate. The Estate filed a declaratory judgment action seeking a ruling that it still owned the shares. The instant court granted the Estate’s motion for judgment on the pleadings. The court explained that as of the date of the Delaware County Court’s verdict, on November 30, 2017, there was a judicial determination made known to all parties that the Estate owned 1,000 shares of H&H. Therefore, “at this juncture, the offer created upon the death of Marie Tomei was triggered because the Estate legally possessed the shares to offer.” The court held that purported acceptance was untimely:

For a party to timely accept an offer, the acceptance must be communicated to the offering party before the offer ends. See Half-A-Car II, Inc. v. Interstate Hotels Corp. #115, No. CIV. A. 93-5834, 1994 U.S. Dist. LEXIS 15223, 1994 WL 587696, at *2 (E.D. Pa. Oct. 25, 1994) (“An offeree accepts an offer by a clear, unconditional and absolute manifestation of assent communicated to the offeror.”) (emphasis added); In re Pew Memorial Trust No. 1, 5 Pa. D. C.3d 627, 648 (Pa. Corn. Pl. 1977) (quoting Corbin, Law of Contracts § 67, 280) (“A subscription for shares probably cannot be accepted merely by passing a vote of the board of directors and entering the vote on the minutes of the corporation … For similar reasons, it has been held that the vote of an official board to accept a bid is not operative as an acceptance; it must be officially communicated.”)) Even though H&H decided to redeem the shares at its December 28, 2017 shareholder meeting, which it claimed took “effect immediately,” H&H did not actually communicate written acceptance of the offer, as required in the Agreement, until January 17, 2018.

Therefore, H&H attempted to accept the 1,000 shares on January 17, 2018, when it transmitted a letter to the Estate, and not when it voted to redeem the shares on December 28, 2017. This attempted acceptance took place 48 days after H&H received written notice that the Estate owned 1,000 shares. Because H&H was required to accept the automatic offer within 30 days, its purported acceptance was too late. Therefore, H&H did not properly accept the shares within the time required by the Agreement. This Court consequently concludes that the Estate owns these 1,000 shares “free of the restrictions and obligations contained in th[e] Agreement.”

Mass.

—Benton v. Springfield Y.M.C.A., 170 Mass. 534, 49 N.E. 928 (1898); Edge Moor Bridge Works v. Bristol County, 170 Mass. 528, 49 N.E. 918 (1898).

In Al’s Lunch v. City of Revere, 324 Mass. 472, 87 N.E.2d 5 (1949), the plaintiff made an offer to buy certain lots owned by the city. The mayor asked the city council to authorize the city solicitor to make the sale and the council passed the vote requested. This was not an acceptance of the offer.

Berry v. City of Worcester, 1998 Mass. Super. LEXIS 562, *24 (Sept. 10, 1998) (“The Commission’s vote to authorize the City attorney to contract on behalf of the City with Republic did not by itself constitute an acceptance of Republic’s offer.”).

Cal.

—Where a statute required that a contract for public work should be let to the lowest bidder in competition, the court held that a resolution by the city council stating that the contract was awarded to the party who was the lowest bidder was an operative acceptance, even though no notice was sent to the bidder. The council had no power to rescind its resolution and award the contract elsewhere. Although a formal written contract was contemplated, the terms were already fully contained in the previous documents. City of Susanville v. Lee C. Hess Co., 45 Cal.2d 684, 290 P.2d 520 (1955).

Mich.

—Peek v. Detroit Novelty Works, 29 Mich. 313 (1874); Grand Connectivity, L.L.C. v. Centennial Communs., 2002 U.S. Dist. LEXIS 29277 (E.D. Mich. Nov. 12, 2002).

Pa.

—Makoroff v. DOT, 938 A.2d 470 (Pa. Commw. Ct. 2007). When the Pennsylvania Department of Transportation decided that the plaintiff’s company should be selected for 35 vending sites, it sent a service purchase contract to the plaintiff which indicated the contract would be effective when it was approved by various state officials as evidenced by their signatures. The plaintiff signed the document and returned it. It was then signed by state officials except by the Attorney General who refused to sign it since the plaintiff’s company was under investigation. The document was not returned to the plaintiff, who claimed a contract had been formed because it had been signed by the necessary Commonwealth officials. The court recognized that the plaintiff’s execution of the document was an offer which was not accepted by the Commonwealth.

Eng.

—Powell v. Lee, 99 L.T. 284 (1908).

The following case is contra: “It is said that the board did not notify the complainant of his election, nor did he notify the board of his acceptance, until after the abolition of the school. We think this position is not well taken, because no notice was necessary. The complainant having made an application, or one having been made on his behalf, and that application having been accepted, and election having been had by the board, the minds of the parties met, and the contract became complete.” Weatherly v. Mayor, etc. of City of Chattanooga, 48 S.W. 136 (Tenn. 1898).

28 In the case of Reif v. Paige, 55 Wis. 496, 13 N.W. 473 (1882), the defendant’s wife was in a burning building. He announced to the crowd that he would give $5,000 to anyone who would bring her body out of the building. Plaintiff without any notice of acceptance of the offer, rushed into the building and succeeded in bringing out the wife’s body. The court held that he was entitled to recover the reward offered. In Weaver v. Wood, 9 Pa. 220 (1848), Gibson, C.J., said: “If a party promise another a definite or a reasonable reward if he will do a particular thing, the party promised is not bound to do it; yet if he does it without more, he entitles himself to the reward. On the other hand, the promisor may retract before performance.”

See Carlill v. Carbolic Smoke Ball Co., [1892] 2 Q.B. 484, aff’d [1893] 1 Q.B. 256 (public promise to pay £100 to anyone who caught the influenza after using smoke ball. The use of the smoke ball was an operative acceptance, without any notice.).

In Harson v. Pike, 16 Ind. 140 (1861), a reward was offered by publication for the finding of a buyer of land. The plaintiff found a buyer who actually bought the land as desired, but not until thereafter did the offeror know that it was the plaintiff who had found the buyer for him. The plaintiff was held entitled to the reward.

See also:

Ky.

—Hopkins v. Phoenix F. Ins. Co., 200 Ky. 365, 254 S.W. 1041 (1923).

Pa.

—Patton’s Ex’r v. Hassinger, 69 Pa. 311 (1871) (promise to pay anyone who would take care of John, the decedent’s son).

Va.

—Richmond Eng. & Mfg. Corp. v. Loth, 135 Va. 110, 115 S.E. 774 (1923).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.14 »

1 Corbin on Contracts § 3.14 (2020)

§ 3.14. Notice as a Requisite of Guaranty and Letters of Credit

Any attempt to review and criticize the innumerable cases in the field of suretyship and guaranty must be left to monographic treatises on that special topic. The confusion and conflict in that field seem to be due in large part to a similar confusion in the general doctrines applicable to all agreements.

It is beyond question that in many thousands of cases an offer to become guarantor for another has been made in such terms as to induce the offeree to advance money, goods, or services on credit without first sending any notice of acceptance to the offeror. Later, when demand is made upon the guarantor to pay the debt of another in accordance with the promise, the guarantor complains of this lack of notice and asserts that the offer was not accepted as the law requires.

With respect to this, there is nothing peculiar to the relation of suretyship that requires the application of rules different from those applicable to other contracts. One who offers to be surety or guarantor1 for another can prescribe or suggest the mode of acceptance, just as in other cases. The offeror can prescribe the giving of notice, by mail or otherwise. In very numerous cases, however, the offeror makes no such suggestion, and if the offeree acts as requested, the offer should be held to be accepted. Even if notice might be required as a condition precedent to performance, as discussed below, rather than as a condition to creation of the contract, the offer may waive the condition.2

In one prominent case,3 Frank Eaton wrote from Nova Scotia to Bishop in Illinois: “If Harry needs more money, let him have it, or assist him to get it, and I will see that it is paid.” In reliance on this and at Harry’s request, Bishop indorsed Harry’s note to Stark. This action by Bishop was an operative acceptance that instanly bound Frank Eaton as surety. A telegraphic revocation would have been too late, even though Bishop had not yet written or mailed any notice to Frank that he had complied with the latter’s request. A unilateral contract had been consummated by an offered promise requesting action, followed by the offeree’s action as requested. Frank Eaton’s legal duty as surety for Harry may, indeed, be conditional on various events, including a notice or two, to occur subsequently, but it is not the occurrence of these events that constitutes acceptance of the offer.4

The foregoing reasoning has received much judicial approval,5 and it is adopted by the American Law Institute.6 Many of the cases that say a notice of acceptance is required confuse notice as the required form of acceptance of an offer with a later notice as a condition precedent to the surety’s duty to make payment of the debt.7 Even where notice is arguably required as a condition precedent to performance, a formal notification is not necessary if it is obvious that the offeror has knowledge of the extension of credit,8 or if the offeror had reason to know of the extension of credit.9 If reasonable inquiry would provide the offeror with notice that the offer had been accepted, the offeror has reason to know of the acceptance.10 The condition of notice is constructed in the interests of commercial reasonableness. Consequently, it should be constructed only where it serves the purpose of protecting the legitimate interests of the offeror. Thus, in the case of Frank Eaton’s offer of guaranty, there was no stated maximum amount of credit that could be extended. The offeror, if informed of the fact and amount of extension of credit, could take steps to either revoke the offer of guaranty as to the future, or take steps to control the conduct of the debtor to help assure the debtor’s ability to repay the principal debt. Notice would be an important component of the guarantor’s ability to plan these or other steps for self-protection.

An offer to become surety for another may request some promise in return, either by the creditor or by the principal obligor. If it does this, a notice that the requested promise is given must be made in order to accept the offer.11 Mere action in reliance on the surety’s offer would not be enough if the offer looks unequivocally to a promissory acceptance. In such a case, the offeror may contemplate the establishment of a continuing “line of credit” for the principal, or the surety may wish to be assured of a profitable continuing suretyship business. In many cases, however, the offer may be indifferent as to the desired means of acceptance, and performance or commencement of performance may create a binding contract,12 and action in reliance short of that may create an irrevocable offer.

In most cases of guaranty contracts, the offer comes from the guarantor requesting the giving of credit to a principal debtor or the extension of time within which to pay an existing debt. It is quite possible, however, for the creditor to make the offer, requesting an acceptance by the surety or guarantor. In such a case as this, the offeree is being asked for a promise. Practically always it would be necessary for the offeree to accept by communicating the requested promise to the offeror. But it is not necessary for the creditor to give notice of acceptance in such a case, for here the creditor is the offeror, not the offeree.13 If the guaranty promise is given in return for a consideration actually paid to the guarantor, the acceptance of payment will ordinarily make the giving of a notice of acceptance unnecessary.14

A letter of credit is a request to advance money or goods to a person named or to its bearer with a promise to repay. The bearer who receives the money may not be a debtor at all, with the result that this is not a case of suretyship. But it is a case in which the offeror requests the act of transferring money or goods. The offeror asks no notice before the transfer, and the actual transfer itself is the acceptance that consummates the contract.15

Footnotes — § 3.14:

1 For our present purposes, at least, there is no difference between the terms “surety” and “guarantor.” Accurate analysis will demonstrate that most, if not all, of the supposed differences are non-existent. A promise to answer for the debt or default of another may, indeed, be made in different forms and on varying conditions. One who assures or guarantees payment by another has not exactly the same duty as one who assures or guarantees collectability by judgment and execution, but this difference is not expressed by the terms surety and guarantor. In the two instances, the promisor is both a surety and a guarantor. The difference is not in the two terms, but in the performance that the promisor undertakes to render—in the nature of what is assured or guaranteed.

2 Crompton-Richmond Co. v. Briggs, 560 F.2d 1195 (5th Cir. 1977) (N.Y. law applied). It should be noted that in this case the guarantor certainly knew of the acts of acceptance.

Mass.

—Bishop v. Eaton, 161 Mass. 496, 37 N.E. 665 (1894). Approved in Lascelles v. Clark, 204 Mass. 362, 90 N.E. 875 (1910).

4 The Court’s analysis is quite in harmony with this. It wrote: “But this was not a proposition which was to become a contract only upon the giving of a promise for the promise, and it was not necessary that the plaintiff should accept it in words, or promise to do anything before acting upon it. It was an offer which was to become effective as a contract upon the doing of the act referred to. It was an offer to be bound in consideration of an act to be done, and in such a case the doing of the act constitutes the acceptance of the offer and furnishes the consideration. Ordinarily there is no occasion to notify the offeror of the acceptance of such an offer, for the doing of the act is a sufficient acceptance, and the promisor knows that he is bound when he sees that action has been taken on the faith of his offer. But if the act is of such a kind that knowledge of it will not quickly come to the promisor, the promisee is bound to give him notice of his acceptance within a reasonable time after doing that which constitutes the acceptance.”

In Rich v. Clayton Mark & Co., 250 F.2d 622 (8th Cir. 1957), Hamilton ordered goods from Clayton, who refused credit unless a letter of credit were obtained from Rich. Hamilton so informed Rich. Rich then signed a letter addressed to Clayton, saying: “we jointly and severally will provide adequate financing to Hamilton … in furtherance of certain contracts” on account of which Hamilton had ordered the goods. Thereupon, Clayton approved the order and supplied the goods to Hamilton. Later, Hamilton defaulted and Rich refused to advance further funds. Rich had previously taken an assignment from Hamilton of all payments to become due under a contract for which the goods were to be used. The court held that Clayton was reasonable in interpreting Rich’s letter as a guaranty of payment for the goods ordered, and that it was not necessary for Clayton to give express notice to Rich of acceptance of the guaranty. Hamilton had at once informed Rich that Clayton had supplied the goods. Acceptance of an offer of guaranty is necessary, but it may be in any form that seems reasonable under all the circumstances. Here the advancement of credit by Clayton in reliance on Rich’s letter was a sufficient acceptance, and if subsequent notice was a condition of Rich’s duty as guarantor, he received such notice.

Mass.

—Lennox v. Murphy, 171 Mass. 370, 50 N.E. 644 (1898).

Minn.

—Midland Nat. Bank of Minneapolis v. Security Elevator Co., 161 Minn. 30, 200 N.W. 851 (1924) (court approved Bishop v. Eaton and expressly disapproved cases contra).

N.Y.

—In Cinerama, Inc. v. Sweet Music, S.A., 355 F. Supp. 1113 (S.D.N.Y. 1972), judgment vacated for lack of finality, 482 F.2d 66 (2d Cir.), aff’d, 493 F.2d 1397, the guarantor delivered to the bank a letter of guaranty drafted by itself. The bank made the requested loan and then asked the guarantor to sign the bank’s form. The submission by the bank of its form was not a rejection of the guarantor’s offer. That offer had already been accepted by performance. Instead, it was an offer to modify the existing contract.

N.C.

—Cowan, McClung & Co. v. Roberts, 134 N.C. 415, 46 S.E. 979 (1904).

Ohio

—Powers v. Bumcratz, 12 Ohio St. 273 (1861).

Pa.

—Siegel v. Baily, 252 Pa. 231, 97 A. 401 (1916); Reigart v. White, 52 Pa. 438 (1866); Eddowes v. Niell, 4 U.S. (4 Dall.) 133 (1793).

Tex.

— Ruskin Corp. v. J&J Indus., Inc., 1999 Tex. App. LEXIS 9018, (Dec. 2, 1999).

Va.

—Richmond Engineering & Mfg. Corp. v. Loth, 135 Va. 110, 115 S.E. 774 (1923) (materials supplied to a building contractor at promisor’s request).

Eng.

—Somersall v. Barneby, Cro. Jac. 287 (1611).

Contra:

U.S.

—Davis Sewing Machine Co. v. Richards, 115 U.S. 524, 6 S. Ct. 173, 29 L. Ed. 480 (1885).

Ala.

—Birmingham News Co. v. Read, 200 Ala. 655, 77 So. 29 (1917).

Kan.

—Great Western Mfg. Co. v. Porter, 103 Kan. 84, 172 P. 1018 (1918).

Minn.

—Northern Nat. Bank v. Douglas, 135 Minn. 81, 160 N.W. 193 (1916) (but see later cases above).

N.Y.

—City Nat. Bank v. Phelps, 86 N.Y. 484 (1881) and Smith v. Dann, 6 Hill 543 (1844) hold that no notice of acceptance is required unless the offer prescribes it.

Or.

—Balfour v. Knight, 86 Or. 165, 167 P. 484 (1917).

Wis.

—Electric Storage Battery Co. v. Black, 27 Wis. 2d 366, 134 N.W.2d 481 (1965).

Eng.

—Mozley v. Tinkler, 1 C.M. & R. 692 (Exch.1835).

6 Restatement (Second) Contracts, § 54 (Am. Law Inst. 1981), reads:

“(1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.

(2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless

(a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or

(b) the offeror learns of the performance within a reasonable time, or

On the importance of Bishop v. Eaton, see John E. Murray, Murray on Contracts § 47 (5th ed. 2011).

7 For clarification of this distinction, see § 3.15.

U.S.

—Crompton-Richmond Co. v. Briggs, 560 F.2d 1195 (5th Cir. 1977); Rich v. Clayton Mark & Co., 250 F.2d 622 (8th Cir. 1957).

Colo.

—Gates v. American Nat. Bank, 173 Colo. 371, 479 P.2d 285, 288 (1971). The court stated: “Additionally, where as here the guarantors were for all practical purposes the business managers of [the debtor], having negotiated the series of loans for operating capital with the bank, clearly, by reason of their close relationship with [the debtor] and the bank, they had actual notice of the extensions of credit.”

Mont.

—In Miller v. Walter, 165 Mont. 221, 527 P.2d 240 (1974), Walter bought a used truck, borrowed $6,000 from the bank, giving the bank a security interest in the vehicle. The truck needed a new engine and the bank gave Walter a letter stating, “we are willing to guarantee [$1,000] to whomever you purchase this engine from … .” Walter then contracted to buy an engine from Miller for $2,000. Walter went to the bank and obtained $1,000 from it, which he paid over to Miller. He persuaded Miller to rely on the bank’s guarantee as to the rest. Walter defaulted on his payments to the bank which repossessed the truck. Miller at this point asked the bank for the $1,000 balance. It refused the request and sold the truck. The court held that the bank’s letter entitled Miller to regard it as an offer that was accepted by Miller’s performance. The court ruled that Miller’s notice came within a reasonable time because it was given before the sale of the repossessed truck.

9 First Nat. Bank of Hominy v. Citizens & Southern Bank, 651 F.2d 696 (10th Cir. 1981).

In Cobb v. Texas Distributors, Inc., 524 S.W.2d 342, 345 (Tex. Civ. App. 1975), the court, while stating that notice was not required, went on to say: “Even if some kind of notice to the guarantor is regarded as a condition of liability, as distinguished from a requisite of a valid contract (see 1 Corbin, § 69) [§ 3.15], the guarantor here is not in a position to assert that plaintiff was required to notify him that it was relying on the guaranty in continuing to sell to the corporation on credit, since defendant, as an officer of the corporation, presumably had access to information concerning the corporation’s purchases from plaintiff.”

10 In Ross v. Leberman, 298 Pa. 574, 148 A. 858 (1930), Ross, the owner of a one-quarter interest in a Philadelphia firm, had moved his residence to London. He agreed with Leberman to pay one-third of the advances necessary to keep the firm in business as a going concern. Leberman advanced over $100,000 to the firm over a three year period and then sought reimbursement from Ross. In denying a motion for summary judgment, the court intimated that Ross was entitled to notice of the advances only if he would have been unable, upon inquiry, to obtain honest information concerning them from the firm in which he had an interest.

11 Where A offered to guarantee payment by P for materials to be used in construction work, if P should promise to pay the bills out of money received by him on the building contract, it was held that a notice of acceptance to A was necessary. In particular he was entitled to know that P had made the required promise. King v. Batterson, 13 R.I. 117 (1880).

However, where a clearly bilateral agreement of guaranty has been made, as where, in exchange for the guaranty, an extension of time is promised, no further notice of acceptance is required. Fasco, A.G. v. Modernage, Inc., 311 F. Supp. 161 (W.D. Pa. 1970).

12 In Southdale Center, Inc. v. Lewis, 260 Minn. 430, 110 N.W.2d 857, 6 A.L.R.3d 345 (1961), a commercial lease was drawn up and signed by the prospective tenant and a guarantor on 7/13. On 7/25, officers of the landlord signed; no notice of this was given the guarantor, who, however, could readily ascertain that the tenant had taken possession of the premises. It was held that no notice to the guarantor was required.

Mass.

—Mayo v. Bloomberg, 290 Mass. 168, 195 N.E. 99 (1935) (guaranty requested by the creditor); Stauffer v. Koch, 225 Mass. 525, 114 N.E. 750 (1917).

And see also:

U.S.

—Rawleigh, Moses & Co. v. Kornberg, 210 F.2d 176 (8th Cir. 1954).

Ga.

—Peck v. Precision Machine Co., 20 Ga. App. 429, 93 S.E. 106 (1917).

La.

—Hibernia Bank & Trust Co. v. Succession of Cancienne, 74 So. 267, 140 La. 969 (1917).

N.Y.

—Hi Fashion Wigs, Inc. v. Peter Hammond Advertising, Inc., 32 N.Y.2d 583, 347 N.Y.S.2d 47, 300 N.E.2d 421 (1973). Plaintiff sued the defendant advertising agency on various theories of breach of contract and tort. The agency counterclaimed for its fees and brought a third party complaint against Schuminsky, plaintiff’s guarantor. The issue was whether jurisdiction existed over Schuminsky under the long-arm statute. As part of the arrangement by which the agency agreed to provide services for plaintiff, an Oklahoma corporation, Schuminsky, one of two owners of all of the corporate stock, agreed to guarantee the corporation’s obligations to the agency. Delivery of the written guarantee in New York created a bilateral contract upon delivery, subjecting him to New York’s jurisdiction.

Wis.

—Fond du Lac Skyport, Inc. v. Moraine Airways, Inc., 67 Wis. 2d 109, 226 N.W.2d 428 (1975).

See contra:

Pa.

—Evans v. McCormick, 167 Pa. 247, 31 A. 563 (1895). See also, CBS, Inc. v. Film Corp. of America, 545 F. Supp. 1382 (E.D. Pa. 1982).

U.S.

—Davis v. Wells, 104 U.S. 159, 26 L. Ed. 686 (1881).

Pa.

—Eddowes v. Niell, 4 U.S. (4 Dall.) 133, 1 L. Ed. 772 (1793).

Eng.

—In re Agra and Masterman’s Bank, L.R. 2 Ch. 391 (1867).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.15 »

1 Corbin on Contracts § 3.15 (2020)

§ 3.15. Notice as a Condition Distinguished From Notice as an Acceptance

As indicated in the preceding section, the giving of a notice may be a condition in an already consummated contract, even though no notice of acceptance is necessary to consummate it. Most contracts create conditional duties to render some performance in the future, but they are nonetheless valid contracts. A binding and irrevocable obligation may exist long before it is the promisor’s duty to pay over the counter—before there is a duty of immediate performance. A fire insurance policy, duly delivered, is a valid contract, even though the insurer’s duty to pay is conditional upon the occurrence of a fire and upon the giving of notice that a fire has occurred. Notice of some fact may be made a condition precedent to a duty of rendering immediate performance, either by express terms of the contract or by construction of law. This notice is not a notice of acceptance that makes the contract. So, the duty of a surety is certainly conditional upon non-payment at maturity by the principal, and it may also be held to be conditional upon a notice that the credit has been given and another notice that there has been a default.1 In the present chapter, we are dealing with notice as a necessary part of an operative acceptance, not with notice as a condition precedent to a duty of immediate performance.2

Footnotes — § 3.15:

1 See the discussion of Bishop v. Eaton in the text of § 3.14.

2 United States v. Donald Lane Construction, Commercial Indus. Constr. & Supply Co., 19 F. Supp. 2d 217 (D. Del. 1998). The Miller Act grants a cause of action to “every person who has furnished labor” as part of a federal public building or work contract who has not been paid in full “before the expiration of a period of ninety days after the day on which the last of the labor was done. …” B & R, a sub, sent notice to Donald Lane, the general, on the 89th day. Donald Lane received it on the 92nd day. Citing Corbin’s distinction between notice as a necessary part of “an operative acceptance” and “notice as a condition precedent” (§ 69, 1963 ed.), the court held that the notice provision requires receipt, not dispatch, within 90 days.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.16 »

1 Corbin on Contracts § 3.16 (2020)

§ 3.16. Offer of a Promise, Requesting Non-promissory Action in Return

Up to this point in this volume, unilateral contracts have been referred to many times.1 The most common form of a unilateral contract is that in which the offeror makes a promise and asks some performance by the offeree in return, clearly indicating that the requested performance can be the entire agreed exchange both for the promise contained in the offer and for the performance of that promise. Thus, A requests B to ship specified goods “as is” by a named carrier, promising to pay the price that B has previously listed. The actual shipment by B as directed will ordinarily transfer ownership of the goods to A, so that the transaction is an executed sale on credit. The contract is then unilateral, unless by custom or by some expression in A’s offer there is a demand for an express or implied promise by B to render further performance in addition to the shipment. In either case the act of shipment is an operative acceptance.2 The same situation exists where a buyer promises to pay for goods in return for delivery by the seller.3 In cases like these, it has often been held that the offeree may accept by mailing a letter containing a promise to supply the goods—an “acceptance of the order,” and that a revocation after such acceptance is too late, even though the goods are not yet shipped.4 It must not be assumed too readily that an order for goods is an offer of a promise in return for title to the goods to be conveyed by the act of shipment or otherwise. The offeror frequently wishes a return promise, as the offeree understands. The language used may be elliptical, and understood to be so. This fact is recognized in the Uniform Commercial Code § 2-206, which provides that unless the offer demands with crystal clarity that the acceptance be by performance rather than promise, the offeree may appropriately choose any reasonable mode of acceptance.5 Under the U.C.C., contract formation for the sale of goods between merchants often occurs via the exchange of non-matching pre-printed, standardized forms, as discussed in greater detail in § 3.37.

General offers of a reward or money payment are frequently made by publication, requesting or inviting the doing of some non-promissory act such as the return of a lost article, the giving of information,6 the arrest of a fugitive,7 the use of a medicine,8 the winning of a contest,9 the catching and return of a tagged rock fish,10 the advance of goods or money to a third person,11 or proving that an advertised claim is false.12 In these cases, the act is both the acceptance and the only subject of agreed exchange to be received by the offeror. Unless otherwise specified in the offer, no notice of acceptance by the offeree is necessary; the offeree’s performance is enough.13

Another example of a unilateral contract in the form of an offered promise to pay for service to be rendered is the case of an agreement to employ a person for an indefinite period at a stated salary per day or month or year. In a good many such cases, it has been held that the employee has made no promise of any kind. The employee accepts the offer by merely continuing to render the specified service, and becomes entitled to the promised salary in proportion to the work actually done. By such an interpretation of the expressions of the parties as this, the transaction is an employment at will.14 The classic simplicity of this form of unilateral contract has been made more complex in recent decades and will be the subject of a separate section.15

There are cases in which an employer has promised a “bonus,” some form of benefit in addition to agreed wages or salary, on condition that the employee or employees remain in service for a stated period. In such cases the offered promise is almost always so made as to make it unnecessary for the employee to give any notice of assent. It is sufficient that the employee continues in the employment as expressly or impliedly requested. It is certain that after so continuing in performance, the employer cannot withdraw or repudiate the promise of a bonus without liability either in damages or for a proportionate part of the bonus promised.16 A unilateral ontract exists when the period of service is substantially completed. Prior to that time the offer has become irrevocable. This analysis goes beyond the bonus promise to the many kinds of promises made to employees with regard to fringe benefits as well as the promises made to agents.17

Many contracts between a real estate broker and a principal are unilateral in character. The principal promises to pay a commission for finding a purchaser willing and able to pay a stated price. The agent does not promise to find such a purchaser, but has a right to the commission if the agent finds one.18 An option contract may exist19 as soon as the principal’s offer has become irrevocable by reason of the agent’s action in reliance upon it.20 In some cases the principal may request and the agent may give a return promise to make diligent effort, or to advertise the property, thus making a bilateral contract. In any case, whether the contract is unilateral or bilateral, the owner may condition the duty to pay the commission on final consummation of a contract of sale or even on actual receipt of the price.21

It must not be assumed too readily that one who makes an offer to pay for specified service does not ask for a promise of such service. Frequently, and perhaps usually, the starting of the requested service by the offeree justifies the inference that the offeree is also promising to complete the service.22 If there is such an implied promise in return, the contract is bilateral and both parties are bound to perform. Transactions of this kind must be interpreted with common sense and in accordance with the actual usages of humanity.

It is not at all uncommon, especially in professional sports, for a party to offer a promise of a large “bonus” to induce the promisee (e.g., a “star” player) to sign a specific employment contract. The signature of the promisee to that instrument constitutes the acceptance of the offer, the entire consideration for the offered promise, and the entire performance that is the agreed exchange for the “bonus” money. The contract so made should be described as a unilateral contract. Yet, by signing the employment instrument, the offeree has made a promise in writing to render the requested service on the stated terms. The transaction is in truth, a promise for a promise, but observe that although the employer has offered the promise of a “bonus” in exchange for the player’s promise to play, the offeror has not offered the “bonus” itself (the money) in exchange for the performance promised by the player (playing the game). Instead, the employer has offered a promise to pay the “bonus” in exchange for the making of player’s promise (“entering into” the bilateral service contract). When the player signed the service contract, the player had performed an act that constituted the full agreed equivalent of the “bonus” (the money payment). The player may have never made a promise to perform the act of signing. The “act” was indeed a promissory act, but the promised “bonus” was the agreed exchange for the act itself, and not for the performance that it promised.23 That performance (playing the game) was the agreed exchange for the salary promised as its full equivalent. The transaction has a double aspect: (1) The employer made two promises, by each of which the employer was separately bound, the first one being unilateral and unconditional, the second being bilateral and conditional, but (2) the transaction is one transaction, even though the employer made two separate promises, the one oral, to pay the “bonus”, the other written, to pay the salary, the player accepted both offered promises by doing one act. If we choose to regard this transaction as one complex contract, of two promises for one promise, it can be described as “bilateral,” and the written instrument is not a complete and accurate “integration.” Such a complex contract must be regarded as a “hybrid,” because one of the employer’s promises is conditional on nothing but the player’s signing, and the employer’s second promise (salary) is conditional on the player’s playing the game. The player’s signing (“entering into” the service agreement) is certainly a sufficient consideration for the promise of the “bonus.”24 It would be indecent for a court to hold that the written service contract purports “on its face” to be a complete and accurate “integration” and that proof of the collateral oral promise of a bonus is excluded by the “parol evidence rule.” The author of this treatise cannot believe that any court would make such a decision.

Footnotes — § 3.16:

1 See especially, § 1.23 Unilateral Contracts Distinguished from Bilateral; § 2.29 Revocation after Part Performance by the Offeree; § 2.30 Real Estate Brokerage and Other Agency Cases; § 2.31 Effect of Action in Reliance That is Not Part Performance; § 2.32 Part Performance and the Indifferent Offer; § 2.33 When a Standing Offer of a Series of Separate Contracts is Irrevocable; § 3.5 Knowledge of Offer as a Pre-requisite to Acceptance; § 3.6 Knowledge of the Offer after Part Performance Already Rendered; § 3.9 Unilateral Contract—Acceptance by Beginning Requested Performance; § 3.10 “Acceptance of a Published Offer” of a Reward for Action or Contest Prize; § 3.11 When the Words “I Accept Your Offer” Would be Ineffective; § 3.12 Acceptance by Forbearance from Action; and §§ 3.13–3.15 (on notice of acceptance.)

2 In Port Huron Machinery Co. v. Wohlers, 207 Iowa 826, 221 N.W. 843 (1928), the defendant signed a written order directing the plaintiff to ship immediately certain farm machinery and promising to pay a specified price for the goods. The plaintiff immediately shipped the goods and the next day received a telegram from the defendant canceling the order. The court held that a contract was made and that the cancellation was ineffective. The court wrote: “The law recognizes, as a matter of classification, two kinds of contracts—unilateral and bilateral. In the case at bar a typical example of unilateral contract is found, since it is universally agreed that a unilateral contract is one in which no promisor receives a promise as consideration, whereas, in a bilateral contract there are mutual promises between the two parties to the contract.” With respect to the form of acceptance, the court wrote: “Appellant, however, contends that there was no acceptance of the offer. Words are not the only medium of expression of mutual assent. An offer may invite an acceptance to be made by merely an affirmative answer or by performing a specific act. True, if an act other than a promise is requested, no contract exists until what is requested is performed or tendered in whole or in part. We are here dealing with a unilateral contract, and the act requested and performed as consideration for the contract indicates acceptance as well as furnishes the consideration. The sending of an order for goods to a merchant is an offer of a promise for an act.”

Note that the court did not state that the offeree could only accept by shipment of the goods. On the contrary, an acceptance by express promise to ship or by any other reasonable means would also have created a contract. Today, this conclusion is made explicit in U.C.C. § 2–206.

See further:

U.S.

—Hollidge v. Gussow, Kahn & Co., 67 F.2d 459 (1st Cir. 1933).

Combs v. Int’l Ins. Co., 354 F.3d 568 (6th Cir. 2004).

Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777 (9th Cir. 2012).

Conf. Am., Inc. v. Conexant Sys., 508 F. Supp. 2d 1005 (M.D. Ala. 2007).

Owen v. MBPXL Corp., 173 F. Supp. 2d 905 (N.D. Iowa 2001).

Reliance Ins. Co. v. Keybank U.S.A., 2006 U.S. Dist. LEXIS 70823 (N.D. Ohio 2006).

Ala.

—Sturdivant v. Mt. Dixie Sanitarium, Land & Invest. Co., 197 Ala. 280, 72 So. 502 (1916).

Iowa

—Tegler v. Shipman, 33 Iowa 194 (1871).

Md.

—Wheat v. Cross, 31 Md. 99, 1 Am. Rep. 28 (1869).

Mass.

—Commonwealth v. Farnum, 114 Mass. 267 (1873).

.—Williams v. Emerson-Brantingham Implement Co., 198 S.W. 425 (Mo. App. 1917); Interstate Folding Box Co. v. Hodge Chile Co., 334 S.W.2d 408 (Mo. App. 1960) (actual shipment of goods pursuant to buyer’s order held a sufficient acceptance of the buyer’s order by the seller).

Pa.

—Garbracht v. Commonwealth, 96 Pa. 449 (1881); Stephan v. Waldron Elec. Heating & Cooling LLC, 100 A.3d 660 (Pa. Super. 2014).

R.I.

—Bristol/Warren Reg’l Sch. Emples., Local 581 v. Chafee, C.A. 2014 R.I. Super. LEXIS 60 (April 25, 2014) (implied, unilateral contract was formed because plaintiffs-employees, as members of Employees’ Retirement System of Rhode Island, contributed money and continued service to retirement system in exchange for the State’s promise to provide pension benefits).

Tenn.

—Rode Oil Co. v. Lamar Adver. Co., 2008 Tenn. App. LEXIS 532 (Sept. 18, 2008).

Tex.

—Stufflebeme v. Jack, 253 S.W.2d 459 (Tex. Civ. App. 1952). The seller of a sprinkling system, when notified of defects by the buyer, wrote to the buyer to make the necessary repairs and to send his bill therefor. The buyer made the necessary repairs. Vanegas v. Am. Energy Servs., 302 S.W.3d 299 (Tex. 2009).

Wash.

—Flower v. T.R.A. Indus., Inc., 127 Wn. App. 13, 111 P.3d 1192 (Wash. App. 2005).

Wis.

—Sarbecker v. State, 65 Wis. 171, 26 N.W. 541, 56 Am. Rep. 624 (1886).

Eng.

—Fragano v. Long, 4 B. & C. 219 (1825); Wood v. Benson, 2 Cr. & J. 94 (1831).

In Sanford v. Brown Bros. Co., 208 N.Y. 90, 101 N.E. 797 (1913), the buyer’s offer was an order to ship nursery stock of specified varieties, and the acceptance was by actual shipment. Some years later, the young peach trees were found to be of other varieties and worthless. The court found that the seller had, by filling the order, made a warranty. Had the trees shipped been exactly as ordered, the defendant’s warranty would have been performed as it was made.

An automobile company, by general letter to its dealers, made the following offer: “We are prepared to offer Packard Dealers a special inducement in return for direct purchase of their scrap cast iron. Therefore, for each ton of scrap gray iron furnished us by a Dealer, one additional Packard car will be allotted to him.” Packard also promised to pay for such scrap iron at market rates and to pay freight from point of shipment. The plaintiff, a Dealer, shipped 97 tons of scrap iron. Such actual shipment consummated a unilateral contract at point of shipment. Packard Englewood Motors, Inc. v. Packard Motor Car Co., 215 F.2d 503 (3d Cir. 1954).

This section (§ 70 from a previous edition) is cited in Atlas v. Wood, 33 Misc. 2d 543, 226 N.Y.S.2d 43 (1962), aff’d, 17 A.D.2d 821, 232 N.Y.S.2d 743. The defendant, real estate broker, in anticipation of commissions to be earned by finding tenants, promised that, if the plaintiff would purchase a certain tract and develop a shopping center thereon he would pay to the plaintiff $10,000 in reimbursement of monies to be expended. The plaintiff purchased the tract and improved it as a “Center,” spending more than $10,000. The court held that there was sufficient consideration for the defendant’s promise, even though the plaintiff made no promise and his action as requested was not a quid pro quo beneficial to the defendant. “The plaintiff acted upon the promise in the classic unilateral contract situation.”

In Fidelity & Casualty Co. v. Charles W. Angle, Inc., 243 N.C. 570, 91 S.E.2d 575 (1956), the defendant executed a written contract of indemnity, and in reliance thereon and as requested by defendant, the plaintiff executed several contractor’s performance bonds. Action was sustained on this indemnity contract even though it had not been signed by the Fidelity company. Its acceptance and assent were amply evidenced by its action in executing the requested bonds. Of course, the bonds were made use of by the contractor for whose benefit they were obtained, as the defendant well knew. No other notice of acceptance by the plaintiff of the defendant’s promise of indemnity was necessary for the creation of a contract. See §§ 3.14 –3.15. Observe that the contract of indemnity was a unilateral contract, the defendant having requested the act of executing a bond. This bond was itself promissory, but the promise was made to a third party, not to the defendant. The defendant’s indemnity promise became a unilateral contract when the requested bond was executed by the plaintiff. The plaintiff’s performance bond became a separate unilateral contract with a third party when that party acted in reliance on it by awarding a contract to the contractor named by the defendant.

An offered promise to pay for requested services is found in Wyse v. Refrigeration Sales Corp., 124 N.E.2d 737, 71 Ohio L. Abs. 67 (Ohio App. 1955). The court wrote: “The contract was oral, the request to render service was in express terms; but it was for service in an undetermined quantity and consequently was for an indefinite sum. There was then an assent by Wyse when he proceeded to perform the service requested. Such a contract is much like one where a merchant receives a request from a former customer to send to such customer’s house a named article of merchandise.” The defendant was bound to pay reasonable value for the advertising performed as requested by him.

As to the making of a valid brokerage contract, in Cochran v. Ellsworth, 126 Cal. App. 2d 429, 272 P.2d 904 (1954) the court wrote: “Ordinarily the ‘last act essential to the validity’ of a brokerage contract is not the signing of authorization to act. The mere engagement of a broker to dispose of specified property does not create an enforceable contract, for the broker is not obligated to find a purchaser. An enforceable contract does not result until the broker finds one able and willing to buy the property at the authorized price.”.

N.Y.

—Quick v. Wheeler, 78 N.Y. 300 (1879) (delivery of lumber).

Kan.

—Bauman v. McManus, 75 Kan. 106, 89 P. 15 (1907).

Mo.

—American Pub. Co. v. Walker, 87 Mo. App. 503 (1901).

Neb.

—Doolittle v. Callender, 88 Neb. 747, 130 N.W. 436 (1911).

N.Y.

—Sanford v. Brown Bros. Co., 208 N.Y. 90, 101 N.E. 797 (1913); Thomas Gordon Malting Co. v. Bartels Brewing Co., 206 N.Y. 528, 100 N.E. 457 (1912).

5 The Restatement (Second) of Contracts §§ 32, 62 (Am. Law Inst. 1981) are in accord with the U.C.C. Such an offer, indifferent as to the manner of acceptance is discussed in §§ 2.32, 3.8, and 3.16.

6 Consolidated Freightways Corp. v. Williams, 139 Ga. App. 302, 228 S.E.2d 230 (1976).

7 The requested act may be either the actual arrest of the fugitive or the giving of information that leads to his arrest. Such offers are frequently worded rather indefinitely; they should be interpreted reasonably. Often, acceptance may be either by actual arrest or by the giving of information.

See:

U.S.

—Shuey v. United States, 92 U.S. (2 Otto) 73, 23 L. Ed. 697 (1876) (one sum offered for “apprehension” and a different sum for “information”); McClaughry v. King, 147 F. 463 (8th Cir. 1906), (arrest required).

S.Dak.

—Madsen v. Dakota State Bank, 79 S.D. 495, 114 N.W.2d 93, 100 A.L.R.2d 569 (1962). A reward was offered for the “apprehension” of bank robbers. Plaintiff supplied police with the license number of the getaway car. It was held that plaintiff substantially performed and was entitled to the reward.

Tex.

—Choice v. Dallas, 210 S.W. 753 (Tex. Civ. App. 1919).

8 The proprietor of a medicine published an offer to pay £100 to anyone who should use its medicine as directed and thereafter catch the influenza. In reliance on this, the plaintiff used the medicine and caught the influenza. The use of the medicine was an operative acceptance, consummating a unilateral contract. No notice was necessary. Carlill v. Carbolic Smoke Ball Co., [1893] 1 Q.B. 256.

9 Where a contestant has complied fully with the conditions on which a prize was promised, an enforceable contract has been made, even though the contestant made no promise:

Ariz.

—Shorey v. Daniel, 27 Ariz. 496, 234 P. 551 (1925).

Cal.

—Long v. Chronicle Pub. Co., 68 Cal. App. 171, 228 P. 873 (1924).

Iowa

—Smead v. Stearns, 173 Iowa 174, 155 N.W. 307 (1915).

Minn.

—Mooney v. Daily News Co., 116 Minn. 212, 133 N.W. 573 (1911).

Okla.

—LeFlore v. Reflections of Tulsa, Inc., 708 P.2d 1068 (Okla. 1985) (“Eileen LeFlore was adjudged to have the most beautiful legs in the City of Tulsa.” The court decision focuses on the remedies available to the contest winner.).

Pa.

—Palmer v. Central Bd. of Ed., 220 Pa. 568, 70 A. 433 (1908) (a contract as soon as the competing architect submitted his plans).

In Moreno v. Marbil Productions, Inc., 296 F.2d 543, 544 (2d Cir. 1961), the court wrote: “By submitting a postal card entry containing the estimate of the price of the merchandise displayed in each contest, plaintiff accepted the offer and a unilateral contract was created which bound defendants to deliver the prize to the winner. See Corbin on Contracts, §§ 41 [now § 2.21], 1489.”

10 Simmons v. United States, 308 F.2d 160 (4th Cir. 1962).

11 In Rome v. Gaunt, 246 Mass. 82, 140 N.E. 242 (1923), the defendant wrote a letter to a Woolen Mill promising to “finance your purchases of wool not to exceed $20,000 at any one time, in return for the cash discount of 2% which we understand you can obtain from your wool dealers.” The Mill showed this to the plaintiff, a wool dealer, and he sold wool to the Mill on credit. The defendant later learned of this sale. It was held that there was a valid contract of guaranty.

In Tarbell v. A.J. Stevens & Co., 7 Iowa 163 (1858) shareholders in a private bank advertised that they were responsible for and would pay the bank-notes previously issued. This led many to receive the notes as current money. The receipt of such notes in reliance on the promise was held an acceptance. “The defendants must be considered as undertaking to every individual who saw their advertisement, or heard their representations.”

Where three persons sign a writing mutually agreeing to be jointly bound on notes to a bank that might be indorsed by any one of them, the delivery of this writing to the bank and its making loans on such notes in reliance thereon constitute offer and acceptance. See First Nat. Bank v. Doherty, 156 Ky. 386, 161 S.W. 211 (1913).

Where a partner in business promised another partner to repay to him a share of such expenditures as he might thereafter make, the promise became binding as soon as expenditures were actually made. No notice of acceptance was required. Here, the other partner made expenditures but made no promise to make them, and the transaction made a unilateral contract. Ross v. Leberman, 298 Pa. 574, 148 A. 858 (1930). See further:

Mass.

—Lascelles v. Clark, 204 Mass. 362, 90 N.E. 875 (1910); Lennox v. Murphy, 171 Mass. 370, 50 N.E. 644 (1898); Bishop v. Eaton, 161 Mass. 496, 37 N.E. 665 (1894).

Pa.

—Eddowes v. Niell, 4 U.S. (4 Dall.) 133, 1 L. Ed. 772 (1793).

Eng.

—Offord v. Davies, 12 C.B., N.S., 748 (1862).

In Midland Nat. Bank v. Security Elevator Co., 161 Minn. 30, 200 N.W. 851 (1924), the court approved Bishop v. Eaton and expressly disapproved cases contra. See § 3.14.

12 Rosenthal v. Al Packer Ford, Inc., 36 Md. App. 349, 374 A.2d 377, 96 A.L.R.3d 897 (1977).

13 See § 3.13, When Notice of Acceptance is Necessary, and the sections hereafter dealing with silence as an acceptance, § 3.18 et seq.

Ky.

—Edwards v. Kentucky Utilities Co., 286 Ky. 341, 150 S.W.2d 916 (1941).

N.Y.

—In Martin v. New York Life Ins. Co., 148 N.Y. 117, 42 N.E. 416 (1895), the plaintiff was hired at a salary of $10,000 per year, no definite period being otherwise mentioned. It was held that this was a hiring at will and the defendant was privileged to discharge the plaintiff at any time. The decision was followed in Watson v. Gugino, 204 N.Y. 535, 98 N.E. 18 (1912).

Pa.

—Germantown Mfg. Co. v. Rawlinson, 341 Pa. Super. 42, 491 A.2d 138 (1985).

15 See § 4.2.

U.S.

—Kerbaugh v. Gray, 212 F. 716 (2d Cir. 1914); Gronlund v. Church & Dwight Co., 514 F. Supp. 1304 (S.D.N.Y. 1981), noted at § 3.11.

Ill.

—Similarly, a promise to pay a pension if the employee retires early becomes a unilateral contract where the employee accepts by resigning. Wickstrom v. Vern E. Alden Co., 99 Ill. App. 2d 254, 240 N.E.2d 401 (1968).

N.C.

—Roberts v. Mays Mills, 184 N.C. 406, 114 S.E. 530, 28 A.L.R. 338 (1922).

Ohio

—Heib v. Hooberry & Assocs., 2019 U.S. Dist. LEXIS 75194 (N.D. Ohio 2019). Plaintiff sued defendant for six months’ severance pay allegedly promised to her at the time she went to work for defendant’s predecessor, to be paid upon her separation from the defendant after ten years of employment. Plaintiff worked for defendant in excess of ten years before she was terminated, and defendant denied the alleged promise of severance pay. The defendant moved for summary judgment, but the court denied the motion because plaintiff raised a genuine issue of material fact as to the existence of an enforceable oral contract. The court held that plaintiff’s claim stated the essential terms of an oral contract, which plaintiff accepted by continuing to work for defenant:

[Defendant’s] offer to Plaintiff was made on behalf of Laurie Ann Nursing Home and is an offer of severance payment of six months’ salary in return for ten years of employment, to be paid upon her separation from employment. Kolesar’s statement, therefore, identifies the parties to the contract and the subject matter of the contract. Though the offer does not explicitly provide a means for acceptance, offers of severance pay may be accepted by compiling the service time necessary for the severance benefit to vest. See Bolling v. Clevepak Corp., 484 N.E.2d 1367, 1374 (Ohio Ct. App. 1984) (offer of severance pay accepted by remaining in employment with knowledge of the severance policy).

Pa.

—Snyder v. Hershey Choc. Co., 63 Pa. Super. 528 (1916).

Utah

—Kreimeyer v. Hercules Inc., 892 F. Supp. 1364, 1368 (D. Utah 1994). An employee sought recovery based on policies of his employer he had never seen. The court cited Restatement (Second) of Contracts § 51 (Am. Law Inst. 1981), which provides that an “offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance.” The court wrote: “[a]n employee accepts the offer of a unilateral contract in a policy handbook or manual ‘by remaining in his employment with knowledge of the terms of the offer.’ ” But to recover, the employee has to have knowledge of the offer before he or she completes performance, and in this case, the employee did not have such knowledge.

Va.

—Twohy v. Harris, 194 Va. 69, 72 S.E.2d 329 (1952).

Wash.

—Brydges v. Coast Wide Land, Inc., 2 Wash. App. 223, 467 P.2d 209, 43 A.L.R.3d 496 (1970); Scott v. J.F. Duthie & Co., 125 Wash. 470, 216 P. 853 (1923).

Navlet v. The Port of Seattle, 164 Wn. 2d 818, 194 P.3d 221 (2008). Several retired employees and current employees of the Port of Seattle sought relief on a claim that they were entitled to lifetime retirement welfare benefits under the terms of a collective bargaining agreement (“CBA”) that had terminated. After the CBA between the Port and Union Local 9 expired, the Port ceased contributing to the welfare trust fund which administered the welfare benefits for eligible employees and retirees. The Port maintained that the CBA required it to contribute to the welfare trust only for the duration of the CBA. Upon review, the court explained that the language of the CBA created the obligation to provide retirement welfare benefits but did not express a durational limit on the Port’s obligation to provide them. The court reasoned that an employee reasonably would expect the retirement welfare benefits in effect at the time he became eligible to survive the expiration of the CBA, given that the employee had no right to negotiate for continued benefits once he retired. The court explained that the obligation to provide a vested right becomes irrevocable when the employee satisfies the eligibility condition. Citing § 3.16, 1993 ed. Of this treatise, the court further explained that once an employee fulfills the service requirements entitling him to retirement benefits under a pension plan, the employee acquires a contractual right to those benefits, and the employer cannot abridge that right despite its original reservation of a power to effect unilateral amendments or to terminate the plan outright. Thus, the court concluded that the conferral of retirement welfare benefits through the CBA created a vested right for eligible retirees absent express language in the agreement specifically limiting the right to such benefits. Therefore, the Port remained obligated to provide benefits for the lives of the eligible retirees.

Wis.

—Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912). Hyman-Michaels Co. v. Ashmus Equipment Sales Corp., 271 Wis. 82, 72 N.W.2d 742 (1955), illustrates a unilateral contract created by a promise for a series of performances. A dealer promised to pay a commission of 10% on all orders produced by an agent, the latter making no promise to procure any orders. The dealer’s promise was merely a revocable offer as long as no order had been obtained; but the dealer was bound to pay the commission on all orders produced before notice of revocation.

17 In Peters v. Mutual Ben. Life Insurance Co., 420 N.W.2d 908 (Minn. App. 1988), the defendant distributed a handout to its agents indicating by a formula the minimum going concern value an incoming agent would have to pay a retiring agent. This was a binding offer to a unilateral contract. The court wrestles with the problem of consideration but the result could have easily have been reached on promissory estoppel grounds.

18 On brokers’ commissions generally, see §§ 2.29 –2.31.

U.S.

—In re Smith, 2008 Bankr. LEXIS 2919 (Bankr. N.D. Iowa Oct. 31, 2008).

Iowa

—At the owner’s request, the broker found a buyer who was willing and able to buy and who signed a contract of purchase but later repudiated. The owner then purported to revoke his offer with the broker and then entered into a substantially similar contract with the buyer, except, as one would expect, a provision for the broker’s commission. The broker, it was held, had earned his commission. Cortright v. Pettit, 461 N.W.2d 202 (Iowa App. 1990).

Minn.

—Stensgaard v. Smith, 43 Minn. 11, 44 N.W. 669 (1890).

Miss.

N.J.

—Hooper v. William P. Laytham & Sons Co., 123 N.J. Eq. 596, 199 A. 51 (1938).

Where one writes to another promising to pay a commission of 5 percent on all business received through the promisee, all that is necessary to create a valid unilateral contract is to send a customer before any revocation of the offer. No notice of acceptance and no return promise are necessary. Hooper v. Laytham & Sons Co., supra.

One who promises to pay a commission on all business done with any customer who may thereafter be introduced by the promisee becomes bound as soon as such a customer has been introduced, the duty of course being conditional on actual consummation of a business transaction with the customer. British Bank for Foreign Trade v. Novimex, [1949] 1 All Eng. 155.

In Lamb v. Prettyman, 33 Pa. Super. 190 (1907), an agent sued for a commission: “The counsel for defendant contends that when Prettyman asked Lamb ‘to get a deal,’ Lamb did not agree to do so and therefore there was no contract. The answer to this is that it was not necessary for Lamb to say in words that he would act; he could make it a contract by performance, and there is evidence that he did procure a party to deal with the defendant. Where acceptance of a proposition is by a promise, it must presently follow the offer and notice of it be given to the other party. But where acceptance is by act, the mere performance of the act, without notice, concludes the contract.” In accord is In re Lineaweaver’s Est., 284 Pa. 384, 131 A. 378 (1925). Cf. The Gleaner, 240 F. 163 (N.D. Cal. 1917).

19 For qualification of this statement, see § 2.30.

20 In Marchiondo v. Scheck, 78 N.M. 440, 432 P.2d 405 (1967) it was held that action in reliance by the real estate agent short of full performance can make the vendor’s offer irrevocable. The case was remanded for trial of this issue.

Restatement (Second) of Contracts § 45(2) (Am. Law Inst. 1981) provides: “The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.” Restatement, Contracts, § 45 cmt. b (Am. Law Inst. 1981) agreed. In this Comment, the Institute further argued: “The main offer includes a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promise.” See also, Boswell v. Panera Bread Co., 2016 U.S. Dist. LEXIS 38232 (E.D. Mo. Mar. 24, 2016). Such an “implication” as this may not be based on pure fiction, but the rule may be justified on the basis of business morality and actual practice. The law enforces many obligations in the contract field that the parties themselves never clearly expressed or contemplated.

21 Where a broker was promised a commission “to procure a purchaser and to effect a sale” of a saloon business and stock, a buyer was found and a contract executed in which the purchase was conditional on the obtaining license by the buyer—”if no license should be granted there will be no sale.” It was held that this did not entitle the broker to a commission, no license having been obtained. Kost v. Reilly, 62 Conn. 57, 24 A. 519 (1892). But where the broker fulfilled the conditions for a commission and brought the seller a ready, willing, and able buyer, but the seller chose to renegotiate a new contract, the broker was entitled to the full commission. Smith v. Coldwell Banker Commer. N.E.R.A., LLC, 91 Conn. App. 360, 880 A.2d 1012 (2005).

Cases must be distinguished in which an owner merely “lists” his property with an agent, making no promise to pay a commission. In such case the owner merely invites the agent to find a buyer on terms that he may himself be willing to accept; he makes no offer to the agent.

See:

Conn.

—Stagg v. Lawton, 133 Conn. 203, 49 A.2d 599 (1946).

Eng.

—Luxor v. Cooper, [1941] A.C. 108.

Also § 2.30.

22 An offer to leave property by will in return for personal care and service for the rest of the promisor’s life may contemplate a return promise to render the care and service as well as the rendition of the service itself. See Davis v. Jacoby, 1 Cal. 2d 370, 34 P.2d 1026 (1934) (promissory acceptance found by implication); Brackenbury v. Hodgkin, 116 Me. 399, 102 A. 106 (1917) (offer irrevocable after part performance, promise could have been implied).

An order for 160,000 copies of an advertising leaflet, to consist of 8 monthly issues of 20,000 each was held to become irrevocable as an offer after one issue had been delivered. The court could easily have found an implied promise by the publisher to furnish the other 7 issues, and it probably would have done so if the publisher had been the one committing the breach. Hollidge v. Gussow, K. & Co., 67 F.2d 459 (1st Cir. 1933).

A written order for 500,000 feet of lumber by the plaintiff, on stated terms, contained this: “If you cannot deliver as ordered, please advise us immediately.” The defendant made no reply. Some months later and within the time specified for performance he notified the plaintiff that some carloads were ready. Later he shipped and the plaintiff received 160,000 feet. These facts, with others, justified the jury in inferring a promise by the defendant to fill the entire order. Wood & Brooks Co. v. D.E. Hewitt Lumber Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921).

In Durasteel Co. v. Great Lakes Steel Corp., 205 F.2d 438 (8th Cir. 1953), where the acceptance relied on by the court was the actual shipment and receipt of some installments of the goods ordered, the contract so made was without doubt bilateral, binding the offeree to fill the remainder of the order.

In Rode Oil Co. v. Lamar Adver. Co., 2008 Tenn. App. LEXIS 532 *29 (Sept. 18, 2008), the court found an enforceable agreement for the lease of land to be used for the placement of a roadside billboard even though offeree did not sign the lease. Acceptance of the offer was found based on the offeree’s beginning of performance. The court noted that “the evidence does indicate that [the agents of the offeror, Rode Oil] were at least aware of (and agreed to) the marking of the spot where the billboard was to be placed, and they knew that billboard permits were being applied for.”

23 See Alabama Football, Inc. v. Greenwood, 452 F. Supp. 1191 (W.D. Pa. 1978). In May 1974, Greenwood signed to play for three seasons, starting with the 1975 season, for the Birmingham Americans of the World Football League. He received as a bonus the sum of $50,000, with a promise of $25,000 more. His salary was to be $90,000 the first year and more thereafter. The Americans came to be in financial difficulties so that the team’s uniforms were seized by the unpaid vendor after the WFL championship game in December 1974. Greenwood canceled his contract. Subsequently, the team folded and its franchise was forfeited to the league. The court rejected a claim by the Americans for restitution of the bonus payments. The consideration for the payments was the signing of the contracts. The court unnecessarily, perhaps, dwelt on the benefit to the defunct team of the publicity engendered by Greenwood’s signing.

One commentator explained:

Under the common law, a signing bonus, properly so called, is money earned for the mere act of signing a contract. It is a unilateral contract representing a team’s promise to pay money in consideration for a player’s signature on a services contract. Signing bonus vesting rights are not contingent on performance on the playing field. Because bonuses vest immediately, they are clearly income to the recipient. … .

State decisions confirm the nature of a signing bonus as the product of a unilateral contract requiring only that the player attach his name to a separate contractual obligation. … . Pennsylvania courts[ ] twice excluded signing bonuses from the calculation of annual salary in worker’s compensation cases because the bonuses are obligations independent of salary, relating only to the mere act of signing a contract. [Station v. Workmen’s Comp. Appeal Bd., 608 A.2d 625, 629 (Pa. Commw. Ct. 1992); McGlasson v. Workmen’s Comp. Appeal Bd., 557 A.2d 841 (Pa. Commw. Ct. 1989).]

Andre Smith, Do NFL “Signing Bonuses” Carry A Substantial Risk of Forfeiture Within the Meaning of Section 83 of the Internal Revenue Code?, 19 Seton Hall J. Sports & Ent. L. 311, 318 (2009).

24 Cases so holding are Lawrence v. Tandy & Allen, Inc., 14 N.J. 1, 100 A.2d 891 (1953); Pinole Land Co. v. Baker, 287 F.2d 828 (9th Cir. 1961). Caplan v. Schroeder, 56 Cal. 2d 515, 15 Cal. Rptr. 145, 364 P.2d 321 (1961) (involved this “bonus” problem in a land development transaction; it is analyzed and noted at length under § 62.11). See also Wilson v. Anderson, 208 Cal. App. 2d 62, 25 Cal. Rptr. 105 (1962), where an owner’s signing a written listing contract with a broker was sufficient consideration for the latter’s oral promise to split his commission with another broker.

A “commitment fee” contract has aspects similar to those of a bonus for signing a contract. In Paley v. Barton Savings & Loan Ass’n, 82 N.J. Super. 75, 196 A.2d 682 (1964), cert. denied, 41 N.J. 602, 198 A.2d 446, a land developer paid $10,000 to the defendant in return for the latter’s promise to have $1,000,000 available for one year for the purchase of mortgages given by home owners to the developer, on stated conditions including approval of counsel and of credit standing. No home was ever built and no mortgage ever purchased, but there was no “failure of consideration” and no duty to return the $10,000. Note that this differs, however, from the bonus case stated in the text. There the bonus was earned by a unilateral contract, and the parties were also bound by a bilateral contract. Here, the commitment fee creates a unilateral contract, but no bilateral contract was ever made, only an option. To the same effect, see Testerman v. Home Beneficial Life Ins. Co., 524 S.W.2d 664 (Tenn. App. 1974).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.17 »

1 Corbin on Contracts § 3.17 (2020)

§ 3.17. Offer of an “Act” for a Promise

This section treats two somewhat different conceptual constructs. The first is a promise to pay for a benefit received in the past. This topic is sometimes discussed under the headings of “moral obligation,” “past consideration,” or “promissory restitution.” In this treatise the topic is treated in depth in Chapter 9. The main issue surrounding such promises involves the doctrine of consideration. Here we look at such promises from the framework of offer and acceptance. Second, this section considers other situations where the offeror tenders a performance and requests a promise in exchange. This second kind of situation has sometimes been called a “reverse unilateral” contract.1 The two constructs have more in common than is commonly noticed.

In most unilateral contracts, the promise is made by the one making the offer, the acceptance of which is by action or forbearance on the part of the offeree, as in the cases just discussed in § 3.16. In some cases, however, the only binding promise is made by the offeree, the consideration for that promise being service rendered by the offeror or property transferred by the offeror. An offer of this kind has been described, somewhat unhappily, as the offer of an act for a promise. This is not so unhappy a description if the offer consists of services actually rendered for compensation to be paid by the offeree. The acceptance of the benefit of the services is a promise to pay for them, if at the time of accepting the benefit the offeree has a reasonable opportunity to reject the benefit and knows that compensation is expected.2 In some cases, at the time of accepting the benefit of the services, the offeree makes an express promise to pay for them. Whether the offeree’s promise is express or implied, the contract then being made is unilateral if no return promise by the offeror can be found.3

In cases of this sort, a defendant who has been enriched by the plaintiff’s services, knowing that the plaintiff rendered them with expectation of payment, may be held bound to pay reasonable compensation on a quasi-contractual theory.4

However, it is just as easy to find a promise to pay such compensation by implication in fact as it is to hold that the law creates such a duty without regard to assent.5 If the same result is reached by either process, it is unnecessary for the court to determine which one is adopted and applied.6

The landmark case of Desny v. Wilder7 is an excellent illustration of the principles explained in this section. In November 1949, actor Victor Desny telephoned the Paramount Pictures office of director Billy Wilder and told Wilder’s secretary that he wished to see Wilder. The secretary insisted that Desny explain his purpose to her, and Desny “told her about this fantastic unusual story. … I described to her the story in a few words. … I told her that it was the life story of Floyd Collins who was trapped and made sensational news for two weeks … and I told her the plot. … I described to her the entrapment and the death, in ten minutes, probably. She seemed very much interested and she liked it.” Desny wanted to send Wilder a copy of the story but when he told the secretary it was 65 pages long, she told him that Wilder would not read it, that Wilder wanted stories in synopsis form. Desny said he would like to abbreviate the story for Wilder, and the secretary suggested that he do so. Two days later, Desny had prepared a three or four-page outline, so he telephoned Wilder’s office and told the secretary the synopsis was ready. She requested that Desny read the synopsis to her over the telephone so that she could take it down in shorthand, and Desny did so. During the conversation she told Desny that the story seemed interesting and that she liked it. “She said that she would talk it over with Billy Wilder and she would let me know.” Desny told the secretary that Wilder could use the story only if he paid him “the reasonable value of it … I made it clear to her that I wrote the story and that I wanted to sell it. … I naturally mentioned again that this story was my story which has taken me so much effort and research and time, and therefore if anybody used it they will have to pay for it … She said that if Billy Wilder … uses the story, ‘naturally we will pay you for it.’ ”

Desny did not hear from Wilder. Wilder proceeded to make the film “Ace in the Hole,” and a court later held that the photoplay as filmed closely parallels Desny’s synopsis. Desny sued Wilder and Paramount, claiming that they used Desny’s idea and synopsis but refused to pay him “as agreed.” At trial, the court granted summary judgment in favor of Wilder, but the appellate court reversed. The gist of the court’s holding was that Wilder had knowledge that Desny expected compensation if the idea and synopsis were used. Wilder made use of them but did not compensate Desny. The appellate court noted that in the absence of an express contract, when the service is requested and rendered, the law does not hesitate to infer or imply a promise to compensate for it. The court contrasted these contractual arrangements with quasi contractual obligations, which are imposed by law for the purpose of bringing about justice without reference to the intention of the parties.

The court’s lengthy analysis, which the dissent “heartily deplore[d]” as “wholly … unnecessary to a determination of this matter,” may be summed up as follows. To establish an implied-in-fact contract, a plaintiff must show: that he or she prepared the work; that he or she disclosed the work to an offeree for sale; that under all circumstances attending disclosure, the offeree voluntarily accepted the disclosure knowing the conditions on which it was tendered (i.e., the offeree must have the opportunity to reject the attempted disclosure); and the reasonable value of the work.8

At times, it is impossible to tell whether the court found a bilateral contract, a unilateral contract, or simply found that justice dictated that the claimant be compensated by a quasi-contractual recovery.9

A real estate broker may, without request on the part of the principal, find and introduce a willing and able purchaser, informing the principal that a commission will be expected if a sale is made. The broker’s work is then all done and the broker has made no promise. No doubt principals in this kind of situation can make sales to the purchasers introduced by the brokers without being obligated to pay commissions. This is because the services have been thrust upon them. They are privileged not to accept the offers and they are not disabled from making sales without accepting the offers. Nevertheless, each such principal has the power to accept the offer and to thereby create a binding contractual obligation, this power to be exercised by making the sale and by expressing assent to the broker’s proposal.10 The case is not substantially different where the broker has rendered the service at the request of one who assumed without authority to act as the agent of the principal, although in holding the principal bound by the acceptance of the services the courts will now use the language of agency. They will speak of the principal being bound by “ratification.” But this ratification is identical to the acceptance of an offer, and on such ratification, the resulting contract is unilateral exactly as above. The broker has made no promise, and the services are all done before the principal makes any promise. This may, like the cases in the previous paragraph, be a case of past consideration, but if so we must make the best of it.

There are many instances of domestic or business services that have been rendered by one expecting payment for them, as the recipient knows, but by one who has made no promise to render them.11 The rendition of such services is an offer. A promise to pay for them is implied from the acceptance of the services by the offeree.12 When such services are rendered by a close relative or close friend, or by one who lives in ordinary family relations with the defendant,13 courts have found that the defendant was reasonable in thinking that they were rendered without expectation of pay and that an implication of a promise to pay is not justified.14 If an implied promise to pay is found to have been made,15 the contract is nearly always unilateral. In many of them, the legal issues are complicated by the existence of a sexual relationship between the parties.16 Questions of public policy then enter into the equation. There may, in some cases, have been a promise by the one rendering the service to continue to render it for some future period. In these, the contract is bilateral.

A unilateral contract is made if one proposes the transfer of a property interest in a specific chattel, expressly excluding any warranty and all possible collateral promises, in return for the offeree’s promise to pay a price, and the offeree duly accepts. Thus, if A sends a book to B, offering to sell it at a price, and B keeps the book, either expressly or impliedly promising to pay the price, a contract is consummated by B’s acceptance.17 It is a unilateral contract, unless we can find by inference a tacit promise by A of some performance in the future. No doubt such tacit promises are generally inferable. A dealer in used cars may offer to sell one to X saying: “This car is yours as it stands, as is, without warranty or other promise, in return for your promise to pay me $3000 in thirty days.” If X makes the requested promise the contract is made, and it is unilateral in character.18 It is an executed sale on credit without warranty. The consideration for X’s promise is the property in the car. The offer is so worded as to empower X to transfer the property by X’s own act of acceptance, the very same act by which X becomes bound to pay the price. The consideration for X’s promise to pay is not past; it is the simultaneous transfer of ownership that takes place with the making of the promise.

A property interest in a party wall can be offered by actually building it, and a tacit promise to pay for it may be inferred from silence with knowledge that it is being built.19

In Autographic Register Co. v. Philip Hano Co.,20 in resolving a dispute as to a patent license, the licensee sent its check for royalties under protest, specifying that retention of the money “would constitute an undertaking to repay” in the event of an affirmance on appeal of another case. The licensor cashed the check with no communication to the licensee. This “act” was held to be an acceptance and a promise to repay. The court says nothing of any promise by the licensee. In fact, the delivery of a check with contractual language contained thereon is one of the more frequent kinds of cases where the offeror offers a performance and requests a promise,21 or frequently, a discharge.22 As a common law proposition, it matters not that the offeree takes the check but overtly indicates that the offered terms are not accepted.23

Footnotes — § 3.17:

1 See Restatement (Second) of Contracts § 55 (Am. Law Inst. 1981). Fire insurance is an example of a reverse unilateral contract. National Union Fire Ins. Co. v. FDIC, 264 Kan. 733, 957 P.2d 357 (1998); Winters v. State Farm & Cas. Co., 35 F. Supp. 2d 842 (E.D. Okla. 1999).

2 See Restatement (Second) of Contracts § 69(1)(a) (Am. Law Inst. 1981).

U.S.

—Certain Interested Underwriters at Lloyd’s London v. Halikoytakis, 556 Fed. App’x 932 (11th Cir. 2014); Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007); Western Res. Life Assurance Co. v. Bratton, 464 F. Supp. 2d 814 (N.D. Iowa 2006). See also Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004) (quoting this treatise, § 71, 1952 ed.).

3 Cases enforcing such an express or implied promise are:

Kan.

—In Miller v. International Harvester Co., 179 Kan. 711, 298 P.2d 279 (1956), the plaintiff disclosed an idea for use in a mechanical device in return for the defendant’s promise to pay for it if use should be made of it. The defendant’s promise was enforceable for payment of the reasonable value, conditional only on the actual use of the idea.

Mass.

—Anisgard v. Bray, 11 Mass. App.Ct. 726, 419 N.E.2d 315 (1981). Plaintiff, a tennis pro, conceived of a tennis facility in the Berkshires, found a site, for which he negotiated a tentative long-term lease, had preliminary plans drawn up and got tentative financing. He revealed the entire situation to the defendants, one of whom was an experienced developer with good financial experience. A tentative agreement was made among the plaintiff and the defendants, but final details were not agreed upon. The defendants proceeded with the project using plaintiff’s ideas and entered into the lease that plaintiff had negotiated and picked up the financing that plaintiff had arranged. It was held that the defendants had impliedly agreed to pay for the plaintiff’s expenses and the reasonable value of the time plaintiff had spent on the project. To the same effect: Jayson Assocs. v. UPS Co., 2004 U.S. Dist. LEXIS 13191 (D. Mass. July 15, 2004).

N.Y.

—Gellert v. ***, 277 N.Y. 123, 13 N.E.2d 603 (1938).

In Grombach Productions, Inc. v. Waring, 293 N.Y. 609, 59 N.E.2d 425 (1944), reh’g denied, 294 N.Y. 697, 60 N.E.2d 846, the plaintiff submitted an “idea” by telephone, unsolicited, and alleged that the defendant later used it in a radio program. He also alleged a usage or custom to pay for such ideas if used. These allegations, if proved, would be evidential of an acceptance of an offer and a promise implied in fact to pay reasonable value. The jury found that there was no such promise. Had the jury found such a promise, there would have been a unilateral contract—an offer of an “idea” by actually communicating it, accepted by the overt act of using the idea with knowledge of expectation of payment.

In Anderson v. Distler, 173 Misc. 261, 17 N.Y.S.2d 674 (1940), although the defendant acted to his profit on information volunteered by the plaintiff, the latter was not justified in understanding that there was any promise to pay.

Pa.

—Anderson v. Best, 176 Pa. 498, 35 A. 194 (1896). In Kahn v. O’Brien Machinery Co., 391 Pa. 124, 137 A.2d 291 (1958), certain brokers for defendant solicited the aid of other brokers in obtaining a purchaser. The plaintiff found a prospective buyer and wrote to the defendant’s brokers naming him and saying that in case a sale resulted he would expect a commission of 2½ percent. Such a sale finally resulted, although the plaintiff was not present in the concluding negotiations. The plaintiff was given judgment against the defendant’s brokers. This is a case in which the plaintiff offered his services on stated terms. The defendant’s brokers accepted and profited by those services with knowledge of the terms, thereby impliedly promising to split the commission.

S.C.

—Ferguson v. Harris, 39 S.C. 323, 17 S.E. 782 (1893).

S.D.

—Edson v. Poppe, 24 S.D. 466, 124 N.W. 441 (1910).

Vt.

—Spencer v. Potter’s Estate, 85 Vt. 1, 80 A. 821 (1911); Boothe v. Fitzpatrick, 36 Vt. 681 (1864).

Wash.

—Muir v. Kane, 55 Wash. 131, 104 P. 153 (1909); Jones v. Brisbin, 41 Wash. 2d 167, 247 P.2d 891 (1952) (where an architect was consulted and was permitted to draw complete plans and specifications, these being received and retained, although the building was not built. The court held that there was a contract to pay reasonable compensation. “They tacitly approved and actively accepted the architect’s labors.”).

The rule here stated is illustrated by Present v. Mangus, 122 So. 2d 585 (Fla. App. 1960), although the decision is erroneous. The decision was quashed, 135 So. 2d 417 (1962).

In Ballard v. Tingue Mills, Inc., 128 F. Supp. 683 (D. Conn. 1954), the plaintiff, at the instigation of a third party who acted without authority, rendered services as an agent in procuring a government contract for the defendant. The latter “never expressly approved or disapproved”; but it knew that the plaintiff expected a commission and it received the benefit of the plaintiff’s work. No valid contract was made for reasons of illegality.

In Stevens v. Continental Can Co., 308 F.2d 100 (6th Cir. 1962), cert. denied, 374 U.S. 810, the plaintiff disclosed to defendant, with expectation of compensation in case of its use, a certain design for decoration of paper plates and cups, asserted by her to be new and original. The defendant later made use of the design, but the court held that she had no right to compensation because the design was not new, having been used by others prior to her disclosure. The court said that if the design had been new and original, as represented, the law “would imply a contract or promise to pay by the one obtaining the information.” Other cases have refused to enforce such a promise on the ground that the consideration is wholly past.

See:

Ariz.

—Wulff v. Lindsay, 8 Ariz. 168, 71 P. 963 (1903).

N.J.

—Bagnole v. Madden, 76 N.J.L. 255, 69 A. 967 (1908); Sharp v. Hoopes, 74 N.J.L. 191, 64 A. 989 (1906).

N.Y.

—Gellert v. ***, 277 N.Y. 123, 13 N.E.2d 603 (1938), dissenting opinion.

Ohio

—Warner & Co. v. Brua, 33 Ohio App. 84, 168 N.E. 571 (1929).

U.S.

—Matarese v. Moore-McCormack Lines, Inc., 158 F.2d 631, 170 A.L.R. 440 (2d Cir. 1946).

In Leiton v. ARCO Marine, Inc., 896 F. Supp. 1001 (C.D. Cal. 1995), an owner of a fishing vessel sued an owner of a tanker which had rescued the captain and crew on the high seas and the tanker owner counterclaimed seeking compensation for services rendered. Although the tanker left the fishing boat adrift on the high seas after the rescue, the tanker owner was not liable since the boat was not in any worse position, nor had any of its occupants suffered any physical injury, as a result. The court granted compensation to the tanker owner for its services because it was responding to an assistance signal of the fishing boat and returned the crew of the boat to safety, thereby incurring considerable expense. Performance of another’s duty to a third person, if rendered by one qualified to perform such services with an intent to charge for them, is ground for recovery in quasi contract.

Ind.

—Ft. Wayne, C. & L. R. Co. v. Haberkorn, 15 Ind. App. 479, 44 N.E. 322 (1896), later appeal 22 Ind. App. 531, 53 N.E. 254.

Mass.

—Burton v. Burton Stock-Car Co., 171 Mass. 437, 50 N.E. 1029 (1898).In Marr v. Marr, 319 S.W.2d 920 (Mo. App. 1959), the court held that the jury was justified in finding an implied promise to pay for rock and gravel used for paving, even if no request by the defendant was shown, “if (1) plaintiffs delivered rock to defendant, (2) if defendant accepted and received same, and (3) if defendant was benefitted thereby,” there being no suggestion that it was delivered as a gift.

5 Contracts implied in fact differ from recovery via quasi-contract. Betty, Inc. v. PepsiCo, Inc., 283 F. Supp. 3d 154 (S.D.N.Y. 2017). Judge Richard Posner of the Seventh Circuit Court of Appeals sorted out the difference between unjust enrichment/restitution versus contracts implied in fact:

In its substantive sense, unjust enrichment or restitution refers primarily to situations in which either the defendant has received something that of rights belongs to the plaintiff (for example, he received it by mistake—or he stole it), or the plaintiff had rendered a service to the defendant in circumstances in which one would reasonably expect to be paid (and the defendant refused to pay) though for a good reason there was no contract. An example of the second case is that of the physician who renders services to an unconscious person and later sends him a bill that the patient refuses to pay. In re Crisan’s Estate, 362 Mich. 569, 107 N.W.2d 907, 910–11 (Mich. 1961); Cotnam v. Wisdom, 83 Ark. 601, 104 S.W. 164 (Ark. 1907). In either case, restitution of the value of the benefit received (the mistaken payment in the first case, the normal fee for such a medical service in the second) enforces reasonable expectations.

The physician case, however, also parades under the name of “quasi-contract,” … . For the court is constructing a contractual relationship in order to bring about the result for which the parties probably would have contracted had contracting been feasible in the circumstances, which it was not. A quasi-contract must not be confused with a “contract implied in fact,” which is a contract “in which behavior takes the place of articulate acceptance.” … . A “contract implied in fact” is thus a species of express contract, … rather than one constructed by the court.

… . In … the physician case (quasi-contract) … , the plaintiff is entitled to the market value of his services rather than to the benefit that he conferred on the defendant, which might be much greater—for example if the plaintiff physician had saved the defendant’s life. The court tries to simulate a competitive market; and in such a market, price is based on the cost to the seller rather than on the subjective value to the buyer, which often is much greater. But the benefit received by the defendant is the proper measure of relief when he has appropriated something of value belonging to the plaintiff.

Confold Pacific, Inc. v. Polaris Industries, Inc., 433 F.3d 952, 957–58 (7th Cir. 2006).

6 Frequently, it is unclear which theory the court is applying. In Sparks v. Gustafson, 750 P.2d 338 (Alaska 1988), plaintiff spent about five hours a day over a two year period managing defendant’s real property in Nome. There was a close friendship between the plaintiff and the deceased owner. Despite the close friendship, the court indicated that the kind of services rendered were of the kind that ordinarily would be rendered with the expectation of payment. Apparently the court decided that whatever the plaintiff’s intent at the time services were rendered, plaintiff should be paid.

7 Desny v. Wilder, 46 Cal. 2d 715, 299 P.2d 257 (1956).

8 Desny retains its validity, and claims similar to the one Desny made are referred to as “Desny claims.” See, e.g., Forest Park Pictures v. Universal TV Network, Inc., 683 F.3d 424 (2d Cir. 2012); Montz v. Pilgrim Films & Television, Inc., 649 F.3d 975 (9th Cir. 2011); Dillon v. NBCUniversal Media, LLC, 2013 U.S. Dist. LEXIS 100733 (C.D. Cal. June 18. 2013); Wilder v. CBS Corp., 2013 U.S. Dist. LEXIS 190059 (C.D. Cal. 2013); Jonathan Browning, Inc. v. Venetian Casino Resort, LLC, 2007 U.S. Dist. LEXIS 95440 (N.D. Cal. Dec. 19, 2007).

9 A typical case is Wilhoite v. Beck, 141 Ind. App. 543, 230 N.E.2d 616 (1967), where the language of the court and the sources it quotes veer from bilateral contract analysis to quasi-contractual analysis and back again.

In Robert Trent Jones, Inc. v. Canter, 19 Mass. App. Ct. 321, 474 N.E.2d 560 (1985), plaintiff designed a golf course for a developer and offered a deal under which it would receive only $3,000 for its “route plan” if the design were not used. Instead of signing and returning the proposed contract, the developers sent $3,000 with a notice that they were using someone else’s design. At trial, it was established that the design used was “substantially identical” to the design submitted by plaintiff. The court said it was unnecessary to decide whether the facts created an implied contract or a quasi-contractual obligation. Clearly, the developers manifested no intent to contract, merely an intent to utilize the plaintiff’s design without paying for it. On this kind of facts, quasi-contractual obligations are created. As a remedial alternative, the plaintiff can allege an implied in fact contract and estop the defendant from claiming that its conduct was wrongful when it could have been consistent with an acceptance of the offer. See § 3.18.

10 In Worner Agency, Inc. v. Doyle, 133 Ill. App. 3d 850, 88 Ill. Dec. 855, 479 N.E.2d 468 (1985), the defendant promised to pay a finder’s fee to the plaintiff who had already presented a “find.”

This contract may be implied, as well as express. “Clearly, under the pleadings, the plaintiff in error made a case of implied contract; and whether the property had been previously listed with the plaintiffs in error or not, and even though they tendered a prospective purchaser without any solicitation by, or contract with, Ms. Bullis, yet, if she accepted their tendered purchaser under circumstances which implied an agreement to pay therefor, she would be liable. A contract implied in fact is one in which, under the circumstances, the acts of the parties are such as to indicate according to the ordinary course of dealing and the common understanding of men a mutual intention to contract, as where one accepts the tendered service of another under circumstances justifying the inference that such other expected to be paid for such services. Of course, in implied contracts as well as express contracts there must be shown the element of mutual agreement. But the only difference is that such agreement is expressly stated, in the one instance, and is inferred from the circumstances, in the other.” Marr-Piper Co. v. Bullis, 1 S.W.2d 572 (Tex. Com. App. 1928).

A similar agency case is Suter v. Farmers’ Fertilizer Co., 100 Ohio St. 403, 126 N.E. 304 (1919), where the plaintiff, though apparently not employed by the defendant, negotiated on its behalf a contract to sell to the Aetna Explosives Company 600 tons of acid per month for twelve months at $27 per ton. The defendant ratified this contract and promised to pay a commission of one percent to the broker. If this promise is regarded as being made to the broker himself for the broker’s then accepted service, the contract is unilateral. It is otherwise, however, if the defendant’s promise is regarded as made to the Aetna Company, for the broker’s benefit, in which case the consideration moves from the Aetna Company and the broker is a third party beneficiary.

More satisfactory in reasoning is Herman v. Stern, 419 Pa. 272, 213 A.2d 594 (1965), where plaintiff realtor, unasked by lessor, brought to the defendant lessor a proposed lease signed by a potential lessee. The lease contained promises by lessor to pay plaintiff a percentage of the rental as a commission and, if lessee purchased the premises, to pay plaintiff a percentage of the sales price. Lessor signed the document. Thereafter the lessee purchased the premises. The court affirmed the trial court’s judgment for the plaintiff on the pleadings. The defendant had accepted the plaintiff’s unilateral act of performance by signing the lease and thereby became bound by its terms. This treatise concurs in this reasoning, but because defendant claimed the sale commission clause had been left in the document by error, a trial should have been conducted on whether the writing should have been reformed, provided that the claim for reformation had been raised in timely fashion.

See also:

N.Y.

—Gellert v. ***, 277 N.Y. 123, 13 N.E.2d 603 (1938).

Warner & Co. v. Brua, 33 Ohio App. 84, 168 N.E. 571 (1929), is contra to the text above. An unauthorized broker presented to the defendant owner a prepared contract for the sale of his land, already signed by the purchaser, including a written promise to pay the broker’s commission just above the blank line for the owner’s signature. The owner signed on that line, and the sale was thus consummated. The court held that the broker’s service was completed before the owner made any promise to pay and that such past consideration would not support the promise. It is believed that the reasoning ought not to be supported.

See Gem Sav. Ass’n v. Aqua Sportsman, Inc., Appeal No. C-910361, 1992 Ohio App. LEXIS 4107 (Aug. 12, 1992), which cited Warner & Co. v. Brua with approval.

In National City Bank v. Graham, 105 Ga. App. 498, 125 S.E.2d 223 (1962), a broker informed the defendant that certain property was for sale and offered his services in effecting a purchase. The defendant made no reply, but made its own offer direct to the owner of the property. Its offer was accepted by the owner. On these facts, the broker was not entitled to compensation by the purchaser. It did not make use of the broker’s services and made no promise to pay for them. Observe that here the broker did not render the services for which a commission would be expected. He merely asked the defendant to employ him. The “information” that he gave was not an “act” for which he expected compensation. See also § 2.30.

11 In Graham v. Oman, 358 Mass. 369, 264 N.E.2d 691 (1970), the plaintiff broker arranged for the sale of land to the defendant and was paid a commission by the seller. She was told by the buyer that if the land could be rezoned and a shopping center would be put in and “an arrangement might be worked out” whereby she “would be the exclusive broker.” She helped to arrange for the rezoning and spent substantial time calling prospective tenants for the center. The defendant then entered into an exclusive brokerage agreement with another broker. The services she rendered were a benefit to the defendant in the reasonable value of $4,000. The defendant knew that plaintiff expected to be compensated through the expected brokerage contract that was never entered into. The court held that no cause of action existed, citing this treatise from a prior edition, §§ 72 and 75, even though this treatise opposes the result reached. Because the contract that the parties contemplated never came into being, the plaintiff was entitled to the reasonable value of her services.

Mass.

—Therrien v. LeBlanc, 282 Mass. 328, 185 N.E. 15 (1933), is an example. See also, Finard & Co., LLC v. Sitt Asset Mgmt., 79 Mass. App. Ct. 226, 945 N.E.2d 404 (2011), appeal denied, 460 Mass. 1103, 949 N.E.2d 924 (2011).

13 On the question of what degree of relationship is required for a person to be deemed a close relative, and what constitutes a de facto family relationship, consult Wilhoite v. Beck, supra, and Schanz v. Estate of Terry, 504 S.W.2d 653 (Mo. App. 1974).

Ala.

—Worley v. Worley, 388 So. 2d 502 (Ala. 1980).

Mo.

—Sturgeon v. Estate of Wideman, 608 S.W.2d 140 (Mo. App. 1980), appeal after remand, 631 S.W.2d 55.

Fuller v. Terrell (Estate of Bush), 908 S.W.2d 809 (Mo. App. 1995). An elderly married couple requested the husband’s brother to move back home to take care of them. In reliance, the brother hired someone else to take care of his farm, moved back home, and cared for the couple for three years. The couple repeatedly promised that they would “leave him everything.” Both died intestate and the brother sought compensation for his services, either under a theory of express oral contract or under quantum meruit. Holding that there was sufficient evidence that the services rendered were not gratuitous, the court upheld a probate judge’s award of compensation based on an hourly rate in quantum meruit, even though the terms of any express oral contract were not determinable with definiteness.

N.Y.

—In re Estate of Argersinger, 168 A.D.2d 757, 564 N.Y.S.2d 214 (1990).

W.Va.

—In re Fox’s Estate, 131 W.Va. 429, 48 S.E.2d 1, 7 A.L.R.2d 1 (1948).

In Sabin v. Graves, 86 Ohio App. 3d 628, 621 N.E.2d 748 (1993), a nephew sued his aunt’s estate, seeking compensation for money and services he rendered to construct an addition to the aunt’s home. The court invoked the “family member” rule to require the nephew to show the existence of a contract by clear and convincing evidence, which he had not done. The same judge on the same court addressed the family member rule again fifteen days later in Kroeger v. Ryder, 86 Ohio App. 3d 438, 621 N.E.2d 534 (1993). In Kroeger, however, the judge decided that the family member rule did not apply to a sister and brother who were not living together, asserting that “the vast majority of cases hold that any relationship more remote than parent and child, including the relationship of brothers and/or sisters, will not destroy the presumption of payment for services rendered unless the related parties were living together in the same household as members of the same family while the services were rendered.” The judge did not cite his two-week old Sabin opinion in Kroeger, leaving it unclear why that limitation on the family member rule did not apply to the aunt and nephew in Sabin.

The conventions that existed when Professor Corbin first wrote this treatise have changed markedly—both the presumption and the classification no longer seem safe and indeed are anachronistic. The decisions in Sabinand Kroeger reflect a sensitivity to this tension and suggest the need to search for new legal classifications and presumptions to respond to contemporary social arrangements.

15 In Short v. Short, 142 A.D.2d 947, 531 N.Y.S.2d 155 (1988), later proceeding 142 A.D.2d 948, 531 N.Y.S.2d 219, an adult son and his wife worked full time for several years at a golf course and country club owned by his parents. It was held that the jury could properly find that the services were done with the expectation of payment. As important, the jury could find that the parents had reason to know that the services were rendered with such expectation.

Cal.

—Marvin v. Marvin, 18 Cal. 3d 660, 134 Cal. Rptr. 815, 557 P.2d 106 (1976).

N.Y.

—“New York law recognizes that it is natural for parties who cohabitate and/or who are romantically involved to provide gratuitous services to one another.” Klugman v. Laforest, 138 A.D.3d 1185, 1186, 29 N.Y.S.3d 625, 628 (2016). Morone v. Morone, 50 N.Y.2d 481, 429 N.Y.S.2d 592, 413 N.E.2d 1154 (1980). Killian v. Captain Spicer’s Gallery, LLC, 140 A.D.3d 1764, 33 N.Y.S.3d 650 (N.Y. 2016).

Ky.

—See, e.g., Williams v. Payne, 515 S.W.2d 618, 94 A.L.R.3d 548 (Ky. 1974).

R.I.

—Doe v. Burkland, 808 A.2d 1090 (R.I. 2002).

Wis.

—Matter of Steffes, 95 Wis. 2d 490, 290 N.W.2d 697 (1980); Strait v. Estate of Garofolo (In re Estate of Garofolo), 229 Wis. 2d 252, 599 N.W.2d 666 (1999).

Conn.

—In Ostman v. Lee, 91 Conn. 731, 101 A. 23 (1917), the defendant was put in possession of an old automobile under an agreement, as alleged by him, to buy it, if he found it useful for his business. He kept the machine for nearly two years, in the meantime having offered it for sale, and then notified the plaintiff that he did not wish to buy it. The defendant’s acts were held to constitute an acceptance as a matter of law.

Mass.

—Hobbs v. Massasoit Whip Co., 158 Mass. 194, 33 N.E. 495 (1893). In Champlin v. Jackson, 317 Mass. 461, 58 N.E.2d 757 (1945), the defendant sent in an order for lumber on stated terms. The plaintiff made a counter-offer to supply the lumber on somewhat different terms. The court reports no communicated acceptance of this counter-offer, but the defendant received the lumber shipped to him and marked the invoices “O.K.” This was held to be a good acceptance, making a unilateral contract. The conduct of the defendant-offeree operated as a promise to pay according to the terms of the counter-offer. Today, the applicability of U.C.C. § 2-207 would have to be considered, and under that statute, the “last shot” principle no longer applies. See § 3.37.

Miss.

—J.W. Carter Co. v. Farley Clothing Co., 216 Miss. 238, 62 So. 2d 305 (1953) (where shoes were sent to a retailer without being ordered, and it was held that sale of a few pairs by the retailer bound it to pay for the remainder).

Mo.

—Austin v. Burge, 156 Mo. App. 286, 137 S.W. 618 (1911).

N.H.

—Fogg v. Portsmouth Atheneum, 44 N.H. 115 (1862).

Pa.

—The plaintiff mistakenly thought that the defendant had ordered 64 refrigerators and therefore shipped them. The defendant received them from the carrier, sending his carter for them. The court held that the defendant’s acts operated as an acceptance and a promise to pay. Indiana Mfg. Co. v. Hayes, 155 Pa. 160, 26 A. 6 (1893).

See also Hyatt v. Foster, 195 Ill. App. 428 (1915), and Couret v. Conner, 118 Miss. 374, 79 So. 230, reh’g denied, 118 Miss. 598, 79 So. 801 (1918), where an assignment of notes was offered, to be effective instantly on acceptance.

Because the salutary rule applied in cases such as Ostman v. Lee, above, has been used by merchants who foisted goods on unwary purchasers as a deliberate selling tactic, legislation has been enacted to curtail the use of this tactic. See, e.g., The Postal Reorganization Act, 39 U.S.C.A. § 3009; NY CLS Gen Oblig § 5-332; Neb. Rev. Stat. § 63-101. The principle of such cases, is, however, still viable in cases where the shipping of unordered merchandise is not a deliberate selling tactic. See U.C.C. § 2-606.

18 In Prokopis v. Prokopis, 519 P.2d 814 (Alaska 1974), the brothers Taso and Chris lived in a duplex. Chris bought it for $500 down, an agreement to make $3,000 of improvements the first year and the assumption of a 20-year note. Chris offered Taso a half-interest if Taso would assume half the payments and pay half the down payment and improvements. After a falling out, Chris tried to evict Taso, but the court found a valid unilateral contract, in which Chris offered his act (conveyance) in exchange for Taso’s promises. The contract was held to be sufficiently definite for a grant of specific performance. Note that critics of the notion of reverse unilateral contracts claim that such contracts are bilateral. This contract clearly was bilateral. The offer was a promise to convey and requested promises in return. The conveyance was not self-executing on Taso’s acceptance. In a true reverse unilateral contract the offeree automatically is entitled to exercise dominion over the performance upon acceptance without further action by the offeror.

19 See Day v. Caton, 119 Mass. 513 (1876).

20 Autographic Register Co. v. Philip Hano Co.,198 F.2d 208 (1st Cir. 1952).

21 Honda City Triumph, Inc. v. First Nat. Bank, 52 Md. App. 540, 451 A.2d 140 (1982) is one of many cases where a financing institution issues a loan check payable jointly to a borrower and an auto dealer. In this case, the bank had caused to be typed on the back of the check a legend purporting to obligate the dealer to register a lien on the car being bought with the loan proceeds. When the dealer accepted the check it was bound by the legend on the check. Its failure to register the lien was a breach of contract.

To the same effect is Oroweat Employees Credit Union v. Stroupe, 48 N.C. App. 338, 269 S.E.2d 211 (1980).

In South Division Credit Union v. Deluxe Motors, Inc., 42 Ill. App. 3d 219, 355 N.E.2d 715 (1976), there was no breach of the contract so formed.

22 Air Van Lines, Inc. v. Buster, 673 P.2d 774, 42 A.L.R.4th 1 (Alaska 1983).

23 At common law, if the parties have an honest dispute as to the amount owed by the drawer of the check to the payee, a clear indication on the check that the payee accepted it, if at all, in full satisfaction of a specified claim, the attempt to accept the check by cashing or depositing it without acceptance of the offer has been unavailing. Hudson v. Yonkers Fruit Co., 258 N.Y. 168, 171, 179 N.E. 373, 374, 80 A.L.R. 1052 (1932) (“protest will be unavailing if the money is retained. What is said is overridden by what is done, and assent imputed as an inference of law.)” (Per Cardozo, J.). Cain v. Esthetique, 182 F. Supp. 3d 54 (S.D. N.Y. 2016); Dishinger v. Potter, 2001 UT App 209, 47 P.3d 76 (2001).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.18 »

1 Corbin on Contracts § 3.18 (2020)

§ 3.18. Silence as a Mode of Acceptance

It is an old maxim that silence gives consent, but this is not a rule of law. It is certain that, if the only facts are that A makes an offer to B, and B remains silent, there is no contract.1 This is true whether the offer is made orally or by mail or by electronic means. Silence may indicate that the offeree did not hear or receive or understand the offer, or that the offer was still under consideration.2 It may instead indicate that the offeree preferred to give no thought to the offer and to waste no time and effort in making a reply, whether orally or by a writing. In such cases, the offeror is not reasonable in giving to the offeree’s mere silence an interpretation that the offeree accepts. So, if a party sends a book or paper or other goods to another, with a letter saying that it is offered for sale at a specified price, the party to whom it is sent is not bound by a contract to pay for it if that party does nothing and says nothing. If a party to an existing contract proposes a modification thereof, the mere silence of the other party leaves the contract as before without modification.3 The CISG concurs that “[s]ilence or inactivity does not in itself amount to acceptance.4

Often, however, silence coupled with conduct or with expectations engendered by a prior relationship can reasonably be understood by the offeror as an acceptance.5

A case that not infrequently occurs is one involving bailor and bailee. Where goods are stored in the possession of the bailee without any controlling contract, and the bailee writes to the owner saying that the storage charge to be paid thereafter will be a specified amount, the owner’s silence is not operative as an acceptance in the absence of other circumstances justifying an inference that it is intended as such.6 The owner, on other grounds, may have to pay a reasonable price for the storage, but has not contracted to pay the specified amount. The case of a tenant, who remains in possession after the expiration of the lease or other express tenancy contract period, is a different case for several reasons. It involves property law, the history of which differs from that of the law of contract, as well as contract law. And, also, the tenant is voluntarily retaining a possession and enjoying its benefits, with knowledge of the terms to which the landlord had previously consented. In order that either party may be held to different leasehold provisions, it must be shown that a new contract has been made. Remaining in possession with knowledge of new terms proposed by the landlord may be an acceptance thereof, but it is more than mere silence.

One who has repudiated or otherwise broken a contract may make an offer of “rescission,” hoping thereby to escape from paying damages or to recover payments made. Mere silence by the other party is not acceptance, nor should the court so interpret the efforts of the injured party to mitigate the loss by retaking possession, making a resale, or otherwise.7

(A) The following case is noteworthy:

(1) Reeve v. Meleyco, 46 Cal. App. 5th 1092, 260 Cal. Rptr. 3d 457, 2020 Cal. App. LEXIS 242 (2020). Some arrangements, by law, require something more than silence—this case provides a good illustration. A client contacted his friend, attorney Reeve, for assistance following a traffic accident that killed the client’s wife and seriously injured his daughter. Reeve and the client met with attorney Meleyco, and Meleyco and the client entered into a contingency fee agreement for Meleyco to represent him to seek recovery for the accident. The client subsequently became concerned that a referral fee to Reeve would come from the client’s share of any recovery, and he advised Meleyco that any such referral fee agreement was made without his knowledge. Meleyco responded with a letter to the client: “[T]his letter is to assure you that the twenty-five percent (25%) referral fee that I am paying to Bob Reeve will come out of my fee and will not increase the fees to either you or your daughter.” At the bottom of the letter was typed: “I, [name of client], acknowledge receipt of this letter and understand the contents.” The client signed the acknowledgement. A settlement was reached in the personal injury matter, and Meleyco and the client agreed to give Reeve a much-reduced referral fee. Meleyco received for the client and the client’s daughter another recovery for the accident from the state of California for $900,000. This time, Meleyco and the client paid no referral fee to Reeve. Reeve sued, and the court held that the fee-sharing agreement was unenforceable because the client failed to provide informed, written consent. The requirement of written consent impresses upon the client the importance of the agreement, and it provides protections for the attorneys who are parties to the arrangement. Here, there was a writing advising the client of the proposed fee-sharing arrangement, but the client’s signature on that writing merely acknowledged that the client received it and understood what it said. The client did not provide his written consent to the arrangement as required by law. Consent differs from disclosure, receipt, and understanding. Silence and a failure to object are not enough. Consent is active, not passive. The referral fee agreement was unenforceable as against public policy.

Footnotes — § 3.18:

U.S.

—Beach v. United States, 226 U.S. 243, 33 S. Ct. 20, 57 L. Ed. 205 (1912); McGurn v. Bell Microproducts, 284 F.3d 86 (1st Cir. 2002); Bauer v. Qwest Communs. Co., LLC, 743 F.3d 221 (7th Cir. 2014); Overseas Development Disc Corp. v. Sangamo Constr. Co., 686 F.2d 498 (7th Cir. 1982); Weiss v. Macy’s Retail Holdings Inc., 265 F. Supp. 3d 358 (S.D. N.Y. 2017); Cook v. The MV Wasaborg, 189 F.Supp. 464 (D. Or. 1960).

Weiss v. Macy’s Retail Holdings, Inc., 741 Fed. Appx. 24 (2nd Cir. 2018) vacated Weiss v. Macy’s Retail Holdings Inc., 265 F. Supp. 3d 358 (S.D. N.Y. 2017), cited above. In 2015, Macy’s terminated Weiss, an employee since 1997, and Weiss brought claims under the Americans with Disabilities Act. Macy’s moved to compel arbitration, claiming Weiss agreed to arbitration more than a decade earlier. In 2003, Macy’s introduced a voluntary arbitration program that gave current employees, including Weiss, “the choice of ‘opting out’ by submitting a written form.” Macy’s informed employees about the program, and on two occasions—in 2003 and 2004—said that it sent to each employee’s home an “Election Form” that instructed employees to complete and return if they intended to “decline the benefits of arbitration” by opting out of it. Weiss failed to return an opt-out form on either occasion, and Macy’s treated him as having agreed to mandatory arbitration. The Second Circuit explained that “notifying an at-will employee of a change and informing him that the change applies to him suffices to change the conditions of employment.” The court concluded that “the documents, if received by Weiss, coupled with his failure to send back the opt-out form and his continued working for Macy’s, bound him to arbitrate his dispute.” But there was a fact issue as to whether Weiss received the Election Forms, so the court remanded for resolution of this issue.

Ala.

—Gerstenecker v. Gerstenecker, 238 So. 3d 646 (Ala. 2017).

Alaska

—Lexington Ins. Co. v. Lindahl Constr. & Eng’g, Inc., 47 P.3d 1081 (Alas.2002).

Ariz.

—Best v. Henderson, 2008 Ariz. App. Unpub. LEXIS 20 (May 20, 2008).

Calif.

—C9 Ventures v. SVC-West, L.P., 202 Cal. App. 4th 1483, 136 Cal. Rptr. 3d 550 (2012).

Conn.

—Town of West Hartford v. Commission on Human Rights & Opportunities, 2000 Conn. Super. LEXIS 1858 (July 12, 2000); Shulman v. Hartford Public Library, 119 Conn. 428, 177 A. 269 (1935) (silence that is itself ambiguous is not an acceptance).

Fla.

—W. Constr., Inc. v. Fla. Blacktop, Inc., 88 So. 3d 301 (Fla. App. 2012), rehearing denied, 2012 Fla. App. LEXIS 9963 (2012).

Idaho

—Vogt v. Madden, 110 Idaho 6, 713 P.2d 442 (App. 1985). A sharecropper offered to renew a lease for a year and to rotate to a different crop. The lessor remained silent. Held: no contract.

Ill.

—Clark v. Potts, 255 Ill. 183, 99 N.E. 364 (1912).

Kan.

—Conry v. McLean, 117 Kan. 595, 232 P. 1030 (1925) (failure to announce after a test whether offeree desired to buy).

Ky.

—Cincinnati Equipment Co. v. Big Muddy River Consol. Coal Co., 158 Ky. 247, 164 S.W. 794 (1914); Kentucky Portland Cement & Coal Co. v. Steckel, 164 Ky. 420, 175 S.W. 663 (1915).

Md.

—Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (2007) (stating the general rule but noting there are exceptions, citing § 3.21, 1993 ed.).

Mich.

—Grice v. Noble, 59 Mich. 515, 26 N.W. 688 (1886).

Minn.

—Blad v. Parris, 2010 Minn. App. Unpub. LEXIS 417 (May 11, 2010).

Mo.

—Revere Copper & Brass, Inc. v. Manufacturers’ Metals & Chemicals, Inc., 662 S.W.2d 866 (Mo. App. 1983). Rejection of part of an offer and silence as to the rest is not an implicit acceptance of the rest.

N.J.

—Gamble v. Connolly, 399 N.J. Super. 130, 943 A.2d 202 (2007).

N.Y.

—Kassin Sabbagh Realty LLC v. Beekman Tower Assoc. LLC, 2016 NY Slip Op 32371(U) (2016).

In Karlin v. Avis, 457 F.2d 57 (2d Cir.1972), cert. denied, 409 U.S. 849, plaintiff sent defendant numerous letters seeking to obtain defendant’s commitment to pay a finder’s fee for services in bringing about a stock purchase. Setting aside the fact that defendant explicitly rejected a proposal that he pay a fee, the unanswered letters created no contract. There was no unjust enrichment as the other party to the transaction paid a finder’s fee. Joseph Schultz & Co. v. Camden Fire Ins. Ass’n, 304 N.Y. 143, 106 N.E.2d 273 (1952); Albrecht Chem. Co. v. Anderson Trading Corp., 298 N.Y. 437, 84 N.E.2d 625 (1949); Senner & K. Co. v. Gera Mills, 185 A.D. 562, 173 N.Y.S. 265 (1918).

Ohio

—Blazavich v. CNA Ins. Cos., 1998 Ohio App. LEXIS 3006 (June 30, 1998).

Or.

—Carnahan Mfg. Co. v. Beebe-Bowles Co., 80 Or. 124, 156 P. 584 (1916); Suitter v. Thompson, 225 Or. 614, 358 P.2d 267 (1960).

Pa.

—Johnston the Florist, Inc. v. Tedco Constr. Corp., 441 Pa. Super. 281, 657 A.2d 511 (1995); Solis-Cohen v. Phoenix Mut. Life Ins. Co., 413 Pa. 633, 198 A.2d 554 (1964); Royal Ins. Co. v. Beatty, 119 Pa. 6, 12 A. 607 (1888).

Tenn.

—Grace v. Grace, 2016 Tenn. App. LEXIS 897 (Nov. 29, 2016).

Va.

—Phillips v. Mazyck, 273 Va. 630, 643 S.E.2d 172 (2007).

Wash.

—Hansen v. Transworld Wireless, 111 Wn. App. 361, 44 P.3d 929 (2002), review denied, 148 Wn.2d 1004, 60 P.3d 1211 (2003); Troyer v. Fox, 162 Wash. 537, 298 P. 733 (1931).

Wis.

—Sell v. General Elec. Supply Corp., 227 Wis. 242, 278 N.W. 442 (1938).

In Royal Ins. Co. v. Beatty, 119 Pa. 6, 12 A. 607 (1888), the court said: “It will be perceived that all that the witness says is that he asked the defendant’s agent to bind the two policies, as he states at first, or to renew them, as he says last. He received no answer; nothing was said, nor was anything done. How is it possible to make a contract out of this? It is not as if one declares or states a fact in the presence of another, and the other is silent. If the declaration imposed a duty of speech on peril of an inference from silence, the fact of silence might justify the inference of an admission of the truth of the declared fact. It would then be only a question of hearing, which would be chiefly, if not entirely, for the jury. But here the utterance was a question, and not an assertion; and there was no answer to the question. Instead of silence being evidence of an agreement to do the thing requested, it is evidence, either that the question was not heard, or that it was not intended to comply with the request.”

Where there have been informal expressions of agreement, if one sends to the other a memorandum stating his understanding of the terms agreed upon, the silence of the other is not necessarily an assent to that memorandum. Trainer v. Fort, 310 Pa. 570, 165 A. 232 (1933). But it should usually have some weight as an admission, and if the party thus stating the party’s own understanding is permitted to proceed with performance or to change position materially in reliance, there may readily arise an estoppel to assert any different contract. Dickey v. Hurd, 33 F.2d 415 (1st Cir. 1929), cert. denied, 280 U.S. 601 (1929).

Where the parties have a settlement discussion that is inconclusive, a letter sent by one to the other stating the terms of a settlement proposal and requesting comments is not accepted by silence. William F. Klingensmith, Inc. v. District of Columbia, 370 A.2d 1341 (D.C. App. 1977).

In Standard Cas. Co. v. Boyd, 75 S.D. 617, 71 N.W.2d 450 (1955), Boyd bought a motor car. The dealer, at Boyd’s request and expense, obtained a one-year liability policy from the plaintiff insurer. Before its expiration, the plaintiff’s agent sent to Boyd a renewal policy. Boyd had not requested this and sent no acknowledgment. Half a year later, the agent paid the premium on this policy to the insurer and wrote to Boyd requesting payment or return of the policy. Boyd intended to pay (so testified) but went on a trip without doing so. On this trip a collision occurred, injuring third persons. Boyd has never paid the premium, but he and the third persons assert the liability of the insurer. In a suit for a declaratory judgment by the insurer, the court held that the policy was never in effect. The act of the agent in sending the renewal policy was a mere offer that was never accepted by Boyd. There were no accompanying facts and no previous course of dealing between Boyd and the insurer that justified Boyd in thinking that he could accept by mere silence and inaction. Observe that acceptance by Boyd would have had to be either by the act of payment of the premium or by promising to pay it. The insurer had given Boyd no reason to believe that his mere silence was a proper way for him to make a promise to pay, and Boyd had given the insurer no reason to believe that by mere silence he had promised to pay. The insurer could have maintained no action against Boyd for the premium. (So held in Roberts v. Buske, 12 Ill. App. 3d 630, 298 N.E.2d 795 (1973); J.C. Durick Ins. v. Andrus, 139 Vt. 150, 424 A.2d 249 (1980), where the insurance agents advanced the premiums and sought reimbursement). It follows that no action will lie against the insurer on the policy.

If an agent makes a contract in excess of his authority, the silence of his principal with knowledge of the facts will soon operate as a ratification. In Emco Mills, Inc. v. Isbrandtsen Co., 210 F.2d 319 (8th Cir. 1954), a broker who was authorized to sell 10,000 bushels of soy beans for defendant sold 50,000 bushels instead to the plaintiff, at once sending written confirmation in the latter amount to both parties. The defendant sent no notice of the error for 2 weeks and was held bound by contract for 50,000, the plaintiff being forced to buy at an advance in the market.

Mere knowledge by the seller of goods that the buyer regarded their contract for sale of 150,000 gallons as being reduced in quantity to 100,000 gallons is not sufficient to make the seller’s silence operate as an acceptance by estoppel. There must also be a material change of position by the buyer in reliance on the seller’s conduct. Western Auto Supply Co. v. Sullivan, 210 F.2d 36 (8th Cir. 1954). Here, the jury was justified in refusing to infer an agreement to modify the contract.

Failure to respond immediately in the absence of a duty to respond is not an acceptance. In Bartel v. Univ. of Miami, 2015 U.S. Dist. LEXIS 59087 (E.D. Pa. May 6, 2015), the parties entered into negotiations to settle a dispute and exchanged drafts of a settlement agreement, along with confusing communications about the drafts. Plaintiffs moved to enforce a putative settlement that they claim occurred during the course of these communications. On August 6, 2013, plaintiffs forwarded a draft settlement agreement to defendant with this email message: “If we can agree to the release language (attached) we will be able to settle this case for $7,500.00.” The attached release included language to the effect that “[i]ndemnification shall be limited to the amount of settlement as stated herein.” On August 8, 2013, “defendant emailed plaintiffs stating ‘Please find attached hereto our red line changes to the proposed Release. Please advise us if it is acceptable to you in order to conclude the matter.’ ” The redlined document defendant forwarded with the note contained few, if any, changes to alter plaintiffs’ August 6th draft. Interestingly, it left the indemnification language intact. Yet the defendant’s communication accompanying the August 8th draft was not couched in terms of an acceptance but was written in the language of an offer, which defendant was free to withdraw. Before plaintiffs advised defendant that they accepted the offer, defendant did withdraw it on August 9th, by notifying plaintiffs that defendant did not agree to the indemnity language in the draft. Plaintiffs claimed that a binding settlement agreement was entered into on August 8th. The court rejected plaintiffs’ argument, explaining that plaintiffs did not communicate acceptance.

See Myers v. MBNA America & N. American Capitol Corp., 2001 U.S. Dist. LEXIS 11900 (D. Mont. Mar. 28, 2001) (citing § 3.18, 1993 ed. of this treatise,offeror cannot unilaterally transform silence into an acceptance of its offer merely by saying so).

2 In Solis-Cohen v. Phoenix Mut. Life Ins. Co., 413 Pa. 633, 198 A.2d 554 (1964), plaintiff, a real estate agent, had been managing a building for the prime tenant who went bankrupt. An employee of the landlord asked plaintiff to continue to manage the buildings. Plaintiff expressed willingness to do so on the previous terms plaintiff had had with the tenant. The employee replied that he had no authority to make such a contract, but asked plaintiff to continue to manage the building until the home office acted on plaintiff’s offer. After a month and a half the landlord installed a new managing agent in the building. While there was no question that the landlord owed for services actually rendered, the court found no basis for a finding of acceptance by silence. Accepting the plaintiff’s services for one and a half months did not change the matter, as this was a reasonable period for the defendant to mull over the offer.

In Karsch v. Carr, 807 S.W.2d 96 (Mo. App. 1990), a vendor sent, after earlier negotiations, an offer to sell, an executed conveyance, and other documents including documents to be signed by the offerees. The latter had a survey made and decided not to purchase. Two weeks of silent retention of the documents created no contract.

See University Hosps. of Cleveland, Inc. v. Lynch, 96 Ohio St. 3d 118, 772 N.E.2d 105 (Ohio 2002) (citing § 3.18, 1993 ed. of this treatise for the proposition that silence generally does not indicate assent).

3 ConocoPhillips Alaska, Inc. v. Williams Alaska Petro., Inc., 322 P.3d 114, 125 (Alaska 2014) collected cases that affirmed this principle:

[B]ecause all modifications (like all contracts) require mutual assent, unilateral modification of a preexisting contract is impossible and mere silence in the face of an offer to modify a contract is ineffective to convey acceptance of the offered modification. See [U.S. Surgical Corp. v. Orris, Inc., 5 F. Supp. 2d 1201, 1206] (D. Kan. 1998) (when seller attached a label to the packaging of surgical equipment purporting to limit the customer to a single use of the equipment the buyer had already purchased pursuant to contract, no contract modification occurred simply by performing the original agreement and opening the package); [Ariz. Retail Sys., Inc. v. Software Link, Inc., 831 F. Supp. 759, 764] (D. Ariz. 1993) (when seller attached a shrink-wrap license to software packaging that buyer had already contracted to purchase, merely opening the package and continuing to perform the original contract did not function as a modification for lack of mutual assent); Wachter Mgmt. Co. v. Dexter & Chaney, Inc., 282 Kan. 365, 144 P.3d 747, 752–55 (Kan. 2006) (same); Jones v. Best, 134 Wn.2d 232, 950 P.2d 1, 5 (Wash. 1998) (when a realtor and seller of real property had a preexisting contract for realty services, the realtor’s proposed modification to his commission did not effect a modification because the seller’s silence to the proposal did not manifest mutual assent); Alaska Pac. Trading Co. v. Eagon Forest Prods., Inc., 85 Wn. App. 354, 933 P.2d 417, 420 (Wash. App. 1997) (when seller sent a proposal for modification of preexisting contract to buyer and buyer did not respond, no contract modification occurred because modification requires mutual assent).

U.S.

—J.A. Markel Co. v. D.L. Stokes & Co., 197 F.2d 933 (5th Cir. 1952).

Or.

—Carnahan Mfg. Co. v. Beebe-Bowles Co., 80 Or. 124, 156 P. 584 (1916).

Pa.

—In re Baum’s Est., 274 Pa. 283, 117 A. 684 (1922).

Wis.

—Shakman v. United States Credit System Co., 92 Wis. 366, 66 N.W. 528 (1896).

In Spear-Newman, Inc. v. Modern Floors Corp., 149 Conn. 88, 175 A.2d 565 (1961), an insolvent debtor proposed a composition and sent to each creditor its check for 25 percent of the debt and a personal note for 5% more, in full settlement. Every creditor except the plaintiff cashed the check. The plaintiff retained the check and note but made no effort to collect them. The defendant made no change of position in reliance. The court held that the plaintiff’s conduct did not operate as an acceptance of the offered composition, and that it could maintain suit on its original claim which included a guaranty.

In De Cecchis v. Evers, 54 Del. 99, 174 A.2d 463 (Super. 1961), a warehouseman, after having received goods under an agreement having no liability limitation, sent to the owner a storage receipt containing such a limitation. The owner’s silence and failure to return the receipt with an objection did not operate as an assent to the limitation in modification of the contract made.

In Application of Doughboy Industries, Inc., 17 A.D.2d 216, 233 N.Y.S.2d 488 (1962), a buyer sent in an order for goods on an “order form” that expressly provided that no acceptance on any additional or different terms should be binding on the buyer unless assented to by a signed writing. The seller orally accepted the order and made a partial shipment. Three days later the seller sent to the buyer its form of acceptance which provided that silence or failure to object in writing would be an acceptance of the terms and conditions of its acknowledgment form. Neither party read or paid any attention to these provisions in their commercial forms. Performance proceeded and a dispute arose. The seller sought an order to compel arbitration, as expressly provided in its acceptance form. The buyer moved for a stay of proceedings, on the ground that its order form contained no provision for arbitration. Thus, the court says, “the buyer and seller accomplished the legal equivalent of the irresistible force colliding with the immovable object.” Undoubtedly, a contract for the sale of goods was consummated by the oral acceptance and shipment, but the question remains whether the seller’s acknowledgment form, followed by silence without notice of objection, modified that contract by adding the arbitration clause. The court said: “But, and this is critical, it is not only the seller’s form which should be given effect, but also the buyer’s form, for it too was used in prior transactions, and as to it too there was a duty to read. Of course, if the two commercial forms are given effect, they cancel one another. (Certainly, the test is not which is the later form, because here the prior form said the buyer would not be bound by the later form unless it consented in writing. It needs little discussion that silence, a weak enough form of acceptance, effective only when misleading and there is a duty to speak, can be negatived as a misleading factor by announcing in advance that it shall have no effect as acceptance [Restatement, Contracts, § 72; Corbin on Contracts, §§ 72–75 [§§ 3.18–3.21]; 9 N.Y. Jur. Contracts, §§ 34, 35]).” The addition of an arbitration clause was deemed a material alteration of terms, so that, under the Uniform Commercial Code (as adopted in New York, but not in effect until 1964), just as at common law, the arbitration clause was not assented to by the buyer and was not applicable. The motion to stay the arbitration was granted.

See also, Burkett v. Union Sec. Ins. Co., 2007 U. S. Dist. LEXIS 41858 (W.D. Wash. June 7, 2007). When the defendant denied paying the plaintiff disability benefits under an insurance policy, the plaintiff sought a de novo review, which the defendant contested based on a purported amendment to the policy granting the defendant “sole discretionary authority” to determine eligibility. The defendant, therefore, urged a review based on whether it abused its sole discretion. The policy contained an amendment procedure that required the policyholder and insurer to agree. There was no express agreement to the amendment, but the insurer introduced a cover letter that required the insured to reject the amendment or be bound by it. The court reviewed the general rule that silence is not acceptance of an offer. Where the parties agree that silence will or will not operate as an acceptance, their intention will be followed. As noted in § 69 of the Restatement (Second) of Contracts, there are exceptions to the general rule as where a party takes offered benefits knowing that they are offered in exchange for some consideration, or where the offeree’s silence is an intentional act to accept the offer and the offeree had reason to understand that his assent could be so effected, or where trade usage or previous dealings require the offeree to notify the offeror that he does not intent to accept. No exception to the general rule appeared in these facts and the court granted summary judgment for the plaintiff.

4 CISG 18(1).

5 See §§ 3.19 –3.21. In certain circumstances silence in the face of an account stated can be an acceptance of the account. See Joseph Carino Plumbing & Heating, Inc. v. Costa, 166 A.D.2d 930, 561 N.Y.S.2d 671 (1990).

Kenney Manufacturing Co. v. Starkweather & Shepley, 643 A.2d 203 (R.I. 1994) (in light of the parties’ course of dealing, a reasonable person would not have construed silence as an acceptance).

See In re Thompkins, 2016 Bankr. LEXIS 442 (Bankr. N.D. Ga. Jan. 4, 2016). The purported evidence for the alleged contract at issue was a series of letters debtor sent to Carrington and its counsel. Debtor claimed that his unilateral act of sending the letters resulted in a contract, and that Carrington breached the contract by failing to respond. The court dismissed the argument out of hand.

In order for conduct that accompanies silence to constitute an acceptance, the offeree must reasonably understand that his or her conduct manifests acceptance of the offer. See James v. Global Tel*Link Corp., 2016 U.S. Dist. LEXIS 17099 (D.N.J. Feb. 11, 2016) (persons creating telephone service accounts through an interactive voice response system were given notice that the service was “governed by” GTL’s terms of use, but the IVR notification did not inform them that use of the service alone constituted an acceptance of those terms).

Rivera-Colón v. AT&T Mobility P.R., Inc., 2019 U.S. App. LEXIS 1441 (1st Cir. 2019). Rivera filed suit against her former employer, AT&T, alleging age discrimination and wrongful termination. AT&T moved to compel arbitration. The district court granted the motion, and the First Circuit affirmed. In 2011, AT&T sent Rivera an email with the arbitration agreement advising her that under its new arbitration program, disputes would be subject to mandatory arbitration, but it gave her the option to opt out in 68 days. AT&T sent the same email two more times. Rivera electronically acknowledged reviewing the agreement twice. While silence generally cannot be acceptance, the First Circuit concluded that Rivera impliedly accepted this arbitration agreement and is bound by it. “[B]y acknowledging that she read that proviso, she actually gave AT&T ‘reason to believe from [her] silence that [she] promise[d]’ to arbitrate her claims … .” The court cited the rule from this section of the Corbin treatise: “Often, however, silence coupled with conduct or with expectations engendered by a prior relationship can reasonably be understood by the offeror as an acceptance.” The court explained: “Unlike the unsolicited offer-by-mail to which Rivera tries to liken this case, this wasn’t an offer made by a stranger. Rivera and AT&T were engaged in a long-standing, close legal relationship as employee and employer. That relationship—one in which AT&T and its employees regularly communicated company business with one another via email—implicates Rivera’s knowledge that she had the duty to speak and that her choice not to would be reasonably interpreted by AT&T as acceptance.”

6 In Bowley v. Fuller, 121 Me. 22, 24, 115 A. 466, 467 (1921), the defendant owned hay stored in plaintiff’s barn under circumstances entitling the plaintiff to reasonable compensation. The plaintiff notified the defendant to remove the hay by a fixed date or the defendant would be charged $1 per day storage. The defendant made no reply and did not remove the hay. It was held that there was no contract to pay $1 per day. The court wrote:

In our opinion it cannot be said as a matter of law that an express contract was completed. Plaintiff’s letters constituted nothing more than an offer communicated to the defendant. In order to perfect the contract and bind the defendant there must have been an acceptance by him. But he neither accepted nor rejected the offer. He did nothing which could be construed into an acceptance. He simply remained silent. He was under no obligation to speak or to act and under those circumstances silence and inaction cannot be converted into acceptance.

The amount of storage to be paid rested entirely in contract. When the letters were written there was a subsisting implied contract which obligated the defendant to pay a reasonable sum. There was no existing obligation on the defendant to pay the increased demand and it could not be inferred as a matter of law from merely allowing the hay to remain in the barn because the continuing liability for rent could be referred to that subsisting contract, and in the absence of any new contract, would be referred to it. Raysor v. Berkeley Co. Ry. & L. Co., 2 S.E. 119 (1887). A mere failure to reject cannot be converted into an acceptance unless the offeree has agreed in advance that such silence should be so construed or there was some legal duty resting upon him to that effect. There was no such preliminary agreement here and no such duty.

See also:

Ala.

—American Tie & T. Co. v. Naylor Lumber Co., 190 Ala. 319, 67 So. 246 (1914).

In Taylor v. Dexter Engine Co., 146 Mass. 613, 16 N.E. 462 (1888), the defendant was held bound to pay storage because he failed to remove an engine from the plaintiff’s premises, but the amount to be paid does not appear.

Ill.—

Gupta v. Morgan Stanley Smith Barney, LLC, 934 F.3d 705 (7th Cir. 2019). At the time Gupta was hired to work for Morgan Stanley in 2013, Morgan Stanley’s Convenient Access to Resolutions for Employees (CARE) program did not make arbitration mandatory for employee claims, but the CARE program explicitly stated that its terms were subject to change after an “announce[ment] in advance.” On September 2, 2015, Morgan Stanley clearly alerted Gupta by email that it was amending its CARE program to compel mandatory arbitration for all employment-related disputes, including discrimination claims, if the employee failed to opt out of the CARE program within thirty days. Morgan Stanley provided a reminder notice to its employees on its intranet page. Gupta failed to opt out and was subsequently terminated. Gupta sued Morgan Stanley for alleged discrimination and other claims, and Morgan Stanley moved to compel arbitration. The district court reasonably construed Gupta’s silence in the face of the September 2, 2015 email, and his continued employment, as assent to the arbitration agreement and compelled arbitration, and in the instant appeal, the Seventh Circuit Court of Appeals affirmed. Gupta claimed that he never agreed to arbitrate and that only he first saw the September 2, 2015 email when Morgan Stanley filed its motion to compel. The court rejected this argument. Morgan Stanley regularly communicated with Gupta by email. There was no dispute that the September 2, 2015 email was sent to Gupta and that it was an offer. The court wrote: “Morgan Stanley emailed the arbitration policy changes to Gupta personally, granted him thirty days to review the new arbitration agreement, circulated an opt-out form, conspicuously displayed the deadline to opt out, posted a continual company intranet reminder of the new arbitration policy and opt-out date, and repeatedly informed that it would construe silence as acceptance of mandatory arbitration.” Further, Gupta’s continued employment with Morgan Stanley was consideration for a proposed arbitration agreement under the revised CARE program, but Gupta claimed that he never accepted the offer because his silence and inaction did not constitute an acceptance. The court disagreed and explained that “an offeror may construe silence as acceptance if the circumstances make it reasonable to do so.” Further, “the relationship between parties may justify the offeror expecting a reply, and thus assuming that silence is assent to its proposal.” The court quoted this section of the Corbin treatise: “Often … silence coupled with … expectations engendered by a prior relationship can reasonably be understood by the offeror as an acceptance.” Here, the surrounding circumstances show that Morgan Stanley reasonably expected a response, based on Morgan Stanley’s past practice of emailing Gupta and the pre-2015 CARE program’s explicit statement that its terms were subject to change after an “announce[ment] in advance.” The court explained that because of the employment relationship, Morgan Stanley had an expectation of a response:

This case does not present an unsolicited offer-by-email from a stranger when the expectation of the offeree’s response is rare, if not baseless. Instead, employment includes the understanding that employees will act with diligence in following an employer’s instructions and responding to requests, whether transmitted by email or another reasonable mode of communication. Here, Gupta submits no evidence, policy, or prior course of dealings from which we can infer that Gupta was free as an employee to ignore Morgan Stanley’s communications without repercussion.

N.Y.

—Hazeltine v. Weld, 73 N.Y. 156 (1878).

Wis.

—Christopher v. Jerdee, 152 Wis. 367, 139 N.W. 1132 (1913).

Compare:

7 See Van Keulen v. Sealander, 183 Wash. 634, 49 P.2d 19 (1935). See also Steel Rail Supply Co. v. Baltimore & L. Ry. Co., 130 F. 433 (3rd Cir. 1904).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.19 »

1 Corbin on Contracts § 3.19 (2020)

§ 3.19. Can Offeror Make Silence Operate as Acceptance?

It should here be plainly set forth that an offeror has no power to cause the silence of the offeree to operate as an acceptance when the offeree does not intend it to do so.1 The offeree’s conduct, coupled with the silence may be such as to make the silence operative.2 The offeror’s own language or other conduct may be such as to make the offeree’s silence a sufficient acceptance binding upon the offeror, as explained below. But an offeror cannot, merely by saying that the offeree’s silence will be taken as an acceptance, cause it to be operative as such. The offeror cannot force the offeree to take pen in hand, to use a postage stamp, or to speak, under penalty of being bound by a contract by not expressing a rejection. It is substantially the same case as where an offeror attempts to give the meaning of an acceptance to some other ordinary act of the offeree that the latter wishes to do without giving it such a meaning. If A offers land to B for a price, saying that B may signify acceptance of the offer by eating breakfast or by hanging out a flag on Washington’s birthday or by attending church on Sunday, A does not and cannot thereby make such action by B operative as an acceptance against B’s will. If B shows the absence of an intent to accept, and that the breakfast was eaten merely because of hunger, or the flag was hung out because of patriotism, or attendance at church was to hear the sermon, no contract has been made even though A truly believed that B meant to accept.3

It is a different question, however, whether an offeror can make the offeree’s mere silence operative as an acceptance as against the offeror when the offeree desires that it should so operate. In a few cases, the offeror has written to the offeree that the offeree may accept merely by remaining silent, without troubling to send notice of any kind or doing any other act. There are cases where the offeree decided to accept, remaining silent as the specified mode of accepting. Yet the court held that no contract had been made.4

In one respect, this may not be unreasonable. The opposite rule, in such cases, would enable the offeree to await the event, and to later deny the fact of acceptance if the contract appeared to be disadvantageous, or to claim that he or she accepted if acceptance appeared to be advantageous. But a strong argument in favor of holding the acceptance good is that the offeror has no one else to blame if the terms of the offer put the offeror at the mercy of the offeree, and that the offeror should not be permitted to escape liability when the terms of the offer have induced the offeree to believe that there is a contract and to act in reliance on it.5 The weight of these opposing arguments cannot be determined with certainty, but it will be a rare case where the offeree has not done some overt act that indicates an intention to accept, and in such case the courts will undoubtedly hold that the acceptance is good.6 But, “[e]ven though the intent to accept is manifested only by silent inaction … the offeror who has invited such an acceptance cannot complain of the resulting uncertainty.”7 In any case the offeree has the burden of proof on the question of intent to accept.

Footnotes — § 3.19:

U.S.—

Ibrahim v. United States, 2020 U.S. App. LEXIS 3722 (Fed. Cir. Feb. 7, 2020). Ibrahim filed a complaint against the United States in the United States Court of Federal Claims in which he referenced an alleged contract right somehow relating to a child support order issued by the state of New Jersey. Ibrahim sent a twelve-page letter to certain officials of the State of New Jersey, cabinet secretaries, and the Supreme Court of the United States labelled a “Conditional Acceptance for the Value/Agreement/Counter Offer to Acceptance of Offer” (it is not at all clear what “offer” he references—but that makes no difference to the contract law principle described below). The letter asserted that Ibrahim had “received [these parties’] offer”—whatever that means—“and accept[ed]” it—but subject to conditions set forth in the letter. According to the court: the letter “for the most part, demands that the recipients justify the existence of various governmental agencies and practices. … . The letter asserts that failure to do would result in ‘default,’ and in turn, an obligation to pay Ibrahim $3.5 million in damages.” The United States did not respond. The Claims Court dismissed the claim, holding that it lacked subject matter jurisdiction pursuant to the Tucker Act. On appeal, the instant court affirmed. Ibrahim argued that his letter constituted a “counter-offer” and that the government’s failure to respond constituted an acceptance of a default, unilateral contract. The instant court held that the Claims Court did not have jurisdiction because the claim was frivolous. An unsolicited letter, and a conditional counteroffer, do not constitute a contract. “[A]n offeree’s failure to respond to an unsolicited offer does not create a contract, regardless of any contrary terms in the offer.” And: “Contract law does not permit one to send unsolicited letters to the government (or anyone else) declaring that a failure to respond to the letter constitutes both formation and breach of a contract, entitling the sender to liquidated damages.” The court quoted First CommerceCorp. v. United States, 335 F.3d 1373, 1381 (Fed. Cir. 2003): “ ‘A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.’ (quoting RESTATEMENT(SECOND) OF CONTRACTS § 59 (1979)).”

Orman v. Cent. Loan Admin. & Reporting, 2019 U.S. Dist. LEXIS 215619 (D. Ariz. Dec. 16, 2019). In this unique case, the court granted Respondents’ motion to vacate an arbitration award. The parties had been involved in prolonged litigation in which Orman challenged a foreclosure to her mortgage. Respondents foreclosed, but nevertheless sent Orman loan modifications. In response to one such offer sent by Respondents, Orman sent a document that is best described in the words used by the court:

Orman sent a document entitled “Conditional Acceptance for the Value/Agreement/Counter Offer to Acceptance of Offer” to Respondents. … . That document purports to accept Respondents’ offer (although it does not specify which offer) pursuant to Orman’s “terms and conditions.” … . Among those terms were … that “the banking Holiday proclaimed by Pres. Roosevelt … has been suspended, declared over, abolished, repealed” …, that the United States was in Chapter 11 bankruptcy …, the United States was in a continuing state of emergency … , and a “caveat” that Orman was not a “party to your ‘social compact’ (contract) known as the Constitution (Charter) of the UNITED STATES” … . Among the voluminous requests and caveats was what purported to be an arbitration agreement. … . That agreement stated … that acceptance of the contract through silence would result in a summary disposition by a randomly chosen arbitrator, and that any conflict about the agreement would be decided by the arbitrator.

Orman claimed that Respondent did not respond to her “counter-offer,” and that acceptance to the arbitration provision could be inferred by this non-response. Orman unilaterally proceeded to arbitration in which Respondents did not participate. The arbitrator awarded Orman $10,336,000.00, and Orman moved to confirm it. Respondents moved to vacate it. The court granted the motion to vacate, explaining: “It is a fundamental principle of contract law that silence does not constitute acceptance of a contract.” The court cited the Restatement (Second) of Contracts § 69, cmt. a, and wrote:

There are only three circumstances where silence may constitute acceptance: (1) the offeree takes the offered benefit with reason to know it was offered with the expectation of compensation; (2) the offeree, in remaining silent, intends to accept the offer; and (3) previous dealings between the parties give rise to the inference that silence constitutes acceptance.

The court concluded that none of these exceptions applied. Foreclosure had already occurred, and Respondents would not have benefited from any agreement with Orman. Further, Respondents did not intend to agree. Nor did the parties’ past dealings reasonably indicate that Respondents’ assent could be inferred by silence. An offeror cannot unilaterally create a duty to speak merely by stating that acceptance will be inferred from silence. The court wrote:

Here, there was no contract. Because there was no contract, it was impossible for any award premised on the “counter-offer” to draw its essence from a contract. Thus, any award stemming from the “counter-offer” is completely irrational and necessarily exceeds the power of the arbitrator. Respondents have thus satisfied 9 U.S.C. § 10’s requirements, and the Court must vacate the arbitration award.

Alaska

—Bingman v. City of Dillingham, 2016 Alas. LEXIS 96 (Aug. 12, 2016) (mere fact that delinquent taxpayer advised city that its silence will constitute an acceptance did not deprive the city of the privilege to remain silent).

Ind.

—Estate of Mueller v. Karns, 873 N.E.2d 652 (Ind. App. 2007). The Estate (Conservatorship) began retained the expert assistance of Karns, that led to the estate obtaining a beneficial royalty payments. Karns and the Conservatorship never agreed on Karns’ fees though the Conservatorship asked Karns to keep records of the time he spent on this project. Karns kept no records but finally provided a letter with a proposed fee that would have resulted in payments to him or his family of some $771,000 over ten. His fee request was orally rejected. More than 18 months later, the Conservatorship sent Karns a check for $25,000 which he did not cash. Karns took no further action for four years, at which point he claimed that his original fee letter was enforceable since there was no written response to it. The trial court agreed, but on appeal, the instant court quoted § 69 of the Restatement (Second) of Contracts in finding that Karns’s situation did not fall within any of the exceptions to the general rule that silence in response to an offer does not constitute acceptance of the offer. While the Conservatorship was aware that the services were being offered with the expectation of compensation, by the time Karns sent the letter, he had already performed the services. The court noted that a quasi contractual recovery was appropriate and it remanded the case to the trial court to determine the appropriate amount with a minimum of $2,500 as supported by evidence of a reasonable fee, and a maximum of $25,000, the amount of the uncashed check the Conservatorship had sent.

In Standard Coating Service v. Walsh Constr. Co., 966 N.E. 2d 213 (Ct. App. Ind. 2012), the court followed Mueller. As a prime contractor drawing money from a state revolving fund on City projects, the defendant was required to seek out subcontractors that have been certified as minority business enterprises (MBEs). Among the MBEs the defendant contacted, the plaintiff submitted a bid as a subcontractor. The defendant’s prime bid to the City included environmental protection agency (EPA) forms, which identify MBEs on such projects. The defendant listed the plaintiff on these forms as a subcontractor on this project. When the defendant later decided not to use the plaintiff, the plaintiff claimed it had a contract that the defendant breached. The trial court granted summary judgment for the defendant. On appeal, the plaintiff reiterated its argument that the defendant had accepted the plaintiff’s offer (bid) by naming the plaintiff in the EPA forms. As in Mueller, the court relied on Restatement (Second) of Contracts § 69. Here, the defendant had not taken any benefit of services from the plaintiff. Nor had it indicated in any fashion that its assent could be manifested by silence. Nor were there any previous dealings or other factors that would have made it reasonable for the plaintiff to have expected notification from the defendant that it did not intend to accept the offer. Moreover, in its bid to the City, while listing the plaintiff in the EPA forms as a subcontractor who had provided quotes for services under the contract, the defendant’s bid stated that “No contracts have been made at this time.” The court affirmed the decision below.

N.Y.

—An excellent decision: Weiss v. Macy’s Retail Holdings Inc., 265 F. Supp. 3d 358 (S.D.N.Y. 2017). Weiss brought this action under the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101, et seq, against his employer, Macy’s. The court denied Macy’s motion to compel arbitration. Macy’s had previously instituted a voluntary arbitration program for its employees, including Weiss, and mailed them an election form allowing them to decline to arbitrate disputes if they checked a box declining to participate in arbitrate, signed the form, and mailed it back to Macy’s. The election form asked the recipient to “agree that I am waiving the ability to participate in” what the form benignly described as the “benefits of arbitration.” The court held that Weiss’s silence did not amount to an acceptance. No previous course of dealings between the parties suggested that Weiss’s silence should operate as an acceptance. Nor did Weiss take the benefit of services offered with an opportunity to reject them and with “reason to know that they were offered with the expectation of compensation.” The court also noted that “silence may operate as acceptance where ‘the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.’ ” (Quoting Restatement (Second) of Contracts § 69 (Am. Law Inst. 1981)). Under this exception, silence is an acceptance where it misleads the offeror into believing it is an acceptance. This exception has no application here where Weiss did not intend to mislead, and he has a privilege to remain silent. The court noted that “[t]his case is … distinguishable from other cases in which an employer issues a new employee handbook or set of employee guidelines, and the employee consents to the terms contained therein by continuing his employment” because, here, Macy’s gave the employees a choice as to whether they wanted to agree to arbitration. But Macy’s cannot unilaterally transform Weiss’s silence into an acceptance.

Restatement (Second) of Contracts § 69 ill. 2 (Am. Law Inst. 1981).

Weiss v. Macy’s Retail Holdings, Inc., 741 Fed. Appx. 24 (2d Cir. 2018). The Second Circuit disagreed with the district court’s holding. It held that “Weiss was an at-will employee, and, under New York law, notifying an at-will employee of a change and informing him that the change applies to him suffices to change the conditions of employment.” The court held that its holding in Manigault v. Macy’s East, LLC, 318 Fed. App’x 6, 8 (2d Cir. 2009) was dispositive. There, the court wrote: “An employee may consent to a modification to the terms of employment by continuing to work after receiving notice of the modification.” The court departed from the district court’s analysis and held that in the employment setting, continuing to work after receiving the notification of the right to opt out of arbitration (and not opting out) is not legally inoperative silence but suffices as a manifestation of acceptance. The only dispute was over whether the plaintiff received the notice to opt out of arbitration. He did not merely deny receipt but offered evidence detailing how, due to his learning disability, his brother ensured he was alerted to and understood important mail. Here, neither plaintiff nor his brother recall seeing his notice. The court held: “Because Weiss cannot be bound by an offer to agree to arbitrate that he did not receive, we conclude that a remand is appropriate to determine whether Weiss received the documents.”

Tenn.

—E & A Northeast Limited Partnership v. Music City Record Distributors, Inc., 2007 Tenn. App. LEXIS 145 (Tenn. Mar. 21, 2007) (citing § 3.19, 1993 ed.).

2 See §§ 3.18, 3.20, and 3.21.

3 In Myers v. MBNA America & N. American Capitol Corp., 2001 U.S. Dist. LEXIS 11900 (D. Mont. Mar. 28, 2001), the plaintiff, a credit card holder with the defendant bank, filed a declaratory judgment action seeking a declaration that she did not owe the defendant any money for charges accumulated on unsolicited checks that MBNA sent her. The defendant brought a petition to stay the proceedings and to compel arbitration. Relying upon the arbitration clause of the credit card agreement, the defendant argued that the plaintiff was required to submit her claim to arbitration. Defendant proposed the arbitration provision as a change in the terms of the parties’ relationship—the change would be effective unless rejected by the card holder. Specifically, the plaintiff was required to submit her rejection of the arbitration clause in writing to the defendant bank on or before a particular date. The defendant argued that the plaintiff’s failure to provide written rejection of the clause constituted acceptance of the arbitration clause. The district court disagreed, however, holding that the defendant had no power to cause the plaintiff cardholder’s silence to operate as an acceptance of the arbitration clause. Citing § 3.18, 1993 ed., the court held that “[t]he offeror cannot force the offeree to take pen in hand, to use a postage stamp, or to speak, under penalty of being bound by a contract by not expressing a rejection.” Since there was no indication that the parties had agreed to arbitrate their dispute, the clause was invalid and the defendant’s motion to compel arbitration was denied.

In Western Concrete Structures Co. v. James I. Barnes Constr. Co., 206 Cal. App. 2d 1, 23 Cal. Rptr. 506, 513 (1962), Western submitted a bid on concrete work to Barnes the principal contractor for a State building. On the back of this bid made on a printed form was a provision in fine print: “Listing the Seller [Western] in the contractor’s bid … constitutes an acceptance of this proposal.” On Western’s proposal appeared “ACCEPTED for ________ by ________.” Barnes did not add its signature and was not aware of the fine print on the back. Barnes listed Western, as subcontractor, in its bid to the State, and its bid was accepted by the State. Barnes submitted a subcontract to Western, varying the terms of its proposal, to which Western refused assent. With the assent of the State, Barnes substituted a different subcontractor. The court held that the fine print provision was ineffective, and that Barnes’ listing of Western was not operative as an acceptance. In this case, the plaintiff suggested an alternative mode of acceptance by Barnes, but he did not effectively communicate it to Barnes. Barnes performed the suggested act (by which a bilateral contract might have been consummated), but he had no sufficient reason to know that it had been suggested. Even if he had been aware of the provision in fine print, it is not certain that under all circumstances the listing would operate as an acceptance.

Compare this scenario with the “battle of the forms” for the sale of goods. See § 3.37.

But in Giles v. GE Money Bank, 2011 U.S. Dist. LEXIS 111018 (D. Nev. Sept. 27, 2011), Giles applied for three credit cards issued by GE Money while making in-store purchases at different establishments and signed credit card applications that informed him that the credit card agreements would include an arbitration provision that may limit his rights unless he rejected that provision under the agreement’s instructions. Giles received his cards in the mail along with a packet of materials, including the terms governing his relationship with GE Money. The terms of each agreement explained that the parties were required to arbitrate any dispute. They also explained that Giles would have no right to participate in a class action, either in court or before the arbitral forum. The agreements also informed Giles he had 60 days to inform GE Money he did not want to agree to the arbitration provisions. The agreement was amended twice, and each time Giles was granted an additional 60 days to opt-out. Giles never exercised this right. Giles initiated suit in the instant court, and GE Money moved to dismiss or stay pending arbitration. Giles contended that the arbitration clauses are invalid because he never consented to them. The court cited this treatise (§ 3.19, 1993 ed.) for the proposition that silence can constitute acceptance when “the conduct of the party denying a contract has been such as to lead the other reasonably to believe that silence, without communication, would be sufficient” to create a contract. Here, there was no dispute that the credit card applications stated that the credit card agreement would contain an arbitration provision; that Giles received the credit card agreements in the mail and failed to opt-out of the arbitration provision; and that Giles activated and used the cards. In this case, Giles’s silence regarding the arbitration clause and his use of the credit cards is sufficient to constitute an acceptance of the credit cards on the terms offered, including the arbitration provision.

N.H.

—Prescott v. Jones, 69 N.H. 305, 41 A. 352 (1898).

Eng.

—Felthouse v. Bindley, 11 C.B.N.S. 868 (1862).

In Favrot v. Pertuit, 144 So. 2d 477 (La. App. 1962), a lease provided that, if the lessor served a notice of increase of the rent 90 days prior to termination, the lessee’s failure to give notice of rejection 60 days before termination should operate as a renewal of the lease for a second year at the increased rent. The lessor gave notice of increase as provided and the lessee gave no return notice. The court held that the lessee was bound for the second year. Observe that the lessee’s silence was not the acceptance of an offer to renew. The written lease bound the lessee for a second year at an increased rent on two conditions, notice by the lessor and failure of notice by the lessee. These conditions were fulfilled. If the lessor’s notice is regarded as an offer of a renewal, the lessee had agreed in advance that his silence should operate as an acceptance.

5 The American Law Institute has adopted this rule. See Restatement (Second) of Contracts, § 69(1)(b) (Am. Law Inst. 1981). “Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: … . (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.” The first Restatement had the same formulation in § 72(1)(b).

UFP Ventures II, Inc. v. Viking Polymers, LLC, 2014 U.S. Dist. LEXIS 162168 (W.D. Wis. Nov. 18, 2014). UFP purchased high-density polyethylene from Viking between 2009 and 2011 and used it to manufacture wood and plastic composite boards for constructing decks. In 2010, UFP began to receive complaints from customers that the deck boards made with Viking’s polyethylene had formed a haze on the surface, giving the boards a cloudy appearance. In 2013, UFP filed suit against Viking, and Viking moved for summary judgment. Viking sought to limit UFP’s remedies to repair or a refund as provided in Viking’s terms and conditions. Viking claimed it sent its standard terms and conditions to UFP with each order (a contested material fact) and that UFP failed to object to them. Among other reasons for denying Viking’s motion for summary judgment was that Viking was unable to show that UFP accepted the terms and conditions. The terms and conditions stated that failure to object to them within 10 days after receipt constitutes agreement with them, but the court held that this, in itself, was insufficient to show that UFP accepted them. Under Wisconsin law, the court noted, silence generally does not constitute acceptance of a contract. While the Restatement (Second) of Contracts does provide an exception to the general rule where the terms themselves state that silence constitutes acceptance (Restatement (Second) of Contracts § 69), Viking failed to cite any authority demonstrating that Wisconsin has adopted this exception. The court did not explain it, but the exception referenced from the Restatement (Second) actually states: “Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.” The exception would only apply if the offeree intends to accept the offer—a rare instance where contract law credits the intentions of a party as opposed to outward manifestations of assent. But, in any event, the court could not conclude, as a matter of law, that UFP accepted the terms and conditions, and Viking’s motion for summary judgment was denied.

6 In Wood & Brooks Co. v. D.E. Hewitt Lumber Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921), the plaintiff ordered 500,000 feet of lumber, stating terms and saying “If you cannot deliver as ordered please advise us immediately.” Without notification of acceptance, the defendant shipped 160,000 feet within the time specified and requested inspection. His silence, plus these and other circumstances, justified the jury in finding an implied promise to fill the order.

7 Restatement (Second) of Contracts § 69 cmt. c (Am. Law Inst. 1981).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.20 »

1 Corbin on Contracts § 3.20 (2020)

§ 3.20. Belated or Conditional Acceptance Followed by Offeror’s Silence

In some cases it has been held that if one who has received an offer makes a counter-offer, the mere silence of the original offeror is not operative as an acceptance of the counter-offer.1 A similar problem is raised by a late acceptance; and the authorities are not entirely in harmony. If a definite time is fixed for acceptance, the offeree knows when a purported acceptance is later than the time specified and whether the power of acceptance has expired. In such a case, there seems to be no reason to give to a belated attempt any effect other than that of a counter-offer.2 But where no time was specified and the time limit is merely that indefinite period called a “reasonable time,”3 it is suggested that, if the offeree believed that the power of acceptance was being exercised before the power ceased, and the offeror had reason to know that fact, the silence of the offeror should complete a contract.4 This is not because silence in such case is an acceptance of a counter-offer, but because the offeror has reason to know that the offeree thinks there is a contract and is likely to act in reliance on it, and it is easy for the offeror to warn the offeree that there is no contract. Although, as thus stated, the rule operates to protect the offeree, it also protects an offeror who may rely on the late acceptance.5

A case that might be thought analogous may here be distinguished. If an offer is couched in such terms that it may reasonably be understood in either of two ways the offeree may, perhaps, be able to hold the offeror in accordance with the meaning that he or she gives it in good faith. At all events, it has been said that, if the offeree writes to the offeror showing that the offeree has given the offer one meaning rather than the other, the offeror is bound accordingly by the acceptance that follows if the offeror does not at once give notice that such was not the meaning intended.6 In this case it may well be that the offeror would be bound hard and fast even if no inquiry had been made as to the meaning the offeror intended. But if the offer was not in fact ambiguous, the offeror’s silence should not be held to be an operative acceptance of the counter-offer adopting an unreasonable meaning.

In Krause v. Buttino,7 the defendant was tenant of a farm under a lease ending on February 28, at a rental of $1,200. The owner insisted on an increased rental for a renewal, and with a letter to that effect enclosed a new lease at $1,500. On February 6, the tenant returned the lease properly signed, but with the $1,500 stricken out and $1,200 substituted. He wrote that this was the best he could do, enclosed his check for $1,200, and asked for a reply “yes or no.” The owner made no reply until March 12 (12 days after expiration of the lease), when he returned the lease and the check. The court held that this showed no acceptance of the tenant’s counter-offer, and also that it did not operate as an acquiescence in the tenant’s holding over under the old lease. The tenant had not objected to the return of the check.

Some cases have stated that the offeror can “waive” a late acceptance.8 In some such cases, the court did not focus on the analytic distinction between waiver and acceptance of a counter-offer. However, in Sabo v. Fasano,9 the court stated that a “waiver” rationale was sounder, because, quoting the Restatement (Second), a counter-offer “proposes ‘a substituted bargain differing from that proposed by the original offer.’ ”10 By this definition, which appears to be too restrictive, the late acceptance can be viewed as a new offer rather than as a counter-offer. The court argues that because contract terms can be waived, so can the deadline for acceptance of an offer. The distinction between a contract and an offer is lost in the court’s analysis.11

Footnotes — § 3.20:

U.S.

—Columbia Malting Co. v. Clausen-Flanagan Corp., 3 F.2d 547 (2d Cir. 1924); Carolina Cas. Ins. Co. v. Travelers Prop. Cas. Co., 2015 U.S. Dist. LEXIS 22674 (D.N.J. Feb.25, 2015); Bybee Farms LLC v. Snake River Sugar Co., 2008 U.S. Dist. LEXIS 74537 (E.D. Wash. Sept. 29, 2008); Ladau v. The Hillier Group, Inc., 2004 U.S. Dist. LEXIS 5339 (S.D.N.Y. Mar. 31, 2004).

Ky.

—Cincinnati Equipment Co. v. Big Muddy River Consol. Coal Co., 158 Ky. 247, 164 S.W. 794 (1914) (unless expressly so agreed).

In Anders v. Georgetown College, Inc., 286 S.W.2d 78 (Ky. 1955), the plaintiff, a college teacher, demanded a salary raise to $4,000. The college replied, offering $3,800. He made no reply to this offer, although he did not reject it. This was held not to constitute a contract of employment. His silence did not operate as acceptance.

Me.

—Jenness v. Mt. Hope Iron Co., 53 Me. 20 (1864). The court wrote: “It is highly probable that when the defendants received the plaintiff’s order of October 27, they intended to fill it; otherwise they should have notified him and not by their silence left him to infer that the nails would be forwarded, when they had no intention of doing it. And if such an intention would be sufficient to complete the contract, and render it binding upon the parties, we might, perhaps, feel justified in inferring it from the defendant’s silence, and other facts testified to by the plaintiff. But we are not satisfied that such an intention, locked up in the *** of a party, and not communicated to the other, is sufficient in any case to constitute such an acceptance of a proposition as to create a binding contract. We think it would not.” If the plaintiff reasonably made such inference and the defendant should have known that he would make it, the court ought to hold that a contract was made.

Mich.

—Bowen v. McCarthy, 85 Mich. 26, 48 N.W. 155 (1891).

Mo.

—Pride v. Lewis, 179 S.W.3d 375 (Mo. App. 2005).

N.J.

—Perlman v. Lee, 2014 N.J. Super. Unpub. LEXIS 2383 (Oct. 2, 2014).

N.D.

—Ehlen v. Melvin, 2012 ND 246, 823 N.W.2d 780 (2012).

Pa.

—Blaisdell Filtration Co. v. Bayard & Co., 311 Pa. 6, 166 A. 234 (1933).

Wis.

—Todorovich v. Kinnickinnic M.L. & Bldg. Ass’n, 238 Wis. 39, 298 N.W. 226, 135 A.L.R. 818 (1941).

In 30 L.Q.R. 4, Sir Frederick Pollock says: “It seems clear that the belated acceptance, however little belated, concluded nothing, and what passed later is only evidence of a new agreement on the same terms.” The American Law Institute agrees with this. See Restatement, Contracts § 73. Restatement (Second) of Contracts § 70 (Am. Law Inst. 1981) reads as follows: “A late or otherwise defective acceptance may be effective as an offer to the original offeror, but his silence operates as an acceptance in such a case only as stated in § 69.” The pertinent provision of § 69 is subd. 1(b) which mandates that silence is acceptance “[w]here because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.” (Emphasis supplied).

2 “Eco Canteen did not accept the terms of IBWA’s offer within the time fixed for acceptance. … IBWA’s offer to continue the NAD proceeding was a time-limited offer that expired on July 1, 2009. When Eco Canteen attempted to accept the offer on July 2, 2009, this became a counteroffer by Eco Canteen … .” Int’l Bottled Water Ass’n v. Eco Canteen, Inc., 2009 U.S. Dist. LEXIS 125565, *14 (W.D.N.D. Oct. 20, 2009) (citing § 3.20 of this treatise).

U.S.

—Kurio v. United States, 429 F. Supp. 42 (S.D. Tex.1970).

Depack v. United States, 2008 U.S. Dist. LEXIS 8524 (D.N.J. Feb. 5, 2008). Depack entered into a plea agreement with the government, pleading guilty to four criminal counts. Shortly thereafter, he filed a motion to withdraw his guilty plea. Depack claimed the plea agreement was invalid because he signed the agreement ten days after its stated expiration date. Depack argued that his counsel should have discovered this defect and moved to withdraw the plea on the ground that the plea agreement was a nullity and not binding on Depack. The court found no merit in Depack’s ineffective assistance claim because Depack’s counsel had no legal basis to challenge the validity of the plea agreement. A plea agreement is analyzed under the standards of contract law. Citing this treatise (§ 74, 1963 ed.), the court stated that “one standard of contract law is that an untimely attempt to accept [an offer] normally constitutes a counteroffer which would shift the power of acceptance to the original offeror.” Thus, when Depack signed the plea agreement after the stated expiration date, his untimely attempt to accept constituted a counteroffer, which the government clearly accepted.

Ark.

—In Childs v. Adams, 322 Ark. 424, 909 S.W.2d 641 (Ark. 1995), a real estate purchase contract called for the offeree to accept it by signing and delivering the document by noon on a specified date. The offeree testified at trial that he signed the contract after that hour. The offer had therefore terminated and the signing and delivery of the contract amounted to a counteroffer. That counteroffer was accepted by the original offeror’s subsequent objective manifestations of assent: visiting the property with his contractor to discuss renovations, receiving a key to the property during the offeree’s absence, purchasing additional household furnishings, and selling securities to fund the purchase price.

Fla.

—In Kuehlman v. Bank of Am., N.A., 177 So. 3d 1282 (Fla. App. 2015), lender offered borrower a modification of his loan, and the terms of the offer required the borrower to accept it by a certain day. Although borrower executed the agreement, he returned the agreement and the first modified payment late. Borrower then made six additional payments in the modified amount, all of which were late, but all of which lender accepted and deposited. At that point, lender’s “investor” (Fannie Mae or Freddie Mac) instructed lender to not accept the modification. Nevertheless, the lender proceeded to accept two additional modified payments—bringing the total of late payments accepted by the lender to nine, and only then did lender accelerate the mortgage and give borrower an opportunity to cure based on the original, not the modified, mortgage. The lender sued, alleging breach of the original note and mortgage, and the lower court entered a final judgment of foreclosure in favor of the lender. The appellate court reversed, holding that even though borrower’s late acceptance of the modification did not meet the terms of the original offer, it operated as a counteroffer. The court held: “Lender accepted the counteroffer by a combination of its many months of silence and its acceptance of nine monthly payments in the amount specified in the modification agreement.”

Ga.

—In W.B. Leedy & Co. v. Shirley, 97 Ga. App. 801, 104 S.E.2d 580 (1958), an offer specified a time limit for acceptance. An acceptance after that date, with performance actually begun by the parties, operated to consummate a contract in accordance with the other terms of the offer.

Ill.

—In the case of Maclay v. Harvey, 90 Ill. 525, 530 (1878), where the plaintiff mailed her acceptance two days later than by return mail as requested, the court said: “Appellant seeks to recover upon the strict letter of a special contract, and it is, therefore, incumbent on her to prove such contract. It is required of her, as we have seen, to prove an acceptance of appellee’s offer within the time to which it was limited—that is to say, by the placing in the post-office of an answer unequivocally accepting the offer in time for the return mail, which she did not do. Appellee was, thereafter, under no obligation to regard the contract as closed. He might, it is true, have done so, but he was not legally bound in that respect, nor was he legally bound to notify appellant that her acceptance had not been signified within the time to which his offer was limited. She is legally chargeable with knowledge that her acceptance was not in time, and in order to fix a liability thereby upon appellee, it was incumbent upon her, before assuming that appellee waived this objection, to ascertain that he in fact did so.” In accord is Ferrier v. Storer, 63 Iowa 484, 19 N.W. 288 (1884).

Kan

—Of course the offeror has power to consummate the contract by affirmative actions or expression of assent. Kansas City v. Industrial Gas Co., 138 Kan. 755, 28 P.2d 968 (1934).

3 On the question of what is a reasonable time, Restatement (Second) § 70 cmt. b (Am. Law Inst. 1981) states that “the failure of the original offeror to object to an acceptance and his subsequent preparations for performance may be evidence that the acceptance was made within a reasonable time.”

Me.

—Phillips v. Moor, 71 Me. 78 (1880).

In Milliken-Tomlinson Co. v. American Sugar Refining Co., 9 F.2d 809 (1st Cir.1925), reh’g denied, 10 F.2d 973, eight acceptances of plaintiff’s offers to buy were allegedly dispatched too late. The offeror-buyer took and paid for deliveries under five of the eight orders, without protest, but refused to take deliveries under three of them. It was held that the defendant-buyer’s conduct constituted a waiver of the lateness of the acceptances.

5 George Tomlinson & Son Co. v. Lennon, 46 R.I. 148, 125 A. 266 (1924).

6 In the case of Dickey v. Hurd, 33 F.2d 415 (1st Cir.1929), cert. denied, 280 U.S. 601, an offer was made as follows: “My deeds call for 1266 acres, and I will sell the same to you for $15 per acre cash and give you till July 18 to accept this offer.” The offeree understood this to mean that he might accept it by sending a notice of acceptance, thus making a bilateral contract, and not that the acceptance must consist of the payment of the purchase price by July 18, making a unilateral contract. The offer was accepted by telegram on July 17. Five days later the offeror notified the offeree that the terms of the offer had not been complied with. Several days prior to the acceptance the offeree had written to the offeror clearly indicating that he understood the offer to mean that acceptance by July 18 was to be by giving notice, and not by making a payment in cash. The court said that the terms of the offer were equivocal, and that there would have been a valid bilateral contract but for the fact that the acceptance was not unconditional. The court said: “When Mr. Hurd received these communications, he was fully apprised of how Mr. Dickey understood the language of his offer; and if that was not the meaning which he intended to give it, it was his duty to have at once informed him that the offer called for payment of the price on or before the 18th of July, and not merely for a notice of acceptance. It was not open to him to lie quietly by until after the time for acceptance had expired and then say, ‘my offer calls for payment of the price on or before July 18, and you have not met the requirements.’ ”

In Allen v. Wolf River Lumber Co., 169 Wis. 253, 172 N.W. 158, 9 A.L.R. 271 (1919), the proposal was uncertain as to the amount of goods to be sold, but the buyer made it clear that he understood the amount to be “1000 cords,” the seller was bound to that amount when he said nothing to the contrary.

The Restatement (Second) of Contracts § 70 cmt. a (Am. Law Inst. 1981), states: “But the original offeror may have a duty to speak, for example, if the purported acceptance embodies a plausible but erroneous reading of the original offer.” This may apply if the reading is erroneous as to what constitutes a reasonable time.

See Church v. Bobbs-Merril Co., 170 F. Supp. 32 (S.D. Ind. 1959), aff’d, 272 F.2d 212 (7th Cir.).

7 Krause v. Buttino, 4 Ill. App. 2d 75, 123 N.E.2d 337 (1954).

8 In George Tomlinson & Son Co. v. Lennon, 46 R.I. 148, 125 A. 266 (1924), the seller by telegram offered to sell two carloads of flour. The buyer had until the close of business the next day to accept but dispatched an acceptance a day late and the seller booked the order. The buyer argued that there was no contract formed by this exchange. The court, applying notions of estoppel, said, “The failure of the defendant to telegraph before the end of the next market day would doubtless have justified the plaintiff in refusing to book the two cars of flour, but the plaintiff could, if he saw fit, waive the delay on the part of the defendant … . We do not think the defendant can take advantage of his own delay and thus avoid the contract … .” 46 R.I. at 151, 125 A. at 267.

9 Sabo v. Fasano, 154 Cal. App. 3d 502, 201 Cal. Rptr. 270 (1984).

10 The quoted language is from Restatement (Second) of Contracts § 39(1) (Am. Law Inst. 1981).

11 In Blackburne & Brown Mortgage Co., Inc. v. Karam, 2004 Cal. App. Unpub. LEXIS 10170 (Nov. 8, 2004), the court continued the flawed analysis of Sabo by insisting that where there is a belated acceptance, the original offeror may “waive” the lateness and treat it as an acceptance. As indicated in the text, where an offer requires acceptance by a stated date, it is difficult to view any purported acceptance after that date as anything other than a counter-offer that the original offeror may choose to accept or reject. See Jeffrey Kavin, Inc. v. Frye, 204 Cal. App. 4th 35, 138 Cal. Rptr. 3d 479 (2012) (citing Sabo v. Fasano with approval).

But see Ellefson v. Megadeth, Inc., 2005 U.S. Dist. LEXIS 545 (S.D.N.Y. Jan. 13, 2005). Plaintiff claimed that he had been defrauded by defendant out of his share of corporation profits. The parties negotiated a settlement agreement. Defendant insisted on a settlement agreement no later than 5 P.M. (PST) on Friday, May 14, 2004. Lawyers for the parties proceeded in earnest to facilitate a final agreement by that deadline. At 4:45 P.M. on May 14, the defendant’s lawyer e-mailed a final executed copy of the agreement to the plaintiff’s lawyer. Plainitff faxed the signature page defendant’s lawyer but there was a dispute over whether the fax was sent prior to the 5 P.M. deadline. On May 20, the defendant’s lawyer mailed executed copies of the agreement to all parties. On May 24, the defendant’s lawyer received an e-mail from the plaintiff’s lawyer stating that plaintiff “withdraws from these negotiations.” The defendant’s lawyer replied that he was confused since “there is a signed agreement in place.” Plaintiff brought this action for fraud and other claims. The defendant answered that a final settlement of all of plaintiff’s claims had been reached. The court viewed plaintiff’s fax on May 14 as a late acceptance—a counter-offer. It could not be an acceptance because there is no offer to accept. But the counter-offer was accepted by the defendant’s lawyer’s mailing of the completed contract on May 20—a clear manifestation of the defendant’s intention to assent to the counter-offer. The contract was formed at that time, and plaintiff’s subsequent attempt to withdraw the offer on May 24 was ineffective. The court enforced the settlement agreement.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.21 »

1 Corbin on Contracts § 3.21 (2020)

§ 3.21. Silence Plus Additional Circumstances

There are many cases in which, because of the past relations of the parties or of accompanying circumstances, the silence of the offeree after receipt of an offer has been held to constitute acceptance and to create a contract. These are all cases in which the conduct of the party denying a contract has been such as to lead the other reasonably to believe that silence, without communication, would be sufficient. Usually it has been the offeror who asserts that the offeree has accepted by silence and who is suing the offeree for breach,1 but the question may arise with the parties reversed, the offeree asserting a justified belief that silence would be a sufficient acceptance. Thus, if the offer states, for example, that the offeror is so certain that the offeree will accept that the offeree’s silence will be taken as acceptance, there are at least two possible reactions by the offeree. The offeree may regard the offer as sheer impudence and remain disdainfully silent, refusing to reply, having no intent to accept. On the other hand the offeree may be pleased to accept, and refrain from communicating this intent to accept because of a feeling of security engendered by the terms of the offer. In the first instance, no contract exists under the rules stated in §§ 3.18 and 3.19. In the second instance a contract is formed because the offeror has made it reasonable for the offeree to accept silently.2

One who sees a party wall being built by a neighbor on their common boundary line, knowing that the neighbor expects to be reimbursed one half the cost, and makes use of the wall, is bound to pay therefor, even though mere silence might not be sufficient evidence of a promise to pay.3 It is clear that a party will not be permitted to receive and enjoy benefits, knowing that they are being offered at a price, without paying for them, if there was an opportunity to reject them without any expense or material inconvenience when they were offered. Silence may here consummate acceptance because the facts fairly call upon the receiver of such benefits to speak or to pay. For example, frequently services are rendered under circumstances such that the party benefitted knows the terms on which they are being offered. If this party receives the benefit of the services in silence, when there was a reasonable opportunity to reject them, this party is manifesting assent to the terms proposed and thus accepts the offer.4

There are other circumstances where it is reasonable that the offeree should notify the offeror of a lack of intent to accept. If the parties agree in advance that silence shall constitute acceptance, their agreement will be given effect.5 A course of dealing between the parties may make the need of such a communication reasonable.

Thus, where a party ships goods to another at the latter’s standing request, the receipt and retention of the goods without any notice of refusal to accept them have been held to sustain a verdict that there was an acceptance and a promise to pay.6

It is the custom of insurance agents to send to an insured a renewal policy, with bill for the premium, shortly before the expiration of the insured’s existing policy. The course of dealing between the agent and the customer may be such as to justify this procedure and as to cause the latter’s silence and failure to return the new policy to operate as an acceptance of the offer of renewal.7 A different result is reached if there was no such previous course of dealing,8 or if the new policy that is sent is different from the existing one as to the extent of coverage, the amount of premium, or in other material respects.9

A company may send out a traveling sales representative to solicit orders, without power to contract, expressly providing that all orders are subject to acceptance at the home office. In such cases, it seems reasonable for the party whose order was solicited to expect word from the soliciting company within a reasonable time if the order is not accepted. There are well-considered cases holding that acceptance may be inferred from silence,10 especially when supported by the previous custom of the parties or a general trade usage.11 Other cases have held that the circumstances were not such as to justify an inference of assent to the order.12

Where an application has been made for an insurance policy, accompanied by the premium, it has been held or intimated that unreasonable delay in considering the application may operate as an acceptance,13 or constitute a tort of negligence.14 The general rule, however, seems to be that such delay is in itself no acceptance.15 In life insurance there are considerations of policy that have affected court action and that may not be applicable in other contract cases. There must be hesitation in generalizing from cases in the insurance field alone.

It sometimes happens that unordered goods or unsolicited instruments (such as checks tendered in settlement of a disputed bill) are shipped on terms offered by the owner of the goods or maker of the instrument. The offeree then exercises dominion over the goods or the instrument in a manner inconsistent with the ownership rights of the offeror. If the offeree contends that the offer has not been accepted, what is the relationship of the parties? At common law, the offeree might have been a tortfeasor, having converted the goods without intending to accept the offer. By ancient notions of estoppel, at the option of the offeror, the offeree will be estopped from characterizing the conduct as tortious.16 This ancient rule is continued both by the Restatement (Second) of Contracts § 69 (Am. Law Inst. 1981)17 and Section 2-606 of the Uniform Commercial Code.18 Thus, in one case a storekeeper was in possession of a display stand under an equipment lease and the lease was properly terminated by the lessor. When terminating, the lessor gave the storekeeper the option to purchase the display stand or to return it. The lessee failed to reply to this offer or to a follow-up letter. A motion by the lessee for summary judgment was denied on the grounds that if the lessee continued to exercise dominion over the object, the offer would be deemed accepted.19 While most of the cases involve goods or other personal property,20 the same result can obtain in cases where an offeree of rights to real property claims to be a trespasser rather than a contracting party.21

Where a periodical is sent by mail under circumstances such that the addressee knows that it is being offered at the subscription price, at common law, the receipt and reading of the periodical have been held to be an acceptance.22 As one court said: “In this case defendant admits that, notwithstanding he ordered the paper discontinued at the time when he paid a bill for it, yet plaintiff continued to send it, and he continued to take it from the post office to his home. This was an acceptance and use of the property, and, there being no pretense that a gratuity was intended, an obligation arose to pay for it.”23 Although this line of logic is consistent with the ancient tradition of estoppel, it has seemed particularly outrageous, where the goods are sent as a deliberate selling tactic thus unfairly exploiting the purposes for which the rule was originally created. Legislation has been enacted in an effort to curtail such abuses.24 Outside of this abusive area, the ancient rule continues unmodified.25

The same rule applies to offers written on checks or on cover letters accompanying checks that seek to achieve a release or an accord and satisfaction. The cashing or depositing of the check is an exercise of dominion over the offeror’s funds, and regardless of the intention, the offeree is estopped from denying that the offer was accepted.26 The same result applies where the offeree merely retains a cashier’s check for longer than a reasonable time.27 Whether the offeree can avoid this result by indicating that the cashing or depositing is under protest is a matter of controversy.28

Where two parties have made a contract, the terms of which are clear and definite, and later one sends to the other a formal written instrument for execution that contains terms varying from those of the contract previously made, the mere retention of the instrument in silence has been held not to be operative as an acceptance. No estoppel arises merely from continuing performance as the contract requires and receiving the compensation prescribed therein.29

As discussed earlier, conduct can be a form of communication. An offeree whose conduct indicates assent to the offer, creates a contract. It is neither silence nor conduct alone that creates the acceptance. It is the fact that the conduct, intentionally or carelessly, expressly or impliedly communicates to the offeror that the offeree intends to accept.30

A prior edition of this treatise, under this section, contained the following language: “[W]here goods are shipped on different terms from those proposed by the buyer, the acceptance and user of the goods without notice of dissent is an acceptance of the terms of the seller’s counter-offer.”31 By virtue of Uniform Commercial Code § 2-207, this no longer represents the law. This provision is discussed in § 3.37.

In modern commerce, manufacturers often seek to limit the default rights of consumers of mass-produced products by including contractual provisions in-the-box that contains the product. Disputes in these cases are often over whether a consumer is bound to an arbitration provision, but it need not be an arbitration provision, it mig. “In-the-box” contracting means that the consumer will only see the actual contractual provisions after the sales transaction has been completed and he or she opens the box. The law’s reaction to such “terms later” contracting, which has been mixed, is explored in §§ 3.37 and 2.12 of this treatise.32 In some states, courts will allow the consumer to be bound by such provisions if they fail to take action as required by the manufacturer—that is, by doing nothing. This is a view spearheaded by the Seventh Circuit,33 but followed by other states.

However, there is an emerging trend, led by decisions of the Ninth and Third Circuits, that the consumer will only be bound by such provisions if they are put on inquiry notice of them and are afforded a reasonable opportunity to opt out of the obligation.34 One court explained that the Seventh Circuit’s take on “in-the-box” contracting is “perhaps outdated”35 because it does not take into account whether the consumer was on inquiry notice of the terms. “[Hill v. Gateway 2000] does not devote much time to the question of the prominence of the arbitration language. More recent cases focus not on whether consumers had read waiver language, but on whether they received reasonable notice of the existence of the language. Purchasers may be bound by what they have not read, but they may not be bound by what they cannot find, or what has been (negligently or by connivance) buried in the verbal underbrush.”36 Both the Third and Ninth Circuits have suggested rationales for “in-the-box” contracting that are intended to provide greater protections for consumers by insuring that they have “inquiry notice” of “in-the-box” terms—and acceptance is not inferred on the basis of silence.

(A) The following case is noteworthy:

(1) Page v. Alliant Credit Union, 2020 U.S. Dist. LEXIS 86613 (N.D. Ill. May 18, 2020). Plaintiffs filed a putative class action in connection with defendants’ practice of charging overdraft fees even though members’ banking accounts have sufficient funds to cover certain transactions. Defendant Alliant is a non-profit credit union, and when plaintiffs joined Alliant, they agreed to the terms of Alliant’s membership agreement. The membership agreements allowed for electronic notice of amendments. After the agreements were entered into, Alliant sent plaintiffs emails in late July 2019 that contained hyperlinks to amendments to the membership agreement. Those amendments included a mandatory arbitration provision that would be applicable if the plaintiffs did not opt out as spelled out in the amendment. Plaintiffs did not opt out. Nevertheless, plaintiffs filed this action, and Alliant moved to compel arbitration. Plaintiffs claimed that they did not read the July 2019 emails or the hyperlinked terms of the amendment, but the court rejected this argument, noting that plaintiffs had a duty to read. The court explained that the opt-out provision was conspicuous and unambiguous, and that “silence can constitute acceptance based on the parties’ previous dealings, such as here where the parties have an ongoing contractual relationship.” The plaintiffs’ ongoing banking relationship with Alliant distinguished this case from one where a party sends an email despite the absence of a relationship with the recipient. The court granted the motion.

Footnotes — § 3.21:

1 Such a case is Wood & Brooks Co. v. D.E. Hewitt Lumber Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921). The plaintiff ordered 500,000 feet of lumber on stated terms, saying: “If you cannot deliver as ordered please advise us immediately.” The defendant did not reply, but several months later within the specified time, shipped 160,000 feet and requested inspection. Market prices rose, and there was much later correspondence. The jury was justified in finding an implied promise by the defendant to fill the order. Thus, a bilateral contract was made binding both parties. Doubtless, silence alone would have bound neither party.

In Ashland Oil & Ref. Co. v. Beal, 224 F.2d 731 (5th Cir. 1955), cert. denied, 350 U.S. 967, the parties jointly owned an oil and gas lease, Beal’s interest being one fourth. Ashland made a claim against Beal for one fourth of the drilling and operating costs. Beal asserted an agreement by Ashland that it would pay the whole cost, to be reimbursed only out of Beal’s share of the net proceeds of production. Ashland promised to reduce the terms of this agreement to writing but never did so. After some indecisive letters, Beal wrote a letter plainly stating the terms of the oral agreement as he believed them to be, and asked for a reply if Ashland differed thereon. Ashland made no reply for 10 months. The court held that Ashland was estopped to deny that the oral agreement was as stated by Beal in his letter. Although silence alone does not operate as assent, here Ashland, by reason of its earlier promise to reduce their agreement to writing, was under a “duty to reply” as Beal requested. Clearly, this “duty” is not a duty in the Hohfeldian sense; rather, the failure to reply can reasonably be understood as an acceptance.

In Hartung v. Billmeier, 243 Minn. 148, 66 N.W.2d 784 (1954), citing this treatise, the court held that where an employer promised orally to pay a hundred dollars a year bonus if “you boys stick with me for five years,” no answer by the employee was necessary. A unilateral contract was consummated by the employee’s merely continuing to work at his job and forbearing to exercise the privilege to quit. Note that the employer made a typical offer to a unilateral contract. A reply would not have created a contract.

In Autographic Register Co. v. Philip Hano Co., 198 F.2d 208 (1st Cir. 1952), the cashing of a check by the offeree, without any communication to the offeror, was held to be an operative acceptance and to be a promise to repay on a stated condition.

See also, Schnabel v. Trilegiant Corp., 2011 U.S. Dist. LEXIS 18132 (D. Conn. Feb. 24, 2011) (quoting § 3.21, 1993 ed.).

Voll v. HCL Techs., Ltd., 2019 U.S. Dist. LEXIS 5060 (N.D. Cal. 2019). Voll brought a putative class action against HCL for employment discrimination on the basis of race. HCL moved to compel arbitration pursuant to HCL’s arbitration agreement. Voll claims that he did not enter into an arbitration agreement. The evidence showed that HCL sent its employees, including Voll, the arbitration agreement via email, and both the email and the arbitration agreement clearly explained how an employee could opt out of arbitration. The evidence also showed that Voll did not opt out. Voll claimed that he “cannot recall receiving” the email and arbitration agreement and “cannot confirm” whether he received the email. The court explained that “an employer’s transmission of an arbitration agreement to an employee and the employee’s choice not to opt out create an arbitration agreement that binds the parties.” A court may infer assent by a failure to opt out of arbitration. There is no allegation to refute the fact that Voll assented, and further discovery would not change the facts. The court granted the motion to compel.

2 Restatement (Second) of Contracts § 69 (Am. Law Inst. 1981), provides that silence and inaction operate as an acceptance where “the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.” For further discussion, see § 3.19.

3 Day v. Caton, 119 Mass. 513 (1876). The court said: “A promise would not be implied from the fact that the plaintiff, with the defendant’s knowledge, built the wall and the defendant used it, but it might be implied from the conduct of the parties. If the jury find that the plaintiff undertook and completed the building of the wall with the expectation that the defendant would pay him for it, and the defendant had reason to know that the plaintiff was so acting with that expectation, and allowed him so to act without objection, then the jury might infer a promise on the part of the defendant to pay the plaintiff.”

The recurrence of party wall litigation led many jurisdictions to enact legislation governing such walls.

U.S.

—Laredo Nat. Bank v. Gordon, 61 F.2d 906 (5th Cir. 1932), cert. denied, 289 U.S. 726.

Nirvana International, Inc. v. ADT Sec. Servs., Inc., 525 Fed. App’x 12 (2d Cir. 2013). Nirvana argued that its signature on the first three pages of a six-page contract did not bind it to terms on page six that included a limitation of liability clause because it informed ADT’s representative that it would have to review the last three pages. Three weeks passed during which Nirvana claimed it determined such terms were not acceptable, but it never informed ADT of this determination. Rather, Nirvana permitted ADT to install a security system and proceeded to pay for monitoring services. The court held that Nirvana’s failure to object while receiving the benefits of the services manifested an implied agreement to the terms of page six that was sufficient to bind it to the limitation of liability provision. The court cited § 69(1) of the Restatement (Second) of Contracts, in holding that silence and inaction operate as an acceptance of such terms where an offeree takes the benefit of services with reasonable opportunity to object to them and knowledge that they were offered on certain terms.

McGurn v. Bell Microproducts, Inc., 284 F.3d 86 (1st Cir. 2002). After negotiations, the defendant sent a written offer to employ the plaintiff that stipulated the plaintiff would receive salary for six months and half of his commissions if he were to be terminated during the first twelve months of employment. The plaintiff was directed to sign the offer and return it to the defendant. The plaintiff crossed out the word “twelve” in the defendant’s offer and substituted “twenty-four.” The change appeared in the middle of the page which the plaintiff signed. The defendant did not respond to this change and the plaintiff worked thirteen months before he was terminated. The defendant refused to pay the plaintiff additional salary or commissions. The court held that the plaintiff had made a counter-offer and, while silence does not ordinarily constitute acceptance, where an offeree takes the benefit of offered services with a reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation, silence constitutes acceptance of an offer or counteroffer (Restatement (Second) Contracts, § 69(1)(a) (Am. Law Inst. 1981)). Over a dissent, however, the court refused to affirm the district court’s grant of summary judgment. Though the defendant acknowledged that an “unknown employee” had checked the returned offer, the court held that a fact finder would not be compelled to conclude that the employee had noticed the plaintiff’s alteration of the termination clause half-way up the page, i.e., the evidence was not so one-sided that the plaintiff must prevail as a matter of law. Neither was the court convinced that the defendant’s office of human resources to which the plaintiff was directed to return the signed acceptance of the offer should have noticed the counteroffer as a matter of law.

XYZ Corp. v. United States (In re Keeper of the Records), 348 F.3d 16 (1st Cir. 2003). On the basis of attorney-client privilege, the corporation refused to produce certain documents requested by the government pursuant to a subpoena duces tecum. The government claimed that the privilege had been waived. The corporation’s attorney had agreed to permit the government to listen to a recorded discussion between the corporation’s representatives and a third party. The corporation’s attorney had also written two letters to the government responding to concerns raised by the government at a meeting between the attorney and the government. In both instances, the attorney repeatedly insisted on the condition that the attorney-client privilege of any proffers was not waived. The district court ordered production of the documents and held the corporation in contempt when it failed to do so. The instant court reversed, holding that the government’s silence in accepting the proffers on the basis that the privilege would be retained constituted an acceptance of the attorney’s offer. The court relied on Restatement (Second) of Contracts, § 69(1)(a) (Am. Law Inst. 1981), in holding that silence can serve as acceptance of a condition when the offeree, despite a reasonable opportunity to reject the condition, takes the benefit of the offer without saying anything.

Boomer v. AT&T Corp., 309 F.3d 404 (7th Cir. 2002). Under the 1934 Federal Communications Act (Communications Act), long-distance carriers such as AT&T were required to set forth the terms and conditions of their service in tariffs filed with the Federal Communications Commission (FCC). Customers were bound by such tariffs even if they had never seen them. Pursuant to a 1996 amendment, the FCC permitted AT&T and other long-distance carriers to offer their services to customers in standardized forms instead of filing tariffs. AT&T sent standardized customer service agreements (CSAs) to its existing customers offering to continue its service at certain rates and under certain terms, including an arbitration provision. When Boomer brought a putative class action against AT&T alleging overcharges, AT&T sought to compel arbitration. Boomer claimed that if the CSA was an offer it was not accepted by his silence. The court held that the CSA created a power of acceptance in Boomer, who should have reasonably understood that his assent to the proposed bargain was invited and would conclude it (Restatement (Second) § 24). The CSA offer conspicuously stated that if he did not agree to the CSA terms, he should no longer use the services and cancel them. The court rejected Boomer’s claim that silence does not constitute acceptance since his continued use of the services was a manifestation of acceptance.

Concur-Texas, LP v. Duradril, LLC, 2016 U.S. Dist. LEXIS 60258 (D. Utah May 5, 2016) (offeree’s use of equipment with reasonable opportunity to reject and reason to know it was offered with the expectation of compensation binds offeree).

Carter vs. Firestone, 2006 U.S. Dist. LEXIS 27874 (E.D. Mo. April 28, 2006). Citing this treatise (§ 3.21, 1993 ed.), the court found that employee accepted an agreement to arbitrate. Acceptance of an offer need not be in words, especially where services are rendered under circumstances such that the benefitted party knows the terms on which they are being offered. If the benefit of the services is received in silence though there was a reasonable opportunity to reject them, the recipient manifests assent to the terms proposed and accepts the offer.

SmartText Corp. v. Interland, Inc., 296 F. Supp. 2d 1257 (D. Kan. 2003) (citing § 3.21, 1993 ed.).

The plaintiff’s services as an agent to procure contracts were rendered at the instigation of a third party acting without authority in Ballard v. Tingue Mills, Inc., 128 F. Supp. 683 (D. Conn.1954). The defendant was silent, but received the benefit of the service with knowledge that a commission was expected. Enforcement of the defendant’s implied promise was denied for reasons of illegality.

Conn.

—Kafi v. Moore, 2007 Conn. Super. LEXIS 2586 (Oct. 10, 2007). The defendant lived in the plaintiff’s apartment unit as a beneficiary of a state rental assistance program until she failed to be recertified. The plaintiff brought this failure to the attention of the defendant and notified her that she would be responsible for the rent if she remained in the apartment unit. The defendant was silent but proceeded to remain during July 2007 without paying the rent. The court cited § 69 of the Restatement (Second) of Contracts in concluding that the facts fell within one of the exceptions to the general rule that silence does not constitute acceptance of an offer—where the offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know they were being offer with the expectation of compensation. The court ordered judgment for the plaintiff’s immediate possession of the premises and for the payment of rent for the month of July, 2007.

Collins v. Lewis, 111 Conn. 299, 149 A. 668 (1930); Canfield v. Sheketoff, 104 Conn. 28, 132 A. 401 (1926).

Ind.

—Wilhoite v. Beck, 141 Ind. App. 543, 230 N.E.2d 616 (1967), involved household services rendered by a distant relative.

Iowa

—Roger’s Backhoe Serv., Inc. v. Nichols, 681 N.W.2d 647 (Iowa 2004) (implied-in-fact contract found where defendant silently observed the plaintiff’s performance for which the plaintiff expected to be paid and to which the defendant could have objected without difficulty or risk).

Md.

—Laurel Race Course, Inc. v. Regal Constr. Co., 274 Md. 142, 333 A.2d 319 (1975).

Mo.

—“Here, Wilson accepted the revised agreement by her conduct with regard to her credit card. Citibank presented evidence that it mailed Wilson her July 2001 credit card statement, which notified her that the revised agreement was enclosed. Furthermore, Citibank communicated to Wilson that the revised agreement was binding unless she cancelled her account within thirty days and did not use her credit card. Despite the fact that Wilson could have cancelled her account, she continued to use her credit card after July 2001, thus manifesting her acceptance of the revised agreement.” Citibank (S.D.), N.A. v. Wilson, 160 S.W.3d 810, 813 (Mo. App. 2005) (citing this § 3.21, 1993 ed.).

Neb.

—Emery v. Cobbey, 27 Neb. 621, 43 N.W. 410 (1889).

N.J.

—“[D]efendants’ continued acceptance of the services, without objection, that plaintiff performed after 1997 bespeaks assent, in this case, to the terms implied in the contract based on the prior course of dealings.” Grassano, Lempel & Co., LLC v. Homsany, 2006 N.J. Super. Unpub. LEXIS 2069, *14–15 (Aug. 4, 2006) (citing § 3.21).

Ohio

—Berjian v. Ohio Bell Tel. Co., 54 Ohio St. 2d 147, 8 Ohio Op. 3d 149, 375 N.E.2d 410 (1978). The plaintiff’s office manager arranged for the listing of plaintiff in the yellow pages. The defendant sent its form agreement, calling for plaintiff’s signature. This constituted the offer, as the employee with whom the office manager had dealt was not empowered to enter into contracts except on the company’s standardized terms. Plaintiff never signed, but the office manager called to correct a minor omission in the proposed listing. It was held that the plaintiff had accepted the telephone company’s terms. The call about a minor correction may have itself implicitly conveyed an acceptance of the terms of the offer. However the court bases its decision on the fact that plaintiff had accepted the telephone company’s services, without expressing a rejection of the offer, with knowledge of the terms upon which they were offered.

Wash.

—Hoglund v. Meeks, 139 Wn. App. 854, 170 P.3d 37 (2007). Where an attorney offered to relinquish his role as lead counsel, turn over his work product, and maintain a limited role in exchange for a fixed fee on the first $150,000 recovered and an additional fee depending upon whether the case was settled or went to trial, the court relied upon § 69 of the Restatement (Second) of Contracts in finding the offer was accepted by the act of accepting the offeror’s work product, keeping him in the case, and repeatedly promising to work out the specific terms of a written memorialization of their agreement. The court also noted that the two attorneys had pursued similar arrangements in previous cases over a seven year period. The combination of the current conduct against a background of past conduct supported the trial court’s finding of an agreement to which the offeree intended to be bound.

In Hanson v. Puget Sound Navigation Co., 52 Wash. 2d 124, 323 P.2d 655 (1958), the owner of a boat authorized the plaintiff to act as broker in finding a purchaser. At the time of transfer of the boat to a purchaser procured by plaintiff, plaintiff repeated the terms as he understood them. The sale price was $25,000 and plaintiff was to receive the balance for his services. The owner made no reply, but proceeded to close the transaction with the plaintiff present. The owner’s silence constituted assent.

But see Management Recruiters of Boulder v. National Econ. Research Assocs., Inc., 2006 U.S. Dist. LEXIS 52076 (S.D.N.Y. July 25, 2006) (party on notice that a signed contract was essential to do business with the defendant acted at his peril by proceeding to act without one).

See also Reeve v. Meleyco, 46 Cal. App. 5th 1092, 260 Cal. Rptr. 3d 457, 2020 Cal. App. LEXIS 242 (2020). Some arrangements, by law, require something more than silence—this case provides a good illustration. A client contacted his friend, attorney Reeve, for assistance following a traffic accident that killed the client’s wife and seriously injured his daughter. Reeve and the client met with attorney Meleyco, and Meleyco and the client entered into a contingency fee agreement for Meleyco to represent him to seek recovery for the accident. The client subsequently became concerned that a referral fee to Reeve would come from the client’s share of any recovery, and he advised Meleyco that any such referral fee agreement was made without his knowledge. Meleyco responded with a letter to the client: “[T]his letter is to assure you that the twenty-five percent (25%) referral fee that I am paying to Bob Reeve will come out of my fee and will not increase the fees to either you or your daughter.” At the bottom of the letter was typed: “I, [name of client], acknowledge receipt of this letter and understand the contents.” The client signed the acknowledgement. A settlement was reached in the personal injury matter, and Meleyco and the client agreed to give Reeve a much-reduced referral fee. Meleyco received for the client and the client’s daughter another recovery for the accident from the state of California for $900,000. This time, Meleyco and the client paid no referral fee to Reeve. Reeve sued, and the court held that the fee-sharing agreement was unenforceable because the client failed to provide informed, written consent. The requirement of written consent impresses upon the client the importance of the agreement, and it provides protections for the attorneys who are parties to the arrangement. Here, there was a writing advising the client of the proposed fee-sharing arrangement, but the client’s signature on that writing merely acknowledged that the client received it and understood what it said. The client did not provide his written consent to the arrangement as required by law. Consent differs from disclosure, receipt, and understanding. Silence and a failure to object are not enough. Consent is active, not passive. The referral fee agreement was unenforceable as against public policy.

5 Fineman v. Citicorp USA, Inc., 137 Ill. App. 3d 1035, 92 Ill. Dec. 780, 485 N.E.2d 591 (1985).

In Giles v. GE Money Bank, 2011 U.S. Dist. LEXIS 111018 (D. Nev. Sept. 27, 2011), the court cited this treatise § 3.19, 1993 ed. for the proposition that silence can constitute acceptance when “the conduct of the party denying a contract has been such as to lead the other reasonably to believe that silence, without communication, would be sufficient” to create a contract. Here, credit card applications stated that the credit card agreement would contain an arbitration provision. Giles received the credit card agreements in the mail and failed to opt-out of the arbitration provision. Giles activated and used the cards. In this case, Giles’s silence regarding the arbitration clause and his use of the credit cards was sufficient to constitute an acceptance of the credit cards on the terms offered, including the arbitration provision.

6 Hobbs v. Massasoit Whip Co., 158 Mass. 194, 33 N.E. 495 (1893). The court said: “The proposition stands on the general principle that conduct which imports acceptance or assent is acceptance or assent in the view of the law, whatever may have been the actual state of mind of the party—a principle sometimes lost sight of in the cases. O’Donnell v. Clinton, 145 Mass. 461, 463, 14 N.E. 747; McCarthy v. Boston & Lowell R.R., 148 Mass. 550, 552, 20 N.E. 182.”

In Bohn Mfg. Co. v. Sawyer, 169 Mass. 477, 482, 48 N.E. 620 (1897), Allen, J., said: “From the defendant’s silence in respect to the plaintiff’s proposal to effect insurance at their joint expense, and from his subsequent letters and conduct in respect to the policies, the jury might well infer that he assented to that proposal; and if the jury found that such was the fair import of his correspondence and acts, or that the plaintiff believed and had reason to believe that he did assent to it, his secret intention not to do so was immaterial.”

See also:

Conn.

—Wright v. McCormack, 99 Conn. 145, 121 A. 467 (1923); Ostman v. Lee, 91 Conn. 731, 101 A. 23 (1917).

Mass.

—Hanson & Parker, Ltd. v. Wittenberg, 205 Mass. 319, 91 N.E. 383 (1910); Wheeler v. Klaholt, 178 Mass. 141, 59 N.E. 756 (1901).

Neb.

—Emery v. Cobbey, 27 Neb. 621, 43 N.W. 410 (1889).

N.H.

—Knox v. Perkins, 86 N.H. 66, 163 A. 497 (1932) (promise not to revoke a will inferred from silence).

N.Y.

—Place v. McIlvain, 38 N.Y. 96 (1868).

In Buffalo Arms, Inc. v. Remler Co., 179 Cal. App. 2d 700, 4 Cal .Rptr. 103 (1960), the defendant wrote to the plaintiff: “Please accept this letter as authorization to ship equipment and tooling as per attached schedule [prices were included] … on a thirty day trial basis … . It is agreed that if at the end of the trial period the Remler Co. decides against the purchase of this equipment, it will be returned … at no charge to the Remler Co.” The plaintiff shipped the goods; and they were installed and put in use by the defendant. Regarding this as an offer by the defendant with a power of rescission after trial, the act of shipment by plaintiff was an acceptance. On this theory, the defendant failed to exercise its power by returning the goods and was bound to pay the price. But regarding the letter as a request for a shipment on approval, the shipment was an offer by the plaintiff to sell, with a promise by defendant to accept or to return within a reasonable time after thirty days trial. The defendant sent no notice of either acceptance or rejection for more than three months. The court held that the defendant’s conduct operated as an acceptance of the offer to sell. This was in spite of the defendant’s affidavit that it had never decided to buy. It was under a duty to return, if it “decides against the purchase.” Failure to return as promised, accompanied by silence, was reasonably understood by plaintiff as an acceptance. The defendant’s affidavit alleged that the defendant had orally informed the plaintiff that no decision had been made and that notice would be given when decision was made. The court held, for reasons not approved by this treatise, that the oral proof offered was excluded by the “parol evidence rule” as contradicting the terms of the written contract (the letter). But there was no contract, as long as there had been no acceptance. Probably, however, the alleged oral conversations were not sufficient to give the plaintiff “reason to know” that the failure to return for three months was not an “acceptance.”

7 In National Union Fire Ins. Co. v. Ehrlich, 122 Misc. 682, 203 N.Y.S. 434 (1924), the court held that the customer’s retention of the policy for two months in silence operated as acceptance. On his refusal to pay, he was held bound to pay for two months’ insurance. From this, it appears that retention of the policy without notice of rejection operates as a promise to pay the premium after the date of the policy and until notice of rejection is given. Thus, the insured is given the protection that he reasonably expects, without getting that protection without obligation to pay for it. The insurer also has a reasonable expectation, as the insured should know.

In Bussey v. Trinity Universal Ins. Co., 344 S.W.2d 220 (Tex. Civ. App. 1961), writ refused n.r.e., an insurance agent executed a renewal liability policy as he had done twice before, but this time he kept it in his own office. The insured knew nothing of it and paid no premium. There was no contract on which an injured third person could maintain suit.

8 In Phelan v. Everlith, 173 A.2d 601, 22 Conn. Supp. 377, 1 Conn. Cir. 43 (1961), this was a first renewal with no such “course of dealing” that the defendant had reason to know that his failure to communicate a rejection would be understood as an acceptance.

In Continental Cas. Co. v. Rosenzweig, 105 F. Supp. 253 (S.D.N.Y. 1952), the insurer sent a renewal policy 30 days before expiration of an existing policy. The insured was silent, having no intention to accept. He obtained insurance by a different company. After an accident had occurred (but in ignorance thereof), the insurer gave notice of cancellation, and demanded the interim premium. The insured paid this and gave notice of accident. The court, at suit of the insurer, held that no contract had ever been made. Not only did the offeree (the insured) have no intention to accept the insurer’s offer, there was no previous course of dealing justifying an inference of such an acceptance. The insurer could not have compelled the insured to pay the premium, and the insured cannot enforce the promises of the insurer. Note that there was objective evidence of the insured’s intent not to accept.

“Corbin observes, in that regard, that it is the custom of insurance agents to send an insured a renewal policy with a bill for the premium shortly before expiration of the current policy and that the course of dealing between the agent and insured may be such as to justify that procedure and cause the insured’s silence and failure to return the policy to operate as an acceptance of the renewal offer. CORBIN, supra, § 3.21. He points out that a different result is reached, however, if there was no such previous course of dealing ‘or if the new policy that is sent is different from the existing one as to the extent of coverage, the amount of premium, or in other material respects.’ ” Int’l Bhd. of Teamsters v. Willis Corroon Corp., 369 Md. 724, 738, 802 A.2d 1050, 1058 (2002).

9 In Preferred Risk Ins. Co. v. Central Surety & Ins. Corp., 191 F. Supp. 797 (W.D. Ark. 1961), the defendant sent a renewal policy to the insured but providing increased liability and an increased premium. The insured disregarded it and obtained insurance elsewhere. There was no contract.

10 Laredo Nat. Bank v. Gordon, 61 F.2d 906 (5th Cir. 1932), cert. denied, 289 U.S. 726. The plaintiff, an attorney, was retained on a contingent fee basis by the defendant, a bank, to bring an action against certain customers of the bank. After the action was brought, the bank engaged in settlement talks with the customers. The bank wired the attorney: “[W]e must know immediately what will be your fees in the event we accept settlement offered us. Answer quick.” Plaintiff immediately sent his reply setting his fee at $12,500. The settlement was entered into and after four months of silence the bank objected to the fee as excessive. It was held that the attorney could reasonably infer that his offer had been accepted. See also, Den Norske Stats Oljeselskap, A.S. v. Hydrocarbon Processing, 992 F. Supp. 913 (S.D. Tex. 1998).

11 “Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: … (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.” Restatement (Second) of Contracts § 69 (Am. Law Inst. 1981). A usage of trade “may give the offeror reason to understand that silence will constitute acceptance.” Restatement (Second) of Contracts § 69 cmt. (d) (Am. Law Inst. 1981).

Ill.

—Bauer v. Qwest Communs. Co., 743 F.3d 221 (7th Cir. 2014) (previous dealings may impose an obligation on a party to notify an offeror that he does not intend to accept; absent such notice, his silence constitutes acceptance); C&K Trucking, LLC v. Am. Global Logistics, LLC, 2015 U.S. Dist. LEXIS 150507 (N.D. Ill. Nov. 4, 2015).

Ky.

—Enterprise Mfg. Co. v. Campbell, 121 S.W. 1040 (Ky. 1909).

Mich.

—Salton/Maxim Housewares Group v. Comerica Bank Detroit, 1990 U.S. Dist. LEXIS 6354 (N.D. Ill. May 22, 1990) (applying Michigan law).

Minn.

—Blad v. Parris, 2010 Minn. App. Unpub. LEXIS 417 (May 11, 2010).

Miss.

—Ammons v. Wilson, 176 Miss. 645, 170 So. 227 (1936).

N.C.

—T.C. May Co. v. Menzies Shoe Co., 184 N.C. 150, 113 S.E. 593 (1922).

Tenn.

—Cole-McIntyre-Norfleet Co. v. Holloway, 141 Tenn. 679, 214 S.W. 817, 7 A.L.R. 1683 (1919).

Tex.

—Peterson v. Graham-Brown Shoe Co., 210 S.W. 737 (Tex. Civ. App. 1919).

Vt.

—Hendrickson v. International Harvester Co., 100 Vt. 161, 135 A. 702 (1927).

In International Filter Co. v. Conroe Gin, Ice & Light Co., 277 S.W. 631 (Tex. Com. App.1925), reversing 269 S.W. 210 (Tex. Civ. App.), the order for a machine clearly stated that it should become a contract on approval by the plaintiff at its home office. The order having been marked approved, it was held to make a contract, binding on the offeror, without any notice either received or started.

See Armour & Co. v. Celic, 294 F.2d 432 (2d Cir.1961). The plaintiff, after negotiations, drafted and sent to defendant a “Contract of Limited Agency,” expressly providing that it should not be binding on plaintiff until signed by its division manager. It provided for shipment of goods on consignment for sale on plaintiff’s account for cash. The defendant signed it and sent it to the plaintiff. The manager signed it, but sent no notice to defendant. Thereafter, the defendant received shipments of goods, with knowledge that the plaintiff sent them on “consignment.” Such knowledge was equal to “notice” and operated as an assent to the terms of shipment. Defendant was not a purchaser on credit. Its use of the goods on its own account was a “conversion.”

Va.

—Craddock v. LeClairRyan, P.C., 2016 U.S. Dist. LEXIS 49408 (E.D. Va. April 12, 2016) (noting in dicta that acceptance can be inferred by silence in light of trade usage).

Ala.

—Gould v. Cates Chair Co., 147 Ala. 629, 41 So. 675 (1906). The vitality of this case was cast in doubt in Brunswick Corp. v. Sittason, 277 Ala. 45, 167 So. 2d 126 (1964), where an agreement made by an agent without authority was deemed ratified by the principal’s lengthy silence.

Dist.Col.

—Metzler v. Harry Kaufman Co., 32 App. D.C. 434 (1909).

N.Y.

—Senner & K. Co. v. Gera Mills, 185 App. Div. 562, 173 N.Y.S. 265 (1918).

13 Northwestern Mut. Life Ins. Co. v. Neafus, 145 Ky. 563, 140 S.W. 1026 (1911); Dorman v. Connecticut Fire Ins. Co., 41 Okl. 509, 139 P. 262 (1914). In both cases, however, it was held that there was no contract.

Mass.

—McCue v. Prudential Ins. Co., 371 Mass. 659, 358 N.E.2d 799 (1976). Plaintiff having had a 28-year relationship with Prudential, was solicited by a Prudential agent to apply for a Prudential health insurance policy and to refrain from making an application to Blue Cross. There was a long delay in processing the policy, largely caused by the plaintiff’s physician who had been asked by Prudential for a medical history. The Prudential agent failed to follow company procedures to inform the plaintiff that a 45-day delay meant that the application was automatically rejected. The jury could infer that a contract existed because the plaintiff could reasonably believe that the application had been accepted.

Mich.

—Cartwright v. Maccabees Mut. Life Ins. Co., 65 Mich. App. 670, 238 N.W.2d 368 (1975), rev’d, 398 Mich. 238, 247 N.W.2d 298. Defendant’s agent solicited a life insurance application from decedent and his wife and an advance premium was paid. The insurer took 73 days to decide to reject the application. In the interim, the applicant died. It was held to be a question of fact whether the insurer acted with reasonable promptness. It quoted from an earlier case: “In insurance contracts of this character it is the duty of the company to act with reasonable promptness. Failing to reject within a reasonable time, the law implies an acceptance.” Reversed due to the fact that the application contained grossly inaccurate representations concerning the applicant’s past medical history, so an unreasonable time had not elapsed. 398 Mich. 238, 247 N.W.2d 298 (1976).

Miss.

—Old Equity Life Ins. Co. v. Jones, 217 So. 2d 648 (Miss.1969). The insurance company was estopped from denying it had accepted an application for health insurance that was not denied within a reasonable time. Note also that the premium check had been deposited and the funds retained for the same period.

N.D.

—In Lechler v. Montana Life Ins. Co., 48 N.D. 644, 186 N.W. 271 (1921), an insured was solicited by agents of the insurance company to renew his lapsed insurance policy. He assented and gave his application for reinstatement and his note for back premiums. The company held the application and note for five weeks and then returned them to the agent with instructions to return them to insured. The agent failed to do this until after the insured died six weeks later. The insurance was held to be reinstated. See also, B. J. Kadrmas, Inc. v. Oxbow Energy, LLC, 2007 ND 12, 727 N.W.2d 270 (2007).

S.Car.

—In Moore v. Palmetto State Life Ins. Co., 222 S.C. 492, 73 S.E.2d 688 (1952), the insurer was held to be estopped to deny its acceptance of an application for accident insurance by reason of its failure to notify the applicant of its rejection and other conduct of its agent.

Tex.

—Combined American Ins. Co. v. Parker, 377 S.W.2d 213 (Tex. Civ. App. 1964), writ refused n.r.e. The insurer was held estopped to deny coverage under a medical insurance policy by reason of its silent inaction after receipt of a check for the first premium. See Estate of Gajewsky v. John Hancock Life Ins. Co., 2005 Tex. App. LEXIS 3322, (May 3, 2005) (where estoppel prevents an insurer from denying coverage, it cannot be invoked to enlargecoverage).

Wash.

—In Freimuth v. Glens Falls Ins. Co., 50 Wash. 2d 621, 314 P.2d 468 (1957), the plaintiff held an insurance policy on a yacht, limited to use in Alaskan waters. He requested the defendant’s general agent in Seattle for an endorsement including coverage on a trip from Alaska to Seattle. He was advised that a “survey” was necessary. The general agent employed a marine surveyor in Alaska, directing him to make the survey and authorizing him to approve or disapprove the projected trip, coverage to be dependent on his survey. The agent’s letter was shown to the plaintiff. The surveyor approved the trip, on certain conditions accepted by the plaintiff. This approval was sent to the general agent in Seattle by air mail on May 28, with the information that the plaintiff expected to sail the next day. On receipt of this letter, the agent sent it to defendant’s marine office in Seattle, with a note requesting endorsement “if you believe this acceptable. If not please call.” Two days after receipt of the survey and letter and five days after the yacht’s departure, the yacht was burned. Defendant denied coverage. The court held that the acts of the surveyor and the general agent, plus the defendant’s delay, operated as acceptance, the plaintiff being reasonable in so understanding. The court held that a “prima facie” case was made out without any proof of the “authority” of the general agent.

14 Duke v. Valley Forge Life Ins. Co., 341 So. 2d 1366, 1 A.L.R.4th 1193 (La. App. 1977); Howard v. Protective Life Ins. Co., 2005 U.S. Dist. LEXIS 6605 (E.D. La. April 13, 2005); Thomas v. Life Ins. Co. of Ga., 55 So. 2d 705, 219 La. 1099, 32 A.L.R.2d 483 (1951) (life insurance applications).

U.S.

—Misselhorn v. Mutual Reserve Fund Life Ass’n, 30 F. 545 (1887).

Kimmel v. W. Reserve Life Assur. Co., 678 F. Supp. 2d 783 (N.D. Ind. 2010).

Ala.

—Alabama Gold Life Ins. Co. v. Mayes, 61 Ala. 163 (1878).

Ga.

—Wilder v. Jefferson Ins. Co., 252 Ga. App. 563, 555 S.E.2d 771 (2001), cert. denied, 2002 Ga. LEXIS 333 (2002).

Ill.

—Moore v. Insurance Co. of North America, 49 Ill. App. 2d 287, 200 N.E.2d 1 (1964) (despite payment of initial premium and a three month delay).

Ind.

—Metropolitan Life Ins. Co. v. Brady, 95 Ind. App. 564, 174 N.E. 99 (1930).

Miss.

—Savage v. Prudential Life Ins. Co., 154 Miss. 89, 121 So. 487 (1929).

N.Y.

—Joseph Schultz & Co. v. Camden Fire Ins. Ass’n, 304 N.Y. 143, 106 N.E.2d 273 (1952); Hughes v. John Hancock Mut. Life Ins. Co., 163 Misc. 31, 297 N.Y.S. 116 (1937), modified, 254 App. Div. 570, 3 N.Y.S.2d 899 (1938).

Okla.

—Van Arsdale & Osborne v. Young, 21 Okl. 151, 95 P. 778 (1908).

In Swentusky v. Prudential Ins. Co., 116 Conn. 526, 165 A. 686 (1933), the insurance company was held not liable in tort for the neglect of its agent to forward promptly an application for insurance.

In Wadsworth v. New York Life Ins. Co., 349 Mich. 240, 84 N.W.2d 513 (1957), the plaintiff sued as beneficiary of life insurance applied for by her husband, a combat pilot in Korea. The words of the application indicated that the insurance would be effective when the first premium was paid and the company had received satisfactory evidence of insurability, without actual execution of a policy. These two events occurred, and the company received several monthly premium payments thereafter. The company put a policy in the agent’s hands for delivery only when the insured signed an additional form. The court held that, although “mere silence or inaction by the insurance company” would not constitute an acceptance of the application, the terms of the application and the action of the company made the question of acceptance an issue for the jury. It was error for the trial court to dismiss the case. The withholding of the policy until an additional form was signed did not have the effect of a counter-offer if the jury should find that an acceptance of the application had already occurred.

In Bellak v. United Home Life Ins. Co., 244 F.2d 623 (6th Cir. 1957), the court held that it was error not to give the following instruction: “[I]f the jury found that payment of the premium had been made by the insured and that he had passed his medical examination, the insurance company could not hold the application in abeyance for an unreasonable time; and if the jury did find such an unreasonable delay they would be justified in rendering a verdict in favor of plaintiff.” The court said that “it was not necessary to prove also that a binding receipt had been issued to the insured.”

Tex.

—Debenport v. Great Commonwealth Life Ins. Co., 324 S.W.2d 566 (Tex. Civ. App. 1959), insurance application expressly stated that insurance would not be in effect before approval at home office, and no negligent delay. See also, El Conejo Bus Lines, Inc. v. Metropolitan Life Ins. Co., 1999 U.S. Dist. LEXIS 9339 (N.D. Tex. May 28, 1999) (affirming the rule in Texas); Noseff v. Tower Life Ins. Co., 1999 Tex. App. LEXIS 1968 (Mar. 24, 1999) (same).

In Rapp v. Lester L. Burdick, Inc., 336 Mass. 438, 146 N.E.2d 368 (1957), an application for accident insurance given to an insurance agent was expressly conditional on acceptance at the home office. Because of the agent’s delay in sending in the application, the company did not receive the application until after an accident in which the applicant was killed. There was no “binder” or other agreement for temporary insurance. The application was made on November 16, the agent sent it in on December 14, the death occurred on December 30, and the policy was executed on January 2. In an action “in contract or tort” to recover the amount of the policy, the court held no contract had been made. There was no showing of negligence or of the agent’s undertaking of diligence.

16 In Louisville Tin & Stove Co. v. Lay, 251 Ky. 584, 65 S.W.2d 1002 (1933), unordered goods were shipped to a store in Corbin, Kentucky, operated by Mrs. Lay. She had not ordered the goods and they were not the type of merchandise she dealt in. Rather than accept or reject the goods, she directed the carrier to speak to her husband who operated a different store. The husband took delivery. This direction by her to the carrier was held to constitute such an exercise of control over the goods as to amount to an acceptance.

In Indiana Mfg. Co. v. Hayes, 155 Pa. 160, 26 A. 6 (1893), the plaintiff shipped 64 refrigerators to the defendant. He had not ordered them, but it would seem that plaintiff’s sales representative may have placed the order without authorization. He accepted delivery from the railroad and had the refrigerators carted to his warehouse. This was an acceptance as a matter of law.

In Ferrous Products Co. v. Gulf States Trading Co., 160 Tex. 399, 3 Tex. Sup. Ct. Jour. 198, 332 S.W.2d 310 (1960), Borden owed money to Ferrous. Borden ordered steel beams from plaintiff, asking them to be sent to Metallic at an address where Ferrous was located. Plaintiff immediately shipped the beams. Borden had informed Ferrous to expect a delivery. When the beams arrived, an authorized Ferrous employee scratched out Metallic’s name on the invoice and inserted Ferrous’ name. Ferrous credited Borden with the purchase price. Apparently he had convinced Ferrous that the beams were his. Plaintiff recovered the reasonable value of the beams from Ferrous. The court put the grounds of recovery on the basis of quasi-contract. It should be noted that plaintiff had three options. There was a contract based on the estoppel notion discussed here. There was a tort of conversion. When there is such a tort, the aggrieved party has the option of “waiving the tort” and suing in quasi-contract.

17 Subdivision (2) provides: “An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.”

18 This provides: “(1) Acceptance of goods occurs when the buyer … (c) does any act inconsistent with the seller’s ownership, but if such act is wrongful as against the seller it is an acceptance only if ratified by him.”

19 In re Windsor Communications Group, Inc., 53 B.R. 297 (E.D. Pa. 1985). The court relied, in part, on the Restatement (Second). It could have cited to the U.C.C., which is the governing authority.

By analogy, in Durgin v. Kaplan, 68 Cal. 2d 81, 65 Cal. Rptr. 158, 436 P.2d 70 (1968), it was held that silent acceptance of stock in payment of debt constituted acceptance which would exonerate guarantor of debt under the California Civil Code.

Under Pennsylvania contract law, “the general rule is that silence does not constitute acceptance of an offer in the absence of a duty to speak.” … . “ ‘[A]n offer may be accepted by conduct and what the parties do pursuant to the offer’ is germane to show whether the offer is accepted.” Accu-Weather, 625 A.2d at 77 (brackets omitted) (quoting Gum, Inc. v. Felton, 341 Pa. 96, 17 A.2d 386, 389 (Pa. 1941)); see also Restatement (Second) of Contracts § 19 (“the manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.”).

Under Pennsylvania law, moreover, where a tenant continues to occupy leased premises after the expiration of the original lease term, he is deemed to have given the lessor notice of his election to renew the lease.

Federal Realty Inv. Trust v. Kids Wear Blvd., Inc., 1996 U.S. Dist. LEXIS 2378, *13–14 (E.D. Pa. Mar. 1, 1996).

20 In Raible v. Puerto Rico Industrial Development Co., 392 F.2d 424 (1st Cir. 1968), the defendant was the pledgee of the plaintiff’s stock. Because the plaintiff’s debt was overdue, defendant, under the terms of the pledge, could foreclose on the pledged stock by declaring itself the owner of the stock. It did not do this, but voted the stock in favor of a corporate restructuring that was greatly inimical to the pledgor’s interests. “Under these circumstances, we think that [defendant] is subject to the principle that one who has a right to become owner of property, and whose subsequent actions towards the property can be justified only on the theory that it was the owner, will be held in law to have exercised its election.” 392 F.2d at 428.

21 In Hugie v. City of Shady Cove, 85 Or. App. 229, 736 P.2d 567, 569 (1987), review denied, 303 Or. 699, 740 P.2d 1212 (1987), plaintiff gave the City of Shady Grove the option to acquire a perpetual right of way for sewer lines across plaintiff’s property. In exchange, plaintiff was to be allowed a specified number of sewer connections. By the terms of the agreement, the city was to exercise the option by giving written notice in a specified way. It never gave such notice but proceeded to install sewer lines across plaintiff’s property. When plaintiff discovered this, plaintiff asked for the promised sewer connections but the city refused. It was held that the city could not “escape the obligations and obtain the benefits of an agreement by unilaterally appropriating the other’s property or services instead of following the contractual procedure for notifying the other party of its intent to buy or use them and pay for them in accordance with the contract.”

In Wright v. County of Sonoma, 156 Cal. 475, 105 P. 409 (1909), under claim of right made in error but in good faith, B dug a well on A’s unused land and took water, having little or no market value and no value to A, doing no injury to the value of the land. Immediately prior to commencing litigation to enjoin B from taking further water, A notified B that he would charge B $50 a day for every day on which B takes water from his land. The court refused to treat this arrangement as a contract. It did not deem A’s threat to be an offer. The Restatement (Second) of Contracts, in using this case as an illustration, gives it a somewhat different explanation. It provides the basis for illustration 11 to § 69. Comment e to § 69 explains: “[W]here the offeror seeks to take unconscionable advantage of a mistake made in good faith, no social purpose is served by an award plainly in excess of reasonable value even though the exercise of dominion is tortious.” This case was distinguished in Russell v. Texas Co., 238 F.2d 636 (9th Cir. 1956), cert. denied, 354 U.S. 938, where owner of the surface rights wrote to the owner of mineral rights, who was conducting exploratory drillings on the land, offering a revocable license to use the surface at a stated rental per day and recited that continued use of surface would be constituted as an acceptance of the offer. The court held the continued use was an acceptance of the offer, stating that in the Sonoma County case the notice was not an offer but an attempt to “inflict a penalty by means of liquidated damages.” Query, whether this is a sound distinction. In Russell, the offer of $150 per day may not have been unreasonable.

In Glenhaven Vill., Inc. v. Kortmeyer, 2003 Neb. App. LEXIS 248 (Neb. Ct. App. Sept. 16, 2003), for six years, the defendant, owners of a mobile home, accepted and paid for water, sewer and other services from Glenhaven Village. Pursuant to the governing covenants, owners were required to pay a proportionate share of the costs of such services. When the defendants concluded that they were paying a disproportionate share for the services, they protested the payments and, receiving no response, they ceased making payments but continued to accept the services. In Glenhaven’s action for payment, the court characterized the original arrangement as an unexpressed contract implied-in-fact, the terms of which were inferred from the surrounding circumstances of the parties’ dealings including the defendants’ awareness of the charges for the services for which they paid. When the defendants communicated their refusal to continue to contract on the terms set by Glenhaven, however, their contract implied-in-fact ended. The court reasoned that an implied-in-fact contract for services cannot continue indefinitely without the right of either party to end it. Citing this treatise (§ 3.21, 1993 ed.), the court considered the rule that an offeree’s silence and inaction in the face of an offer operate as an acceptance where the offeree takes the benefit of offered services with a reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. Here, however, the defendant homeowners communicated their refusal to contract on the plaintiff’s terms, ending the implied-in-fact contract. Since there was no express contract, the court held that the defendants were liable in quasi contract for the reasonable value of the services they received.

Mo.

—Prospect News Printing Co. v. Swindle, 15 S.W.2d 922 (Mo. App. 1929).

N.H.

—Fogg v. Portsmouth Atheneum, 44 N.H. 115 (1862).

Wis.

—Goodland v. Le Clair, 78 Wis. 176, 47 N.W. 268 (1890).

Eng.

—Weatherby v. Banham, 5 C. & P. 228 (1832).

Where the periodical sent is not read or used, there is no duty to pay. Realty Records Co. v. Pierson, 116 N.Y.S. 547 (App. Term 1909).

23 Austin v. Burge, 156 Mo. App. 286, 137 S.W. 618 (1911).

24 See, 39 U.S.C.A. § 3009; NY CLS Gen Oblig § 5-332; R.R.S. Neb. § 63-101.

UMG Recordings, Inc. v. Augusto. 628 F. 3d 1175 (9th Cir. 2011). Without solicitation, UMG distributed its copyrighted CDs to individuals such as music critics and disc jockeys for marketing purposes. Most of the CDs stated that they were the property of UMG, licensed to the recipient for personal use only, acceptance of the CD constituted agreement to the license terms, and resale or transfer of possession of the CD was prohibited. Though the defendant was not on the list to receive a CD from UMG, he managed to procure these distributed CDs from various sources and proceeded to sell them through eBay.com. UMG claimed that the defendant violated its copyright. The district court granted summary judgment for the defendant. On appeal, though UMG had exclusive rights to the distribution of the CDs under its copyright, the defendant invoked the “first sale” doctrine as set forth in the Copyright Act (17 U.S.C. § 109(a)), which applies not only when a copy is first sold but when a copy is either given away or title is transferred without the accouterments of a sale. Once a copyright owner places the copyrighted item in the stream of commerce, the owner loses all rights to its exclusive distribution. When the transferee is the owner of the copy, the copy may be distributed to others by sale or gift. A recipient of the CD who makes no response at all cannot be said to have agreed to the license terms. The general rule of contract law is that the mere receipt of an unsolicited offer does not impair the recipient’s freedom of action or impose any duty to speak on the recipient (Restatement (Second) of Contracts § 69 (Am. Law Inst. 1981)). Moreover, under 39 U.S.C. § 3009, the recipient of unordered merchandise allows the recipient to treat the merchandise as a gift and have the right to retain, use, discard, or dispose of it without any obligation to the sender. Since UMG’s distribution of the CDs constituted a sale to the recipients, further sales of these copies was permissible without violating the UMG copyright. The judgment of the district court was affirmed.

Ariz.

—In Pace v. Sagebrush Sales Co., 114 Ariz. 271, 560 P.2d 789 (1977), a wholesale lumber dealer delivered unordered lumber, as well as lumber that had been requested to a retail lumberyard operator. The retailer marked the invoices “not ordered” but accepted the deliveries and placed the lumber in its inventory and resold it. The conduct of the retailer overrode its words.

CIT Fin. LLC v. Treon, Aguirre, Newman & Norris PA, 2016 U.S. Dist. LEXIS 156233, *24 (D. Ariz. Nov. 9, 2016) (“despite objections from Plaintiff’s staff regarding the purportedly nonconforming equipment, Mr. Aguirre indicated his acceptance of the nonconforming equipment by signing the Agreement, signing the Acceptance Receipts, inquiring into Defendant POA’s payments under the lease, and failing to effectively reject any of the equipment.”).

Iowa

—Prestype Inc. v. Carr, 248 N.W.2d 111 (1976). “The trial court as fact finder would have been justified in finding … defendant complained about no aspect of the order… . This failure to reject the merchandise and failure to complain of any term pertinent thereto supports the conclusion defendant adopted plaintiff’s terms of sale.” This contract could equally be deemed to be based upon a true implication of fact.

N.Y.

—The buyer of a building that contained leased air-conditioning units, refused to pay the balance of the payments due on the leases or to allow the lessor to repossess the units. Held: the buyer could not judicially claim the status of a tortfeasor. The tort measure of damages would have given the lessor a smaller recovery. Conditioner Leasing Corp. v. Sternmor Realty Corp., 17 N.Y.2d 1, 266 N.Y.S.2d 801, 213 N.E.2d 884 (1966).

Pa.

—Chorba v. Davlisa Enterprises, 303 Pa. Super. 497, 450 A.2d 36 (1982). In 1974, decedent made an offer to purchase certain land from a coal company. The offeree accepted a deposit of 10% of the price, and stated that the acceptance of the offer was subject to the approval of its board of directors. Three and a half years went by, apparently without further communication. The offeror had died and the attorney for the estate sent a notice that the “administrators ‘were accepting our option to purchase the property.’ ” The court indicated that the offeree’s holding on to the offeror’s money for such a long period could create an acceptance. New pleadings and a trial were required.

Tex.

—European Import Co. v. Lone Star Co., 596 S.W.2d 287 (Tex. Civ. App. 1980).

U.S.

—Zwiebach v. CitiMortgage, Inc., 2017 U.S. Dist. LEXIS 148768 (D. Conn. Sept. 14, 2017).

Conn.

—County Fire Door Corp. v. C.F. Wooding Co., 202 Conn. 277, 520 A.2d 1028 (1987).

Iowa

—RMP Industries, Ltd. v. Linen Center, 386 N.W.2d 523 (Iowa App.1986).

Tex.

—In Warrior Constructors, Inc. v. Small Business Invest. Co., 536 S.W.2d 382 (Tex. Civ. App. 1976), no writ. Warrior guaranteed up to $50,000 of a note taken up by the SBIC. Default occurred, and Warrior began paying its installments as they became due, accompanying the payments with a form letter stating that all payments reduced Warrior’s “liability, if any, as a surety by that same amount.” The first time this happened, the SBIC objected to that provision, writing Warrior it would not honor that provision in the future. Warrior stopped making payments after it paid $50,000; the SBIC sued for another $50,000. On this point the court held for Warrior, based on the rule that an offeree may accept the offeror’s terms by taking possession and exercising dominion over the money tendered.

Wis.

—In Pick Foundry v. General Door Mfg. Co., 262 Wis. 311, 55 N.W.2d 407 (1952), the owner sent a duly executed lease to the lessee for the latter’s acceptance. The lessee made three alterations and executed it as altered, including his check for rent. The owner saw the alterations, made no objections, and cashed the check. This was held to be an acceptance of the lessee’s counter-offer.

27 Bestor v. American National Stores, Inc., 691 S.W.2d 384 (Mo. App. 1985).

28 This topic of check cashing or retention is discussed in § 3.17.

29 Maryland Cas. Co. v. United States, 169 F.2d 102 (8th Cir.1948).

30 N.L.R.B. v. Local 825, Int’l Union of Op. Eng., 315 F.2d 695, 52 L.R.R.M. 2756 (3d Cir. 1963). The Union requested Ernst to sign a written agreement. This he did and returned the signed copies to the Union. The latter thereupon acted in accordance with the instrument, referring its members to Ernst. The court held the Union bound by the contract, even though it did not sign.

In Gateway Cable T.V., Inc. v. Vikoa Constr. Corp., 253 So. 2d 461 (Fla. App. 1971), Gateway and Vikoa negotiated an oral agreement, a writing was prepared that had a clause requiring the signatures of two Vikoa officials as a condition to its effectiveness. They never signed, but Vikoa cashed Gateway’s check. Vikoa encouraged Gateway to begin performance and Gateway started work. New management took over and refused to proceed with the agreement. The trial judge directed a verdict for Vikoa, but was reversed. Despite the absence of the signatures, the jury could find assent in fact.

In Gateway Co. v. Charlotte Theatres, Inc., 297 F.2d 483 (1st Cir. 1961), the plaintiff, owner, having leased its theatre to Charlotte, “orally negotiated the terms of an installation contract” (air conditioning) with Valley Electric Co. on June 4. Valley reduced the terms to writing and forwarded two signed copies for Gateway to sign and return one. Gateway signed, but inserted a provision that the work was to be “fully completed” by June 22. This copy was mailed to Valley, with a cover letter saying: “It is my understanding that this installation is to be completed so that it is in full operation by June 22.” Valley made no reply, but immediately ordered the necessary special equipment. The trial court held that Valley was not bound to complete by June 22. The judgment was reversed and the case remanded for a new trial. Even if the added provision had not been orally agreed to and the alteration was wholly unauthorized, it might be found that Valley knew of the alteration and assented to it by silence and proceeding with performance. Even if Valley had not observed the alteration, the cover letter gave it reason to know that such an alteration might have been made. The oral negotiations on June 4 might have been intended to operate at once as a completed contract, but even if so, the parties had power to modify it. Also, the parties may have intended that a contract should not exist until a formal writing was executed. Extrinsic evidence was necessary to resolve these issues. The court stated that, “A covering letter may be part of the total agreement.” The “parol evidence rule” is not mentioned.

31 A typical case supporting the proposition was Lubell v. Rome, 243 Mass. 13, 136 N.E. 607 (1922). Buyer offered to buy stockings at $5.85. Seller replied accepting, but fixing terms as 1% discount 10 days’ time. Seller shipped at once. Buyer received and kept the goods, said nothing of new terms, but wrote complaining of quality. Held, seller’s counter-offer was accepted.

32 Section 2.12 of this treatise deals with contractual provisions that appear in non-contractual documents. The “in-the-box” contract phenomenon is discussed in that section because in many cases, the consumer is not given reason to understand that the “in-the-box” provision is contained in a contract that will impose obligations on him or her.

33 See, e.g., Hill v. Gateway 2000, 105 F.3d 1147 (7th Cir. 1997); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).

34 Norcia v. Samsung Telcoms. Am., LLC., 845 F.3d 1279 (9th Cir. 2017); Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x 113 (3d Cir. 2017); Dang v. Samsung Elecs. Co., 673 Fed. App’x 779 (9th Cir. 2017).

35 Jones v. Samsung Elecs. Am., Inc., 2018 U.S. Dist. LEXIS 84586, *7 (W.D. Pa. May 21, 2018).

36 Jones v. Samsung Elecs. Am., Inc., 2018 U.S. Dist. LEXIS 84586, *8-9 (W.D. Pa. May 21, 2018)

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.22 »

1 Corbin on Contracts § 3.22 (2020)

§ 3.22. Multiple Acceptances

An offer may be so made as to empower a single offeree to accept many times, or to empower many offerees to accept. In the former case, the resulting series of contracts between the two parties may be either unilateral or bilateral, and may be wholly independent of each other or may be related in some way to each other. In the latter case, the contracts resulting from separate acceptances by different offerees will usually be quite separate and independent contracts.1

Continuing guaranties are common illustrations of the former. “In consideration of your discounting bills of exchange for Davies and Company, we hereby guarantee for the period of one year the prompt payment of all such bills to the extent of $3,000.” The discounting of each bill as it is presented is a separate acceptance of this offer, each one creating a new unilateral contract with the guarantor. After each discount, the offer would be converted into a unilateral contract as to that particular bill,2 but it would remain revocable by notice with respect to subsequent bills.3

A letter of credit may be addressed to a single offeree, or to any bank or banker, or to whom it may concern. “To the X Filling Station: If A should ask you to supply gasoline from time to time during the next twelve months, please supply it on thirty days credit. I guarantee payment of A’s debts so contracted, not exceeding a total of $2000.”4 This can be accepted by X by selling gasoline to A many times, but can be accepted by no one else. Here, too, the resulting contracts would all be unilateral and independent of each other. Such a letter of credit, however, may be addressed to any and all filling stations, or to any one of a particular line of stations.

There are also standing offers to manufacture and sell specified kinds of goods at stated prices, in quantities to be fixed by the buyer. “The Racine Company hereby agrees with F. Hopkins to furnish, during the life of the patent, castings for the patented Hopkins gate, for forty cents per set.” A succession of orders sent in by Hopkins for specified reasonable numbers of sets of castings would make a series of separate bilateral contracts.5

A standing offer to pay a specified commission for such orders for goods as the offeree might from time to time solicit and send in, or to pay an agent a stated sum per acre for obtaining oil and gas leases within a designated territory, is accepted repeatedly by sending in orders and negotiating leases. Such acceptances make a series of unilateral contracts; but the offer remains revocable by notice to the agent.6

A single offer may be made to many separate persons and may require acceptance by all. In Hartman v. Lauchli,7 two persons promised a conveyance of land if the creditors of a corporation would all agree to an extension of time for payment of their claims. One hundred-sixty-five creditors promptly sent acceptances. One hundred-thirty-six creditors, representing about one third of the debts, did not send acceptances. The corporation became bankrupt. The promise to convey was not enforceable. Not only was the offeror not yet bound, but also the promise of each creditor who had signed was conditional on assent by all the other creditors. The offer requested and required just such conditional promises.

Footnotes — § 3.22:

1 Illustrations exist in cases holding that one making a charitable subscription is contracting with all the other subscribers, or that all who make entry into a race contract with all the others that they will obey the rules of the race, or that an agent in contracting with a principal may also be contracting with all other similar agents.

N.Y.

—Kessler v. A.W. Haile Motor Co., 127 Misc. 413, 217 N.Y.S. 182 (1926).

Pa.

—Bruce v. The Fountains at Logan Square, LLC, 82 Pa. D. & C.4th 328 (C.P. Philadelphia 2006).

Eng.

—The Satanita, [1895] P. 255, [1897] A.C. 59; McCannell v. Mabee Maclaren Motors Ltd., 36 B.C. 369 (1926).

In the case of In re Field’s Will, 15 Misc. 2d 950, 181 N.Y.S.2d 922 (1959), modified, 11 A.D.2d 774, 204 N.Y.S.2d 947, a donor subscribed $125,000 toward a specified building, conditional on the raising of $1,000,000 by a certain date, and another $125,000 conditional on the raising of $2,000,000 by a second date. The first condition was fulfilled, and the second condition also if a $750,000 pledge could be counted as part of the required amount. The court held the pledge, considered as collectible, could be considered as part of the amount raised. In a later proceeding, In re Field’s Will, 11 A.D.2d 774, 204 N.Y.S.2d 947 (1960), the Appellate Division ordered payment of the second $125,000 subscription, holding that the decedent subscriber’s own conduct had estopped him (and his executors) from asserting that the condition of his subscription had not been fulfilled.

An instructive case of multiple acceptances by a single person is Threlkel v. Shenanigan’s, Inc., 110 Nev. 1088, 881 P.2d 674 (1994). The seller of a restaurant financed a portion of the purchase price. The corporate buyer executed a promissory note in favor of the seller and its president. The note was signed by Miller, as President (of the buyer), and by Threlkel, as Secretary/Treasurer. Threlkel’s signature appeared just prior to the handwritten notation of his corporate capacity, and his name and corporate capacity were also type-written on the note below his signature. The last sentence of the note, just prior to the signatures of Miller and Threlkel, provided: “The undersigned do hereby personally guarantee the payment of this note.” The buyer defaulted on its lease payments and payments under the note, and filed a petition in bankruptcy. The landlord sued the seller and its president for the delinquent lease payments and for failure to surrender the premises. The seller and its president impleaded Threlkel and Miller, alleging that they were personally liable on the note. Although the trial court allowed Threlkel to testify that the parties did not intend for him to be personally obligated on the note, it found his testimony unconvincing and insufficient to overcome the clear intent of the note. Threlkel alone appealed. The Supreme Court of Nevada rejected Threlkel’s argument that his single signature could not have bound both himself personally and the corporation as principal.

2 Superior Wire & Paper Products, Ltd. v. Talcott Tool & Machine, Inc., 184 Conn. 10, 441 A.2d 43 (1981). Talcott bought wire from Superior and resold it to its customers. After its debt rose to $137,500, Superior discussed payment with George Roy, an officer. A few days later Superior received guaranties signed by George Roy, Alan Roy, and Roy Machinery & Sales, Inc. A few months later steel prices fell precipitously. Talcott stopped paying, and notified Superior it was having complaints of defects in Superior’s steel wire. The trial judge found a lack of proof of defects and gave Superior judgment against Talcott and the guarantors. The latter appealed, claiming no consideration for their guaranties. Held, affirmed. The court cited, among other authorities, § 3.22 to support its view that there was good consideration in Superior’s shipments whether at the time or subsequent to the guaranties.

Eng.

—Offord v. Davies, 12 C.B. (N.S.) 748 (1862).

The following are similar continuing guaranty cases:

Conn.

—Hartford-Aetna Nat. Bank v. Anderson, 92 Conn. 643, 103 A. 845 (1918); Gay v. Ward, 67 Conn. 147, 34 A. 1025 (1895); Hotchkiss v. Barnes, 34 Conn. 27 (1867). But in White v. Reed, 15 Conn. 457 (1843), a guaranty offer was held to create but a single power of acceptance.

Fla.

—In Frell v. Dumont-Florida, Inc., 114 So. 2d 311 (Fla. App.1959) the plaintiff, at the defendant’s request, extended a “line of credit not to exceed $10,000” to a dealer, and the defendant promised to “guarantee payment of any and all credit granted.” The court held that this was a continuing guaranty that did not terminate with the first credits up to $10,000 but included later credits so long as the total amount unpaid did not exceed $10,000. Gibbs v. American Nat’l Bank, 155 So. 2d 651 (Fla. App. 1963), cert. dismissed, 170 So. 2d 821 (1964), is similar to Frell.

Ga.

—Roberson v. Liberty Nat. Bank & Trust Co., 88 Ga. App. 271, 76 S.E.2d 522 (1953), is an example of a written continuing guaranty of loans to be made to a third party, accepted several times by the making of such loans as requested.

La.

—Bonura v. Christiana Brothers Poultry Co., 336 So. 2d 881 (La. App. 1976), writ ref’d, 339 So. 2d 26, application not considered 339 So. 2d 26. An offer of continuing guaranty of the credit of a corporate debtor was made in 1961 by corporate officers and in response thereto the plaintiff continued to deal with the corporation. In 1973, the corporation became insolvent and plaintiff claimed under the guaranty. The claim was upheld despite the guarantors’ claim that a reasonable time had passed. The plaintiff had continuously supplied goods during this twelve-year period. The fact that one of the guarantors had left the business in 1967 made no difference, according to the court. His alleged oral revocation was ineffective under Louisiana law inasmuch as the written guaranty provided that it continued until receipt of a written revocation.

Mo.

—Hoffman v. Franklin County Merc. Bank, 666 S.W.2d 446 (Mo. App. 1984).

N.J.

—Grob v. Gross, 83 N.J.L. 430, 84 A. 1064 (1912).

Ala.

—Consolidated Portrait & Frame Co. v. Barnett, 165 Ala. 655, 51 So. 936 (1910).

Mass.

—Vacuum Oil Co. v. Smookler, 282 Mass. 361, 185 N.E. 13 (1933).

Wis.

—Hopkins v. Racine Malleable & Wrought Iron Co., 137 Wis. 583, 119 N.W. 301 (1909).

Eng.

—Great Northern R. Co. v. Witham, L.R. 9 C.P. 16 (1873).

See, also, McGarrigle v. Green, 76 Conn. 398, 56 A. 609 (1904), involving an agreement between A and B whereby the latter promised to manufacture for A all the hats which he might order construed as mere offer by B inviting series of contracts. A was held to be under no duty to send in orders.

Mo.

—Merit Specialties Co. v. Gilbert Brass Foundry Co., 362 Mo. 325, 241 S.W.2d 718 (1951).

In Jordan v. Patterson, 67 Conn. 473, 35 A. 521 (1896), an offer in the form of fourteen separate orders for goods, each specifying the type of goods and the dates of delivery and payment, was held, on acceptance, to create a single contract for the delivery of all the goods ordered.

In Christie, Lowe & Heyworth v. Patton, 148 Ala. 324, 42 So. 614 (1906), defendant wrote: “We will put on our work any number of teams you care to furnish … and will pay … three dollars.” After plaintiff had furnished a varying number of teams, he was notified to send no more. This was no breach of legal duty.

U.S.

—Hazlewood v. Empire Gas & Fuel Co., 268 F. 829 (5th Cir.1920).

Conn.

—Strang v. Witkowski, 138 Conn. 94, 82 A.2d 624 (1951) (standing promise to pay a commission of 5% on all orders sent in).

Arnold Joerns Co. v. Roberts, 16 Wis. 2d 333, 114 N.W.2d 416 (1962), involved an oral promise by defendant, with no time limit, to pay a commission to plaintiff for sending “prospects” to defendant who should thereafter purchase property or employ defendant to build a house. Plaintiff sent several such prospects and was paid; it then sent 3 more prospects for whom defendant built houses, and defendant refused payment. It is immaterial that plaintiff made no promise to procure or to seek “prospects.” The defendant made a continuing offer, and a separate unilateral contract resulted each time the plaintiff sent a “prospect” who bought or built. No such contract when made was within the statute of frauds, either as for a sale of land or as incapable of performance within one year. The plaintiff’s power would continue until he received notice of revocation.

7 Hartman v. Lauchli, 194 F.2d 787 (8th Cir. 1952), cert. denied, 343 U.S. 978, 72 S. Ct. 1074, 96 L. Ed. 1370. See also, N.F.L. Insurance Ltd. v. B & B Holdings, Inc., 874 F. Supp. 606 (S.D.N.Y. 1995) (consent of all member teams of insurance company was required for any one team to be obligated to perform under contract to fund the insurance company’s deficit).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.23 »

1 Corbin on Contracts § 3.23 (2020)

§ 3.23. Alternative Modes of Acceptance

As already indicated,1 an offeror can limit the power of acceptance very narrowly. The offer can prescribe by its very terms one specific mode of acceptance. But instead of being thus limited, the offer may prescribe no mode of acceptance whatever. There must be enough to indicate that the offeror intends to create a power of acceptance, but this is quite possible in the absence of any suggestion whatever as to the mode of acceptance.2 In this case the offeree can accept in any manner that is reasonable under the circumstances.3 Offers of this kind may be described as “indifferent offers.”

An even larger power of acceptance may be created by the offeror. The offer may suggest and authorize an acceptance in one or more particular modes, without making them exclusive. In such case, compliance with the suggested mode will close the contract, however unreasonable or unusual the mode may be, but so also will compliance with any other reasonable mode. In this case, the offeree has all the power that would have been created if the mode of acceptance had been exactly prescribed, and all the power that would exist if no mode of acceptance had been mentioned at all. Such offers can also properly be described as “indifferent.”

It is not always easy to determine what mode of acceptance the offeror has required or suggested. A reasonable construction must be put upon the offeror’s words or other conduct. The canon of construction placed upon such offers by legislation4 and by the American Law Institute5 is that if there is any doubt whether the offeror has prescribed an exclusive mode of acceptance, the offeree may accept in any reasonable manner. If the offeror has prescribed no mode of acceptance and if the offeree has not adopted some mode suggested by the offeror, however, it must be determined whether or not the mode actually adopted is reasonable. Where the offeree has this choice of modes of performance, commencement of performance or a tender of it operates as a promise to render complete performance: a bilateral contract is created.6

It is obvious that there may be alternative modes of acceptance of a single offer. Thus, if a buyer sends an order for goods, there are many cases in which it has been held that the offeree can accept either by shipping the goods at once or by mailing a letter of acceptance.7 The Uniform Commercial Code has explicitly adopted the rule of these cases. Section 2-206(1)(b) provides that “an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the current shipment of conforming or non-conforming goods… .”8 If the goods are non-conforming, the shipment is at once an acceptance and a breach.9

Of course, when the buyer orders the goods, the buyer can specify one exclusive mode of acceptance.10 The order can require immediate shipment as the only form, or can require immediate acceptance by fax. But the ordinary order for goods, in accordance with some catalog or list or solicitation, does neither of these things. It may be quite reasonable to accept by shipment, by writing, by telegram or telephone.

An employer may offer a promise of employment at specified wages in such a manner as to empower the offeree to accept either by actually beginning work or by promising to go to work.11 Beginning work in response to the offer would nearly always justify the inference of a promise to complete it. Actual shipment of part of the goods ordered, if in accordance with an installment order or with custom or course of dealing, may justify the inference of a promise that the balance will be shipped.12 If the order is for shipment in one lot, shipment of less may operate as an acceptance and a breach at the same time,13 but it may also be no more than a return offer to sell the part shipped or a performance in accordance with an urgent request and for the accommodation of the buyer.14 Absent a prescribed method of acceptance, an offer to purchase a mortgage can be accepted by tendering the requested documents or by promising to do so.15

Ordinarily, one who makes an offer to sell property for a price contemplates a bilateral contract and expects a notice of acceptance. This is true even though the offer is in the form of an irrevocable option to buy.16 Nevertheless, in such a case the offeree can accept by making a tender of the price without other notice. If the offeror accepts the tender, the resulting payment may constitute full performance by the buyer and the resulting contract is unilateral. If the offeror rejects the tender, the rejection is a breach of contract for which the buyer can maintain suit for damages or other appropriate remedy.17

The offer of a reward for specified services may be so worded that it may be reasonably interpreted as a promise to pay for any one of two or more acts. Thus, the offer of a reward for the apprehension of a fugitive may be interpreted so that acceptance can consist either of the actual seizure of the fugitive or by the giving of information to officers who are caused thereby to arrest him.18 In either case, the contract when made is unilateral, but the services performed are not the same. Interpretation is not always easy, but the offeror chooses the words used and their interpretation should be liberal in favor of the offeree.19

Power to accept a single offer by either of two methods is not the same as power to accept either of two alternative offers. If a party makes two alternative offers, the road is open for the making of two different contracts with different terms and subject matter.20

In Durasteel Co. v. Great Lakes Steel Corp.,21 an order for goods was given, specifying that its acceptance would be a cancellation and discharge of all previous orders. The letter continued: “We will very much appreciate your sending through the acknowledgments of these orders as quickly as possible and that you do everything possible to get the shipment to us as early as you can in September.” There was a dispute as to the mailing and receipt of an acknowledgment. The court held that the words quoted above did not make acceptance by mail an absolute condition. Some shipments under the order were made, received, and paid for. These facts constituted a sufficient acceptance.

A noteworthy case with which this treatise disagrees is Lazarus v. American Motors Corp.22 The defendant sent a purchase order for steel, stating this: “In accepting this order you agree to all the terms and conditions set forth both on face and reverse side hereof. You further agree that either the delivery of any item covered by this order or the written approval of this order shall constitute an acceptance thereof.” The plaintiff sent no written approval of the order, but “numerous deliveries of steel were made … pursuant to the purchase order and payment was made” by the defendant. “However, 565 tons of steel included in the purchase order were not delivered,” and the defendant canceled its order because the steel strike had ended and prices had fallen. The court held that the plaintiff, by using the first alternative mode of acceptance, had not consummated a “bilateral” contract, and that the defendant’s notice of revocation before any action by the plaintiff toward shipping the 565 tons prevented the creation of a “unilateral” contract. This treatise interprets the purchase order differently. The offer by defendant was for the purchase of one entire quantity in specified shapes and sizes for delivery in installments within a specified time. The power of acceptance was limited to a single acceptance of the entire order. Piecemeal acceptances were not authorized. Two methods of indicating to the offeror the making of this single acceptance were by a writing or by the “delivery of any item.” The delivery of such an item would indeed be an “act” (so also would be the mailing of a letter), but it would be an act that manifested an intention to promise complete performance. See § 3.8. The act of acceptance in this case consummated a “bilateral” contract, as the defendant would have been prompt to assert if the steel strike had continued and the plaintiff had refused to deliver the 565 tons. If so, defendant’s cancellation was a breach.

Footnotes — § 3.23:

1 Section 2.32. This § 3.23 is best read together with § 2.32.

2 Girves v. Kenai Peninsula Borough, 536 P.2d 1221 (Alaska 1975). The federal government by statute offered a right of way over public lands. An Alaskan statute subsequently provided for the dedication of rights of way. In the absence of any statement in the federal statute as to how the offer was to be accepted, the Alaskan statute was an acceptance of the federal offer.

3 “Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.” Restatement (Second) of Contracts § 30(2) (Am. Law Inst. 1981).

In Kagan v. Ismail, 2017 Mass. App. Unpub. LEXIS 844 (Sept. 28, 2017), plaintiffs rented property from defendants, and their lease contained the following right of first refusal: “If and when the LESSOR decides to sell the home during the term of the lease, then the LESSEE has the right of first refusal to purchase the property, said right of first refusal must be exercised within one week of presentation of offer to LESSEE.” Plaintiffs received notice of a third party offer for the property and responded in a timely fashion by sending the defendants written notice of their intention to purchase the property under the terms specified in the third-party offer. The defendants claimed the notice was not a proper acceptance because acceptance supposedly was conditioned upon the plaintiffs tendering the full purchase price. The lower court rejected this argument and entered summary judgment for the plaintiffs, and the appellate court affirmed. The option was silent as to the manner of its acceptance. “By failing to specify a manner of acceptance, therefore, the defendants ‘invite[d] acceptance in any manner and by any medium reasonable in the circumstances.’ ” The manner of plaintiffs’ acceptance of the right of first refusal was reasonable.

The offeree’s assignment by computer of a tracking number to an order is no acceptance. Corinthian Pharmaceutical Systems, Inc. v. Lederle Labs., 724 F. Supp. 605 (S.D. Ind. 1989).

4 U.C.C. § 2-206.

5 Restatement (Second) of Contracts § 32 (Am. Law Inst. 1981): “In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.”

If the parties actually negotiate over terms that might seem like boilerplate in circumstances where there is no negotiation, there is no reason to think of such terms as anything other than “dickered” terms—in fact, they are literally “dickered” terms since the parties negotiated them. An unusual case that illustrates this point is Reliable Automatic Sprinkler Co. v. Sunbelt Grp. L.P., 2020 U.S. Dist. LEXIS 125515 (S.D. N.Y. July 16, 2020). Reliable purchased steel from Sunbelt on an ongoing basis. Their original agreement designated Texas as the choice of law and forum. Almost a decade later, Reliable forwarded to Sunbelt a new proposed contract, which had new terms. One of them provided that Reliable would not buy goods from any vendor that failed to abide by Reliable’s terms. It also had a provision requiring vendors to indemnify Reliable and to carry insurance. Further, it had a new choice of law and forum designation: New York. Sunbelt returned to Reliable a modified version of the Reliable document. Among other things, it limited the scope of indemnity and limited Sunbelt’s liability, and it modified the insurance provision. The Sunbelt draft did not alter the New York choice of law and forum. The Sunbelt redraft was not sent to Reliable with redlining, and “Reliable thought that Sunbelt had accepted” its terms, “but that was not true. And Sunbelt never asked whether Reliable had accepted” its modification of Reliable’s terms. The parties proceeded to do business with each other, just as before. Sunbelt’s invoices had Sunbelt’s terms—and called for Texas as the choice of law and forum, just as in the parties’ original agreement. A dispute erupted between the parties, and Reliable sued Sunbelt in New York state court. Sunbelt removed the case to the Southern District Court of New York, and then moved to transfer the case to Texas. Reliable claims that the operative contract was the Sunbelt redraft of Reliable’s terms—that did not alter Reliable’s designation of New York as the choice of law and forum. But the parties never signed that document, and never came to agreement on it. Reliable claims that a contract was formed pursuant to § 2-207(1)—as Judge Gregory H. Woods brilliantly put it in this case—“This section governs disputes based on the infamous ‘battle of forms[’]—the all too common business practice of blithely drafting, sending, receiving, and filing unread numerous purchase orders, acknowledgments, and other diverse forms containing a myriad of discrepant terms.” Judge Woods explained that § 2-207 does not dispense with the requirement that there must be a so-called “meeting of the minds” regarding material terms. The court concluded that the parties never agreed on material terms and cites the liability and insurance provisions. (These are not terms that are typically regarded as the “dickered” terms that Karl Llewellyn was concerned about in drafting this section—but these terms were literally “dickered” terms because the parties openly differed about and never reached agreement on them.) There was no acceptance under UCC § 2-207(1). Sunbelt did not send Relialble its own draft, boilerplate terms—Sunbelt revised Reliable’s terms the way parties in a negotiation would do. The parties never agreed on a set of terms, and they proceeded to conduct business the way they had for years before that. The fact that the parties simply dropped the matter after Sunbelt sent its revised draft does not change the fact that the parties actually “dickered” over terms and did not agree on them. Likewise, UCC § 2-207(3) does not apply because there the parties’ performance did not arise after the offeree made a UCC § 2-207 counteroffer—the parties’ conduct in continuing to do business was, in fact, consistent with the initial contract that governed the parties’ relationship for many years. The court refused to infer a modification in these circumstances. The parties’ initial contract, mandating trial in Texas, governed, and the court granted the motion to transfer.

6 Uniform Commercial Code § 2-206; Restatement (Second) of Contracts § 62 (Am. Law Inst. 1981).

7 In the following pre-U.C.C. cases an order for goods was held properly accepted by shipment without a notice of acceptance:

U.S.

—Lang & Gros Mfg. Co. v. Ft. Wayne Corrugated Paper Co., 278 F. 483 (7th Cir. 1921).

Ala.

—Sturdivant v. Mt. Dixie Sanitarium, Land & Invest. Co., 197 Ala. 280, 72 So. 502 (1916).

Ill.

—Schmidt v. Marine Milk Condensing Co., 197 Ill. App. 279 (1915).

Iowa

—Petroleum Products Distributing Co. v. Alton Tank Line, 165 Iowa 398, 146 N.W. 52 (1914).

Mich.

—National Cash Register Co. v. Dehn, 139 Mich. 406, 102 N.W. 965 (1905).

Mo.

—Williams v. Emerson-Brantingham Implement Co., 198 S.W. 425 (Mo. App. 1917) (but shipment to seller’s own agent is not enough).

N.C.

—Crook v. Cowan, 64 N.C. 743 (1870) (order to make up and ship two carpets C.O.D.).

W.Va.

—Wood & Brooks Co. v. D.E. Hewitt Lumber Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921).

Wis.

—Hawkinson v. Harmon, 69 Wis. 551, 35 N.W. 28 (1887).

Eng.

—Brogden v. Metrop. R. Co., L.R. 2 App. Cas. 666 (1877, H.L.).

In De Angelis Coal Co. v. Sharples Corp., 231 F.2d 1 (9th Cir. 1956), the buyer of a machine asserted breach of warranty and asked to return it, with cancellation of contract. The seller wrote offering to take the machine back, if buyer would pay a service charge of 25%. Buyer replied that he would take the offer under advisement. Six days later he shipped the machine to the seller. Before receiving it, the seller wrote demanding the price. Buyer replied that he had returned the machine and refused to pay the 25% service charge. The court held that on these facts no rescission contract had been consummated. The shipment of the machine by the buyer, without more, was not interpreted as an acceptance of the seller’s offer, because it was not unequivocal. It could mean instead that the buyer was exercising a right of return for breach of warranty.

In Shortridge v. Ghio, 253 S.W.2d 838 (Mo. App. 1952), the court held that the terms of a written offer were such as to require signature by the offeree as acceptance.

In McCarty v. Langdeau, 337 S.W.2d 407 (Tex. Civ. App. 1960), writ ref. n.r.e., the defendant subscribed for shares in a corporation promising to pay in installments. Certain payments were made, and certificates of stock were issued as payments were made. These facts showed an acceptance by the corporation of the subscription as made. Action lay for the balance promised by the subscriber.

In Calo, Inc. v. AMF Pinspotters, Inc., 31 Ill. App. 2d 2, 176 N.E.2d 1 (1961), the plaintiff’s offer to purchase certain equipment was accepted by the defendant’s requesting and receiving a payment of $5,000 on account, even though it did not sign the purchase order. By its act, the defendant promised to deliver the equipment. Western Newspaper Union v. Woodward, 133 F. Supp. 17, 24 (W.D. Mo. 1955). When one makes fraudulent representations that induce another to accept an offer to buy shares, such acceptance being by a corporate resolution in New York, the contract to sell is consummated in New York. The fraudulent tort was then complete (and governed by New York law) even though the notice of acceptance and the certificates of stock were delivered elsewhere.

BNP Paribas v. Kurt Orban Partners LLC, 2020 U.S. Dist. LEXIS 136287 (S.D. N.Y. July 31, 2020). Plaintiff sued KOP and Orban alleging that they failed to pay money owed to plaintiff in connection with KOP’s purchase of steel allow bars (Orban was guarantor of KOP’s debt). KOP sent plaintiff’s predecessor a purchase order to buy steel allow bars, and the purchase order incorporated KOP’s terms and conditions on its website. Those terms and conditions provided that “any disputes arising out of the PO are subject to the exclusive jurisdiction of the courts of California or Texas.” But subsequently, KOP and plaintiff’s predecessor entered into a signed contract that contained all the material terms of the deal and included a forum selection clause stating: “Buyer agrees that any suit relating to or arising out of this contract may be brought in the courts of the state of New York or any federal court siting therein. Buyer hereby consents to the jurisdiction of such courts.” KOP subsequently stamped “Details as per KOP orders sheets in case of dispute, KOP order sheets to Govern” next to its signature on the signed contract—after plaintiff’s predecessor signed the contract and after KOP had returned to plaintiff’s predecessor a countersigned contract. The dispute over payment erupted, plaintiff’s predecessor assigned the receivable to plaintiff, and plaintiff filed this action. Defendants claimed that the signed contract was nothing more than a confirmation under UCC 2-207 and that the purchase order terms were the operative ones. Thus, the “forum selection clause in the [signed contract] should be excluded from the agreement between the Parties.” The court properly rejected this argument. The signed contract governed since it was a final, signed agreement between the parties. It constituted both the offer and acceptance of the parties’ deal. The contract stated that “[t]he attached Conditions of Sale form an integral part of this contract,” and the “Conditions of Sale,” provided that “this contact supersedes all correspondence, orders or confirmations of buyer or any agent thereof with respect to the material covered by this contract.” It contained all the material terms of the deal—quantity, shipment date, price, delivery, and payment terms—and superseded the unilateral, unsigned purchase order sent by plaintiff’s predecessor-in-interest. The court added this unnecessary caveat: “KOP also did not object to the terms of the” contract it signed. It is not clear why the court thought this was helpful—KOP manifested its assent by signing the contract—even discussing “objection” here distracts from what ought to be a clear-cut, simple case. The fact that KOP stamped “Details as per KOP orders sheets in case of dispute, KOP order sheets to Govern” next to its signature on the signed contract made no difference. This stamp was applied after plaintiff’s predecessor signed the contract—and after it had returned to plaintiff’s predecessor a countersigned contract. The court correctly noted: “This stamp does not carry legal significance since parties cannot unilaterally add terms to a contract after the other party has already signed the agreement.”

U.S.

—Joseph Muller Corp. v. Commonwealth Petrochemicals, 334 F. Supp. 1013, 1019 (S.D.N.Y. 1971) (applying the U.C.C. as federal common law).

Compare Plymouth Tube Co. v. Pilepro Steel, LP, 2017 U.S. Dist. LEXIS 173679 (N.D. Ill. Oct. 17, 2017) (promise to ship was adequate acceptance) with Vigilant Ins. Co. v. Energy Sav. Prods., 2017 U.S. Dist. LEXIS 66661 (D. Mass. May 1, 2017) (shipment was adequate acceptance).

9 “[A] non-conforming shipment is normally to be understood as intended to close the bargain, even though it proves to have been at the same time a breach.” U.C.C. § 2-206, cmt. 4.

10 “An offer whose manner, time, and place of acceptance is dictated by the offeror becomes a binding contract only when it is accepted according to its terms.” Arcturus Corp. v. Espada Operating, LLC, 2016 Tex. App. LEXIS 8652, *9 (Aug. 11, 2016). “[W]here the offeror specifies the manner of acceptance, no contract is formed if the specification is not followed.” Steadman v. Green Tree Servicing, LLC, 2015 U.S. Dist. LEXIS 58928, *16 (W.D. Wash. May 5, 2015).

In Southwestern Stationery & Bank Supply, Inc. v. Harris Corp., 624 F.2d 168 (10th Cir. 1980), the seller provided a purchase order to the buyer for the purchase of a used printing press. On April 29, the buyer completed the purchase order and sent it to the seller, together with a part payment check and a letter of credit for the balance. On June 10, seller returned the check and letter of credit, rejecting the offer. The following language was held to prescribe an exclusive means of acceptance: “This order is subject to acceptance by Seller at its home office written herein. Thereupon, Seller shall mail to Purchaser a signed duplicate copy hereof, and the same shall constitute the entire contract between the parties… .” No shipment had been made, but the buyer alleged an oral acceptance. There being no signed duplicate, there was no contract. Query, can it be said that the offer, drafted by the offeree, was “unambiguous” as to the exclusive means of acceptance?

In United Brotherhood of Carpenters v. Backman Sheet Metal Works, Inc., 598 F. Supp. 212 (S.D. Ohio 1984), a subcontractor was protected against strikes if it was a party to a collective bargaining agreement providing such protection. The agreement, negotiated by the general contractor, provided “[e]ach subcontractor who performs work at the jobsite shall become signatory and a party to this agreement by signing the Letter of Assent attached hereto… .” The subcontractor did not sign the agreement. The court found that the subcontractor had accepted either orally or by commencing performance, explaining: “It is noteworthy that the clause does not state that acceptance of the offer can be made only by signing the Letter of Assent.”

Tex.

—Fujimoto v. Rio Grande Pickle Co., 414 F.2d 648 (5th Cir. 1969). An offer was made in a written “contract” signed by the employer. The employees did not sign, but kept the employer’s written document and proceeded with the work. This sufficiently indicated their assent.

U.S.

—Lang & Gros Mfg. Co. v. Ft. Wayne Corrugated Paper Co., 278 F. 483 (7th Cir. 1921).

W.Va.

—Wood & Brooks Co. v. Hewitt Lumber Co., 89 W.Va. 254, 109 S.E. 242, 19 A.L.R. 467 (1921).

13 See Uniform Commercial Code § 2-206 (1)(b).

14 Uniform Commercial Code § 2-206(1)(b); Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories, 724 F. Supp. 605 (S.D. Ind. 1989); Source Assoc., Inc. v. Suncast Group, Inc., 1990 U.S. Dist. LEXIS 16600 (D. Kan. Nov. 19, 1990); Senner & Kaplan Co. v. Gera Mills, 185 App. Div. 562, 173 N.Y.S. 265 (1918).

15 Hauk v. First Nat. Bank, 680 S.W.2d 771 (Mo. App. 1984). Such an offer was made, stating in part: “I wish to inform you that this money is available to you at any time at the First National Bank that you should elect to take it. You have only to contact Mr. Tom Boschert, President of the Bank, to receive this payment, and of course, surrender your note and deed of trust and execute a deed of release. All of these await you at the First National Bank.” Plaintiff expressed his acceptance to Mr. Boschert at the bank by a mailgrammed message. Defendant argued unsuccessfully that the offer could be accepted only by performance.

16 In Gleeson v. Frahm, 211 Neb. 677, 320 N.W.2d 95 (1982), the defendant had given the plaintiff an option to purchase specified real property, the option to remain open until January 1, 1980. The terms required a 25% payment of the price. The plaintiff sent a notice of acceptance that was received on December 29, 1979, but included no part of the payment. When the defendants refused to proceed, the plaintiffs brought an action for specific performance. It was held that, because the option did not specify how it was to be accepted, the plaintiffs could accept in any reasonable way, including a promise to perform the terms of the option agreement. See also, Tober v. CDC Realty, L.L.C., 2008 Ariz. App. Unpub. LEXIS 1116 (Jan. 24, 2008).

Idaho

—Kessler v. Pruitt, 14 Idaho 175, 93 P. 965 (1908).

18 See § 3.10.

U.S.

—McClaughry v. King, 147 F. 463 (8th Cir. 1906).

La.

—Alexander v. Lafayette Crime Stoppers, Inc., 38 So. 3d 282 (La. July 2, 2010) (offer construed against offeror).

Tex.

—Choice v. Dallas, 210 S.W. 753 (Tex. Civ. App. 1919).

See Shuey v. United States, 92 U.S. (2 Otto) 73, 23 L. Ed. 697 (1876), where two different sums were offered, one for “apprehension” and the other for “information”.

20 Thus, in Collin v. Wetzel, 163 Md. 194, 161 A. 18 (1932), one of two joint tenants offered either to buy the other tenant’s interest, or to sell his own interest to the other, for the sum of $900. This created in the other tenant, the offeree, a power to sell and a power to buy. Only one of these two powers could be exercised. The exercise of one of them would make one contract. The exercise of the other would make a very different one.

See Cea v. Hoffman, 276 P. 3d 1178 (Ct. App. Utah 2012). The Ceas contracted to purchase a modular log home from ATC to be delivered to their property. They paid half the purchase price ($172,116) as a down payment. ATC ceased operations and the Ceas received a letter from the defendant Modular indicating that Modular had acquired ATC’s assets. Modular proposed two options to the Ceas: Modular would complete the work pursuant to the Ceas’ contract for the same contract price with only “some minor modifications to terms and payment schedules” that would appear in a new contract for the plaintiffs to sign, or “in lieu of a new contract,” Modular would refund the plaintiffs’ down payment. The Ceas responded with a letter stating their willingness to sign a new contract, but the delivery date would change and the location of the building would change. Modular did not respond to this letter. The Ceas then sent a second letter stating, “Upon further consideration we respectfully request that … you refund the $172,116 we have paid as a deposit on our log home.” When Modular did not respond to this letter, the Ceas sued. The court held that Modular and the Ceas never made a contract. On appeal, the Ceas argued that the trial court erred in not finding that either the first or second Cea letter was an acceptance of an offer from Modular.

The instant court reviewed the fundamentals of offer and acceptance which it applied to the facts. The court concluded that the first Cea response to Modular was a counter-offer that necessarily rejected the Modular offer to provide the log home. The second option in the Modular letter to return the deposit was an offer. Modular argued that by making a counter-offer that rejected the first option of completing the long home, the Ceas also rejected the second offer to return the deposit. Thus, Modular claimed that where an offeree receives two mutually exclusive offers, a counter-offer to the first offer rejects not only that offer but the second offer as well. The court disagreed stating, “Even if this position were true as a general matter—a question on which we express no opinion—it is not true here.” The court noted that Modular was holding the Ceas’ deposit. The first Cea letter could fairly be interpreted as a counter-offer rejecting the Modular offer to complete construction of the log home, but it could not be fairly interpreted as a statement by the Ceas that, if Modular does not accept the counter-offer, they may keep the deposit. Thus, the first Cea letter did not reject Modular’s offer to return the deposit. That offer remained open and was accepted in the second Cea letter. The ruling of the trial court on that point was reversed.

21 Durasteel Co. v. Great Lakes Steel Corp., 205 F.2d 438 (8th Cir. 1953).

22 Lazarus v. American Motors Corp., 21 Wis. 2d 76, 123 N.W.2d 548 (1963).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.24 »

1 Corbin on Contracts § 3.24 (2020)

§ 3.24. Acceptance by Post

As has already been stated, an offeror, at whim, can specify any mode of acceptance. By the offer, the power of acceptance is created. The power can be as limited as the offeror desires. Without regard to the mode in which the offer is communicated, it can require acceptance by telephone, electronic communication, or letter, and it can require that the acceptance shall be received instead of merely started.1 But in order to limit the power of acceptance, the offeror must either communicate the limitation to the offeree before the latter accepts, or else make the offer in such manner and terms that the offeree has reason to know that the power is so limited. Because such a limitation displaces the customary rule, it must be clear and explicit.2 Assuming the offeree’s power of acceptance is so limited, a purported acceptance that does not conform to the limits of the offer is a counter-offer that may in turn be accepted by the original offeror.3

Where the parties are negotiating at a distance from each other, a common method of making an offer is by sending it by mail, and more often than not the offeror has specified no particular mode of acceptance. In such a case, or in any case where a mailed acceptance is reasonable, it is now the prevailing rule that the offeree has power to accept and close the contract by mailing a letter of acceptance within a time specified in the offer or, if none, within a reasonable time. The contract is regarded as made at the time and place that the letter of acceptance is put into the possession of the postal service.4 Generations of law students have come to know this as the “mailbox rule,” or the rule in Adams v. Lindsell.

In holding that the act of posting the letter constitutes the operative act that closes the deal (“makes” the contract), it does not follow that the local system of law that prevails where the letter is dropped in the mail box or the hotel mail chute (where the “last act” is done) is the system that controls either the interpretation or the legal operation of the contract that has been made. Dogmatic statements wherever they are found, in court opinions, in learned treatises, in official “Restatements,” cannot be relied on. These statements are in conflict and confusion. In huge numbers of cases, the offer, the acceptance, the performance, and the action for enforcement take place in different States or countries. There are many “systems” of law that have been considered and applied: lex fori, lex loci contractus, lex solutionis, lex rei sitae, lex domiciliae, lex validitatis, besides any system of law that the parties have specified. The confusion has been greatly confounded by the assumption that there is always one system of law that must be the controlling one, and that rights recognized by that system must be recognized and enforced elsewhere.5

Various reasons have been given for holding that acceptance is operative on mailing, and for a long time some learned theorists and judges denied that such was or could be the rule. The objections have now mostly died away, and no one doubts that the courts can make such a rule, because they have in fact made it. Inasmuch as the rule seems to be causing no great dissatisfaction, it may now be supposed that the courts are not likely to unmake it.

A reason that has been given for the rule is that the offeror, by sending the offer by mail, has made the post an authorized agent to receive and carry the acceptance. Sometimes it was said that the post is the common agent of both parties.6 It requires only slight consideration to perceive that this reasoning is defective. The term “agent” is generally used to refer only to some human person with power to act on the principal’s behalf. The “post” is not a person, although there are many persons in the postal service, and it is by no act of any such person that the making of the contract is consummated. A letter box on the corner is neither a person nor an agent, and yet the acceptance is effective when the letter of acceptance is dropped into that box.7 It is the offeree who personally or by some authorized person drops the letter in the box. It is the offeree who has the power of acceptance and who exercises it. The “box” has no power and does no act. It is true that an employee of the United States Postal Service may thereafter remove the letter from the box, but the contract has already been made and the removal has no legal operation. All this is equally true in case the letter is mailed by dropping it through the proper slot inside of a post office building.

Sometimes it is said that the mailing of the letter of acceptance makes the contract for the reason that by the act of mailing the offeree irrevocably surrenders possession and control over it. However, the United States Postal Service permits mail to be recalled by the sender.

A better explanation of the rule seems to be that in such cases the mailing of a letter has long been a customary and expected way of accepting the offer. It is ordinary business usage. More than this, however, is needed to explain why the letter is operative on mailing rather than on receipt by the offeror. Even though it is business usage to send an offer by mail, it creates no power of acceptance until it is received. Indeed, most notices sent by mail are not operative unless actually received.

The additional reasons for holding that a different rule applies to an acceptance and that it is operative on mailing may be suggested as follows: When an offer is by mail and the acceptance also is by mail, the contract must date either from the mailing of the acceptance or from its receipt. In either case, one of the parties will be bound by the contract without being actually aware of that fact. If we hold the offeror bound on the mailing of the acceptance, the offeror may change position in ignorance of the acceptance. Even though the offeror waits a reasonable time before acting, the offeror may still remain unaware that a binding contract has come into being because the letter of acceptance is delayed, or is actually lost or destroyed, in the mails. Therefore this rule is going to cause loss and inconvenience to the offeror in some cases. But if we adopt the alternative rule that the letter of acceptance is not operative until receipt, it is the offeree who is subjected to the danger of loss and inconvenience. The offeree cannot know that the letter has been received and that a binding contract has been made until a new communication is received. The letter of acceptance may never have been received and so no letter of notification is sent to the offeree, or the letter of acceptance may have been received, and the letter of notification may be delayed or entirely lost in the mails. One of the parties must carry the risk of loss and inconvenience.8 We need a definite and uniform rule as to this. We can choose either rule, but we must choose one. We can put the risk on either party, but we must not leave it in doubt. The party not carrying the risk can then act promptly and with confidence in reliance on the contract. The party carrying the risk can insure against it. The business community could no doubt adjust itself to either rule, but the rule throwing the risk on the offeror has the merit of closing the deal more quickly and enabling performance more promptly. It must be remembered that in the vast majority of cases the acceptance is neither lost nor delayed, and promptness of action is of importance in all of them. Moreover, it is the offeror who has invited the acceptance.9 However, this pro-offeree rule has been stood on its head and it has been held that the offeree cannot overtake a mailed acceptance by telephone or other means of prompter communication. Nothing but pure conceptualism and a fear of bad faith speculation prevents a court from ruling that an acceptance can be overtaken by a withdrawal.10

A third possibility has been suggested, but little considered. This is that the mailing of the acceptance shall consummate a conditional contract, one that at once becomes irrevocable by either party but that is conditional upon actual receipt of the letter within a reasonable time by the offeror. To this rule, also, the business community could no doubt adjust itself, but it has no such advantages in the allocation of risk as to justify advocating its adoption at the present time.11

If the offer has not itself been sent by mail, the theory that the post is the common agent of the parties breaks down. Also, there is so much the less reason for holding that the offeror has authorized an acceptance by mail.12 As in all other cases, the offeror may have expressly authorized such an acceptance. In some well-reasoned cases, it has been held that the power to accept by mailing a letter may rest upon facts other than an express or implied authorization. Even though the offer was not made by mail and there was no authorization, the existing circumstances may be such as to make it reasonable for the offeree to accept by mail and to give the offeror reason to know that the acceptance is likely to be so made. Such may be usage and business practice. In such case, the acceptance is operative on mailing.13

The fact that an offer was sent by telegram is not itself evidence of an authorization to accept by mail—indeed it tends to show that a more speedy form of acceptance was desired. Yet the nature of the proposed contract, the time of the expected performance, the absence of price fluctuation, and other factors may be sufficient to warrant a decision that an acceptance by mail is operative on mailing.14

An offeror can always so word the offer and so limit the power of acceptance as to make the receipt of the acceptance necessary to the creation of a contract. Indeed, if the offer merely says, “Notice of your acceptance must be given within 30 days,” this may be held to mean that the notice must be received within that time. It would be different if it says, “Please reply by return of post.” The latter specifies a mode of communication but does not make receipt necessary. Where an already completed contract contained a provision creating an option to be exercised by the giving of notice within a stated time, it has been held that it is not enough that the notice was mailed within that time.15 Here, the question is one of interpretation of language.16 Probably, when parties use the word “notice,” they usually mean a communication received.17

So, also, where in an already completed contract, a power of revocation or termination by notice is reserved, the notice is not operative until actually received.18

If the circumstances are such that the acceptance is operative upon starting it by mail, the fact that it is delayed on the way19 or even that it is lost and never received20 does not affect the validity of the contract already made. This presupposes that such loss or delay is not caused by the fault of the offeree. Of course, in these cases there is likely to be injury or inconvenience, but that is a risk that someone has to carry. The risk is placed on the offeror unless the offer is so phrased as to shift it.

The United Nations Convention on Contracts for the International Sale of Goods takes a position in opposition to the traditional common law view. Article 18(2) of the Convention states: “An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror,”21 and Article 23 provides that a contract is formed at the moment of acceptance. Article 22 of the Convention provides: “An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.”

In the United States, to balance the common law’s bias toward offerors on the issue of revocation, the common law developed the mailbox rule, which shortens the period in which an offer may be revoked. To balance the civil law’s bias toward offerees on the issue of revocability, the civil law developed a rule favoring the offeror on the question of when an acceptance takes effect. The United Nations Convention approximates the common law view on the question of revocability and the civil law view on the question of the time of acceptance.22

The misaddressed or otherwise defective posting. The common law mailbox rule presupposes that the acceptance is properly stamped and addressed.23 If it is improperly stamped or addressed, classical thinking concluded that the offeree lost the benefit of the mailbox rule and that the acceptance is effective when and if it arrives and only if the offer is still open at that time. Section 1-201 of the Uniform Commercial Code, however, provides a somewhat different rule. It reads:

“Send” in connection with a writing, record, or notice means:

(A) to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances; or

(B) in any other way to cause to be received any record or notice within the time it would have arrived if properly sent.

The Restatement (Second) of Contracts § 67 (Am. Law Inst. 1981) adopts a similar rule, providing:

Where an acceptance is seasonably dispatched but the offeree uses means of transmission not invited by the offer or fails to exercise reasonable diligence to insure safe transmission, it is treated as operative upon dispatch if received within the time in which a properly dispatched acceptance would normally have arrived.

Although similar, they do not necessarily yield the same result. Consider the following hypothetical case:

A makes an offer to B by mail on Monday requesting a reply by mail to be sent not later than Thursday noon. The normal course of post between A and B’s offices is one day. B mails an acceptance on Tuesday which A does not receive until Thursday morning because the letter is not properly stamped and addressed. In the interim, on Wednesday afternoon, B receives a letter of revocation.

Under the formulation of the Uniform Commercial Code, the acceptance would appear to be ineffective because the letter of acceptance did not arrive within the time the letter would have arrived if properly dispatched. Under the formulation of the Restatement (Second), if literally interpreted, the acceptance would be effective because it arrived within the time in which a hypothetical properly dispatched acceptance would normally have arrived. For example, a letter properly dispatched Wednesday morning would have arrived at the time the actual letter arrived.

Under the United Nations Sales Convention, because an acceptance is ineffective until received, the problem discussed here does not arise. The simple question is whether the acceptance arrived while the offer was open.

Footnotes — § 3.24:

U.S.

—Eliason v. Henshaw, 17 U.S. (4 Wheat.) 225, 4 L. Ed. 556 (1819).

Grange Mut. Cas. Co. v. Woodard, 826 F.3d 1289 (11th Cir. 2016).

Ark.

—Goode v. Universal Plastics, Inc., 247 Ark. 442, 445 S.W.2d 893 (1969).

Colo.

—Union Interchange, Inc. v. Sierota, 355 P.2d 1089 (Colo.1960).

Ga.

—Holland v. Riverside Park Estates, 214 Ga. 244, 104 S.E.2d 83 (1958).

Ill.

—Brach v. Matteson, 298 Ill. 387, 131 N.E. 804 (1921).

Ky.

—Postal Tel. Cable Co. v. Louisville Cotton Seed Oil Co., 140 Ky. 506, 131 S.W. 277 (1910).

Mass.

—Lewis v. Browning, 130 Mass. 173 (1881).

N.Y.

—Spratt v. Paramount Pictures, Inc., 178 Misc. 682, 35 N.Y.S.2d 815 (1942).

Pa.

—Glenway Indus., Inc. v. Wheelabrator-Frye, Inc., 686 F.2d 415 (6th Cir. 1982).

Tenn.

—Lexington Housing Auth. v. Continental Cas. Co., 210 F. Supp. 732 (W.D. Tenn. 1962).

Tex.

—American Heritage Life Ins. Co. v. Koch, 721 S.W.2d 611 (Tex. Civ. App. 1986), writ refused n.r.e.

Eng.

—Byrne v. Van Tienhoven, L.R. 5 C.P.D. 344 (1880).

An offer to transfer title on receipt of notes for the price can be revoked at any time before such receipt. McCone v. Eccles, 42 Nev. 451, 181 P. 134 (1919). However, such an offer can become irrevocable by conduct in reliance upon the offer. See § 2.31.

2 See Signature Mktg. v. New Frontier Armory, LLC, 2016 U.S. Dist. LEXIS 133742 (D. Kan. Sept. 28, 2016).

See also:

U.S.

—U.S. Ore Corp. v. Commercial Transport Corp., 369 F. Supp. 792 (E.D. La. 1974).

Mich.

—Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir. 1960).

N.Y.

—Vassar v. Camp, 11 N.Y. 441 (1844).

Okla.

—Mid-Continent Petroleum Corp. v. Russell, 173 F.2d 620 (10th Cir. 1949).

Tex.

—Lone Star Gas Co. v. Coastal States Gas Producing Co., 388 S.W.2d 251 (Tex. Civ. App. 1965). This was a venue case. A proposed contract was to be void “unless executed by you and returned to us on or before June 30… .” Held: mailing the signed document met the “returning” requirement and created a contract on dispatch. See also Fujimoto v. Rio Grande Pickle Co., 414 F.2d 648 (5th Cir.1969).

Utah

—Crane v. Timberbrook Village, Ltd., 774 P.2d 3 (Utah App.1989).

Wis.

—Zimmerman Bros. & Co. v. First National Bank, 219 Wis. 427, 263 N.W. 361 (1935).

U.S.

—Avila Group, Inc. v. Norma J. of California, 426 F. Supp. 537 (S.D.N.Y. 1977) (Federal Arbitration Act).

D.C.

—Vaulx v. Cumis Ins. Soc., 407 A.2d 262 (D.C. App. 1979).

Ill.

—Zinni v. Royal Lincoln-Mercury, Inc., 84 Ill. App. 3d 1093, 406 N.E.2d 212 (1980).

N.C.

—Executive Leasing Ass’n, Inc. v. Rowland, 30 N.C. App. 590, 227 S.E.2d 642 (1976).

U.S.

—Burton v. United States, 202 U.S. 344, 26 S. Ct. 688, 50 L. Ed. 1057 (1906); Patrick v. Bowman, 149 U.S. 411, 13 S. Ct. 811, 37 L. Ed. 790 (1893); Tayloe v. Merchants’ Fire Ins. Co., 50 U.S. (9 How.) 390, 13 L. Ed. 187 (1850); Smith v. Hous. Auth. of Balt. City, 709 Fed. App’x 165 (4th Cir. 2017); Grange Mut. Cas. Co. v. Woodard, 861 F.3d 1224 (11th Cir. 2017); Soldau v. Organon Inc., 860 F.2d 355 (9th Cir. 1988) (where the offeree succeeded in retrieving the letter of acceptance from the mails); Kirkhof Manufacturing Corp. v. Sem-Torq, Inc., 312 F.2d 578 (6th Cir. 1963) (a conflicts case regarding a sales representative’s commissions; “sale” was made where the purchasers accepted the offers of the manufacturer); Barnebey v. Barron G. Collier, Inc., 65 F.2d 864 (8th Cir. 1933); Raymer v. Netherwood, 257 F. 284 (7th Cir. 1919); Stephen M. Weld & Co. v. Victory Mfg. Co., 205 F. 770 (E.D.N.C. 1913).

While the mailbox rule, as it pertains to the formation of contracts, is often invoked in analogous situations, there are limits to its application. In DT v. Somers Cent. School Dist., 588 F. Supp. 2d 485 (S.D.N.Y. 2008), the plaintiffs claimed that letters sent to the defendants claiming discrimination in the school had been “accepted” by the defendants under the “mailbox” rule. The court characterized an argument that the mailbox rule, a contract formation rule dating the acceptance from mailing the letter, somehow applies to acceptance of letters constituting notice in a Title VI case which makes no contract claim whatsoever, was novel. The court declined to recognize the mailbox rule as establishing notice when it was mailed.

Ala.

—Watkins Co. v. Hill, 214 Ala. 507, 108 So. 244 (1926).

Ark.

—Equity Fire & Cas. Co. v. Traver, 330 Ark. 102, 953 S.W.2d 565 (1997).

Conn.

—Mercer Elec. Mfg. Co. v. Connecticut Electric Mfg. Co., 87 Conn. 691, 89 A. 909 (1914).

At times, the mailbox rule discussed in this chapter is applied analogously to similar circumstances. In Norris v. Plymouth Rock Assurance Company, 2011 Conn. Super. LEXIS 2681 (Oct. 20, 2011), plaintiffs filed an action for declaratory judgment seeking an order for Plymouth to defend them against a claim of bodily injury and property damage under a Plymouth policy of insurance issued to them. Plaintiffs alleged that they were involved in a motor vehicle collision during the period of time they had automobile insurance with Plymouth. On or about January 7, 2008, Plymouth sent plaintiffs a cancellation notice stating that coverage would be terminated at 12:01 a.m. on February 1, 2008, if the premium for the policy was not paid in full by that time. Plaintiffs allege they mailed an amount equal to one-half of the requisite payment on January 10, 2008 and mailed a payment of the remaining half to the insurer on January 28, 2008. On February 5, 2008, Plymouth purportedly mailed to the plaintiffs a letter advising them that the policy had been cancelled on February 1, 2008, per the cancellation notice. Plaintiffs filed a motion for summary judgment, which the court granted. The court cited § 3.24, 1993 ed., of this treatise for this proposition: “In any case where a mailed acceptance is reasonable … [a] contract is regarded as made at the time and place that a letter of acceptance is put into possession of the postal service.” The court held that under the “mailbox rule,” the mailing constituted timely payment of the premium that was due. There is no genuine issue of fact that payment was posted to the insurer before 12:01 a.m. on February 1, 2008. The insurer authorized the plaintiffs to transmit their assent by mail, so when the plaintiffs deposited their payment in the mail, they were relieved from the consequences of default.

Fla.

—Nowlin v. Nationstar Mortg., LLC, 193 So. 3d 1043 (Fla. App. 2016); Morrison v. Thoelke, 155 So. 2d 889 (Fla. App. 1963), is an uncommonly thorough review of the authorities and reasoning, both judicial and academic. Ironically, the pro-offeree rule was invoked against an offeree who overtook receipt of his acceptance by a telephone call.

Ga.

—Popham v. Landmark Am. Ins. Co., 340 Ga. App. 603, 798 S.E.2d 257 (2017); Rowntree Bros. v. Bush, 28 Ga. App. 376, 111 S.E. 217 (1922).

Ill.

—Martin v. Government Employees Ins. Co., 206 Ill. App. 3d 1031, 565 N.E.2d 197 (1990); Geary v. Great Atlantic & Pacific Tea Co., 366 Ill. 625, 10 N.E.2d 350 (1937).

Iowa

—Nertney v. National Fire Ins. Co., 199 Iowa 1358, 203 N.W. 826 (1925); Lucas v. Western Union Tel. Co., 131 Iowa 669, 109 N.W. 191 (1906); Hayne v. Cook, 252 Iowa 1012, 109 N.W.2d 188 (1961) (acceptance mailed to one through whom the offer had been sent, offeree (vendor) bound in spite of his attempted withdrawal).

Md.

—United States Life Ins. Co. v. Wilson, 198 Md. App. 452, 18 A.3d 110 (2011); Reserve Ins. Co. v. Duckett, 249 Md. 108, 238 A.2d 536 (1968), holding that an insurance policy had been renewed in time by the mailing of the new premium within the life of the existing policy.

Neb.

—Corcoran v. Leon’s Inc., 126 Neb. 149, 252 N.W. 819 (1934).

N.J.

—Northampton Mut. Live Stock Ins. Co. v. Tuttle, 40 N.J.L. 476 (1878).

N.Y.

—Wester v. Casein Co. of America, 206 N.Y. 506, 100 N.E. 488 (1912); Vassar v. Camp, 11 N.Y. 441 (1854); Mactier’s Adm’rs v. Frith, 6 Wend. 103 (1830).

Morton’s of Chicago, LLC/Great Neck LLC v. Crab House, Inc., 297 A.D.2d 335, 746 N.Y.S.2d 317 (App. Div. 2002). The defendant (the Crab House) operated under a lease that required it to provide a written offer to the landlord (Morton’s) to terminate the lease before the lease could be assigned or the premises sublet. By letter of February 11, 1999, the Crab House advised Morton’s that it had found a suitable subtenant and was, therefore, offering Morton’s the option of terminating the lease. In a telephone conversation on February 18, Morton’s counsel informed the Crab House that Morton’s accepted the offer. On the same day, Morton’s mailed a certified letter to the Crab House confirming its acceptance. In a certified letter dated February 18 and facsimile transmission dated February 19, the Crab House attempted to revoke its offer. On February 22, the Crab House and Morton’s each received the other’s certified letters of February 18. The court held that the Crab House offer was accepted by the oral acceptance of Morton’s counsel on February 18. While the lease required the offer to terminate to be in writing, there was no requirement that the acceptance of the offer had to be written. Moreover, Morton’s letter of February 18 confirming the acceptance was mailed before the Crab House faxed its revocation. Since the acceptance of an offer is effective upon dispatch, the court held that the termination offer would have been deemed accepted at that time even if the counsel’s acceptance had been ineffective.

N.D.

—Farley v. Champs Fine Foods, 404 N.W.2d 493 (N.D. 1987), recognizes the rule but affirms trial judge’s determination that the acceptance was mailed after the offer had been revoked in a telephone conversation.

Ohio

—Gold Key Lease, Inc. v. Hood, 2001-Ohio-3367 (Ohio App. 2001).

Okla.

—McAlister v. Klein, 81 Okl. 291, 198 P. 506 (1921).

Or.

—Reich & Reich, 176 Ore. App. 442, 32 P.3d 904 (App. 2001). An offer for a settlement agreement authorized acceptance by mail. The facts disclosed that the acceptance was mailed before a facsimile revoking the offer was received. The acceptance was, therefore, effective to form the settlement agreement. Williams v. A.C. Burdick & Co., 63 Or. 41, 125 P. 844, adhered to, 63 Or. 41, 126 P. 603 (1912).

Pa.

—Pa. Acad. of Fine Arts v. Grant, 404 Pa. Super. 62, 590 A.2d 9 (1991); McClintock v. South Penn Oil Co., 146 Pa. 144, 23 A. 211 (1892).

R.I.

—Greenhalgh v. Keegan, 2015 R.I. Super. LEXIS 148 (Dec. 15, 2015).

Tex.

—B & B Developers v. Ego Resources Corp., 613 S.W.2d 797 (Tex. Civ. App. 1981); Farmers’ Guaranty State Bank v. Burrus Mill & El. Co., 207 S.W. 400 (Tex. Civ. App. 1918); Kennedy Mercantile Co. v. Western Union Tel. Co., 167 S.W. 1094 (Tex. Civ. App. 1914).

Eng.

—Household Fire & Acc. Ins. Co. v. Grant, L.R. 4 Ex. D. 216 (1879).

Can.

—Baril v. Charlebois, 64 Que. S.C. 421 (1926); Magann v. Auger, 31 S.C.R. 186 (1901).

The contract is regarded as made in the state where the letter of acceptance is mailed. Bank of Yolo v. Sperry Flour Co., 141 Cal. 314, 74 P. 855 (1903) (acceptance by telephone).

See also:

Eng.

—Newcomb v. De Roos, 2 El. & El. 271 (1859); Taylor v. Jones, L.R. 1 C.P. 87 (1875).

Communication to the offeree’s own agent of an expression of acceptance, with instructions to the agent to deliver it to the offeror, is not operative as an acceptance.

Del.

—Coxe v. Coxe, 21 Del. Ch. 30, 180 A. 612 (1935).

Ind.

—New v. Germania Fire Ins. Co., 171 Ind. 33, 85 N.E. 703 (1908).

A letter is not mailed by giving it to a postman who is not an official collector of mail. In re London & Northern Bank, [1900] 1 Ch. 220.

If an offeror maintains a private box for the receipt of business communications, an acceptance dropped in that box may be operative at once. Howard v. Daly, 61 N.Y. 362 (1875).

5 This was the assumption of Professor Joseph Beale, drafted by him in the American Law Institute’s Restatement, Conflict of Laws. This approach was abandoned in the formulation of the Restatement (Second) of Conflict of Laws.

Granite State Ins. Co. v. Am. Bldg Materials, Inc., 2011 U.S. Dist. LEXIS 139455 (M.D. Fla. Dec. 5, 2011). This action determined whether the plaintiff insurer had a duty to indemnify the defendant, its named insured, when the Chinese dry wall it sold was alleged to be defective in containing pollutants and caused property damage. The parties disagreed on the state law to be applied. The insured argued that Florida courts follow the doctrine of lex loci contractus that would apply the law of the last act necessary to complete a contract. The last act was the mailing of the binders by the insurer’s underwriter in Massachusetts, thereby requiring the application of Massachusetts law. The insurer, however, argued that Florida courts followed the “significant relationships” test of the Restatement of Conflict of Laws § 193, where the law of the state which the parties understood as the principal location of the insured risk during the term of the policy would apply, absent some other state with a more significant relationship. This test would require the application of Florida law under the facts of this case.

The court’s “thorough review” of Florida law resulted in the application of the lex loci contractus doctrine that applies the law of the state where the last act necessary to form the contract occurred. Each year, the agent of the insured received quotes from the managing general underwriter of the insurer in Massachusetts. The insured’s agent mailed an offer to the underwriter, who accepted the offer by issuing a binder from the Massachusetts office, as well as subsequent emails containing electronic versions of the policies to the insured’s agent. The insurer’s legal obligation to provide coverage under the policies commenced with the issuance of the binders. The court concluded that the mailing of the binders constituted an acceptance of the offer under the “mailbox” (“dispatch”) rule (Restatement (Second) of Contracts § 64 (Am. Law Inst. 1981)). Thus, Massachusetts law governed the interpretation of the insurance policy which, in this case, would determine whether a total pollution exclusion in the policy precluded coverage of the damages allegedly caused by the drywall. The court held that, under Massachusetts law, the total exclusion provision was unambiguous, and an objectively reasonable insured would not have expected that the damage caused by the drywall would be covered under the policy.

Eng.

—It was so argued in Household Fire & C. Acc. Ins. Co. v. Grant, L.R. 4 Ex. D. 216 (1879).

U.S.

—Walrus Mfg. Co. v. New Amsterdam Cas. Co., 184 F. Supp. 214 (S.D. Ill. 1960).In Okosa v. Hall, 315 N.J. Super. 437, 718 A.2d 1223 (1998), an automobile insurance policy required a quarterly premium payment to be made on February 28, 1994. At the close of business on the 28th, the insurer directed a letter to the insured, which was posted on March 1, 1994, advising him that they had failed to pay their installment, and informing them that if they did not pay the premium by 12:01 a.m. on March 16, the policy would be automatically canceled. The letter further stated: “If we receive payment on or before the cancellation date, we will continue your policy with no interruption in the protection it affords. If you’ve recently mailed your payment, please disregard this notice.” On March 15, the insured mailed, by certified mail, a check for the required amount. The insured was involved in an automobile accident on March 16, and the insurance company disclaimed protection. The insured sued to recover personal injury protection. The trial court entered summary judgment in favor of the insurer, and the insured appealed. The Appellate Division reversed, holding that under the mailbox rule, the insured’s premium payment by certified mail on the day before expiration of policy avoided cancellation. The court stated that since the insurer addressed the insured by mail concerning the late premium, it authorized the insured’s response with payment by mail and thus constituted the postal authorities as its agent. The court noted that “[t]he use of certified mail by plaintiffs was perspicacious because it insured proof of mailing and its use avoided the thorny issue which would arise from a fraudulent response by them that post-dated the accident.”

7 “The street boxes and street delivery are a legal part of the post office system, and a letter deposited in one of these must be considered as being delivered at the post office. Abb. Trial Ev. 433–434; Bank v. De Groot, 7 Hun. 210; Pearce v. Langfit, 101 Pa. 507.” Morse, J., in Wood v. Callaghan, 61 Mich. 402, 411, 28 N.W. 162, 165 (1886).

Handing an acceptance letter to one’s own mail clerk is not effective as an acceptance. It has not been put out of one’s possession. Gibbs v. American S. & L. Ass’n, 217 Cal. App. 3d 1372, 266 Cal. Rptr. 517 (1990).

8 “If a bargain can be completed between absent parties, it must be when one of them cannot know the fact whether it be or be not completed. It cannot begin to be obligatory on the one before it is on the other; there must be a precise time when the obligation attaches to both, and this time must happen when one of the parties cannot know that the obligation has attached to him; the obligation does not, therefore, arise from a knowledge of the present concurrence of the wills of the contracting parties.” Mactier v. Frith, supra. In Adams v. Lindsell, 1 Barn. & Ald. 681 (1818), it was argued, “Till the plaintiff’s answer was actually received there could be no binding contract between the parties; and before then the defendants had retracted their offer by selling the wool to other persons. But the Court said that if that were so, no contract could ever be completed by the post. For if the defendants were not bound by their offer when accepted by the plaintiffs till the answer was received, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum.”

In Tayloe v. Merchants’ Fire Ins. Co., 50 U.S. (9 How.) 390, 13 L. Ed. 187 (1850), the court said: “… a little reflection will show that, in all cases of contracts entered into between parties at a distance by correspondence, it is impossible that both should have a knowledge of it the moment it becomes complete. This can only exist where both parties are present.”

An example of a court invoking the mailbox rule in connection with an electronic transaction is United States Life Ins. Co. v. Wilson, 198 Md. App. 452, 18 A.3d 110 (2011). An insured failed to make a timely premium payment on his term life insurance policy. The policy, however, included a grace period and reinstatement provision. On July 23, 2007 (within the reinstatement period as determined by the court), he accessed by computer his on-line bank account at Bank America and electronically directed that a check for the overdue premium be issued to the insurance agency authorized to collect premiums for US Life. The bank issued a check drawn on JP Morgan Chase Bank for the amount of the premium, which the bank sent to the insurance agency on July 25. The check was delivered to the agency on July 30. On July 28, however, the insured was killed in an accident. The insurer claimed that the date of payment was the date the check was received, July 30, and since a lapsed insurance policy cannot be reinstated after the insured’s death, there was no obligation to pay the beneficiary the amount owing under the policy. The court, however, treated the reinstatement provision of the insurance contract as an offer that would be accepted by the insured’s “payment” of the overdue premium and proceeded to view the electronic payment in this case as if it were a traditional acceptance of an offer. The court noted that the time for an effective acceptance of an offer is outside the scope of the applicable Uniform Electronic Transactions Act (UETA), so traditional contract law principles apply. Citing § 3.24 (1993 ed.) of this treatise with respect to the “mailbox” (“dispatch”) rule, the court noted that mere delivery to a messenger would not invoke the dispatch rule, but delivery to a reliable private delivery service that is independent of the offeree and customarily used to communicate such messages would invoke the rule. Here, the time of the payment (acceptance) did not occur on July 23 when the insured set in motion the mechanism of payment because he still had the power to reverse that course of action. When, however, the check was “sent” by the bank on July 25, pursuant to the insured’s directive, the acceptance of the offer occurred and the policy was reinstated, three days prior to the insured’s death. Nonetheless, the insurer argued that the relevant date should still be July 30 because the check was postdated to July 30 and could not, therefore, be a “payment” on July 25. The check, however, was a negotiable instrument governed by the Uniform Commercial Code (§ 3-104(c)). While UCC § 3-113(a) states that a fixed period on the date of the check will determine when it is payable, that section is subject to an exception in UCC § 4-401, which makes a check payable from the time it comes into existence (July 25) though it is postdated, unless the customer (here, the insured) gives notice otherwise. The insured gave no such notice. Thus, the court found the check was validly payable as of July 25 and the policy was reinstated as of that date. The Circuit Court’s holding in favor of the beneficiary against US Life in the amount of $650,000 was affirmed.

9 In Henthorn v. Fraser, [1892] 2 Ch. 27, Lord Chancellor Herschell said: “Applying the law thus laid down by the Court of Appeal, I think in the present case an authority to accept by post must be implied. Although the plaintiff received the offer at the defendants’ office in Liverpool, he resided in another town, and it must have been in contemplation that he would take the offer, which by its terms was to remain open for some days, with him to his place of residence, and those who made the offer must have known that it would be according to the ordinary usages of mankind that if he accepted it he should communicate his acceptance by means of the post. I am not sure that I should myself have regarded the doctrine that an acceptance is complete as soon as the letter containing it is posted as resting upon an implied authority by the person making the offer to the person receiving it to accept by those means. It strikes me as somewhat artificial to speak of the person to whom the offer is made as having the implied authority of the other party to send his acceptance by post. He needs no authority to transmit the acceptance through any particular channel; he may select what means he pleases, the postoffice no less than any other. The only effect of the supposed authority is to make the acceptance complete so soon as it is posted, and authority will obviously be implied only when the tribunal considers that it is a case in which this result ought to be reached. I should prefer to state the rule thus: Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as posted.” This language is adopted in Nertney v. National Fire Ins. Co., 199 Iowa 1358, 203 N.W. 826 (1925), and Farmers’ Produce Co. v. McAlester Storage & Com. Co., 48 Okl. 488, 150 P. 483 (1915).

Justifying the mailbox rule as an allocation of risk of nondelivery to the offeror as master of the offer is supported by the similar deposit-payment rule applicable to the mailing of insurance premiums. See Dalton Buick v. Universal Underwriters Ins. Co., 1 Neb. App. 1104, 511 N.W.2d 189 (Neb. App. 1993), rev’d, 245 Neb. 282, 512 N.W.2d 633 (deposit-payment rule inapplicable where policy language clearly provides to the contrary).

The predecessor to this section (§ 78, 1963 ed.) is quoted in Cantu v. Central Education Agency, 884 S.W.2d 565 (Tex. App. 1994), which held that a Superintendent could reasonably accept by mail a teacher’s written offer of resignation, which offer of resignation was tendered by hand. The teacher offered to resign shortly before the start of the school year, when the school district needed to act immediately to locate a replacement. She made the offer on a Saturday, when the Superintendent could neither receive nor respond to it. Her request that her final paycheck be forwarded to an address fifty miles away indicated that she could no longer be reached in town and did not intend to return to the school premises or school-district offices. These facts justified the different mode of acceptance.

Norkunas v. Cochran, 168 Md. App. 192, 895 A. 2d 1101 (2006), aff’d, 398 Md. 1, 919 A.2d 700 (2007) quotes Corbin’s analysis (§ 78 from a previous edition) recognizing the risk of transmission and the importance of choosing a final rule with a slight advantage in favor of the postal acceptance (“mailbox”) rule since the offeror invited the acceptance and could have controlled that risk if she so desired.

In Hogan v. Pat’s Peak Skiing, LLC, 168 N.H. 71, 121 A.3d 827 (2015), plaintiffs were injured when they fell from a ski chairlift on the defendant’s premises. On May 3, 2012, plaintiffs sent notice to the defendant by certified return receipt mail stating that they had retained counsel regarding the February 4, 2012 incident. The letter of notice arrived at the Henniker post office on May 5, 2012, and was delivered to the defendant on May 10, 2012. The plaintiffs subsequently filed a complaint against the defendant seeking money damages in connection with their injuries. The defendant moved to dismiss the complaint, arguing that the plaintiffs did not provide notice by May 4, 2012—ninety days from the date of the injury—as required by RSA 225-A:25, IV (2011) (the statute stated that defendant “shall be notified” by the 90th day). The trial court granted the defendant’s motion to dismiss, and the Supreme Court of New Hampshire reversed. The court quoted this treatise (§ 3.24, 1993 ed.) in support of its holding. “[W]ith respect to the mailbox rule, ‘One of the parties must carry the risk of loss and inconvenience. We need a definite and uniform rule as to this. We can choose either rule; but we must choose one. We can put the risk on either party, but we must not leave it in doubt.’ ” In the interest of uniformity and certainty, the court held that notice under RSA 225-A:25, IV is effective upon mailing. The court decided to favor the party who would be harmed more by the lack of certainty. A delay of one day receiving the notice would scarcely inconvenience the ski operator, but to hold the other way—even if the delay in receipt of notice is not plaintiff’s fault—would deny the plaintiff the right to sue. The court refused to allow such forfeiture.

10 It is suggested that this would be the proper ruling. Dempsey v. King, 662 S.W.2d 725 (Tex. Civ. App. 1983). See § 3.26.

There are numerous more radical criticisms of the mailbox rule. See, Beth A. Eisler, Default Rules for Contract Formation by Promise and the Need for Revision of the Mailbox Rule, 79 Ky. L. J. 557 (1990–91).

Turner v. Archer Western Contrs., LLC, 2019 U.S. Dist. LEXIS 103082 (D. Md. July 19, 2019). Turner sued Archer Western for purported damages allegedly caused when the latter sprayed “hazardous chemicals.” Archer’s attorney spoke with Turner and offered to settle the suit, and Turner accepted. On January 23, 2019, Turner signed and returned to Archer’s attorney via mail a general release and a stipulation of dismissal. The envelope was postmarked January 23. On the morning of January 25, 2019, Turner left Archer’s attorney a voice message seeking to withdraw from the settlement. In that message, Turner directed Archer Western not to take any action regarding the settlement documents. Later that day, Archer’s attorney received in the mail Turner’s signed and notarized settlement agreement documents, which had been mailed two days earlier. Archer filed a motion to enforce settlement. The dispositive and undisputed fact was that Turner mailed the signed settlement agreement to Archer before Turner left Archer’s attorney a voice message to revoke his acceptance. The court held that the voice message “did not undo the deal.” The court explained:

Maryland follows the common law rule often known as the “mailbox rule” to determine precisely when an offer was accepted and, by extension, when a contract was formed. United States Life Ins. Co. v. Wilson, 198 Md. App. 452, 477, 18 A.3d 110, 124 (2011). Under this rule, “ ‘the mailed acceptance of an offer is effective when mailed, not when received or acknowledged.’ ” Id. (quoting Martin v. Gov’t Employees Ins. Co., 206 Ill. App. 3d 1031, 151 Ill. Dec. 926, 565 N.E.2d 197, 203 (1990)). Accordingly, an “attempt to revoke the acceptance by an overtaking communication is similarly ineffective, even though the revocation is received before the acceptance is received.” Restatement (Second) of Contracts § 63(c) (1981). Therefore, Turner’s voicemail did not negate his acceptance of the settlement agreement.

The court held that the parties reached a settlement agreement, and that “[t]his is a case of the proverbial ‘buyer’s remorse.’ ” The court granted Archer’s motion to enforce settlement.

11 In Household Fire & C. Acc. Ins. Co. v. Grant, L.R. 4 Ex. D. 216 (1879), Lord Justice Thesiger said: “To me it appears that in practice a contract complete upon the acceptance of an offer being posted, but liable to put an end to by an accident in the post, would be more mischievous than a contract only binding upon the parties to it upon the acceptance actually reaching the offeror, and I can see no principle of law from which such an anomalous contract can be deduced.”

12 Scottish-American Mortg. Co. v. Davis, 96 Tex. 504, 74 S.W. 17 (1903), held that acceptance by mail was not authorized since the offer was not by mail, and that a mailed acceptance could therefore be recalled.

Eng.

—Henthorn v. Fraser [1892] 2 Ch. 27 (offer delivered in person); Household Fire & C. Acc. Ins. Co. v. Grant, L.R. 4 Ex. D. 216 (1879) (offer put in the hands of offeree’s soliciting agent).

Restatement (Second) of Contracts, § 64 (Am. Law Inst. 1981), reads: “Unless the offer provides otherwise, (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror, but (b) an acceptance under an option contract is not operative until received by the offeror.”

Restatement (Second) of Contracts, § 65 (Am. Law Inst. 1981), reads: “Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.” This is in accord with U.C.C. § 2-206.

Okla.

—Farmers’ Produce Co. v. McAlester Storage & Com. Co., 48 Okl. 488, 150 P. 483 (1915). And, see, Polhamus v. Roberts, 50 N.M. 236, 175 P.2d 196 (1946).

Ky.

—River City Dev. Corp. v. Slemmer, 781 S.W.2d 525 (Ky. App. 1989).

Mich.

—Starr v. Holck, 318 Mich. 452, 28 N.W.2d 289, 172 A.L.R. 413 (1947).

Minn.

—Hoban v. Hudson, 129 Minn. 335, 152 N.W. 723 (1915) (“provided that the said Hoban shall first give written notice to the undersigned of his election to accept said refund on or before April 8.”).

Cf. Shubert Theatrical Co. v. Rath, 271 F. 827 (2d Cir. 1921); Barnebey v. Barron G. Collier, Inc., 65 F.2d 864 (8th Cir. 1933).

Tenn.

—P & N Dev. v. Church, 2010 Tenn. App. LEXIS 498 (Aug. 4, 2010).

Va.

—Taylor v. Boehm, 58 Va. Cir. 229 (Cir. Ct. 2002). A statute permitting a purchaser to cancel a contract for the sale of land required notice of cancellation to be either hand-delivered to the seller or delivered by U.S. Mail within three days after the purchasers’ receipt of a property owners’ disclosure packet, which the purchasers received on September 3. On September 6 (Labor Day), the purchasers instructed their realtor to cancel the contract. The realtor telephoned the seller’s realtor, who conveyed the notice to the sellers on the evening of September 6. On the afternoon of September 7, the purchaser sent a written notice to the sellers by overnight mail that the contract was canceled. This letter was received by the sellers on September 9. The sellers brought an action for breach of contract and the purchasers sought summary judgment on the footing that they had exercised their right to cancel the contract. The court held that the notice was not timely. The court rejected the purchasers’ claim that actual verbal notice on September 6 was sufficient since the statute required written notice to be received by the sellers within three days. The court also rejected the purchasers’ argument that they should have enjoyed a one-day extension in giving notice because of the holiday. The purchasers’ reliance on another statute allowing such an extension with respect to filing a judicial proceeding was not applicable to this statute, which did not distinguish “business” days from “calendar” days. Moreover, the court held that even if the additional day had been granted, the mere sending of the notice on September 7 was not effective under this statute requiring the notice to be received. The written notice was not received until September 9. The Corbin treatise (§ 78, 1963 ed.) is cited as authority for the court’s conclusion that, where notice of cancellation of a contract is to be given by mail, the notice is not valid until it is actually received.

Conn.

—Getty Refining & Marketing Co. v. Zwiebel, 604 F. Supp. 774 (D. Conn. 1985). A lease contained an option to purchase and stated that all notices were to be deemed duly given if “forwarded” by either party by registered mail to the other. It was held that the lease contemplated effective exercise of the option upon dispatch.

Mass.

—In McTernan v. Le Tendre, 4 Mass. App. Ct. 502, 351 N.E.2d 566 (1976). LeTendre’s 60 day option to buy an inn and its furnishings required “acceptance” within the 60 days. He mailed it on the 60th day, it was received on the 62nd day. The court held that a valid contract was formed relying on § 78, 1963 ed., for the rule that acceptance by mail is effective on posting. The court distinguished the rule that the word “notice” in an option contract means “notice received” and not “notice mailed” on the ground that here the contract used the word “acceptance” thereby evidencing some reason to believe that ordinary acceptance rules stated in this section were intended to apply.

In re Ionosphere Clubs, Inc., 111 B.R. 436 (S.D.N.Y. 1990) (applying Mass. law). A lease contained an option to renew, which stated “said option may be exercised by written notice … delivered or sent … at least one (1) month prior to expiration of the term of the Present Lease.” An alleged oral acceptance that was timely and a mailed acceptance that was late were held to be ineffective. While the language allowed for finding that the option could be accepted by the dispatch of an acceptance, a dispatch within 30 days was untimely. The word “may” was found to be mandatory and not merely permissive. “It is clear that the term ‘may’, when read in context, refers to the fact that the option is discretionary and may or may not be exercised. It does not refer to the manner of exercise.” 111 Bankr. at 441.

Tex.

—Franklin Life Ins. Co. v. Winney, 469 S.W.2d 21 (Tex. Civ. App. 1971), writ denied n.r.e. The insured mailed a letter requesting the insurer to send him the cash value of his policy, but died before the letter reached the insurer. The beneficiaries demanded the face value of the policy. The policy permitted termination by “written request … filed at its home office.” The court held for the beneficiaries. The insurer could specify any method of compliance it chose. It had dictated a method of accepting the option that required actual receipt at the home office.

17 United States ex rel. B & R, Inc. v. Donald Lane Constr., 19 F. Supp. 2d 217 (D. Del. 1998) (citing § 69, 1963 ed.); United States use of Crowe v. Continental Casualty Co., 245 F.Supp. 871 (E.D. La. 1965) (in this context, “notice” meant “notice dispatched.”).

The Uniform Commercial Code §§ 1-202 defines the giving of notice in terms of dispatch and the receipt of notice in terms of its coming to the attention of the addressee or its due delivery.

The “mail box” rule has a life outside acceptance of offers: whether payment is effective upon receipt or dispatch. See Werne v. Brown, 955 P.2d 1053 (Colo. App. 1998). Payment by mail, the court held, is generally not effective until receipt by the creditor, unless the creditor expressly, by implication, or through a course of dealing, directs or consents otherwise. If, however, payment by mail is directed or authorized by the creditor, payment is effective at the time of dispatch. “When use of the mail has been directed or authorized,” wrote the court, “the vast majority of courts, acknowledging the risk inherent in using the mail, have allocated that risk to the party in control of the transaction.”

U.S.

—A prior edition of this treatise (§ 78) is quoted in N.L.R.B. v. Vapor Recovery Systems Co., 311 F.2d 782, 785 (9th Cir. 1962), holding that where a collective bargain provided that it would be automatically renewed unless either party gave 60 days’ notice, prior to the end of the contract period, of a desire to terminate, the notice was not operative prior to its actual receipt.

Iowa

—Oldfield v. Chevrolet Motor Co., 198 Iowa 20, 199 N.W. 161, 35 A.L.R. 889 (1924); Wheeler v. McStay, 160 Iowa 745, 141 N.W. 404 (1913).

N.J.

—Fritz v. Pennsylvania Fire Ins. Co., 85 N.J.L. 171, 88 A. 1065 (1913).

N.Y.

—Crown Point Iron Co. v. Aetna Ins. Co., 127 N.Y. 608, 28 N.E. 653 (1891).

19 In Dunlop v. Higgins, 1 H.L.Cas. 381 (1848), Dunlop wrote from Glasgow offering to sell 2,000 tons of pig iron. Higgins mailed an acceptance at Liverpool on January 30, saying: “We have accepted your offer unconditionally; but we hope you will accede to our request as to delivery and mode of payment by two months’ bill.” This letter was misdated “January 31,” and because of delay in the mails it was not received in Glasgow until February 1. An acceptance on January 31 would in fact have been too late. It was held that a contract was made.

U.S.

—Barnebey v. Barron G. Collier, Inc., 65 F.2d 864 (8th Cir.1933).

Mo.

—Egger v. Nesbit, 122 Mo. 667, 27 S.W. 385 (1894).

Neb.

—Corcoran v. Leon’s Inc., 126 Neb. 149, 252 N.W. 819 (1934).

N.Y.

—Vassar v. Camp, 11 N.Y. 441 (1854).

Eng.

—Household Fire & C. Acc. Ins. Co. v. Grant, 4 Ex. D. 216 (1879).

In the last case supra, Lord Justice Bramwell vigorously dissented, but mainly he begged the question by assuming that communication means receipt and that all notices alike must be communicated. The question is not one that can be decided by deductive logic. It is one of policy and practical convenience.

21 This provision, of course, does not effect acceptances that are properly made by performance rather than by promise. See Article 18(3) of the Convention.

22 See John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention ¶¶ 157–163.

Ariz.

—Salt River Project Agr. Improvement and Power Dist. v. Department of Economic Secur., 156 Ariz. 155, 750 P.2d 913 (App. 1988). An employer’s petition for review of an unemployment compensation board decision was not timely filed when it was mailed in a timely manner, but to the wrong address. Loma Mariposa II, L.P. v. Santa Cruz Cnty., 2016 Ariz. App. Unpub. LEXIS 1445 (Nov. 22, 2016); Stapert v. Ariz. Bd. of Psychologist Examiners, 210 Ariz. 177, 108 P.3d 956 (2005).

N.J.

—Potts v. Whitehead, 20 N.J. Eq. 55 (1869).

Ericksson v. Cartan Travel Bureau, Inc., 109 F. Supp. 315 (D. Md. 1953).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.25 »

1 Corbin on Contracts § 3.25 (2020)

§ 3.25. Acceptance by Telephone or Electronic Means

Formation of contracts by telephone has never been an especially controversial phenomenon. In an 1887 case, the Pennsylvania Supreme Court approved the trial court’s admission of evidence that a contract was entered into via telephone, explaining: “We admitted the testimony because we think that the business of communication by telephone is so well and plainly recognized among business men in this city, and in the cities of the country generally, that contracts made in that way must be recognized.”1

The Restatement, Contracts, § 65 (Am. Law Inst. 1981), stated, “Acceptance given by telephone is governed by the principles applicable to oral acceptance where the parties are in the presence of each other.” The Restatement (Second) agrees in § 64: “Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.” While the original Restatement provision had no commentary, the Restatement (Second)’s commentary makes clear that there are two distinct kinds of issues concerning such an acceptance.

The question that has arisen time and time again before the courts has been as to the place at which the contract should be regarded as having been made. This has been held to be the place at which the offeree speaks the words of acceptance into the telephone transmitter.2 The Restatement (Second) in commentary recognizes this principle of Conflict of Laws. To the extent the place of making of the contract is relevant to resolving the question of which jurisdiction’s law governs the formation of the contract, it unequivocally accepts the principle that the contract is made in the place where the acceptance is spoken.3

As to the question of whether an acceptance has been made because of difficulty in comprehension of what has been communicated, the restatements appropriately regard the analogy to a face-to-face conversation as a better fit than the analogy of a mailed acceptance. When an acceptance is made orally in the presence of the offeror, there is no appreciable lapse of time between the act of speaking and the hearing of sounds. Nevertheless, if the offeree knows or has reason to know that the offeror does not actually hear or understand the words of acceptance, a contract is not consummated.4 Undoubtedly the same is true in the case of an acceptance by telephone; and under some circumstances the offeree has more reason to doubt the effectiveness of a communication of acceptance by telephone than in the case of an acceptance face-to-face.

In the electronic age, non-face-to-face communication is no longer limited to traditional means such as telephone. The Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in National and Global Commerce Act (“E-Sign”) refrain from taking a position on whether the mailbox rule retains its vitality with respect to electronic acceptances via email and text messaging.5 Early drafts of UETA scrapped the mailbox rule with respect to acceptances made electronically,6 but this language was eliminated in keeping with UETA’s intention of not altering the substantive law of contracts. It appears that any rejection of the mailbox rule will need to occur via the common law. There is no uniformity among the commentators. One argument is that the mailbox rule should retain its vitality when it comes to an electronic communication such as e-mail since it is “not really” instantaneous nor a “two-way” communication as required by Restatement (Second) of Contracts § 64 (Am. Law Inst. 1981) for the face-to-face rule to be applied.7 The contrary position is that since e-mail is nearly instantaneous, acceptance is akin to a face-to-face transaction, thus, the dispatch rule is obsolete when it comes to electronic communications.8

Footnotes — § 3.25:

1 Hostetter v. Balt. & O. R. Co., 11 A. 609, 611, 8 Sadler 499 (Pa. 1887).

U.S.

—Tasion Communs., Inc. v. Ubiquiti Networks, Inc., 308 F.R.D. 630 (N.D. Cal. 2015).

Ala.

—Cardon v. Hampton, 21 Ala.App. 438, 109 So. 176 (1926).

Cal.

—Ledbetter Erection Corp. v. Workers’ Comp. Appeals Bd., 156 Cal. App. 3d 1097, 203 Cal. Rptr. 396 (1984); Bank of Yolo v. Sperry Flour Co., 141 Cal. 314, 74 P. 855 (1903).

Fla.

—PNC Bank, N.A. v. Rolsafe Int’l, LLC (In re Rolsafe Int’l, LLC), 477 B.R. 884 (Bankr. M.D. Fla. 2012).

Kan.

—Howard v. Ferrellgas, 2012 U.S. Dist. LEXIS 120921 (D. Kan. Aug. 24, 2012).

La.

—Poor Boy Tree Serv. v. Dixie Elec. Mbrshp. Corp., 2013 Mo. App. LEXIS 163 (Feb. 5, 2013).

Minn.

—Pierce v. Foley Bros., 283 Minn. 360, 168 N.W.2d 346 (1969).

N.Y.

—Perrin v. Pearlstein, 314 F.2d 863 (2d Cir. 1963).

Okla.

—Sims v. United Bridge & Iron, 402 P.2d 911 (Okla. 1965) (place of formation of contract of employment for purposes of worker’s compensation was the state where employee expressed acceptance of job offer).

Pa.

—Toll v. Tannenbaum, 982 F. Supp. 2d 541 (E.D. Pa. 2013). In Linn v. Employers Reinsurance Corp., 392 Pa. 58, 139 A.2d 638 (1958), the plaintiff’s offer was accepted by the defendant’s agent by telephone. The court held that the acceptance was operative at the place where the agent spoke and not where the offeree heard his voice, and that the validity of the contract so made was determined by the law of the state in which the agent spoke, including its statute of frauds.

Erie Press Systems v. Shultz Steel Co., 548 F. Supp. 1215 (W.D. Pa. 1982); Joseph v. Krull Wholesale Drug Co., 147 F. Supp. 250 (D.C. Pa.1956), aff’d, 245 F.2d 231 (3d Cir.).

Tex.

—Lipschutz v. Gordon Jewelry Corp., 373 F. Supp. 375 (S.D. Tex. 1974); Dallas Waste Mills v. Early-Foster Co., 218 S.W. 515 (Tex. Crim. App. 1919), writ dismissed w.o.j.; Cuero Cotton Oil & Mfg. Co. v. Feeders’ Supply Co., 203 S.W. 79 (Tex. Civ. App. 1918).

W.Va.

—State ex rel. Coral Pools, Inc. v. Knapp, 147 W.Va. 704, 131 S.E.2d 81, 86 (1963); Maggard v. Essar Global Ltd., 16 F. Supp. 3d 676 (W.D. Va. 2014).

In United States v. Bushwick Mills, Inc., 165 F.2d 198 (2d Cir. 1947), a prosecution for an illegal sale under the Price Control Act, the question was whether the sale was made in Brooklyn or in New York. Circuit Judge Swan said: “An offer to sell made by telephone from Margolin in Brooklyn to an offeree in New York may be prosecuted in either district. Margolin’s act of speaking the words into the telephone is projected into New York where the offeree hears them. Hence part of the ‘act or transaction constituting the violation’ occurred in each district and venue may be laid in either. Similarly if the violation was a contract to sell negotiated by telephone, the court in either district has jurisdiction regardless of which party accepts the offer of the other. By the technical law of contracts the contract is made in the district where the acceptance is spoken. Restatement, Conflicts, § 326, Comments c and d; Dudley A. Tyng & Co. v. Converse, 180 Mich. 195, 146 N.W. 629. And under the broad provisions of § 925(c), if the buyer telephoned an offer which the seller accepted, Margolin’s words uttered in Brooklyn, but projected into New York, were operative in New York to establish venue there, since though the contract technically was made in Brooklyn, an essential part of the contract occurred in New York where the acceptance was received.”

3 Restatement (Second) of Contracts § 64 cmt. c (Am. Law Inst. 1981).

4 A decision from India is instructive. In Firm Kanhaiyalal v. Dineschandra, A.I.R. 1959 M.P. 234, 237, 1959 M.P.C. 173, 1959 Jab. L.J. 281, 1959 M.P.L.J. 596, as cited and quoted in II Formation of Contracts: A Study of the Common Core of Legal Systems 1477 (Rudolph B. Schlesinger ed. 1968). The principles concerning oral contract formation were accurately said to be as follows:

“[W]hen the parties negotiate a contract orally in the presence of each other or over telephone and one of them makes an oral offer to the other, it is plain that an oral acceptance is expected and the acceptor must ensure that his acceptance is audible, heard and understood by the offeror. The acceptance in such a case must be by such words which have the effect of communicating it. If the words of acceptance are inaudible and have not been heard or understood by the offeror, then the acceptance is incomplete and no contract would be formed until the acceptor repeats his acceptance so that the offeror can hear it.”

5 John E. Murray, Murray on Contracts § 48 (5th ed. 2011); United States Life Ins. Co. v. Wilson, 198 Md. App. 452, 18 A.3d 110 (2011).

6 “Up until the 1999 NCCUSL Annual Meeting, the UETA draft … stated that an electronic record was effective upon receipt, rejecting the common law mailbox rule. … the UETA Drafting Committee decided not to alter substantive contract law in an effort to preserve media neutrality and avoid bad policy.” Jevon C. Bindman, Note, The Spam Filter Ate My E-Mail: When Are Electronic Records Received?, 39 Wm. Mitchell L. Rev. 1295, 1303–1304 (2013).

7 Valerie Watnick, The Electronic Formation of Contracts and the Common Law “Mailbox Rule”, 56 Baylor L. Rev. 175 (2004). See Richard A. Lord, A Primer on Electronic Contracting and Transactions in North Carolina, 30 Campbell L. Rev. 7 (2007). The Restatement (Second), drafted before the era of e-mail and text messaging, provides: “Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.” Restatement (Second) of Contracts § 64 (Am. Law Inst. 1981).

American Appraisal Assocs., Inc. v. American Appraisals, Inc., 531 F. Supp. 2d 1353 (S.D. Fla. 2008) applied the mailbox rule to an email communication. The defendant signed a settlement agreement that was forwarded by its counsel to the plaintiff’s counsel as an attachment to an email at 10:11 A. M. Less than an hour later, defense counsel received notice that the court, sua sponte, had dismissed the case. At 11:06 A. M., defense counsel sent another email to plaintiff’s counsel withdrawing its “offer” to settle the case. The court treated the defendant’s forwarding of the signed agreement as an acceptance of an offer when it was emailed to the plaintiff’s counsel through the application of the “deposit acceptance” rule as announced in § 64 of the Restatement (Second) of Contracts. Though the agreement did not mention email as a mode of acceptance, it did specify that an acceptance by facsimile would be effective. The court viewed this factor as an implied authorization of another reasonable means of electronic communication to invoke the rule which is often called the “mailbox” or “dispatch” rule making an acceptance effective when dispatched by an offeree.

But, of course, the mailbox rule generally may no application to a communication—electronic or otherwise—that is not an acceptance. Etablissement Asamar Ltd. v. Lone Eagle Shipping Ltd., 882 F. Supp. 1409 (S.D.N.Y. 1995) (applying New York law) (revocation sent by facsimile was not effective until it was received).

8 Amelia Rawls, Contract Formation in an Internet Age, 10 Colum. Sci. & Tech. L. Rev. 200 (2009).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.26 »

1 Corbin on Contracts § 3.26 (2020)

§ 3.26. Withdrawal of a Letter of Acceptance From the Mails

In a number of cases in the former United States Court of Claims, it was successfully argued that because, under the postal regulations then in effect, a letter of acceptance may be withdrawn, the “mailbox rule” should be discarded.1 In none of these cases was the letter of acceptance in fact withdrawn. Such decisions have been rejected outside of that court.2 The postal regulations have for a long period made it possible for the sender of a letter to intercept it and prevent its delivery to the addressee. This has caused some doubt to be expressed as to whether an acceptance can ever be operative upon the mere mailing of the letter, since the delivery to the post office has not put it entirely beyond the sender’s control.

It is believed that no such doubt should exist. The question should not turn upon the total loss of power to control, but rather upon the reasonableness of regarding this as a proper method of accepting an offer. As indicated in a previous section of this treatise, the mailbox rule is a rule of convenience. It is designed to minimize the impact of the common law rule that offers are generally revocable until acceptance by shortening the period of revocability where the offeree has dispatched a letter of acceptance. This rule operates to protect offerees. Therefore it is ironic that in a number of cases it has been held that an offeree who withdraws a letter from the mails or who overtakes it by a telephone call or other more rapid means of communication is held to an acceptance that dates from the moment of mailing despite the fact that the offeror learned of the offeree’s dissent before learning of the earlier expression of assent.3 This is not a necessary result. The formation of a contract is a conceptual construct and not a physical fact. We can vary the construct to fit the policies underlying the rules of law in question. There is nothing illogical about concluding that the offeree can enforce a contract that was formed at the moment the acceptance was posted, but that the offeror cannot claim and enforce a contract where the letter of acceptance was withdrawn from the mails or overtaken by a faster message that advises the offeror that the letter of acceptance that may subsequently be received should be ignored.4 There is one conceivable difficulty caused by the suggested lack of mutuality. If the facts show that the power to withdraw or overtake is employed for speculative purposes, the abuse of the power should not be permitted.5

It should be borne in mind that whenever the receipt of the letter is necessary to produce some legal effect, the interception, and resulting non-delivery of the letter will prevent that effect. For almost all purposes, other than the acceptance of an offer, the mere mailing of a letter is not enough to attain the purpose. Unless it is clearly otherwise agreed, the mailing of a letter is not a sufficient notice to quit a tenancy, it is not actual payment of money that is enclosed, it does not transfer title to a check or other document, and6 it will not ordinarily be sufficient notice required by a contract as a condition precedent to some contractual duty of immediate performance.

Footnotes — § 3.26:

1 In Rhode Island Tool Co. v. United States, 128 F. Supp. 417, 130 Ct. Cl. 698 (1955), the plaintiff submitted a bid on 12 items, without noticing that the last three items were of greatly different quality from the others. The government mailed its acceptance on the last three items, but was notified of the plaintiff’s withdrawal because of the mistake before the acceptance was received. The court, in order to hold the withdrawal effective, held that by modern law an acceptance by mail is not operative until it is received by the offeror. The court based this on the fact that postal regulations permit the recall of a letter, so that mailing is no longer irrevocable but leaves the letter subject to the sender’s control. However, in its invitation for bids, the defendant had stated that an award would become a binding contract when received. This sustains the decision. Also the plaintiff should have been given relief because of a unilateral mistake. Two judges dissented, holding that the bid was irrevocable for a stated period of 20 days, except in case of fraud or mutual mistake.

2 In Soldau v. Organon Inc., 860 F.2d 355 (9th Cir.1988), the court stated: “Soldau rests his case upon decisions of the Court of Claims … rejecting mailing of the acceptance as the crucial event resulting in a contract, in favor of the receipt of the acceptance by the offeror. No other federal court has agreed. Commentators are also virtually unanimous in rejecting the Court of Claims’ repudiation of the ‘effective when mailed’ rule, pointing to the long history of the rule; its importance in creating certainty for contracting parties; its essential soundness, on balance, as a means of allocating the risk during the period between the making of the offer and the communication of the acceptance or rejection to the offeror; and the inadequacy of the rationale offered by the Court of Claims for the change.” (Footnotes omitted).

3 In Soldau v. Organon Inc., 860 F.2d 355 (9th Cir. 1988), the defendant offered the plaintiff double the amount of severance pay to which he was entitled in exchange for a release. Plaintiff signed the release and deposited it in a mailbox. On returning home he found that the promised severance pay had already arrived in the form of a check. He persuaded a postal employee to retrieve the release from the mailbox and return it to him. He thereupon cashed the check and brought suit against the employer based upon the state Age Discrimination Act. The court held that the release was effective on dispatch. It could have ruled alternatively (as the actual movement of acceptance was not relevant) that the suit was barred and the release effective because the check had been cashed. See also, Bainbridge v. Dep’t of the Army, 2007 MSPB LEXIS 5422 (M.S.P.B. Aug. 3, 2007) (citing Soldau in support of its holding).

In Morrison v. Thoelke, 155 So. 2d 889 (Fla. App. 1963), the proposed contract was signed and mailed by the purchasers in Florida to the sellers in Texas who signed it and put it in the mails for return to the purchasers. Before it arrived, the sellers telephoned to withdraw their acceptance. It was held that the contract had been formed and bound the sellers. Accord, Restatement (Second) of Contracts § 63 cmt. c (Am. Law Inst. 1981).

4 It is suggested that this would be the proper ruling in Dempsey v. King, 662 S.W.2d 725 (Tex. Civ. App. 1983).

U.S.

—McDonald v. Chemical Nat. Bank, 174 U.S. 610, 19 S. Ct. 787, 43 L. Ed. 1106 (1899).

In Lucas v. Western Union Tel. Co., 131 Iowa 669, 109 N.W. 191 (1906), the court stated, in dictum, that after mailing an acceptance “the acceptor has no right to the letter and cannot withdraw it from the mails. Even if he should succeed in doing so the withdrawal will not invalidate the contract previously entered into.”

Hayne v. Cook, 252 Iowa 1012, 109 N.W.2d 188 (1961), followed the dictum of the Lucas case cited in this note. The offer was sent via one Shuler to the vendor. The latter mailed his acceptance to Shuler with intention to close the deal, with instructions to deliver it to the offeror. Another offer having been received, the vendor then telephoned Shuler not to open the letter when he received it. He then accepted the new offer. The acceptance having been sent by the same method by which the offer itself had been sent, the attempted withdrawal by the vendor was held ineffective and specific performance was decreed. If the offer was not made by mail and the use of the mails is not otherwise a reasonable medium of acceptance, a telegraphic interception of the letter of acceptance prevented a contract. Scottish-American Mortgage Co. v. Davis, 96 Tex. 504, 74 S.W. 17 (1903). It should be borne in mind that, even if an offer is not made by mail, communication of acceptance by mail may be customary and reasonable.

6 It has been held that a draft or bill of exchange has not been effectively delivered by merely depositing it in the post, if the postal regulations permit its withdrawal from the mails by the sender. Its actual withdrawal, therefore, prevents any delivery.

Ill.

—Buehler v. Galt, 35 Ill. App. 225 (1889).

Tenn.

—Traders’ Nat. Bank v. First Nat. Bank, 142 Tenn. 229, 217 S.W. 977, 9 A.L.R. 382 (1920).

Eng.

—Ex parte Cote, L.R. 9 Ch. App. 27 (1873).

Cf. Farmers’ Guaranty State Bank v. Burrus Mill & El. Co., 207 S.W. 400 (Tex. Civ. App. 1918); Canterbury v. Bank of Sparta, 91 Wis. 53, 64 N.W. 311 (1895). This is to be distinguished, however, from the acceptance of an offer.

In Guardian Nat. Bank v. Huntington County State Bank, 206 Ind. 185, 187 N.E. 388, 92 A.L.R. 1056 (1933), the plaintiff received checks, drawn on the defendant by the latter’s depositor, and forwarded them to the drawee for collection. The defendant received them and mailed a letter saying that they were paid, although the checks were not marked paid and were never charged against the depositor. Later, the defendant withdrew its letter from the post office. It was held that the mailing of the letter was not payment, and was not a final acceptance of an offer because the power of withdrawal from the mails was exercised. The existence of this power was believed to make the post office the agent of the drawee bank alone. The theory that the post office is the common agent of both parties has been disapproved in this chapter. Probably the decision should be sustained on the ground that the question in issue was one of payment and not one of acceptance of an offer by mail.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.27 »

1 Corbin on Contracts § 3.27 (2020)

§ 3.27. Acceptance by Telegraph—When Operative

The telegraph is no longer a viable means of communication.1 It fell victim to far more efficient means. This chapter is retained in this revision not only for its historical importance but because the principles stated here may be applied analogously to other situations.

In the United States, the telegraph was not part of the postal system; instead, the service was rendered by public utilities. From the 1840’s to relatively recent times communication by telegraph was the medium of choice for an enormous number of messages where speed was important to the sender. Radiograms from ships at sea were particularly important. There was such general confidence in its reliability that often the telegraph was used instead of the mail as a means of making and accepting offers. These facts have caused the rules applicable to acceptance by telegraph to be very similar to those applicable to acceptance by post.

The offeror could, by proper expression of will, either totally exclude the telegraph or make its use an absolute requirement, or instead make it one of several alternative methods. The offer could provide that a telegraphed acceptance shall be operative only on receipt by the offeror.2 But the offer could do none of these things; and yet the telegraph could in fact be used by the offeree.

If the offeror expressly or by reasonable implication authorized the use of the telegraph to accept, a properly started and directed telegram of acceptance was operative on putting the message in the hands of the telegraph company. Just as a letter must be stamped, so, too, the telegraphic charges or credit agreed on by the company had to be paid. The fact that the telegram might possibly be recalled or delayed or lost did not prevent its operation as an acceptance.3

If the offer was itself by telegraph this is a fact that tended toward an inference that the same method of communication was reasonable in accepting by telegraph and in supposing that starting the telegram makes the contract.4

If the court found that the offeree was thus reasonable and that the offeror had reason to expect as much, the acceptance is operative at starting.5 Such a finding by the court, however, was not a necessary result of the fact that the offer was by telegram. All other surrounding circumstances had to be considered. If the offeree knew facts indicating that the accepting telegram would be delayed, it might have been quite unreasonable to adopt this method, or at least to act on the assumption that the contract could be closed by leaving the message at the telegraph office.

If the offer was not by telegraph and the offeror said nothing as to the mode of acceptance, acceptance by telegraph might nevertheless be a proper mode. If all the other requirements of an acceptance were fulfilled, acceptance by telegraph would be operative at least as soon as the telegram was received.6 It was quite possible, indeed, that the telegraphic acceptance would be operative on starting. The method might have been entirely reasonable, in accord with business usage of the time and place, and one that the offeror had reason to expect, so that acceptance could be effective on starting the telegram.7 In some cases, however, it was held that the acceptance was not operative until the telegram was received.8 It is true that in such a case there was little reason for saying that the telegraph was the common agent of both parties, or that the offeror authorized its use and agreed to carry the risk of delay or nondelivery. Since these arguments are not conclusive in cases of acceptance by post, they need not be regarded as conclusive in cases of acceptance by telegraph. In at least one case, it has been held that an acceptance by mail may be operative on mailing even though the offer was by telegraph.9 So also, where an offer was hand delivered to a real estate broker to purchase realty, containing signature lines for acceptance, a telegraphic acceptance was reasonable where the owners of the property were at their residence some 2,000 miles away and were notified of the offer by a telephone call from the broker.10

Without doubt, it was much more often reasonable to accept by telegraph an offer that came by mail11 than to accept by mail an offer that came by telegraph.12 The use of the telegraph by an offeror was some indication that speed of communication was desired.

Footnotes — § 3.27:

1 Western Union sent its last telegram in 2006. Stephen Kiehl, Telegram Services—Stop, Balt. Sun, Feb. 4, 2006, at A1.

Ky.

—Postal Tel. Cable Co. v. Louisville Cotton Seed Oil Co., 140 Ky. 506, 131 S.W. 277 (1910).

Mass.

—Lewis v. Browning, 130 Mass. 173 (1881).

Eng.

—Byrne v. Van Tienhoven, L.R. 5 C.P.D. 344 (1880) (“subject to your cable on or before the 15th here.”).

It was held in Postal Tel. Co. v. Willis, 93 Miss. 540, 47 So. 380 (1908), that a telegram of acceptance was operative on its delivery to the company for transmission in spite of a custom among cotton dealers to regard it as operative only on receipt by the offeror. Since any contractor can make the ordinary rule inapplicable by notice in advance to the other party, it is difficult to see why the persons engaged in a trade cannot make it inapplicable by a general trade custom and understanding.

U.S.

—Stephen M. Weld & Co. v. Victory Mfg. Co., 205 F. 770, (E.D.N.C. 1913) (rejecting telegram received after starting telegram of acceptance).

Conn.

—L. & E. Wertheimer, Inc. v. Wehle-Hartford Co., 126 Conn. 30, 9 A.2d 279, 125 A.L.R. 985 (1939).

Ill.

—Paramount Pictures Distributing Corp. v. Gehring, 283 Ill. App. 581 (1936).

Mass.

—Brauer v. Shaw, 168 Mass. 198, 46 N.E. 617 (1897).

N.Y.

—Trevor v. Wood, 36 N.Y. 307 (1867); Chesebrough v. Western Union Tel. Co., 76 Misc. 516, 135 N.Y.S. 583 (1913), aff’d, 157 App. Div. 914, 142 N.Y.S. 1112.

Okla.

—Western Union Tel. Co. v. Wheeler, 114 Okl. 161, 245 P. 39, 47 A.L.R. 156 (1926).

Tex.

—Kennedy Mercantile Co. v. Western Union Tel. Co., 167 S.W. 1094 (Tex. Civ. App. 1914).

W.Va.

—E.T. Barnum Iron Works v. Prescott Construction Co., 86 W.Va. 173, 102 S.E. 860 (1920).

Cf. Lucas v. Western Union Tel. Co., 131 Iowa 669, 109 N.W. 191 (1906).

U.S.

—Minnesota Linseed Oil Co. v. Collier White Lead Co., 17 Fed. Cas. 447, 4 Dill. 431 (C.C. Minn. 1876).

Conn.

—L. & E. Wertheimer, Inc. v. Wehle-Hartford Co., 126 Conn. 30, 9 A.2d 279, 125 A.L.R. 985 (1939).

Ill.

—Haas v. Myers, 111 Ill. 421 (1884).

Ky.

—C.W. Craig & Co. v. Thomas S. Jones & Co., 200 Ky. 113, 252 S.W. 574 (1923).

Mass.

—Brauer v. Shaw, 168 Mass. 198, 46 N.E. 617 (1897), disregarding M’Culloch v. Eagle Ins. Co., 18 Mass. 278, 1 Pick. 278 (1822).

Or.

—Williams v. A.C. Burdick & Co., 63 Or. 41, 125 P. 844, adhered to, 63 Ore. 41, 126 P. 603 (1912).

Pa.

—Follansbee Metals Co. v. John T. Clark & Son, Inc., 387 F. Supp. 574, 581 (W.D. Pa. 1974). Clark moved to quash service or alternatively to transfer to another district on grounds of insufficient contacts. Held, motions denied, as Clark entered into a contract within the jurisdiction by sending a telegram of acceptance.

Tex.

—Western Union Tel. Co. v. Fletcher, 208 S.W. 748 (Tex. Civ. App. 1919).

Whether the use of the telegraph is impliedly authorized is a question of fact. Perry v. Mount Hope Iron Co., 15 R.I. 380, 5 A. 632 (1886).

5 While no court decision on the point has been seen, it is believed that the rule above stated is not made inapplicable by the mere fact that the offeree did not use the same telegraph company as did the offeror.

W.Va.

—Caldwell v. Cline, 109 W.Va. 553, 156 S.E. 55, 72 A.L.R. 1211 (1930).

In Perry v. Mount Hope Iron Co., supra, the court stated, “if it be shown that the acceptance duly reached the defendant, the question of the mode, no mode having been specified, is immaterial.” The telegraphic acceptance was in this case received by the offeror, but the court held that the contract was made at the place of starting the telegram. The statute of frauds of the place of receipt was held not to be applicable.

U.S.

—Stephen M. Weld & Co. v. Victory Mfg. Co., 205 F. 770 (E.D.N.C. 1913).

R.I.

—Perry v. Mount Hope Iron Co., 15 R.I. 380, 5 A. 632 (1886) (offer made orally).

Since it was custom that made acceptance by telegram operative at starting, it would seem that there would be no objection to a contrary custom in a particular trade. But proof of such a custom was not allowed in Postal Tel. Co. v. Willis, 93 Miss. 540, 47 So. 380 (1908). The result would be different today under the provisions of Uniform Commercial Code §§ 1-303 and 2-202.

U.S.

—Shurter v. Ricker, 62 F.2d 489 (5th Cir. 1932), cert. denied, 289 U.S. 732.

Iowa

—Lucas v. Western Union Tel. Co., 131 Iowa 669, 109 N.W. 191 (1906).

It should be noted that in Shurter v. Ricker, supra, the offer was made by a married woman residing in New York where she had full power to make contracts. The telegraphic acceptance was from Texas, where married women were still under disability. The court did not wish to hold that the telegram was operative at starting for the reason that the New York woman could then profit by the Texas law. Such an unjust result could be avoided by holding that the telegraphic acceptance was not operative until received.

In Dickey v. Hurd, 33 F.2d 415 (1st Cir.1929), cert. denied, 280 U.S. 601, an offer was sent from Massachusetts by mail, and the offeree accepted by telegram from Georgia. The court stated: “Where parties are at a distance from one another, and an offer is sent by mail, it is universally held in this country that the reply accepting the offer may be sent through the same medium, and, if it is so sent, the contract will be complete when the acceptance is mailed, properly addressed to the party making the offer and beyond the acceptor’s control; the theory being that, when one makes an offer through the mail he authorizes the acceptance to be made through the same medium, and constitutes that medium his agent to receive his acceptance… . But in this case, although the offer was by mail, the acceptance was by telegraph, and, not being sent through the same medium, it cannot be said that Mr. Hurd authorized an acceptance by telegraph and constituted that medium his agent to receive the acceptance. In this situation the acceptance, when delivered at the telegraph office, was neither actually nor constructively communicated to Mr. Hurd, and the contract was not consummated, until the telegram was delivered to Mr. Hurd in Massachusetts.”

Okla.

—Farmers’ Produce Co. v. McAlester Storage & Com. Co., 48 Okl. 488, 150 P. 483 (1915).

In Ferguson v. West Coast Shingle Co., 96 Ark. 27, 130 S.W. 527 (1910), a revocation received before the letter of acceptance was received was held to be in time to prevent a contract.

10 Pickett v. Miller, 76 N.M. 105, 412 P.2d 400 (1966).

11 Stephen M. Weld & Co. v. Victory Mfg. Co., 205 F. 770 (E.D.N.C. 1913).

12 In Farmers’ Produce Co. v. McAlester Storage & Comm’n Co., 48 Okl. 488, 150 P. 483 (1915), it was held that an acceptance of a telegraphed offer by post was reasonable. To the contrary is Richard v. Credit Suisse, 124 Misc. 3, 7, 206 N.Y.S. 150 (1924), aff’d, 214 App. Div. 705, 209 N.Y.S. 909, aff’d, 242 N.Y. 346, 152 N.E. 110, where the court says that such an acceptance was not authorized, but then threw further light on this conclusion, stating that under the circumstance, “the greatest possible speed was demanded.”

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.28 »

1 Corbin on Contracts § 3.28 (2020)

§ 3.28. Acceptance Must Manifest Assent and Be Unconditional

Frequently, the practice of an offeree is to acknowledge receipt of an offer prior to making a decision whether or not to accept it. Such an acknowledgement is not an acceptance.1 An acceptance requires a manifestation of intention to consent to the terms of the offer.2 The first Restatement contained this illustration: “A sends an order for goods to B. B replies that the order will receive his attention. There is no contract.”3 Such a result may be appropriate but is subject to all of the rules and processes of interpretation, including consideration of any trade usage or course of dealing. It may be enough to say that absent any other evidence regarding the parties’ intent, there is no contract, but it is unsound to fail to consider all other pertinent evidence of intent.

Modern business practices frequently involve the logging-in of purchase orders. Such a log kept by the seller communicates no acceptance even if there is an intent to accept.4 The communication of a computer tracking number is no acceptance. It is merely a ministerial act to facilitate the tracking of an order.5

A communicated offer creates a power to accept the offer that is made and only that offer. Any expression of assent that changes the terms of the offer may be operative as a counter-offer, but it is not an acceptance and consummates no contract.6 An expression that purports to be an acceptance but is so expressed as to be operative as an acceptance only on a condition that is not specified in the offer, is not an acceptance at all. It may be described as a “conditional acceptance,” but this does not mean that it is operative as an acceptance or even that it will become so operative if the condition afterwards occurs. It is operative only as a counter-offer, and unless the original offeror expresses7 unconditional assent to it, there will be no contract.8 Conduct by the parties recognizing the existence of a contract may create a contract, the terms of which are subject to the rules of interpretation.9

One offers to sell Blackacre to another for a stated price, saying that the offer will remain open until Christmas. The other replies: “I accept your offer now, at the price named, on condition that the price of cotton shall rise to twelve cents by Christmas.” This makes no contract, either now or hereafter, even though cotton reaches the specified price. This counter-offer creates an immediate power of acceptance in the original offeror who need not wait for the price of cotton to rise.

The question whether a communication by an offeree is a conditional acceptance is not always easy to answer. It must be determined by the same common-sense process of interpretation that must be applied in so many other cases.10 In an old case that has been much discussed,11 one who had been offered certain brandy in which both parties had an interest, at a price, replied as follows: “I shall delay coming to any determination till I again hear from you… . The prospect of war between France and Spain may defeat the object of this speculation [one previously agreed upon], in which case I will at once decide to take the adventure to my own account.” This was held not to be an acceptance on condition and not to prevent the offeree from making a valid acceptance later.12 Nor was it a counter-offer creating a power of acceptance in the other party.

The words of an “acceptance” must indeed accord with the terms of the offer. Such “accord,” or lack of accord, can be determined only by the process of interpretation, discussed in Chapters 24 and 25.13 The subsequent actions and communications of the parties, showing their own interpretation, are certainly admissible in the judicial process. This is well illustrated in Foard v. Snider,14 a case in which a deed of conveyance gave to the grantor an option to repurchase within six months. The day before expiration of that time, the option holder gave a rather doubtful notice. Evidence of much subsequent negotiation was admitted, tending to show that the grantee did not regard this notice as insufficient. In acceptance of an option, time is generally (§ 2.15) of the essence, but in its holding the court was not (as the dissenting judge asserts) giving effect to a belated acceptance.

When a salesperson or soliciting agent submits an order form and induces a customer to sign the order or to mark it “accepted,” the order expressly providing that it is “subject to approval of the home office,” the customer is making an offer, not accepting one. The order is not a conditional acceptance or counter-offer; it is the only offer that is made, being revocable until acceptance at the home office. The fact that the dealer’s own representative submitted the terms which the customer used in making the offer to buy may have an important effect in determining whether remaining silent will bind the dealer and whether marking the order “approved” will bind the customer without the dealer sending the customer a notice.15

An offer to lease or to sell property to a specific person cannot be accepted by a different person, and a purported acceptance by the offeree is inoperative if it requires that the offeror lease or sell to a third person who is to be the lessee or buyer.16 This is true even if the offeree is empowered to accept and then assign the contractual rights to the third person. If such an offeree accepts so as to be bound as lessee or buyer, the acceptance should not be held to be conditional and inoperative by reason of a request that the lease or bill of sale or delivery shall be made to another.

(A) The following cases are noteworthy:

(1) Ibrahim v. United States, 2020 U.S. App. LEXIS 3722 (Fed. Cir. Feb. 7, 2020). Ibrahim filed a complaint against the United States in the United States Court of Federal Claims in which he referenced an alleged contract right somehow relating to a child support order issued by the state of New Jersey. Ibrahim sent a twelve-page letter to certain officials of the State of New Jersey, cabinet secretaries, and the Supreme Court of the United States labelled a “Conditional Acceptance for the Value/Agreement/Counter Offer to Acceptance of Offer” (it is not at all clear what “offer” he references—but that makes no difference to the contract law principle described below). The letter asserted that Ibrahim had “received [these parties’] offer”—whatever that means—“and accept[ed]” it—but subject to conditions set forth in the letter. According to the court: the letter “for the most part, demands that the recipients justify the existence of various governmental agencies and practices. … . The letter asserts that failure to do would result in ‘default,’ and in turn, an obligation to pay Ibrahim $3.5 million in damages.” The United States did not respond. The Claims Court dismissed the claim, holding that it lacked subject matter jurisdiction pursuant to the Tucker Act. On appeal, the instant court affirmed. Ibrahim argued that his letter constituted a “counter-offer” and that the government’s failure to respond constituted an acceptance of a default, unilateral contract. The instant court held that the Claims Court did not have jurisdiction because the claim was frivolous. An unsolicited letter, and a conditional counteroffer, do not constitute a contract. “[A]n offeree’s failure to respond to an unsolicited offer does not create a contract, regardless of any contrary terms in the offer.” And: “Contract law does not permit one to send unsolicited letters to the government (or anyone else) declaring that a failure to respond to the letter constitutes both formation and breach of a contract, entitling the sender to liquidated damages.” The court quoted First CommerceCorp. v. United States, 335 F.3d 1373, 1381 (Fed. Cir. 2003): “ ‘A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.’ (quoting RESTATEMENT(SECOND) OF CONTRACTS § 59 (1979)).”

(2) Spano v. Ohio Hospice & Palliative Care, 2019 U.S. Dist. LEXIS 217888 (W.D. Pa. December 19, 2019). Plaintiffs filed claims against defendants for age discrimination and violation of Pennsylvania’s Wage Payment and Collection Law. The parties entered into settlement discussions and defendants offered to settle plaintiffs’ claims for $5,000 in exchange for a “general release.” Plaintiffs’ counsel responded that plaintiffs would “accept the offer to settle their claims for $5000.00 in consideration for a General Release. This acceptance is made with the understanding that this will include full withdrawal of any and all counterclaims, as well as withdrawal of the private criminal complaint filed with the Allegheny County District Attorney’s Office.” Defendants treated the plaintiffs’ response as a counter-offer. Plaintiffs sought to enforce the purported settlement, but the court held that there was no settlement—there was an offer and a counter-offer, but never an acceptance. Plaintiffs’ “attempt to accept defendants’ offer violates the cardinal rule that acceptance be ‘unconditional and absolute,’ and thus does not create a binding contract.” The plaintiff conditioned a settlement on a full withdrawal of counterclaims and a private criminal complaint filed against one of the plaintiffs. The court denied the motion to enforce settlement.

Rose v. Rowan Univ., 2019 N.J. Super. Unpub. LEXIS 951 (2019). Rose sued his former employer, Rowan University, for discrimination. Rose engaged in settlement discussions with his former employer, Rowan University. The attorneys for the parties exchanged these emails:

From Rose’s counsel:

In speaking with the client, he was adamant about getting a number in the six figures. However, in talking to him, if we can agree on a number just under $100,000, meaning $95,000, we can get the case resolved. Please let me know if [d]efendant is agreeable to $95,000, and we can settle the case. Unfortunately the number would have to be $95,000 and nothing less than that.

From Rowan’s counsel:

I can likely do this but there will have to be a no-rehire provision in there for [defendant] and any other state operated agencies. I will confirm with the client. Thanks.

From Rowan’s counsel:

We are settled at $95k provided we have the usual state required release and forms, as well as a confidentiality, non disparagement and no rehire for state employment provisions in the release. Please confirm and I will prepare the release.

From Rose’s counsel:

Sorry for just getting back now. Without disclosing too much, I have had some issues finalizing the number with … [p]laintiff. … .

Rowan moved to enforce the purported settlement, and the trial court granted the motion. On appeal, the instant court refused to enforce the purported settlement and correctly characterized the email exchange: “Rowan’s seeming acceptance of the $95,000 was in fact a counter-offer, containing previously unmentioned terms requiring acceptance before the matter could be resolved.” The counter-offer was a rejection of the offer, “not the necessary unqualified acceptance manifesting assent required for the creation of an enforceable settlement agreement.”

Footnotes — § 3.28:

1 Southern Spindle & Flyer Co. v. Milliken & Co., 53 N.C. App. 785, 281 S.E.2d 734, 736 (1981), petition denied, 304 N.C. 729, 288 S.E.2d 381 (1982).

2 Restatement (Second) of Contracts § 19 (Am. Law Inst. 1981).

In Schreiber v. Olan Mills, 426 Pa. Super. 537, 627 A.2d 806 (1993), the recipient of a telemarketing solicitation dispatched a letter to the telemarketing company declaring that any future solicitations would be considered by them as creating “a contract with us for our listening services,” compensation for which would be at specified hourly rates. The court properly rejected the claim that two subsequent solicitations constituted an “acceptance” of this “offer.” The trial court concluded that “the plaintiff’s communiqué” was “in the nature of a ‘cease and desist’ request rather than an ‘offer’ to ‘listen … for hire’ to the solicitations of the defendant.” The appellate court agreed, adding that there could be no bargained-for-exchange where one of the parties—here the offeree—acts without any intention of binding itself to a contract.

To discern whether the parties intended to have a contract, sometimes it is important that one of the parties did not sign the purported contract, other times it is not. See, e.g, Howell v. Kelly Servs., 2015 U.S. Dist. LEXIS 57604 (E.D. Va. May 1, 2015). Howell sued Kelly, and the parties discussed settlement. Defendants’ counsel forwarded Howell’s attorney a draft settlement agreement. On September 13, 2011, Howell and her attorney signed the settlement agreement and the attorney emailed the signed document to the defendants at 9:13 p.m. Howell claimed she called her attorney later that evening in order to revoke her acceptance and the attorney never called her back. On September 15, 2014, she emailed her attorney asking him to “cancel” the signed settlement agreement and “[d]isregard [the] paper work [sic] for the order dismissing the case in its entirety.” Howell’s attorney responded that the case had been settled “pursuant to [her] instructions and based upon [her] signature.” Howell’s attorney communicated with defendants’ counsel and advised that Howell wished to revoke her acceptance, but the defendants would not agree. Howell’s attorney withdrew from the case, and defendants filed a motion to enforce the settlement agreement. The court granted the defendants’ motion, rejecting Howell’s argument that the defendants were required to sign the contract in order for the agreement to be enforceable, holding that defendants clearly intended to make an offer of settlement, which Kelly accepted.

But see LoRoad, LLC v. Global Expedition Vehicles, LLC, 787 F.3d 923 (8th Cir. 2015). LoRoad negotiated to have GXV build it a custom expedition vehicle. On October 1, 2012, GXV sent LoRoad a proposed Assembly Agreement. The parties exchanged drafts and communications about the proposed contract for the next several months into March of 2013. Finally, LoRoad claimed the parties entered into a binding contract—a position contrary to LoRoad’s contentions throughout the negotiations. LoRoad pointed to the fact that on November 16, 2012, LoRoad faxed GXV a draft of the Assembly Agreement and, subsequently, on February 13, 2013, GXV signed and returned it to LoRoad. If LoRoad’s November 16th fax constituted an offer creating a power of acceptance in GXV, then GXV accepted the offer and formed a binding contract on February 13th, but the district court, and later, the Eighth Circuit, disagreed and held that no offer had been made. LoRoad itself previously had objected to the characterization that the February 13th communication was an acceptance. The court honored the parties’ intentions: at no point during the negotiations did LoRoad recognize the existence of a binding contract.

In Williams v. East-West Univ., 2018 U.S. Dist. LEXIS 163922 (N.D. Ill. 2018), the complaint alleged that the offeree/plaintiff signed an agreement given to him by the defendant but under circumstances that left little doubt that there was no manifestation of intent to consent to its terms. Following his termination from defendant’s employment, plaintiff sued his former employer, the defendant university, for discrimination, but defendant filed a motion for judgment on the pleadings alleging that plaintiff released his claims in a separation agreement that gave him two weeks’ pay. The parties disputed whether plaintiff ever agreed to the separation agreement drafted by defendant. The court explained that plaintiff “signed the agreement in the spot marked for the notary public and left a copy with a colleague in the Human Resources department, instructing her not to deliver the agreement until Williams had time to consult with a lawyer.” The defendant argued that this constituted acceptance of the agreement. Plaintiff argued it did not. Against plaintiff’s wishes, the agreement ended up in the hands of the defendant. The defendant direct-deposited two weeks’ pay into plaintiff’s bank account, but plaintiff claimed he did not understand that this payment was made pursuant to the separation agreement. Under the facts pled, and given the procedural posture of the case, the court was unable to say that plaintiff accepted the terms of the separation agreement. It was a question of intent that the court could not decide at this juncture. “Delivering a contract is often an expression of an intent to be bound, but not always. The key is whether the party’s conduct amounts to an ‘objective manifestation of mutual assent.’ ” In this case, plaintiff “may have signed and delivered the agreement, but he has sufficiently alleged that, while doing so, he objectively manifested an intent not to be bound.” The motion was properly denied.

3 Restatement of Contracts § 58 ill. 1 (Am. Law Inst. 1981).

4 Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 539 (9th Cir. 1983), cert. denied, 465 U.S. 1038, criticized on other grounds, Chroma Lighting v. GTE Prods. Corp., 111 F.3d 653 (9th Cir. 1997).

5 Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories, 724 F. Supp. 605 (S.D. Ind. 1989).

U.S.

—Minneapolis & St. L. Railway Co. v. Columbus Rolling-Mill, 119 U.S. 149, 7 S. Ct. 168, 30 L. Ed. 376 (1886); Garcia v. Juarez, 2017 U.S. Dist. LEXIS 105353 (E.D. Cal. July 7, 2017); Bernal v. DK8 LLC (In re HBT JV, LLC), 571 B.R. 729 (Bankr. N.D. Tex. 2017); Nooruddin v. Comerica Inc., 2012 U.S. Dist. LEXIS 48086 (D. Kan. April 5, 2012); Bybee Farms LLC v. Snake River Sugar Co., 2008 U.S. Dist. LEXIS 74537 (E.D. Wash. Sept. 29, 2008); Andolina Shipping Ltd. v. TBS Eurolines Ltd., 84 F. Supp. 2d 527 (S.D.N.Y. 2000); Ficalora v. IBM, 1997 U.S. App. LEXIS 25218 (9th Cir. Sept. 15, 1997); In re Pago Pago Aircrash, 637 F.2d 704 (9th Cir. 1981); United States v. Newport News Shipbuilding and Dry Dock Co., 571 F.2d 1283 (4th Cir. 1978), cert. denied, 439 U.S. 875; Stuart v. Franklin Life Ins. Co., 165 F.2d 965 (5th Cir. 1948), cert. denied, 334 U.S. 816; Machine Tool & Equip. Corp. v. Reconstruction Fin. Corp., 131 F.2d 547 (9th Cir. 1942); Rothstein v. Edwards, 94 F.2d 488 (9th Cir. 1937); Cleborne v. Totten, 57 F.2d 435, 61 App. D.C. 69 (1932); American Smelting & Refining Co. v. Hyman, 16 F.2d 39 (6th Cir.1926) (offer to buy copper at “15 cents basis Louisville,” acceptance “15 cents delivered Louisville” or “f.o.b. Louisville”); Columbia Malting Co. v. Clausen-Flanagan Corp., 3 F.2d 547 (2d Cir. 1924); Rushing v. Manhattan Life Ins. Co., 224 F. 74 (8th Cir. 1915); Ferrero v. Amigo, Inc., 703 F. Supp. 890 (D. Kan. 1988); Kurio v. United States, 429 F. Supp. 42 (S.D. Tex. 1970); Banking & Trading Corp. v. Reconstruction Finance Corp., 147 F. Supp. 193 (S.D.N.Y. 1956), aff’d, 257 F.2d 765 (2d Cir.) (citing this treatise, § 82, from a prior edition); Hoffstot v. Dickinson, 71 F. Supp. 897 (S.D. W.Va.1947), aff’d, 166 F.2d 36 (4th Cir. 1948).

In Nolan Bros., Inc. v. Century Sprinkler Corp., 220 F.2d 726 (4th Cir. 1955), the defendant offered to install a sprinkler system on stated terms. The plaintiff replied: “We accept your quotation in good faith; however, we must ask that you mail us a tentative schedule of work in order that we may make up the sub-contract which will constitute formal acceptance and agreement.” The court held that this was not an operative acceptance of defendant’s offer. Several slight differences between the offer and the acceptance were disregarded by the Court of Appeals in Newspaper Readers Service, Inc. v. Canonsburg Pottery Co., 146 F.2d 963 (3d Cir. 1945). The court below had thought the differences important and may have been correct in so thinking.

Cal.

—McRae v. Ross, 170 Cal. 74, 148 P. 215 (1915); Fugate v. Cook, 236 Cal. App .2d 700, 46 Cal. Rptr. 291 (1965).

Ala.

—Hardy Corp. v. Rayco Indus., 143 So. 3d 172 (Ala. 2013).

Ark.

—American Bonding Co. v. City of Trumann, 1996 Ark. App. LEXIS 40 (Jan. 31, 1996).

Cal.

—Bennett v. Truttman, 2004 Cal. App. Unpub. LEXIS 1648 (Cal. Ct. App. Feb. 24, 2004). Where the buyers of real estate changed the time for closing by three days pursuant to the suggestion of the seller’s agent, the court cited the rule that any expression of assent that changes the offer in any material respect may be a counter offer but cannot be an acceptance. The court held for the plaintiffs in finding no material change in the acceptance.

Conn.

—Lucier v. Norfolk, 99 Conn. 686, 122 A. 711 (1923) (offer to do work at a certain rate per week not accepted by a vote to accept at the equivalent per diem rate); Ocean Ins. Co. v. Carrington, 3 Conn. 357 (1820) (application for an insurance policy containing separate valuations of items covered not accepted by furnishing a policy containing valuation of all the items in the aggregate). Sowell v. Dicara, 2015 Conn. Super. LEXIS 2905 (Nov. 25, 2015).

Del.

—In re Asbestos Litig., 1996 Del. Super. LEXIS 639 (Jan. 12, 1996); Weishut v. Layton, 28 Del. 364, 93 A. 1057 (Super. 1915). Hoskins v. Michener, 33 Idaho 681, 197 P. 724 (1921) (difference in time of payment).

Fla.

—P & O Ports Fla., Inc. v. Continental Stevedoring & Terminals, Inc., 904 So. 2d 507 (Fla. Dist. Ct. App. 3d Dist. 2005).

Id.

—Heritage Excavation, Inc. v. Briscoe, 105 P.3d 700 (Idaho Ct. App. 2005). The acceptance must be identical with the offer and unconditional. An acceptance that varies the terms of the offer is not an acceptance. It is a rejection and a counter offer that must be accepted to form a contract.

Ill.

—Post Concrete Repair & Waterproofing Supply, Inc. v. Williams Dev. Ltd., 2017 IL App (1st) 152460-U, 2017 Ill. App. Unpub. LEXIS 246 (Feb. 9, 2017); Worley v. Holding Corp., 348 Ill. 420, 181 N.E. 307 (1932); Brook v. Oberlander, 49 Ill. App. 2d 312, 199 N.E.2d 613 (1964); Goodridge v. Wood, 133 Ill. App. 483 (1907).

Bergt v. McDougal Littell, 2006 U.S. Dist. LEXIS 93046 (N.D. Ill. Dec. 21, 2006). McDougal, a book publisher, sent a letter to the agent of Bergt stating that it could pay $200 for a license to reproduce Bergt’s copyrighted painting, Primavera, in a school textbook with a “print run of 40,0000.” The agent responded with a document captioned “Invoice” stating that “Rights are granted to reproduce” the work for a “reproduction fee of $200.” It included a transparency of the painting and asked for its prompt return. Years later, Bergt discovered that the painting had been reproduced in over a million copies of the textbook and brought this action for copyright infringement. McDougal moved to dismiss the complaint on the footing that the letter from Bergt’s agent did not limit the number of reproductions. The court found that McDougal’s letter containing the 40,000 limitation was an offer since it manifested a willingness to enter into a bargain so made as to justify Bergt in understanding that his assent to it would conclude a contract (Restatement (Second) of Contracts, § 24 (Am. Law Inst. 1981)). The court deemed the “slightly more elusive” response from Bergt through his agent as an acceptance rather than a counteroffer as suggested by McDougal. The caption, “Invoice,” suggested a record-keeping function rather than a counteroffer. It seemed intended as a final communication rather than contemplating a reply from McDougal. The absence of the other terms in the offer dealing with the number of reproductions suggested an intent to accept McDougal’s offer as stated rather than a counteroffer. The inclusion of the transparency further indicated the offeree’s intent to conclude the contract on the terms of the offer. The notion that the response was a counteroffer was further undermined by the common sense analysis that the agent would be operating against its principal in providing the right to unlimited print runs for the same $200 fee which McDougal offered to pay for a run of 40,000. In summary, the response to the offer suggested nothing except an intention to accept the offer on its terms. The motion to dismiss Bergt’s complaint was, therefore, denied.

Pampered Chef v. Alexanian, 2011 U. S. Dist. LEXIS 117520 (N.D. Ill. Oct. 5, 2011). To settle an action alleging violation of an agreement not to solicit or recruit the plaintiff’s sales members, the plaintiff offered to waive money damages if the defendants agreed not to solicit such members for two years. The defendants submitted a counter-offer proposing a one-year time frame. The plaintiff’s response stated that it agreed to the proposed change but added, “all defendants agree to a non-disparagement clause.” This was an additional term that was not in the defendants’ counter-offer. The defendants replied that they would be bound by a reasonable non-disparagement term so long as it was mutual. The plaintiff replied that it was confused by certain terms. Nothing in the plaintiff’s reply indicated that the plaintiff accepted the defendants’ “mutuality” proposal. The defendants claimed that a settlement agreement had been formed and moved to enforce it. The court restated the familiar requirement that a response that does not comply strictly with the terms of the offer, i.e., a response that is not the “mirror image” of the offer, constitutes a counter-offer that rejects the offer (Restatement (Second) of Contracts §§ 36, 38, & 39 (Am. Law Inst. 1981)). The defendant’s first counter-offer was rejected by the plaintiff’s response since the addition of the non-disparagement clause was a counter-offer. In response, the defendants’ addition of a “mutual” nondisparagement clause was another counter-offer. The court concluded that the evidence did not manifest the parties’ mutual assent and denied the defendants’ motion.

Ind.

—Avery v. Citizens’ Loan and Trust Co., 94 Ind. App. 161, 180 N.E. 23 (1932) (bid for work at a fixed total price, acceptance at a price per unit and requiring a bond); Shane Bros. & Wilson Co. v. Barrett, 71 Ind.App. 331, 124 N.E. 780 (1919) (difference as to time of delivery).

Iowa

—Musch v. Frost, 319 N.W.2d 286 (Iowa 1982) (acceptance of offer for sale of a house subject to owner repainting and fixing plumbing); Shell Oil Co. v. Kelinson, 158 N.W.2d 724 (Iowa 1968) (recognizes the rule but finds acceptance to be unconditional); Jameson v. Joint Drainage Dist., 191 Iowa 920, 183 N.W. 512 (1921) (conditional acceptance of a contractor’s bid).

Kan.

—Seymour v. Armstrong, 62 Kan. 720, 64 P. 612 (1901); Meister v. Douglas Fry Roofing, Inc., 303 P.3d 1278 (Kan. App. 2013); Nungesser v. Bryant, 283 Kan. 550, 153 P.3d 1277 (Kan. 2000) (citing the Corbin treatise, § 3.28, 1993 ed.).

Ky.

—Casner v. Oldham, 279 S.W.2d 252 (Ky.1955) (attempt to accept only a part of the offer).

La.

—Bennett v. Treadaway, 134 So. 2d 668 (La. App. 1961).

A notice of acceptance by a lessee who had an option to buy was held not to be made ineffective by the fact that it was conditional on an extension of time by a mortgagee, when in fact the mortgagee had already consented to the extension. The express condition having already occurred, the acceptance was unconditional. Amster v. Tenney, 139 N.J. Eq. 335, 51 A.2d 257 (1947).

Mass.

—In re Opinion of the Justices, 344 Mass. 770, 184 N.E.2d 353, 357 (1962) (holding that the proposed legislation in Massachusetts was in all essentials in agreement with the similar legislation of other New England States to constitute a “compact” between the States as had been authorized by the federal Constitution and Congress).

Me.

—Jenness v. Mt. Hope Iron Co., 53 Me. 20 (1864) (offer to sell 450 kegs nails is not accepted by ordering 303 kegs).

Md.

—Rios v. State, 186 Md. App. 354, 974 A.2d 366 (2009); Chertkof v. Philadelphia, B. & W.R. Co., 254 Md. 557, 255 A.2d 14 (1969).

Mass.

—Moss v. Old Colony Trust Co., 246 Mass. 139, 140 N.E. 803 (1923).

Mich.

—Kraus v. Hansen, 182 Mich. 52, 148 N.W. 373 (1914); Jordan Bros. Co. v. Walker, 154 Mich. 394, 117 N.W. 942 (1908).

Mich.

—An offer to buy certain property “subject to leases outlined in ‘Exhibit A’ attached hereto was followed by a reply accepting subject to a specified tenant’s option to buy as contained in his lease.” This was held to be a conditional acceptance varying from the offer. Harper Bldg. Co. v. Kaplan, 332 Mich. 651, 52 N.W.2d 536 (1952). Although the offer did not specifically mention the tenant’s option, that option was a part of the lease to which the offer was expressly said to be “subject.”

Minn.

—Lewis v. Johnson, 123 Minn. 409, 143 N.W. 1127 (1913); Markmann v. H.A. Bruntjen Co., 249 Minn. 281, 81 N.W.2d 858 (1957), quoting the predecessor to this section from a prior edition, § 82.

Mo.

—Southern Real Estate & Finance Co. v. Park Drug Co., 344 Mo. 397, 126 S.W.2d 1169 (1939); State ex rel. Equitable Life Assur. Soc. v. Robertson, 191 S.W. 989 (Mo. 1916) (insurance policy issued different from the one applied for); Egger v. Nesbit, 122 Mo. 667, 27 S.W. 385 (1894) (an attempted acceptance of an offer to sell land was held ineffective because it was said: “with the understanding that you will deliver to me all the papers you have in reference to the land, U.S. patent, and other deeds.”).

In Revere Copper & Brass, Inc. v. Manufacturers’ Metals & Chemicals, Inc., 662 S.W.2d 866 (Mo. App. 1983), the offeree’s studied avoidance of repeating the terms of the offer in full was deemed a counter-offer. See also Londoff v. Conrad, 749 S.W.2d 463 (Mo. App. 1988).

Mont.

—In re Marriage of Lyman, 240 Mont. 336, 783 P.2d 1362 (1989). In Kuchinski v. Security General Ins. Co., 141 Mont. 515, 380 P.2d 889 (1963), the plaintiff by telephone, ordered cargo insurance on the contents of a truck. The agent misconstrued the order. He testified that he “bound the defendant for collision and upset coverage,” because he thought that was what was wanted. The truck was injured by collision. The court held that there was no contract for collision coverage. The agent’s attempted acceptance did not correspond to the offer; it added coverage not requested. Observe that the plaintiff could not have been compelled to pay for the added coverage.

Neb.

—Logan Ranch v. Farm Credit Bank, 238 Neb. 814, 472 N.W.2d 704 (1991); Gleeson v. Frahm, 211 Neb. 677, 320 N.W.2d 95 (1982).

N.H.

—Harris v. Scott, 67 N.H. 437, 32 A. 770 (1893) (acceptance “if you have a bona fide offer” from another party).

N.J.

—Mid-Monmouth Realty Assocs. v. Metallurgical Indus., 2016 N.J. Super. Unpub. LEXIS 2475 (Nov. 16, 2016); Giovanola v. Fort Lee Building & Loan Ass’n, 123 N.J. Eq. 103, 196 A. 357 (1938). A notice of acceptance by a lessee who had an option to buy was held not to be made ineffective by the fact that it was conditional on an extension of time by a mortgagee, when in fact the mortgagee had already consented to the extension. The express condition having already occurred, the acceptance was unconditional. Amster v. Tenney, 139 N.J. Eq. 335, 51 A.2d 257 (1947).

N.M.

—Polhamus v. Roberts, 50 N.M. 236, 175 P.2d 196, 170 A.L.R. 991 (1946).

Ohio

—Bergey v. HSBC Bank USA, 2010-Ohio-2736 (Ohio App. 2010); Ohmer v. Mel Farr Ford, Inc., Case No. CA2000-12-252, 2001 Ohio App. LEXIS 3551 (Ohio Ct. App. Aug. 13, 2001).

Okla.

—Anderson v. Garrison, 402 P.2d 873 (Okla. 1965) (an offer to sell for cash not accepted by tender of a portion of price and a time draft for the balance). In Tooks v. Carroll, 284 P.2d 1032 (Okla. 1955), a written offer was made to purchase an apartment house and its furniture. The offeree wrote accepting the offer but at the same time removed the furniture. The court held that the owner’s action made the acceptance a conditional acceptance. The seller was denied specific performance and the offer and accompanying promissory note were canceled. The decision is certainly correct, the inclusion of the furniture being a condition of the buyer’s promise. But it is believed that the seller was bound by a contract that could have been enforced by the buyer.

Or.

—Hall v. Olson, 58 Or. 464, 114 P. 638 (1911) (offer to sell 18,000 acres of land with warranty of 40 million feet of timber—acceptance, subject to a “cruise” showing warranty correct). C.R. Shaw Wholesale Co. v. Hackbarth, 102 Ore. 80, 198 P. 908 (1921) (different results reached on rehearing), 102 Ore. 80, 201 P. 1066 (offer to sell lumber, attempted acceptance stating a definite time for payment and delivery); Mallory v. Sen Sin Ching, 230 Or. 239, 369 P.2d 734 (1962) (before attaching a signature, the plaintiff vendor inserted the words “60 days, foreclosure,” a material alteration of offer, even though ambiguous).

Pa.

—Lobar, Inc. v. Lycoming Masonry, Inc., 876 A.2d 997, 2005 PA Super 201 (2005); Pa. Bus. Bank v. Franklin Career Servs. LLC, 2005 Phila. Ct. Com. Pl. LEXIS 135 (C.P. Phila. Mar. 14, 2005). Cohn v. Penn Beverage Co., 313 Pa. 349, 169 A. 768 (1934) (offer to sell for $15,000, the acceptance suggesting ten percent cash balance in 60 days).

R.I.

—Ardente v. Horan, 117 R.I. 254, 366 A.2d 162 (1976).

In John Hancock Mut. Life Ins. Co. v. Dietlin, 97 R.I. 515, 199 A.2d 311 (1964), defendant applied for life insurance on all members of his family. The policy as issued contained an amendment excluding one daughter. The defendant refused to sign the amendment. Subsequently the daughter died. In the insurer’s suit for a declaratory judgment, it was held that no contract had been consummated.

Drumm v. CVS Pharmacy, Inc., 701 F. Supp. 2d 200 (D.R.I. 2010). In addition to her claim based on age discrimination upon the termination of her employment, the plaintiff claimed the defendant breached its contract to provide a severance compensation for the plaintiff until she secured new employment. The claim was based on a pre-employment discussion in which the plaintiff alleged she requested a severance package. The defendant responded with a voice mail message stating that CVS “would never put anything having to do with severance in an offer letter … Typically … we would give … severance based on a program we would typically [roll] out. An in the case of someone at your level, we would try to make it based on the amount of time we thought it would take the person to get reemployed. But there wouldn’t be any way that we would be able to extend or write into an offer letter that you would be eligible for a certain amount of severance.” Citing Rhode Island precedent, Ardente v. Horan,117 R.I. 254, 259, 366 A.2d 162 (R.I. 1976), the court noted that an acceptance must be definite and unequivocal and the voice mail response was neither. The response manifested no unequivocal agreement to anything. At best, it only described what would typically happen to someone in the plaintiff’s position, but even that description was uncertain at best.

S. Car.

—Sossamon v. Littlejohn, 241 S.C. 478, 129 S.E.2d 124 (1963) (offer to sell property for $100,000. Reply: “your offer … is hereby accepted,” enclosing a draft of contract that provided for transfer on April 1, with 60 days for raising the money to pay. The offer, without specification, implied concurrent transfer and payment.).

S.D.

—Rossum v. Wick, 74 S.D. 554, 56 N.W.2d 770 (1953) (offer to sell subject to an existing lease, acceptance conditional on an assurance of possession at end of the lease).

Tenn.

—In Lexington Housing Auth. v. Continental Cas. Co., 210 F. Supp. 732 (W.D. Tenn. 1962), the acceptance of a bid was ineffective because, (1) it was conditional on approval by the Public Housing Authority; (2) it was not in writing as the bid itself required; and (3) the provision for irrevocability for three days was unsupported by consideration or action in reliance. Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398 (1924) (difference in terms of payment).

Tex.

—In Civic Plaza Nat. Bank v. First Nat. Bank, 401 F.2d 193 (8th Cir. 1968), where defendant offered to purchase for a stated time a promissory note to be made in connection with a loan by plaintiff to a third party, the offer specifying the note to bear interest payable quarterly, there was no acceptance by proffering a note which failed to specify quarterly interest payments. MRC Permian Co. v. Three Rivers Operating Co., 2015 Tex. App. LEXIS 8203 (Aug. 5, 2015), rehearing denied, 2015 Tex. App. LEXIS 13093 (2015), review denied, 2017 Tex. LEXIS 66 (2017).

Utah

—Verdi Energy Group, Inc. v. Nelson, 2014 UT App 101 (2014). Verdi offered to purchase a well belonging to Nelson and Lundahl and their wives. The parties exchanged offers and counteroffers, and Verdi claimed an enforceable contract to sell was formed. In the ensuing litigation, the district court granted summary judgment in favor of Nelson and Lundahl, and the appellate court affirmed. Verdi’s initial offer was set forth in a standard real estate purchase contract (REPC) form. The sellers responded by making handwritten interlineations on the face of the REPC, increasing the purchase price to $500,000 and moving the closing date forward. The sellers checked the “counteroffer” box on the last page of the printed form (leaving blank the “acceptance” box). The counteroffer box advised Verdi that the counteroffer “present[ed] for Buyer’s Acceptance the terms of Buyer’s offer subject to the exceptions or modifications as specified” in the handwritten interlineations. Verdi responded with an Addendum that tacked on additional protections for Verdi, and the court classified this as a counterclaim. Another addendum followed. Never did all of the sellers (Nelson and Lundahl and their wives) agree to sell the property. The court cited this treatise (§ 3.28, 1993 ed.) and held that when an offeree responds to an offer with a “proposal of different terms from those of the offer,” the offeree has made “a counteroffer, and no contract arises unless the original offeror accepts [the counteroffer] unconditionally.” Since there was no underlying contract implicating the statute of frauds, Verdi’s activities could not meet the standard for part performance to overcome the statute of frauds in reliance on the alleged contract.

Cal Wadsworth Constr. v. City of St. George, 898 P.2d 1372 (Utah 1995). A city imposed a condition on its acceptance of a bid submitted in response to an advertisement soliciting bids that the bidder reduce its price. That condition prevented city’s statement from operating as an acceptance.

R.J. Daum Constr. Co. v. Child, 122 Utah 194, 247 P.2d 817 (1952) (after using subcontractor’s bid, the general contractor submitted to the subcontractor a form of written contract containing material variations). Verdi Energy Group, Inc. v. Nelson, 2014 UT App 101, 326 P.3d 104 (2014).

Vt.

—Hill v. Bell, 111 Vt. 131, 11 A.2d 211 (1940) (offer to buy with warranty deed, acceptance saying quitclaim deed).

Wash.

—City of Roslyn v. Paul E. Hughes Constr. Co., Inc., 19 Wash. App. 59, 573 P.2d 385 (1978), review denied, 90 Wash. 2d 1012; Coleman v. St. Paul & Tacoma Lumber Co., 110 Wash. 259, 188 P. 532 (1920); Blue Mountain Constr. Co. v. Grant County School Dist., 49 Wash. 2d 685, 306 P.2d 209 (1957) (acceptance of a bid with variations, citing the predecessor to this section from a prior edition, § 82).

Rorvig v. Douglas, 123 Wash. 2d 854, 873 P.2d 492 (1994) (handwritten modifications made by offerees constituted a counteroffer and not an unequivocal acceptance).

In Owens-Corning Fiberglas Corp. v. Fox Smith Sheet Metal Co., 56 Wash. 2d 167, 351 P.2d 516 (1960), a subcontractor submitted a bid on specified work. The contractor replied sending an “Interim Purchase Order” as a “prospective authorization” to begin fabrication, but expressly providing that “A firm Purchase Order will be forwarded to you within five days.” Thereafter, the specifications of the prime contract were varied, and no “firm Purchase Order” was ever sent. Subsequent negotiations arrived at no agreement. No contract was consummated. The “Interim Purchase Order” was merely a further step in preliminary negotiation. See also § 2.1.

Wis.

—Todorovich v. Kinnickinnic Mut. Loan & Bldg. Ass’n, 238 Wis. 39, 298 N.W. 226 (1941).

Eng.

—Bishop & Baxter v. Anglo-Eastern, etc., Co., [1944] 1 K.B. 12 (C.A.) (acceptance of order for goods “subject to government restrictions and war clause”); Crossley v. Maycock, L.R. 18 Eq. Cas. 180 (1874); Duke v. Andrews, 2 Ex. 290 (1848) (application for shares not accepted by allotting “nontransferable” shares): Hutchinson v. Bowker, 5 M. & W. 535 (1839) (offer of “good” barley, acceptance for “fine” barley); Jordan v. Norton, 4 M. & W. 155 (1838) (offer to buy horse warranted quiet in harness, acceptance giving warranty quiet in double harness); Routledge v. Grant, 4 Bing. 653 (1828) (offer to buy house, possession July 25, acceptance specifying possession August 1); Carter v. Bingham, 32 Up. Can. Q.B. 615 (1872).

7 Tencza v. Hyland, 171 A.D.2d 1057, 569 N.Y.S.2d 242 (1991). The offerors initialed the counter-offer and turned the document over to their attorneys. This was not communicated to the offeree who therefore could (and did) properly revoke.

Lembo v. Schlesinger, 15 Conn. App. 150, 543 A.2d 780 (1988). Defendant allegedly signed the counter-offer, but this was not communicated until many months after the counter-offer was revoked.

Ala.

—Hall v. Integon Life Ins. Co., 454 So. 2d 1338 (Ala. 1984) (under one version of the facts, the counter-offer was accepted; summary judgment was denied).

Cal.

—In Born v. Koop, 200 Cal. App. 2d 519, 19 Cal. Rptr. 379 (1962), a broker obtained a purchaser who signed a “deposit receipt” that differed from the vendor’s listed terms of sale, as to number and amount of installment payments, time and manner of making the prescribed down payment. Since the vendor did not assent to the deposit receipt, there was no contract consummated, and the broker was not entitled to a commission.

Colo.

—In Nucla Sanitation Dist. v. Rippy, 140 Colo. 444, 344 P.2d 976 (1959), the defendant was the lowest bidder on sewer construction. The plaintiff drew up a written contract and sent it to the defendant. The latter signed it and returned it with a letter attached stating that the acceptance was conditional on an extension of the time for completion. The plaintiff removed the letter, and after telling defendant that everything was all right returned a signed copy of the contract with a letter of its own attached. The defendant had made a counter-offer, one to which the plaintiff did not assent. There was no contract.

Del.

—Friel v. Jones, 42 Del. Ch. 148, 206 A.2d 232 (1964), aff’d, 42 Del.Ch. 371, 212 A.2d 609 A bid at a real estate auction was held to be a counter-offer because of several conditions contained therein. Query, whether the seller had made an offer that could be countered or only an invitation for bids.

Ind.

—In Foltz v. Evans, 113 Ind.App. 596, 49 N.E.2d 358 (1943) (a conditional acceptance was itself accepted).

Iowa

—In re Marriage of Masterson, 453 N.W.2d 650 (Iowa App. 1990) (a series of counter-offers did not amount to a contract); National Produce Co. v. Dye Yaus Co., 199 Iowa 286, 201 N.W. 572 (1925) (offer to sell as agent, acceptance treating offeror as principal).

Trustees of Teamsters Union Local 142 Pension Trust Fund v. McAllister, Inc., 602 F. Supp. 2d 948 (N.D. Ind. 2009). The plaintiff’s lawyer sent an offer of settlement to the defendant’s lawyer. The offer stated a certain dollar amount in payment of all outstanding charges to be paid by a check made payable to a particular party. It further stated, “ ‘[u]pon receipt of notification that the check has cleared our bank, we will dismiss the pending lawsuit.’ ” The defendant’s response stated that there was an “agreement with the settlement.” In timely fashion, the defendant’s counsel sent a check to plaintiff’s counsel in the correct amount together with a letter stating that the check was conveyed “on the condition that the settlement check is neither negotiated nor conveyed to your client until such time as the dismissal papers have been filed with the Court.” The plaintiff’s counsel responded that the direction that the check not be negotiated until dismissal papers were filed was a contradiction of the terms of the offer that the defendant had accepted. The defendant rejected further discussion of this matter and the plaintiff returned the uncashed check. The defendant claimed that a settlement contract had been reached and it was no longer liable under the original contract. The court agreed that the defendant’s acceptance of the plaintiff’s offer was not conditional. It was an absolute acceptance that formed a contract of settlement, but it also found that by then insisting that the check not be negotiated or conveyed to the defendant until dismissal papers were filed, the defendant had breached the settlement contract by refusing to perform in accordance with the terms with which it had previously contracted.

Kan.

—Steele v. Harrison, 220 Kan. 422, 552 P.2d 957 (1976). Three writings were involved in this case. Steele offered to buy land, provided he could get immediate possession and one-third of the crop. Harrison replied, accepting, provided he did not have to give up possession before harvest nor give Steele the one-third of the crop. Steele thanked Harrison for the acceptance but said he needed to get some income pretty rapidly, maybe they could work out a deal or even trade some land, and enclosed a $1,000 check. Later a lease for one year was signed which said it in no way “affects the agreements entered into.” The court said the writings made no contract, and an oral agreement, as seemingly recognized by the lease, would be unenforceable under the statute of frauds.

La.

—Housing Authority of Lake Arthur v. T. Miller & Sons, 120 So. 2d 494, 239 La. 966 (1960).

Md.

—In Post v. Gillespie, 219 Md. 378, 149 A.2d 391 (1959), the owner of land signed a written offer to sell on stated terms, reciting that it was made “in consideration of … $10,000, check in hand paid, receipt of which is hereby acknowledged… .” After a vain effort to induce better terms, the offeree notified the owner that his offer was accepted and that the $10,000 deposit had been made with a named third person in escrow. This escrow deposit was held to be such a variation of the terms of the offer that the attempted acceptance operated as no more than a counter-offer. In rejecting this counter-offer, the owner expressed a willingness to proceed on the original terms, but the offeree still failed to pay him the $10,000, and the owner revoked.

Ohio

—Acceptance of counter-offer for the sale of realty, containing an additional condition, is not an acceptance. Hairston v. Goodman, 1991 Ohio App. LEXIS 1176 (Ohio App. 1991); United States Steel Corp. v. Ohio Dep’t of Transp., 577 N.E.2d 157 (Ct. Cl. 1988).

Bergey v. HSBC Bank USA, 2010 Ohio App LEXIS 2257 (Mar. 21, 2010). The plaintiff submitted an offer for real property via a proposed purchase agreement requiring a “written acceptance” to effect a binding contract. The seller had received multiple offers for the property. They sent an e-mail to all prospective buyers to submit their highest and best offers. In response, the plaintiff e-mailed an offer that was considerably higher than the first offer. The seller replied with an e-mail stating, “Your offer has been accepted. I need to get a few things out of the way, then I will send you addendums and instructions, thanks.” The seller claimed that this response was a conditional acceptance. The court disagreed since the acceptance was not made to depend on the buyer’s assent to any addendums or instructions.

9 Walker v. Goodson Farms, Inc., 90 N.C. App. 478, 369 S.E.2d 122 (1988), review denied, 323 N.C. 370, 373 S.E.2d 556. The defendant offered the plaintiff the job of general manager for a five-year term. The offer was in writing and contained detailed terms. The plaintiff wrote, accepting, but proposed two additional terms and one deletion. Nothing further was said by the parties as to the terms of employment. Plaintiff commenced working as president and general manager and continued to do so for two and a half years, when he was discharged without cause. Since performance on both sides was consistent with the terms of the original offer, it was held that these terms constituted the contract. On the other hand, it generally will be held that the parties’ conduct amounts to creation of a contract based on the terms of the counter-offer. State v. U.S. Oil Co., Inc., 194 Ga. App. 1, 389 S.E.2d 498 (1989) cert. & rehearing denied.

Associated Milk Producers, Inc. v. Meadow Gold Dairies, Inc., 27 F.3d 268 (7th Cir. 1994).

10 “Where the contract, as here, is in several writings—as offer and acceptance—and not contained in a single document which both parties have executed, the Court will not, of course, be astute to detect immaterial differences in the phrasing of offer and acceptance which might defeat the contract, but will try to give each writing a reasonable interpretation under which substantial justice may be reached according to the intent of the parties.” Richardson v. Greensboro Warehouse & Storage Co., 223 N.C. 344, 26 S.E.2d 897, 149 A.L.R. 201 (1943). But the court here found that the acceptance was “conditional.”

Lobar, Inc. v. Lycoming Masonry, Inc., 2005 Pa. Super 201 (2005).

N.Y.

—Mactier’s Adm’rs v. Frith, 6 Wend. 103 (N.Y. 1830).

12 Marcy, J., said: “This concluded nothing. If the event [war between France and Spain] had actually happened, and Frith had insisted on enforcing this conditional acceptance, it would not have been in his power to do so. The most that Mactier said was that if an expected event happened, he would do an act which would complete the bargain. The happening of the event could not, without the act, complete it.”

Even if Mactier’s letter should be interpreted as a conditional acceptance, it did not affect Frith’s willingness to sell as expressed in his offer. This fact was evidenced by letters written by him to Mactier, although they were not received by Mactier.

An otherwise sufficient acceptance of an offer to sell land is not made conditional or inoperative by expressing a willingness to make a down payment “while search of title is being made.” Townsend v. Stick, 158 F.2d 142 (4th Cir. 1946).

13 Ardente v. Horan, 117 R.I. 254, 366 A.2d 162 (1976). Vendee offered to buy, vendors orally accepted, and sent vendee a written proposed contract to sell realty. Vendee returned the executed contract with a cover letter asking vendors to confirm that the dining room set and some other furniture were included in the sale, and enclosing a deposit check. Vendors denied any intent to sell furniture and returned the check. Vendee sued for specific performance but the court held that no contract was made despite vendee’s claim that the condition for inclusion of the furniture was a mere suggestion.

Dotolo v. Petrucelli, 250 A.2d 336, 5 Conn. Cir. 274 (1968). Plaintiff offered to settle a personal injury case for $975. The defendant replied: “The case is settled. You don’t have to get a lawyer. I am getting the money.” This last phrase did not make the acceptance conditional on “getting” money.

14 Foard v. Snider, 205 Md. 435, 109 A.2d 101 (1954).

Tenn.

—Cole-McIntyre-Norfleet Co. v. Holloway, 141 Tenn. 679, 214 S.W. 817, 7 A.L.R. 1683 (1919).

Tex.

—International Filter Co. v. Conroe Gin, Ice & Light Co., 277 S.W. 631 (Tex. Com. App. 1925).

See also § 3.18, Silence as Acceptance.

An order for goods on a printed form supplied by the seller contained a provision that it would not be binding until authorized by an officer and purchaser’s credit approved. There was a blank line below the words “Authorized by.” Prior to such an approval the order was revocable; a deposit by the purchaser was adjudged to be repaid to him. Kuzmeskus v. Pickup Motor Co., 330 Mass. 490, 115 N.E.2d 461 (1953). In Nakatsukasa v. Wade, 128 Cal. App. 2d 86, 274 P.2d 918 (1954), the plaintiff signed a written agreement to buy on stated terms and made a cash deposit on account. But the agent’s “Deposit Receipt” containing the agreement stated: “Said property is sold subject to approval of owner.” Before any approval by the owner, the buyer gave notice of withdrawal and demanded his money back. The court held the notice of revocation to be timely and effective.

N.Mex.

—Polhamus v. Roberts, 50 N.M. 236, 175 P.2d 196, 170 A.L.R. 991 (1946).

See the similar cases:

Iowa

—Federal Land & Securities Co. v. Hatch, 147 Iowa 18, 125 N.W. 837 (1910).

N.J.

—Wilson v. Windolph, 103 N.J. Eq. 275, 143 A. 346 (1928).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.29 »

1 Corbin on Contracts § 3.29 (2020)

§ 3.29. An Acceptance May Be Unconditional Even Though the Acceptor Makes a Conditional Promise

A proposal fails to be an operative offer unless it specifies, directly or by reference, all the terms of the contract to be made. If the contemplated agreement is to be bilateral, the proposal must state the terms of each promise in full. The offer must not only state the terms of the promise that the offeror is willing to make, it must also state the promise that is sought in exchange for it.1 If the offeree changes any term of either promise, the offeree is not accepting the offer. The offeror and offeree, alike, must express agreement as to every term of the contract. The offeror does this in the offer. The offeree must do it in the acceptance.

It is true the offeror can empower the offeree to name the price or some other term of the contract. This is no real exception to the above rule. The offer indicates the method by which the price, or other unexpressed term, is to be made definite, and the offeror agrees in advance to the price or term that is afterwards determined by that method.

To say that the acceptance must be unconditional is not to say that the promises assented to must be unconditional promises. If the offeror proposes an exchange of conditional promises, the offeree must assent unconditionally to that exact exchange.2 Thus, where A offers to buy a patent at a named price, on condition that X shall express approval of the patent, and B promises to sell it at that price and subject to the same condition, they have made a valid and irrevocable contract. This is so, even though if X fails to approve, neither A nor B will be under any duty of paying or transferring. The failure of X to approve shows no defect in the expressions of assent—the offer and the acceptance. A and B were exactly agreed, and they exactly expressed their agreement. A conditionally promised to pay in exchange for B’s promise to assign the patent subject to the very same condition. Both parties assented to the exchange of these very promises.

The result is the same even though one of the exchanged promises is conditional and the other promise is not. All that is necessary is that both parties shall assent to this exact exchange. Suppose that A offers to sell an automobile to B for $10,000, delivery and payment by June 1. Liking the appearance of the car, B replies: “I will buy the car and pay $10,000 according to your offer, but only on condition that my mechanic X shall inspect the car and say that it is worth the price.” A’s offer asked for no such return promise as this. There is no contract. But B has made a counter-offer of this conditional promise to buy, an offer that A now has power to accept. A thereupon replies: “I assent to your modification and agree to sell on your terms.” A contract has been made.

The parties now reduce their agreement to a signed writing as follows:

“It is mutually agreed, (1) that A will sell [a described] automobile to B for $10,000, delivery and payment by June 1, and (2) that B will accept the car and pay the price by that date, if after an inspection Engineer X says that the car is worth the price.

[Signed] A

B.”

This is a valid written contract, creating the same rights and duties as did the previously made oral contract of which it is an exact written integration. The promises of both parties are conditional. A’s promise to sell and deliver is constructively conditional on concurrent payment of $10,000. B’s promise to pay is likewise conditional on concurrent delivery of the car and also expressly conditional on inspection and approval by X. The express condition can be waived by B if B so desires. If X refuses to inspect, and even if X inspects and states that the car is not worth $10,000, B can still make it A’s duty to deliver by tendering $10,000 by June 1.3

If, in the foregoing case, either party should give notice repudiating the contract, and thereafter but before June 1 Engineer X should inspect the car and say it was worth $10,000, the other party could enforce the contract against the repudiator. Also, if one of the parties without excuse causes Engineer X to refuse to inspect, this action is a breach. If a party to a contract which is conditional on the granting of a “permit” causes the granting authority to refuse the “permit,” an action for damages for breach of contract is maintainable.4 The same may be true of an agreement which provides: “the provisions herein shall not be binding upon the parties until said final court approval has been secured.”5

In construction contracts the promises of the two parties are often expressly made subject to different conditions. Thus, if A promises to complete a building by a specified date on condition that no labor strike shall interfere, and B promises in return to pay seventy-five thousand dollars on condition that the architect shall certify approval of the work, no one doubts that a valid contract has been made. One of the parties offers the exchange of these exact promises and the other expresses unconditional assent thereto. The fact that each promise is conditional on an event on which the other promise is not conditional does not prevent mutual and unconditional assent to their exchange.6

A good illustration of this section is found in Hartmann v. Windsor Hotel Co.7 A lease by the Hotel granted to the lessee an option to buy on the same “terms and conditions” as those of a subsequent bona fide offer by a third party. Later, Bayer made an offer to buy “subject to the terms of that certain lease.” The Hotel Co. notified Bayer that it accepted the offer “subject to the terms of the lease.” The court rightly held that this was an unconditional acceptance making a valid contract. But the obligation of each party was conditional. It was conditional on the lessee’s failure to exercise the option to buy in accordance with the terms of the lease. The court said: “Had such election not been made by [the lessee], either the Hotel Co. or Bayer could have enforced the contract… .” The court held, correctly, that Hartmann, a broker acting for Bayer, could maintain suit as a third-party beneficiary of this contract (“in equity” under West Virginia law). But Hartmann’s right, like that of Bayer, was conditional on the lessee’s failure to exercise the option. On a later appeal, the court held that the lessee had in fact failed, a holding with which this treatise disagrees.8

Another cogent illustration is United States v. National Optical Stores Co.9 The United States invited bids on a former VA hospital reservation by a written invitation requiring financial information for credit sales and providing that the contract made by any acceptance of a bid could be avoided by either party if the Attorney General determines the sale might violate the antitrust laws. The invitation said that a bidder who received no “notice of acceptance” within 90 days could consider the bid rejected. National bid on March 14; the United States accepted on March 31 “subject to credit approval and antitrust clearance.” Not until July 15, a month beyond the 90-day time limit, was National notified of clearance. Six months later National decided to back out of the deal and asserted that the July 15 clearance came too late. The court affirmed summary judgment on behalf of the government. It relied on the Restatement (Second) of Contracts10 to show that National was bound by the conditional acceptance. Because National’s bid adopted the conditions stated in the invitation, National’s offer clearly invited a conditional acceptance.

To the same effect is Rinehart v. Stroud Ford, Inc. (In re Stroud Ford, Inc.),11 where the court explained that when a trustee or debtor-in-possession enters into a settlement agreement under Federal Rule of Bankruptcy Procedure 9019, it is subject to court approval. This does not necessarily negate the existence of a contract. Court approval is implied in law.

Another interesting case is United States ex. re. Ubl v. IIF Data Solutions.12 Ubl brought this action under the Federal False Claims Act (FCA) against (IIF) involving government contracts. The parties reached a May 6, 2008 settlement agreement of almost $9 million to be allocated between Ubl and the government. The settlement contract, however, was contingent on approval by the government since the FCA requires government approval of any such claim brought by a private individual. In July 2008, the government announced that it did not approve the settlement. Further efforts to reach a settlement were unsuccessful until September 25, 2009 when the government stated that it had “resolved in principle” the issues of the total settlement amount specified in the May 6 agreement. Ubl filed a motion to enforce the settlement agreement, which the trial court denied on the footing that the government had clearly rejected the May 6 agreement and, while Ubl and the government reached a later agreement, IIF never agreed to that later agreement. On appeal, the instant court noted that the enforceability of contracts to settle claims under the FCA is governed by federal common law, which looks to the principles of the Restatement of Contracts. Citing Restatement (Second) of Contracts § 59 ill. 2 (Am. Law Inst. 1981), the court noted that the May 6 settlement agreement was a binding contract though IIF’s promise was conditional. Notwithstanding the conditional promise, the acceptance of the offer was unconditional, forming the contract. When the government clearly stated that it did not consent to the May 6 settlement agreement, however, the court first relied on Restatement (Second) of Contracts § 38(1) (Am. Law Inst. 1981) in concluding that the government had “rejected” the offer of settlement and could not later accept it. It also mentioned Restatement (Second) § 225(2), indicating that the non-occurrence of a condition discharges the duty when the condition can no longer occur. The May 6 agreement “died when the government rejected it” and could not be revived by the September 25 agreement between Ubl and the government to which IIF was not a party, having long since disavowed any interest in settling Ubl’s claims.

The court’s analysis of Restatement (Second) § 59 is a replication of this treatise’s analysis of an unconditional acceptance of an offer via a conditional promise. The court quite correctly held that this was “a binding contract.” The conditioning event is the government’s approval. If this condition can never occur, the existing duty to which it is attached will never be activated and is discharged. The government’s approval, however, can only be a condition. Suggesting that the government’s refusal to approve the contract “must be understood as a definitive rejection of the May 6 Agreement that rendered the agreement void under its own terms” and that the government “no longer had the power to accept the May 6 agreement” is inapposite since the government was never an offeree with a power of acceptance or rejection. Again, since the condition to IIF’s duty under the May 6 contract never occurred, the duty thereunder was discharged. The government’s later approval of a settlement was apparently based on revised terms to which Ubl agreed, but IIF could not be bound to an agreement to which it was not a party.

Footnotes — § 3.29:

1 In Klimek v. Perisich, 231 Or. 71, 371 P.2d 956 (1962), the court held that no contract existed, for the reason that the offer stated a maximum price for services that were not made definite. The court stated: “An offer must be certain so that upon an unqualified acceptance the nature and extent of the obligations of each party are fixed and may be determined with reasonable certainty.”

In Haugland v. Canton, 250 Minn. 245, 84 N.W.2d 274 (1957), the plaintiff made an offer to buy land owned by several persons. One of the owners expressed assent to the offer, conditional on a like assent by the other owners. There was no acceptance and no contract. The court said that the two parties could have made a binding contract conditional on the assent of the other owners (citing § 3.29) but that they did not do so.

See Vitale v. Russell, 332 Mass. 523, 126 N.E.2d 122 (1955) where the court held that the parties had not passed the stage of preliminary negotiation, although it could have held that the parties had assented unconditionally to a contract that was conditional on the granting of a town permit.

Bennett v. Treadaway, 134 So. 2d 668 (La. App. 1961), illustrates perfectly the distinction made in this section. The plaintiff made an offer to buy property that was owned by a “succession” (deceased’s estate), and deposited $800. The offer was accepted by the executor, with this addition: “Sale of property subject to Court approval.” This was a conditional acceptance, no such provision being contained in the offer. The court said: “An acceptance conditioned upon the approval of a third person, where such condition is not contained in the offer either directly or by implication, does not conform to the offer… .” The executor had no power to sell without Court approval, but the plaintiff had no knowledge of the fact that the property was owned by a “succession.” The power of the executor was limited by the law, but the terms of the offer created no such limitation.

2 Charbonnages De France v. Smith, 597 F.2d 406, 415–416 (4th Cir. 1979): “It is quite possible for an acceptance that contains a condition nevertheless to be unconditional as an acceptance and thereby to manifest assent to an offer and create a contract. This occurs when the offer itself contains either expressly or by implication a condition, so that it invites acceptance with the condition intended to affect only the duty of performance under the contract as formed.” The question was whether approval by the French government was a condition to formation of the contract or to its performance. The trial judge was chided for ruling on summary judgment that it was the former.

3 See Pym v. Campbell, 6 El. & Bl. 370 (Q.B. 1856), where the facts were similar to those stated above. There was a written agreement signed by A and B; but the condition of the approval by X was not stated in the writing. The question was whether parol evidence was admissible to prove that the parties agreed orally, when they signed the writing, that their obligation should be conditional on approval by X. The court rightly held that this evidence was admissible, but it gave a bad reason, saying that until X expressed approval there was no contract made. The offered parol evidence would show, if believed, that A and B had exactly agreed on the exchange of promises; and this is so whether both promises were conditional on the approval of X or only the buyer’s promise was thus conditional.

Even though the court’s reasoning was unsound, the decision rendered has been followed in far too many other cases to be disapproved now. Further, the decision made is the only one that can be reconciled with justice. The offered evidence was not made inadmissible by the “parol evidence rule,” not because there was no contract but because by mutual agreement there was no complete integration of the contract.

This section (§ 3.29, 1993 ed.) is quoted in Safeco Insurance Co. v. City of White House, 36 F.3d 540, 547 (6th Cir. 1994). The court wrote: “It is apparent that the City was requiring bidders to make their bids (offers) subject to the EPA’s minority business enterprise requirements. This was clearly understood by Eatherly; in its bid Eatherly agreed ‘to perform all WORK … in strict accordance with the CONTRACT DOCUMENTS.’ Thus, the condition of satisfying the EPA of compliance with its requirements was incorporated into the bid itself, and when the City accepted the bid, subject to EPA approval, a binding contract was formed.”

United States ex rel. Ubl v. IIF Data Solutions, 650 F.3d 445, 451 (4th Cir. 2011). The court wrote: “We agree with Ubl that the May 6 Agreement was a binding contract, with the obligations to perform under the contract dependent upon the government’s approval of the agreement. See Restatement (Second) of Contracts § 59, illus. 2 (1981) (‘A makes a written offer to sell B a patent in exchange for B’s promise to pay $10,000 if B’s adviser X approves the purchase. B signs the writing in a space labelled ‘Accepted:’ and returns the writing to A. B has made a conditional promise and an unconditional acceptance. There is a contract, but B’s duty to pay the price is conditional on X’s approval.’).”

Martinez v. Rocky Mt. Bank, 2011 U.S. Dist. LEXIS 160596, *5–6 (D. Wyo. June 17, 2011). The court wrote: “RMB also argues that no enforceable contract was formed between the parties because FRB regulatory approval was a condition that must be fulfilled prior to RMB’s performance, and this condition has not occurred. … [A] binding contract exists between the parties. However, this conclusion does not mean that RMB ‘s performance under the contract is necessarily due. If RMB’s evidence shows the contract was subject to a condition which had to occur before performance under the contract became due, then Martinez’s signature on the Settlement Agreement was an unconditional acceptance of a conditional promise.”

In Edmund J. Flynn Co. v. Schlosser, 265 A.2d 599 (D.C. App. 1970), a realty contract provided that “Purchaser must be approved by the board of directors” and “this entire agreement is conditioned upon Purchaser’s being approved… .” Before this approval was given, Schlosser notified the seller he had changed his mind. The court relied on the predecessor to this section from a prior edition (§ 83) to show that when mutual assent has been expressed, any condition is on the duty to perform, the contract itself is binding. Since here Schlosser’s acceptance was not conditional on approval, nor was the seller’s offer conditional on approval, clearly the thing that was conditional on approval was only their duties to convey and pay for the realty. Both bound themselves to await the result to see whether that approval would be given.

In Erving Paper Mills v. Hudson-Sharp Machine Co., 223 F. Supp. 913 (E.D. Wis. 1963), rev’d on other grounds, 332 F.2d 674 (7th Cir.), cert. denied, 379 U.S. 946, on remand, 271 F. Supp. 1017 (E.D. Wis.), the plaintiff’s order for two specially-made machines was held duly accepted by the defendant, creating a bilateral contract. A provision in the order made the buyer’s promise to pay subject to a condition. But this was assented to by the acceptance, and the condition was either fulfilled or waived. The condition was not precedent to the formation of a contract, but to the buyer’s duty to render immediate performance under the contract. The court’s analysis and understanding of these distinctions is unusually clear and accurate. For a thoroughly confused analysis, see Omaha Public Power District v. Employers’ Fire Ins. Co., 327 F.2d 912 (8th Cir. 1964).

In Bogle v. Potter, 72 N.M. 99, 380 P.2d 839 (1963), a written offer of compromise and settlement was accepted and held to constitute a valid contract, specifically enforceable, even though one provision was that Potter’s obligation should be conditional on an opinion by a specified accountant that the settlement would not subject him to additional tax liability. The accountant considered the facts and expressed a tentative oral opinion that there would be no tax liability. Before a detailed draft of his opinion was formulated, Potter dismissed the accountant, thus preventing the implementation of the condition of a written opinion. This was not a condition to the formation of the contract, but a mutually agreed condition to Potter’s duty to proceed. Potter’s prevention of the fulfillment of the condition eliminated it.

In Rothberg v. Charles H. Hardin Constr. Co., 111 Ga. App. 41, 140 S.E.2d 520 (1965), there was a binding contract where, before the opening of the bids for a construction contract, bidders orally agreed that the low bidder would construct the building to be leased to the government if defendant received the lease contract from the government, and where subsequently, plaintiff, the low bidder, confirmed the agreement in writing which defendant signed, and the defendant subsequently did receive the lease contract.

In Metschke v. Marxsen, 176 Neb. 240, 125 N.W.2d 684 (1964), an agreement in writing was signed, by which Marxsen agreed to sell a truck tractor to the plaintiff by a conditional sale with a down-payment of $2,500, the balance of $3,500 to be obtained by a bank loan secured by an assignment of the conditional sale contract. The contract date was left blank for a reason stated by Marxsen thus: “[I]t was to be dated and become effective only on the payment of the $2,500 in cash as the down payment.” The plaintiff (buyer) could not raise the cash and the bank never made the loan, but the plaintiff made two cash payments of $3000 each, a payment in labor of $96, and delivered a pick-up truck which was valued at $900. Also, the seller allowed the buyer to use the truck tractor. After 43 days, the plaintiff notified the seller that he could not raise the balance of the down-payment, this being about $900, took back the pick-up truck, and brought this suit for the return of the payments made on account. The court indicated that no contract had come into being, because the condition precedent to formation of the contract had not occurred. But its actual holding is to the contrary, allowing the seller damages for the plaintiff’s breach. “When Metschke failed to comply with his agreement a part of the resulting damages to Marxsen was the loss of use of the truck.” The judgment was for the value of the use of the truck for 43 days, minus the part payments received, the difference being $1443.18. This looks like a pretty heavy penalty for breach of a contract that never became “binding.” While the outcome may be justified on quasi-contractual grounds, a contractual analysis is preferable. There is no doubt that the making of the down-payment was a condition precedent to the seller’s duty to transfer title to the machine. This is not necessarily a condition precedent to the formation of a binding contract. If the buyer had tendered the balance of the down-payment at the time he notified the seller that he could not make it, the seller’s refusal to receive it would have been a breach of contract. The predecessor to this section from a prior edition (§ 83) is cited in De Freitas v. Cote, 342 Mass. 474, 174 N.E.2d 371 (1961), bilateral contract for the sale of land, the purchaser’s promise (and not the seller’s) being conditional on his obtaining a G.I. loan. The purchaser waived the condition, procured financing otherwise, and tendered performance. The seller was bound to perform.

In McPherson v. Warren, 55 So. 2d 30 (La. App. 1951), there was a valid contract, although the purchaser’s duty was conditional on procurement of a loan. His promise was expressly made “subject to loan,” thus making what is called in the Louisiana code a “suspensive condition.” There are many similar cases.

In Main Line Theatres, Inc. v. Paramount Film Distributing Corp., 298 F.2d 801 (3d Cir. 1962), cert. denied, 370 U.S. 939, the court held that the parties to the suit had made a valid oral bilateral agreement for settlement by payment of $10,000, conditional on the success of pending negotiations for the settlement of eight other cases.

In Pennsylvania Co. v. Wilmington Trust Co., 39 Del. Ch. 453, 166 A.2d 726 (1960), aff’d in part and appeal dismissed in part, 40 Del. Ch. 1, 172 A.2d 63 (1961), a letter purporting to be an acceptance of an offer to purchase 23,400 shares of a railroad company was expressly subject to “such approval, if any, as may be necessary from the Interstate Commerce Commission.” The fact that this provision would make each party’s duty conditional on such approval did not prevent the instrument from operating as a valid contract. Other questions were raised, however, requiring extrinsic evidence to establish the fact of intention that the letter should be so operative.

In Walker v. Air Conditioning Distributors, Inc., 131 So. 2d 523 (La. App. 1961), rev’d, 138 So. 2d 7, 242 La. 653 (1962), the defendant submitted a proposal to furnish certain equipment. The plaintiff then sent a purchase order stamped: “This order is subject to the approval and acceptance of the architects and engineers.” The defendant accepted this order, but it later refused to deliver the equipment, contending that it was privileged to withdraw because the plaintiff’s order was a “conditional acceptance.” The court held that a valid contract was made. Partly quoting from an earlier case, the court said: “ ‘An acceptance burdened with some condition that was not included in the original offer constitutes a new offer that might be accepted or rejected by the original offeror as he sees fit.’ In the instant case it is abundantly established that the original proposal and acceptance was burdened with a condition thoroughly understood and accepted by both parties, and, accordingly, there was no ‘new offer’ involved.”

In Olen Real Estate & Invest. Co. v. L.A. Zieman & Co., 269 Ala. 106, 110 So. 2d 890 (1959), a written contract for the sale of land was specifically enforced against the vendor, even though the contract as offered and accepted expressly provided: “The acceptance of this offer is subject to the release and approval of Olen’s contemplated mortgagee.” That mortgagee had in fact released the mortgage held by it, and no “approval” was contemplated, other than such as was necessary to obtain the “release.” Observe that here the purchaser’s offer was expressly a conditional promise to buy, but also that the vendor’s acceptance (expressed in the same document) was an acceptance of the offer with its embodied condition. The court said: “It may be stated as a general rule that where a material provision of a contract is left open for future treaty or negotiation the contract is rendered incomplete and uncertain, and for that reason it is unenforceable in equity. In the contract here involved nothing is left for future treaty or negotiation. The only thing left undetermined is ‘the release and approval of Olen’s contemplated mortgagee.’ Such ‘release and approval’ is a matter resting entirely with said mortgagee, not a party to the contract. That this is a condition to be fulfilled before Olen Real Estate can be required to perform the contract is not disputed. But such provision is not a condition affecting the validity of the contract to convey. Rather, it is a condition precedent to requiring performance by Olen Real Estate. Accordingly, if this condition precedent has actually occurred then it no longer stands as a barrier to requiring performance of the contract.”

In Simpson v. Prudential Ins. Co., 227 Md. 393, 177 A.2d 417 (1962), the company was held bound by a preliminary premium receipt contract, even though it made the company’s liability conditional on the insured’s compliance with the company’s own “objective” standard of insurability. Here, the “condition” limited only the company’s obligation, but the insured assented to it in his application. The standard was objective, even though compliance with it depended on the company’s “honest satisfaction” thereof.

Football Bonus Contracts, conditional on approval of Commissioner.

Los Angeles Rams Football Club v. Cannon, 185 F. Supp. 717 (S.D. Cal. 1960), well illustrates the text at this point.

See Detroit Football Co. v. Robinson, 186 F. Supp. 933 (E.D. La. 1960), aff’d, 283 F.2d 657 (5th Cir.). The court held that an acceptance was conditional on the approval of a third person and therefore sustained a notice of revocation. In fact, the offer contained the very same condition that the acceptance did as both parties signed the very same writing. On the court’s interpretation, there would have been no contract even if Robinson had never given notice of revocation.

Compare with the Robinson and Cannon cases, cited in this note, New York Football Giants, Inc. v. Los Angeles Chargers Football Club, Inc., 291 F.2d 471 (5th Cir.1961).

It has been said of these cases: “it is clear that even in the normal contractual setting, the Robinson and Cannon holdings are questionable authority.” In re Fairfield General Corp., 75 N.J. 398, 383 A.2d 98, 105 (1978).

Cases erroneously reasoned.

The predecessor to this section from a prior edition (§ 83) is cited in El Hoss Engineering & Transport Co. v. American Independent Oil Co., 183 F. Supp. 394 (S.D.N.Y. 1960), rev’d, 289 F.2d 346 (2d Cir.), cert. denied, 368 U.S. 837. The defendant thought it had consummated no contract for the reason that its written acceptance was expressly conditional on specified performances by the plaintiff, but those exact performances were made a part of the very written agreement to which it was assenting, except as to a time limit. The offeror had assented (by its conduct) to this change.

In McDonough Constr. Co. v. Tutt, 209 F. Supp. 45 (S.D. Ala. 1962), the facts as stated in the opinion indicate that the parties orally agreed that the defendant would charter four barges from the plaintiff on stated terms, with an option to purchase, provided that they were towed from Parkersburg to New Orleans and there inspected and found to be seaworthy and fit for the intended service. The plaintiff had them towed as specified; but on inspection at New Orleans they were found to be unseaworthy. The plaintiff sued for damages for breach of an oral contract to charter, and the defendant cross-claimed for damages for failure of the plaintiff to furnish seaworthy barges. The court held that no contract was consummated for lack of mutual agreement, and so denied both claim and counterclaim. On the facts stated, it appears that a valid contract existed, by which the plaintiff promised to deliver at New Orleans four seaworthy barges, and the defendant promised to charter them on fully stated terms on condition that on inspection they proved to be seaworthy. There was a mutual agreement whereby the plaintiff exchanged his unconditional promise for the defendant’s conditional promise. Since the condition was not fulfilled, the plaintiff’s claim must fail, but the defendant’s counterclaim would be sustainable. The finding of seaworthiness on inspection at New Orleans was not a condition precedent to the existence of a contract. It was merely a condition precedent to the defendant’s contractual duty to accept the barges and pay rent as agreed. A conditional promise is a sufficient consideration for an unconditional one, if such is the exchange agreed upon. In this case, neither party was privileged to withdraw or cancel. The defendant’s promise was not “aleatory.”

In Dane & Northrop v. Rittiner, 78 So. 2d 178, 226 La. 1074 (1955), the defendant requested the plaintiffs to procure FHA loans amounting to $408,800 to finance building operations. The plaintiffs acted with success and wrote defendant that they had procured the commitments for such loans from an insurance company, “subject to the following conditions: … 4. You are to deposit with us the sum of $4,088 in cash which represents 1% of the total amount of loans.” On this letter the defendant wrote and signed: “I accept the above and hereby hand you my check in the sum of $4,088.” In fact, however, the check was not given and the plaintiffs sued for that amount. The court held, one judge dissenting, that no contract was consummated, because the deposit was never made. The court said: “A mere reading of the contract shows that the securing of the commitment was contingent upon the deposit being made; in other words, the deposit was a condition precedent to the effectuation of the contract. Until it was made there was no contract between the parties and the defendant was at liberty to withdraw from the incomplete transaction.” The dissenting judge makes the more convincing argument. The fact that the promise of the lenders to consummate the loan was conditional on the deposit does not make the defendant’s acceptance also conditional on his own act of depositing. His acceptance of the conditional commitment to consummate the loan was an unconditional acceptance, thereby impliedly promising to make the deposit. This is not negated by the fact that his statement of check enclosed was incorrect.

U.S.

—Atlas Trading Corp. v. S.H. Grossman, Inc., 169 F.2d 240 (3d Cir. 1948).

5 In re Fairfield General Corp., 75 N.J. 398, 383 A.2d 98 (1978).

6 In Bates v. Citizens & Southern Nat. Bank, 223 Iowa 385, 272 N.W. 412 (1937), a contract for the sale of land was held to be specifically enforceable, even though the promise of each party was subject to the approval of a court. The offeror was the administrator of an estate, and its promise to buy was subject to approval by the probate court. The offeree was receiver of an insolvent bank, and his promise to convey was subject to approval by the supervising court.

Observe the difference between the two following cases:

(1) A offers his promise to pay B’s prospecting expenses in Alaska in exchange for B’s promise to repay $10,000. B replies that he will promise to repay $10,000 if he finds ore worth that much. There is no contract.

(2) A offers his promise to pay B’s prospecting expenses in Alaska in exchange for B’s promise to repay $10,000, if he finds ore worth that much. B replies that he will promise to repay $10,000, if he finds ore worth that much. There is a contract.

In the two cases, B’s form of acceptance is identical. In each of them B makes a conditional promise. In the first, B gives a conditional acceptance. In the second, B gives an unconditional acceptance.

7 Hartmann v. Windsor Hotel Co., 132 W.Va. 307, 52 S.E.2d 48 (1949).

8 A much more difficult case was Arnold v. Amoco Oil Co., 872 F. Supp. 1493 (W.D. Va. 1995). Amoco was considering ceasing all direct sales of motor fuel in the Roanoke market. It made a deal with Workman to purchase all six of Amoco’s Roanoke area service stations. Two of these were operated by Arnold. The Petroleum Marketing Practices Act (PMPA) required that before Amoco could terminate Arnold’s franchise agreement and sell his stations to Workman, it had to offer Arnold a right of first refusal on the two stations or make Arnold a bona fide offer. The agreement with Workman reflected the contingency that Arnold might buy his stations. Amoco notified Arnold that his franchise agreement would be terminated, and made the offer required by the PMPA. Arnold told Amoco that he believed its offer failed to comply with the PMPA and was seeking a declaratory judgment on the matter in state court. He told Amoco: “This is to advise Amoco that in the event the Court should find that the right of first refusal does comply with the requirements of the PMPA, then I will accept Amoco’s offer of the right of first refusal for the two service stations. If, however, the Court should declare that the right of first refusal is invalid, then I will not accept this right of first refusal.” Amoco and Workman removed Arnold’s action to federal district court, and Amoco counterclaimed against Arnold for a declaration that Arnold had failed to timely accept the right of first refusal, since he had not accepted before the offer expired. Both moved for summary judgment. The court held, without explanation, that Arnold’s response to Amoco’s offer was “plainly” not an unconditional acceptance. This conclusion is not satisfying because it seems to frustrate the PMPA’s purpose while elevating the form of Arnold’s words over their substance. Certainly Arnold’s language was unfortunate. “[T]hen I will accept,” and “then I will not accept,” do not, on their face, indicate a present disposition to accept, and Arnold’s words seem to be conditioning his acceptance. But what was Arnold really saying? Arguably, he was “merely put[ting] into words that which was already reasonably implied in the terms of the offer.” (See § 3.32). If the state court ultimately declared that Amoco’s offer did not conform to the PMPA, then Arnold’s acceptance would be inoperative—because there would be nothing for him to accept.

9 United States v. National Optical Stores Co., 407 F.2d 759, 1969 Trade Cas. (CCH) P72740 (7th Cir. 1969).

10 Restatement (Second) of Contracts § 59 cmt. b (Am. Law Inst. 1981) states: “To accept, the offeree must assent unconditionally to the offer as made, but the fact that the offeree makes a conditional promise is not sufficient to show that his acceptance is conditional. The offer itself may either expressly or by implication propose that the offeree make a conditional promise as his part of the exchange. By assenting to such a proposal the offeree makes a conditional promise, but his acceptance is unconditional. The offeror’s promise may also be conditional on the same or a different fact or event.”

11 Rinehart v. Stroud Ford, Inc. (In re Stroud Ford, Inc.), 205 B.R. 722 (Bankr. M.D. Pa. 1996).

12 United States ex. re. Ubl v. IIF Data Solutions, 650 F.3d 445 (4th Cir. 2011).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.30 »

1 Corbin on Contracts § 3.30 (2020)

§ 3.30. Acceptance Not Conditional, Even Though Grumbling or Accompanied by a Request or by a New Offer

An expression of acceptance is not prevented from being exact and unconditional by the fact that it is “grumbling,”1 or that the offeree makes some simultaneous “request”;2 but it must appear that the “grumble” does not go so far as to make it doubtful that the expression is really one of assent, and that the offeree has assented to the offer even though the offeror shall refuse to comply with the “request.” The following would be a valid acceptance: “I accept your offer as made, but I still insist that you are driving a very hard bargain.” This has been described as a “grumbling assent.” A plain acceptance of an offer to sell goods is not invalidated by adding, “Please ship tomorrow if possible.”3 Nor is it invalidated by a request that the contract already made shall be reduced to writing;4 but the fact that a formal document is contemplated may be some evidence of an intention not to be bound until the document is executed. If the acceptance is unconditional, a proposal for credit terms does not prevent the formation of a contract.5 As stated by the American Law Institute: “An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on the assent to the changed or added terms.”6

An acceptance is not invalidated by the fact that the offeree, in the same letter, makes an offer to buy additional goods, if it is clear that this new offer is wholly independent of the acceptance.7 It is possible that this may be made clear even though the new offer is one the acceptance of which will make a new contract that is a substitute for the first one and will operate as a discharge.8

In Valashinas v. Koniuto,9 an offer to buy a partner’s interest was definitely accepted by the offeree, with the added statement that the offeree would be ready to close and to make conveyance “as of December 31, 1952, or sooner if you so choose.” In a subsequent letter he wrote: “If I do not hear from you, I will assume that it is your intention to close on Dec. 31 or within a reasonable time thereafter; at any rate, please let me know.” Thereafter, the offeror gave notice of revocation. The court held that a contract was made and decreed specific performance.

The decision in the above case was affirmed,10 but two judges vigorously dissented, calling attention to the words of the offeree’s letter of acceptance, in which, after unconditional words of acceptance, he said: “I will be ready [to give Bill of Sale and conveyances] … as of December 31st, 1952, or sooner if you so choose. Such instruments will be delivered to you, properly executed by me, no later than December 31st, 1952 at the offices of attorneys, Chernin & Gold, Binghamton, N.Y. upon payment by you in accordance with the terms of your offer.” The judges differed only in their interpretation of the terms of this letter, the minority thinking that these terms put a definite time limit on closing, payment and conveyance and made time of the essence (with a quotation from this treatise). If this interpretation is the reasonable one and was actually given the words by the offeror, the conclusion of the dissenters is the correct one. The offer indicated no time for closing, with the result that both parties would have a “reasonable time.” If the offeree merely “suggested” a particular time, it would not affect the acceptance. But contra if he fixed a definite time limit, and if this limit was less than the “reasonable time.” These, however, are matters on which reasonable persons could, and actually did, differ. They are matters of fact, and their decision does not affect accepted rules of law.

Bergenline Prop. Grp., LLC v. Coto11 posed a difficult question for the court. Coto was a long-term tenant on premises owned and operated by Bergenline. In 2013, Bergenline insisted that Coto sign a written lease or she would have to vacate the premises. Coto refused to sign, and Bergenline initiated a legal action. The lower court issued two orders that, among other things, required Coto to sign the lease and pay a security deposit. Coto flouted the court’s orders. Finally, Coto signed the lease, but directly below Coto’s signature on the lease, Coto wrote the words “signing under protest.” Bergenline’s counsel objected to Coto’s language qualifying her signature and asked her to remove it, but Coto refused. On Bergenline’s motion, the court entered a judgment of possession against Coto and permitted the filing and execution of a warrant of removal. The court found it significant that Coto placed the notation “signing under protest” under her signature, explaining: “A meeting of the minds is an essential element to the valid consummation of a contract. … . [Defendant’s] notation is an explicit representation of dissatisfaction with the contract. The Court shall not accept [defendant’s] signature. Accordingly, [defendant] failed to execute the lease and thus violated the Court’s order.” Coto appealed, and the appellate court agreed with the lower court that Coto’s insertion of the words “signing under protest” beneath her signature on the lease manifested an intention not to assent to the terms of the lease. Coto argued that, even on appeal, she still retained the power of acceptance of Bergenline’s offer of the contract. The appellate court disagreed, noting that “her ‘signing under protest,’ and her refusal to remove that language, constituted a rejection of the … lease and ‘terminate[d] the power of acceptance.’. … In any event, [Bergenline’s] request for a judgment of possession withdrew [Bergenline’s] offer, further terminating [Coto’s] power of acceptance.” The court also rejected Coto’s argument that hers was a “grumbling acceptance.” Citing this § 3.31 (1993 ed.), the court explained that a “grumbling acceptance” requires unqualified assent, which was not present here in light of Cato’s “signing under protest” notation, her history of refusing to accept the lease, and her defiance of the lower court’s orders. There was, however, a question of fact as to whether Bergenline waived any complaint about Coto “signing under protest” by accepting her payments under that lease.

Ronnie Van Zant, Inc. v. Pyle12 reached a different result. Ten years after a plane crash took the lives of some members of the Lynyrd Skynyrd band, surviving band members, including Pyle, went on a reunion tour that led to litigation over use of the band’s name. The parties entered into a consent order setting forth their agreement as to permissible uses of the band’s name and related matters. Pyle signed the consent order by including the notation “under protest” next to his signature. Subsequently, Pyle participated in a project to produce a motion picture about the band and the plane crash. Plaintiffs subsequently sought an injunction, claiming the terms of the consent order were being violated. The court granted the injunction and held, among other things, that Pyle’s signature on the consent order manifested a valid acceptance. The “under protest” language does not automatically turn a signatory into a non-signatory. The context is what matters. Here, the circumstances show Pyle’s acceptance. He signed while represented by counsel; he accepted payment under the consent order for many years; and he never personally contested that he is not bound by the Consent Order.

Finally, as stated above, while some courts are too ready to interpret words of “request” as making the acceptance conditional, in Shaer v. Orthopedic Surgeons of Central Pa., Ltd.,13 a Pennsylvania court went to the other extreme, with a questionable result. Prior to the expiration of a contract employing Dr. Shaer as an orthopedic surgeon, the defendant’s administrator, Kim Deiter, hand delivered an offer to Shaer that she had hoped to discuss with him. Shaer verbally rejected it and tried to hand the document back to her. Deiter refused to accept it and told Shaer to think about it over the weekend. She also told Shear that the defendant needed his response in writing. Shear did not take the weekend. He called Deiter later the same day and told her he wanted three changes. Deiter replied that she would present the “counteroffer” to the defendant, and Deiter planned to present it the following Monday. On that day, Shaer told Deiter that he was not going to sign the contract and he planned to resign. Deiter sought a confirmation of that statement, and Shaer provided it. Deiter said that she needed the statement in writing. Deiter also confirmed Shaer’s statement that he was “leaving the practice” and used the word, “resignation.” Shaer never resigned in writing, and Deiter took a 60-day extension proposal to her Board, which rejected it, and Deiter left a message to Shaer to that effect. Shaer returned the call to Deiter and still insisted on the deletion of a clause and reiterated his intention to resign. Deiter then told Shaer that there was no contract. Shaer then signed the document containing the defendant’s original offer. The defendant then informed Shaer that it had no contract with him and did not wish to pursue any further negotiations. Shaer claimed that he had a contract with the defendant and the trial court granted Shaer summary judgment on his breach of contract claim. That court found that, despite Shaer’s verbal interactions with Deiter and his threats to resign, he accepted the original offer in a timely fashion. While recognizing the classic methods of terminating an offer including rejections and counteroffers as listed in § 36 of the Restatement (Second) of Contracts, the instant court affirmed the judgment below on the footing that the trial judge’s characterization of Shaer’s words and actions were mere “posturing.”

The court emphasizes its conclusion that Shaer “did eventually present [the defendant] with his unconditional and absolute acceptance of their offer and did so both within the required time and in the required manner.” That statement would be quite accurate if the record of Shaer’s repeated and insistent counteroffers and rejections was expunged. It is prohibitively difficult to discover any basis for the court’s view that a power of acceptance continued to exist when Shaer “eventually” signed the original written offer. If Shaer was merely “posturing,” neither Deiter nor the officials of the defendant so understood his reactions, and there is nothing in the court’s statement of the facts that they were anything but reasonable in their understanding of his intention. How many times does an offeree have to say “no” to lose a power of acceptance in Pennsylvania? In her dissent, Judge Lally-Green got it right.

Footnotes — § 3.30:

Alaska

—Kodiak Island Borough v. Large, 622 P.2d 440 (Alaska 1981). The Borough offered to sell a parcel of land to Large for $10,550. Large sent a letter accepting and added a proposal that the down payment be 10%, with the balance payable over 10 years at 6% interest, these being the Borough’s standard terms. The newly elected Borough assembly declined to go through with the sale. It was held that the acceptance was valid, “the fact that it is accompanied by a request or a direction looking to the performance of the contract does not render the acceptance ineffective nor give it the character of a counter-offer so long as it does not limit the contract.” 622 P.2d at 448.

Ark.

—Radford & Guise v. Practical Premium Co., 125 Ark. 199, 188 S.W. 562 (1916).

Calif.

—Guzman v. Visalia Community Bank, 71 Cal. App. 4th 1370, 84 Cal. Rptr. 2d 581 (1999), review denied, 1999 Cal. LEXIS 5287 (1999) (in a sex discrimination and hostile work environment suit by a former employee, criticism by the former employee’s counsel of the former employer’s statutory settlement offer did not constitute rejection of the offer).

Jelin v. San Ramon Valley Unified Sch. Dist., 2019 U.S. Dist. LEXIS 36163 (N.D. Cal. March 6, 2019). The parties orally settled a lawsuit. Later, the plaintiff balked at signing the formal settlement agreement, so defendant filed a motion to enforce settlement. Plaintiff then signed the agreement. It appears that plaintiff initially included on the face of the agreement the following: “signed as demanded under duress.” She later authorized her lawyer to white it out. Instead of writing her own initials (“BJ” for Barbara Jelin) on each page, the plaintiff wrote “IAD,” which stands for “initialed as demanded.” She signed the settlement agreement at the end with her full name. The court enforced defendant’s motion to enforce settlement, holding that the plaintiff’s use of the words “IAD” (for “initial as demanded”) instead of her true initials “BJ” did not render the written settlement agreement invalid or insufficient. The court suggested that plaintiff’s protestations were in the nature of a “grumbling acceptance”—“one ‘that is unqualified, though made with some protest.’ Purdy v. Buffums, 95 Cal. App. 299, 301–02, 272 P. 770 (1928). The plaintiff’s initialing with ‘IAD’ instead of ‘BJ’ does not render the agreement invalid. It was petulant, but it satisfied the point of the initials on each page, which is to show that the signing party read each page.” By the time the plaintiff signed the agreement and authorized her attorney to submit it, it was not even a “grumbling acceptance,” it was an simply an acceptance, as shown by the fact the she signed it and initialed each page. The prior oral agreement was enforceable itself, but so was the signed agreement.

Fla.

—Conger Life Ins. Co. v. Deimel, 441 So. 2d 1116 (Fla. App. 1983), rehearing denied. Plaintiff broker produced a corporate client that purchased a group policy from the defendant. The plaintiff was to receive a 10% commission on the premiums paid and would continue to service the group. The policy was renewed on the same terms for several years. In late 1977 the insurer notified plaintiff that the policy would be renewed for 1978 only at a 25% increase in premium and a reduction of commission to 5%. Plaintiff objected, searched for another insurer, but the group decided to stay with the defendant company and plaintiff acted as intermediary in arranging the renewal. It was held that plaintiff by conduct acquiesced in the insurer’s offered terms. Plaintiff could not accept part of the offered terms and reject the rest.

Haw.

—Brangier v. Rosenthal, 337 F.2d 952 (9th Cir. 1964).

Mass.

—Dennis v. Kaskel, 2012 Mass. Super. LEXIS 52 (Mar. 30, 2012). Kaskel needed money for a business deal and took it from Dennis. Even though Kaskel expressed reservations about Kaskel’s terms, his grumbling acceptance was an acceptance nonetheless.

Mich.

—Johnson v. Federal Union Surety Co., 187 Mich. 454, 467, 153 N.W. 788, 792 (1915).

Okla.

—In Price v. Oklahoma College of Osteopathic Medicine and Surgery, 733 P.2d 1357 (Okla. App. 1986), rehearing & cert. denied, a tenured professor was offered his annual contract renewal. He signed on the requested signature line, but added below: “Signed under protest that salary does not reflect guarantees under present and past personnel policies and that proper evaluation procedures were not followed.” This was held to be an unequivocal acceptance. In Home Gas Co. v. Magnolia Petroleum Co., 143 Okla. 112, 287 P. 1033 (1930), an unequivocal acceptance also stated: “I feel sure you will want to change your letter to” 3500 feet instead of 3700 feet. See also Foster v. West Pub. Co., 77 Okl. 114, 186 P. 1083 (1920); Raydon Exploration Co. v. Ladd, 902 F.2d 1496 (10th Cir. 1990) (collateral matters in acceptance).

R.I.

—Bina v. Providence College, 844 F. Supp. 77 (D.R.I. 1994), aff’d, 39 F.3d 21 (1st Cir. 1994) is a case where there was not an acceptance. A college made an offer of a tenure track position to a professor, specifying rank and the probationary period required before tenure would be granted. At a meeting where the offer was discussed, the professor objected to the rank and to the length of the probationary period. The court treated this as a rejection of the offer, dismissing the professor’s argument that he had made a “grumbling acceptance.” The professor had made it “pellucidly clear” that the offer was entirely unacceptable. For a “grumbling acceptance” to be effective, there “must be more ‘acceptance’ than ‘grumble’.”

Wash.

—In Mall Tool Co. v. Far West Equipment Co., 45 Wash. 2d 158, 273 P.2d 652 (1954), there was a “reluctant acquiescence” by one party in a modification of an existing contract proposed by the other party.

Wyo.

—Panhandle E. Pipe Line Co. v. Smith, 637 P.2d 1020 (Wyo. 1981). Defendant offered in a detailed writing to reinstate plaintiff in his job. He signed the writing after the words “Understood, Agreed To and Accepted.” He also wrote that he wanted an opportunity to see his personnel file and to have any mistakes it might contain corrected. There was a valid acceptance. First, the right to examine one’s personnel file was consistent with company policy as to all employees and thus implicit in the offer. Second, the requests do not appear to have been made a condition to the acceptance.

In Acadia, California, Ltd. v. Herbert, 54 Cal. 2d 328, 5 Cal. Rptr. 686, 353 P.2d 294 (1960), the defendant was bound by a written contract to supply a stated amount of water to the plaintiff for domestic use. Performance was unsatisfactory, and the plaintiff offered to prepay $1,000 of the future rental to defray the cost of improving the supply. The defendant installed improvements and sent a bill to plaintiff. The latter sent its check to the defendant, stating that its acceptance would confirm the understanding that the improved facilities would be continued. The defendant cashed the check, but wrote to the plaintiff that it was accepted upon the basis of the previous written agreement. The court held that the cashing of the check operated as an assent to the conditions on which it was tendered. This is similar to the cases holding that cashing a check tendered in full satisfaction of a disputed claim operates as satisfaction even though the recipient denies that it is so accepted. Here, however, the cashing of the check is the expression of a promise, while in the cases of accord and satisfaction it is the discharge of a claim, although it may also be promissory if the check is tendered as an offer of a substituted executory contract. In the instant case, the court said: “Where something to which the offeree is not unconditionally entitled is tendered to him upon stated conditions and he exercises dominion over it, he is bound by the conditions even though he informs the offeror that he rejects them.”

U.S.

—Netherwood v. Raymer, 253 F. 515 (W.D. Wis.1918), aff’d, 257 F. 284 (7th Cir.); Best Foam Fabricators v. United States, 38 Fed. Cl. 627 (1997) (citing § 3.30, 1993 ed.).

Fla.

—Golding v. Imperial Sterling, 2001 U.S. Dist. LEXIS 25226 (S.D. Fla. 2001).

Iowa

—Culton v. Gilchrist, 92 Iowa 718, 61 N.W. 384 (1894) (acceptance of a lease, with a request to be permitted to build a small cook room).

Ga.

—Whelchel v. Waters, 152 Ga. 614, 111 S.E. 25 (1922); Crystal Cubes of Stone Mountain, Inc. v. Kutz, 201 Ga.App. 338, 411 S.E.2d 53 (1991).

La.

—Vordenbaumen v. Gray, 189 So. 342 (La. App. 1939).

Abbeville Offshore Quarters, Inc. v. Taylor Energy Co., 286 Fed. App’x 124 (5th Cir. 2008) (Louisiana law) (response stating a request for other terms not a rejection).

Mass.

—Germagian v. Berrini, 2001 Mass. Super. LEXIS 629 (Dec. 21, 2001).

Mich.

—Agema v. City of Allegan, 826 F.3d 326 (6th Cir. 2016). Police shut down a political event staged by plaintiffs at a school, and plaintiffs brought suit asserting claims against the city, its police chief, the school district, and the high school principal. The school district and principal filed an offer of judgment pursuant to Fed. R. Civ. P. 68 for a lump sum of $500. But subsequently, the school district and the principal’s attorney asked the plaintiffs to hold off on accepting the offer because “my client may be having second thoughts about this.” Later, the plaintiffs purported to accept the offer and requested that the amount stipulated be divvied up among the plaintiffs in different amounts. The district court granted the defendants’ motion to withdraw offer of judgment, concluding that the plaintiffs’ acceptance was really a counter-offer and hence a rejection. Since the offer was for $500, the request to disburse the money to individual plaintiffs in different amounts added terms to the offer, and thus constituted a counter-offer. On appeal, the Sixth Circuit held that the plaintiffs’ acceptance was effective—it was an unconditional acceptance that made additional requests. Nevertheless, it remanded to the district court the question of whether the defendants’ attorney had authority to offer to stipulate to judgment.

Minn.

—Podany v. Erickson, 235 Minn. 36, 49 N.W.2d 193 (1951); Alpha Venture/Vantage Properties v. Creative Carton Corp., 370 N.W.2d 649 (Minn. App. 1985) (request that the offeror share in paying a broker’s commission).

N.D.

—Stonewood Hotel Corp. v. Davis Development, Inc., 447 N.W.2d 286 (N.D. 1989), companion case 452 N.W.2d 94 (1990); Horgan v. Russell, 24 N.D. 490, 140 N.W. 99 (1913).

Nev.

—Pravorne v. McLeod, 79 Nev. 341, 383 P.2d 855 (1963).

N.Y.

—Knapp v. McFarland, 344 F. Supp. 601 (S.D.N.Y. 1971), aff’d in part, rev’d in part, 457 F.2d 881 (2d Cir.), cert. denied, 409 U.S. 850.

Ohio

—Bergey v. HSBC Bank USA, 2010-Ohio-2736 (2010).

Pa.

—“Under Pennsylvania law, a reply which suggests changes or additions to the terms of an offer may be either an acceptance or a counteroffer, and the question is for the jury to decide.” Honeywell, Inc. v. American Standards Testing Bureau, Inc., 851 F.2d 652, 659 (3d Cir. 1988), reh’g denied, cert. denied, 488 U.S. 1010, later proceedings too extensive to cite here.

Tex.

—MRC Permian Co. v. Three Rivers Operating Co., 2015 Tex. App. LEXIS 8203 (Aug. 5, 2015).

Utah

—Chournos v. Evona Inv. Co., 97 Utah 335, 93 P.2d 450 (1939), reh’g denied, 97 Utah 346, 94 P.2d 470.

Va.

—McAfee v. Brewer, 214 Va. 579, 203 S.E.2d 129 (1974). Defendants contracted to buy plaintiff’s house. The seller, after negotiations, offered to sell certain furniture located in the house. Under the terms of the offer, defendants were to pay $3,000 on acceptance. Plaintiff sent a letter stating in part: “Enclosing a $3000 check… . [Please] include the red secretary on the contract for entrance foyer. I’ll have to stop by sometime during the month & order a coffee table.” The court found a contract had been formed, the request for the red secretary being a mere proposal for addition to the contract. Although the Uniform Commercial Code was applied, the result is consistent with the common law.

Vt.

—Ackerman v. Carpenter, 113 Vt. 77, 29 A.2d 922 (1943); Camara v. Camara, 188 Vt. 566, 998 A.2d 1058 (2010).

W.Va.

—E.T. Barnum Iron Works v. Prescott Construction Co., 86 W.Va. 173, 102 S.E. 860 (1920); Turner v. McCormick, 56 W.Va. 161, 49 S.E. 28 (1904) (offer accepted “and respectfully request you to make delivery of deed with abstract of title to me in Morgantown”).

Wis.

—Curtis Land & Loan Co. v. Interior Land Co., 137 Wis. 341, 118 N.W. 853, 129 Am. St. Rep. 1068 (1908) (request to close land sale at a named bank).

Matteson v. Scofield, 27 Wis. 671 (1871).

Eng.

—Simpson v. Hughes, 66 L.J. Ch. 334 (1897).

A letter saying that the offer “is hereby accepted. Please forward deed and abstract of title to the W. Bank, with instructions to let us inspect the papers, and if the title is found perfect, to deliver to us on payment of $6,000,” was held to be an unconditional acceptance in Kreutzer v. Lynch, 122 Wis. 474, 100 N.W. 887 (1904).

In Skinner v. Stone, 144 Ark. 353, 222 S.W. 360, an offeree accepting “your offer to take $2,500 cash for this land,” enclosing a form of deed for execution, and adding: “attach draft to deed and send to Merchants’ Bank and I will take care of same.” The acceptance was held not to be made conditional on the particular form of payment.

In Holt v. Stofflet, 334 Mich. 272, 54 N.W.2d 593 (1952), reh’g denied, 334 Mich. 272, 55 N.W.2d 170, a notice of acceptance by an option holder was not made ineffective by the fact that it contained the words, “and request that you have the deed of purchase and the abstract of title in their hands in ample time before the first day of June, 1951, in order that same may be examined.”

A request for an abstract of title may be so made as to lead to the inference that the buyer’s acceptance of an offer to sell land is conditional on the furnishing of an abstract.

See:

Minn.

—Brearley v. Schoening, 168 Minn. 447, 210 N.W. 588 (1926).

N.D.

—Ness v. Larson, 41 N.D. 211, 170 N.W. 623 (1918).

If an offer to sell property specifies the time or place for transfer and payment, an attempted acceptance that does not assent to that time and place is inoperative. Swanson v. Linder, 75 N.D. 751, 33 N.W.2d 62 (1948); Cram v. Long, 154 Wis. 13, 142 N.W. 267 (1913). If the offer specifies no time or place, frequent inference is that payment and transfer shall be at the offeror’s residence. The offeree can accept only in accordance with that inference. If the offeree specifies a different time or place there is no contract. Rahm v. Cummings, 131 Minn. 141, 155 N.W. 201 (1915); Anderson v. Stewart, 149 Neb. 660, 32 N.W.2d 140 (1948); Whitaker-Glessner Co. v. Clark, 98 W.Va. 19, 126 S.E. 340 (1925). Some courts may be too ready to interpret words of “request” as making the acceptance conditional.

The predecessor to this section (§ 84, 1950 ed.) is cited in Killam v. Tenney, 229 Or. 134, 366 P.2d 739, 749 (1961), holding that, after an option holder had clearly exercised his power of acceptance, a letter relating to matters of performance (valuation of inventory and appointment of an escrow holder) did not make the acceptance conditional. “It was not even a ‘grumbling’ acceptance.” Also, even if the letter requested a change of terms, it would not invalidate the previous acceptance.

Me.

—Simpson v. Emmons, 116 Me. 14, 99 A. 658 (1917).

Idaho

—Braun v. Camas Prairie R. Co., 72 Idaho 83, 237 P.2d 604 (1951) (acceptance of railroad’s offer of $400 in settlement, adding “However, I wish you would reconsider and at least split the difference” (giving reasons)).

N.C.

—Billings v. Wilby, 175 N.C. 571, 96 S.E. 50 (1918).

Vt.

—Ackerman v. Carpenter, 113 Vt. 77, 29 A.2d 922 (1943).

5 Kodiak Island Borough v. Large, 622 P.2d 440 (Alaska 1981). The municipality offered to sell land to Large. He replied “I accept the price of $10,550.00 for the 4.22 acres of land… . I note that you say you have the power to negotiate, which I presume means to discuss and agree upon the mode of payment. I propose a down-payment of ten percent (or $1000) and propose the payment of the balance over a term of ten years at six (6%) interest on the unpaid balance. Please notify me of a convenient time that we may meet to finalize this matter.” Id. at 447. This reply was held to be an unconditional acceptance. See also Hall v. Add-Ventures, Ltd., 695 P.2d 1081 (Alaska 1985).

6 Restatement (Second) of Contracts § 61 (Am. Law Inst. 1981). An excellent illustration is APB Realty, Inc. v. Ga.-Pac. LLC, 2018 U.S. App. LEXIS 11904 (1st Cir. May 7, 2018). Georgia-Pacific alerted APB that it had eighty-eight rail cars to sell “where is, as is.” APB proceeded to extend an offer: “Total for all 88 x Log Stake Railcars $1,636,000 (Including 16% Buyer’s Premium).” Georgia-Pacific responded by email with two options: the first proposed to charge APB a higher price, but Georgia-Pacific would correct problems with so-called “Southern Wheels” to the rail cars. The second option was materially the same as the APB offer—the price would be the same, but it added that APB would “tak[e] responsibility for any Southern Wheels.” The email expanded on the second option: “As is where is. Customer assumes responsibility for the replacement of all southern wheels if found. Customer retains responsibility for transportation to final destination. Proposed Offer: 1,636,000.” (The parties did not advise the court what they meant by “Southern Wheels,” but the court concluded that Georgia-Pacific regarded “Sothern Wheels” as a problem that affected some of the cars that would cost some $61,000 to correct.) In response, APB advised Georgia-Pacific that it was considering the two options, but before APB could respond definitively, Georgia-Pacific advised APB that it had struck a deal with another party. APB sued, and the court held that the complaint stated a claim for breach of contract. The complaint can be read to mean that a contract was entered into when Georgia-Pacific responded to, and unequivocally accepted, APB’s offer with its second option—the one that was materially the same as APB’s offer. But beyond that, Georgia-Pacific’s acceptance was coupled with a proposal (the first option)—a new offer—for a modified deal.

7 In Purrington v. Grimm, 83 Vt. 466, 76 A. 158 (1910), in a letter accepting an offer to sell goods, the buyer added: “Please send also a tapping bit and a reamer.” The court held that this request did not make the acceptance conditional. It was merely a new offer to buy two additional items for a different price.

8 Wilkins v. Vass Cotton Mills, 176 N.C. 72, 97 S.E. 151 (1918) (“accept offer; make it 25,000 if can make sixteens.”).

In Johnson v. Federal Union Surety Co., 187 Mich. 454, 153 N.W. 788 (1915), the defendant offered to pay $2,500 in compromise of a disputed claim. The offeree wrote: “We are still expecting that you will agree to pay us $3,333.33. I would appreciate very much receiving your check for this amount, or if your company is not willing to go along on this, we would thank you to send us the amount pledged by you of $2,500.” This was held to be an acceptance of the defendant’s offer.

In Tinn v. Hoffmann & Co., 29 L.T. (N.S.) 271 (1873), the defendant offered to sell 800 tons iron at 69s., and refused to lower the price, even on a larger order. The buyer then wrote: “You can enter me 800 tons on the terms specified; but I trust that you will enter me 400 more, making in all 1,200 tons, at 68s.” The statement of such a “trust,” or hope, does not make the order for 800 tons at 69s. a conditional acceptance. But it is a new offer to buy 1,200 tons at 68s., in substitution for the contract just consummated (assuming that the 800 ton offer at 69s. had not yet lapsed).

In Orr v. Doubleday, Page & Co., 223 N.Y. 334, 119 N.E. 552 (1918), reh’g denied, 223 N.Y. 700, 119 N.E. 1064, a lessee had an option for a renewal. He gave an otherwise proper notice of acceptance “with the understanding that this notice is to be withdrawn if the Court consents to accept the transfer of the lease now in process of negotiation to the Irving Place Leasing Co., in which event Orr is to consent to the assignment of our lease to the Irving Place Leasing Co.” The court interpreted this provision as one “to withdraw the notification only if the court approved the transfer of the lease and the plaintiff consented to its assignment… . It in effect said to them, we intend to renew the lease … we retain the right to annul our intention in case the specified consent of the court and that of yourselves are had.” Upon this interpretation the decision was correct. But the validity of the notice of acceptance was dependent upon the fact that the additional provision was totally ineffective without the consent of the lessor. A notice of acceptance of any offer (whether of an irrevocable option or otherwise) is ineffective if it reserves any power of withdrawal without the other party’s consent. As interpreted by the court, the notice in this case was merely accompanied by a conditional offer of a substitute arrangement.

9 Valashinas v. Koniuto, 283 App. Div. 13, 125 N.Y.S.2d 554 (1953), aff’d, 308 N.Y. 233, 124 N.E.2d 300.

10 Valashinas v. Koniuto, 308 N.Y. 233, 124 N.E.2d 300 (1954). In Parkway Inn, Inc. v. First Federal Savings & Loan Asso., 50 Misc. 2d 211, 269 N.Y.S.2d 730 (1966), aff’d, 27 A.D.2d 704, 279 N.Y.S.2d 1021 (1967), the court compared the alleged acceptance of plaintiff’s offer to borrow money with that of the Valashinas case and correctly found that the acceptance was conditional.

Similar to Valishinasis Martindell v. Fiduciary Counsel, Inc., 131 N.J. Eq. 523, 26 A.2d 171 (1942), aff’d, 133 N.J. Eq. 408, 30 A.2d 281. A gave B an option to purchase 27 shares of certain stock. Within the time specified in the option, the optionee wrote as follows: “I hereby exercise my option. I have deposited the purchase price with the Colorado National Bank to be delivered to you upon transfer of the stock. If you do not accept such procedure, I demand that you designate the time and place for the same.” This was held not to be a counter-offer but rather a suggestion of how the contract could be performed.

11 Bergenline Prop. Grp., LLC v. Coto, 2015 N.J. Super. Unpub. LEXIS 2775 (Nov. 10, 2015).

12 Ronnie Van Zant, Inc. v. Pyle, 270 F. Supp. 3d 656 (S.D.N.Y. 2017).

13 Shaer v. Orthopedic Surgeons of Central Pa., Ltd., 938 A.2d 457 (Pa. Super. 2007).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.31 »

1 Corbin on Contracts § 3.31 (2020)

§ 3.31. Subsequent Erroneous Interpretation Does Not Make an Acceptance Conditional

An exact and unconditional acceptance of an offer is not afterwards turned into a conditional acceptance so as to invalidate the contract by an improper interpretation of the terms of this contract by one of the parties or by one party’s attempt to alter the terms of the contract in some respect.1 Thus, where a building contractor had properly accepted the bid of a sub-contractor for the plumbing work, the fact that the contractor immediately thereafter asserted incorrectly that the sub-contractor must pay a proportionate part of the cost of the builder’s surety bond, did not invalidate the contract or prevent the building contractor from maintaining an action for damages for the sub-contractor’s subsequent repudiation.2 In addition, where a general contractor accepts a proposal from an electrical subcontractor, their subsequent disagreement as to the meaning of the specifications does not invalidate the contract.3

Similarly, the State of Georgia requested bids for the supply of gasoline. Plaintiff submitted its bid specifically indicating that it was contingent on the State’s agreement to buy all its regular grade gasoline from it. The State “accepted” the bid by giving the plaintiff a written contract agreeing to buy gasoline on a non-exclusive basis—a counteroffer, which plaintiff accepted by performing under the contract. Several months later, plaintiff sought assurances from the State that plaintiff had the exclusive right to furnish regular grade gasoline. A State employee, who had no authority to bind the State, gave such assurances. When the State bought gasoline from other suppliers, plaintiff brought suit. It was held that summary judgment should be entered for the State.4 The plaintiff’s erroneous interpretation, shared by a low-level State employee, did not prevent the formation of the contract and did not control the meaning of the contract.

When parties reach an agreement with the understanding that it will memorialized in a more formal writing, a difference of opinion as to the terms to be included in the more formal writing cannot undo the prior agreement. A settlement agreement was reached at a settlement conference between Mullins and Oates.5 Thereafter, Oates’ attorney sent Mullins a written settlement agreement, a deed of trust, and a promissory note for her review and signature. Mullins refused to sign the documents and requested that the settlement agreement be vacated and the matter reset for trial because, she asserted, inter alia, that the promissory note and deed of trust contained a number of terms never mentioned or agreed to at the settlement conference. She claimed that these additions rejected the parties’ agreement and constituted a counter-offer that she was free to reject. The court concluded that Oates did, in fact, add at least one term not agreed upon in the settlement conference, but this did not invalidate the parties’ agreement. The court cited this section of the Corbin treatise6 and concluded that although Mullins was not obligated to abide by any term that Oates added to the settlement documents, she was obligated to abide by the terms negotiated and agreed upon at the settlement conference. Her failure to do so constituted a material breach of the settlement agreement.

By the same token, an attempt to vary the terms of a contract may be made in such a way as to be reasonably understood as a repudiation and to be an actionable breach itself. Even so, it does not invalidate the contract made, although it may justify the other party in refusing performance.

Footnotes — § 3.31:

1 Queen v. Schultz, 747 F.3d 879 (D.C. Cir. 2014); Krumme v. Westpoint Stevens Inc., 143 F.3d 71 (2nd Cir. 1998); Mullins v. Oates, 179 P.3d 930 (Alaska 2008); Mathias v. Jacobs, 167 F. Supp. 2d 606 (S.D.N.Y. 2001); In re Estate of McManus, 83 A.D.2d 553, 440 N.Y.S.2d 954 (1981), aff’d, 55 N.Y.2d 855, 447 N.Y.S.2d 708, 432 N.E.2d 601.

2 In Frederick Raff Co. v. Murphy, 110 Conn. 234, 147 A. 709 (1929), the court said: “The contract relationship had already been created; and if the plaintiff had no right to make this deduction, as upon this record we must assume it did not, the effect would be merely that it attempted an alteration in the terms of the contract, ineffective, because not assented to by the defendants, and the defendants could have proceeded with the work and claimed the full price agreed upon.”

This section is quoted in Killam v. Tenney, 229 Or. 134, 366 P.2d 739, 750 (1961), holding that after giving a valid notice of acceptance by an option holder, a subsequent letter in which he misinterpreted the contract would not invalidate that contract.

3 B & C Electric, Inc. v. Pullman Bank & Trust Co., 96 Ill. App. 3d 321, 51 Ill. Dec. 698, 421 N.E.2d 206 (1981).

4 State v. U.S. Oil Co., 194 Ga. App. 1, 389 S.E.2d 498 (1989), rehearing (1989) and cert. denied (1990).

5 Mullins v. Oates, 179 P.3d 930 (Alaska 2008).

6 § 3.31, 1993 ed.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.32 »

1 Corbin on Contracts § 3.32 (2020)

§ 3.32. Attempts by the Offeree to Restate in the Acceptance the Terms of the Offer

If the purported acceptance attempts to restate the terms of the offer, such restatement must be accurate in every material respect.1 It is not a variation if the offeree merely puts into words that which was already reasonably implied in the terms of the offer.2 But the very form of words used by the offeror is material if the offeror so intended and so indicated in the offer. An acceptance using a different form makes no contract.3 A variation in the substance of the offered terms is material, even though the variation is slight,4 although an occasional forward-looking case looks to whether the variation is of any real significance to the offeror.5

If the offer leaves the time for performance at the option of the offeree, an acceptance may be operative even though it names a specific date.6 The acceptance of an offer to sell land making no specifications or limitations as to title is not made conditional by including a provision requiring “marketable title.”7 By judicial decision and conveyancing custom, unless otherwise specified in the offer, the vendor impliedly promises “marketable title” and the conveyance of such title is an implied condition of the purchaser’s duty. But an acceptance “subject to the approval of title by our attorneys” is not an operative acceptance, the specified condition being materially different from any that would be implied.8 There are many cases in which an offeree has failed to make a valid acceptance by including some provision as to quality of title that is other than mere “marketable title.”9

Footnotes — § 3.32:

U.S.

—Kurio v. United States, 429 F. Supp. 42, 66 (S.D. Tex. 1970); United States v. Braunstein, 75 F. Supp. 137 (S.D.N.Y. 1947), appeal dismissed, 168 F.2d 749 (2d Cir.); Brinskele v. United States, 2008 U.S. Claims LEXIS 309 (July 3, 2008); Buesing v. United States, 42 Fed. Cl. 679 (1999).

Ala.

—Hogan v. Allstate Bev. Co., 821 F. Supp. 2d 1274 (M.D. Ala. 2011).

Kan.

—Bennett v. Cummings, 73 Kan. 647, 85 P. 755 (1906).

Mich.

—Jordan Bros. v. Walker, 154 Mich. 394, 117 N.W. 942 (1908) (where offer to sell “two tanks” of pickles was not effectively accepted by a letter saying “presume this is about 2000 bushels,” pickle tanks being of varying sizes).

In Stuart v. Franklin Life Ins. Co., 165 F.2d 965 (5th Cir. 1948), cert. denied, 334 U.S. 816, a change from “title insurance … satisfactory to purchasers” to “title insurance by financially strong and reputable title insurance company” was said to be unimportant, but a change with respect to leases constituting part of the subject matter from “leases to bear an annual rental of 3 percent per annum” to “leases now bearing 3 cents per acre” was held to be vital.

Compare United States v. Lauckner, 101 Fed. App’x 870, 872–73 (3rd Cir. 2004) (“[T]he government’s purported acceptance restated the terms of Lauckner’s offer while adding an additional material term to the offer, [so] it was, as a matter of law, not an acceptance, but a rejection and a counter-offer.”) with McDonnell v. Engine Distribs., 2007 U.S. Dist. LEXIS 70925 (D.N.J. Sept. 24, 2007) (unlike Laukner where the parties never reached agreement, the agreement here had already been formed when the proposed variations were made, and the proposed variations did not undo the agreement).

See Cook’s Pest Control, Inc. v. Rebar, 852 So. 2d 730 (Ala. 2002). In August of 2000, Robert and Margo Rebar entered into a one-year termite control agreement with Cook’s. The contract contained an arbitration clause. As the end of the term approached, Cook’s notified the Rebars that it was time to renew the contract on the same terms for another year by the Rebars paying a renewal fee. The Rebars responded to Cook’s notice with a payment along with an “addendum” stating that the Rebars were no longer bound to submit any disputes to arbitration. Cook’s received and accepted the payment. Shortly thereafter, the Rebars brought an action in court against Cook’s, alleging failure to treat and control termite infestation in the Rebars’ home and repair the damage caused by the termites. Cook’s motion to compel arbitration was denied by the trial court. On appeal, Cook’s argued that it was already obligated to continue to provide its service for the Rebars under the original agreement and could not have terminated the service. In effect, Cook’s argued that the Rebars were attempting to unilaterally modify an existing contract. The supreme court disagreed, holding that Cook’s had no obligation to continue to render the service at the end of the one-year term. The Rebars did not accept Cook’s terms in the renewal notice that would have continued the arbitration term. The court cited this treatise (§ 3.32, 1993 ed.), and noted that whether the response is called a “conditional acceptance” or a counter-offer is irrelevant since a conditional acceptance is a counter-offer. By countering Cook’s offer with materially different terms, the Rebars made a counter-offer creating a power of acceptance in Cook’s. By accepting the payment and continuing service to the Rebars, Cook’s manifested its acceptance of the counter-offer.

U.S.

—Shea v. Second Nat’l Bank, 133 F.2d 17 (1942); Machine Tool & Equip. Corp. v. Reconstruction Finance Corp., 131 F.2d 547 (9th Cir. 1942); Columbia Malting Co. v. Clausen-Flanagan Corporation, 3 F.2d 547 (2d Cir. 1924); Morse v. Tillotson & Wolcott Co., 253 F. 340 (2d Cir. 1918); Phoenix Iron & Steel Co. v. Wilkoff Co., 253 F. 165 (6th Cir. 1918); Buesing v. United States, 42 Fed. Cl. 679 (1999).

In re Lamarre, 34 B.R. 264 (Bankr. D. Maine 1983), the vendor accepted the purchaser’s offer subject to the approval of the bankruptcy court. Because the need for such approval was known to both parties, it was an implied term and therefore the acceptance was unconditional.

In Titan Group, Inc. v. Anne Arundel County, Dep’t of Public Works, 588 F. Supp. 938 (D. Md. 1984), aff’d, 749 F.2d 32 (4th Cir.) (construing an agreement to arbitrate under the Federal Arbitration Act). The County offered to arbitrate pursuant to the rules of the AAA. Titan agreed on the condition that “the arbitration be held in a neutral location where there are adequate facilities such as the City of Philadelphia, the City of New York, or the City of Washington, D.C.” This was implied in the offer.

Ala.

—Ryder v. Johnston, 153 Ala. 482, 45 So. 181 (1907) (“good title”).

Kan.

—Bennett v. Cummings, 73 Kan. 647, 85 P. 755 (1906) (weights of corn sold to be determined by reliable men).

N.M.

—Pickett v. Miller, 76 N.M. 105, 412 P.2d 400 (1966). Tenant had an option to renew. Offeror who offered to purchase knew of the option. Owner’s acceptance subject to release of tenant’s renewal option was not a counter-offer but only a statement of a condition implied in the purchaser’s offer.

Okla.

—Magna Oil & Ref. Co. v. Parkville Oil Corp., 96 Okla. 157, 221 P. 65 (1923).

Or.

—C.R. Shaw Wholesale Co. v. Hackbarth, 102 Or. 80, 198 P. 908 (1921).

Wash.

—General Lithographing & Printing Co. v. Washington Rubber Co., 55 Wash. 461, 104 P. 650 (1909); Northwest TV Club v. Gross Seattle, 26 Wn. App. 111, 612 P.2d 422 ( 1980), aff’d in part, rev’d in part, 96 Wn. 2d 104, 634 P.2d 837, corrected, 96 Wn. 2d 973, 640 P.2d 710.

W.Va.

—Charbonnages De France v. Smith, 597 F.2d 406 (4th Cir. 1979) (“pending formal [French] government approval,” where both parties were aware of the need of such approval).

Wis.

—Curtis Land & Loan Co. v. Interior Land Co., 137 Wis. 341, 118 N.W. 853 (1908).

Wyo.

—Panhandle Eastern Pipe Line Co. v. Smith, 637 P.2d 1020 (Wyo. 1981).

In Nelson v. Hamlin, 258 Mass. 331, 155 N.E. 18 (1927), replying to an offer of $12,000 per year as chief engineer, the plaintiff wrote: “I hereby accept … it being understood that you wish me to stay in my present position … until conditions make it necessary to place me elsewhere.” This was held not conditional. In Hansen Pacific Corp. v. Buck Mountain Logging Co., 191 Cal. App. 2d 826, 13 Cal. Rptr. 82 (1961), the acceptance of an offer to sell timber, price to be determined by a cruise the seller was then making, “cash down payment of $400,000 or 29% of the total purchase price, whichever amount is the smaller” was not made a “conditional” acceptance by a statement that the purchaser would make the cash payment “when you have furnished us with … a report of the cruise.” The terms of the offer itself were such that the amount of the cash payment required could not be determined prior to the report of the cruise.

U.S.

—Phoenix Iron & Steel Co. v. Wilkoff Co., 253 F. 165 (6th Cir. 1918).

U.S.

—United States v. Lauckner, 101 Fed. App’x 870 (3d Cir. 2004) (court quoted Corbin’s statement (§ 3.32, 1993 ed.) that a variation on the substance of the offered terms is material even though the variation is slight); Columbia Malting Co. v. Clausen-Flanagan Corp., 3 F.2d 547 (2d Cir. 1924) (offer of “standard malt,” acceptance “malt of choice brewing quality”); Gingerich v. United States, 82 Fed. Appx. 35 (Fed. Cir. 2003).

Ill.

—Snow v. Schulman, 352 Ill. 63, 185 N.E. 262 (1933); Brach v. Matteson, 298 Ill. 387, 131 N.E. 804 (1921).

Me.

—Kelley v. Maine Eye Care Assocs., P.A., 37 F. Supp. 2d 47 (D. Me. 1999).

Mich.

—W.C. Sterling & Son Co. v. Watson & Bennett Co., 193 Mich. 11, 159 N.W. 381 (1916) (offer of 4,000 poles is not accepted if offeree adds “more or less”).

Nev.

—In Chapp v. Peterson, 80 Nev. 555, 397 P.2d 5 (1964), the escrow agent varied seller’s terms by adding “or more” to monthly payment terms of $500. Buyer accepted the escrow instructions but seller refused to sign them. Held that no contract was formed as the buyer accepted a non-existent offer.

N.Y.

—Barrow Steamship Co. v. Mexican Cent. R. Co., 134 N.Y. 15, 31 N.E. 261 (1892) (an offer to send about 250, acceptance “not less than 250”).

Pa.

—Servicised Premoulded Products, Inc. v. American Insulation Co., 104 Pa. Super. 469, 159 A. 228 (1932) (offer specified that shipments should be as offeror should later determine, acceptance fixed the dates).

Wash.

—Johnson v. Star Iron & Steel Co., 9 Wash. App. 202, 511 P.2d 1370 (1973) (the offer stated “bank of our choice”; the acceptance changed this to “Bank of Tacoma”).

Eng.

—Jordan v. Norton, 4 M. & W. 155 (1838) (buyer offered to buy mare if “sound and quiet in harness,” seller said “sound and quiet in double harness”).

It is not a variation merely to add words that make more certain the description of the subject matter, as where the offeree indicates the county in which land offered for sale to him is located. Curtis Land & Loan Co. v. Interior Land Co., 137 Wis. 341, 118 N.W. 853 (1908).

5 In Thomsen v. Glenn, 81 Nev. 56, 398 P.2d 710 (1965), an offer was made on a form provided by the broker, but supplied to the broker by a title company whose name was pre-printed as the escrow agent. The defendant’s reply was arguably a counter-offer. The plaintiff’s acceptance therefore was by conduct, depositing money with a title company as escrow agent. The use of a different escrow agent from that specified in the offer was held immaterial and, therefore, not a counter-offer.

See Bennett v. Truttman, 2004 Cal. App. Unpub. LEXIS 1648 (Cal. Ct. App. Feb. 24, 2004). Through their real estate agent, the plaintiffs offered to purchase real estate from the defendants who, through their agent, faxed a counter-offer requiring closing on the property within 15 days. To accept the counter-offer, the buyers had to sign it and return it to the sellers. The counter-offer specified that acceptance had to be received by the sellers or seller’s agent. A facsimile was listed as an effective communication. The plaintiffs signed the counter-offer and faxed it to buyer’s agent, who had received a call from the buyer’s mortgage lender indicating that loan processing would require an additional three days since the plaintiffs had to take a trip to visit an ailing parent. Buyer’s agent called seller’s agent and told him that the counter-offer had been accepted. She also told him about the problem of completing the mortgage process within 15 days. Seller’s agent said that he saw no problem with an additional three days and suggested that the quickest way to make the change would be to cross out the 15 on the counter-offer form and change it to 18. These instructions were followed. After faxing the completed form to seller’s agent, buyer’s agent called seller’s agent to ascertain that he had received it. Seller’s agent replied that the sellers had agreed to sell the property to another party because the plaintiffs had changed the terms of the counter-offer. In response to the plaintiffs’ suit for specific performance, the defendants moved for summary judgment, which was granted on the ground that the plaintiffs had not submitted an acceptance that matched the terms of the counter-offer and seller’s agent had neither actual nor ostensible authority to change the terms of the counter-offer. The court also awarded the $52,444 in attorneys’ fees to the defendants pursuant to a provision in the buyer’s original offer. On appeal, the court quoted this § 3.32, 1993 ed., for the proposition that a variation in the substance of an offered term is material, albeit the variation is slight, though a “forward-looking” court may look to determine whether the change was of any significance to the offeror. The court then considered whether the change from 15 to 18 days was a material variation in the counter-offer that operated like a rejection. It concluded that when the parties changed the period from 15 to 18 days, they already assumed they had a contract, i.e., they would not have made the change absent the instructions from seller’s agent. Since seller’s agent admitted that the change did not matter, it was an insignificant (immaterial) change. Thus, the plaintiffs’ response was an acceptance of the counter-offer and the plaintiffs were entitled to specific performance of the contract.

An example of an immaterial change: “Changing Stephan to Stephen and Vicky to Vickey is not material.”

Ridenour v. Bank of Am., N.A., 23 F. Supp. 3d 1201, 1207 (D. Idaho 2014).

6 Collin v. Wetzel, 163 Md. 194, 161 A. 18 (1932).

U.S.

—Townsend v. Stick, 158 F.2d 142 (4th Cir.1946).

Ala.

—Ryder v. Johnston, 153 Ala. 482, 45 So. 181 (1907).

Ga.

—Whelchel v. Waters, 152 Ga. 614, 111 S.E. 25 (1922).

Wash.

—Northwest Properties Agency v. McGhee, 1 Wash. App. 305, 462 P.2d 249 (1969). Defendant offered to deliver title “free of encumbrances and defects.” Plaintiff added: “provided that no restrictions to the utilization of the property exists by virtue of its proximity to the freeway.” This was held to be implicit in the offer.

Wis.

—Curtis Land & Loan Co. v. Interior Land Co., 137 Wis. 341, 118 N.W. 853 (1908) (tax liens to be removed).

It is otherwise, however, if “perfect title” is required.

Ill.

—Corcoran v. White, 117 Ill. 118, 7 N.E. 525 (1886).

In Wheaton Bldg. & Lumber Co. v. Boston, 204 Mass. 218, 90 N.E. 598 (1910), a contractor’s bid on public work was accepted by the commissioners, subject to the approval of the mayor. As the bidder himself knew, the statutes required such approval. The acceptance was not invalidated by expressing this condition.

In Magna Oil & Refining Co. v. Parkville Oil Corp., 96 Okl. 157, 221 P. 65 (1923) (the acceptance specified shipment in “insulated” cars, but this was already required by law).

U.S.

—Dickey v. Hurd, 33 F.2d 415 (1st Cir.1929), cert. denied, 280 U.S. 601.

N.C.

—Richardson v. Greensboro Warehouse & Storage Co., 223 N.C. 344, 26 S.E.2d 897 (1943). But in Burkhead v. Farlow, 266 N.C. 595, 146 S.E.2d 802 (1966), an acceptance of an option to purchase land subject to a title examination was held to be no more than a request for marketable title and therefore an unconditional acceptance, citing this section from a prior edition, § 86, 1963 ed.

See In Fenton Gingerich v. United States, 77 Fed. Cl. 231 (2007). The court held that the government had made a settlement offer and the response was an acceptance since its substantive terms matched the terms of the offers. Any variations in the language of the acceptance were merely linguistic. In support, the court quoted § 59, illustration 3 of the Restatement (Second) of Contracts, where an offer was construed as promising to convey marketable title to real estate. A response stating, “I accept your offer if you can convey marketable title” is an acceptance since the “marketable title” term in the response is not a variation of the terms of the offer. The court also found that the parties did not require a closing agreement to effectuate the settlement agreement.

9 See:

Fla.

—Mehler v. Huston, 57 So. 2d 836 (Fla. 1952) (additional requirement that abstract of title be furnished).

Ill.

—Corcoran v. White, 117 Ill. 118, 7 N.E. 525 (1886) (“provided the title is perfect”); Bolton v. Huling, 195 Ill. 384, 63 N.E. 140 (1902) (“if title proves satisfactory”).

Mass.

—Lawrence v. Rosenberg, 238 Mass. 138, 130 N.E. 189 (1921) (limitation as to title added).

Mich.

—Thomas v. Ledger, 274 Mich. 16, 263 N.W. 783 (1935) (“warranty deed free and clear of all encumbrances and taxes as well as an abstract”).

Okla.

—Landrum v. Jordan, 100 Okla. 272, 229 P. 182 (1924) (“good and sufficient title in fee simple, clear of all liens and encumbrances”).

Or.

—Flegel v. Dowling, 54 Ore. 40, 102 P. 178 (1909) (clear title, warranty deed, and abstract).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.33 »

1 Corbin on Contracts § 3.33 (2020)

§ 3.33. Attempts by the Offeree to State in the Acceptance the Legal Operation of the Agreement

There is a material difference between an acceptance that is conditional upon the inclusion of a term that is already contained in the offer by implication,1 and one that is conditional upon the recognition of certain rights in the offeree, these being rights that would in fact be created by an unconditional acceptance. Thus, if A offers to sell goods to B for $100 cash, an acceptance by B is not ineffective or conditional if worded as follows: “I accept and will pay $100 cash on receipt of the goods.” In the absence of proof of a different usage, A’s offer to sell “for cash” means “for cash on receipt of the goods.” If B’s acceptance had been, “I accept on condition that I shall be privileged to resell the goods,” the express condition is of a different kind and yet the result is probably the same—the acceptance is effective. When one buys goods of another, one of the legal effects of the sale is that the buyer is legally privileged to resell them, in the absence of an express lawful agreement to the contrary. The acceptance, although conditional in form, would not be understood as adding anything new to the offer.

If, on the other hand, the nature of the subject matter and the terms of the offer are such that the existence of the legal privilege to resell would not be certain or commonly assumed, an acceptance in the form quoted would not be effective to create a contract. If A offers to sell oil lands to B, and the latter says: “I accept on condition that under the existing statutes I am legally privileged to sell all the oil that I can produce from the land,” the existence of federal and state statutory regulations of production and sale of oil may be such as to leave much doubt as to the existence of the stated privilege. The acceptance as expressed would subject the offeror to a risk that it would be unreasonable to suppose, from the terms of the offer, that the offeror already had in contemplation. There would be no consummated contract for the sale of the land, even though litigation might subsequently establish the fact that the attempted regulations of production and sale of oil are void. This conclusion is all the more certainly sustainable if the acceptance is conditional on an “agreement” by the offeror that the offeree shall have the specified rights and privileges. There is no contract as long as the acceptance is conditional upon a new expression of agreement by the offeror.

In expressing agreement, the parties usually think and speak in terms of action and other facts, not in terms of the resulting legal relations. Usually, then, they must take their chance as to what the courts will subsequently hold their legal relations to be. If the offeree departs from the words of action and fact, as used by the offeror, and accepts in terms of the resulting legal relations (as of course the offeree is free to do), showing a requirement of an agreement on legal effects as well as on the action promised, thus the offeree does not assent to the taking of a chance on the matter.2

The expression in words of that which is already implied in the terms of the offer is not a variation of the offer, but the attempt to express, in advance, the legal operation of the words used in the offer may be a material variation. It is more than mere interpretation of those words. This is a matter as to which the subsequent conduct of the parties is usually decisive. The acceptance should not be held to be conditional if the offeror did not so treat it, and after action has been taken in the belief that agreement has been reached, a court should not override minor differences in form.

In Costello v. Pet Inc.,3 the plaintiff made an offer to purchase certain property, payment for which would be entirely by the agreement to pay off municipal liens on the premises. The offer expressly provided that title could be taken by a nominee of the offeror. The offeree accepted the offer but wrote a cover letter to the effect that “Pet will convey the property to Thomas Costello, or his nominee, provided the nominee is financially capable.” The italicized condition is clearly not consistent with the terms of the offer. Yet the letter expressly stated that Pet did not “view this letter as an amendment or counter-offer with respect to the Agreement or property since these matters are implicit in the Agreement but merely need clarification.” In view of this disclaimer, the court viewed the acceptance to be unequivocal and binding, but Pet’s continued insistence on the financial capability of any nominee was a repudiation of the agreement.

Footnotes — § 3.33:

1 See § 3.32.

2 On this ground the decision rendered in Phoenix Iron & Steel Co. v. Wilkoff Co., 253 F. 165 (6th Cir. 1918), may be sustained. The court said: “A decision that an absolute acceptance of an option followed in the same writing by a request or demand of something not within the option, and to which the optionee is not entitled, creates a contract, is not an authority for holding that one is created when the acceptance is on its face qualified by being made conditional on its being agreed that the optionee shall have a right not mentioned in the option if he would have had such right by virtue of law had he absolutely accepted the option, on the ground that in such a case the acceptance, though such is its character on its face, is in reality an absolute acceptance.”

The court found, however, that the acceptance was conditional on inspection of the goods “before shipment,” whereas by the law of sales the buyer had a right of inspection “before payment.” Even so, the difference was not great, and the question remained whether the parties did not eliminate it by their subsequent action.

In Brecht v. Cedar Rapids Development Co., 257 Iowa 1117, 136 N.W.2d 287 (1965), a dispute over parking rights under a lease of commercial property arose. The lease contained a renewal option, and in exercising the option, lessee added that he intended to occupy the premises, including the parking rights under the lease. Held: the added words merely stated what already existed and did not make the acceptance conditional.

See also, Suitts v. First Security Bank of Idaho, 125 Idaho 27, 867 P.2d 260 (App. 1993) (an acceptance of an offer to settle a lawsuit stating that the stipulation would constitute “a full and final settlement” of plaintiffs’ claims was not a material variation of the offer but “simply expressed the effect that would follow as a matter of law from” the acceptance).

3 Costello v. Pet Inc., 17 Mass. App. Ct. 382, 458 N.E.2d 790 (1984), review denied, 391 Mass. 1103, 461 N.E.2d 1219. See also, Wortis v. Dep’t of Conservation & Rec., 89 Mass. App. Ct. 1109, 46 N.E.3d 115 (2016), which was not a request for modification but a rejection.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.34 »

1 Corbin on Contracts § 3.34 (2020)

§ 3.34. Mode of Acceptance Can Be Prescribed by the Offeror

In the making of any bargain, the party making the “offer” is proposing an exchange. To do this, the offeror must state both sides of the bargain. The offer must indicate clearly that which the offeror does or promises to do and also that which the offeree is requested to do or promise to do. Unless the party who makes the alleged offer does this, the offeree gets no power of acceptance. To determine what this proposed exchange is, we must interpret the words and acts of the offeror. In order to accept the offer—to make the bargain and close the deal—the offeree must give or promise to give that for which the offeror bargains. If it is in any material respect different, there is no contract. If the offeror asks for a promise in return, that very promise must be made, but the offer may or may not have prescribed the words or acts by which that promise is expressed.

The offeror creates the power of acceptance and has control over the character and extent of the power that is created by the offer. The offeror can prescribe a single and exclusive mode of acceptance.1 It makes no difference how unreasonable or difficult the prescribed mode may be, if the offeror clearly expresses, in the terms of the communicated offer itself, the intention to exclude all other modes of acceptance. The more unreasonable the method appears, the less likely it will be that a court will interpret the offer as requiring it and the more clear and definite must be the expression of an intention in words.2 Cases could be collected in great number holding that an attempt to accept was inoperative because it was not in the mode prescribed. The offer may prescribe acceptance “by return mail,” by email or text message, by doing a series of specific acts, by producing a stated result, by causing the receipt of a letter of notification.3 If an attempted acceptance is not in the manner and form required, it may nevertheless constitute a counter-offer. If so, the offeree’s power of acceptance is ended and the offeree has no power to “cure” the defects. But the offeror now has, in turn, a power to accept the counter-offer, and a “waiver” of the defects may constitute such an acceptance.4

The offeror may suggest a mode of communication or other mode of acceptance without prescribing it as the exclusive mode. If the offeror merely does this, the suggested mode will be sufficient, but other modes that are reasonable under the circumstances will also be sufficient. If no method is either suggested or prescribed, the acceptance must be in a manner that is reasonable, in consideration of the subject matter of the offer and the common usages of humanity.5

When one party solicits and receives an order or other expression of agreement from another, clearly specifying that there is to be no contract until ratification or assent by some officer or representative of the solicitor, the solicitation is not itself an offer. It is a request for an offer.6 The order that is given upon such a request is an offer, not an acceptance. The soliciting party is not specifying a mode of acceptance when specifying assent or ratification “at the home office” as a prerequisite. The party complying with the request, by giving the order or otherwise, is making an offer. In so doing, the offer may or may not prescribe the mode in which the offer shall be accepted. Under such circumstances as these, the offeror seldom prescribes any mode, although the offeror may expressly or tacitly assent to a mode suggested by the soliciting agent. It may be, therefore, that an uncommunicated assent “at the home office” will be sufficient.7 Indeed, it may be that silence and absence of any notice that the order is rejected may be sufficient.8 The offeree may be and often is the author of the offer made by the offeror and may author the means of acceptance. Thus, where a manufacturer through a sales representative successfully solicits an order, the solicitation may result in the customer signing an order form prepared by the manufacturer. Usually this order form casts the customer in the role of the offeror. The form may specify that the manufacturer will be bound only by the signed acceptance at the home office. Such forms should be interpreted realistically and such maxims as “the offeror is master of the offer” should be applied warily in this context. If the offeree authored the form and the clauses providing for the means of acceptance, it should have the power to waive such clauses, unless the offeror has relied on the terms of the offer.9

Even if the expected mode of acceptance of an order is the sending of a letter or email or affixing a signature in a particular location, it will usually not be the only possible mode.10 The assent of the soliciting party may be sufficiently expressed by actually making one or more shipments of the goods ordered.11 The making of a shipment or the beginning of manufacture is not operative as an acceptance of an order if the terms of the order made it clear that there must first be a communicated promise to fill the order.12

Footnotes — § 3.34:

1 See §§ 2.32, 3.23.

See Swanson v. Public Storage, Inc., 2001 U.S. Dist. LEXIS 6953 (D. Kan. May 18, 2001). The plaintiff had a personal property storage lease with the defendant storage company’s predecessor in interest. When the defendant purchased the facility, it sent the plaintiff two letters and new form leases, advising the plaintiff that his old lease was terminated and that he was required to enter into a new lease on the defendant’s form. The plaintiff did not do so, and the defendant ultimately foreclosed a statutory lien and sold the plaintiff’s property, based on the plaintiff’s default under the defendant’s form lease. The plaintiff filed suit alleging that the actions of the defendants violated a number of his statutory and common law rights. The court held that the letter advising the plaintiff that his storage space lease had terminated and that he had to sign a new form lease had kept the old lease in effect on a holdover basis. The court also held that the plaintiff was not bound by the new form lease because the accompanying letter had limited the manner of acceptance of the lease. Since the plaintiff did not accept the lease in the manner set forth by the offeror storage company, therefore no contract was created therein. In citing this treatise, the court reflected that “The offeror creates the power of acceptance and has control over the character and extent of the power.” (Quoting this treatise, § 3.34, 1993 ed.).

2 See Panhandle Eastern Pipe Line Co. v. Smith, 637 P.2d 1020 (Wyo. 1981).

Schoen v. Bank of Am., N.A., 2019 U.S. Dist. LEXIS 23460 (S.D. Ohio 2019). Plaintiff purchased a house with a loan from the Federal Housing Administration. Defendant later took over the servicing of the loan. Plaintiff fell behind on payments under the loan and the defendant filed to foreclose on the property. Plaintiff sought assistance to prevent foreclosure. By letter, defendant notified plaintiff that she had “been approved for a loan modification under the Federal Housing Administration’s Home Affordable Modification Program (FHA-HAMP).” The court characterized this letter as an offer. The letter stated that Plaintiff was required to sign and notarize certain required documents and make her first modified payment of $1,508.23 by July 1, 2015, in order to accept the offer. Plaintiff made the required payment and attempted to submit the required documents several times, but defendant repeatedly found alleged deficiencies in the submissions. Defendant advised plaintiff that she was no longer eligible for a permanent loan modification under FHA-HAMP because it had not received the required documents. Plaintiff sued for, inter alia, breach of contract. The question was whether any of plaintiff’s attempts to accept the offer by submitting the required documents were a valid acceptance. Defendant argued that plaintiff failed to follow the following part of the Instructions: “Corrections should be lined through and initialed by the Notary.” In the second attempt, the notary made two changes without initialing them. And, in the third, the notary and Plaintiff bolded the K and S, respectively, in their names. The court rejected defendant’s argument and held that the attempts were valid acceptances. The offer letter’s language did not make clear that initialing corrections was the exclusive mode of acceptance. The court relied on this language in the Corbin treatise to reach its conclusion that plaintiff made an effective acceptance of the defendant’s offer:

Corbin on Contracts explains that “an offeror can prescribe a single and exclusive mode of acceptance”—even an “unreasonable” one, but the offer must “clearly express[] … the intention to exclude all other modes of acceptance.” Corbin on Contracts § 3.34 (2018). The treatise goes on to note that “[t]he more unreasonable the method appears, the less likely it will be that a court will interpret the offer as requiring it and the more clear and definite must be the expression of an intention in words.” Id. Thus, the more unreasonable a requirement is, the clearer it needs to be stated.

While the offer letter provides that acceptance must include signing and notarizing the Required Documents, it does not expressly prescribe the way this must be done. Importantly, the offer letter does not make clear that strict compliance with each and every directive of the Instructions is a must. And parts of the Instructions—like the phrase, “[t]hese notary instructions are being provided as a reference”—imply that they in fact are not requirements but only guideposts. … Thus, the directive that corrections be initialed is not clear and definite. … . [T]he directive that “corrections should be lined through and initialed by the Notary” did not clearly express an intention to exclude all other modes of acceptance. The Court finds this especially true with regard to the third attempt. As demonstrated above, the identified errors in that submission were the bolded K and S, and Corbin on Contracts states the Court ought to consider the relationship between reasonableness and clarity. See § 3.34 (2018). If acceptance required perfection, the letter offer should have expressly stated so.

The court granted summary judgment to plaintiff on her claim for liability.

3 See:

U.S.

—McDonald v. Mutual Life Ins. Co., 108 F.2d 32 (6th Cir. 1939), cert. denied, 309 U.S. 679 (a form was enclosed by which assent to proposal was required).

Ala.

—Hunter v. Wilshire Credit Corp., 927 So. 2d 810 (Ala. 2005) (acceptance expressly required signature).

Alaska

—Spenard Plumbing & Heating Co. v. Wright, 370 P.2d 519 (Alaska 1962) (notice in writing expressly required. See § 3.13, cited by the court).

Cal.

—Conley v. Fate, 227 Cal. App. 2d 418, 38 Cal. Rptr. 680 (1964) (a cash deposit was required and it was not made in time).

Ill.

—In Golden Dipt Co. v. Systems Engineering & Mfg. Co., 465 F.2d 215 (7th Cir. 1972), the operative words were: “This Proposal, when approved by the Purchaser and submitted and accepted by the Company … expresses the entire agreement … . This Proposal is not deemed binding on the Company until accepted on behalf of the Company.” Other language required a down-payment of 25% to be submitted with the order. The Purchaser’s telephone call created no contract. Maclay v. Harvey, 90 Ill. 525 (1878) (return mail); Brophy v. City of Joliet, 14 Ill. App. 2d 443, 144 N.E.2d 816 (1957) (the offeror expressly required the acceptance to be in writing).

Kan.

—Myers v. Dolgencorp, Inc., 2007 U.S. Dist. LEXIS 23893, *5 (D. Kan. May 13, 2007) (“If an offer prescribes the place, time or manner of acceptance, its terms in this respect must be complied with in order to create a contract.”); Miller v. Dillard’s Inc., 2002 U.S. Dist. LEXIS 14705 (D. Kan. July 23, 2002) (same); Swanson v. Public Storage, Inc., 2001 U.S. Dist. LEXIS 6953 (D. Kan. May 18, 2001).

Mass.

—Horne v. Niver, 168 Mass. 4, 46 N.E. 393 (1897) (telegraph); Lewis v. Browning, 130 Mass. 173 (1881) (letter received).

Mo.

—Shortridge v. Ghio, 253 S.W.2d 838 (Mo. App. 1952) (the terms of a written offer were such as to require signature by the offeree as acceptance).

Pa.

—Van Schoiack v. U.S. Liability Ins. Co., 390 Pa. 27, 133 A.2d 509 (1957) (the offeree failed to sign and return a carbon copy of the offeror’s letter as the offeror had requested).

Tex.

—MRC Permian Co. v. Three Rivers Operating Co., 2015 Tex. App. LEXIS 8203 (Aug. 5, 2015), rehearing denied, 2015 Tex. App. LEXIS 13093 (2015), review denied, 2017 Tex. LEXIS 66 (2017) (“Where, as in this case, a party has specified a mode of acceptance, there cannot be an acceptance as a matter of law unless it is ‘in the precise mode expressed within the offer.’ ”).

Wyo.

—Panhandle Eastern Pipe Line Co. v. Smith, 637 P.2d 1020, 1023 (Wyo. 1981); Crockett v. Lowther, 549 P.2d 303 (Wyo. 1976), detailed typewritten offer to sell realty provided “when you accept these terms by signing where I provide below, it is yours … .” This was held to prescribe an exclusive means of acceptance. This is seemingly a hyper-technical reading of the offer. The court, on the reported facts, could have determined that there was insufficient evidence of any attempt at acceptance during the lifetime of the power of acceptance.

One who offers a prize for the best plans submitted for construction of a state building is not bound to consider a plan the execution of which would cost more than the amount specified in the offer as the maximum limit. Cope v. Hastings, 183 Pa. 300, 38 A. 717 (1897).

If a prize is offered to the one submitting the longest list of words that can be made out of specified letters, providing that all rules must be closely followed, one of the rules being that no obsolete, dialectic, or foreign words shall be used, a contestant is not entitled to the prize if she submits a list of 4,137 words containing 2,481 of the prohibited kinds, even though her list contained more correct words than those submitted by any competitor. Scott v. People’s Monthly Co., 209 Iowa 503, 228 N.W. 263, 67 A.L.R. 413 (1929).

In Petition of Uraga Dock Co., 6 A.D.2d 443, 179 N.Y.S.2d 474 (1958), affirmed Uraga Dock Co. v. Mediterranean & Oriental S.S. Corp., 6 N.Y.2d 773, 186 N.Y.S.2d 669, 159 N.E.2d 212, the written draft of an agreement for the construction in Japan of two tankers for a buyer expressly provided that no contract or obligation should be “effective and binding” on either party unless the buyer should within a stated 10 day period make a payment of 20 percent of the specified price.

Two parties agreed by telephone on certain changes in a contract for the sale of land, and the vendor then made changes in an earnest money receipt to accord therewith and sent it to the purchaser requesting her to initial the changes and return it. The purchaser initialed most of the changes but overlooked some minor alterations, and returned the receipt as requested. This was held to be an “unequivocal acceptance.” Kahn v. Lischner, 128 Cal. App. 2d 480, 275 P.2d 539 (1954).

4 See the note to Koplin v. Bennett, 155 So. 2d 568 (Fla. App. 1963), under § 11.8 n. 6.

Monahan v. Finlandia Univ., 69 F. Supp. 3d 681 (W.D. Mich. 2014) is noteworthy. The defendant University forwarded Monahan a July 1, 2008 Letter of Appointment that stated: “Please sign, date, and return this letter and the acknowledgement form to Human Resources as evidence that you accept this appointment.” The cover letter that accompanied the Letter of Appointment stated: “Please return the enclosed letter of appointment on or before July 15th. Should the signed letter not be received by this date, the position will not be held.” Monahan signed the letter of appointment on July 10, 2008, properly addressed it, and mailed it to the University on July 14, 2008, by express mail, second day delivery. On July 21, 2008, the University sent Monahan a letter stating it had not received the signed Letter of Appointment, and “[t]herefore the University will not continue to hold this position for you and considers the absence of response your indication of voluntary resignation as of July 15th, 2008.” The university subsequently acknowledged that, in fact, it had received the signed Letter of Appointment on July 16, 2008, but “nevertheless, the University stood by its termination of Monahan’s employment because the letter had not been received until July 16, a day after the July 15 deadline … .” Monahan sued, and the court granted summary judgment in his favor. But the fact that the letter was received on July 16 rather than July 15 did not end the court’s inquiry. While the cover letter provided that if acceptance was not received by July 15, the position would “not be held,” the University’s July 21 letter advised that it “will not continue to hold this position for you.” Even assuming the University could have withdrawn the offer after July 15, the University did not do so. Because the University continued to hold the position for Monahan for a few more days—a fact evidenced by its July 21 letter—the University waived the July 15 response date. “Because Monahan did in fact accept the position on July 16, while the University was still holding the position for him, Monahan timely accepted the University’s offer of employment for the 2008–09 academic year.” Therefore, the University breached the contract.

5 We are here dealing with the power of the offeree to bind the offeror. It is a matter of course that the offeror cannot hold the offeree if the latter’s communication, reasonably interpreted, is not an expression of assent to any contract. A letter stating, “Your order … is at hand and will receive our prompt attention. Thanking you for the same” was held not to be an expression of acceptance. Courtney Shoe Co. v. E.W. Curd & Son, 142 Ky. 219, 134 S.W. 146 (1911). See also, Ally Cat, LLC v. Chauvin, 274 S.W.3d 451, 456 (Ky. 2009) (“Assent to be bound by the terms of an agreement must be expressed, and simply acknowledging the receipt of the document does not constitute assent to be bound.”).

Uniform Commercial Code § 2-206 provides:

“(1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. This section is in accord with the better reasoned cases under the common law. In harmony with this Code provision is Mid-Continent Petroleum Corp. v. Russell, 173 F.2d 620 (10th Cir.1949).

U.S.

—Kansas Power & Light Co. v. Burlington N. R. Co., 740 F.2d 780, 787 (10th Cir. 1984), cert. dismissed, 469 U.S. 1200.

Ala.

—Cf. King v. Travelers Ins. Co., 513 So. 2d 1023 (Ala. 1987) (a statement in the offer to this effect, “Please try to reply to this offer by tomorrow,” is not an imperative).

Cal.

—In re Crossman’s Estate, 231 Cal. App. 2d 370, 41 Cal. Rptr. 800 (1964) involved an option that specified two modes of acceptance interpreted by the court as not being the exclusive modes of acceptance. In Devencenzi v. Donkonics, 170 Cal. App. 2d 513, 339 P.2d 232 (1959), the defendant sent to plaintiff by mail a written order for goods, in duplicate, saying: “If this is agreeable to you please sign the two copies. Keep one for your files and return the other copy to me as soon as possible.” The plaintiff mailed a written acceptance of the order, without signing and returning a copy of the order. The court held that a contract was made. The words of the order did not “impose an absolute condition as to the manner of acceptance, but only suggested a method that would be satisfactory” to the offeror. See Lee v. Safeway Inc., 2017 Cal. App. Unpub. LEXIS 4454 (June 26, 2017) (discussing Donkonics); Pacific Corporate Group Holdings, LLC v. Keck, 232 Cal. App. 4th 294, 181 Cal. Rptr. 3d 399 (2014) (same).

Mich.

—Opdyke Invest. Co. v. Norris Grain Co., 413 Mich. 354, 320 N.W.2d 836 (1982).

Mo.

—Sargent v. Wekenman, 374 S.W.2d 635 (Mo. App. 1964) (acceptance of a broker’s offer of services on stated terms may be by conduct as well as by words).

Fla.

—Meekins-Bamman Prestress, Inc. v. Better Constr., Inc., 408 So. 2d 1071 (Fla. App. 1982). In Meekins-Bamman Prestress v. Better Const., 408 So. 2d 1071, 1073 (Fla. Dist. Ct. 1982) (citing this treatise, § 88, 1963 ed.) the court wrote: “It is universally held that a document … which specifically conditions the contractual effectiveness of a proposal by a projected seller upon its own subsequent approval, constitutes no more than a solicitation to the prospective purchaser to make an offer itself.

Ky.

—O’Daniel Motors v. Handy, 390 S.W.2d 453 (Ky. 1965). A doubtful case. Purchaser signed a “Used Car Buyer’s Order” that provided: “THIS ORDER NOT BINDING UNTIL ACCEPTED BY DEALER.” The car was delivered to the purchaser. The court held that there was no acceptance because the “order was not signed by appellant or anyone for it.” This is an insufficient explanation for the decision. The order did not refer to a signature and delivery might well have been the dealer’s manifestation of acceptance. See U.C.C. § 2-206.

N.Y.

—Tri-County Motors, Inc. v. Am. Suzuki Motor Corp., 494 F. Supp. 2d 161 (E.D.N.Y. July 3, 2007) (the court held that no legally binding franchise agreement was formed based on the prospective dealer’s submission of a dealership application since Suzuki specifically advised the prospective dealer that the completion of the dealership application was necessary to “evaluate” the dealer and that final approval or disapproval of the application “will be at the sole discretion of” Suzuki’s executive management in Brea, California).

Pa.

—Technographics, Inc. v. Mercer Corp., 777 F. Supp. 1214, 1216 (M.D. Pa. Nov. 19, 1991) (a so-called “home office acceptance clause” is one that “precludes the formation of a contract except upon approval by the relevant home office.”) West Penn Power Co. v. Bethlehem Steel Corp., 236 Pa. Super. 413, 348 A.2d 144 (1975) (proposal requiring acceptance by home office was not an offer since the clause was intended to prevent formation of a contract by the unilateral action of the other party); McCrea v. Automatic Heat, Inc., 161 Pa. Super. 545, 55 A.2d 564 (1947).

W.Va.

—A contract to sell land made by an agent, subject to the owner’s confirmation or approval, is not an enforceable contract. Fultz v. Connelly, 139 W.Va. 528, 80 S.E.2d 438 (1954).

Wis.

—McWhorter v. Employers Mutual Cas. Co., 28 Wis. 2d 275, 137 N.W.2d 49 (1965). Customer’s signing of purchase order from used car dealer is not a contract when purchase order provided it was subject to seller’s acceptance. Therefore, dealer’s insurer still covered the car when prospective purchaser became involved in an accident.

The solicitation may be in such terms as to be itself an operative offer. The requirement of another expression of assent, at the home office or otherwise, must itself be communicated in order to be a limitation upon what would otherwise create an immediate power of acceptance.

“The claim that is now urged rests entirely upon the contention that the clause ‘all contracts or orders taken are subject to the approval of the executive office at Hyde Park, Mass.,’ is to be deemed a part of the proposal. If this provision was a part of the proposal, there could be no proof of a contract in the absence of evidence that the order was approved and that the defendant had been notified of that fact. In view of the manner in which this provision is printed upon the stationery of the plaintiff it cannot be held, as a matter of law, that it was incorporated in and a part of the proposal… . If an issue had been raised upon the trial, whether it was a part of the proposal that issue would have presented a question of fact to be determined by the jury… . When an offer, proposal or contract is expressed in clear and explicit terms, matter printed in small type at the top or bottom of the office stationery of the writer, where it is not easily seen, which is not in the body of the instrument or referred to therein, is not necessarily to be considered as a part of such offer, proposal or contract.” B.F. Sturtevant Co. v. Fireproof Film Co., 216 N.Y. 199, 110 N.E. 440 (1915).

The case of Olsen v. Johnston, 368 Mont. 347 (2013) is noteworthy. Johnston and Olsen were sisters who owned 78 acres of property. Johnston sent a letter to Olsen, stating that, in light of their irreconcilable differences, she would buy Olsen’s one-third interest in the 78 acres for $150,000 or she would sell her two-thirds interest in the same to Olsen for $300,000. The letter further stated, “Please reply to Bruce Townsend (Townsend) by August 15, 2009 or I will be forced to seek partitioning of the property.” Olsen did not reply to Townsend, but sent a July 24, 2009 letter to Johnston stating, “I accept your offer to sell and will purchase your interest for $300,000. You may consider this letter as my confirmation of acceptance of your offer to sell.” Though Johnston sent a July 28 letter to Olsen acknowledging this response, she sought to reject Olsen’s acceptance and revoke her offer because she had offered to sell her interest in the property to her brother, Dave, and he had accepted by telephone before Johnston received Olsen’s letter. After the district court awarded specific performance, Johnston appealed on the footing that, by sending her letter to Johnston instead of Townsend, Olsen failed to exercise the power of acceptance required by the offer. Thus, her letter of July 24 was a counter-offer that Johnston did not accept. The court noted that if the offer merely suggests the time, place or manner of acceptance, a reasonable manner of acceptance is not precluded. To limit a power of acceptance, an offer must clearly and definitively reject other manners of acceptance. Johnston’s offer did not use words of limitation when she requested that Olsen reply to Townsend. The offer could have stated that Olsen “must” reply to Townsend or similarly clear and definitive language restricting the power of acceptance. Moreover, Johnston’s letter did not include Townsend’s address or contact information. As the district court noted, such a failure would lead a reasonable person to assume that any reasonable manner of acceptance would be satisfactory. Further, Johnston sent the letter to Olsen instead of having Townsend send it. The judgment of the district court was affirmed.

But see:

Stelluti Kerr, L.L.C. v. Mapei Corp., 703 Fed. App’x 214 (5th Cir. Tex. June 30, 2017) (home office approval clause may not prevent contract formation but may create a condition precedent on an obligation to perform).

Omega Eng’g, Inc. v. Omega, S.A., 432 F.3d 437 (2d Cir. 2005). A settlement agreement was reached at a court sponsored settlement conference before trial, and the representative of defendant, a Swiss company, had authority to settle. The conference resulted in an agreement stating that the case was settled and the formal written agreement would be signed by an appropriate party in Switzerland. The Swiss officials, however, refused to sign the agreement. The court held that the agreement was valid. Evidence showed that the subsequent signing by a Swiss official was intended as only a “ministerial” act. A change of heart cannot unmake a valid agreement. This is not a classic “home office” approval case.

7 International Filter Co. v. Conroe Gin, Ice & Light Co., 277 S.W. 631 (Tex. Com. App. 1925). A solicited order from seller stated “This proposal … becomes a contract when accepted by the purchaser and approved by an executive officer of the International Filter Company [seller], at its office in Chicago.” Note that the “acceptance by the purchaser” was actually the making of the offer to purchase. In Chicago, a vice-president of the seller wrote on the document “O.K. … P.N. Engel.” At that time it became a contract.

8 A provision that the order must be “countersigned” at the home office by the offeree, no communication to the one giving the order being contemplated, may be waived. It is enough that the offeree begins the making of the goods ordered, subject to the notice requirement of U.C.C. § 2-206. Albright v. Stegeman Motorcar Co., 168 Wis. 557, 170 N.W. 951 (1919).

See § 3.18, Silence as Acceptance.

In AA Home Improv. Co. v. Casem, 145 So. 2d 624 (La. App. 1962), the defendant signed the plaintiff’s printed form that required acceptance at the home office. The court held that a notice of revocation given before the plaintiff attached its signature was effective.

See Armour & Co. v. Celic, 294 F.2d 432 (2d Cir. 1961), noted under § 3.13. Even if no notice of the acceptance at the home office is sent, actual knowledge by the offeror of the offeree’s intention and the receipt of goods shipped in accordance with the written terms offered will be sufficient to bind the offeror. In Nelson Equipment Co. v. Harner, 191 Or. 359, 230 P.2d 188, 24 A.L.R.2d 999 (1951), the buyer’s written order for a machine provided that it should become binding when “accepted at the home office” of the seller. A written acceptance on the order itself was effective, “subject only to the duty to inform the defendant.”

In Hempstead v. United States Trucking Corp., 31 Misc. 2d 419, 219 N.Y.S.2d 637 (1961), the Town requested bids using a form that specified that the issuance of a Town purchase order would constitute an acceptance of the bid. This was held not to be an exclusive method. An acceptance of the defendant’s bid by a resolution of the Town Board consummated a contract, without a reduction of its terms to a formal writing. The bidder specified no method of acceptance. Its failure to object to the Town’s suggested method made that an effective method but did not make it exclusive of other reasonable methods.

9 See Empire Machinery Co. v. Litton Business Tel. Systems, 115 Ariz. 568, 566 P.2d 1044 (1977). Synnex Corporation v. ADT Security Services, Inc., 394 N.J. Super. 577, 928 A.2d 37 (2007).

Synnex retained Synnex ADT to design and install a burglar alarm system for the warehouse. The form ADT contract contained this clause: “This Agreement is not binding unless approved in writing by an authorized Representative of ADT.” The contract was signed by an authorized representative of Synnex and the ADT sales representative, but not by an “authorized Representative of ADT.” The warehouse was burglarized and Synnex recovered $7.1 million in settlement for lost merchandise and equipment from its insurance company, which brought this subrogation action in Synnex’s name. The court held that ADT’s performance of the contract by delivery and installation of the burglar alarm system constituted its acceptance of the contract despite the absence of a signature by an authorized Representative of ADT. Citing this treatise (§ 61, 1963 ed.), the court concluded that the most unequivocal form of such waiver is full performance by the party who has reserved that right. Indeed, even part performance is a sufficient expression of an intent to be bound by the contract. Accordingly, ADT’s performance of the contract by delivery and installation of the burglar alarm system constituted acceptance without home office approval, and therefore both parties were bound to the terms of the contract, including the exculpatory clause.

N.Y.

—Manning v. Michaels, 149 A.D.2d 897, 540 N.Y.S.2d 583 (1989). Prospective purchasers of real property sought return of their down-payment held in escrow by vendors’ attorney. A rider to the contract for sale, which had been signed by the parties contained the sentence, “By signing this Rider, Seller’s attorney has agreed to act as escrow agent as provided above.” The purchasers had backed out on the deal and argued that the attorney’s signature on the rider was a condition precedent to formation of the contract. The court disagreed. Purchasers’ submission of an amended contract and rider constituted an offer. Nowhere did the offer indicate that the attorney’s signature was required for a valid acceptance. The purchasers’ acquiescence in the mode of acceptance and the attorney’s acting as escrow agent was evidence of mutual assent.

Pa.

—Hatalowich v. Redevelopment Authority, 454 Pa. 481, 312 A.2d 22 (1973). An offer to purchase real property, addressed to the authority provided: “Acceptance, or rejection, of this proposal shall be made by depositing such acceptance, or rejection, notification in the United States mail addressed to the proposer at the address set forth below.” The authority passed a resolution accepting the offer and directed that a final agreement be drawn up. This was held to be a sufficient acceptance as the quoted language did not provide for an exclusive mode of acceptance.

But see Hunter v. Wilshire Credit Corp., 927 So. 2d 810 (Ala. 2005). Where a seller initiated a counter-offer that required the seller’s signature for acceptance and the seller did not sign, the court quoted Corbin’s admonition (§ 3.34, 1993 ed.) that an unsigned contract cannot be enforced by either party if it was also agreed that it must be signed by both parties.

11 Dunkel Oil Corp. v. Independent Oil & Gas Co., 70 F.2d 967 (7th Cir. 1934). Here, the court speaks of the offeree’s having “waived” a formal acceptance by shipping goods. It is most likely that the offeror had not prescribed a “formal” acceptance. It is certain that the shipment of goods as ordered and their receipt by the offeror would be a sufficient communication of acceptance of the proposed contract.

When one party has led the other reasonably to understand that there will be no binding contract until an expression of approval by an attorney, engineer, or some third party, this party should not be allowed to trick that other into a contract by “waiving” the requirement if the condition is potentially for the benefit of either party. The other party may indeed make an offer that is not conditional on the required approval. If this is done, a contract can be consummated without the approval. See Power Service Corp. v. Joslin, 175 F.2d 698 (9th Cir. 1949).

In Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir. 1960), a purchase order provided: “Acceptance should be executed on acknowledgment copy which should be returned to buyer.” The court held that this merely suggested a mode of acceptance and that a contract in accordance with the terms of the order was consummated by the offeree’s beginning performance with the knowledge and assent of the buyer.

U.S.

—National Trading Co. v. Vulcanite Portland Cement Co., 159 F. 403 (2d Cir. 1908).

N.Y.

—White v. Corlies, 46 N.Y. 467 (1871).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.35 »

1 Corbin on Contracts § 3.35 (2020)

§ 3.35. Counter-Offers and Their Effect

In the process of negotiation concerning a specific subject matter, there may be offers and counter-offers. One party proposes an agreement on stated terms; the other replies proposing an agreement on terms that are different. Such a counter-proposal is not identical with a rejection of the first offer, although it may have a similar legal operation in part. In order to deserve the name “counter-offer,” it must be so expressed as to be legally operative as an offer to the party making the prior proposal.1 It is not a counter-offer unless it is itself an offer, fully complying with all the requirements that have been previously discussed.2 This does not mean that all of its terms must be fully expressed in a single communication. Often they can be determined only by reference to many previous communications between the two parties. In this, a counter-offer differs in no respect from original offers. But there is no counter-offer, and no power of acceptance in the other party, unless there is a definite expression of willingness to contract on definitely ascertainable terms.

If the party who made the prior offer properly expresses assent to the terms of the counter-offer, a contract is thereby made on those terms.3 The fact that the prior offer became inoperative is now immaterial, and the terms of that offer are also immaterial except in so far as they are incorporated by reference in the counter-offer itself. Very frequently, they must be adverted to in order to determine what the counter-offer is. Often, the acceptance of a counter-offer is evidenced by the action of the offeree in proceeding with performance rather than by words.4

Silence will not be an acceptance except under circumstances which would make it so operative in the case of an original offer.5 If the original offeror proceeds with performance in consequence of the counter-offer, there can be no successful action for breach of the terms originally proposed.6

The terms “counter-offer” and “conditional acceptance” are really no more than different forms of describing the same thing. They are the same in legal operation. Whether the word “offer” is used or not, a communication that expresses an acceptance of a previous offer on certain conditions or with specified variations empowers the original offeror to consummate the contract by an expression of assent to the new conditions and variations. That is exactly what a counter-offer does. Both alike, called by either name, terminate the power of acceptance of the previous offer. They might properly be discussed under a single heading, instead of under two headings as is done here.

(A) The following case is noteworthy:

(1) Ghahan v. Palm Steak House, LLC, 2018 U.S. App. LEXIS 22289 (11th Cir. Aug. 8, 2018). Beginning in 2008, Ghahan managed and invested in a club owned by Palm. In 2011, the parties negotiated the possible termination of the management contract. One of Palm’s owners represented to one of Ghahan’s owners that Palm agreed to pay $675,000 at 5.5% interest to terminate (buyout) the agreement. Ghahan’s representative drafted a document titled “Termination of Management [A]greement” and emailed it to Palm’s representative, who advised that he would review it with his attorneys. Subsequently, Palm’s representative sent to Ghahan’s representative a modified termination agreement with additions and deletions. The parties met in person. “Over cigars, [Palm’s representative] asked [Ghahan’s representative] whether the revised termination agreement was acceptable. [The latter] responded that it was. At that point, [Ghahan’s representative] thought he had a deal to terminate the management agreement for $675,000.” After that, Palm’s attorney sent Ghahan’s representative a letter purporting to terminate the management agreement due to an alleged breach of contract by Ghahan. Palm never paid Ghahan any of the $675,000. Ghahan sued Palm, and the case proceeded to trial. The jury returned a verdict for Ghahan, and the district court entered a judgment for $675,000 on Ghahan’s breach-of-contract claim against Palm. On appeal, the Eleventh Circuit affirmed. The court found sufficient evidence to support a finding of mutual assent to the terms of Palm’s revised termination agreement. The court explained that the jury was justified in finding that Palm made a counteroffer based on its representative’s revisions to the original draft termination agreement and his emailed instruction to Ghahan’s representative that Ghahan should review the revisions. The evidence also supported a finding that Ghahan accepted the counter-offer based on the oral statement of Ghahan’s representative to Palm’s representative.

Footnotes — § 3.35:

1 John’s Insulation, Inc. v. Siska Constr. Co., 671 F. Supp. 289 (S.D.N.Y. 1987), summary judgment denied, count dismissed, 774 F. Supp. 156 (S.D.N.Y. 1991). Equivocal wording of a communication alleged to be a counter-offer prevents it from being such. The crucial fact said the court, is whether it appears, from examining the writing, that the original offeror could reasonably have expected to be bound to particular terms upon acceptance.

Duval & Co. v. Malcom, 233 Ga. 784, 214 S.E.2d 356 (1975). Malcom sent Duval a signed proposed “output contract” for the purchase of cotton. Duval added the words “Projected yields on back” and wrote on the back “600 pounds per acre or about 875 bales,” added its signature and sent a copy back. The projected yield stated by Duval was significantly higher than past yields from the same land, and Malcom complained, saying they had no deal. Duval then added the words “Buyer will accept all output regardless of whether it is more or less than the projected yield” to a copy and gave it back to Malcom who allegedly stalked out of the room at this point. In view of the importance of an estimate in an output contract (U.C.C. § 2-306), the added estimated figure was a material alteration of the offer and constituted a counter-offer. The later attempted acceptance was ineffective. The court properly determined that Uniform Commercial Code § 2-207 was irrelevant, as there had not been “a definite expression of acceptance.” See also, Cook’s Pest Control, Inc. v. Rebar, 852 So. 2d 730 (Ala. 2002) (citing § 3.32, 1993 ed.).

See Polk v. BHRGU Avon Properties, LLC, 946 So. 2d 1120 (Fla. App. 2006) (party’s attempt to accept other party’s counter-offers ineffective since first party had no power of acceptance after rejecting them).

2 Cain v. Noel, 268 S.C. 583, 235 S.E.2d 292 (1977). The school board offered a deal to an administrator. In exchange for his resignation, the board would pay him six months salary. Three days after the deadline he said he would accept their deal and tendered his resignation, which was accepted. The board refused to pay, saying their offer of a deal expired with the deadline. Relying on § 89 of a previous edition of this treatise, the court held that the administrator’s attempt to accept their deal operated at least as a counter-offer, which was accepted by the board when they accepted his resignation.

See also, AAA Construction of Missoula, LLC v. Choice Land Corporation, 2011 MT 262 (2011). The court cited this treatise, § 3.35, 1993 ed., for the proposition that acceptance that varies the proposal terms should be interpreted as a counter-offer. The terms of a counter-offer generally can be determined only by reviewing the previous negotiations between the parties. A counter-offer tends to incorporate all previously offered terms except those that the counter-offer expressly seeks to modify or add.

Davis v. Tex. Farm Bureau Ins., 470 S.W.3d 97 (Tex. App. 2015). The court cited this treatise, § 3.35, 1993 ed., and held that a counteroffer constituted a rejection that terminated the offeree’s/counteroffer’s power of acceptance. Once an offer has been terminated by a counteroffer, an offeree’s power to accept the original offer cannot be revived by later purporting to accept the offer, as Davis attempted to do here. A counteroffer can be made with language that does not reject the original offer if the offeree/counterofferor makes clear that despite the counteroffer, he or she is still holding the original offer under advisement.

U.S.

—Baltimore & O.R. Co. v. Youngstown Boiler & Tank Co., 64 F.2d 638 (6th Cir. 1933); American Lumber & Mfg. Co. v. Atlantic Mill & Lumber Co., 290 F. 632 (3d Cir. 1923).

Ala.

—Hardy Corp. v. Rayco Indus., 143 So. 3d 172 (Ala. 2013); Cook’s Pest Control, Inc. v. Rebar, 852 So. 2d 730 (Ala. 2002).

Conn.

—Riverside Coal Co. v. Elman Coal Co., 114 Conn. 492, 159 A. 280 (1932).

Kan.

—Steele v. Harrison, 220 Kan. 422, 552 P.2d 957 (1976); Kansas City v. Industrial Gas Co., 138 Kan. 755, 28 P.2d 968 (1934) (belated acceptance was assented to).

Ky.

—Shaw v. Ingram-Day Lumber Co., 152 Ky. 329, 153 S.W. 431 (1913).

Minn.

—Lewis v. Johnson, 123 Minn. 409, 143 N.W. 1127 (1913); Knaus Truck Lines, Inc. v. Donaldson, 235 Minn. 453, 51 N.W.2d 99 (1952).

Miss.

—Reed Bros. v. Bluff City Motor Co., 139 Miss. 441, 104 So. 161 (1925).

N.Y.

—Daniels v. City of New York, 2014 U.S. Dist. LEXIS 149259 (S.D. N.Y. Oct. 21, 2014). The City of New York and Daniels attended a settlement conference with a magistrate judge to discuss the settlement of Daniels’ suit against the City. Daniels demanded $110,000; the City offered $65,000. Daniels “made a counter demand” of $110,000, which the City accepted. When the Judge advised Daniels that the City had accepted his counter demand, Daniels “changed his mind and [said that] he was no longer willing to accept $110,000 to settle the case.” The City of New York moved to enforce a settlement. The court granted the motion to enforce settlement. When the City made a counteroffer of $65,000, this served to reject Daniel’s initial demand of $110,000, but then Daniels reanimated the offer of $110,000, which the City accepted, thus forming a legally operative settlement agreement.

N.C.

—Normile v. Miller, 313 N.C. 98, 326 S.E.2d 11 (1985).

Okla.

—Kingfisher Mill & Elevator Co. v. Westbrook, 79 Okl. 188, 192 P. 209 (1920).

Tex.

—Blackstone v. Thalman, 949 S.W.2d 470 (Tex. App. 1997).

Wash.

—General Lithographing & Printing Co. v. Washington Rubber Co., 55 Wash. 461, 104 P. 650 (1909).

A buyer signed a proposed contract promising to pay $25,000. The vendor wrote at the bottom, “I agree to accept $27,000.” The buyer then altered his figures to $27,000, initialed the change, and handed back the instrument. A contract was thus made. Brill v. Mushinsky, 194 F.2d 158, 90 U.S. App. D.C. 132 (1952). In Selig v. Philadelphia Title Ins. Co., 380 Pa. 264, 111 A.2d 147 (1955), a counter-offer was held to have been accepted by a letter from the original offeror, although it did not contain the word “accept.” It did contain some suggestions but it was not made conditional thereon.

Where one requested an agent to procure insurance on a fleet of trucks within an area known as Zone 3, and the agent procured policies applicable in Zone 1 where rates were higher, retention of the policies and payment of premiums at the lower rate were not an acceptance of the counter-offer of the agent and there was no implied promise to pay the rates for Zone 1. The applicant had protested and had been assured of an adjustment. Williams v. Morrow, 272 S.W.2d 909 (Tex. Civ. App. 1954).

In B.L. Montague Co. v. Somers, 94 Ga. App. 860, 96 S.E.2d 629 (1957), the purported acceptance of a contractor’s offer varied sufficiently so that it operated as a counter-offer, but was in its turn “accepted” by the contractor. His offer was to do the work for $110,000, “No taxes included”, while the reply promised to pay a “lump sum of $110,000” with no mention of taxes. The contractor had to pay the sales tax.

In Schwartz v. Handorf, 7 Wis. 2d 228, 96 N.W.2d 366 (1959), the plaintiff delivered to defendant a signed offer to purchase land on stated terms. The defendant altered it by excepting an easement of way and then signed it and returned it to plaintiff. By this action, the defendant made a counter-offer by a writing sufficient to satisfy the statute of frauds. The plaintiff orally communicated his acceptance of this counter-offer. The court held that this oral acceptance consummated a contract, and that the writing signed by the defendant was sufficient to make the contract specifically enforceable against the defendant. The defendant’s subsequent notice revoking his counter-offer was of no effect.

Where an employee’s letter in reply to the employer’s written offer stated that an allowance for moving expenses was still to be discussed, it was a question of fact for the jury to say whether the employer later orally promised such an allowance. Goeckel v. Stokely, 236 N.C. 604, 73 S.E.2d 618 (1952).

Where an offer was made with a specific condition and the offeree refused to assent to the condition, the existence of a contract on the offeree’s terms was sufficiently shown by the fact that the offeror thereafter ordered shipments to be made under the contract. Whiteman Food Products Co. v. Prodotti Alimentari, 31 N.J. Super. 277, 106 A.2d 321 (1954).

Pace Communications, Inc. v. Moonlight Design, 31 F.3d 587 (7th Cir. 1994). Elegant Bride faxed Moonlight a form constituting an offer. When Moonlight added terms to the fax, signed it, and faxed it back, it rejected Elegant Bride’s offer and made a counter-offer. Elegant Bride faxed back, saying that it was “extremely pleased that you have decided to join our list of advertisers.” No mention was made of the additional terms. Held: Elegant Bride’s response to Moonlight’s counteroffer was a sufficient manifestation of intent to form a contract. “There is no requirement that parties discuss a contract’s every term in order to be bound by it—indeed, such a rule would reward parties for their failure to read what they sign, hardly an incentive that contract law would seek to create.”

4 In Baker v. Maytag, 207 So. 2d 300 (Fla. App. 1968), plaintiff proceeded to sell shares of stock to buyer after buyer’s counter-offer to the effect that plaintiff’s right of first refusal would not apply to any single sale within 60 days of the sale to the buyer.

In W.G. Maltby, Inc. v. Associated Realty Co., 114 Conn. 283, 158 A. 548 (1932), the plaintiff’s offer to lease property on certain terms was accepted in writing by the lessor, with two variations of some importance. The plaintiff thereupon moved in and occupied the premises for some months. A lease for a year with privilege of renewal for five years was consummated thereby.

See, also:

U.S.

—American Lumber & Mfg. Co. v. Atlantic Mill & Lumber Co., 290 F. 632 (3d Cir. 1923).

La.

—North Louisiana Milk Producers Assoc. v. Southland Corp., 352 So. 2d 293 (La. App. 1977), writ denied, 354 So. 2d 200.

Minn.

—Farmers State Bank v. Sig Ellingson & Co., 218 Minn. 411, 16 N.W.2d 319 (1944); M. Samuels & Co. v. Zorbas, 182 Minn. 345, 234 N.W. 468 (1931); Johnson v. M.J. O’Neil, Inc., 182 Minn. 232, 234 N.W. 16 (1931).

N.J.

—Vaughan’s Seed Store, Inc. v. Morris April & Bros., 123 N.J.L. 26, 7 A.2d 868 (1939).

Ohio

—Rupright v. Heyman, 67 Ohio App. 355, 21 Ohio Op. 305, 36 N.E.2d 902 (1940).

El Hoss Engineering & Transport Co. v. American Independent Oil Co., 289 F.2d 346 (2d Cir. 1961), cert. denied, 368 U.S. 837, is a case in which El Hoss submitted its signed 54 page draft of a contract for extensive construction work to Aminoil, one clause of which provided for arbitration of disputes. Aminoil signed the instrument, adding below its signature that the acceptance was “subject to” the furnishing of performance bonds and insurance within 14 days. This was clearly a “conditional acceptance.” But El Hoss made no objection, and both parties proceeded with performance, Aminoil several times extending the time for procurement of the bonds and insurance. Disputes soon arose, and Aminoil repudiated the contract. El Hoss applied for an order to compel arbitration, and the District Court sustained the application. The Court of Appeals reversed this, holding correctly that the “acceptance” by Aminoil was “conditional,” but holding incorrectly that no valid contract existed, and that Aminoil was not bound to arbitrate. One judge dissented. The Court of Appeals should have sustained the lower court. The “conditional acceptance” did not consummate a contract, but it operated as a counter-offer and was assented to by El Hoss by at once proceeding with performance, Aminoil itself participating therein.

Neb.

—Griggs v. Oak, 164 Neb. 296, 82 N.W.2d 410 (1957). Beginning the performance specified in an offer may not operate as an acceptance if the evidence shows that the offeree was still insisting on terms at variance with the offer.

Tenn.

—Union Realty Co. v. Moses, 984 F.2d 715 (6th Cir. 1993) (counteroffer may be accepted by conduct without violating mirror image rule).

U.S.

—Columbia Malting Co. v. Clausen-Flanagan Corp., 3 F.2d 547 (2d Cir. 1924).

Ill.

—Maclay v. Harvey, 90 Ill. 525 (1878).

Iowa

—Ferrier v. Storer, 63 Iowa 484, 19 N.W. 288 (1884).

Me.

—Phillips v. Moor, 71 Me. 78 (1880); Jenness v. Mt. Hope Iron Co., 53 Me. 20 (1864).

N.Y.

—Tencza v. Hyland, 171 A.D.2d 1057, 569 N.Y.S.2d 242 (1991). Original offerors signed their acceptances of the counter-offer, which was delivered to their attorney who communicated with the original offeree in an attempt to negotiate some concessions, not revealing that the clients had signed their acceptances. The original offeree had the power to, and did, revoke the counter-offer.

Pa.

—Blaisdell Filtration Co. v. M.L. Bayard & Co., 311 Pa. 6, 166 A. 234 (1933).

Wis.

—Russell v. Falls Mfg. Co., 106 Wis. 329, 82 N.W. 134 (1900).

Eng.

—Morrell v. Studd, [1913] 2 Ch. 648.

6 Iselin v. United States, 271 U.S. 136, 46 S. Ct. 458, 70 L. Ed. 872 (1926).

See also, L&L Builders v. Quirk, 2010 Iowa App. LEXIS 250 (Mar. 24, 2010). The plaintiff, a general contractor, was the successful bidder for the construction of a new Wal-Mart store building. The plaintiff estimated the need for some 30,000 tons of rock subbase based on the bid of another subcontractor at a price of $450,000, which the plaintiff had used in preparing its overall bid for the project. Without stating that estimate, it offered $400,000 for the defendant to supply the rock subbase per the plans and specifications for the Wal-Mart construction. The defendant had viewed the plans for the construction at the plaintiff’s office. He inserted a new term, 8800 tons of subbase, in his response to the offer and faxed it to the plaintiff. Later, the defendant began the work and, after delivering 7000 tons of subbase, it was apparent that considerable additional tonnage was essential. The court held that the defendant’s response to the plaintiff’s offer that added the new 8800 ton term was a counter-offer rejecting the plaintiff’s offer and, by its silence in allowing the defendant to pursue the work, the plaintiff accepted the counteroffer. The plaintiff argued that it could not be said to have accepted the counteroffer because it was unaware of the changed term. The court noted that a party may manifest assent to an offer or counteroffer, thereby forming a contract, without intending to accept. By allowing the defendant to begin work, the plaintiff manifested such assent. The plaintiff’s failure to note the new term in the counteroffer was irrelevant. While the opinion notes the defendant’s awareness of the plans and specifications for the building, it does not suggest any fault on the part of the defendant in submitting a bid to supply only 8800 tons of subbase, though the building required more than three times that amount. The plaintiff had used another subcontractor’s bid for 30,000 tons at a bid price of $450,000. Thus, the plaintiff’s assumption of $400,000 for the entire subbase rock contract was not unreasonable. If the defendant should have been aware that the building plan required much more subbase rock than he was willing to supply for $400,000, it may suggest the familiar concept that such an offeree may not “snap up” an offer the offeree knows or should have known is mistaken. Again, that possibility was not addressed in the opinion.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.36 »

1 Corbin on Contracts § 3.36 (2020)

§ 3.36. Power to Accept an Offer Is Terminated by a Counter-Offer or Conditional Acceptance

In addition to its effect in creating a power of acceptance, a counter-offer ordinarily terminates the power to accept the previously made offer to which it is a “counter,” or reply, in the negotiation.1 The reasons for this seems to be that this is the general understanding of persons who actively negotiate and enter into contracts and the rule has been established without meeting serious criticism. Whether as an original proposition a counter-offer should have been treated as a rejection, the equation of counter-offer with rejection is too firmly imbedded to be questioned.2

In one respect a counter-offer differs from a rejection in its legal effect. It may be alike in terminating the power to accept an offer previously made, as the courts have chosen to hold, but a counter-offer creates a new power of acceptance, and a mere rejection does not. A counter-offer is, of course, an offer, and subject to the rules that concern the acceptance of offers.3

A question has been raised as to when a counter-offer becomes operative to terminate the power of accepting the prior offer. As an offer it creates no power of acceptance until it is received, just as in the case of other offers. It is believed also that it should not terminate the power to accept a prior offer until it has been received. Not until then can it produce any effect upon the original offeror’s action or state of mind. So a counter-offer, or even a flat rejection, started in the mail and on the way, should not invalidate an acceptance by wire or other mode of communication, if the latter is received as soon as or prior to the counter-offer or rejection. But since acceptances by mail or telegraph are in certain cases held to be operative from the time they are started, the courts should protect the original offeror from being misled and injured thereby. If the offeror receives a counter-offer or rejection, and is led thereby to make a material change of position before receipt of the acceptance, the latter should be held to be inoperative as an acceptance, even though it was started before the counter-offer was received. The acceptance in such a case might reasonably be given the effect of a renewed offer of the same contract.4

As one court has noted, a counter-offer terminates the power of acceptance and it is inaccurate to state that the offer itself was terminated. The context was the effect of a statutory offer pursuant to the California Code of Civil Procedure. It was held that although a counter-offer terminates the power to accept such an offer, it does not prevent the offer from having its statutory effect on the recovery of cost sanctions.5 The court also noted that if an offer is made to a group and is of the kind that could be accepted separately by more than one member of the group, a counter-offer by one of them would have no effect upon the power of the others to accept.6 Therefore, it would be inappropriate to describe the offer as having been terminated. While the case remains of intellectual interest, its predicate—that a counter-offer terminates the power to accept such a statutory offer—has been disapproved by the Supreme Court of California.7

A counter-offer must be distinguished from an unqualified acceptance accompanied by a proposal for modification of the agreement. (This and related matters are explored in greater depth in §§ 3.28–3.30) In APS v. US Bank,8 plaintiff opened a checking account at US Bank and signed a Reserve Line Agreement enabling the bank to advance up to $500 to his account if he had insufficient funds. He also signed an acknowledgment that he had received insurance disclosures. Below his acknowledgment signature he wrote, “call if I bounce a check.” The plaintiff wrote checks exceeding his account balance. When a check bounced, the bank advanced funds to cover the deficiency but it did not call the plaintiff. The plaintiff claimed that the bank breached the contract by failing to call him when he bounced a check. The bank denied that calling the plaintiff was a term of the contract. The court noted that Minnesota follows the “matching acceptance” rule requiring an acceptance to be coextensive with the offer. Where an acceptance qualifies the terms of an offer it is treated as a counter-offer. A counter-offer, however, must be distinguished from an unqualified acceptance accompanied by a proposal for modification of the agreement (Restatement (Second) of Contracts § 39 (Am. Law Inst. 1981)). A mere request accompanying an acceptance is not a qualification that converts the acceptance into a counter offer. Here, the bank’s agreement was its offer to the plaintiff. The plaintiff’s act of signing the agreement manifested his acceptance of the offer. The court held that the addition of “call if I bounce a check” did not convert the acceptance to a counter-offer because it did not expressly condition the plaintiff’s acceptance on the bank’s acquiescence. Rather, it was a suggested modification from which a conditional acceptance could not be inferred. Plaintiff unconditionally accepted the terms of the bank’s offer, and the suggested modification never became part of the contract because the bank did not agree to the modification. The court granted the bank’s motion for summary judgment.

Footnotes — § 3.36:

U.S.

—Beaumont v. Prieto, 249 U.S. 554, 39 S. Ct. 383, 63 L. Ed. 770 (1919); A.E. Staley Mfg. Co. v. Northern Cooperatives, Inc., 168 F.2d 892 (8th Cir. 1948); Hoffstot v. Dickinson, 166 F.2d 36 (4th Cir. 1948); In re Marcalus Mfg. Co., 120 F. Supp. 784 (D.N.J. 1954).

Alaska

—Thrift Shop, Inc. v. Alaska Mut. Sav. Bank, 398 P.2d 657 (Alaska 1965). A refusal to co-sign a corporate lease in individual capacity was held to be a counter-offer that terminated the power of acceptance of the proffered lease.

Colo.

—Goodwin v. Eller, 127 Colo. 529, 258 P.2d 493 (1953).

Conn

.—Peartree Props., LLC v. Brandau 2014 Conn. Super. LEXIS 2593 (Oct. 9, 2014) is a good example. In 2008, Peartree Properties listed commercial property for sale. In June of that year, the defendant, Brandau, made an offer to purchase the property, which was memorialized on July 1 in a signed offer. The offer contained a financing contingency for Brandau to be able to secure financing with a twenty-five-year amortization schedule. On July 9th, Thomas Birnbaum, Peartree’s principal, advised Brandau that the 25-year financing contingency was unacceptable—he said he was concerned that he would not be able to find a 25 year term, so he wanted to keep it at a 20 year limitation. Subsequently, Birnbaum satisfied himself that twenty-five-year financing was available, and on July 21, 2008, he signed Brandau’s written offer. This was some three weeks after the offer had been extended to him—and some twelve days after Birnbaum had advised Brandau he was rejecting it. Peartree sued, claiming a contract was entered into, but the court disagreed. The court determined that Birnbaum’s statement on July 9th constituted a counter-offer, and that Bradau never accepted it. The court explained that “if there is a qualification or departure from the terms in which the offer is made by the offerer, it invalidates the offer unless the offerer agrees to the qualifications or departure from the original terms.” Thus, the July 9th counter-offer terminated Branau’s offer and Peartree’s power of acceptance. When Birnbaum signed the written offer on July 21st, it was not an acceptance of an outstanding offer, and no contract was formed. The court concluded that Peartree failed to sustain its burden of proof, and it found in favor of Brandau.

Ga.

—Lamb v. Decatur Fed. S. & L., 201 Ga. App. 583, 411 S.E.2d 527 (Ga. App. 1991).

Ill.

—Venture Assocs. Corp. v. Zenith Data Systems Corp., 812 F. Supp. 788 (N.D. Ill. 1992).

Iowa

—In re Marriage of Masterson, 453 N.W.2d 650 (Iowa App. 1990).

Mass.

—Host v. Gray, 21 LCR 156 (Mass. LCR 2013).

Md.

—Ebline v. Campbell, 209 Md. 584, 121 A.2d 828 (1956), opinion modified, 209 Md. 584, 121 A.2d 928.

Minn.

—Nodland v. Chirpich, 307 Minn. 360, 240 N.W.2d 513 (1976); Lewis v. Johnson, 123 Minn. 409, 143 N.W. 1127 (1913); Dataserv Equipment, Inc. v. Technology Finance Leasing Corp., 364 N.W.2d 838 (Minn. App. 1985).

Mo.

—Egger v. Nesbit, 122 Mo. 667, 27 S.W. 385 (1894).

N.M.

—Corr v. Braasch, 97 N.M. 279, 639 P.2d 566 (1981).

In re Investment Co. of the Southwest, Inc., 2007 Bankr. LEXIS 1668 (Bankr. D.N.M. May 9, 2007). Pursuing a settlement agreement, counsel for the parties exchanged e-mails. The response to an offer of settlement stated, “I think we have a deal”… “subject to making a deal” with a third party. The response ended with, “I think we should proceed with a more formal memorialization of our agreement.” The offeror claimed that no contract existed because the purported acceptance was conditional. The offeree argued that he did not intend to include an additional term, but was merely providing information to the offeror. The court held that, while the offeree may have not have intended to make a counteroffer, the purported acceptance included a condition and, no matter how unlikely it was that such a condition would occur, it was not insignificant with respect to the conclusion of a contract. The court found a violation of the classic “mirror image” rule requiring the acceptance to match the terms of the offer. It held that the response was a counteroffer and quoted § 39 of the Restatement (Second) of Contracts stating the common law rule that the normal effect of a counteroffer is to terminate the offeree’s power of acceptance. There was no enforceable agreement.

N.Y.

—Chain Locations of America, Inc. v. T.I.M.E. DC, Inc., 81 A.D.2d 993, 440 N.Y.S.2d 69 (1981), mot. denied, 89 A.D.2d 669, 452 N.Y.S.2d 329, appeal after remand, 99 A.D.2d 111, 472 N.Y.S.2d 462.

Or.

—Financial Indem. Co. v. Bevans, 38 Or. App. 369, 590 P.2d 276 (1979).

Wash.

—City of Roslyn v. Paul E. Hughes Constr. Co., Inc., 19 Wash. App. 59, 573 P.2d 385 (1978).

Wyo.

—Trautwein v. Leavey, 472 P.2d 776 (Wyo. 1970).

Eng.

—Thornbury v. Bevill, 1 Y. & C.C.C. Ch. 554 (1842); Hyde v. Wrench, 3 Beav. 334 (1840).

Restatement (Second) of Contracts § 36(1)(a) (Am. Law Inst. 1981).

If, after receipt of a counter-offer, the offeror attempts to hold the offeree on the terms of the original offer without an acceptance thereof, this attempt amounts to a counter-offer to the offer made by the offeree and operates as a rejection of the counter-offer. Bartone v. Taylor-Benson-Jones Co., 119 Cal. App. 2d 79, 258 P.2d 1054 (1953).

In Housing Authority of Lake Arthur v. T. Miller & Sons, 120 So. 2d 494, 239 La. 966 (1960), the defendant was low bidder on a public housing project, the plaintiff having an irrevocable 30-day period in which to accept, and thereafter until notice of revocation. After opening the bids, the Authority adopted a resolution authorizing its director to contract with the defendant but on the express condition of approval by the Federal Authority. After getting such approval, the director within the 30-day period (but after notice of an attempted revocation) gave notice of acceptance. The court held that a contract was made and that the defendant was liable in damages for refusal to execute a written contract. Here, the resolution was neither a conditional acceptance nor a counter-offer. It merely created a conditional power in the director, a power which, in spite of the attempted revocation, he could exercise when the condition (approval by Federal Authority) was fulfilled, within the 30 day period.

2 Ontap Premium Quality Waters v. Bank of N. Ill., N.A., 262 Ill. App. 3d 254, 634 N.E.2d 425 (1994); D’Agostino v. Bank of Ravenswood, 205 Ill. App. 3d 898, 150 Ill. Dec. 759, 563 N.E.2d 886 (1990), appeal denied, 137 Ill. 2d 664, 156 Ill. Dec. 560, 571 N.E.2d 147.

3 In Russell v. United States, 320 F.2d 920, 162 Ct. Cl. 544 (1963), the plaintiff made an offer of compromise and settlement. The defendant rejected this offer and made a counter-offer. The plaintiff, believing that the decision in another case then pending would be favorable to his claim, delayed acceptance of the counter-offer, and after six months the defendant revoked it. The other pending litigation was not favorable, but it was then too late to take advantage of the counter-offer.

4 The American Law Institute has adopted a rule with which the above text is in harmony. Restatement (Second) of Contracts, § 40 (Am. Law Inst. 1981), is as follows: “Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.” A decision in substantial harmony with this is E. Frederics, Inc. v. Felton Beauty Supply Co., 58 Ga. App. 320, 198 S.E. 324 (1938), overruled on other grounds, Willis v. Hill, 116 Ga. App. 848, 159 S.E.2d 145 (1967).

In Howard Smith & Co. v. Varawa (High Court of Australia) 5 C.L.R. 68 (1907), an offer was made by cable, on the part of the plaintiff, and, after various intervening cable messages, the defendant cabled a conditional acceptance and counter-offer at 3:40 p.m. Twenty minutes later, at 4 p.m. the defendant cabled an unconditional acceptance. As to the effect of these messages the court said: “The telegram of 3:40 appears to have arrived at Manila at 5:30 p.m. There was no evidence to show when that of 4 p.m. arrived there. An interesting argument was addressed to us to the effect that the telegram of 3:40 operated from the time of its dispatch, and had the effect of a refusal which could not be followed by an acceptance of the original offer, even if an acceptance of that offer were in fact received before it, and a fortiori if the acceptance were received after the refusal.” The court found it unnecessary to pass upon the point.

“The oddity of the mailbox rule and how it manipulates standard rules of offer and acceptance are highlighted by the treatment of a vacillating offeree. Say that A mails an offer to B on Day 1, and B receives the offer on Day 2. On Day 3, B mails a rejection. But on Day 4, B, after a change of mind, mails an acceptance. Applying the mailbox rule in this scenario would be problematic because A may receive the rejection first, rely on it, and deal with another party. To address this problem, section 40 of the Restatement makes the mailbox rule inapplicable in this scenario and instead provides that the first communication received by the offeror - the rejection or the acceptance - is effective.” Wayne Barnes, The Objective Theory of Contracts, 76 U. Cin. L. Rev. 1119, 1144 (2008).

5 Glende Motor Co. v. Superior Court, 159 Cal. App. 3d 389, 205 Cal. Rptr. 682 (1984).

6 205 Cal. Rptr. at 688 n. 11.

7 Poster v. Southern Cal. Rapid Transit Dist., 52 Cal. 3d 266, 276 Cal. Rptr. 321, 801 P.2d 1072 (1990).

8 APS v. US Bank, 2009 U.S. Dist. LEXIS 112298 (D. Minn. Dec. 2, 2009).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.37 »

1 Corbin on Contracts § 3.37 (2020)

§ 3.37. The “Battle of the Forms”; “Terms Later” Contracting

This section deals with two of the most contentious subjects in modern contract law—the infamous “battle of the forms” in Part I, and so-called “terms later” contracting in Part II.

Part I: “The Battle of the Forms”

The common law treated responses to offers containing variant terms as counter-offers.1 Generally, in order to form a contract, the terms of the acceptance had to match the terms of the offer exactly—this was called the “matching acceptance” or “mirror image” rule. If the terms of the response to the offer deviated from the offer in any manner, the response was not an acceptance but a rejection of the offer and a counter-offer that created a new power of acceptance in the original offeror.2

The common law rule did not square with modern commercial practices. Countless daily transactions occur via the exchange of “standardized, printed forms where the response appears to manifest the offeree’s acceptance of the offer though it also contains prefabricated terms that vary the terms of the offer.”3 Such standardized forms promote efficiency:

It would not be possible to create the millions of contracts made hourly in a modern market economy if every clause had to be repeatedly read, reconsidered and renegotiated. Efficiency demanded “standard” clauses that would be generally ignored while the parties focused upon their bargained-for terms where they consciously considered the subject matter, the quantity, the price and, perhaps, a delivery term. Questions of warranties, remedies and adjudication of disputes are not consciously adverted to in the typical transaction.4

1. Common Scenario

Though transactions for the sale of goods can occur in an infinite variety of ways, consider a common scenario. The buyer and seller agree in person or otherwise on the essential business terms: subject matter (the identity and description of the goods being bought and sold), quantity, price, and delivery terms. There may also be other terms that are critical to the particular transaction that the parties have discussed. Professor Karl Llewellyn, chief architect of the Uniform Commercial Code, principal drafter of U.C.C. Article 2, and devoted protégé of Professor Arthur Corbin, famously called these the “dickered terms.”5 These are the terms about which the parties have actually negotiated, or over which it would have been natural and normal to bargain. The dickered terms are put into writing by the parties’ business representatives and reflect the deal the parties want to strike. The buyer sends the seller a purchase order form—on the front are the dickered terms, but on the back are pre-printed, standardized legal terms, sometimes pejoratively called “boilerplate.” These terms are drafted by the buyer’s lawyers and are not specific to the transaction. The boilerplate is written in print so small that it may be difficult to read, and it is encrusted with the sort of abstruse legalese that engenders disrepute of the legal profession. Generally, the boilerplate will only be pertinent if—and will not be read unless—the deal goes awry and one party or the other seeks a legal resolution. The terms are drafted to give the buyer the greatest protection allowed by law. Karl Llewellyn said that “[b]usiness lawyers tend to draft to the edge of the possible.”6

The seller receives the buyer’s form and does not send them to legal counsel for review. The seller ignores the buyer’s boilerplate. If the seller signed off on the buyer’s purchase order, there would be no “battle of the forms” dispute—the buyer’s terms would govern the transaction,7 and this chapter would be unnecessary. But that typically does not happen. The seller responds to the buyer’s purchase order form by sending the buyer its own form—this might be called an acknowledgment form but the label does not matter. The seller’s form manifests agreement to the “dickered terms” set forth on the front of the buyer’s purchase order and agrees to ship the goods the buyer wants. But on the back of the seller’s form is the seller’s own boilerplate, which is very different from the boilerplate on the buyer’s form but just as difficult to read and understand. Among many other things, the seller’s boilerplate is written to remove or limit important protections provided to the buyer by default under the law:

It disclaims the implied warranty of merchantability set forth in U.C.C. § 2-314 and the warranty of fitness for a particular purpose under U.C.C. § 2-315.
It limits the duration of the express warranty.
It limits the remedies provided to the buyer under U.C.C. § 2-711 by excluding consequential damages allowed by default under U.C.C. § 2-715. It includes a cap on damages or a provision that the buyer’s sole and exclusive remedy for breach of warranty is limited to repair or replacement at seller’s option of any defective parts.
It provides that all disputes between the parties must be resolved in arbitration in the county of the seller’s principal place of business. Alternatively, it may include a choice of forum provision mandating resolution of disputes in a forum convenient for the seller. It also includes a choice of law provision that seller perceives as favorable to the seller.

The buyer receives the seller’s acknowledgement form, and just as the seller had done with the buyer’s boilerplate, it ignores the seller’s boilerplate. The buyer does not send the seller’s terms to its legal counsel to be reviewed. Even though the parties have not signed off on a single document, and even though neither party has read the other party’s boilerplate (much less tried to figure whose boilerplate governs the transaction), the parties are in agreement on the commercial terms that matter to them—the dickered terms. The seller proceeds to ship the goods, and the buyer accepts them, usually because both parties assume they have a contract on their own terms.8 It is only when a dispute erupts over some aspect of the transaction, and the parties’ lawyers become involved, that it dawns on both parties that both sets of terms cannot be part of the contract—and that they are in a “battle of the forms.”9

The parties indisputably have a contract: the goods are shipped, the buyer accepts them, and the seller has a reasonable expectation to be paid for them—after all, neither party believes the seller sent the goods as a gift. But what are the terms of that contract? Under the common law, the “last shot” rule governed.

2. The “Last Shot” Rule

To form a contract under the common law, all of the terms of the offer and acceptance had to match: (1) the dickered terms that the parties consciously considered—subject matter, quantity, price, and delivery terms, and (2) the so-called boilerplate typically found on the reverse sides of the parties’ forms. It is the latter—the boilerplate—that are almost always the source of “battle of the forms” disputes because the boilerplate on the parties’ forms did not match. When the common scenario described above occurred at common law, no contract was formed based upon the exchange of forms. This was because there was no “mirror image,” no “matching acceptance.”

But if the seller’s acknowledgement form was not an acceptance because of the non-matching boilerplate, what exactly was it? Under the common law, it was a rejection of the buyer’s offer and a counter-offer that created in the buyer a new power of acceptance, as explained in § 3.36. Unlike a lot of rejections and counter-offers, though, in the common scenario posited above, the parties did not act as though the seller had made a rejection and a counter-offer. They acted as though their exchange of forms created a contract. From a purely commercial perspective, this was hardly unreasonable given that the terms the parties cared about—the dickered terms—matched. So the seller proceeded to ship the goods, and the buyer accepted them. Both were often blissfully unaware that the exchange of forms, by itself, did not create a contract. The parties’ subsequent conduct did, however, create a contract. The timing of contract formation typically did not pose any problem at all. The parties proceeded to do business, and there was rarely a need to figure out whose boilerplate prevailed.

But if a problem with the product arose that the seller could not or would not correct, one of the parties would seek a legal resolution, and a court would be required to characterize the legal effect of the parties’ transaction and decide its terms. Employing the well-settled tools of the common law, the court would hold that after the seller sent its acknowledgement form with the variant boilerplate terms (which the court characterized as a counter-offer)—and even after the seller then shipped the goods—there was no contract because the buyer had not accepted the seller’s counter-offer. The buyer could reject the counter-offer and not take the goods. It was also free to accept the counter-offer in any reasonable manner.10 It could accept the counter-offer simply by performing (that is, by accepting delivery of the goods that were shipped), and that is what the buyer typically did—it accepted the goods. When that occurred, the court would hold that the buyer also accepted the terms of the seller’s acknowledgement form, including its boilerplate terms (including the disclaimer of implied warranties, limitations of remedies, choice of law, and forum selection or arbitrations clauses).

This means that under the common law, the party that sent the last form—typically, but by no means always, the seller—made an offer based on the terms of the document it sent, and those terms were deemed accepted by the other party’s performance (typically, but by no means always, the buyer’s acceptance of the goods). In practice, the seller usually “won” the “battle of the forms” simply because it fired the last shot. Not surprisingly, this was called the “last shot” rule.11

What is the problem with the common law’s “solution” to the battle of the forms? Instead of honoring the parties’ true intentions, the law rewarded happenstance and “accorded undue advantages based on [the] fortuitous position[]” of the sender of the documents.12 The contract based on the seller’s boilerplate had no relation to the parties’ actual intentions. In fact, “it ignored” the parties’ “factual bargain or ‘true understanding’ or ‘genuine assent’ ” in favor of the “the procrustean rules of common law.”13 Whoever was last, was first—a result as unjust as it was arbitrary. If the goal of contract law is to give effect to the parties’ reasonable expectations, this did not accomplish it.14

Karl Llewellyn, for one, understood that so much of sales law under the common law did not “conform to commercial practice” and that “[t]he present law ‘works’ by being ignored by the decent business man.”15 Nowhere was this more glaring than in the “battle of the forms.” Llewellyn set out to radically transform the law of offer and acceptance for the sale of goods.

3. The U.C.C.’s Imperfect Solution: Article 2-207

To cure the pathologies of the common law described above, the drafters of the Uniform Commercial Code concocted § 2-207. This section was designed to remedy the injustices in the application of the “last shot” rule. It was drafted to answer two questions: (1) Contract formation: Is a contract formed when parties exchange forms that contain non-matching terms and the parties do not manifest assent to a single document? (2) The terms of the contract: If a contract has been formed via the exchange of non-matching forms, what are the terms of that contract?

These two questions are of enormous importance to American commerce given the widespread practice of contracting for the sale of goods via the exchange of standardized forms, but unfortunately, the solutions provided by the application of § 2-207 are anything but satisfying. Section 2-207 has been called “a defiant, lurking demon patiently waiting to condemn its interpreters to the depths of despair”;16 “incomprehensible”;17 and “a complete disaster” that was the product of “a miserable, bungled, patched-up job … .”18 One court wrote:

No provision of the UCC, at least in Article 2, can match the battle of the forms provision for opportunities to ensnare parties and even the occasional court. This Court has previously invoked the Sixth Circuit’s description of section 2-207 as “a murky bit of prose” and “one of the most … difficult [sections] in the entire [UCC], and well it may be said that the product as it finally reads is not altogether satisfactory.” Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1165 (6th Cir. 1972).19

Section 2-207’s intentions were grand, but it was poorly drafted, and it has cut a jaw-dropping swath of confusion that has confounded the commercial bar for decades.20 To understand § 2-207, it is necessary to resist the temptation to consider its subsections in the order they appear. Here is the “lurking demon” in its entirety:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

A. Contract Formation

i. Mirror image rule reformed

The great innovation of § 2-207 was “to reform the common law mirror-image rule and reject the last-shot doctrine which accorded undue advantage to the mere order in which forms were sent.”21 The first portion of § 2-207 (1)—the words before the comma—announces that if the boilerplate language differs in the two forms, the “mirror image” rule will no longer prevent contract formation:

(Emphasis added).22

Contracts can now be created via the exchange of non-matching forms. A lot of responses that used to be counter-offers under the common law are now acceptances under the U.C.C.23 The new law of § 2-207(1) recognized the reality that parties intend to enter into contracts even though the boilerplate in the forms they exchange are not the mirror image of each other.

U.C.C. § 2-207(1) presupposes that an offer has been made—not an invitation to make an offer, but a bona fide offer that created a power of acceptance in the offeree. That is, the offeror has communicated “a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it.”24 Either the buyer or the seller can be the offeror, but there must be an offer to trigger § 2-207.

The first portion of § 2-207(1) deals with whether there has been a legally operative acceptance to form a contract:

[T]o determine whether response to the offer is a definite expression of acceptance rather than a counter offer, the essential test must be whether, in light of the express terms of the response to the offer as well as any trade usage, course of dealing and course of performance under all of the surrounding circumstances, a reasonable offeror would understand the response to the offer as a definite expression of acceptance notwithstanding different or additional nondickered terms.25

Courts construe the language of the first portion of § 2-207(1) to mean that under Article 2 of the U.C.C., the “mirror image” rule no longer applies to different or additional boilerplate terms. But courts hold that a modified “mirror image” rule still has application to the dickered terms of the transaction as described by Professor Llewellyn (that is, the essential business terms, such as the description of the product, quantity, price, and delivery terms). A response that alters the dickered terms in a significant way does not constitute “[a] definite and seasonable expression of acceptance” under § 2-207(1), and a contract is not formed.26 The better-reasoned cases accept this proposition, but not all courts have agreed with it. Some go so far as to suggest that an exchange of forms containing conflicting dickered terms creates a contract under § 2-207.27 Those decisions ignore the parties’ actual intentions, a result diametrically opposed to what Karl Llewelyn intended.

Under the better-reasoned analysis, when a response alters dickered terms significantly, a common law counter-offer (not a U.C.C. § 2-207 counter-offer, discussed in the next section) has been made,28 and § 2-207 is not applicable. In that case, there is no contract based on the exchange of forms. But where the dickered terms significantly match, even if the response to the offer includes additional or different boilerplate terms, there is “[a] definite and seasonable expression of acceptance”—and a contract has been formed.

ii. Offeree can still make a counter-offer under § 2-207

Even when the dickered terms match significantly, offerees can still make counter-offers under § 2-207 (but this is not the same as a common law counter-offer, described above). To understand this, the last proviso (the words after the comma) of § 2-207(1) must be consulted:

A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(Emphasis added).

This means that if the exchange of forms would otherwise qualify as a contract under the first portion of § 2-207(1) (before the comma), the offeree can still be a counter-offer if, per the proviso language of § 2-207 (1), “acceptance is expressly made conditional on assent to the additional or different terms.”29 In other words, a contract is not formed via the exchange of forms if the offeree responds to the offer by tracking the magic words found after the comma in § 2-207 (1). The idea, which was originally set forth in a comment to § 2-207 and not its text, was that even if the exchange of forms creates a contract, offerees need to be allowed to make counter-offers even under the U.C.C. Professor Llewellyn explained: “We are attempting to say, whether we got it said or not, that a document which said, ‘This is an acceptance only if the additional terms we state are taken by you’ is not a definite and seasonable expression of acceptance but is an expression of a counter-offer.”30

When an offeree (typically, but not always, the seller31) parrots the safe harbor language of the proviso to § 2-207(1), emphasized above, in its response to the offer, the response is deemed to be a counter-offer that both rejects the offer and creates a new power of acceptance in the original offeror (typically, but not always, the buyer). In that case, no contract is formed via the exchange of forms.32 But, as explained below, if the parties proceed to perform the transaction (by shipping and accepting the goods), the terms of that contract are not determined according to the common law but according to § 2-207(3). We will explore § 2-207 counter-offers layer-by-layer.

What language in the response is necessary to create a § 2-207(1) counter-offer?

Based on Professor Llewellyn’s comment quote above, language that gets the idea across that “[t]his is an acceptance only if the additional terms we state are taken by you” ought to be sufficient to create a counter-offer, but that is not how courts have interpreted the language of the § 2-207(1) proviso. In an influential case,33 the offeree’s acknowledgment forms in response to an offer stated that the acceptances (or orders) were “subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer.” This was not good enough for the court. Though the acceptances “were conditional to some extent,” the language did not sufficiently mirror the safe harbor language of § 2-207(1), highlighted above.34 “In order to fall within this proviso, it is not enough that an acceptance is expressly conditional on additional or different terms; rather, an acceptance must be expressly conditional on the offeror’s assent to those terms.”35 This case has been widely followed on this point, and the court’s rationale is the prevailing one for § 2-207(1) counter-offers.36

But the same Circuit Court of Appeals subsequently held that the following language constituted a § 2-207(1) counter-offer:

THE TERMS SET FORTH ON THE REVERSE SIDE ARE THE ONLY ONES UPON WHICH WE WILL ACCEPT ORDERS: … . THESE TERMS SHALL BECOME BINDING ON BOTH PARTIES UPON YOUR ACCEPTANCE OF OUR FIRST DELIVERY OF ANY GOODS SPECIFIED HEREIN, OR UPON COMMENCEMENT OF MANUFACTURING OPERATIONS. ADVISE US IMMEDIATELY IF ANYTHING IN THE ACKNOWLEDGEMENT IS INCORRECT OR IS OTHERWISE UNACCEPTABLE.37

The court held that this language made clear that seller was unwilling to proceed without buyer’s assent to its terms, and that seller’s attempt to condition acceptance on buyer’s assent to its terms could be “no clearer.”38 The court noted that “[t]o not find a clause such as this one within the UCC § 2-207(1) proviso is to render that clause essentially meaningless.”39 The court expressly rejected the argument that “the only language which qualifies as a conditional acceptance is that which ‘mimics the code’ … as overly formalistic and inconsistent with the code’s general admonition that it should be “liberally construed.”40

But the judicial decisions cannot always be reconciled. In another case,41 the court held that under Iowa, Michigan, or Oklahoma law, the following language in a buyer’s purchase order qualified as a § 2-207(1) counter-offer: “This purchase order is buyer’s offer to seller and acceptance is expressly limited to the terms of the offer.” In this case, the purchase order was being used as an acceptance—it responded to the seller’s quotation, which the court held was an offer. The result is questionable because there was no express language conditioning the “acceptance” on the seller’s assent to the terms of the purchase order. Rather, the language was drafted to be an offer, not a conditional acceptance. It tracked the language of § 2-207(2)(a) (discussed below), which is designed to be used by offerors to expressly limit acceptance of the offer to its terms, not to create counter-offers.

In contrast to that holding, other courts have held that use of language that tracks § 2-207(2)(a) (discussed below) does not create a § 2-207(1) counter-offer since it does not expressly condition acceptance on the original offeror’s assent to the terms of the purchase order.42

Given the inconsistent judicial holdings, the prudent drafter wishing to create a § 2-207(1) counter-offer will track the safe harbor language of § 2-207(1) as closely as possible, per Dorton v. Collins & Aikman Corp., supra, and its progeny.

Assuming that a valid § 2-207(1) counter-offer has been made, how may it be accepted? Unlike the common law, a § 2-207(1) counter-offer is accepted by an express manifestation of assent. Recall that in this very scenario at common law—where the parties proceeded to perform even though their exchange of forms did not result in a contract—the “last shot” principle dictated that the terms of the contract were those of whichever party sent the last form. But to allow that result under the U.C.C. would embrace the very thing § 2-207 was designed to avoid. In recognition of this, courts hold that the acceptance of the goods in response to a U.C.C. § 2-207(1) counter-offer does not constitute an acceptance of the counter-offeror’s terms. The counter-offeree is only bound to those terms if it expressly assents to them,43 which is most unlikely.

In the absence of express assent, the parties have no contractual obligation to each other and need not perform.44 In fact, though, they are likely to proceed to perform anyway, just as they did under the common law. If the parties fail to form a contract via the exchange of forms because the original offeree makes a counter-offer under § 2-207(1), but the parties nevertheless perform as if they had a contract (the seller ships the goods and the buyer accepts them), the parties have a contract by conduct under § 2-207(3).

If the parties proceed to perform after a § 2-207(1) counter-offer has been made, what are the terms of the resulting contract by conduct? U.C.C. § 2-207(3) must be consulted:

U.C.C. § 2-207(3) marks another radical departure from the common law. To ascertain the terms of a § 2-207(3) contract by conduct, the U.C.C. instructs that the forms the parties exchanged must be examined—the same forms that otherwise have no legally operative effect: “In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.”45 Here, it does not matter which party is the offeror and which is the offeree, the result will be the same.46

It is important to remember that if the parties exchange forms with significantly different dickered terms, most courts would hold that there is no § 2-207(1) counter-offer but a common law counter-offer. In that setting, as at common law, if they proceed to perform anyway (i.e., the seller ships the goods and the buyer accepts them), this “would create a contract on the terms in the seller’s form.”47 The “last shot” rule would govern: the response that contains a non-matching dickered term would be a common law counter-offer, and if the goods are shipped and the buyer accepts them, the party that fires the “last shot” would win the battle of the forms—U.C.C. § 2-207(3) would not apply.

In the more typical scenario where the dickered terms match but the boilerplate does not, if a § 2-207 counter-offer is made by tracking something akin to the language of the last proviso of § 2-207(1), and the parties proceed to perform anyway, the terms of the 2-207(3) contract by conduct are the dickered terms (e.g., subject matter, quantity, price, and time of delivery) and any expressly matching terms contained in the boilerplate.48 The gaps as to non-matching terms are supplemented by the default and implied terms under the U.C.C. and the common law.49 Thus, implied warranties, the entire panoply of remedies allowed by Article 2, and adjudication of disputes in a court of law—terms either expressly stated or impliedly assumed by Article 2—are inserted in the “gaps” left after non-matching boilerplate terms are excised.

Some courts limit the supplementary terms under § 2-207(3) to specific “gap-filling” terms, such as the implied warranties of merchantability and fitness for a particular purpose, but other courts hold that a court is not limited to standardized gap-fillers under Article 2 of the U.C.C., but may utilize any term arising under the entire U.C.C., including course of performance, course of dealing, and usage of trade.50 The latter view is in accord with the legislative directive that the U.C.C. “must be liberally construed.”51

In any event, the default terms largely favor buyers, so often times the buyer is said to “win” the battle of the forms (at least as to important matters such as remedies and implied warranties) if the offeree—and it does not matter if the offeree is the buyer or the seller—has created a § 2-207(1) counter-offer and the parties proceed to perform per the provisions of § 2-207(3). The seller is, of course, free to avoid this result when a § 2-207(1) counter-offer has been created simply by refusing to ship.52 This assumes that the seller understands the legal effect of language creating a § 2-207(1) counter-offer. In addition, this would require a party to bend its conduct to what courts hold to be the law, rather than recognizing that the basic thrust of the Uniform Commercial Code is to require the courts to shape their rulings to conform to business practices.53

B. Terms of the Contract

Section 2-207(1), discussed above, deals with contract formation—whether the exchange of non-matching forms resulted in a contract, and whether the offeree rejected the offer by making a counter-offer (and if so, what are its resulting terms). If the parties have exchanged forms containing matching dickered terms but non-matching boilerplate terms, and if there is no counter-offer pursuant to proviso language of § 2-207(1), a legally binding contract is formed under the first part of § 2-207(1).54 What are the terms of the contract? The answer lies in § 2-207(2) (that subsection only applies if a contract is formed under the first portion of § 2-207(1), the words before the comma).55 U.C.C. § 2-207(2) provides:

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

i. The “merchants” requirement

For non-merchants, “additional” terms of a response to an offer are merely proposals. If the parties are not merchants, then as with any other “proposal,” the offeror would have to agree to such a term to make it part of the contract.56 U.C.C. § 2-104(1) defines “merchants” broadly: “ ‘Merchant’ means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction … .” Comment 2 to § 2-104 makes clear that “almost every person in business would … be deemed to be a ‘merchant’ ” under this section.57 The weight of authority supports application of an expansive definition of “merchant,”58 but not all courts agree.59

When the forms are exchanged by “merchants,” the first words of § 2-207(2) (“The additional terms are to be construed as proposals for addition to the contract”) suggest that the offeror is free to expressly assent to them in the traditional, time-honored manner under the common law.60 If there is no express assent—and it is more likely that there will not be—then to determine which terms prevail, the remainder of § 2-207(2) must be consulted.

ii. Different terms are “knocked-out”

Assuming that the forms were exchanged by merchants, what are the terms under § 2-207(2)? Immediately, there is an obvious problem with the language of this subsection. While § 2-207(1) clearly recognizes that the forms exchanged by parties can create a contract notwithstanding “different” or “additional” terms, the language of § 2-207(2) only bothers to tell the reader how to treat “additional” terms—“different” terms are not mentioned in this subsection, and the text of the statute does not suggest how they should be treated.61 The official comments to § 2-207 lend support for the view that § 2-207(2) was intended to address both “additional” and “different” terms.62 But that is not what the text of the statute states. Regardless of whether it was an inadvertent drafting error, what is clear is that the drafters manufactured significant confusion by not explaining what happens to “different” terms. Most courts have construed the statute to mean what it says and have refused to read the word “different” into § 2-207(2).63 Courts were forced to concoct a method to deal with “different” terms since § 2-207(2) is silent about it. The prevailing view is that expressly different terms are eliminated—this is called the “knockout view” or “knockout rule.”64 After “different” terms are excised, any gaps left are filled by the U.C.C.’s default terms.65

The rationale for the “knockout” view is dubious. It emanates from comment 6 to U.C.C. § 2-207,66 even though that comment deals with “confirmations” of prior oral contracts, not “different” terms in two forms that are exchanged.67 Beyond that, the “knockout” view scarcely comports with the U.C.C. deference to offerors. Professor Farnsworth wrote: “There is … little reason to suppose that the drafters of the Code intended such a startling departure from the notion that the offeror is the master of the offer.”68

It must be underscored that the “knockout” view only applies where there are expressly conflicting terms.69 If an offer is silent as to a term but the document responding to the offer addresses it, the new term in the responding document is an “additional” term, and § 2-207(2) will become operative (in other words, the “knockout rule” does not apply to that term). For example, where an acceptance contains a disclaimer of default warranties or a limitation of default remedies but the offer was silent on warranties and remedies, the terms in the acceptance are viewed as “additional” and not “different” terms, so § 2-207(2) does apply.

iii. “Additional” terms are analyzed under § 2-207(2)

Assuming that merchants’ exchange of non-matching forms has resulted in a contract under § 2-207(1), any terms in the acceptance that are “additional” to those set forth in the offer must be analyzed under § 2-207(2) to decide if they become part of the contract. As discussed above, if there is a non-merchant involved in the transaction, “[t]he additional terms are to be construed as proposals for addition to the contract.”70 Where a non-merchant is involved, in order for the proposal to become part of the contract, the rules of § 2-207 do not apply. There must be an express agreement to such provisions.71

In general, U.C.C. § 2-207(2) addresses transactions between merchants. It states:

… Between merchants such [additional] terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

Thus, additional terms automatically become part of the contract unless one of the three enumerated exceptions in § 2-207(2) applies:

Offeror is given power to limit terms of offer: Two of those exceptions—in U.C.C. § 2-207(2)(a) and (c)—give the offeror, the “master of the offer,” the power to exclude the offeree’s “additional” terms from the contract. They allow the offeror to either “expressly limit[] acceptance to the terms of the offer” (§ 2-207(2)(a)) or provide a “notification of objection to” the additional terms either before the acceptance is made or “within a reasonable time after notice of [the additional terms] is received” (§ 2-207(2)(c)).72 These provisions are powerful tools for the offeror. “If the offeror expressly limits acceptance to the terms of the offer,” in either of the ways spelled out in § 2-207(2)(a) or (c), “any additional term, material or immaterial, cannot become part of the contract.”73 That is the end of the inquiry—the additional terms in the acceptance do not become part of the contract, and there is no need to assess whether the particular term is material or non-material since materiality plays no role in excluding the additional terms from the contract under these two exceptions.

Material alterations do not become part of the contract: If the offeror fails to limit acceptance to the terms of the offer by availing itself of § 2-207(2)(a) or (c), only then must § 2-207(2)(b) be examined: any additional term in the acceptance automatically becomes part of the contract between merchants unless the term “materially alters” the offer. The issue of whether an additional term is a material alteration under § 2-207(2)(b) has given rise to much litigation, often involving thorny fact issues. As suggested above, these are disputes that the offeror can avoid simply by including the language of § 2-207(2)(a) in the offer or the language of § 2-207(2)(c) in a notification of objection.

The idea behind § 2-207(2)(b) was to allow only “minor additional terms to enter the contract without the express consent” of the offeror.74 An additional term is a material alteration if its incorporation would cause “surprise or hardship” to the offeror.75 Professor Timothy Davis explained: “Courts impose the burden of establishing a material alteration on the non-assenting party who is objecting to the inclusion of the additional term. To satisfy its burden, most jurisdictions require the non-assenting party (the offeror) to prove that incorporating an additional term into the parties’ agreement will result in surprise or hardship to the non-assenting party.”76 The test is an objective one.77

One commentator explained:

[W]hat is or is not a material alteration is dependent upon a number of factors and variables, including the value of the transaction, the quantity involved in the transaction, the relationship of the parties to each other, the custom and usage of trade, and the course of dealing and course of performance between the parties. Only by considering all of the above factors can a court make a determination whether a term is truly a material alteration.”78

The official comments to § 2-207 provide examples of material and immaterial alterations,79 but courts do not always feel obliged to follow their lead. Courts often opt for a fact-based analysis of each term.80 The caselaw shows that there is no per se rule on provisions limiting remedies—the cases are split.81 Cases are also split over whether a warranty disclaimer materially alters the terms of a contract.82 Additional terms requiring the payment of interest or attorney’s fees are rarely held to be material terms.83

Arbitration clauses were often deemed to be material alterations, but the growing use of arbitration to resolve disputes has led courts to focus on whether such clauses manifest “surprise” and “hardship” to the other party. The modern trend is to regard arbitration provisions as non-material alternations.84 If arbitration has become so pervasive in a given industry as to amount to trade usage, the inclusion of an arbitration provision in one of the parties’ forms would not constitute an additional term. Rather, it would simply express a term that already exists in the contract by trade usage.85 Some decisions have found that the parties’ course of dealing is an important factor in assessing materiality.86 In contrast, the trend is to regard forum selection clauses as material alterations.87

C. Confirmations

There is yet another layer of confusion in § 2-207: its treatment of written confirmations of oral or informal contracts. U.C.C. § 2-207(1) provides: “[A] written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those … agreed upon … .” The popular phrase “battle of the forms” is misleading. Section 2-207 applies to transactions involving a single confirmation, as well as where both parties send conflicting confirmations.88

The statute’s treatment of confirmations was not an afterthought but a principal concern.89 It deals with a very common situation—where one or more parties to the transaction send a confirmation memorializing an oral or informal deal that has been struck. Beyond merely restating the deal that was struck, the confirmation might contain boilerplate terms and conditions that were not discussed. Under the statute, confirmations of existing oral or informal agreements are treated as acceptances even though the confirmation contains non-dickered terms different from or additional to the terms of the prior oral or informal contract.90 “Conflicting terms in exchanged confirmations may be seen as mutual notices of objection to each other’s terms, i.e., having the same effect as a notice of objection clause pursuant to § 2-207(2)(c).”91

Where the parties have reached a deal orally or informally, then send out confirmations, is it possible for a confirmation to track the counter-offer language in the last proviso of § 2-207(1) (“… unless acceptance is expressly made conditional on assent to the additional or different terms”) to create a counter-offer? One court persuasively argued that it is “too late” for that—the deal has already been struck, and the confirmation cannot undo it.92 Another court suggests the contrary.93

An interesting query: “Does section 2-207 permit the parties to repeatedly rewrite the terms of their deal under the pretext of ‘confirmation’ so long as the alterations are done in a reasonable time?”94 Here again, there are conflicting decisions on this question.95

Can a document that is sent after delivery of the goods qualify as a “written confirmation” under UCC § 2-207? Would it surprise anyone to know that “[t]here is a considerable split of authority” on this question?96 The majority view seems to answer the question in the affirmative.97

D. Course of Dealing

Courts have considered the question of whether the repeated sending of standardized records containing a particular boilerplate provision may constitute a course of dealing that incorporates that boilerplate provision in a subsequent contract. There is a split of authority—some courts hold that such provisions may, over time, become part of later contracts by tacit acceptance or “ratification,” simply because the recipient fails to object.98 Other courts hold that “the repeated sending of a writing which contains certain standard terms, without any action with respect to the issues addressed by those terms, cannot constitute a course of dealing which would incorporate a term … otherwise excluded under § 2-207.”99 The latter view is the better one.100 But even where there has been a course of dealing by the repeated sending of standardized records containing a particular boilerplate provision, under the prevailing view, where § 2-207 would otherwise be applicable, then § 2-207 should be “consulted.”101

The repeated sending of a record containing a boilerplate provision can show that the recipient of such a record is not surprised by the provision under the materiality test of § 2-207(2)(b),102 discussed above.

E. The upshot of § 2-207

Whatever lessons can be gleaned from reviewing a significant number of decisions decided under § 2-207 must be tempered with a caution: certainty in this area is elusive. There are so many pieces to the § 2-207 puzzle, and so much of it is shrouded in confusion, it is common for a judicial decision to misapprehend something. In the 1990s, there was a consensus that the statute needed to be redone, but this “dissolved into a tower of Babel when the issue turned to how it should be redone.”103 Nothing happened because the attempt to amend U.C.C. Article 2 as a whole failed.104 So the commercial bar is stuck with the same old § 2-207, which is notoriously difficult to apply.

Worse, even when the statute works the way it was designed to work, it is not satisfying. It is sometimes said that the U.C.C. has swapped out the common law’s “last shot” rule for a “first shot” philosophy.105 That is, under § 2-207, the offeror—the proverbial “master of the offer”—is in the driver’s seat, and if the parties’ exchange of forms results in a contract under § 2-207(1), the offeror’s terms become the guts of the agreement. Just as the “last shot” rule rewarded happenstance and allowed contracts to be formed that had no relation to the parties’ actual intentions, the drafters of the U.C.C. have unwittingly done the same thing.

But to be accurate, § 2-207 does not exactly express a “first shot” philosophy. While the party that fires the “first shot” is often the offeror, that is not always the case—it depends on what is meant by “first shot.” It is often difficult even for lawyers and judges to know if a communication is an offer or merely an invitation to make an offer. It almost certainly would be a futile task for a sizable business entity—or even a not-so-sizable business entity—to insist that its representatives only make offers since it is unlikely those representatives would have the requisite acumen to always know what is an offer, much less to be able to control circumstances so that they always make offers.

Beyond that, offerors are not in the driver’s seat when it comes to the “knockout” rule (§ 2-207(2)(b)) or contracts by conduct (§ 2-207(3)) formed following a § 2-207(1) counter-offer.

In fact, a plausible argument can be made that it is the buyer that occupies an even more exalted status than the offeror under § 2-207. Regardless of whether the buyer is the offeror or the offeree, if the buyer drafts its form in accordance with current constructions of § 2-207, it generally should be able to “win” the battle of the forms—at least in terms of receiving the benefits of the U.C.C.’s default provisions on remedies, implied warranties, and other matters that favor the buyer. How so?

In the event the buyer is deemed to be the offeror, the buyer can include in its form the magic language of § 2-207(2)(a) and (c) to ensure that only its terms become part of the contract. The buyer can also include in its form express terms dealing with significant matters-such as stating that the buyer is afforded the protections of all implied warranties provided by the U.C.C. as well as all remedial protections provided to buyers under the U.C.C., including consequential damages. Then, when the seller includes in its form disclaimers of such warranties and a provision excluding remedies, in most jurisdictions, the knockout rule will excise the conflicting provisions, and the gaps will be filled by default rules that unabashedly favor the buyer. (But it should be noted that the knockout rule could also excise provisions that are of vital importance to the buyer.)
In the event the buyer is deemed to be the offeree, if either party includes language in its form per the last proviso of § 2-207(1), that would transform its “acceptance” into a counter-offer. The terms of the resulting contract by conduct under § 2-207(3) would be limited to the terms of the two forms that match as well as the default terms under the U.C.C.-and, again, those terms favor the buyer.106

Under current constructions of § 2-207, it is not at all clear how the seller can draft its forms to ensure that it routinely “wins” the battle of the forms. For significant transactions, the prudent seller will negotiate terms and require that the parties expressly assent to them in a writing.107 But when it comes to routine transactions, it would not be realistic to expect sellers to negotiate or to obtain the buyer’s express agreement on its terms.

With the e-commerce revolution that began in the late 20th Century, many sellers increasingly availed themselves of on-line contracting where the buyer is required to accept the seller’s terms. This, of course, is a significant development for many sellers since the nature of an on-line contract precludes haggling or a “battle of the forms.” Even here, though, insuring that the seller’s terms are enforceable has presented its own challenges, but these have nothing to do with U.C.C. § 2-207.108

F. No application to common law contracts

Unlike other concepts in the U.C.C., the principles established by § 2-207 have not found their way into the common law. While the comments to the Restatement (Second) of Contracts mention § 2-207, the Restatement continues to embrace the common law’s “mirror image” rule–with all its flaws–for contracts not involving the sale of goods.109 Given the pathologies of § 2-207, it is difficult to know whether that is for the best.

G. Battle of the forms under The United Nations Convention

For “battle of the forms” scenarios under the United Nations Convention on Contracts for the International Sale of Goods (CISG), the mirror image rule is the starting point. Article 19(1) states: “A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.” The language is more than reminiscent of the pre-U.C.C. common law view of the “mirror image” rule.110 Where the buyer is the offeror, the mere inclusion in the seller’s “purported acceptance” of any additional term, limitation (e.g., a disclaimer of warranty or remedy limitation), or other modification (e.g., an arbitration term) would constitute a counter-offer rejecting the original offer. Presumably, the subsequent shipment of the goods, and the buyer’s acceptance of the goods, would constitute acceptance of the seller’s terms.

Subdivision (2) of the Article, on its face, seems to be an attempt to undercut this statement of the “mirror image” rule. It provides:

However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

Note, as is the case with U.C.C. § 2-207(2), the offeror can object to an additional or different term. Under the CISG, however, an objection to an immaterial term does not merely knock out the term, it prevents the formation of a contract. Nevertheless, this subsection seems to be a marked departure from the “mirror image” rule.

But the final subsection of Article 19, Article 19(3), makes clear that, under the CISG, important terms are material, thus reducing the “exception” of Subsection (2) to de minimis level:

Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.111

The extensive list of subjects to which any additional or different term would be deemed to be a material alteration is prefaced by “among other things”—a carte blanche invitation to courts to add to the expressly non-exhaustive list of subject matter terms. It seems that the “mirror image” rule is largely intact under the CISG.

If the parties proceed to recognize the existence of a contract by their conduct, what are the terms of the contract? Since the CISG has no analog to U.C.C. § 2-207(3), the contract by conduct arguably would be governed by the “last shot” principle, and Article 18(3), which governs the acceptance of offers by conduct, would be applied.112

The inescapable conclusion is that the typical buyer-offeror who receives a CISG seller’s form with the kind of boilerplate commonly seen domestically likely will be subject to the “last shot” principle. Simply on this basis alone, buyers may not wish their contracts to be governed by the CISG, but sellers (as offerees) will have the same advantages that U.S. sellers had prior to the U.C.C.

Part II: “Terms Later” Contracting

Manufacturers often seek to limit the default rights consumers have when they purchase mass-produced products by including contractual provisions “in-the-box” that contains the product. Whether to enforce these provisions, and if so, under what circumstances, has generated much controversy. “In-the-box” contracts are often regarded as legally analogous to “shrink-wrap” agreements.113 “Shrinkwrap agreements, sometimes called ‘in-the-box contracts,’ are terms included in a document inside the box that contains the purchased product. The failure to return the product after removing the plastic shrinkwrap from the box and unpacking the product may constitute assent to the terms.”114 Another court explained that “ ‘shrinkwrap’ contracts—that is, contracts for the sale of tangible goods that do not inform the purchaser of the specific terms governing his use of the goods until after the purchase is complete—are, as a general rule, enforceable only if the purchaser was provided notice of the existence of additional terms before the purchase, and if the purchaser subsequently had an opportunity to reject additional terms he found unacceptable by returning the purchased goods for a full refund.”115

“In-the-box”-type contracting is regarded by some legal scholars as controversial because it jumbles the conventional chronology of contract formation. When a buyer orders goods, and the seller either promises to ship or actually ships them, the U.C.C. instructs that offer and acceptance has occurred,116 and a contract has been formed. Despite this, previously undiscussed and non-negotiated terms that one party intends to be part of the contract may later appear at different times and in various forms, and courts are called upon to figure out whether these terms have contractual significance. These sorts of contracts might aptly be called “terms later” contracts—as in, “money now, terms later.”117 One court explained that “[t]he conventional chronology of contract-making has become unsettled over recent years by courts’ increased acceptance of this so-called ‘terms-later’ contracting.”118

The “terms later” phenomenon is not limited to “in-the-box” contracts but applies to all manner of contracts (“in-the-box” contracting is a significant manifestation of “terms later” contracting). New terms may arrive under an agreement in which the provider of a service has reserved the power to amend or revise the original terms, and the buyer has the choice of either agreeing to the new terms or terminating the contract.119 Without any previous agreement, new terms may appear in a document such as an invoice received only after the product is delivered. Some courts view such “terms later” as superfluous and inoperative while other courts treat the document as a confirmation to which § 2-207 of the Uniform Commercial Code applies.120

A delivered box containing a product may also contain previously uncommunicated printed terms—inside or outside the box, or the terms may be encrypted on disks that appear on a screen when a buyer runs the program.121 It is a truism that standardized (“boilerplate”) terms are often ignored but enforcing “terms later” that appear without any advance warning negates any notion of assent prior to formation.

In the 1990s, the Seventh Circuit Court of Appeals handed down a pair of decisions that created the “rolling” (“layered”) contract theory.122 The court held that when a buyer purchases a product, and the manufacturer’s standard contractual terms are contained inside the box with the product, the terms are enforceable even though the buyer will not see them in full until after the purchase—that is, when the purchaser opens the box. From a traditional contract law perspective, this is a controversial rule. Under the U.C.C., when a buyer orders goods and the seller either promises to ship or ships the goods, a contract is formed.123 The Seventh Circuit, citing the “practical considerations” of commerce, held that no contract is formed until after the goods—and the boilerplate terms—are purchased because only then will the buyer discover the terms and decide whether to reject the terms and return the goods or accept the terms and retain the goods. The buyers’ silence in failing to object to the terms is said to constitute acceptance of such terms.

The situation described in these cases seems to be a classic case of a U.C.C. § 2-207(1) confirmation. Not so, said the Seventh Circuit. U.C.C. § 2-207 is not applicable because, in the court’s unique rationale, § 2-207 only applies to situations involving two “battling” forms; it does not apply to a single confirming form with different or additional terms. Never mind the contrary statutory and comment language, not to mention clearly applicable precedent that renders that analysis simply incorrect.124

The Seventh Circuit’s “rolling contract” theory is controversial. Then-Judge Gorsuch explained:

[The] rolling contract formation theory may be about as controversial an idea as exists today in the staid world of contract law. Some states endorse the theory, but others reject it—holding that a seller’s later-arriving written contract constitutes at most only a proposal to modify a preexisting oral contract, and that a buyer’s assent to the proposed modification won’t be inferred simply from the buyer’s continuing the preexisting oral contract. See generally John Edward Murray, Jr., Murray on Contracts § 51[J] (5th ed. 2011). It’s pretty clear, moreover, that Kansas is among those states that reject the rolling theory of contract formation.125

Even though the “rolling contract” theory has been subjected to much criticism,126 it has found considerable support.127 Judge Easterbrook, the architect of the Seventh Circuit’s rationale, insisted that “practical considerations” of commerce dictate the approach he adopted, and he dismissed any objections that it does not conform to traditional contract law.

While the Seventh Circuit’s view ratifies the way business is conducted, does it do enough to provide purchasers notice of important terms that will be binding them? Some twenty years after the Seventh Circuit handed down ProCD, Inc. v. Zeidenberg and Hill v. Gateway 2000, some courts concluded that the Seventh Circuit’s view is too one-sided. One court explained that the Seventh Circuit’s take on “in-the-box” contracting is “perhaps outdated”128 because it does not take into account whether the consumer was on inquiry notice of the terms. “Hill does not devote much time to the question of the prominence of the arbitration language. More recent cases focus not on whether consumers had read waiver language, but on whether they received reasonable notice of the existence of the language. Purchasers may be bound by what they have not read, but they may not be bound by what they cannot find, or what has been (negligently or by connivance) buried in the verbal underbrush.”129

The Ninth Circuit has suggested that “in-the-box” contracting must provide greater protections for consumers by insuring that they have “inquiry notice” of “in-the-box” terms. Under this view, where contract terms appear “in-the-box” and the purchaser will only read them, if at all, after the sales transaction is complete, the manufacturer has a duty to provide notice in two distinct places: the exterior of the box and in a document inside the box. The notice on the exterior requires less elaboration than inside the box, of course. The Ninth Circuit handed down a significant decision dealing with these points in Norcia v. Samsung Telcoms. Am., LLC.130 In that case, Samsung moved to compel arbitration of a dispute over a phone it sold to plaintiff. The back of the outside of the box stated: “Package Contains … Product Safety & Warranty Brochure.” The brochure referenced on the box’s exterior, contained inside the box, was titled “Product Safety & Warranty Information.” Contained in that brochure was an arbitration provision (under this provision, the consumer had thirty days from the purchase to opt out of arbitration), and Samsung argued that the arbitration provision was contractually binding on plaintiff. The Ninth Circuit Court of Appeals rejected this argument, noting that neither the outside of the box nor the brochure inside provided reasonable notice that plaintiff would be contractually required to arbitrate unless he opted out. Specifically, “the outside of the Galaxy S4 box did not notify the consumer that opening the box would be considered agreement to the terms set forth in the brochure.”131 Notifying the consumer that a warranty accompanies the product suggests only that the manufacturer has obligations—it does not suggest reciprocal obligations on the part of the consumer. Moreover, if the plaintiff had looked inside the box, he would have seen a brochure titled “Product Safety & Warranty Information.” This title indicates that it contains safety information and the seller’s warranty. Again, this would not put a reasonable consumer on notice that the brochure contains provisions that impose obligations on him or her. The court explained: “Because ‘an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious,’ [the consumer] was not bound by the arbitration provision … .”132

The Ninth Circuit spoke to the issue again in Robinson v. OnStar, LLC133 and made clear that the purchaser must have some notice of the arbitration provision at the time the contract is formed. In this case, Robinson called OnStar to activate a one-year subscription but did not know that OnStar intended to send her additional terms. Subsequent to the call—after the parties had already formed their contract—OnStar mailed a copy of the terms and conditions to her, which included an arbitration provision. The court held that this mailing was insufficient to bind Robinson to the terms and conditions she had not known about when the contract was formed—she did not have actual or constructive notice of them. The court wrote: “ ‘[A] consumer [must] be on notice of the existence of a term before he or she can be legally held to have assented to it.’ ”134 When OnStar mailed the terms and conditions to Robinson, this constituted an offer to modify the parties’ existing agreement—an offer that Robinson did not accept. The fact that Robinson retained the OnStar service she was already entitled to receive under the parties’ original agreement did not constitute acceptance of the terms and conditions.

The Third Circuit Court of Appeals spoke to the issue of what constitutes sufficient notice “in-the-box” in Noble v. Samsung Elecs. Am., Inc.135 Noble sued Samsung over the poor battery life of his smartwatch, and Samsung moved to compel arbitration based on the arbitration provision found on pages 97 through 102 of a little booklet—a 3.1-inch by 2.5-inch, 143-page document, titled “Health and Safety and Warranty Guide” (“Guide”)—contained inside the box that the smartwatch came in. The Guide’s cover directed the consumer to “[p]lease read this manual before operating your device and keep it for future reference.” The Guide’s table of contents referenced a “Standard Limited Warranty” but did not mention that it contained an arbitration provision. The index at the back of the document similarly failed to mention arbitration. The arbitration procedure in the Guide allowed consumers to opt out within thirty days of purchase but the opt-out provision would be worthless if the consumer was denied a reasonable opportunity to see it. The district court denied Samsung’s motion to compel arbitration because the arbitration provision in the Guide was “unreasonably hidden.” The Third Circuit affirmed, explaining that there is no reasonable notice “ ‘when the writing does not appear to be a contract and the terms are not called to the attention of the recipient … .’ ”136 The court noted that “the document in which the Clause was included did not appear to be a bilateral contract, and the terms were buried in a manner that gave no hint to a consumer that an arbitration provision was within.”137 The court distinguished this arbitration provision from shrink-wrap agreements that have been enforced: “[T]here was no indication on the outside of the Guide that it was a bilateral contract or included any terms or conditions. In fact, the cover of the Guide referred to itself only as a ‘manual.’ … .”138 The consumer would only know about the arbitration clause by reading ninety-seven pages into the Guide or by finding the provision by happenstance. In short, the court refused to find that the consumer was afforded adequate notice since it was not reasonable to believe that he knew that “the document contained a bilateral agreement”139—a contract containing reciprocal obligations.140 These matters are also dealt with in § 2.12 of this treatise.

Suggested analysis: Requiring boilerplate terms to be provided in advance of every mass marketing transaction is clearly unrealistic, but the better reasoned opinions suggest that “terms later” should not be enforceable without alerting the consumer or merchant buyer that such contractual terms exist, are reasonably accessible, and are subject to the affected party’s objection. As courts struggle to develop an appropriate judicial response, the most satisfying emerging analysis is that of an inquiry notice test where the purchaser is alerted to the fact that he or she will be bound by contract terms but has a choice not to agree to them. The consumer must understand that the terms will be contractual. Such a test would not be difficult to meet, and it is almost certain not to dissuade consumers from purchasing a given product.141 Specifically:

In a retail store purchase, a conspicuous notice on the outside of a container of “contract terms inside will be binding on the consumer” may be sufficient to put a reasonable buyer on inquiry notice of such terms. The more specific, the more the notice underscores the contractual nature of the yet-unseen terms, the more likely they will be enforced. The consumer should be alerted to the terms before the sales transaction is completed.
When a consumer is purchasing a phone or like product in a store, it is important to ensure that the retail procedures do not negate the effect of the notice of terms both on the outside and inside of the box. By way of example, in one case,142 plaintiff purchased a phone from her cellular service provider. The sales representative removed the phone from the box, transferred plaintiff’s contacts to the new phone, handed plaintiff the new phone, and put the now-empty box in a bag and gave it to the plaintiff. Plaintiff took the bag containing the empty box home, stuck it in a closet-and never looked at the documentation in-the-box. The sales representative did not alert plaintiff to the documentation in the box. The court analyzed the words on the box and in the documentation inside the box to assess whether it provided reasonable notice that plaintiff was bound by the arbitration provision contained in the documentation in the empty box. But absent from the court’s analysis was discussion about the purchaser’s actual retail experience. Since the sales representative removed the phone from the box and set it up for plaintiff, there would be no reason for her to look at the box or the documentation inside the box, either in the store before the transaction was completed, or when she arrived home. Even with the most contractually ironclad wording on the external packaging and in the documentation in-the-box, what difference does it make if the purchaser’s retail experience prevents the purchaser from seeing it? The manufacturer seeking to bind consumers to terms in-the-box needs to anticipate retail experiences of this nature, for example, by insisting that sales personnel explicitly alert consumers that important contractual provisions are contained in-the-box.
In telephone orders, it is unrealistic for the seller’s representative to read long paragraphs of disclaimers, exclusions, and other boilerplate, but it is not unrealistic to expect a very brief but clear statement by the seller’s representative that the product may be returned if the “important contract terms” arriving with the goods are not satisfactory. Such a fifteen second alert in a telephone order that is often otherwise recorded for marketing purposes may be sufficient to put the buyer on inquiry notice.
When terms later arrive with the goods or after the goods are delivered, they should be clearly and conspicuously identifiable as “contract terms” to assure an opportunity for their inspection-without such notice, the duty to read should not attach and there is no inquiry notice. The terms should not be inconspicuously inserted in “instruction,” “user,” “warranty,” or “safety” manuals or brochures or with other information about the product that does not appear to be contractual in nature.

In sum, there is no need for an awkward restructuring of contract formation law with the “inquiry notice” approach. While buyers in general would still choose to ignore such terms even after conspicuous alerts to their existence, the essential modicum of assent provided by putting the consumer on inquiry notice is more than a mere paean to traditional contract doctrine. Such a focus on boilerplate “contract terms” might be an added incentive for sellers to ascertain that their standard terms included in their boilerplate are fair and reasonable. Some law and economics advocates claim that rational mass marketing sellers will not attempt to take unfair advantage of consumer or merchant buyers through invidious boilerplate. A reasonable requirement of inquiry notice and genuine accessibility to the seller’s intended “contract terms” might help insure the seller’s market rationality.

(A) The following cases are noteworthy:

(1) Long Island Pipe, Inc. v. QT Trading, LP, 2018 Tex. App. LEXIS 5143 (July 10, 2018). Long Island Pipe (a New York corporation) ordered steel pipe from QT Trading d/b/a Merfish Trading (a Delaware limited partnership). After receiving Long Island’s purchase orders, Merfish informed Long Island that, as a condition of filling the order, Long Island would have to complete and sign a credit application. Merfish also sent Long Island Merfish’s standards terms and conditions. The terms and conditions contained a forum selection provision requiring litigation of disputes in Harris County, Texas. There was a signature block for the credit application located at the bottom of the terms and conditions of sale indicating that the credit application and the terms and conditions constituted a single document. Long Island Pipe provided Merfish with some of the information requested by the credit application, but it did not sign the credit application/terms and conditions. Merfish asked for the credit application to be signed three times. Finally, Long Island advised Merfish that it was “disappointed” with this request and that it was cancelling its order. Representatives of the companies spoke, and Long Island sent Merfish a copy of the credit application/terms and conditions that had been filled out—but it was not signed. Merfish decided to fill the order even though the document was not signed. Merfish delivered the pipe as ordered, but Long Island Pipe failed to make payment in full. Merfish Trading filed suit in Harris County, Texas per the forum selection clause in Merfish’s terms and conditions. The lower court held that Long Island was subject to Texas jurisdiction because the parties’ contract purportedly established Harris County, Texas as the place to litigate disputes. In the instant appeal, the question was whether the forum selection clause was part of the parties’ contract. To answer this question, the court applied U.C.C. § 2-207. The court held that Long Island’s initial purchase order was an offer—that is, Long Island offered to buy a specific amount of pipe for a specific price. But the court held Merfish’s response was not a § 2-207(1) acceptance. Merfish “rejected the offer and made a counteroffer” by offering to sell the pipe to Long Island if Long Island agreed to sign Merfish’s credit application. That application included Merfish’s terms and conditions of sale, including the forum-selection clause at issue. “Long Island Pipe rejected Merfish’s counteroffer and made its own counteroffer—i.e., Long Island Pipe offered to buy the pipe and to provide its financial information instead of signing the credit application and terms and conditions of sale. In other words, Long Island Pipe offered to buy the pipe on the express condition that it did not have to sign the credit application.” Merfish accepted Long Island’s counteroffer by proceeding to ship the pipe.

To this point, the opinion is sound, but then the court stumbles. Merfish’s invoice stated that the Merfish “general terms & conditions” applied to the transaction. These are presumably the same “terms and conditions” that Long Island previously rejected via its counteroffer. The court proceeded to consider whether the forum selection clause became part of the contract by reference to § 2-207(2)(b):

Assuming without deciding that the invoice was a written acceptance or a written confirmation necessary to make enforceable the parties’ contract, to the extent the boilerplate language at the bottom of Merfish’s invoice purported to add additional terms to the contracts, we hold that Long Island Pipe’s acceptance of the delivery of pipe did not cause the forum-selection clause to be incorporated into the contract. “Forum selection clauses are typically considered material and therefore require express assent to become binding.” J.D. Fields, Inc. v. Indep. Enters., Inc., No. 4:12-CV-2605, 2012 U.S. Dist. LEXIS 162342, 2012 WL 5818229, at *7 (S.D. Tex. Nov. 13, 2012). Because the forum-selection clause would have materially altered the contract, and because Long Island Pipe did not expressly assent to it, we hold that the invoice’s indirect reference to the clause was a mere proposal that did not make the clause part of the contract. See Tex. Bus. & Com. Code § 2.207(b).

This analysis is wanting. First, the refusal to sign the credit application seems to be a disagreement over a dickered term of the parties’ transaction. The better-reasoned decisions that have considered the issue have held that such a disagreement removes the transaction from § 2-207 altogether and, in that case, the analysis must revert to the common law. Under this analysis, Long Island Pipe offered to buy the pipe on the express condition that it did not have to sign the credit application. Merfish accepted Long Island’s offer by proceeding to ship the pipe. The applicable contractual terms should be Long Island’s.

Second, and less plausibly, even if the disagreement could be construed as one not involving a dickered term, then there was a § 2-207(1) counteroffer (“acceptance is expressly made conditional on assent to the additional or different terms”). Since the writings of the parties did not form a contract, § 2-207(3) instructs how to treat the terms in the documents exchanged. They are not to be treated, as the court did here, by looping back to § 2-207(2)–§ 2-207(2) should have nothing to do with the analysis. Rather, per § 2-207(3): “Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.” The forum selection clause would not be part of the contract because it does not match language in Long Island’s purchase order per § 2-207(3). The fact that it was a material alteration of the purchase order language under § 2-207(2) makes no difference.

(2) Atlas Material Testing Tech. LLC v. XPO Logistics Freight, Inc., 2018 U.S. Dist. LEXIS 99278 (S.D. Tex. June 13, 2018). Imaging bought a weather instrument from Atlas. Atlas sent Imaging a quote, which the court concluded was an offer, and Imaging responded with a purchase order, which the court concluded was an acceptance. A dispute erupted over which party was responsible for damage to the tool. Atlas sued, and Imaging argued that the forum selection clause in its form applied. Here is how the court described it:

The parties tried but did not include a forum selection clause in their contract. Atlas’s offer is conditioned on Imaging accepting that Pennsylvania law governs their agreement. Imaging’s acceptance is conditioned on Atlas accepting that California law governs their agreement. The parties’ writings do not form a contract, but their conduct does. Atlas shipped the tool. Imaging paid for it. The contract’s terms are only what the parties agreed to plus terms in state laws.

Although the paragraph quoted here suggests that that the parties both included forum selection clauses in their documents that did not agree on the state—the court proceeds to describe the clauses not as forum selection clauses but as choice of law provisions. Later, the court says there was no choice of law provisions in the contracts, so it is assumed that the clauses were, in fact, forum selection clauses.

The court suggests that the purported forum selection clause in the offeree’s document prevented contract formation. The court says that “Imaging’s acceptance is conditioned on Atlas accepting that California law governs their agreement.” Presumably, the court construed Imaging’s response to the offer as a § 2-207(1) counter-offer, per the words after the comma in § 2-207(1): “acceptance is expressly made conditional on assent to the additional or different terms.” A § 2-207(1) counter-offer prevents contract formation on the exchange of forms but, per the words of § 2-207(3), there is a contract by conduct that includes the terms of the parties’ forms that agree. Here, the court said, “The contract’s terms are only what the parties agreed to plus terms in state laws.” The court proceeded to decide the issue as if there were no contractual forum selection clause and it decided that New Hampshire had the greatest interest in the case, so it ordered the case transferred. While the court’s decision does not appear to be objectionable, it does not bother to connect the dots to explain its conclusions.

(3) Produce Pay v. Producers Int’l, 2018 U.S. Dist. LEXIS 120696 (D. Nev. July 18, 2018). Plaintiff sued defendants for breach of contract and violation of the Perishable Agricultural Commodities Act (“PACA”) due to defendants’ failure to pay for mangoes subject to PACA protection, which defendants purchased from plaintiff. The court granted plaintiff a default judgment, and instantly, plaintiff sought recovery of attorneys’ fees. The court explained: “In produce transactions, the prevailing party has a contractual right to recover attorneys’ fees and collection costs where such additional terms are included in an enforceable contract … .” The court described the contract as follows: defendants made the offer to buy, and plaintiff’s invoices sent in response provided for collection costs that included attorneys’ fees and costs. The question was whether these additional terms became part of the contract under U.C.C. § 2-207(2)(b): “Between merchants such [additional] terms become part of the contract unless: … (b) they materially alter it … .” The court quoted and relied on the official comments to § 2-207: “[T]he UCC looks for provisions which would ‘result in surprise or hardship if incorporated without express awareness by the other party[.]’” The court explained: “The terms regarding attorneys’ fees and collection costs on the face of the invoices are the plaintiff’s standard credit terms upon which the plaintiff sells goods to any purchaser. … . These terms are standard contract terms throughout the produce industry and are generally expected to be present on invoices or other billing statements.” The court concluded that the terms did not materially alter the contract and, thus, became part of it.

(4) New Berry v. Man. Corp., 2019 U.S. Dist. LEXIS 18367 (W.D. Pa. 2019). Berry Metal purchased copper wire briquettes from Manitoba and subsequently sued Manitoba for breach of contract because the goods purportedly did not meet specification. Manitoba filed a motion to dismiss for failure to state a claim. The court provided the following timeline as to contract formation in this case:

• May 3, 2018, at 9:16 a.m. Manitoba sent the Sales Order and Terms of Sale by email to Berry Metal. The Terms of Sale provided in relevant part as follows:

THE WARRANTY IN THIS SECTION IS EXCLUSIVE AND IN LIEU OF ALL OTHER INDEMNITIES OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLDING THE IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR PURPOSE.

… .

LIMITATION ON DAMAGES: Under no circumstances shall the Seller be liable for incidental, consequential or punitive damages.

• May 3, 2018 at 2:35 p.m. Berry Metal sent its Purchase Order to Manitoba by email. (The Purchase Order made no reference to the provisions of the Sales Order and Terms of Sale. The court does not tell us what the Purchase Order actually said—it noted that the Purchase Order did not contain any “conditions or objections” to Manitoba’s Sales Order.)

• May 3, 2018 at 2:39 P.M., A Berry Metal employee received an email from Manitoba regarding that same Purchase Order that said: “Thanks and hope you are feeling better today!”

• June 4, 2018, the product was delivered and Berry Metal accepted delivery.

The court concluded that the Berry Metal Purchase Order was a U.C.C. § 2-207 acceptance and that Sales Order terms became the terms of the parties’ contract. The court noted that Berry Metal’s Purchase Order failed to communicate any “conditions or objections” to the Manitoba Sales Order but it is not clear what this means. Presumably, this means that the Purchase Order did not provide the language of a § 2-207(a) counter-offer or a § 2-207(b)(1) limitation or § 2-207(b)(3) notification of objection. Presumably, the Purchase Order did not contain any terms—including any terms that “knocked out” the Sales Order terms. But the court’s opinion does not explain this. The court granted the motion to dismiss in part, holding that the limitation of damages language in the Sales Order was part of the contract.

(5) Dayco Prods., LLC v. Thistle Molded Grp., LLC, 2019 U.S. Dist. LEXIS 16927 (E.D. Mich. 2019). Dayco had a requirements contract to purchase automotive parts from Moxness (which Dayco then sells to Ford). The contract was formed when Dayco issued a purchase order (PO) to Moxness for check valve discs and gate springs. The PO was titled “requirements contract” and stated “[r]equirement [sic] contract issued for the purchased part referenced above. Dayco will furnish releases against this purchase order.” The PO included the prices of the goods, and the requested quantity for both was listed as “PER RLS.” The PO stated: “This Requirements Contract is limited to its terms stated herin [sic], and the Terms and Conditions of Purchase available at www.daycosupplier.com.” The Terms and Conditions on Dayco’s website prohibited any price changes. Moxness began supplying Dayco per the PO, and it issued invoices that contained its own terms—including the purported right to increase prices if its costs increase, as determined by Moxness in good faith. Eventually, Moxness refused to supply the parts at the prices set forth in the PO and demanded that Dayco pay higher prices. Dayco sued, then it moved for partial summary judgment on the issue of liability due to the price increase. Moxness argued that the invoices it issued constituted counter-offers, and that the POs did not establish the terms of the contract. The court rejected Moxness’s argument that the invoices constituted a counter-offer and held that the contract terms were those set forth in the PO, per U.C.C. § 2-207. The court concluded that under U.C.C. § 2-207 (1), “Moxness’s invoices and shipments—in response to Dayco’s purchase order—constituted a definite and seasonable expression of acceptance.” The term in Moxness’s invoices that purported to unilaterally raise prices in good faith did not become part of the contract under U.C.C. § 2-207 (2) because “all three statutory exceptions” (§ 2-207 (2)(a)-(c)) applied. “First, Dayco’s purchase order was ‘limited to acceptance of the express terms contained on the Order and [the] Global Terms.’ … . Second, Moxness attempted to change the contract from a fixed-price requirements contract to a fixed-quantity contract with a potentially fluid price. These changes are undoubtedly material. Third, Dayco had preemptively objected to any additional or different terms. … . .” The court granted Dayco’s motion for partial summary judgment as to the issue of liability on its price-increase claim.

(6) Judge Leo Sorokin’s exemplary decision in Whoop, Inc. v. Ascent Int’l Holdings, Ltd., 2019 U.S. Dist. LEXIS 79087 (D. Mass. 2019) analyzed a number of facets of U.C.C. § 2-207. Whoop sued Ascent, the seller and manufacturer of batteries for Whoop’s fitness tracking devices. The parties did not sign off on a single document but transacted via the exchange of forms. Ascent moved to compel arbitration based on an arbitration provision in Ascent’s form. Whoop argued that the arbitration provision never became part of the parties’ contract, and the court agreed. The court chronicled the parties’ dealings: Whoop sent a purchase order that the court concluded was an offer because it created a power of acceptance in Ascent. Ascent responded two days later with a quote that modified commercial terms of the deal. The court explained: “Since Ascent’s quote modified significant terms such as quantity, price, and payment terms, it is not a ‘seasonable expression of acceptance’ under § 2-207(1), but is rather a counteroffer, rejecting the initial offer. Because there is no acceptance under 2-207(1), there is no application of § 2-207(2).” The court correctly characterized the quantity, price, and payment terms as dickered terms—since they did not match, there was no contract via the exchange of forms (quoting Prof. John E. Murray for this point). Whoop responded with a purchase order that matched the price of Ascent’s quote but lowered the quantity. Then, finally, Ascent responded with a sales order that agreed with Ascent on quantity, price, and payment terms. At this point, there was a contract per the exchange of forms because, in the words of § 2-207(1), there was “[a] definite and seasonable expression of acceptance … .”

Having concluded that there was a contract, the court next considered its terms. It applied U.C.C. § 2-207(2) with respect to the additional terms contained in Ascent’s terms and conditions. The court wrote: “[T]hese terms and conditions … become a part of the parties’ contract if none of the three exceptions under § 2-207(2) applies.” The court ruled out the applicability of either subsection (a) or (c) since neither party alleged that they applied. The court proceeded to consider § 2-207(2)(b) and concluded that “[t]he arbitration provision constitutes a material alternation to which Whoop never expressly or implicitly agreed.” The court added: “While the Federal Arbitration Act favors arbitration of commercial disputes where the parties have agreed to do so, proof of the existence of an agreement to arbitrate must always precede an order enforcing the agreement.” Thus, the arbitration provision did not become part of the contract.

The court added that it is possible that there was no acceptance here at all—it is possible that Ascent expressly conditioned acceptance on Whoop’s assent to its terms and conditions per the words after the comma in § 2-207(1). The court noted that “the terms and conditions of sale linked in Ascent’s sales confirmation #100183 state that Whoop’s order ‘is strictly limited to and conditioned upon [Ascent’s] terms and conditions’ and Ascent ‘objects to any terms and conditions that differ from, add to, or modify’ its terms and conditions.” If this were a counter-offer per the words after the comma in § 2-207(1), there was no contract via the exchange of forms. Nevertheless, the parties proceeded to perform—Ascent shipped and Whoop accepted the goods—so they had a contract by conduct under § 2-207(3). Here again, the arbitration provision did not become part of the contract because the writings did not agree on this provision. The court denied the motion to compel arbitration.

(7) Lewandowski v. Megabus USA, LLC, 2020 U.S. Dist. LEXIS 85367 (W.D. Pa. May 14, 2020) discussed James v. Global Tel*Link Corp., 852 F.3d 262 (3d Cir. 2017). Plaintiff sued Megabus under the Americans with Disabilities Act. She purchased her ticket through Megabus’ telephonic ticketing service, and the agent advised her that her purchase “may be subject to applicable terms.” Plaintiff asked what those terms are, and was told: “‘(1) she should arrive at least fifteen minutes early before the departure time; (2) luggage size and weight specifications; (3) children need to be accompanied; (4) the purchase is non-refundable; and (5) that if she wants, she can look online at Defendants’ website for the full terms and conditions.’” There was no mention of an arbitration agreement. The terms and conditions contained a binding arbitration provision. Plaintiff never looked at the terms and conditions. Megabus moved to compel arbitration. The court denied the motion. It explained:

This case is remarkably similar to James v. Global Tel*Link Corp., 852 F.3d 262 (3d Cir. 2017), in that it also presents the situation where services are offered for purchase through one medium (an interactive telephone ticketing service) and the purchaser tries to bind users of those services to terms and conditions only accessible through a different medium (a website). In James, the Third Circuit held that users of the defendant’s telephone system for New Jersey prisons did not assent, under New Jersey contract law, to the defendant telephone service provider’s terms of use or the arbitration provision contained therein. The terms of use were available only on the provider’s website. The provider informed users each time they set up an account or deposited funds in their accounts that its services were governed by terms of use which could be reviewed by accessing the provider’s website. Telephone users were not required to indicate assent to the terms of use to set up an account and/or use the system.

… .

The Circuit held that there was no mutual assent and, therefore, no enforceable arbitration clause. It found it significant that users did not receive the provider’s terms of use, users were not informed that merely using the provider’s telephone service would constitute assent to those terms, terms and conditions were not immediately accessible to users, and users were never presented with the teems available on the provider’s website. Ultimately, the Court affirmed the denial of the provider’s motion to compel arbitration of users’ lawsuit.

The court explained: “The question is not whether a consumer has other alternatives for the requested service, but whether the consumer has a meaningful chance to review and assent to an arbitration clause.” The court held that there was no “explicit agreement” to arbitrate, as required by Pennsylvania law. The court proceeded lay down a rule about assent:

Plaintiff … did not receive the Megabus Terms and Conditions. She was merely informed by the ticketing agent that Megabus had terms and conditions which were available for review on its website. But the transaction was complete, and Plaintiff received her ticket, over the telephone without being required to review the Terms and Conditions on the Megabus website. Reviewing and assenting to the Terms and Conditions on the website was not a necessary prerequisite to the completion of the sale. Megabus does not dispute that Plaintiff never accessed its website and never reviewed the Terms and Conditions, including those dealing with the arbitration clause.

The Court holds that Plaintiff cannot be bound by an arbitration clause that was only available for review on a separate medium where the transaction could be completed without requiring her to acknowledge review of the clause and express assent to its terms. Pennsylvania law requires explicit agreement.

The “separate medium” distinction seems artificial and unnecessary. The court did not discuss the “rolling contract” or “terms later” line of cases, where contract formation occurs in layers, and the terms are not seen until after payment is made. For example, the Third Circuit in Noble v. Samsung Elecs. Am., Inc., 682 Fed. Appx. 113 (3d Cir. 2017)—a case involving New Jersey law—discussed what is necessary in order for terms to be binding that are not provided at the time of purchase. The court’s ruling in this case may be on a collision course with these “terms later” cases.

(8) Cunico Corp. v. Custom Alloy Corp., 772 Fed. Appx. 595 (9th Cir. July 3, 2019). In this U.C.C. § 2-207 case, the district court dismissed a complaint and granted a motion to compel arbitration. The 9th Circuit affirmed. Custom Alloy’s October 9, 2008 quotation was an offer and Cunico’s purchase order 26860 of January 7, 2009 was the acceptance. The two forms contained different terms. According to the court, “Custom Alloy’s quotation expressly incorporated Custom Alloy’s terms and conditions—which, in turn, contained an arbitration clause—those terms and conditions became part of the contract.” The court concluded that the terms were readily available to Cunico. The court added: “If Cunico wished to avoid an obligation to arbitrate, it should have rejected the arbitration clause when it issued its purchase order.” The lower court dealt with § 2-207 issue with this passage:

Any changes made in the Purchase Order were proposals for addition to the parties’ agreement and became part of the agreement either by operation of law, see N.J. Stat. Ann. § 12A:2-207(2); Cal. Com. Code § 2207(2), or when Custom Alloy issued its January 15, 2009 Acknowledgement (Owens Decl. Ex. 2 P 13), see N.J. Stat. Ann. § 12A:2-207(3); Cal. Com. Code § 2207(3). Regardless, Cunico accepted the terms of the October 8, 2009 Quotation to the extent they were not in conflict with the terms in Cunico’s Purchase Order 26860. See N.J. Stat. Ann. § 12A:2-207(1), (3); Cal. Com. Code § 2207(1), (3).

Cunico Corp. v. Custom Alloy Corp., 2017 U.S. Dist. LEXIS 222434, *17 (C.D. Cal. Dec. 15, 2007). Presumably, Cunico’s acceptance (the purchase order) did not contain any provision at odds with the arbitration provision. In addition, again presumably, Cunico’s purchase order did not contain any language tracking § 2-207(2)(a): “the offer expressly limits acceptance to the terms of the offer” or § 2-207(2) (c): “notification of objection to [the additional terms] has already been given or is given within a reasonable time after notice of them is received”—so the arbitration provision became part of the contract.

Footnotes — § 3.37:

1 See § 3.36. Among the best-known cases was Poel v. Brunswick-Balke-Collender Co., 216 N.Y. 310, 110 N.E. 619 (1915), reh’g denied, 216 N.Y. 771, 111 N.E. 1098 (1916).

2 United States v. Marietta Mfg. Co., 339 F. Supp. 18 (S.D. W. Va. 1972).

3 John E. Murray, Murray on Contracts § 50 (5th ed. 2011).

4 John E. Murray, Murray on Contracts § 50 (5th ed. 2011).

5 Karl Llewelyn wrote:

Instead of thinking about “assent” to boiler-plate clauses, we can recognize that so far as concerns the specific, there is no assent at all. What has in fact been assented to, specifically, are the few dickered terms, and the broad type of the transaction, and but one thing more. That one thing more is a blanket assent (not a specific assent) to any not unreasonable or indecent terms the seller may have on his form, which do not alter or eviscerate the reasonable meaning of the dickered terms. The fine print which has not been read has no business to [undercut] the reasonable meaning of those dickered terms which constitute the dominant and only real expression of agreement.

Karl Llewellyn, The Common Law Tradition: Deciding Appeals 370 (1960). Prof. Llewellyn wrote that “any contract with boiler-plate results in two … contracts: the dickered deal, and the collateral one of supplementary boiler-plate.” Id. at 371.

The Restatement (Second) of Contracts instructs that where the party who has drafted standardized terms has reason to believe that the party manifesting assent to such terms “would not do so if he [or she] knew that the writing contained a particular term, the term is not part of the agreement.” Restatement (Second) of Contracts § 211(3) (Am. Law Inst. 1981). The approach suggested by § 211(3) “has not been widely followed by the courts except in cases involving insurance contracts.” Edith R. Warkentine, Beyond Unconscionability: The Case for Using “Knowing Assent” as the Basis for Analyzing Unbargained-for Terms in Standard Form Contracts, 31 Seattle U. L. Rev. 469, 508 (2008). Nevertheless, it is clear that “[c]ustomers do not in fact ordinarily understand or even read the standard terms. They trust to the good faith of the party using the form and to the tacit representation that like terms are being accepted regularly by others similarly situated.” Restatement (Second) of Contracts § 211 cmt. b (Am. Law Inst. 1981).

One court explained: “Usually, the parties ‘concentrate[] exclusively on the ‘dickered’ terms of the deal, i.e., those terms which they consciously adverted, such as the description of the goods, the quantity, the price and other terms which the decent merchant consciously would consider.’ ” Hunger United States Special Hydraulics Cylinders Corp. v. Hardie-Tynes Mfg. Co., 2000 U.S. App. LEXIS 1520, *15–16 (10th Cir. Utah Feb. 4, 2000). See also, Alliance Wall Corp. v. Ampat Midwest Corp., 17 Ohio App. 3d 59, 477 N.E.2d 1206, (1984).

6 Statement of K. Llewellyn in 1 State of New York Law Revision Commission Hearings on the Uniform Commercial Code 113 (1954).

7 United States ex rel. Atlas Copco Compressors LLC v. RWT LLC, 2017 U.S. Dist. LEXIS 109035 (D. Haw. July 13, 2017).

Plastoform Indus. v. Monster LLC, 2018 U.S. Dist. LEXIS 152264 (N.D. Cal. 2018) addresses a fundamental question that comes up with some regularity. Suppose the parties to a business transaction manifest their assent to a contract by signing off on a single document (a master agreement). The master agreement allows the purchaser to buy products on an ongoing basis, under the terms established in its four corners. But then in the course of notifying the vendor to ship products under the master agreement, the buyer sends out a purchase order as a matter of business practice. The purchase order is not being used to establish a new contract or to modify the existing one, but nevertheless, it contains boilerplate legal terms that are different from the terms of the existing contract. How should those boilerplate legal terms be treated? Should they be regarded as a response under § 2-207 (“[a] definite and seasonable expression of acceptance or a written confirmation … .”)? The court reached the correct answer—no—but it did so in a way that was less than satisfying.

Here are the facts of Plastoform. In 2010, plaintiff and Monster entered into a Supply Agreement in which plaintiff would supply products ordered by Monster. Then, in the course of performing the contract, as a matter of course, Monster issued purchase orders (“POs”) to plaintiff. Then plaintiff would issue invoices when it delivered the goods to Monster. Monster failed to pay plaintiff in excess of $1.2 million for products delivered. Plaintiff initiated this action, and Monster moved to stay and to compel arbitration pursuant to an arbitration provision in the Supply Agreement (the original contract the parties entered into). Plaintiff countered by pointing to a provision in Monster’s POs providing for adjudication of claims in California courts. Plaintiff claimed that the provision in the POs governed the dispute pursuant to U.C.C. § 2-207. The court rejected this argument. The parties entered into an underlying master Supply Agreement that governed the issue in dispute. Moreover, Paragraph 4.3 of the Supply Agreement specifically contemplates that Monster might issue POs: “Applicable Terms. Purchase orders shall be subject only to the terms and conditions of this Agreement and the terms that Monster expressly states in the purchase order. … Monster’s standard ‘Conditions of Purchase’ shall also not apply, even if they are incorporated in or attached to Monster’s purchase orders.” In addition, the Supply Agreement required any modification to be in writing and signed by duly authorized officers of both parties. Here, the POs were not signed. The court held that the terms of the POs did not supersede the terms of the Master Supply Agreement. The court stayed the action pursuant to completion of arbitration.

The court reached the correct conclusion—it was not proper to analyze the POs by reference to U.C.C. § 2-207—but it overlooked the most fundamental reason that § 2-207 does not apply: the POs were not intended to operate as an acceptance. They were not “[a] definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time,” per the opening words of § 2-207. One commentator noted: “Section 2-207 was drafted for a world of contracting that relies largely on contract formation arising from an exchange between parties of standardized form documents rather than parties sitting down and hammering out the terms of their contract and signing a single document.” Timothy Davis, U.C.C. Section 2-207: When Does an Additional Term Materially Alter a Contract?, 65 Cath. U.L. Rev. 489, 493 (2016). See also Comment 1 to § 2-207, which made clear that § 2-207 applies to two situations, neither of which are pertinent to this case: “[T]he written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is offer and acceptance, in which a wire or letter expressed and intended as an acceptance or the closing of an agreement adds further minor suggestions or proposals such as ‘ship by Tuesday,’ ‘rush,’ ‘ship draft against bill of lading inspection allowed,’ or the like.” In Plastoform, the final contract had already been entered into, and the POs were neither confirmations nor acceptances. They were post-formation business communications sent for the limited purpose of notifying plaintiff to ship products to Monster. The fact that the document used to accomplish this purpose happened to contain boilerplate legal terms does not suggest that the parties intended, or reasonably understood, that those terms would have contractual significance in this context beyond placing orders under terms already established by the master agreement. Theoretically, of course, a subsequent document can be used to modify an existing contract, but the mere sending of a document primarily intended to order products under an existing, final contract should not be so regarded where the parties expressed no intent to modify the initial contract. In the Plastoform case, the initial contract expressly contemplated that such documents might be sent and made clear that, indeed, they would not modify the existing contract. One would expect most master agreements to contain similar provisions, but it should not be necessary. Purchase order and similar forms are chameleonic—they can serve different purposes depending on how they are used. It would be improper to ignore the context surrounding the sending of these purchase order forms. The circumstances show that they were not intended to invoke § 2-207.

8 Verasun Fort Dodge, L. L. C. v. Industrial Air Technology Corp., 2008 U.S. Dist. LEXIS 99292, *53 (N.D. Iowa Nov. 25, 2008) (citing J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code § 1-3 at 29–30 (3d ed. 1988)).

9 This common scenario is less common than it was before the advent of the e-commerce revolution in the late 20th Century when sellers increasingly availed themselves of on-line contracting. When goods are bought and sold on-line, there is no haggling over the seller’s terms and no “battle of the forms.” This was a sea change for many sellers, but even here, insuring that the seller’s terms are enforceable has presented its own challenges. See § 2.12 of this treatise.

10 See, e.g., § 3.23.

11 One court explained:

Prior to adoption of the Uniform Commercial Code (UCC), the common law “mirror image rule” held that an acceptance that did not precisely parrot the terms set out in the offer was never an acceptance but a mere counteroffer. … . This rigid requirement led to an unfortunate practice whereby commercial dealings too often degenerated into a “battle of the forms” in which the merchant sending the last written communication before performance would reap the spoils of the battle by having the “last shot” at inserting favorable boilerplate terms.

Superior Boiler Works v. R.J. Sanders, Inc, 711 A.2d 628, 633 (R.I. Apr. 29, 1998). See also, VLM Food Trading Int’l, Inc. v. Ill. Trading Co., 811 F.3d 247 (7th Cir. 2016) (common law resolved the battle of the forms by applying the “last shot” rule); Alaska Pacific Salmon Co. v. Reynolds Metals Co., 163 F.2d 643 (2d Cir. 1947) (seller’s disclaimer of warranty prevailed).

12 Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1580 (10th Cir. 1984).

13 John E. Murray, Murray on Contracts § 50 (5th ed. 2011).

14 While the result usually favored the seller, certainly that was not always the case. See, e.g., Poel v. Brunswick-Balke-Collender Co., 216 N.Y. 310, 110 N.E. 619 (1916).

15 1 State of New York Law Revision Commission Hearings on the Uniform Commercial Code 49 (1954).

16 Reaction Molding Technologies v. General Elec. Co., 585 F. Supp. 1097, 1104 (E.D. Pa. 1984).

17 Daniel Keating, Exploring the Battle of the Forms in Action, 98 Mich. L. Rev. 2678, 2679 (2000).

18 Letter from Grant Gilmore, Professor, Vt. Law Sch., to Robert S. Summers, Professor, Cornell Univ. Law Sch. (Sept. 10, 1980), as reprinted in James J. White, Contracting Under Amended 2-207, 2004 Wis. L. Rev. 723, 724 (2004).

19 Frix v. Integrity Med. Sys., 2017 U.S. Dist. LEXIS 152961, *23–24 (W.D. Tenn. 2017).

20 Among the problems with the “battle of the forms” seems to be a fairly widespread absence of awareness that the “battle” even exists. For contracts formed via the exchange of standardized, pre-printed forms, the contract cannot consist of both parties’ boilerplate. The fact is, a staggering percentage of carefully drafted terms and conditions will have no contractual significance. Among the remarkable things about this area of the law is that this is not more of a concern to businesses and their attorneys.

An unfortunate example of the judicial confusion engendered by § 2-207 is Aqua-Hot Heating Sys. v. Gorman-Rupp Co., 2018 U.S. Dist. LEXIS 202344 (D. Ore. 2018). Defendant (seller) submitted a price quotation containing warranty and limitations on liability. The court found that the quotation constituted an offer due to its detail and its invitation for plaintiff to accept it (it stated that it would be valid for 90 days). Plaintiff responded with a purchase order that, it claimed, contained words of a U.C.C. § 2-207(1) counter-offer: “Seller’s acceptance of Buyer’s purchase order relating to offered products or services is expressly made conditional on Seller’[s] acceptance of these terms and conditions which are in lieu of and shall supersede any additional or different terms and conditions contained in buyer’s purchase order or other document or communication pertaining to buyers order for the products or services.” The court held that this language was not a § 2-207 counter-offer because “Plaintiff did not ‘explicitly communicate [its] unwillingness to proceed with the transaction unless the additional or different terms in its response [were] accepted by the offeror.’ ” (Quoting Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1577 (10th Cir. 1984).) The court concluded that plaintiff’s purchase order was a valid acceptance under § 2-207(1). The court determined that plaintiff’s terms did not become part of the contract because defendant expressly conditioned acceptance to the terms of the offer per § 2-207(2)(a) and because plaintiff’s terms materially altered the offer per § 2-207(2)(b). With respect to the alleged material alteration of the offer per § 2-207(2)(b), the plaintiff’s terms stated that they “supersede any additional or different terms and conditions.” The court concluded that this language constituted an attempt to eliminate defendant’s warranty disclaimer and liability limitation even though plaintiff’s terms were silent on warranty and liability. According to the court, these were “different” terms, and “different” terms should be treated the same as “additional” terms under § 2-207(2). The court concluded that these provisions were conflicting even though the plaintiff’s terms did not address warranties or liability.

Then the court improperly proceeded to treat the contract as one for conduct under § 2-207(3)—even though the court had already found an offer and acceptance of defendant’s terms. It is not clear why the court believed that § 2-207(3) has any application in this instance. Then, after having found an offer and acceptance on defendant’s terms—and a contract by conduct—the court declared that, somehow, it was the defendant who accepted plaintiff’s terms—except, the court explained, it really did not, because the conflicting terms of the two forms eliminated each other:

[W]hen defendant submitted its order acknowledgment form the day after receiving plaintiff’s purchase order, it accepted plaintiff’s terms and conditions. In such a case, the conflicting terms of defendant’s price quote and plaintiff’s purchase order “eliminate each other and fall away from the contract.” … . If there were any missing terms, the UCC would step in to fill the gaps in the contract.

(Citations omitted). The court’s decision is among the most baffling explorations of § 2-207 that this author has seen.

21 Richardson v. Union Carbide Indus. Gases, Inc., 347 N.J. Super. 524, 534, 790 A.2d 962, 968 (2002). See also Deere & Co. v. Ohio Gear, 462 F.3d 701 (7th Cir. 2006); Stelluti Kerr, L.L.C. v. Mapei Corp., 703 Fed. App’x 214, (5th Cir. 2017); JOM, Inc. v. Adell Plastics, Inc., 193 F.3d 47 (1st Cir. 1999); ConocoPhillips Alaska, Inc. v. Williams Alaska Petro., Inc., 322 P.3d 114 (Alaska. 2014); Frix v. Integrity Med. Sys., 2017 U.S. Dist. LEXIS 152961 (W.D. Tenn. Sept. 20, 2017); Channell Commer. Corp. v. Wilmington Mach., Inc., 2016 U.S. Dist. LEXIS 189424 (C.D. Cal. 2016); C. Itoh & Co. v. Jordan Int’l Co., 552 F.2d 1228 (7th Cir. 1977); Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (10th Cir. 1972).

Section 2-207 accounts for today’s reality that the traditional common law “mirror image” rule—which foreclosed contractual formation where terms of an offer and acceptance varied—is “both unfair and unrealistic in the commercial context.” While the terms of an offer and of an acceptance in today’s commercial transactions will rarely “mirror” each other, § 2-207 nevertheless allows parties to form a contract in situations where they reach an agreement and subsequently exchange forms “which purport to memorialize the agreement, but which differ because each party has drafted his form to give him advantage.”

Option Wireless, Ltd. v. OpenPeak, Inc., 2012 U.S. Dist. LEXIS 172478, *11–12 (S.D. Fla. Dec. 5, 2012), quoting Steiner v. Mobil Oil Corp., 20 Cal. 3d 90, 141 Cal. Rptr. 157, 569 P.2d 751, 757 (Cal. 1977).

22 “Seasonable” means this: “An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.” U.C.C. § 1-205(b).

23 See, e.g., Transwestern Pipeline Co. v. Monsanto Co., 46 Cal. App. 4th 502, 53 Cal. Rptr. 2d 887 (1996).

24 Restatement (Second) of Contracts § 24 (Am. Law Inst. 1981). See also § 1.11 of this treatise.

25 John E. Murray, Murray on Contracts, § 51 (5th ed. 2011).

26 “[G]enerally courts have found that no contract is formed pursuant to the exchange of forms if the dickered terms of the offer and purported acceptance do not match in ways that matter to the parties.” Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 498 (2016). Professor Murray explained: “It would not be reasonable to assume a ‘definite expression of acceptance’ if the variant term in the response to the offer is a ‘dickered’ term[ ] such as a different price or product or quantity or another term which differed from a term in the offer that should have been reasonably understood as important to the offeror.” John E. Murray, Murray on Contracts § 51 (5th ed. 2011).

U.S.

—U. S. Industries, Inc. v. Semco Mfg., Inc., 562 F.2d 1061 (8th Cir. 1977); GE v. G. Siempelkamp GmbH & Co., 29 F.3d 1095 (6th Cir. 1994) (dickered terms differed: different prices, terms of payment, placement of transportation responsibility, provisions for title passage, and delivery date).

Ga.

—In Duval & Co. v. Malcom, 233 Ga. 784, 214 S.E.2d 356 (1975), the seller offered on buyer’s form to sell his “entire crop of 1973 cotton of 729.6 acres plus any addition that may be leased prior to planting.” The buyer then added as an estimate “600 pounds per acre or approximately 875 [bales of cotton].” Because of the importance of an estimate to the obligations of an output contract, the divergence was significant and no definite expression of acceptance existed.

Ind.

—Kittle v. Newell Coach Corp., 830 F. Supp. 1209 (S.D. Ind. 1993) (“clarification” in acceptance changed the material terms of the offer regarding the time and means of payment and, therefore, was not an acceptance).

Mass.—

Dubrofsky v. Messer, 1981 Mass. App. Div. 55 (1981) (dickered terms differed: order was placed for 99 Durafab pool covers and 2 Micromesh covers; “acknowledgment” indicated 80 Micromesh covers and 21 Durafab covers).

Whoop, Inc. v. Ascent Int’l Holdings, Ltd., 2019 U.S. Dist. LEXIS 79087 (D. Mass. 2019) (quantity, price, and payment terms did not match—since no agreement on dickered terms, there was no agreement via the exchange of forms).

Mich.

—Gage Prods. Co. v. Henkel Corp., 393 F.3d 629 (6th Cir. 2004) (different price terms); Laforce, Inc. v. Pioneer Gen. Contractors, Inc., 2011 Mich. App. LEXIS 1667 (Sept. 27, 2011) (price escalation clause).

Mo.

—Howard Constr. Co. v. Jeff-Cole Quarries, Inc., 669 S.W.2d 221, 229 (Mo. Ct. App. 1983) (different prices).

N.Y.

—Matrix Int’l Textiles, Inc. v. Jolie Intimates, Inc., 7 Misc. 3d 1019(A), 2005 NY Slip Op 50671(U), 801 N.Y.S.2d 236, 233 N.Y.L.J. 98 (2005) (description of the goods).

N.Y.; Pa.

—Ore & Chemical Corp. v. Howard Butcher Trading Corp., 455 F. Supp. 1150 (E.D. Pa. 1978) (questions of fact were present as to whether the telexed acceptance containing many new terms was a definite expression of acceptance).

Ohio

—Alliance Wall Corp. v. Ampat Midwest Corp., 17 Ohio App. 3d 59, 477 N.E.2d 1206 (1984) (exchange of forms and other communications showed importance of delivery date and disagreement on the point, no contract was formed by the exchange of writings).

Or.

—Meister v. Arden-Mayfair, Inc., 276 Or. 517, 555 P.2d 923 (1976) (no contract on exchange of forms: offer made by the seller was redrafted by the buyer to change the date for the transfer of possession and to partially change in the identity of the parties to the offer).

Tenn.

—United Foods, Inc. v. Hadley-Peoples Mfg. Co., 1994 Tenn. App. LEXIS 277, *14 (Tenn. Ct. App. May 20, 1994) (different price terms).

Wis.

—Koehring Co. v. Glowacki, 77 Wis. 2d 497, 253 N.W.2d 64 (1977). The buyer and seller exchanged telegrams. The buyer’s stated “F.O.B. our truck your plant loaded”; the seller’s form stated “as is—where is.” No contract was formed.

One court urged caution in reading the dickered-for exception expansively: “[W]hatever the precise boundaries of the dickered-for exception to § 2-207(1) acceptance, the return document will qualify for that exception only if it differs significantly (not just materially) from the offer on a sufficiently important term.” ConocoPhillips Alaska, Inc. v. Williams Alaska Petro., Inc., 322 P.3d 114, 129 (Alaska 2014). The court’s admonition is not especially helpful.

Of course, when the dickered terms match, there seems to be universal agreement that the parties have an agreement: “What constitutes a definite and seasonable expression of acceptance is somewhat cloudy under the Code,” but “[i]n general, it may be concluded that if the face of an acknowledged form repeats the terms of the written order there is a ‘definite and seasonable expression of acceptance.’ ” Rite Fabrics, Inc. v. Stafford-Higgins Co., 366 F. Supp. 1, 8 (S.D.N.Y. 1973).

27 In Luna Innovations Inc. v. Verner Sci., Inc., 2017 U.S. Dist. LEXIS 63002 (W.D. Va. April 25, 2017), the court’s conclusion that a contract was formed on the basis of the exchange of non-matching forms is problematic in light of the parties’ open disagreement over delivery terms.

In Bosway Tube & Steel Corp. v. McKay Machine Co., 65 Mich. App. 426, 237 N.W.2d 488 (1975) and General Time Corp. v. Eye Encounter, Inc., 50 N.C. App. 467, 274 S.E.2d 391 (1981), conflicting warranty terms, even though dickered (in that they were not on pre-printed forms but in a letter and a telex), were deemed to be merely “different terms” in an effective acceptance.

Compare:

In Stewart-Decatur Security Systems, Inc. v. Von Weise Gear Co., 517 F.2d 1136 (8th Cir. 1975), the plaintiff- buyer wanted to purchase motors for closing prison cell doors. It examined and tested defendant’s prototype, liked it and submitted a purchase order, giving specifications that were at variance with the prototype, but apparently without being aware of the variance. The defendant’s acknowledgement referred to the model number of its prototype. Thus, the writings were in conflict as to the specifications, a very basic dickered term. Nonetheless, plaintiff’s testimony at trial to the effect it intended to order motors based on the prototype showed a common intention and, therefore, there was a contract. Note that defendant’s intention was objectively manifested while plaintiff’s was subjective.

In CBS, Inc. v. Auburn Plastics, Inc., 67 A.D.2d 811, 413 N.Y.S.2d 50 (1979), the seller’s proposal was an offer that contained an express price term on the face of the writing. One of the “conditions” on the reverse side called for a 30% engineering charge above the quoted price. The proposal lapsed. Sometime thereafter, buyer sent a purchase order apparently incorporating the price terms that appeared on the face of the seller’s now expired proposal. Seller sent an acknowledgement that purported to incorporate the terms of seller’s original proposal. The acknowledgement was held to be an acceptance of the buyer’s offer, and the 30% engineering charge did not become part of the contract because the buyer’s offer expressly limited acceptance to the terms of the offer, and the offer objected in advance to any additional or different terms. The seller’s attempt to add 30% to the expressly quoted price through the mechanism of a pre-printed term on the back of its original proposal was not allowed to succeed.

Sometimes, courts reach a proper result but fail to analyze it correctly. A case in point is Compumedics USA, Inc. v. Capital Partners Fin. Grp. USA, Inc., 2019 U.S. Dist. LEXIS 49544 (W.D. Tex. 2019). Capital Partners purchased two sleep study systems from Compumedics, a transaction governed by U.C.C. § 2-207. Compumedics sued after Capital Partners failed to pay, and Capital Partners claimed that there was no contract. Compumedics moved for summary judgment. Capital Partners’ July 10, 2015 Purchase Order offered Compumedics $49,270.75 in exchange for immediate shipment and installation of a sleep study system at Spring Central Hospital. The purchase order did not take advantage of U.C.C. § 2-207(2)(a) by foreclosing additional terms. Compumedics accepted on August 27, 2015 when it shipped the system and sent Invoice No. IN 88633. That invoice lowered the price to $48,793.74 and listed twenty “standard terms”—including a forum-selection and choice-of-law clause—on the back of each page. The court concluded that the forum-selection and choice-of-law clauses materially changed the deal. Because Capital Partners did not object per U.C.C. § 2-207(2)(c), the court concluded that the contract included the new price and the new terms—except for the forum-selection and choice-of-law clauses, which were material changes under U.C.C. § 2-207(2)(b). The court also noted that the change in price was not a material change:

Texas law treats new forum-selection and choice-of-law clauses as material changes. See J.D. Fields, Inc. v. Indep. Enters., Inc., No. 12-2605, 2012 U.S. Dist. LEXIS 162342, 2012 WL 5818229, at *7 (S.D. Tex. Nov. 13, 2012) (construing Texas law and collecting cases from other jurisdictions). And although changing the price usually alters the contract materially, it need not in cases like this one, where the change was for a relatively small amount and was favorable to the offeror. See J.D. Fields & Co. v. United States Steel Int’l, Inc. 690 F. Supp. 2d 487, 508 (S.D. Tex. 2009) (applying Texas law), rev’d in part on other grounds, 426 Fed. App’x 271 (5th Cir. 2011). The Court need not decide whether Compucredits’s other standard terms—like the warranty disclaimer or liability limitation-materially altered the contract, since their legal operation does not impact Compumedics’s motion.

Absent from the court’s discussion was any explanation as to why the price change in the invoice did not constitute a counter-offer. Why should the invoice be an acceptance if the price in the invoice did not match the price in the purchase order? The court instead seemed to believe that the different price term in the invoice should be analyzed as a potential U.C.C. § 2-207(2)(b) material alteration. This assumes and takes it for granted that the invoice was an acceptance. The court skipped an important analytical step but reached a proper result—perhaps inadvertently. It is, in fact, rational to conclude that the invoice’s lower price term did not result in a counter-offer since it was insignificant and, more importantly, it benefited, the offeror, Capital Partners. No rational offeror would object to a price decrease or pull back its offer in the face of a price decrease under these circumstances. Since the price change did not prevent the invoice from being an acceptance, it was proper to then analyze whether the change was material under U.C.C. § 2-207(2)(b). For the same reason that it was not a counter-offer, neither was it material under U.C.C. § 2-207(2)(b).

The parties repeated the process with the purchase of a second sleep study system. The court concluded that Compumedics and Capital Partners contracted to exchange two sleep study systems for a combined total of $97,624.61. “[T]he corresponding contract was fanned the instant Compumedics mailed the respective invoice or shipped the goods, which ever came first; when Capital Partners received the invoice is of no moment. And as § 2.207 makes obvious, the invoices’ additional terms do not per se preclude acceptance. Compumedics and Capital Partners formed a valid contract.” Although Capital Partners did not pay in full, there was a factual dispute as to whether Compumedics stopped short of performing its installation obligations. The court denied Compumedics’ motion for summary judgment.

28 John E. Murray, Murray on Contracts, § 51 (5th ed. 2011).

29 For this kind of counter-offer, there must be an exchange of forms—unlike other § 2-207 scenarios, there must actually be two forms.

30 Statement of Karl Llewellyn, 1 New York Law Revision Commission Hearings on the Uniform Commercial Code 117 (1954). Of course, the response Llewellyn envisioned would not truly be an “acceptance” at all but a counter-offer.

31 “In typical consumer transactions, the purchaser is the offeror, and the vendor is the offeree. See Brown Mach., Div. of John Brown, Inc. v. Hercules, Inc., 770 S.W.2d 416, 419 (Mo. App. 1989) (as general rule orders are considered offers to purchase); Rich Prods. Corp. v. Kemutec Inc., 66 F. Supp. 2d 937, 956 (E.D. Wis. 1999) (generally price quotation is invitation to make offer and purchase order is offer).” Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332, 1340 (D. Kan. 2000).

32 In Mark Andy, Inc. v. Heat Techs., 2015 U.S. Dist. LEXIS 44008 (E.D. Mo. Apr. 3, 2015), the offeree’s purchase order in response to an offer tracked the statutory language of § 2-207(1) and stated that “acceptance of this Order is expressly made conditional on assent to the terms, provisions and conditions of this Order … .” It was not a valid acceptance but a counter-offer. A contract on offeree’s terms resulted only if the original offeror assented. Mere performance is not enough.

33 Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir. 1972).

34 Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1168 (6th Cir. 1972).

35 Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1168 (6th Cir. 1972).

36 See Idaho Power Co. v. Westinghouse Elec. Corp., 596 F.2d 924 (9th Cir. 1979) (this language was insufficient to satisfy the “expressly conditional” standard of the last proviso of § 2-207(1): “[A]cceptance of this order shall be deemed to constitute an agreement … to the conditions named hereon and supersedes all previous agreements.”); Uniroyal, Inc. v. Chambers Gasket & Mfg. Co., 177 Ind. App. 508, 380 N.E.2d 571 (1978) (the following language held sufficient to create a § 2-207(1) counter-offer: “Our acceptance of the order is conditional on buyer’s acceptance of the conditions of sale printed on the reverse side hereof.”); Challenge Mach. Co. v. Mattison Mach. Works, 138 Mich. App. 15, 359 N.W.2d 232 (1984) (the following statement did not create a conditional acceptance—a counter offer: “[B]uyer expressly limits acceptance to the terms hereof and no different or additional terms proposed by seller shall become part of the contract.”); PCS Nitrogen Fertilizer, L.P. v. Christy Refractories, L.L.C., 225 F.3d 974 (8th Cir. 2000) (“Seller’s acceptance of any offer by Purchaser to purchase the Products is expressly conditional upon the Purchaser’s assent to all the terms and conditions herein, including any terms additional to or different from those contained in the offer to purchase” created § 2-207 counter-offer); Gardner Zemke Co. v. Dunham Bush, Inc., 115 N.M. 260, 850 P.2d 319 (1993) (following Dorton, adding that “whether an acceptance is made expressly conditional on assent to different or additional terms is dependent on the commercial context of the transaction.”) See also Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991); Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. 1984); Reaction Molding Technologies, Inc. v. General Electric Co., 588 F.Supp. 1280 (E.D. Pa. 1984); Egan Machinery Co. v. Mobil Chemical Co., 660 F.Supp. 35 (D. Conn. 1986); St. Charles Cable TV, Inc. v. Eagle Comtronics, Inc., 687 F. Supp. 820 (S.D.N.Y. 1988), aff’d without op., 895 F.2d 1410 (2d Cir. 1989); Brown Machine Division of John Brown, Inc. v. Hercules, Inc., 770 S.W.2d 416 (Mo. App. 1989); Annot., 22 A.L.R.4th 939.

In Dresser Industries, Inc., Waukesha Engine Div. v. Gradall Co., 702 F. Supp. 726 (E.D. Wis. 1988), the seller’s acknowledgement form read, “Your order has been entered expressly subject to and conditioned on the understanding that our terms of sales stated on the front and reverse sides hereof and no others apply to this sale… .” It was held that the word “understanding” was the equivalent of “your assent” and that no contract was formed by the exchange of writings.

Jutalia Recycling, Inc. v. CNA Metals Ltd., 2017 Tex. App. LEXIS 10564 (Nov. 9, 2017) (seller’s response was expressly conditioned on buyer’s assent, providing that “Seller’s acceptance of the Sales Order is conditioned upon Buyer’s agreement that any terms different from or in addition to acknowledgement, release, acceptance or other written correspondence, irrespective of the timing, shall not form a part of the Sales Order … .”).

SFEG Corp. v. Blendtec, Inc., 2017 U.S. Dist. LEXIS 12413 (M.D. Tenn. Jan. 30, 2017) (“The Seller’s acceptance of any order is expressly subject to Buyer’s assent to each and all of the terms and conditions set forth below”—created a § 2-207(1) counter-offer). The SFEG case contains an excellent discussion of § 2-207.

Compare:

Hydrodec of North America LLC v. Api Heat Transfer, Inc., 2017 U.S. Dist. LEXIS 121651 (N.D. Ohio Aug. 2, 2017) (“Subject to the attached General Terms and Conditions of purchase”—held: insufficient to create a § 2-207(1) counter-offer).

Ridgelawn Cemetery Ass’n v. Granite Res. Corp., 2017 U.S. Dist. LEXIS 140740 (N.D. Ind. Aug. 31, 2017) (“These terms and conditions cannot be changed unless made in writing and signed by both parties”—held: not sufficient to make acceptance conditional on assent to the additional terms).

In Mace Indus., Inc. v. Paddock Pool Equipment Co., Inc., 288 S.C. 65, 339 S.E.2d 527 (App. 1986), a purchase order constituted an acceptance despite the fact that it “contained on its reverse side (1) a notice that ‘THE SELLER AGREES TO ALL OF THE FOLLOWING TERMS AND CONDITIONS’ and (2) a provision that the order form shall constitute the entire agreement of the parties… .”

In Erdman v. Phoenix Land & Acquisition, LLC, 2013 U. S. Dist. LEXIS 100025 (W.D. Ark. July 17, 2013), Erdman’s purchase order to buy an elevator for a newly constructed building contained an indemnification clause on which it relied in bringing this action against the supplier of the elevator (Otis). Otis moved for summary judgment on this issue, claiming it never entered into the contract. Three days after receiving the purchase order, Otis began installing the elevator. Eleven days later, Otis signed and returned the purchase order with the explicit condition that Otis’ agent “has been granted specific authority to sign this contract subject to the Otis acknowledgment,” which indemnified Erdman only for negligence by Otis. Otis claimed that this language converted its response into a counter-offer, which Erdman accepted. The court found that by starting to perform three days after receiving the purchase order, Otis manifested a reasonable manner of acceptance. The court rejected Otis’ claim that its acknowledgment was a conditional manifestation of acceptance constituting a counter-offer since the “subject to” language in the Otis response did not make the acceptance expressly conditional on additional or different terms under the last proviso of UCC § 2-207, citing Dorton v. Collins & Aikman. The court denied Otis’ motion for partial summary judgment.

In Micor Indus. v. Mazak Corp., U.S. Dist. LEXIS 21532, **21–22 (N.D. Ala. Feb. 9, 2018), the court explained:

Plaintiff’s POs do not contain any provision that expressly conditions acceptance on Defendant’s assent to additional or different terms. The closest the POs come are in two clauses that state: “Different or additional terms or conditions in your quotation and/or acknowledgement are hereby rejected and your acceptance of this order is expressly limited to the specific terms and conditions contained herein.” … . The POs likewise refer to the terms and conditions displayed at www.micorind.com, which include the following “DIFFERENT OR “ADDITIONAL TERMS OR SELLER’S RESPONSES ARE HEREBY REJECTED AND NO PRIOR OR SUBSEQUENT CONDUCT OF [Plaintiff] SHALL BE DEEMED TO BE AN ACCEPTANCE OF DIFFERENT OR ADDITIONAL TERMS.” … . Neither of these terms contain a clear, express conditioning of acceptance on Defendant’s assent to Plaintiff’s different terms. Instead, they purport to only accept terms that are consistent with the terms or conditions in Plaintiff’s Pos. Expressly conditioning acceptance amounts to the offeree saying there is no deal if the offeror does not assent to the additional terms.

But see Goodyear Tire & Rubber Co. v. Dynamic Air, Inc., 2004 U.S. Dist. LEXIS 8972, 53 U.C.C. Rep. Serv. 2d 778 (D. Minn. 2004), where the court’s analysis was confusing. The court appears to suggest that whenever there are expressly conflicting terms in the forms exchanged by the parties, no contract results from the exchange of the forms, and the parties’ subsequent contract by conduct is governed by § 2-207(3). The statute and overwhelming case law, of course, clearly show that parties may form a contract through an exchange of forms, including expressly conflicting (“different”) terms.

37 Ralph Shrader, Inc. v. Diamond Int’l Corp., 833 F.2d 1210, 1213 (6th Cir. 1987).

38 Ralph Shrader, Inc. v. Diamond Int’l Corp., 833 F.2d 1210, 1215 (6th Cir. 1987).

39 Ralph Shrader, Inc. v. Diamond Int’l Corp., 833 F.2d 1210, 1215 (6th Cir. 1987).

40 Ralph Shrader, Inc. v. Diamond Int’l Corp., 833 F.2d 1210, 1215, n.4 (6th Cir. 1987).

See also White Consolidated Industries, Inc. v. McGill Manufacturing Co., 165 F.3d 1185 (8th Cir. 1999). While the buyer’s language (“the issuance of this Purchase Order by Buyer shall constitute an acceptance of such offer subject to the express condition that the Seller assent that this Purchase Order constitutes the entire agreement between Buyer and Seller”) does not track the statute, the court correctly avoided requiring the U.C.C.’s exact language to form a § 2-207(1) counter-offer.

41 Verasun Fort Dodge, L. L. C. v. Industrial Air Technology Corp., 2008 U.S. Dist. LEXIS 99292 (N.D. Iowa Nov. 25, 2008).

42 Polytop Corp. v. Chipsco, Inc., 826 A.2d 945 (R.I. 2003); Phillips Petroleum Co. v. Bucyrus-Erie Co., 125 Wis. 2d 418, 373 N.W.2d 65 (Ct. App. 1985), rev’d on other grounds, 131 Wis. 2d 21, 388 N. W. 2d 584 (1986).

43 SFEG Corp. v. Blendtec, Inc., 2017 U.S. Dist. LEXIS 12413 (M.D. Tenn. Jan. 30, 2017); Conexant Sys., Inc. v. Zykronix, Inc., 2016 U.S. Dist. LEXIS 93203 (C.D. Cal. July 11, 2016); Mark Andy, Inc. v. Heat Techs., 2015 U.S. Dist. LEXIS 44008 (E.D. Mo. Apr. 3, 2015); C. Itoh & Co. v. Jordan International Co., 552 F.2d 1228 (7th Cir. 1977); Man Ferrostaal Inc. v. Winner Steel Servs., 2007 U.S. Dist. LEXIS 89109 (W.D. Pa. Nov. 19, 2007); Deere & Co. v. Ohio Gear, 462 F.3d 701 (7th Cir. 2006); Costal & Native Plant Specialties, Inc. v. Engineered Textile Products, Inc., 139 F. Supp. 2d 1326 (N.D. Fla. 2001); PCS Nitrogen Fertilizer, L.P. v. Christy Refractories, L.L.C., 225 F. 3d 974 (8th Cir. 2000); Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440 (9th Cir. 1986); Dresser Industries, Inc., Waukesha Engine Div. v. Gradall Co., 702 F.Supp. 726 (E.D. Wis. 1988).

44 C. Itoh & Co. v. Jordan Int’l Co., 552 F.2d 1228 (7th Cir. 1977).

45 Deere & Co. v. Ohio Gear, 462 F. 3d 701, 707–708 (7th Cir. 2006); Tacoma Fixture Co., Inc. v. Rudd Co., Inc., 142 Wn. App. 547, 174 P.3d 721 (Wash. 2008), review denied, 164 Wn. 2d 1006, 190 P.3d 55 (2008).

If the forms have the same arbitration provision, the arbitration provision will be enforced. Brett Fabrics, Inc. v. Garan, 170 A.D.2d 253, 565 N.Y.S.2d 521 (1991), appeal dismissed, 77 N.Y.2d 810, 571 N.Y.S.2d 913, 575 N.E.2d 399 (1991). Sanmina-Sci Corp. v. Pace United States, Cal. App. Unpub. LEXIS 4765 (Cal. App. July 7, 2015), review denied, 2015 Cal. LEXIS 7986 (Oct. 14, 2015) (arbitration clause did not become part of contract by conduct since parties’ forms did not agree on arbitration).

See Frank M. Booth, Inc. v. Reynolds Metals Co., 754 F. Supp. 1441 (E.D. Cal.1991), which largely relied on the analysis found in Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440 (9th Cir. 1986). One aspect of that analysis is as follows: “The Diamond Fruit Growers court noted that the application of § 2-207(3) was appropriate even though the seller might find itself assuming a greater degree of liability than it intended: ‘The seller is most responsible for the ambiguity because it inserts a term in its form that requires assent to additional terms and does not enforce that requirement. If the seller truly does not want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until it obtains the assent.’ ” 754 F.Supp. at 1447, quoting from 794 F.2d at 1445. The difficulty with this rationale is that it requires the party to bend its conduct to what the court holds to be the law, rather than recognizing that the basic thrust of the Uniform Commercial Code is to require the court to shape its rulings to conform to business practices. See U.C.C. § 1-103(a)(2).

The other pillar of the Diamond Fruit analysis applied in Frank M. Booth, Inc. was the “neutrality” principle. The court asserted that U.C.C. § 2-207 was intended to replace the “last shot” principle with a principle of neutrality. Neither party should gain a benefit based merely on the timing of the dispatch of forms. The neutrality principle is also embraced in Arizona Retail Systems, Inc. v. Software Link, Inc., 831 F. Supp. 759 (D. Ariz. 1993) (section 2-207 intended “to ensure that a party, usually the selling party, does not gain an advantage merely by being the last to send a form”). A neutrality principle is, in fact, impossible to detect in the drafting history of the Code and is not at all apparent in U.C.C. § 2-207(1) and (2), which distinctly announce a “first shot” principle that favors offerors. A neutrality principle surfaces only when the battle of the forms places the parties within the grasp of subdivision 3.

46 U.C.C. § 2-207 comment 7.

47 John E. Murray, Murray on Contracts § 51, n. 751 (5th ed. 2011).

48 C. Itoh & Co. (America) Inc. v. Jordan Intern. Co. 552 F.2d 1228 (7th Cir. 1977) (where acknowledgement form contained arbitration clause but purchase order did not, arbitration clause not part of contract); PCS Nitrogen Fertilizer, L.P. v. The Christy Refractories, L.L.C. 225 F.3d 974, 976 (8th Cir. 2000) (same); Textile Unlimited v. A. . BMH and Co., 240 F.3d 781 (9th Cir. 2001) (same); McJunkin Corp. v. Mechanicals, Inc., 888 F.2d 481(6th Cir. 1989) (remedy limitation in one form only did not become part of contract); Belden Inc. v. Am. Elec. Components, Inc., 885 N.E.2d 751 (Ind. App. 2008), review denied, 2008 Ind. App. LEXIS 1597 (July 11, 2008) (same).

Whoop, Inc. v. Ascent Int’l Holdings, Ltd., 2019 U.S. Dist. LEXIS 79087 (D. Mass. 2019)(arbitration provision was contained in one party’s form but not the other’s, so it did not become part of the contract).

49 Sanmina-Sci Corp. v. Pace United States, 2015 Cal. App. Unpub. LEXIS 4765 (Cal. App. 6th Dist. July 7, 2015), review denied, 2015 Cal. LEXIS 7986 (Oct. 14, 2015) (§ 2-207(3) limits the contract to the terms on which their writings expressly agree, along with gap-filler provisions from the Commercial Code); Frank M. Booth, Inc. v. Reynolds Metals Co., 754 F. Supp. 1441 (E.D. Cal. 1991) (implied warranties of the Code became part of the contract by conduct).

“Unless displaced by the particular provisions of [the Uniform Commercial Code], the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.” U.C.C. § 1-103(b).

50 Dresser Industries, Inc., Waukesha Engine Div. v. Gradall Co., 965 F.2d 1442 (7th Cir. 1992); SFEG Corp. v. Blendtec, Inc., 2017 U.S. Dist. LEXIS 12413 (M.D. Tenn. Jan. 30, 2017); Fleming Cos. v. Krist Oil Co., 324 F. Supp. 2d 933 (W.D. Wis. 2004).

51 U.C.C. § 1-103(a).

52 Frank M. Booth, Inc. v. Reynolds Metals Co., 754 F. Supp. 1441 (E.D. Cal. 1991); Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440 (9th Cir. 1986).

A decision that makes this point—and provides a cogent analysis of § 2-207 counter-offers—is Judge Philip Gutierrez’s decision in Niagara Bottling v. Rite-Hite Co., 2019 U.S. Dist. LEXIS 70511 (C.D. Cal. Feb. 11, 2019). Niagara purchased numerous dock levelers from Rite-Hite, but subsequently, Niagara claimed that the dock levelers did not conform to specifications, causing Niagara millions of dollars in damages. Niagara filed suit, and Niagara and Rite-Hite disagreed about the proper forum for its resolution. Rite-Hite’s quote (which the court characterized it as the offer) provided for venue in Wisconsin, and Niagara’s purchase order provided for venue in California. Rite-Hite filed a motion to dismiss based on the forum selection clause in its quote. The court denied the motion. It pointed out that Niagara’s purchase orders contained the following on every page: “All purchases made by Niagara are hereby expressly conditioned upon Seller’s acceptance of, and agreement to abide by, Niagara’s ‘Standard Purchase Terms & Conditions,’ without alteration or addition of Seller’s terms.” The court held that this constituted a counter-offer pursuant to the words after the comma in U.C.C. § 2-207(1), which provides that an expression of acceptance that contains additional or different terms operates as an acceptance “unless acceptance is expressly made conditional on assent to the additional or different terms.” Thus, there was no contract formed pursuant to the exchange of forms. Because of this, the court correctly did not consider § 2-207(2).

“So now what?” the court asked. Niagara argued that in the face of Niagara’s counter-offer, Rite-Hite proceeded to accept Niagara’s terms—by performing the contract. The court correctly rejected this argument because it would lead to precisely the same result as the common law analysis that U.C.C. § 2-207 was designed to reject—it “ ‘would effectively resurrect the much-maligned common law ‘last shot rule.’ ” The court explained that when a § 2-207(1) counteroffer is made, the original offeror assents to the terms of the counter-offer “ ‘only if it makes ‘a specific and unequivocal expression of assent.’ ” Here, there was no such unequivocal expression of assent.

If there is no contract formed via the exchange of forms, then § 2-207(3) applies: “Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.” The court explained that application of this section puts sellers at a disadvantage, but that this is not unjust:

The Ninth Circuit has acknowledged that this rule may generally operate to the detriment of sellers, because the seller is generally the party who wishes “to undertake less responsibility for the quality of his goods than the Code imposes.” [Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1445 (9th Cir. 1986).] But it concluded that this was not an unjust result because “[t]he seller is most responsible for the ambiguity because it inserts a term in its form that requires assent to additional terms and then does not enforce that requirement.” Id. It noted that sellers who truly do not want to be bound unless the buyer agrees to their terms can protect themselves by not shipping until they get that agreement. Id.

But, of course, this seller—like other sellers—proceeded to perform even though there was no contract on the forms exchanged—and the buyer, Niagara, performed, too. “Rite-Hite delivered and installed the dock levelers, and Niagara paid for them.” The forms did not agree on the forum for dispute resolution, so pursuant to § 2-207(3), “neither forum selection clause is incorporated into the contract.” Thus, the contract-by-conduct had no forum selection clause, and the court denied Rite-Hite’s motion to transfer the case to Wisconsin based on the forum selection clause in its quote.

53 See U.C.C. § 1-103(a)(2).

A judicial decision that correctly analyzed a contract by performance under U.C.C. § 2-207(3) was Vaporpath, Inc. v. WNA, Inc., 2019 U.S. Dist. LEXIS 208253 (W.D. Wash. Dec. 3, 2019). Vaporpath purchased coffee lids from WNA by sending purchase orders to WNA that contained terms and conditions stating: “BUYER EXPRESSLY OBJECTS TO AND EXPRESSLY REJECTS ANY PROVISIONS ADDITIONAL TO OR DIFFERENT THAN THE TERMS HEREOF. …” The terms and conditions also included a forum selection clause requiring resolution of disputes in Washington state. WNA responded by shipping the coffee lids and including order confirmations with WNA’s own terms and conditions that stated: “Acceptance of Buyer’s order is expressly made conditional on assent to the terms and conditions set forth herein … .” WNA’s terms and conditions included a mandatory forum selection clause requiring resolution of disputes in Texas for some orders, and for later orders, South Carolina (after WNA was purchased by another company). A dispute erupted over the quality of the coffee lids. Vaporpath filed suit in federal court in Washington, consistent with the terms and conditions in its purchase orders’ terms and conditions. WNA moved to dismiss or transfer venue claiming that its own forum selection clause governed. Thus, both parties claimed that their forum selection clause was binding. The court resolved the dispute by reference to U.C.C. § 2-207. It explained that WNA expressly conditioned acceptance on Vaporpath’s assent to the terms in WNA’s order confirmation form. “[U]nder § 2-207(1) if the ‘definite and seasonable expression of acceptance expressly conditions acceptance on the offeror’s assent to additional or different terms contained therein, the parties’ differing forms do not result in a contract unless the offeror assents to the additional terms.’ ” Id. at *8, quoting Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1443 (9th Cir. 1986). Since the original offeror (here, Vaporpath) did not assent to terms of the original offeree (WNA), but the parties performed as if they had a contract anyway, they had a contract by performance under U.C.C. § 2-207(3). The court explained: “The terms of the contract are the terms that the parties’ forms agree on, plus any terms supplied by the UCC. [Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440 (9th Cir. 1986).] ‘All of the terms on which the parties’ forms do not agree drop out’ of the contract. Diamond Fruit, 794 F.2d at 1444 (noting that § 2-207(3) gives neither party the terms it attempted to unilaterally impose).” Id. at *8-9. The court wrote: “Any terms that the parties’ forms agreed on became part of the contract, and conflicting terms ‘knocked each other out.’ The parties’ mandatory forum selection clauses conflict because each clause establishes exclusive jurisdiction in a different court. As a result, neither party’s forum selection clause became part of the contract.” Id. at *9. The court denied WNA’s motion. (The court should not have used the phrase “”knocked each other out”—the so-called “knockout” rule should not be used in the context of U.C.C. § 2-207(3)—it should be reserved to discussions of § 2-207(2)—but the reader gets the gist of it, and the analysis is otherwise correct.)

Another judicial decision that correctly analyzed a contract by performance under U.C.C. § 2-207(3): Hydraulics Int’l, Inc. v. Amalga Composites, Inc., 2020 U.S. Dist. LEXIS 21709 (D. Utah Feb. 6, 2020). Plaintiff, a Utah corporation with its principal place of business in Utah, purchased fiberglass filament wound spools from defendant, a Wisconsin corporation with its principal place of business in Wisconsin. The plaintiff/buyer sent defendant/seller its terms and conditions document containing a Utah forum selection clause. In response, defendant sent a sales acknowledgment with its own terms—including a Wisconsin forum selection clause. Those terms from the defendant/seller included the following:

AMALGA COMPOSITES, INC. (“Seller”) shall sell the goods identified on the face of this order confirmation to customer, and customer shall purchase such 4 DocID: 4848-9006-4290.5 goods from seller, subject to these terms and conditions (“Terms”), and the rights of the parties shall be governed exclusively by these terms. Any term, condition and/or provision of customer’s order which is any way inconsistent with these terms shall not be applicable hereto or binding upon seller. Customer, by accepting any goods covered by these terms, shall conclusively be deemed to accept these terms. Seller’s failure to object to terms, conditions and/or provisions in any communication by customer will not be a waiver of any terms contained herein. If this order confirmation is issued in response to a prior purchase order or other writing submitted by customer to seller, and such form contains terms, conditions and/or provisions which are additional to, different from or vary these terms, seller’s acceptance shall be expressly conditioned upon customer’s assent to these terms.

The defendant shipped and the plaintiff accepted the spools, and eventually, plaintiff filed this action, claiming that the spools were defective. Defendant moved to dismiss the complaint for lack of personal jurisdiction and/or to transfer venue. This was a classic “battle of the forms” dispute. According to U.C.C. § 2-207(1), if the seller’s response states that it is “expressly made conditional on assent” to its terms, there is no contract, and the seller’s response constitutes a counteroffer. The court concluded that the language in defendant/seller’s terms constituted a U.C.C. § 2-207(1) counteroffer—and correctly so, since the seller’s form includes this: “seller’s acceptance shall be expressly conditioned upon customer’s assent to these terms.” The court explained: “Defendant expressly conditioned their acceptance to Plaintiff’s assent to the terms of Defendant’s terms and conditions. The parties’ combined writings did not establish a contract under section 2-207(1) because Plaintiff did not expressly assent to Defendant’s different terms. The parties proceeded with their transactions as if they had a contract, which led to the formation of a contract under section 2-207(3).” The matching terms in the two forms became part of the contract; the conflicting terms “knocked each other out.” The court concluded that “neither party’s forum selection clause became part of the contract.” A correct result. The court went on to conclude that “Defendant lacks sufficient minimum contacts such that the court may exercise personal jurisdiction over Defendant.” The court granted the motion to dismiss.

54 “A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon … .” § 2-207(1).

55 Corus Am., Inc. v. Int’l Safety Access Corp., 2009 U.S. Dist. LEXIS 118838, *14 (N.D. Ill. Dec. 22, 2009).

56 U.C.C. § 2-207 comment 3.

57 See Providence & W.R. Co. v. Sargent & Greenleaf, 802 F. Supp. 680, 685, n. 2 (D.R.I. 1992).

58 Quality Wood Designs, Inc. v. Ex-Factory, Inc., 40 F. Supp. 3d 1137 (D.S.D. 2014); Keywell, L.L.C. v. Perkinelmer, Inc., 2013 U.S. Dist. LEXIS 121000 (W.D.N.Y. Aug. 26, 2013); Providence & W.R. Co. v. Sargent & Greenleaf, 802 F. Supp. 680, 685, n. 2 (D.R.I. 1992).

59 The court in Frix v. Integrity Med. Sys., 2017 U.S. Dist. LEXIS 152961 (W.D. Tenn. Sept. 20, 2017), refused to define a physician who owned medical clinics as a “merchant” when he purchased medical equipment because someone in his occupation does not as a matter of law hold himself out as having skills or knowledge peculiar to the sale or installation of the goods being purchased. Such a narrow interpretation likely would turn a substantial portion of the “battle of the forms” scenarios decided in the judicial decisions into transactions involving a non-merchant. It is difficult to believe that the drafters intended such a result.

60 Even material terms become part of the contract under this provision when they are “expressly agreed to” by the offeror. U.C.C. § 2-207 comment 3. Where the seller-offeror signed the acceptance that contained a term, written in longhand on the first page, “Supplier warrants that he will provide equipment to meet specifications …,” the seller expressly agreed to this term, even though it conflicted with the warranty disclaimer term in the offer. Boese-Hilburn Co. v. Dean Machinery Co., 616 S.W.2d 520, 22 A.L.R. 4th 925 (Mo. App. 1981).

Whether there has been assent to the additional or different term may constitute a question of fact. Ralph Shrader, Inc. v. Diamond International Corp., 833 F.2d 1210 (6th Cir. 1987); Dresser Industries, Inc., Waukesha Engine Div. v. Gradall Co., 702 F.Supp. 726 (E.D. Wis. 1988). See International Tin Council v. Amalgamet Inc., 138 Misc. 2d 383, 524 N.Y.S.2d 971 (1988), aff’d without op., 140 A.D.2d 1014, 529 N.Y.S.2d 983 (1988) (written confirmations were signed by the offeror).

61 “The Code does not explain … what happens if the offeree’s response contains different terms (rather than additional ones) within the meaning of section 2-207(1).” Northrop Corp. v. Litronic Indus., 29 F.3d 1173, 1175 (7 th Cir. 1994) (Posner, J.).

62 Comment 3 outright states: “Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2).” The notion that the drafters of original § 2-207 would deliberately avoid mentioning “different” in § 2-207(2) without any comment explaining it taxes credulity. There is a plausible argument that the omission of “different” was an inadvertent drafting error. See John L. Lutz, More on the Battle of the Forms: the Treatment of “Different” Terms Under the Uniform Commercial Code, 15 UCC L.J. 103, 110–12 (1983).

63 See Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. 1984); Flender Corp. v. Tippins International, Inc. 830 A. 2d 1279, 1286 (Pa. Super. 2003). In Northrop Corp. v. Litronic Indus., 29 F.3d 1173, 1175 (7th Cir. 1994), Judge Posner suggested it was a drafting error but was constrained by precedent to apply the “knockout” view, discussed infra.

Even if “different” had been included in § 2-207(2), there would still likely be inordinate confusion. Attempts to distinguish “additional” and “different” “is hair-splitting (‘metaphysical,’ ‘casuistic,’ ‘semantic,’ in the pejorative senses of these words) because all different terms are additional and all additional terms are different.” Northrop Corp. v. Litronic Indus., 29 F.3d 1173, 1175 (7th Cir. 1994) (quoting Douglas G. Baird & Robert Weisberg, “Rules, Standards, and the Battle of the Forms: A Reassessment of Section 2-207,” 68 Va. L. Rev. 1217, 1246 (1982)).

A vivid illustration of the problem is Section 2-207(2)(b), which excludes additional terms that “materially alter” the terms of the offer in a contract between merchants. An ordinary dictionary definition of “alter” is “to make different without changing into something else … .” Merriam-Webster, https://www.merriam-webster.com/dictionary/alter (last visited May 23, 2018).

64 General Steel Corp. v. Collins, 196 S.W.3d 18 (Ky. Ct. App. 2006); Power Paragon, Inc. v. Precision Tech. USA, Inc., 2009 U.S. Dist. LEXIS 21363 (W.D. Va. Mar. 17, 2009); Richardson v. Union Carbide Indus. Gases, Inc., 347 N.J. Super. 524, 534, 790 A.2d 962, 968 (2002). See also, Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. 1984); Flender Corp. v. Tippins International, Inc. 830 A. 2d 1279, 1286 (Pa. Super. 2003); Luna Innovations Inc. v. Verner Sci., Inc., 2017 U.S. Dist. LEXIS 63002 (W.D. Va. April 25, 2017); Reaction Molding Technologies, Inc. v. General Electric Co., 588 F. Supp. 1280 (E.D. Pa. 1984); Haider Ala Hamoudi, The American Commercial Religion, 10 DePaul Bus. & Comm. L.J. 107 (2012).

65 Examples of cases that have applied this rule: Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. Kan. Aug. 17, 1984); Memphis-Shelby County Airport Auth. v. Ill. Valley Paving Co., 2006 U.S. Dist. LEXIS 79970 (W.D. Tenn. Nov. 1, 2006); Northrop Corp. v. Litronic Indus., 29 F.3d 1173 (7th Cir. Ill. July 18, 1994).

There are views other than the “knockout” view: under one view, the offeror’s terms automatically prevail. Another view assimilates “different” to “additional” under the statute. Richardson v. Union Carbide Indus. Gases, Inc., 347 N.J. Super. 524, 534, 790 A.2d 962, 968 (2002) (see the cases cited for these positions).

See also Oakley Fertilizer, Inc. v. Continental Ins. Co., 276 S.W.3d 342 (Mo. App. 2009) (Missouri courts treat “different” terms as if they were “additional” terms under § 2-207(2)).

Ultraflex Sys. of Fla. v. Veritev Operating Co., 2019 U.S. Dist. LEXIS 221506 (D. N.J. Dec. 27, 2019) provides a striking defense of the knockout rule. Defendant purchased commercial materials for digital printing from plaintiff via the exchange of forms. Defendant’s purchase order contained a forum-selection clause requiring resolution of disputes in Delaware courts. Plaintiff sent a sales order confirmation in response that contained its own forum-selection clause requiring resolution of disputes in New Jersey courts. A dispute arose over the quality of some product shipped, and this litigation followed. Defendant moved to transfer the case to the United States District Court for the District of Delaware in accordance with the forum-selection clause in defendant’s form. The court denied the motion and held that neither party’s forum selection clause became part of the contract. The competing forum-selection clauses were expressly different. The court predicted that both New Jersey and Delaware would follow the knockout rule, so U.C.C. § 2-207(2) did not apply to resolve the question of whose terms applied. The knockout rule requires expressly different terms to be excised. The court provided this rationale for that rule:

“Advocates of the knockout rule interpret Comment 6 to require the cancellation of terms in both parties’ documents that conflict with one another, whether the terms are in confirmation notices or in the offer and acceptance themselves.” Reilly Foam Corp. v. Rubbermaid Corp., 206 F. Supp. 2d 643, 654 (E.D. Pa. 2002) (emphasis added). An additional rationale for the knockout rule flows from the U.C.C.’s rejection of the anachronistic mirror-image rule that existed at common law. Under the mirror-image rule, any difference in the terms between the parties’ writings converted the putative acceptance into a counteroffer. See [Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 99 (3d Cir. 1991)].

If the offeror proceeded with the contract despite the differing terms of the supposed acceptance, he would, by his performance, constructively accept the terms of the “counteroffer”, and be bound by its terms. As a result of these rules, the terms of the party who sent the last form, typically the seller, would become the terms of the parties’[] contract.

Id. The impetus for U.C.C. § 2-207 was the belief that “it would be unfair to bind the buyer of goods to the standard terms of the seller, when neither party cared sufficiently to establish expressly the terms of their agreement, simply because the seller sent the last form.” Id.

Courts that have adopted the knockout rule have expressed similar sentiments about not binding the offeree to the boilerplate terms of the offer when those terms were not deemed sufficiently important to be negotiated by the parties:

One should not be able to dictate the terms of the contract merely because one sent the offer. Indeed, the knockout rule recognizes that merchants are frequently willing to proceed with a transaction even though all terms have not been assented to. It would be inequitable to lend greater force to one party’s preferred terms than the other’s. As one court recently explained, “An approach other than the knockout rule for conflicting terms would result in … [] any offeror … [] always prevailing on its terms solely because it sent the first form. That is not a desirable result, particularly when the parties have not negotiated for the challenged clause.”

Reilly Foam Corp. v. Rubbermaid Corp., 206 F. Supp. 2d 643, 653–54 (E.D. Pa. 2002) (alterations in original) (quoting Richardson v. Union Carbide Indus. Gases, Inc., 347 N.J. Super. 524, 790 A.2d 962, 968 (N.J. Sup. Ct. App. Div. 2002)).

The court was “persuaded” by this rationale and held that “it is the most equitable approach.” The court added: “Defendant, as the offeror, had the opportunity to include the litigation provisions among the dickered terms if it deemed those provisions to be of sufficient importance. The inclusion of disagreeable terms should not depend on which party initiated the transaction.”

66 Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. 1984); Vulcan Auto. Equip., Ltd. v. Global Marine Engine & Parts, Inc., 240 F. Supp. 2d 156 (D.R.I. 2003).

67 That comment includes the following: “Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) [2-207(2)(c)] is satisfied and the conflicting terms do not become part of the contract.”

68 E. Allan Farnsworth, Contracts at 170 (3d ed. 1999). Farnsworth’s concern is illustrated by decisions applying the “knockout” rule. A good example of the effect of the “knockout view” is Tyco Elecs. Corp. v. Milwaukee Elec. Tool Co., 2012 U.S. Dist. LEXIS 145212 (M.D. Pa. Oct. 9, 2012). The defendant sent a purchase order that expressly limited acceptance to the terms of the offer pursuant to § 2-207(2)(a). As discussed below, consistent with the general U.C.C. Article 2 view that the offeror is the master of the offer, subsection (2)(a) allows the offeror to expressly limit acceptance to the terms of the offer (provided the offeror tracks the safe harbor language of subsection (2)(a))—and this will preclude material or immaterial additional terms in the offeree’s response. One of the defendant’s purchase order terms allowed the defendant to cancel the order. In response, the plaintiff’s acknowledgment contained an expressly conflicting clause permitting the plaintiff to collect up to the full purchase price for a cancelled order. The court concluded that the plaintiff’s term was “different” rather than “additional” and, as such, it cancelled (knocked out) the defendant’s cancellation clause, leaving a gap. The court concluded that the gap could be filled in this particular case by the parties’ course of dealing, but if there had not been a course of dealing, there would be no gap filler—and the defendant would have breached the contract. Thus, despite the primacy of the offeror under Article 2, if there are expressly “different” boilerplate terms, § 2-207(2)(a) does not apply, and the safe harbor of subsection (2)(a) that favors offerors is inapplicable.

In Memphis-Shelby County Airport Auth. v. Illinois Valley Paving Co., 2006 U. S. Dist. LEXIS 79970 (W. D. Tenn. 2006), seller’s offer included a disclaimer of warranties and an exclusion of consequential damages but buyer’s acceptance contained contrary clauses. The court found that the exchange of forms created a contract under § 2-207(1), and that the “different” terms were excised from the contract. The gaps were filled by the U.C.C.—including the implied warranty of merchantability and allowance of consequential damages, provisions contrary to provisions expressly contained in the offer.

In Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. 1984), the leading “knockout rule” case, seller’s offer shortened the statute of limitations to one-year. In response, the buyer’s acceptance contained a “reservation in its boilerplate warranties provision of all its rights and remedies available at law.” Id. at 1577. The court refused to ignore the buyer’s provision, despite its generality, and concluded that it was—in the parlance of § 2-207—“different” from the buyer’s express provision shortening the statute of limitations. The court explained that the buyer’s “explicit reservation impliedly reserves the statutory period of limitations” of four years under U.C.C. § 2-725—again, despite the fact that the reservation was couched in the most general terms. The allegedly conflicting clauses were “knocked out,” and the gap was filled by the default statutory limitations period of four years, thwarting the express provision in the seller’s offer. This holding suggests that buyers should tack on such general language in their forms (in addition to language targeting specific rights) to force a holding that any deviation from the default rules of the U.C.C. or common law will be deemed a “different” term under § 2-207, thus knocking out the terms deviating from the default rules. Since critical default provisions in the U.C.C. favor buyers, if courts were to treat such provisions as “different” under § 2-207, this would give buyers a decided advantage in winning the “battle of the forms.” (But one court held that U.C.C. terms are implied in a purchase order when it is used as an offer, but not when it is construed as an acceptance. See Phillips Petroleum Co. v. Bucyrus-Erie Co., 125 Wis. 2d 418, 373 N.W.2d 65 (Ct. App. 1985), rev’d on other grounds, 131 Wis. 2d 21, 388 N.W.2d 584 (1986)).

69 Idaho Power Co. v. Westinghouse Elec. Corp., 596 F.2d 924 (9th Cir. 1979); Polyclad Laminates, Inc. v. VITS Maschinenbau GmbH, 749 F. Supp. 342 (D.N.H. 1990); Selas Fluid Processing Corp. v. Ultra-Cast, Inc., 2004 U.S. Dist. LEXIS 13906 (E.D. Pa. July 20, 2004).

The “knockout” view is highly reminiscent of the excision of non-matching terms under § 2-207(3) (dealing with contracts by conduct following a § 2-207(1) counter-offer). The difference is that an express term that conflicts with an implied term likely will be excised under § 2-207(3) while the “knockout” view applies only to expressly conflicting terms under a contract created by the exchange of forms.

70 U.C.C. § 2-207(2).

71 Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332, 1341 (D. Kan. 2000); McCaulley v. Neb. Furniture Mart, Inc., 21 Neb. Ct. App. 125, 838 N.W.2d 38, 46 (Neb. Ct. App. 2013); Quality Wood Designs, Inc. v. Ex-Factory, Inc., 40 F. Supp. 3d 1137 (D.S.D. 2014).

72 Crossley Constr. Corp. v. NCI Bldg. Sys., L. P., 123 Fed. App’x 687, 691 (6th Cir. 2005). See SSAB Ala., Inc. v. Kem-Bonds, Inc., 2017 U.S. Dist. LEXIS 211971 (S.D. Ala. Dec. 27, 2017) (language tracking both § 2-207(a) and (c)); Mecanique C.N.C., Inc. v. Durr Envtl., Inc., 304 F. Supp. 2d 971 (S.D. Ohio 2004) (offeree’s response was an implied objection to additional terms in offeree’s response under § 2-207(2)(c) that excluded such terms from the contract); AEP Indus. v. Thiele Techs. Inc., U.S. Dist. LEXIS 119151 (E.D. Wis. Sept. 2, 2016) (offer “expressly limited” AEP’s acceptance to Thiele’s terms and conditions, and expressly rejected any modification of its terms and conditions absent express and separate written agreement).

73 John E. Murray, Murray on Contracts § 51 (5th ed. 2011). See Stemcor USA, Inc v. Trident Steel Corp., 471 F. Supp. 2d 362, 369–70 (S.D.N.Y. 2006).

This is generally a question of law (see, e.g., Alloys Int’l v. Aeronca, Inc., 2012 U.S. Dist. LEXIS 45859 (S.D. Ohio April 2, 2012)). But not all courts get this right. An example of a case that seems wrongly decided is Fastenal Co. v. Am. Piping Prods., 2020 U.S. Dist. LEXIS 40263 (E.D. Mo. March 9, 2020). Defendant American Piping sold pipe to plaintiff Fastenal Company pursuant to an exchange of forms without a single signed document. The order was initiated by plaintiff-buyer’s purchase order, which included this language, likely drafted with the intent to mirror UCC § 2-207(2)(a) and prevail in a battle of the forms scenario: “By accepting this Purchase Order, the Vendor (’Supplier) agrees that this transaction is subject to Fastenal’s Purchase Order Terms and Conditions and Code of Conduct. … . All goods supplied to Fastenal pursuant to this Purchase Order will be subject to these Purchase Order Terms and Conditions, unless otherwise agreed to in writing by Fastenal.” In addition, “No terms or conditions in any acceptance, confirmation, acknowledgment or invoice from the Supplier … inconsistent with this Purchase Order (’P.O.’) shall apply unless approved in writing by Fastenal.” Defendant-seller shipped the ordered pipe and sent its own sale acknowledgement form, which included a merger clause but no language tracking UCC § 2-207(1) (after the comma) to create a UCC §2-207 counteroffer. Both parties’ forms contained different terms. Subsequently, the plaintiff-buyer claimed that the pipe it purchased was nonconforming, and it sued for breach of warranty. The defendant moved to dismiss, arguing that its sales acknowledgement terms were the operative contractual terms, and that those terms included a limitation on damages to the price paid—which would bring this action under the jurisdictional threshold for diversity jurisdiction of $75,000. (The sales acknowledgment also included a warranty disclaimer.) Despite the fact that the issues before the court were straightforward issues of law for the court to decide, the court refused to dismiss the action—writing that this case involves questions of fact. To support this conclusion, the court referenced the remedies limitations, and noted that whether these were reasonable is a fact question. In addition, it suggested that a determination about whether the terms in the sales acknowledgement materially altered the offer was a fact question. But those factual disputes have nothing to do with the two questions the court should have answered here: (1) whether a contract was formed, and (2) what were its terms. For example, whether the plaintiff-buyer’s purchase order form contained language that adequately tracked UCC § 2-207(2)(a) is a legal question that the court should have decided here—that would have decided the battle of the forms issue. Moreover, whether the acknowledgement form’s terms materially altered the offer per UCC § 2-207(2)(a) need not even be answered if the purchase order form adequately mirrored UCC § 2-207(2)(a).

74 Statement of Karl Llewellyn, 1 New York Law Revision Commission Hearings on the Uniform Commercial Code 56 (1954).

75 UCC § 2-207, Comment 4. Comment 5 to § 2-207 characterizes the surprise necessary as “unreasonable surprise,” suggesting that some “surprise” is reasonable. The cases generally mirror the “surprise or hardship” analysis. See, e.g., Bayway Ref. Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219, 223 (2d Cir. 2000); JOM, Inc. v. Adell Plastics, Inc., 193 F.3d 47 (1st Cir. 1999); In re Chateaugay, 162 B.R. 949 (Bankr. S.D.N.Y. 1994); Maxon Corp. v. Tyler Pipe Indus., Inc., 497 N.E.2d 570, 576 (Ind. Ct. App. 1986); Trans-Aire Int’l, Inc. v. Northern Adhesive Co., 882 F.2d 1254 (7th Cir. 1989); Dale R. Horning Co. v. Falconer Glass Indus., Inc., 730 F. Supp. 962 (S.D. Ind. 1990). See also, Union Carbide Corp. v. Oscar Mayer Foods Corp., 947 F.2d 1333, 1336 (7th Cir. 1991) (“An alteration is material if consent to it cannot be presumed.”).

76 Timothy Davis, U.C.C. Section 2-207: When Does an Additional Term Materially Alter a Contract?, 65 Cath. U.L. Rev. 489, 503 (2016). See Bayway Ref. Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219 (2d Cir. 2000).

For a discussion of whether the phrase in the comment mentioning surprise and hardship regards these as alternative grounds, see Union Carbide Corp. v. Oscar Mayer Foods Corp., 947 F.2d 1333 (7th Cir.1991) (Posner, J.).

77 Bayway Ref. Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219 (2d Cir. 2000); In re Chateaugay, 162 B.R. 949 (Bankr. S.D.N.Y. 1994).

78 Corneill A. Stephens, Escape from the Battle of the Forms: Keep it Simple, Stupid, 11 Lewis & Clark L. Rev. 233, 248 (2007).

79 The comments to § 2-207 were at issue in Packgen v. Berry Plastics Corp., 973 F. Supp. 2d 48 (D. Me. 2013). Packgen offered to purchase two products manufactured by Berry. After the products were shipped, Berry sent invoices with respect to both products that contained its standard terms, including a clause reducing the four-year statute of limitations under the Uniform Commercial Code (§ 2-725) to one year. The court noted that confirmations under § 2-207(1) are treated as if they are acceptances. The question was whether the reduction in the statute of limitations period was a material alteration of the contracts already formed under § 2-207(2)(b). While comment 5 to § 2-207 suggests that “a clause fixing a reasonable time for complaints within customary limits” is not a material alteration and, therefore, would become part of the contract, comment 4 suggests that a clause requiring that complaints be made in a time materially shorter than customary or reasonable would be a material alteration that would not become part of the contract. While recognizing the possibility that the terms “customary” and “reasonable” might overlap in these examples, the court concluded that neither term should be treated as surplusage. Though other courts have viewed a reduction in the statute of limitations period as “reasonable,” the court was not convinced that a finding of reasonableness alone was sufficient since “a statute of limitations modification could be a ‘reasonable’ modification, but still materially alter the contract, if the term is ‘materially shorter than customary’ or otherwise results in unreasonable surprise or hardship to the buyer.” Concluding that a material question of fact remained as to whether Berry’s limitation to one year materially altered the contracts, the court denied Berry’s motion for summary judgment.

80 One commentator surveyed the cases dealing with this issue over the course of a decade. Timothy Davis, U.C.C. Section 2-207: When Does an Additional Term Materially Alter a Contract?, 65 Cath. U.L. Rev. 489 (2016). This exercise underscored the factually-intense nature of deciding cases under the materiality standard of § 2-207(2)(b).

81 Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 521–526 (2016). See Option Wireless Ltd. v. OpenPeak, Inc., 2012 U.S. Dist. LEXIS 172478 (S.D. Fla. Dec. 5, 2012) (material alteration); Intrastate Piping & Controls v. Robert-James Sales, Inc., 733 N.E.2d 718 (Ill. App. Ct. 2000) (not material); Altronics of Bethlehem, Inc. v. Repco, Inc., 957 F.2d 1102 (3d Cir. 1992) (material alteration); Pycsa Panama, S.A. v. Tensar Earth Techs., Inc., 625 F. Supp. 2d 1198, 1250–51 (S.D. Fla. 2008) (not material); Glyptal, Inc. v. Engelhard Corp., 801 F. Supp. 887 (D. Mass. 1992) (material alteration); Monarch Nutritional Labs., Inc. v. Maximum Human Performance, Inc., 2005 U.S. Dist. LEXIS 36000 (D. Utah July 18, 2005) (not material); Hydraform Prods. Corp. v. American Steel & Aluminum Corp. 127 N.H. 187, 498 A.2d 339 (1985) (not material); Kathenes v. Quick Food Stores, 596 F. Supp. 713 (D.N.J. 1984); Air Prods. & Chems., Inc. v. Fairbanks Morse, Inc. 58 Wis. 2d 193, 206 N.W.2d 414 (1973) (material alteration).

In Paul Gottlieb & Co. v. Alps South Corp., 985 So. 2d 1 (Fla. App. 2007), rehearing denied, 2008 Fla. App. LEXIS 14702 (March 7, 2008), the issue was whether a clause excluding consequential damages in the seller’s form was a material alteration. The clause appeared in capital letters on the back of the seller’s form. The trial court held that it was a material alteration and, thus, did not become part of the contract. On appeal, the court reversed. It agreed with cases placing the burden on the party seeking to exclude the alteration, then it discussed the nature of proof required to meet that burden. The court noted that the law in this area is not fully developed, but acknowledged the standard of “surprise or hardship” that guides courts in determining the materiality of an alteration. Since the contract at issue was the sixth between the two parties and each of the prior contracts included the limitation of liability term, the sole basis for claiming surprise was that the buyer had not read the contract. The court dismissed that reason under Florida law, which has never excused a party from a contract simply because he or she failed to read it. The court was also unpersuaded by any alleged hardship to the buyer since the seller never represented in any fashion that it would reimburse the buyer for consequential damages. There was no evidence of the buyer informing the seller of any consequences for breach other than discontinuing their relationship. Finally, the court emphasized that the clause only excluded consequential damages. The buyer could still recover direct and incidental damages, which, the court noted, would fulfill its expectation interest by placing the buyer in the position it would have been in had the contract been performed.

82 Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 517–520 (2016). See, e.g., Imperial Crane Servs. v. Cloverdale Equip. Co., No. 13 C 4750, 2015 U.S. Dist. LEXIS 104983 (N.D. Ill. Aug. 11, 2015) (material alteration); Monarch Nutritional Labs. v. Maximum Human Performance, Inc., 2005 U.S. Dist. LEXIS 36000 (D. Utah, July 18, 2005) (not material); Glyptal, Inc. v. Engelhard Corp., 801 F. Supp. 887 (D. Mass. 1992) (material alteration); R.O.W. Window Co. v. Allmetal, Inc., 367 Ill. App. 3d 749, 856 N.E.2d 55 (2006), rehearing denied, 222 Ill. 2d 623, 308 Ill. Dec. 640, 862 N.E.2d 238 (2007) (not material); Tuck Indus., Inc. v. Reinhold Chems., Inc. 542 N.Y.S.2d 676 (App. Div. 2d Dep’t 1989) (material alteration); In re Chateaugay, 162 B.R. 949 (Bankr. S.D.N.Y. 1994) (material alteration). Course of dealing has been held to be a factor in cases where these clauses are not material alterations.

83 See Bearden v. Great Lakes Produce & Mktg., 2013 U.S. Dist. LEXIS 74408 (W.D. Mich. May 28, 2013); U.C.C § 2-207, comment 5; Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 498 (2016). See In Plymouth Tube Co. v. Pilepro Steel, LP, 2017 U.S. Dist. LEXIS 173679, 2017 U.S. Dist. LEXIS 173679 (N.D. Ill. Oct. 19, 2017) (additional terms of interest, attorney’s fees, and costs held not material since parties had engaged in several transactions subject to the same provisions).

Bourdeau Bros. v. Boissonneault Family Farm, 2020 VT 35 (2020) explained that the question of whether an attorney’s fees clause is a material alteration is a question of fact. A grain supplier successfully sued farmers for unpaid grain bills but filed this appeal to recover its attorney’s fees. The trial court held that seller was not entitled to attorney’s fees despite language in the seller’s invoices submitted to buyer stating that seller would be entitled to such fees in the event of a collection action. The trial court held that this provision was a material alteration to the parties’ oral agreement and that the buyer never agreed to it. On appeal, the instant court applied U.C.C. § 2-207 to resolve the dispute. The court reversed and remanded because “the determination of whether an additional term materially alters a contract under § 2-207 requires a factual inquiry into the particular circumstances of each case,” and the trial court made no such factual inquiry. The court noted that under U.C.C. § 2-207, “an additional term is a material alteration if it would result in unreasonable surprise or hardship if incorporated without the buyer’s express awareness.” This determination depends on the facts of each case. “[T]he non-assenting party bears the burden of demonstrating that the additional term would result in surprise or hardship and so constitutes a material alteration to the contract.” The court explained: “[R]elevant factors to the materiality determination may include the prior course of dealing between the parties, the number of written confirmations provided by plaintiff, and whether the term reflects industry custom.” The court found unpersuasive the holdings in some courts that attorneys fees provisions were material alterations as a matter of law. If the buyer fails to demonstrate that the clause constituted surprise or hardship, the court suggested that the seller should prevail—and the clause should be deemed part of the contract. The court held as follows: “We adopt the majority approach and hold that the question of whether additional terms, including attorney’s fees provisions, materially alter a sales contract between merchants under § 2-207(2)(b) is a question of fact to be determined under the circumstances of the particular case.”

84 Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 511–516 (2016). See, e.g., Glencore Ltd. v. Degussa Engineered Carbons L.P., 848 F. Supp. 2d 410 (S.D. N.Y. 2012); REIS Robotics (China) Co. v. Miasole, Inc., 2017 U.S. Dist. LEXIS 49804 (N.D. Cal. Mar. 31, 2017).

85 Atl. Textiles v. Avondale Inc. (In re Cotton Yarn Antitrust Litig.), 505 F.3d 274 (4th Cir. 2007); Aceros Prefabricados, S.A. v. TradeArbed, Inc., 282 F.3d 92 (2nd Cir. 2002); Avedon Eng’g, Inc. v. Seatex, 126 F.3d 1279 (10th Cir. 1997).

See ICC Chem. Corp v. Vitol, Inc., 425 Fed. App’x 57 (2d Cir. 2011). The offeree’s confirmation, albeit containing additional terms—including an arbitration provision—still operated as an acceptance. If the arbitration term was a material alteration of the original terms it did not become part of the contract. Arbitration terms are not per se material terms. The determination of materiality is based on whether such a term would result in surprise or hardship if incorporated without awareness by the other party. “Surprise” incorporates both a subjective (actual knowledge) and objective (imputed knowledge—what a party should have known). To show surprise, a party must establish that, under the circumstances, it cannot be presumed that a reasonable merchant would have consented to the additional term. The offeror’s witness testified that “traders in the petroleum and chemical industries sometimes agree to arbitration, and sometimes do not.” Based in part upon this statement, the district court found that the offeror had failed to show that the arbitration provision would surprise or impose hardship on it.

86 E.g., Dumont Tel. Co. v. Power & Tel. Supply Co., 962 F. Supp. 2d 1064 (N.D. Iowa 2013); Hagrpota for Trading & Distrib., Ltd. v. Oakley Fertilizer Inc., 2010 U.S. Dist. LEXIS 62039 (S.D.N.Y. June 18, 2010), aff’d, 531 F. App’x 131, 2013 U.S. App. LEXIS 17828 (2d Cir. 2013).

87 Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 531–534 (2016). See Ridgelawn Cemetery Ass’n v. Granite Res. Corp., 2017 U.S. Dist. LEXIS 140740 (N.D. Ind. Aug. 31, 2017); Barrette Outdoor Living, Inc. v. Vi-Chem Corp., 2014 U.S. Dist. LEXIS 98363 (E.D. Tenn. July 21, 2014); Metropolitan Alloys Corp. v. State Metals Industries, Inc., 416 F. Supp. 2d 561 (E. D. Mich. 2006); Hugo Boss Fashions, Inc. v. Sam’s European Tailoring, 293 A. D. 2d 296, 742 N. Y. S. 2d 1 (2002).

Wainess v. Smilemakers, Inc., 2018 U.S. Dist. LEXIS 216404 (E.D. Mich. 2018). Plaintiff, a customer of defendant, initiated this action in connection with unsolicited faxes that allegedly did not comply with the Telephone Consumer Protection Act. Defendant filed a motion to transfer. In the course of their dealings, after a certain point in time, defendant started sending plaintiff invoices with terms and conditions on the reverse side. These terms and conditions included a forum selection clause establishing Spartanburg, South Carolina as exclusive venue for dispute resolution. The terms and conditions also contained a waiver of the buyer’s initiation or participation in class action proceedings. In assessing the enforceability of the forum selection clause, the court held that U.C.C. §2-207 applied. Without explanation, the court presumably treated the invoices as § 2-207(1) confirmations. (One court explained that “in each of the … cases finding that § 2-207 applied to the seller’s invoices, it appears as though the invoice was the first writing formalizing the seller’s acceptance.” Rocheux Int’l of N.J., Inc. v. U.S. Merchs. Fin. Group, Inc., 741 F. Supp. 2d 651, 678–679 (D. N.J. 2010). Instantly, the court does not say if other documents were sent prior to the invoices.) The court concluded that the forum selection clause was a material alteration under § 2-207(2)(b) that did not become part of the contract. Accordingly, transfer could not be based on the existence of the forum selection clause. The court proceeded to apply the other factors to assess the appropriateness of a transfer and concluded that transfer was not appropriate.

88 See Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir. 1972).

89 UCC § 2-207, Comment 1 states that the section was designed to deal with two typical situations: “[O]ne is the written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed.”

90 One court explained: “This ‘written confirmation’ refers to the writing necessary to make enforceable a contract that would otherwise be unenforceable under the U.C.C.’s statute-of-frauds provision.” Int’l Metal Sales, Inc. v. Global Steel Corp., 2010 Tex. App. LEXIS 2201, *30 (Tex. App. Austin Mar. 24, 2010), review denied, 2011 Tex. LEXIS 56 (Jan. 14, 2011). In Global Steel, however, the invoice sent after the parties’ oral agreement was not necessary to satisfy the statute of frauds and was not a confirmation.

91 John E. Murray, Murray on Contracts § 51 (5th ed. 2011). See also comment 6 to § 2-207: “Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract.”

92 Air Products & Chemicals, Inc. v. Fairbanks Morse, Inc., 58 Wis. 2d 193, 206 N.W.2d 414 (1973).

93 Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir.1991).

94 Frix v. Integrity Med. Sys., 2017 U.S. Dist. LEXIS 152961, *25 (W.D. Tenn. Sept. 20, 2017).

95 Rocheux Int’l of N.J., Inc. v. U.S. Merchs. Fin. Group, Inc., 741 F. Supp. 2d 651, 679 (D.N.J. 2010) (suggesting repeated confirmations not allowed); Monarch Nutritional Labs v. Maximum Human Performance, Inc., 2005 U.S. Dist. LEXIS 36000, at *13–14 (D. Utah July 18, 2005) (suggesting that there is nothing wrong with more than one confirmation).

See Wainess v. Smilemakers, Inc., 2018 U.S. Dist. LEXIS 216404 (E.D. Mich. 2018), discussed under note 87 of this § 3.37.

96 Rocheux Int’l of N.J., Inc. v. U.S. Merchs. Fin. Group, Inc., 741 F. Supp. 2d 651, 678 (D.N.J. 2010).

97 Rocheux Int’l of N.J., Inc. v. U.S. Merchs. Fin. Group, Inc., 741 F. Supp. 2d 651, 678 (D.N.J. 2010).

98 Dobson Bros. Constr. Co. v. Arr-Maz Prods., L.P 2013 U.S. Dist. LEXIS 195052 (D. Neb. May 7, 2013); IAP Worldwide Servs. v. UTi United States, Inc., 2006 U.S. Dist. LEXIS 4766 (E. D. Pa. Feb. 8, 2006).

99 Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 104 (3d Cir. 1991); Red Rocks Res. LLC v. Trident Steel Corp., 2017 U.S. Dist. LEXIS 54374 (W.D. Okla. April 10, 2017).

For descriptions of the split of authority, see Dobson Bros. Constr. Co. v. Arr-Maz Prods., L.P., 2013 U.S. Dist. LEXIS 195052 (D. Neb. May 7, 2013) and Timothy Davis, U.C.C. Section 2-207: When Does An Additional Terms Materially A Contract?, 65 Cath. U.L. Rev. 489, 498 (2016).

100 John E. Murray, The Definitive “Battle of the Forms”: Chaos Revisited, 20 J.L. & COM. 1, 22 (2000).

Compound Solutions, Inc., v. Corefx Ingredients, Llc, 10 11 Compound Solutions, 2020 U.S. Dist. LEXIS 118077 (S.D. Cal. July 6, 2020). CSI filed suit in California against CoreFX claiming that it received nonconforming products purchased in a series of transactions (the products were ingredients to be used for CSI’s dietary products). CSI filed a motion to transfer venue to a federal court in Illinois pursuant to a forum selection clause requiring that suit be brought in Illinois. The instant court granted the motion to transfer. The court described the parties’ sales transactions:

CSI and CoreFX followed the following course of dealings: (1) CSI would contact CoreFX regarding ingredients needed for CSI’s resale; (2) CoreFX would provide a specification sheet to CSI regarding the needed ingredients; (3) the parties would discuss the ingredients, pricing, and shipping details; (4) CSI would submit a purchase order to CoreFX; (5) CoreFX would accept CSI’s offer; (6) CoreFX would send a Certificate(s) of Analysis (“COA”) along with a Sales Order (“Sales Orders”); (7) CoreFX would send CSI a release of the shipment with anticipated shipping/delivery dates and would ship the ingredients to CSI; (8) CoreFX would issue and invoice; and (9) CSI would issue payment.

The forum selection clause was found in the Sales Orders issued by CoreFX. The court proceeded to conclude that there was no battle of the forms because there was only a single document:

Here, CSI’s application of UCC 2-207 is misguided as there were no proverbial battle of the forms issues here. CSI did not attempt to object, modify, or offer its own set of terms and conditions. The Terms and Conditions offered CSI an opportunity to object and provided the parameters for proposing alternative terms and conditions. … . If CSI wished to avoid the Forum Selection Clause, it should have expressly denied the clause rather than accepting the Sales Order, along with the Terms and Conditions, without any dispute.

The court added:

If CSI wished to avoid the Forum Selection Clause, it should have expressly denied the clause rather than accepting the Sales Order, along with the Terms and Conditions, without any dispute. … . Not only did CoreFX provide CSI with the Terms and Conditions on each Sales Order, but CSI was also provided an email confirmation after each transaction. See Doc. Nos. 15-7, 15-8, 15-9 (the email expressly notified CSI that the Terms and Conditions were provided in the email attachment). Therefore, the Terms and Conditions, more specifically the Forum Selection Clause, are incorporated into the parties’ agreement.

The court’s decision is not a model of clarity. The fact that only one confirming document was sent does not mean that there was no “battle of the forms.” However, when a document constituting an acceptance containing an additional term is repeatedly sent without objection from the offeror, some jurisdictions recognize that a course of dealing might be established to override any objection to materiality (under § 2-207(2)(b)) by the original offeror, thus under § 2-207(2), the term becomes part of the agreement between merchants in jurisdictions that find assent pursuant to such course of dealing. Jurisdictions are split as to whether such repeated sending of a such a document constitutes course of dealing. There is authority that California law does not accept the course of dealing theory. C9 Ventures v. SVC-W., L.P., 202 Cal. App. 4th 1483, 1488 (Cal. Ct. App. 2012). If that is so, then this decision appears to have been wrongly decided.

101 Dobson Bros. Constr. Co. v. Arr-Maz Prods., L.P., 2013 U.S. Dist. LEXIS 195052 (D. Neb. May 7, 2013) (reluctantly “consulted” § 2-207).

102 Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 104 (3d Cir. 1991).

103 John E. Murray, Revised Article 2: Eliminating the “Battle” and Unconscionability, 52 S. Tex. L. Rev. 593, 601 (2011).

104 Memorandum from the Permanent Editorial Bd. for the Unif. Commercial Code, Recommendation to Withdraw the 2003 Amendments to UCC Articles 2 and 2A from the Official Text of the Uniform Commercial Code, available at http://entrepreneur.typepad.com/files/article-2-and-2a-memo.pdf (last visited May 21, 2018).

105 An opinion that finds this result to be unacceptable is Southern Idaho Pipe & Steel Corp. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978). See also McCarty v. Verson Allsteel Press Co., 89 Ill. App. 3d 498, 44 Ill. Dec. 570, 411 N.E.2d 936 (1980).

106 See John E. Murray, Revised Article 2: Eliminating the “Battle” and Unconscionability, 52 S. Tex. L. Rev. 593, 602 (2011).

107 See Construction Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505 (7th Cir.1968), cert. denied, 395 U.S. 921.

108 See the discussion of on-line contracts in § 2.12.

109 See Restatement (Second) of Contract § 59 (Am. Law Inst. 1981) (“A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.”).

110 See Roser Techs., Inc. v. Carl Schreiber GmbH, 2013 U.S. Dist. LEXIS 129242 (W.D. Pa. Sept. 10, 2013).

111 CISG, Article 19(3).

112 Article 18 is entitled, “Acceptance: Time and Manner for Indicating Assent.” Subdivision 3 of that article provides: “… if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.”

113 The legal principles surrounding “shrink-wrap” agreements generally are not limited to end-user license agreements included with software in a box tightly wrapped in plastic. They apply to consumer products generally. See, e.g., Schnabel v. Trilegiant Corp., 697 F.3d 110 (2d Cir. 2012).

114 Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x 113, 117 (3d Cir. 2017), citing Schnabel v. Trilegiant Corp., 697 F.3d 110, 121–22 (2d Cir. 2012).

115 D&B II Enters. LLC v. Universal Tax Sys., 2018 U.S. Dist. LEXIS 55423, *23 (N.D. Ill. Mar. 31, 2018).

116 U.C.C. § 2-206(1)(b).

117 I. Lan Sys. v. Netscout Serv. Level Corp., 183 F. Supp. 2d 328, 338 (D. Mass. 2002).

118 Schnabel v. Trilegiant Corp., 697 F. 3d 110, 121 (2d Cir. 2012), citing John E. Murray, Jr., The Dubious Status of the Rolling Contract Formation Theory, 50 Duq. L. Rev. 35 (2012) (hereinafter “Murray”) and Eric A. Posner, ProCD v. Zeidenberg and Cognitive Overload in Contract Bargaining, 77 U. Chi. L. Rev. 1181, 1184 (2010).

119 For a discussion of the “change-in-terms” case law, see Iberia Credit Bureau, Inc. v. Cingular Wireless, LLC, 379 F. 3d 159, 173 (5th Cir. 2004).

120 See Rocheux Int’l of N.J., Inc. v. U.S. Merchs. Fin. Group, Inc., 741 F. Supp. 2d 651, 678 (D. N. J. 2010), reviewing conflicting case law concerning the analysis of terms arriving with or after the goods. U.C.C. § 2-207 is discussed in § 3.37.

121 Step-Saver Data Systems, Inc. v. Wyse Technology, Inc., 939 F.2d 91 (3d Cir. 1991) (disclaimer of warranty held to be material alteration that did not become part of the contract under UCC § 2-207); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (clause restricting non-commercial use inside the box and on disks was enforceable); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) (arbitration clause inside the box was enforceable, Section 2-207 of the UCC does not apply).

122 ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) and Hill v. Gateway 2000, 105 F.3d 1147 (7th Cir. 1997).

123 U.C.C. § 2-206(1).

124 Such precedent exists even in the Seventh Circuit. Where an invoice containing an additional term was delivered days after the goods were delivered, the court had treated the sole writing—the only writing—as a confirmation to which § 2-207 applied. Advance Concrete Forms, Inc. v. McCann Constructions Specialties, 916 F.2d 412 (7th Cir. 1990) (term requiring interest on amounts due past 30 days held to be a confirmation, subject to whether it constituted a material alteration under UCC § 2-207(2)(b)). The court’s view of § 2-207 has been justifiably criticized by contract law scholars. See, e.g., John E. Murray, Jr.: The Dubious Status of the Rolling Contract Formation Theory, 50 Duq. L. Rev. 35 (2012).

125 Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 982 (10th Cir. 2014).

126 See, e.g., Daniel Keating, My Favorite Case to Teach: A Literal “Gateway” for Students to Learn Contract Formation, Contract Terms, and Legal Realism, 53 Wash. U. J.L. & Pol’y 55 (2017) where Professor Keating lays out many of the pathologies of Hill v. Gateway. See also Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332, n. 9 (D. Kan. 2000).

127 For example:

Del.

—Westendorf v. Gateway 2000, Inc., C.A. No. 16913, 2000 Del. Ch. LEXIS 54 (Mar. 16, 2000).

Fla.

—Williams v. MetroPCS Wireless, Inc., 2010 U.S. Dist. LEXIS 39225 (S.D. Fla. Apr. 21, 2010).

Mass.

—1-A Equipment Co. v. Icode, Inc., 2003 Mass. App. Div. 30 (2003).

N.Y.

—Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 251, 676 N.Y.S.2d 569 (1998); Licitra v. Gateway, Inc., 189 Misc. 2d 721, 734 N.Y.S.2d 389, 390 (Civ. Ct. 2001); Scott v. Bell Atl. Corp., 282 A.D.2d 180, 185, 726 N.Y.S.2d 60 (2001); Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 33 (2d Cir. 2002).

The Supreme Court of Rhode Island provided a cogent defense of the Seventh Circuit’s bow to “practical considerations”:

The ProCD line of cases is better reasoned and more consistent with contemporary consumer transactions. It is simply unreasonable to expect a seller to apprise a consumer of every term and condition at the moment he or she makes a purchase. A modern consumer neither expects nor desires to wade through such minutia, particularly when making a purchase over the phone, where full disclosure of the terms would border on the sadistic. Nor do we believe that, after placing a telephone order for a computer, a reasonable consumer would believe that he or she has entered into a fully consummated agreement. … Rather, he or she is aware that with delivery comes a multitude of standard terms attendant to nearly every consumer transaction.

De Fontes v. Dell, Inc., 984 A.2d 1061, 1071 (R.I. 2009).

128 Jones v. Samsung Elecs. Am., Inc., 2018 U.S. Dist. LEXIS 84586, *7 (W.D. Pa. May 21, 2018).

129 Jones v. Samsung Elecs. Am., Inc., 2018 U.S. Dist. LEXIS 84586, *8–9 (W.D. Pa. May 21, 2018).It is interesting to note that in the Hill case, the Hills had actual notice of the statement of terms containing the arbitration provision at issue but did not read them closely. Arguably, the Hills had actual notice of the terms at that point—this would not cure the absence of notice at the time they placed their order.

130 Norcia v. Samsung Telcoms. Am., LLC., 845 F.3d 1279 (9th Cir. 2017).

131 Norcia v. Samsung Telcoms. Am., LLC., 845 F.3d 1279, 1287 (9th Cir. 2017).

132 Norcia v. Samsung Telcoms. Am., LLC., 845 F.3d 1279, 1290 (9th Cir. 2017) quoting Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App. 3d 987, 993, 101 Cal. Rptr. 347, 351 (1972).

The court reiterated the principles underlying this holding in Dang v. Samsung Elecs. Co., 673 Fed. App’x 779 (9th Cir. 2017).

133 Robinson v. OnStar, LLC, No. 16-56412, 2018 U.S. App. LEXIS 11243 (9th Cir. May 1, 2018).

134 Quoting Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1289 (9th Cir.), which quoted Schnabel v. Trilegiant Corp., 697 F.3d 110, 124 (2d Cir. 2012), cert. denied, 138 S. Ct. 203, 199 L. Ed. 2d 114 (2017).

The court cited California Civil Code section 1589 in support of this holding: “A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.”

135 Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x 113 (3d Cir. 2017).

136 Id. at 116, quoting Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 30 (2d Cir. 2002).

137 Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x 113, 116 (3d Cir. 2017).

138 Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x 113, 116 (3d Cir. 2017).

139 Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x 113, 118 (3d Cir. 2017).

140 Some cases hold that language on the box exterior stating that the purchase of the phone is “subject to additional Samsung terms and conditions” is sufficient to alert a consumer that a bilateral arbitration agreement is contained inside the box. Samsung Elecs. Am., Inc. v. Ramirez, 2018 U.S. Dist. LEXIS 80983 (E.D. Cal. May 14, 2018); Schmidt v. Samsung Elecs. Am., Inc., 2017 U.S. Dist. LEXIS 80768 (W.D. Wash. May 25, 2017). But not all courts agree. Velasquez-Reyes v. Samsung Elecs. Am., Inc., 2017 U.S. Dist. LEXIS 148784 (C.D. Cal. Sept. 13, 2017) (this message in tiny print on the exterior of the box was held not sufficient: “Device purchase subject to additional Samsung terms and conditions.”).

The Ninth Circuit affirmed in Samsung Elecs. Am., Inc. v. Ramirez, 777 Fed. Appx. 243 (9th Cir. 2019). The court explained:

Under California law, silence or inaction generally does not constitute acceptance of [*244] a contract. See Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1287 (9th Cir. 2017). An offeree may demonstrate acceptance through conduct, but not where, as here, the contractual provisions are “inconspicuous” and “contained in a document whose contractual nature is not obvious.” Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App. 3d 987, 993, 101 Cal. Rptr. 347 (1972). We conclude that the inaptly titled booklet containing the terms and conditions and the smartphone packaging’s vague reference to terms and conditions are insufficient to put a reasonable consumer (or a reasonably prudent smartphone user) on notice of the arbitration provision that Samsung seeks to enforce. See Norcia, 845 F.3d at 1284–86.

The court also reiterated the Ninth Circuit’s antipathy to Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997). The court explained that Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1287 (9th Cir. 2017) “forecloses Samsung’s arguments that California courts have adopted the ‘in-the box’ theory of assent and that the ‘in-the-box’ theory would apply in these circumstances. Id. at 1287–90 (citing Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997)).” Velasquez-Reyes v. Samsung Elecs. Am., Inc, 777 Fed. Appx. 241 (9th Cir. 2019).

141 An effective inquiry notice that simply alerts parties in advance to the inclusion of “important contract terms” would not guarantee enforcement of such terms. Their enforceability would continue to be subject to the usual standards of materiality, conscionability, good faith and public policy limitations.

142 Velasquez-Reyes v. Samsung Elecs. Am., Inc., 2017 U.S. Dist. LEXIS 148784 (C.D. Cal. Sept. 13, 2017).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.38 »

1 Corbin on Contracts § 3.38 (2020)

§ 3.38. A Counter-Offer or Rejection by One Who Has a “Binding Option” or an Irrevocable Offer Does Not Terminate the Power of Acceptance

If the original offer is irrevocable, creating in the offeree a “binding option,” the rule that a counter-offer terminates the power of acceptance does not apply. Even if it is reasonable to hold that it terminates a revocable power, it should not be held to terminate rights and powers created by a contract. A “binding option” is such a contract (usually unilateral) and so also is an offer in writing, that allows a time for acceptance (either definite or reasonable) and that is irrevocable by virtue of a statute. One generally does not lose a contract right merely by rejecting it. A counter-offer by such an offeree, or other negotiation not resulting in a contract, does not terminate the power of acceptance.1 Even in cases like this, however, rights and powers can be lost by reason of facts that create an estoppel. A conditional notice, even if it does not terminate the option holder’s power, is not itself effective as an acceptance, but an otherwise proper notice is not made ineffective by the fact that it is accompanied by an independent offer of a substitute arrangement subject to the other party’s assent.2

There has been little authority on the question whether an express rejection by the holder of a binding and irrevocable option operates as a termination of the power. It is believed, however, that it should have no such effect. The holder of such an option has a right as well as a power, created by contract and not by a mere offer. The holder of a contract right does not terminate it and discharge the duty of the other party by merely saying that it is discharged or by expressing an intention not to enforce it. Such a statement followed by a material change of position by the other party will operate as a discharge by estoppel. Similarly, a notice of rejection by an option-holder, followed by a material change of position, should terminate both the contract right and power of acceptance.3 Even if the notice of rejection were also the repudiation of a contract duty, which it is not, it would be subject to retraction prior to a change of position induced by it and prior to expiration of the time limit for performance. Similarly, a notice of rejection should be revocable.4

Footnotes — § 3.38:

U.S.

—Garayalde-Rijos v. Municipality of Carolina, 799 F.3d 45 (1st Cir. 2015). Garayalde-Rijos filed a complaint against the Municipality of Carolina alleging gender-based employment discrimination and retaliation. A trial date was set, and on November 24, 2014 at 12:48 PM, Carolina extended to Garayalde-Rijos what it explicitly labeled a Rule 68 offer of judgment for $25,000. Carolina later claimed that Garayalde-Rijos made a counteroffer to Carolina that same day at 2:25 PM. Garayalde-Rijos claimed that Carolina responded to the counteroffer by renewing its original offer at 3:54 PM, and Carolina claimed that in a phone call at 4:33 PM, Garayalde-Rijos rejected the original offer. At 5:13 PM, Carolina informed the district court by electronic filing that no settlement had been reached. At 5:38 PM, Garayalde-Rijos made a motion informing the district court that she was accepting Carolina’s Rule 68 offer of judgment. Carolina subsequently alleged in a motion that because Garayalde-Rijos had rejected the offer prior to purportedly accepting it, the offer should have been considered withdrawn by the initial rejection. The district court denied that motion, and Carolina appealed. The First Circuit affirmed the judgment and held that the Rule 68 offer could not be rejected within 14 days under Rule 68. Citing this treatise (§ 3.38, 1993 ed.), the First Circuit held that under contract law principles, the irrevocable nature of a Rule 68 offer is significant. A rejection and a counteroffer cannot terminate the offeree’s power of acceptance within the statutuory 14 day period.

Title Ins. & Guar. Co. v. Hart, 160 F.2d 961 (9th Cir. 1947), cert. denied, 332 U.S. 761. A lease created in the lessee an option to purchase. The lessee misinterpreted the provision and attempted to exercise the power of acceptance in a manner that was held to be erroneous. Later, within the time covered by the option, the lessee accepted according to the proper interpretation of the provision. This was held to be legally operative, the court refusing to apply the rule that the making of a counter-offer terminates the power of acceptance of an ordinary revocable offer. Dicta makes the opinion equivocal on the point for which it is here cited.

Conn.

—In Tracy v. O’Neill, 103 Conn. 693, 131 A. 417 (1925), the defendant gave the plaintiffs, real estate brokers, an option for one week to sell his real estate upon stated terms for an agreed commission. The plaintiffs procured a customer who proposed a contract for the purchase of the property incorporating these terms and containing certain additional terms which was refused by the defendant. The customer, thereafter, and before the expiration of the option, offered to take up the option on its terms, but the offer was refused by the defendant. It was held that “the proposals and counter-proposals of the parties did not alter their legal relation under the option, and until two P.M. January 22, 1924 [time of expiration of option] the defendant remained legally bound to sell the property on the terms stated therein.”

Nat’l Air Cargo Group, Inc. v. United States, 127 Fed. Cl. 707 (2016).

Idaho

—Sutheimer v. Stoltenberg, 127 Idaho 81, 896 P.2d 989 (1995).

Mich.

—Natron Corp. v. GMC, 2003 Mich. App. LEXIS 1059 (April 29, 2003), appeal denied, 469 Mich. 911, 670 N.W.2d 219 (2003) (counter-offer does not reject firm offer, citing § 3.38, 1993 ed.).

N.J.

—In McCormick v. Stephany, 61 N.J. Eq. 208, 48 A. 25 (1900), a lease contained a provision that the lessee should have the option to buy the land for $12,000, and that he would vacate the premises within three months if, on receiving notice that the lessor had found a purchaser for the premises, he should refuse to buy the premises at the named price. It was held that the right of the lessee to a conveyance in accordance with this option was not defeated either by a loose statement by the lessee to the lessor that he wished he would sell the property or by a notice of acceptance in which the lessee demanded a deed “with full covenants.” The court referred to Hyde v. Wrench, 3 Beav. 336 (1840), saying that the rule in that case was not applicable. The court said: “Such an agreement to convey is not a mere unaccepted proffer based upon no consideration, as is a letter offering to sell, nor is it a naked promise to sell at a price within a limited time. It is a completed purchase of a right to have a conveyance if the purchaser shall choose to buy upon the terms named. In such case there is no question of the arrival of the parties at a common intent. They have already made a contract upon consideration paid, by which the owner is bound to convey whenever the condition happens, and the making of a counter proposal to him does not enable him to retain the consideration paid, and to declare the contract forfeited.”

N.Y.

—In Silverstein v. United Cerebral Palsy Ass’n, 17 A.D.2d 160, 232 N.Y.S.2d 968 (1962), the plaintiff’s offer was in writing and (by statute) irrevocable for 3 weeks. The offer was itself a “unilateral contract,” citing this treatise §§ 42–48 from a previous edition. The court says that such an “irrevocable offer is not deemed rejected and canceled out by mere counter-proposals or negotiations… .” But see Bartholf v. Hautala, 22 Misc. 2d 46, 194 N.Y.S.2d 660 (1959).

Additional cases in accord with Silverstein:

Cal.

—Glascock v. Sukumlyn, 131 Cal. App. 2d 587, 281 P.2d 90 (1955), citing this treatise. But see Landberg v. Landberg, 24 Cal. App. 3d 742, 101 Cal. Rptr. 335 (1972).

Md.

—Foard v. Snider, 205 Md. 435, 109 A.2d 101 (1954).

Minn.

—Republic Nat. Life Ins. Co. v. Marquette Bank, 295 N.W.2d 89 (Minn.1980).

N.C.

—Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392 (1976).

Pa.

—Cerbo v. Carabello, 376 Pa. 571, 103 A.2d 908 (1954); Atlantic Ref. Co. v. Wyoming Nat. Bank, 356 Pa. 226, 51 A.2d 719, 170 A.L.R. 1060 (1947).

Tex.

—Humble Oil & Refining Co. v. Westside Investment Corp., 428 S.W.2d 92 (Tex. 1968); Cardenas v. Crockett, 2016 Tex. App. LEXIS 2181 (Mar. 3, 2016).

Wyo.

—Trautwein v. Leavey, 472 P.2d 776 (Wyo. 1970).

But see: Jones v. Moncrief-Cook Co., 25 Okla. 856, 108 P. 403 (1908), appears to be contra.

A mere effort to induce the option-giver to sell on different terms, there being no specific counter-offer, does not terminate the option-holder’s power. First Nat. Exch. Bank v. Roanoke Oil Co., 169 Va. 99, 192 S.E. 764 (1937).

2 See Orr v. Doubleday, Page & Co., 223 N.Y. 334, 119 N.E. 552, 1 A.L.R. 338 (1918), reargument denied, 223 N.Y. 700, 119 N.E. 1064. A lessee with an option to renew gave notice reserving the power to withdraw the notice on certain conditions. This would have prevented its being an effective acceptance, except for the fact that the court interpreted the reservation as being made expressly conditional on the assent of the lessor. As so interpreted the reservation was a mere accompanying offer.

More to the point is Charles Hyman, Inc. v. Power Cooling, Inc., 106 A.D.2d 423, 482 N.Y.S.2d 516 (1984), where plaintiff exercised an option to purchase real property and subsequently proposed that closing be postponed for three years. This proposal did not detract from the effectiveness of the acceptance. An option to renew a lease for a period of two years is not effectively exercised by a notice of renewal for one year. Hayward Lumber & Inv. Co. v. Construction Products Corp., 117 Cal. App. 2d 221, 255 P.2d 473 (1953); but it should not terminate the lessee’s power.

3 In Ryder v. Wescoat, 535 S.W.2d 269 (Mo. App. 1976), eleven days before an option was due to expire, the option-holder said he would not exercise the option to purchase certain real property. The owner then made preliminary arrangements for others to do work on the land. The court said that rejection would not terminate the power of acceptance and that the preliminary arrangements did not create such a change of position as to justify the imposition of an estoppel.

4 Disagreement with the views stated here and by the majority of the courts is expressed in Michael J. Cozzillio, The Option Contract: Irrevocable not Irrejectable, 39 Catholic U.L. Rev. 491 (1990). The author proposes a Restatement provision that would provide: “The power of acceptance of an offer contained in an option contract, or other like offer rendered irrevocable by consideration, statute or other formality, shall be terminated if the offeree manifests an intent to reject such offer, either by means of an outright rejection or a counter-offer.” Id. at 555. He proceeds to clarify that under “this model, a counter-offer that would have the force and effect of a rejection shall not include any response that manifests the optionee’s desire to hold the offer open during further consideration of the offer, notwithstanding non-conformity in the optionee’s response.” Id. The basic underlying disagreement stems from Professor Cozzillio’s analysis of an option as primarily an offer rather than primarily as a contract.

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.39 »

1 Corbin on Contracts § 3.39 (2020)

§ 3.39. Power of Acceptance Not Terminated by a Counter-Offer if Either Offeror or Offeree So Prescribes

The power to accept an offer, whether revocable or irrevocable, is created by the act and will of the offeror. It is believed that its creator should be able to determine the duration of its existence. If the offeror has led the offeree to believe that it will exist for a stated time, or for a reasonable time, the creator cannot terminate the power at an earlier time without causing notice of revocation to be received by the offeree prior to acceptance, or unless the power to revoke without such notice has been expressly reserved. This rule of law is for the protection of the offeree. But the rules of law, heretofore discussed, to the effect that the power of acceptance is terminated by a counter-offer or a rejection are solely for the protection of the offeror. The offeror can, in the beginning, cause the power to accept the offer to continue for a time that would otherwise be regarded as very unreasonable. Likewise, the offeror can extend the legal operation of the offer by renewing it from time to time. There seems to be no good reason why the offeror should not be able to prevent the offeree’s power of acceptance from being terminated by a counter-offer or rejection. Suppose that the offer says: “This offer shall continue to be open for your acceptance until I notify you to the contrary, even though you may reject it daily or send me numerous counter-proposals.” This should be given the effect that is intended.1

Likewise, the offeree may well be held to have the power to prevent a counter-offer (or even a rejection) from terminating the power of acceptance. Suppose the offeree should say: “I am still considering your offer, but meantime, I am now willing to buy the property you offer if you will reduce your price by $500.” There is no reason why this should lead the offeror into a change of position, or why it should operate to terminate the power of accepting the original offer still under consideration.2 The same result should obtain if the offeree says: “As at present advised, I must reject your offer, but circumstances may change, and I may later consider your offer again.”

No one doubts that one who has made an offer can disregard or refuse the counter-offer, and by a return communication make the original offer once more fully operative.3 There seems to be no sufficient reason for holding that the offeror has no power to produce this continuing result by expressing such an intention in advance.

In Quinn v. Feaheny,4 on Sept. 13 the defendant made an offer to sell property on stated credit terms, in the same letter saying: “I will consider a cash proposition. Make me an offer.” Plaintiff made such an offer on Sept. 20. There were delays due to defendant. The plaintiff telegraphed on Sept. 21: “If my cash offer not satisfactory … I herewith accept your offer of Sept. 13.” This was held to consummate a sale, the cash offer not being accepted.

Footnotes — § 3.39:

1 According to Restatement (Second) of Contracts § 38(1) (Am. Law Inst. 1981): “An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention.”

2 Collins v. Thompson, 679 F.2d 168 (9th Cir.1982). Prisoners at Washington State Reformatory brought a class action to end allegedly unconstitutional over-crowding. The state offered a consent decree, one of the terms of which had an effective date of March 1, but which also incorporated by reference a plan which had a date of April 1. After the state amended its proposal to be entirely consistent with the April 1st date, the prisoners moved for approval of the decree as initially proposed, or in the alternative asked that all members of the class be notified of the April 1st date. It was held that the prisoners’ counter-offer (the March 1st date) did not terminate the power of acceptance because it did not impliedly reject the state’s offer.

According to the Restatement (Second) of Contracts § 38(2) (Am. Law Inst. 1981): “A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.” For an example of a case where this is exactly what happened, see Paris v. Ford Motor Co., 2007 U.S. Dist. LEXIS 96631 (D.N.M. Jun 19, 2007).

In contrast are the cases where the courts cite the rule stated in Restatement (Second) § 38 while also concluding that there was a counter-offer or rejection with no attempt to take the offer under advisement. Gulaid v. CH2M Hill, Inc., 2016 U.S. Dist. LEXIS 35517 (N.D. Cal. Mar. 18, 2016); In re Biomet M2a Magnum Hip Implant Prods. Liab. Litig. (MDL 2391), 2016 U.S. Dist. LEXIS 9358 (N.D. Ind. Jan. 27, 2016); NDC, LLC v. Wis. DOT, 366 Wis. 2d 809, 874 N.W.2d 347 (2015); Nationwide Prop. & Cas. Ins. Co. v. Greater N.Y. Mut. Ins. Co., 2012 Conn. Super. LEXIS 2998 (Dec. 7, 2012).

Scoular Co. v. Denney, 151 P.3d 615 (2006). On May 30, farmer Denny offered to sell 15,000 bushels of his to-be-grown millet seed at $5 per hundredweight to Scoular, the operator of a grain elevator with whom Denny had dealt in the past. Scoular did not reject the offer but stated that the price was not yet available and he “would work on it and see what he could do.” Four days later, Scoular sold the Millet seed to a buyer at a rate sufficient to meet Denny’s price. Scoular’s general manager tried to notify Denny but was not successful until June 27 when he spoke with Denny and sent him a written contract. Denny did not sign the contract. When the harvest was ready in the fall of 2002, the market price of millet seed had trebled. Denny sold it to another buyer and told Scoular that it was “too bad” Scoular had no written contract. Scoular’s action succeeded in the trial court, which found an enforceable contract and awarded Scoular damages of $82,500. On appeal, the instant court concluded that Denny had made a revocable offer that Scoular could have accepted. Denny claimed that Scoular rejected the offer when he failed to accept it on the day it was offered. The court found no rejection in Scoular’s statement that the price was not yet available and he would see what he could do. Where an offeree states that he will take an offer under further advisement, the offer has not been rejected (Restatement (Second) of Contracts, § 38 (Am. Law Inst. 1981)). The trial court, however, erred in finding that Scoular had accepted the offer by arranging to sell Denny’s millet seed to another buyer. When an offer is accepted by conduct, the conduct must unambiguously express the offeree’s intention to accept the offer. Scoular dealt with many parties and did nothing to earmark Denny’s millet seed as the source of the millet sold to a particular buyer. Denny’s offer, however, could have been accepted during the telephone conversation with Scoular’s general manager on June 27. The trial court made no explicit findings concerning that conversation. The judgment for Scoular was reversed and remanded.

State Auto Ins. Co. v. Crenshaw, 2012 Ky. App. Unpub. LEXIS 702 (Ky. Sept. 28. 2012) (insurer conveyed offer to settle auto accident claim to attorney of claimant, attorney told insurer that his client “can’t do that now,” and court held this comment did not manifest an intention to take the offer under further advisement—it was a rejection).

3 In Livingstone v. Evans, 4 D.L.R. 769 (Alberta 1925), the defendant offered land at $1,800. The plaintiff replied by wire: “Send lowest cash price. Will give $1,600 cash. Wire.” The defendant replied: “Cannot reduce price.” Thereupon the plaintiff accepted the original offer. The court decreed specific performance, holding that the defendant’s reply to the plaintiff’s counter-offer and request was a renewal of his offer.

In Santa Monica Unified School Dist. v. Persh, 5 Cal. App. 3d 945, 85 Cal. Rptr. 463 (1970), the school board approved a resolution of necessity authorizing condemnation proceedings for Persh’s land. An offer to purchase in lieu of condemnation was made. Persh made three counter-offers, each of which was rejected. The deputy superintendent of the district indicated that Persh could still accept the original offer, which he proceeded to do. The court indicated that on general principles of contract law a contract would have been made; however, the statutes governing the making of contracts were not complied with because the original offer made under proper procedures no longer was effective.

Two Arizona cases, involving the termination of offers by lapse, rather than by counter-offers, are nonetheless instructive. Ramsay v. Sierra Vista Unified School Dist. No. 68, 144 Ariz. 260, 697 P.2d 343 (App. 1985); Walker v. Sierra Vista Unified School Dist. No. 68, 147 Ariz. 604, 712 P.2d 451 (App. 1985). In each of these cases, offers to tenured teachers for renewal of their contracts had lapsed. In the first case the District subsequently offered the teacher a renewal on the same terms as were contained in the lapsed offer. The court held that, upon the teacher’s acceptance of the offer, the teacher’s tenure had been reinstated. In the second case the teacher was subsequently offered a renewal as a probationary teacher, which he accepted. His tenure was held not to be reinstated. The moral of these two cases is that once a power of acceptance has come to an end, any alleged renewal of the offer must be interpreted by the general rules of interpretation.

A good illustration of a common scenario: Hardin v. First Cash Financial Services, 465 F. 3d 470 (10th Cir. 2006). Hardin was a terminable-at-will manager of one of the defendant’s branch offices. In December 2002, the defendant notified employees of a new dispute resolution program (DRP) including mandatory arbitration that employees could voluntarily opt into. As of March 1, 2003, however, all employees would be subject to the DRP. At the time of the announcement, Hardin notified the defendant that she would not consent to the DRP or sign the materials sent to her at any time. In early 2003, the defendant posted a notice cautioning employees on the mandatory character of the DRP as of March 1. There was no further discussion of the plan between Hardin and the defendant. In December, however, Hardin was fired, and she sued. The defendant moved to compel arbitration. The district court held that Hardin was not bound by the DRP because of her unwillingness to sign the agreement and her notice to her supervisor that she would not consent to the DRP. The court found that Hardin’s notice to the supervisor constituted a counter-offer, which the employer accepted after March 1 by not terminating her. On appeal, the instant court noted that if the DRP had simply been announced and Hardin had not objected to it, her continuing employment would have operated as an acceptance of the DRP offer. Hardin, however, did object. The court decided that a classic offer and acceptance analysis should apply. The defendant made the DRP an offer, which Hardin rejected by her counter-offer to continue her employment without the DRP. The defendant rejected Hardin’s counter-offer but reiterated that her continued employment would constitute an acceptance of the defendant’s counteroffer. The court noted the normal effect of a counter-offer in rejecting the original offer does not apply where the counter-offer manifests a different intention (Restatement 2d of Contracts, § 38(1) (Am. Law Inst. 1981)). The defendant continuously expressed its intention not to end negotiations through a rejection or counter-offer. It stated an offer that could be accepted voluntarily through March 1 of 2003 and neither Hardin nor other employees had to accept prior to that time. Hardin clearly rejected the offer at that time, but the offer continued. Moreover, the early 2003 reminder that continued employment would manifest acceptance of the DRP was a further manifestation of a continuing offer. Hardin’s continued employment after March 1, therefore, constituted an acceptance of the offer—and she was bound by the DRP, including the arbitration provision.

4 Quinn v. Feaheny, 252 Mich. 526, 233 N.W. 403 (1930).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.40 »

1 Corbin on Contracts § 3.40 (2020)

§ 3.40. Inquiries and Separate Offers Distinguished From Counter-Offers

Just as “requests” and “suggestions” do not turn an otherwise absolute acceptance into a conditional one, so too they do not constitute counter-offers. One reason for this is that they are not themselves offers of any kind. The offeree writes: “Is this your lowest price?”; or “If I doubled the amount, I suppose you would make the price lower”;1 or “You may send me 800 tons as offered by you, but I trust that you will make it 1200 tons at 68 shillings”;2 or “would you consider a structured settlement with a different payment arrangement?”3 Most important, there is no rejection of the offer, express or implicit, so there is no counter-offer. In the first two there is a mere request for information as to possible lower prices, no power of acceptance being created in the original offeror. They do not affect the power to accept the offer previously made. In the third case, there is a valid acceptance of the offer of 800 tons. The contract thereby consummated is not affected by the fact that the acceptor makes an additional offer to buy 400 more tons at 68 shillings if the seller will accept settlement at that rate for the first 800 tons also. In the fourth example, the offeree is simply asking a question without rejecting the offer.

An offer is not a “counter-offer” if it is so expressed as to show that it deals with a different subject matter, so that the contract that is proposed is not a substitute for the one proposed by the prior offer. A offers to sell Blackacre to B, and the latter replies, “I am considering your offer; meantime I offer to sell Whiteacre to you for $5,000.” B has made no counter-offer, as that term is used by the courts and in this treatise. The same would be true if B had replied, “I accept your offer of Blackacre. I now offer to sell it back to you, along with my adjoining farm Whiteacre, for the sum of $10,000.”

An expression by the seller of a machine of a willingness and intention to make delivery a short time earlier than that fixed in the contract is not a “counter-offer.”4

During a judicial conference, counsel for the plaintiff informed the judge and defense counsel that he was authorized to settle the case for $30,000. Defense counsel asked plaintiff’s counsel if he could do better, and when he said he could not, she accepted the offer for her client. The judge called his clerk and a court reporter to have the agreement put on the record. The court held that the inquiry as to whether the defendant could do better was not a counter-offer, and the defendant’s motion to enforce the settlement was granted.5

Footnotes — § 3.40:

Conn.

—This section from a prior edition of this treatise (§ 93) is cited in Jaybe Constr. Co. v. Beco, Inc., 216 A.2d 208, 3 Conn.Cir. 406 (1965) (holding that an expression of hope that defendant would reduce its price was not a counter-offer).

Va.

—First Nat. Exchange Bank of Roanoke v. Roanoke Oil Co., 169 Va. 99, 192 S.E. 764 (1938) (inquiry as to a possible better offer).

Eng.

—Stevenson, Jaques, & Co. v. McLean, 5 Q.B. 346 (1880) (offeree inquired whether the seller would allow a period of credit).

“A mere inquiry as to the terms of the proposal, or a request to modify or change the offer, does not have the effect of rejecting the offer, and, if the offer has not been revoked, a party may accept it, although he previously asked the proposer to modify it.” Johnson v. Federal Union Surety Co., 187 Mich. 454, 153 N.W. 788 (1915).

2 See Tinn v. Hoffmann & Co., 29 L.T.R. (N.S.) 271 (1873).

3 King v. Travelers Ins. Co., 513 So. 2d 1023 (Ala.1987).

4 Nelson Equipment Co. v. Harner, 191 Or. 359, 230 P.2d 188, 24 A.L.R.2d 999 (1951).

5 Nickolson v. Negron, 2008 Conn. Super. LEXIS 2685 (Oct. 22, 2008).

See also:

Conn.

—Al Dente, LLC v. Consiglio, 171 Conn. App. 576, 157 A.3d 743 (2017) where the court concluded that comments in response to an offer did not rise to the level of a counter-offer, including: “Our accountants suggest allocating the purchase price,” which the court held was merely a tentative, indefinite concern. Another comment, “[w]e need an exception to the confidentiality provision for attorneys, accountants and advisors,” bears a greater resemblance to a counter-offer, but the court dismissed it as a vague statement and noted that inquiries and tentative, indefinite comments ordinarily are not counter-offers.

Ill.

—In Mitchell v. Mitchell, 2013 IL App (2d) 130303-U (2013), offeree made comments about offer: “I have some concerns with the Taxes that are not reflected on the MSA. I also have a [question on COBRA] payments and found an error where percentages were not updated.” The court held these were mere inquiries and concerns seeking clarification, not a counter-offer.

Iowa

—Great Lakes Commun. Corp. v. AT&T Corp., 124 F. Supp. 3d 824 (N.D. Iowa 2015) (inquiry about the possibility of better terms not a counter-offer).

Utah

—LD III, LLC v. BBRD, LC, 2009 UT App 301, 221 P.3d 867, 873 (Utah App. 2009) (“[t]he expression of … a desire [for other terms] does not rise to the level of a counteroffer”).

«Pt. I •«TOPIC A •«Ch. 3 »«§ 3.41 •

1 Corbin on Contracts § 3.41 (2020)

§ 3.41. Effect of Rejection of an Offer

The power of acceptance created by an ordinary offer is terminated by a communicated rejection.1 This is true even though a definite time was given by the offeror for considering the offer and the rejection occurs before that time has expired. An offeror who receives a notice of rejection is very likely to change position in reliance on it. One aspect of this is that, in those cases in which the offer is revocable, the offeror will not think it necessary to send a notice of revocation. This has led to the rule that a definite rejection terminates the offeree’s power to accept.

This effect should not be given to a rejection if it is contrary to the offeror’s own expressed intention and desire. In making an offer, the offeror has control of its terms and the time and mode of acceptance. The offeror can create such a power of acceptance as his or her whim dictates. The rule that a rejection terminates the power is solely for the protection of the offeror. There seems to be no sufficient reason for terminating the power of acceptance against the offeror’s expressed will. Suppose that an offer is made thus: this offer will be left open for acceptance for 30 days, without regard to any rejection, conditional acceptance, or counter-offer. After a rejection by the offeree, the power to accept during the unexpired portion of the 30 days will continue to exist.2 The offeror’s own statement would tend to make the offeree less ready to give due deliberation before putting up rejections and counter-offers as trial balloons.

A rejection is the offeree’s manifestation of intention not to accept the offer.3 There is no rejection if the offeree merely writes: “Is this the best offer that you will make?” or, “Please wire whether you would allow an additional month’s credit”;4 or, “I am holding your offer under advisement to see whether war will break out.”5 A statement that “at present I must reject your offer, but will continue to consider it” should not be held to be a rejection.6

At an auction sale it is not a rejection of a bid for the auctioneer to delay the fall of the hammer and to ask for higher bids. If a higher bid is actually made, however, the first bidder would be reasonable in supposing that the bid is no longer operative, whether on a theory of rejection or for other reasons.

When bids are solicited and are sent in for simultaneous opening, or for consideration all together, a bidder should usually be held reasonable in supposing that a bid is rejected as soon as one of the competing bids is accepted. But a mere notice of acceptance may not have any operation in this latter case, for the reason that a formal written contract is contemplated. It has been held that each bid remains open for acceptance for a reasonable time so long as no contract with a competing bidder has actually been consummated.7

In order to terminate the power of acceptance, a rejection must be communicated to the offeror. It is not operative on mailing, or on starting a messenger, or on saying to an assistant: “Write a letter of rejection at once, sign it in my name, and mail it.” The rule as to the effect of a rejection is for the protection of the offeror; and it should go no further than is necessary to attain this purpose. If a rejection is mailed and thereafter the offeree sends an email, text message, or other communication: “I accept your offer; disregard letter of rejection mailed this morning,” the acceptance should be held to be effective and the rejection ineffective in case the email or other subsequent communication is received before the letter is received.8

On the other hand, if after mailing a rejection the offeree has a change of mind and mails a letter of acceptance, there should be held to be no contract in case the letter of rejection is received first.9 This is so, in spite of the rule that an acceptance by post is effective on mailing, and even though the acceptance is mailed before the rejection is received by the offeror.10

There has been little authority on the question whether a rejection11 by the holder of a binding and irrevocable option operates as a termination of the power. It is believed, however, that it should have no such effect. The holder of such an option has a right as well as a power, created by contract and not by a mere offer. The holder of a contract right does not terminate it and discharge the duty of the other party by merely saying that it is discharged or by expressing an intention not to enforce. However, such a statement followed by a material change of position by the other party will operate as a discharge by estoppel. Similarly, a notice of rejection by an option holder, followed by a material change of position, should terminate both the contract right and power of acceptance.12 Even if the notice of rejection were also the repudiation of a contract duty, which it is not, it would be subject to retraction prior to a change of position induced by it and prior to expiration of the time limit for performance. Similarly, a notice of rejection should be revocable.

The effect of a rejection on an option is considered in greater detail in § 3.38.

Footnotes — § 3.41:

U.S.

—Glacier Park Foundation v. Watt, 663 F.2d 882 (9th Cir.1981).

Ark.

—McClure Ins. Agency v. Hudson, 238 Ark. 5, 377 S.W.2d 814 (1964). “Option” had no consideration and had the effect of an ordinary offer. Moreover, the purported acceptance was not from the offeree.

Del.

—In re Books-A-Million, Inc. Stockholders Litig., 2016 Del. Ch. LEXIS 154 (Oct. 10, 2016). A special committee established by company’s board rejected proposal to acquire company shares, terminating offer. The court cited § 3.41, 1993 ed., of this treatise.

Hawaii

—Burgoyne v. Frank B. Hall & Co., Inc., 781 F.2d 1418 (9th Cir.1986). Union, a surety company, filed a supersedeas bond to stay execution of a judgment while the case was on appeal to the Hawaii Supreme Court. Burgoyne objected to the bond, asserting that it did not conform to law. The court agreed and the bond was not approved. Nonetheless Burgoyne made no effort to execute on the judgment. After the appeal was decided Burgoyne sought to enforce the bond. The court held that the surety’s tender of the bond was an offer which Burgoyne had rejected and which could not now be accepted.

N.J.

—Houghton v. Sunnen Prods. Co., 2010 U.S. Dist. LEXIS 43284 (D.N.J. May 10, 2010). Defendant manufacturer decided to eliminate its sales division, choosing instead to employ independent contractors. All sales people, including the plaintiff, had their positions eliminated. The plaintiff, unwilling to accept an independent contractor position, requested a severance from the defendant. The defendant offered the plaintiff a retirement arrangement, but the plaintiff refused to sign a letter indicating his acceptance. The plaintiff then filed suit alleging, inter alia, that the defendant breached the severance agreement by not paying the plaintiff. The defendant argued that a contract was never formed, and the court agreed. The court explained that an enforceable contract requires an offer, acceptance, consideration, and meeting of the minds upon all the essential terms of the agreement. Citing § 3.41, 1993, of this treatise, the court further explained that it is black letter law that the power of acceptance created by an ordinary offer is terminated by a communicated rejection. The plaintiff rejected the defendant’s offer by refusing to sign the letter offering him the severance package. Therefore, no contract was formed.

Tex.

—Legal Security Life Ins. Co. v. Ward, 373 S.W.2d 693 (Tex. Civ. App. 1963). The insurer sent a policy on terms other than those that were made in the application. The applicant rejected the policy and demanded a refund of premium paid. The insurer complied. The applicant then demanded the policy as sent, in essence attempting to accept the counter-offer after having rejected it. No insurance was effected.

Wyo.

—Trautwein v. Leavey, 472 P.2d 776 (Wyo. 1970). This involved a counter-offer which the court treated as a rejection. Additional counter-offer cases to the same effect are discussed in § 3.36.

Restatement (Second) of Contracts § 38 (Am. Law Inst. 1981) provides: (1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.

But see, Pepsi-Cola Bottling Co. v. N.L.R.B., 659 F.2d 87 (8th Cir.1981), where a contrary rule was applied in the case of collective bargaining.

The United Nations Convention on the International Sale of Goods provides in Article 17: “An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.”

2 Restatement (Second) of Contracts § 37 (Am. Law Inst. 1981) provides: “[T]he power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty.”

Where an option to buy, contained in a lease, expressly provides that it shall be operative against transferees from the lessor, the lessee’s power to accept is not terminated by the fact that the lessee refused an offer by the lessor to sell to him before selling the property to a third party. Adams v. Willis, 225 S.C. 518, 83 S.E.2d 171 (1954).

The power of an offeree to accept an offer is not terminated by a rejection if the offer expressly states that it will be irrevocable for a stated period and the offeror’s agent continues to urge acceptance. See Tennent v. Leary, 82 Ariz. 67, 308 P.2d 693 (1957).

In Nabob Oil Co. v. Bay State Oil & Gas Co., 208 Okl. 296, 255 P.2d 513 (1953), an offeree’s letter was held to involve a rejection terminating the power to accept.

3 Glacier Park Foundation v. Watt, 663 F.2d 882, 886 (9th Cir. 1981). “[A] rejection of an offer should be effective when dissatisfaction with its material terms is communicated to the offeror.”

In Chaplin v. Consolidated Edison Co., 537 F. Supp. 1224 (S.D.N.Y. 1982), an offer of settlement was made to claimants who had brought a class action. Their attorney replied, “After careful consideration [my clients] presented objections which have substantial merit.” This was a rejection and a change of heart by the offerees was unavailing.

Florida has a statutory form of rejection by which insureds may reject uninsured motorist coverage. Failure to utilize this form does not preclude a showing that the insured knowingly rejected such coverage. Muhammed v. Allstate Ins. Co., 582 So. 2d 768 (1991).

Eng.

—Stevenson, Jacques & Co. v. McLean, 5 Q.B.D. 346 (1880).

See, also, First Nat. Exchange Bank v. Roanoke Oil Co., 169 Va. 99, 192 S.E. 764 (1938).

N.Y.

—Mactier’s Admr’s v. Frith, 6 Wend. 103 (N.Y. 1830).

6 Collins v. Thompson, 679 F.2d 168 (9th Cir.1982) (counter-offer treated as a rejection). See § 3.39.

7 This section is quoted in Triax Pac. v. American Ins. Co., 1995 U.S. App. LEXIS 31097 (10h Cir. Nov. 2, 1995).

See also:

Mass.

—Wheaton Bldg. & Lumber Co. v. Boston, 204 Mass. 218, 90 N.E. 598 (1910).

A bid is not accepted by merely saying: You are the lucky man; your bid is the lowest. See Leskie v. Haseltine, 155 Pa. 98, 25 A. 886 (1893). Neshaminy Constructors, Inc. v. Concrete Bldg. Sys., 2007 U.S. Dist. LEXIS 69197, *38 (E.D. Pa. Sept. 18, 2007) (“The fact that a general contractor informs a subcontractor that it was the lowest bidder does not create a binding contract between the parties.”).

8 Restatement (Second) of Contracts § 40 (Am. Law Inst. 1981).

9 This is supported by the American Law Institute, Restatement (Second) of Contracts § 40 (Am. Law Inst. 1981), which reads: “Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.”

The question was put in Howard Smith & Co. v. Varawa, 5 C.L.R. 68 (Australia 1907). An offer was made by cable, on the part of the plaintiff; and after various intervening cable messages, the defendant cabled a conditional acceptance and counter-offer at 3:40 P.M. Twenty minutes later, at 4:00 P.M. the defendant cabled an unconditional acceptance. As to the effect of these messages the court said:

“The telegram of 3:40 appears to have arrived at Manila at 5:30 P.M. There was no evidence to show when that of 4:00 P.M. arrived there. An interesting argument was addressed to us to the effect that the telegram of 3:40 operated from the time of its despatch, and had the effect of a refusal which could not be followed by an acceptance of the original offer, even if an acceptance of that offer were in fact received before it, and a fortiori if the acceptance were received after the refusal.”

The court found it unnecessary to pass upon the point.

In E. Frederics, Inc. v. Felton Beauty Supply Co., 58 Ga. App. 320, 198 S.E. 324 (1938), the offeree mailed an acceptance and then wrote a letter indicating that it had not accepted. The court held that if the mailed acceptance was never received and the offeror then changed position in reliance on the second letter, the offeree would be estopped from enforcing the contract. The acceptance, though operative when mailed, would cease to bind the offeror after such a change in position.

10 Restatement (Second) of Contracts § 40 (Am. Law Inst. 1981), quoted above.

11 The effect of counter-offers on the power of acceptance of options is considered in § 3.38.

12 In Ryder v. Wescoat, 535 S.W.2d 269 (Mo. App. 1976), eleven days before an option to purchase real property was due to expire, the option holder said he would not exercise the option. The owner then made preliminary arrangements for others to do work on the land. The court said that rejection would not terminate the power of acceptance and that the preliminary arrangements did not create such a change of position as to justify the imposition of an estoppel.

«Pt. I •«TOPIC A •«Ch. 4 •

1 Corbin on Contracts Ch. 4 (2020)

CHAPTER 4

INDEFINITENESS AND MISTAKE IN EXPRESSION

Table of Sections

§ 4.1. Vagueness and Indefiniteness of Terms

§ 4.2. Time of Performance Indefinite—Promises of “Permanent” Employment—At Will Employment

§ 4.3. Indefiniteness of Price or Terms of Payment—Money as a Commodity

§ 4.4. Agreed Methods of Determining the Price or Amount

§ 4.5. Reasonable Price—Quasi-Contractual Remedy After Performance

§ 4.6. Uncertainty of Subject Matter to Be Exchanged for Price; Requirements and Output Contracts

§ 4.7. Effect of Subsequent Verbal Clarification or Action by the Parties

§ 4.8. Subsequent Action May Create a Quasi Contract

§ 4.9. Mistake—Difficulty and Complexity of the Subject

§ 4.10. Mistake as to the Words Used, or as to the Meaning Given to Words and Expressions

§ 4.11. Mistake in Transmission of Messages

§ 4.12. Objective and Subjective Theories

§ 4.13. Mutual Assent—“Meeting of the Minds”

§ 4.14. Auction Sales—Offers to Sell and to Buy

«Pt. I •«TOPIC A •«Ch. 4 ••§ 4.1 »

1 Corbin on Contracts § 4.1 (2020)

§ 4.1 1 Vagueness and Indefiniteness of Terms

In this subject, the illustrative cases are innumerable. They are of such infinite variety that no one of them can be regarded as a decisive precedent in a new case. This is because all humankind participate in contract transactions in every field of human activity with greater or less complexity of factors, unknown or inaccurately analyzed, and because of the uncertainties of our language of communication. A significant percentage of contract litigation is concerned with the interpretation of language.

With respect to vagueness and indefiniteness of language, this treatise cannot undertake to report, even in abbreviated form, the specific facts and language of the cases. It is necessary, however, to collect cases in sufficient number to indicate the extent of the ever-recurrent problem, the function and the powers of the court, and the policies and considerations to be given weight in the solution. It may be helpful to make a classification of cases, necessarily incomplete, in accordance with the type of contract and the character of the facts, even though they cannot be fitted into neat little separate compartments.

A court cannot enforce a contract unless it can determine what it is. It is not enough that the parties think that they have made a contract. They must have expressed their intentions in a manner that is capable of being understood. It is not even enough that they have actually agreed, if their expressions, when interpreted in the light of accompanying factors and circumstances, are not such that the court can determine what the terms of that agreement are. Vagueness of expression, indefiniteness, and uncertainty as to any of the essential terms of an agreement, have often been held to prevent the creation of an enforceable contract.2

Generalizations no doubt render some service in the administration of the law, but they may result in serious injustice unless they are applied with common sense in the light of much experience. Vagueness, indefiniteness, and uncertainty are matters of degree, with no absolute standard for comparison. It must be remembered that all modes of human expression are defective and inadequate. Every student of language knows this to be true of words. Every good dictionary shows that most important words have been given several, or even many meanings. These meanings themselves must be expressed in other words that are equally difficult of definition. Other modes of expression have like uncertainty. Although actions may, as the old adage avers, speak louder than words it is often not true that they express intention with greater definiteness and certainty. In every case, the function of the court is to determine, as far as is possible, the intention of the contracting parties and to give legal effect to it.3 As stated by the American Law Institute: “The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.”4

Courts do not make contracts. Courts have often said that they do not make contracts for the parties, very often in cases in which they wash their hands of a difficult problem that is thrust upon them by reason of incompleteness or indefiniteness in the expression of some term in a written instrument by which the parties clearly intended to be bound.5 They may be quite justified in this, for the matter is one of degree, but it is otherwise if the case is one in which other courts, on closely similar facts, have gone farther afield in the search for intention and have been able to overcome the indefiniteness of expression and to effectuate the purposes for which the instrument was executed. In this process, the latter courts can correctly say that they “do not make a contract for the parties” but merely determine the just legal effect of the contract that the parties made.6

In considering expressions of agreement, the court must not hold the parties to some impossible, or ideal, or unusual standard. It must take language as it is and people as they are. All agreements have some degree of indefiniteness and some degree of uncertainty.7 In spite of its defects, language renders a practical service. In spite of ignorance as to the language they speak and write, with resulting error and misunderstanding, people must be held to the promises they make. The court must not be overly fearful of error; it must not be pedantic or meticulous in interpretation of expressions.8

The language of the parties, whether in a written instrument or otherwise, may be such as to indicate clearly that the parties themselves understand that they are not contracting. In such cases they are merely engaged in the inoperative process of preliminary negotiation; their failure to consummate a contract is not due to vagueness or indefiniteness of expression, although the terms on which they hope to agree may be very vague and indefinite.9 When the evidence clearly shows, either by reason of definite language or otherwise, that the only (and the complete) subject matter that is under consideration is left for further negotiation and agreement, there is no contract, not for vagueness or indefiniteness of terms but for lack of any terms. The parties may use words constituting an “agreement to agree” or an “agreement to negotiate,” with the result that they feel a sense of “obligation.” This is merely an obligation to discuss terms, perhaps even to make offers and counter-offers, not an obligation to accept an offer that may be made or to render any other future performance.10 This section of this treatise has often been cited in cases where the parties “agreed to agree” later on important terms.11 Often the cases refusing enforcement can be explained on the ground that the parties had not yet expressed final assent to the transaction being negotiated; others can be explained on the ground that even though the parties thought they had contracted, the gaps could not properly be filled by the courts. Many of the cases have aspects of both problems. In fact, in many of the cases where indefiniteness is raised in contexts other than agreements to agree, the court looks at the indefinite or missing term to assess whether it is evidence of the lack of contractual intent.12 As shown earlier in this treatise13 an agreement can constitute an enforceable contract despite the fact that the parties have agreed to agree later on important terms or have agreed that final agreement will be memorialized in a final writing.14 Indeed, even agreements to negotiate in good faith can be binding. While contracts to negotiate can be binding,15 an expression of willingness to enter into negotiations is not such a contract.16 Where the parties intend to contract but defer agreement on certain essential terms until later, the gap can be cured if one of the parties offers to accept any reasonable proposal that the other may make. The other’s failure to make any proposal is a clear indication that the missing term is not the cause of the contract failure.17

The “subject matter” under consideration may be complex, with separate elements on which the parties may prefer to negotiate separately. It may be shown that they completed their negotiations on one or more of these elements and intended to “close the deal” thereon and to be bound thereby, even though they expressly leave another element to further negotiation and agreement.18 It is at this point that difficult cases arise, by reason of vagueness and indefiniteness of expression. The several “elements” may not have been regarded as separate and independent. The parties may have intended to “close the deal” as one transaction and to make a legally operative contract, even though one or more elements be left in an indefinite state. Performance may have begun, in the confident belief that agreement on the unsettled matters would follow. But disputes arise, and the courts have been obliged to make decisions. They can, and sometimes do, hold that no contract has been made, leaving the parties to such non-contractual remedies as may be available.

Binding contract intended by the parties. If the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result, even though this requires a choice among conflicting meanings and the filling of some gaps that the parties have left.19

The courts must take cognizance of the fact that the argument that a particular agreement is too indefinite to constitute a contract frequently is an afterthought excuse for attacking an agreement that failed for reasons other than the indefiniteness. In such instances, the court should not be too fussy to determine how the gaps should have been filled. It is simply unnecessary. To illustrate, an agreement reached between a construction contractor and an owner to build a “first class theater” is not an enforceable contract, unless there is additional evidence that the parties had more definite specifications in mind.20 Yet, in Bettancourt v. Gilroy Theatre Co.,21 the term “first class theatre” was held to be sufficiently definite in relation to the nature of the dispute. Plaintiff, the owner of urban property, was approached by a broker to sell part of it to a customer who would build a first-class theater on the parcel. Plaintiff agreed to make the sale, primarily motivated by the fact that such a building would enhance the value of plaintiff’s adjacent properties. He entered into a contract of sale a term of which was: “The buyers are to erect a First Class Theatre on the above described premises … .” The parcel was then conveyed, and after several years of inactivity, the purchaser sold the premises to a third party who put the parcel to other uses. Note that the plaintiff had no deep interest in the exact dimensions of the premises, its appointments, its decor, the precise number of seats, or related matters. He was bargaining for a general result. Consequently, relative to the plaintiff’s purposes, the contract was definite enough. Many of the cases cited throughout this and succeeding sections can similarly be explained. As stated in the commentary to Restatement (Second) of Contracts § 33 (Am. Law Inst. 1981), “the degree of certainty required may be affected by the dispute which arises and by the remedy sought.”22

The fact that the parties have left some matters to be determined in the future should not prevent enforcement, if some method of determination independent of a party’s mere “wish, will, and desire” exists, either by virtue of the agreement itself or by commercial practice or other usage or custom.23 This may be the case, even though the determination is left to one of the contracting parties, if this party is required to make it “in good faith” in accordance with some existing standard24 or with facts capable of objective proof.25 Numerous illustrative cases may be found: preliminary insurance “binders”;26 provisions for the execution of a lease or a mortgage “in the usual form” or with “the usual terms and covenants,”27 agreements providing for performance to the “satisfaction” of one of the parties;28 agreements to take an employee into “partnership”;29 employment and service agreements leaving some indefiniteness as to the compensation;30 agreements for the erection of a building without definite specifications.31 In cases such as these, as in the Bettancourt case, the decisive fact may be whether or not the term that is somewhat indefinite was indeed the reason why the parties failed to proceed with performance. For example, in one case a settlement agreement was reached between a sub-contractor and general contractor that provided in part: “O & A will issue final payment in the amount of $613,350.00 as final contract settlement with GLHP and all of their subcontractors with proper legal releases from all parties.” The italicized phrase appears definite enough until the record reveals that despite intensive negotiations, apparently in good faith on both sides, the lawyers and the parties could not work out mutually agreeable “proper legal releases.” The court opinion, finding the agreement too indefinite, details the difficulties involved in interpreting the meaning of the phrase and why neither party’s interpretation was to be preferred.32

There are cases in which mutual agreement has been expressed on all principal terms subject to a “strike clause” or a “war clause” or to the negotiation of some financing or other subsidiary contract. A decision that no contract has been consummated may be expected, unless the content of such a clause or contract can be determined in accordance with a usage or custom with which the parties are familiar.33

The Uniform Commercial Code contains provisions applicable to contracts for the sale of goods that may often reasonably be applied in other kinds of cases. The application of such a rule is believed to come nearer to attaining the purpose of the contracting parties than any other, to give more business satisfaction and to make a contract a workable instrument.34 Section 2-204 provides:

“(1) A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.”

“(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making cannot be determined.”

“(3) Even though one or more terms are left open a contract for sale shall not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.”

This general section on indefiniteness is supplemented by numerous gap-fillers, providing, for example, for the effects of missing price terms,35 payment terms, and method, place and time of delivery.

Effect of part performance of an indefinite agreement. The determination of the intention of the parties and the interpretation of their words may both be largely affected by their conduct in the course of a transaction. The fact that one of them, with the knowledge and approval of the other, has begun performance is nearly always evidence that they regard the contract as consummated and intend to be bound thereby.36 It may also aid in the interpretation of their words with respect to the character of the performances to be rendered.37 In this way, the indefiniteness may be cured, or at least reduced. The fair and just solution may then be the enforcement of promises rather than a decision that no contract exists.38 One of the alternatives open to the court is a “quasi-contractual” remedy of restitution. In many cases this remedy is inadequate. It is clearly inadequate if the court will refuse to allow compensation for the part performance that has not enriched the party who denies the existence of a contract but has been expensive or otherwise disadvantageous to the party rendering it.39 Where one party has fully performed, the argument that the contract is too indefinite usually will not be sustained.40

Indefinite writing supplemented by extrinsic evidence. An agreement that is evidenced by a signed written document may not state all the terms that are agreed upon. Even though the writing does not itself clearly state price, subject matter, or conditions, other evidence may be sufficient to fill the gaps and to remove doubts.41 A course of dealing or a trade usage may be probative of the parties’ intentions.42 The writing may incorporate other documents by reference43 or may indicate a method by which to determine the unstated terms on which they actually agreed.44

If the terms of a written instrument are regarded as in any degree vague and indefinite (or, as the courts so often say, “ambiguous”), extrinsic evidence is always admissible to aid in interpretation and to establish the meaning that was intended by the parties. Although the so-called “parol evidence rule” has often been held to exclude such evidence if the written words seem to the court to be “plain and clear,” no court has asserted its application in the cases here considered. Such evidence may not be available or offered. If the actual intention of the parties can be and is determined, indefiniteness disappears as a reason for refusing enforcement.45

Degree of definiteness required for specific performance. Judges often say that an agreement requires a higher degree of definiteness and certainty in order to justify a decree for specific performance then to justify enforcement by a judgment for damages.46 This may be true; but the difference is one of degree, if it exists, and it is one that cannot be measured or described. It, too, retains its element of indefiniteness and uncertainty. If an agreement is enforceable by any of the known judicial remedies, it deserves the name of contract and it creates a legal duty. Inasmuch as an equitable decree can be molded to suit the particular case as justice requires, it seems true that in some cases an indefinite agreement might properly be enforced specifically and on named conditions even though an unconditional judgment for damages would better be refused. At any rate, there are numerous cases in which specific performance has been decreed, in spite of indefiniteness as to amount and price,47 or subsidiary terms.48

Courts should not hesitate to use evidence of good faith requirements, rooted in what the parties reasonably should understand to be their obligations, to grant specific performance of a contract. In McCandless v. Schick,49 the parties executed a written contract for the sale of a farm on stated terms. It provided that a balance of $17,000 should be “payable at one third (⅓) gross crop per year.” This provision was held not to be too indefinite for specific enforcement, even though there was no express provision that any crops should be planted, or what the crops should be, or whether delivery should be in cash or kind. The provision must be interpreted and gaps filled in accordance with farming usages that were known to the parties.

In Schuh v. Schuh,50 a property settlement between husband and wife provided that certain resort property should be “placed on the market immediately and that it be sold as soon as practicable,” the proceeds to be divided equally. The trial court dismissed the bill for specific performance, but the Supreme Court reversed, saying only this: “We find nothing indefinite and impossible of enforcement in such language.”

Footnotes — § 4.1:

1 The process of “implication” is dealt with at greater length in Vol. 6, Ch. 26, Implied Terms, Default Rules, and the Concept of Good Faith.

2 Or, despite the absence of clarity, the evidence shows that it is obvious that a contract of some kind was entered into. See Best v. Magic Indus., 2019 Conn. Super. LEXIS 90 (2019). Plaintiff alleged that the parties entered into an oral agreement for the plaintiff to produce certain metal fabricating parts for a construction project. Plaintiff claims the parts were worth $101,500, and that the parties agreed to that amount as shown by an invoice—but, as it turned out, this invoice was produced “after the contract essentially had been completed.” The defendant only paid plaintiff $45,500, and defendant denied agreeing to $101,500. Plaintiff filed suit, and the court conducted a bench trial. The court cited a previous edition of this treatise (1993 edition) for the proposition that “[t]o be enforceable, an agreement must be definite and certain as to its essential terms and requirements.” The court found the parties never reduced the specifics of the agreement to writing. “[T]he nature of the verbal discussions between the two businesses … are murky at specifics … . [T]he parties fall woefully short on showing the terms of this contract to be definite and certain as to its essential terms and requirements.” The court rejected plaintiff’s contention that the agreed price was $101,500 and accepted the defendant’s testimony that the agreed price was $60,000, which defendant had advised plaintiff was the overall guaranteed maximum contract price. Judgment was entered for the plaintiff in the amount of $14,500.

U.S.

—Laseter v. Pet Dairy Products Co., 246 F.2d 747 (4th Cir. 1957) (mere assurance by an employer that the plaintiff, an employee recovering from an injury, would be given light work as soon as he was able to do it); Tennessee Enamel Mfg. Co. v. Stoves, Inc., 192 F.2d 863 (6th Cir. 1951), cert. denied, 342 U.S. 946 (trial court had found that although “there was no contract … for the sale and purchase of five carloads of stoves”, there was “a commitment to plaintiff that defendant would furnish at least five carloads of stoves,” court of appeals reviewed the evidence and disagreed); Cia. Naviera Somelga, S.A. v. M. Golodetz & Co., 189 F. Supp. 90, 97 (D. Md. 1960) (oral agreement for a bond too vague as to the coverage intended, quoting this section, § 95 from a prior edition); In re Wallace, Chapter 11, 2012 Bankr. LEXIS 3221 (Bankr. D. Wyo. July 16, 2012) (citing this section (§ 95, 1963 ed.) court rejected claimant’s allegation that he was wrongfully ejected from house based on “nebulous” oral contract that the parties were “working on the [residential] property toward a common goal, their future.”).

Ala.

—Grand International Brotherhood of Locomotive Engineers v. Couch, 236 Ala. 611, 184 So. 173 (1938).

Cal.

—Robinson & Wilson, Inc. v. Stone, 35 Cal. App. 3d 396, 110 Cal. Rptr. 675 (1973) (that portion of a contract providing for the construction of “standard” or “minimum” medical suites for $30,040 is too indefinite); Fly v. Cline, 49 Cal. App. 414, 193 P. 615 (1920) (a building contract not providing for the number of rooms or the cost).

Conn.

—Goncalves v. Superior Plating Company, 2010 Conn. Super. LEXIS 2271 (Sept. 9, 2010) (citing this section (§ 95, 1963 ed.), plaintiff could not establish definite contract that he would only be fired for just cause).

Del.

—United Aircraft Corp. v. Paul Hardeman, Inc., 58 Del. (8 Storey) 66, 204 A.2d 396 (Super. 1964).

D.C.

—Rosenthal v. National Produce Co., 573 A.2d 365 (D.C. App. 1990). The case quoted this paragraph (§ 95, 1963 ed.) with the comment that Professor Corbin could have composed this paragraph with this case in mind. The case involved an alleged contract to the effect that “we will deliver produce; you will pay us.” There was no agreement as to subject matter, price, payment terms, quantity, quality or duration. Dawson v. Wash. Metro. Area Transit Auth., 256 F. Supp. 3d 30 (D.D.C. June 23, 2017) (quoting § 95, 1963 ed.); Arturi v. U.S. Office Prods. Co. (In re United States Office Prods. Co. Sec. Litig.), 251 F. Supp. 2d 58 (D.D.C. 2003) (citing § 95, 1963 ed); Meehan v. U.S. Office Prods. Co. (In re United States Office Prods. Co. Sec. Litig.), 251 F. Supp. 2d 77 (D.D.C. 2003) (citing § 95, 1963 ed); Kramer Associates, Inc. v. Ikam, Ltd., 888 A.2d. 247 (D.C. App. 2005) (quoting § 95, 1963 ed).

Ga.

—Douglass v. W.L. Williams Art Co., 143 Ga. 846, 85 S.E. 993 (1915); Prior v. Hilton & Dodge Lumber Co., 141 Ga. 117, 80 S.E. 559 (1913) (employment to cut timber, indefinite as to time, amount, place of delivery, teams to be furnished); Hart v. Georgia R. Co., 101 Ga. 188, 28 S.E. 637 (1897) (defendant promised that if plaintiff would erect a first class hotel it would be supported by the patronage of the traveling public).

Idaho

—This paragraph of the text was quoted in Dale’s Service Co. v. Jones, 96 Idaho 662, 534 P.2d 1102 (1975). This was an agreement for requirements of fill. A “requirements” contract is normally definite enough. U.C.C. § 2-306. Too much discretion was left to the buyer as to the ultimate grading of the site, thus making a requirements contract for a fixed price too indefinite. See also Lawrence v. Jones, 124 Idaho 748, 864 P.2d 194 (App. 1993) (citing this § 4.1, 1993 ed., terms of security provision in purchase and loan agreement that were essential to agreement were not sufficiently definite and certain to enable a court to determine what the provision entailed, rendering the entire agreement unenforceable); Silicon Int’l Ore, LLC v. Monsanto Co., 314 P.3d 593 (Idaho 2013) (alleged oral contract to process silica sand did not include price, quantity, or duration, and the court, citing this § 4.1, 1993 ed., refused to enforce it).

Ill.

—Sweeting v. Campbell, 8 Ill. 2d 54, 132 N.E.2d 523, 60 A.L.R.2d 247 (1956) (action for specific performance of real property sale was denied where provisions for outside mortgage financing and purchase money second mortgage contained no maturity dates); Association Benefit Services, Inc. v. Caremark Rx, Inc., 493 F.3d 841 (7th Cir. 2007) (plaintiff’s own argument revealed fatal uncertainty concerning its obligations under the contract); FTI Int’l, Inc. v. Whitesell Int’l Corp., 2011 IL App (2d) 101048-U (2011) (citing §§ 95–100, 1963 ed.).

Tranzact Techs. Ltd. v. Evergreen Partners, Ltd., 2001 U.S. Dist. LEXIS 14043 (N.D. Ill. Sept. 7, 2001). Evergreen contracted with Tranzact to provide financial advisory services in preparation for a possible sale of the company. The contract also contemplated the payment of an “investment banking fee” if a sale was consummated within one year of the termination of the advisory agreement. A sale was consummated within the year, and the court found a contract between the parties but held that an investment banking fee was not payable because the formula for calculating the amount due included “transaction value” that was not defined. Citing § 95 of a prior edition, the court held that the agreement was unduly uncertain and indefinite as to the payment of such fee. Evergreen’s argument that extrinsic evidence could be used to define the term was rejected since that definition would have contradicted the unambiguous terms of the agreement.

Me.

—Ault v. Pakulski, 520 A.2d 703 (Me. 1987). A property settlement provided that the parties would “establish a trust for the education of the children … the cost is to be borne on a percentage basis based on the respective incomes of the Husband and Wife.” No attempt was made to establish a trust. The wife, the lesser income-earner, provided the bulk of the educational costs and sues for proportional reimbursement. The court, quoting § 95 (1963 ed.), ruled that the contract provision was too indefinite and no cause of action was stated. The dissent, pointing out that the remedy sought was not the establishment of a trust and that practical construction by the parties cured some of the ambiguities, has much the better reasoned opinion.

Md.

—Maslow v. Vanguri, 168 Md. App. 298, 896 A. 2d 408 (2006) (quoting § 4.1, 1993 ed.); First Nat. Bank v. Burton, Parsons & Co., 57 Md. App. 437, 470 A.2d 822 (1984), cert. denied, 300 Md. 88, 475 A.2d 1200, cert. denied, 300 Md. 90, 475 A.2d 1201 (an employment contract fixing a salary for employee-inventor which provides for vesting of inventions in employer but this “shall not preclude the parties hereto from negotiating a further agreement for the payment of royalties or other compensations for such inventions … .” While this term was too vague, the balance of the contract was binding). See also, Arundel Realty Co. v. Maryland Elec. Rys. Co., 116 Md. 257, 81 A. 787 (1911) (promise to make a special rate for passengers, without stating the rate or the period covered); Meyers v. Josselyn, 212 Md. 266, 129 A.2d 158 (1957) (an employment agreement provided for “bonus,” the amount of which was to depend on uncertainties largely in employer’s discretion—a substantial amount was paid); County Commissioners for Carroll County, Maryland v. Forty West Builders, Inc., 178 Md. App. 328, 941 A.2d 1181 (2008), appeal dismissed, 384 Md. 22, 862 A.2d 404 (2004) (citing this § 4.1, 1993 ed., the court found the language sufficiently specific to enforce); 8621 Limited Partnership vs. LDG, Inc., 900 A.2d 259 (Md. App. 2006), cert. denied, 394 Md. 480, 906 A.2d 943 (2006) (quoting § 95 from a prior edition).

Mass.

—Armstrong v. Rohm & Haas Co., 349 F. Supp. 2d 71 (D. Mass. 2004) (defendant’s alleged promise of all of the work the plaintiff could handle was too vague to afford a basis for providing an appropriate remedy); Lambert v. Fleet National Bank, 449 Mass. 119, 865 N. E.2d 1091 (2007) (claim that bank officer stated that “he was going to do everything he could to cooperate” with the plaintiff, there was no discussion of what “cooperation” meant); George W. Wilcox, Inc. v. Shell E. Petroleum Products, 283 Mass. 383, 186 N.E. 562 (1933) (agreement for sale of service station with important terms unsettled); Sibley v. Felton, 156 Mass. 273, 31 N.E. 10 (1892).

See also Callahan v. Shepherd, 2018 U.S. Dist. LEXIS 173273 (D. Mass. 2018). The Callahans sued defendants for breach of a contract to make certain home improvements. Defendants filed a motion to dismiss for alleged “extreme vagueness” in the contract because the complaint fails to spell out the date of contract formation, the consideration, or the schedule of performance. The court denied the motion. The complaint must spell out the essential terms of a contract with sufficient definiteness so that the nature and extent of the parties’ obligations can be ascertained. The complaint does allege the date of agreement and the completion date of the work. It also attached a Scope of Work, which referenced a price list that would form the consideration for the contract.

Mo.

—Ogilvie v. Ogilvie, 487 S.W.2d 40 (Mo. App. 1972). The dissenting opinion seems preferable. As part of a divorce settlement the husband gave the wife his $3,000 note. She agreed to release Bertha from liability for alienation of affections in return for Bertha’s promise to “aid and assist” the husband in paying off the note. Held, Bertha’s promise was too indefinite. Meanwhile, the statute of limitations had run against the ex-wife’s claim for alienation. As the wife had fully performed she should not be left without remedy.

Shofler v. Jordan, 284 S.W.2d 612 (Mo. App. 1955) (after interpreting the evidence of an alleged oral agreement “with common sense and in the light of experience” the court held that “the language of the alleged promise was too general and indefinite,” quoting § 95 from a prior edition of this treatise). Brown v. Childers, 254 S.W.2d 275 (Mo. App. 1953) (it was “understood” between the seller and the purchaser of a business that the seller would be given employment without any agreement as to a period of time or amount of salary).

N.H.

—Behrens v. S. P. Construction Co., 153 N.H. 498, 904 A.2d 676 (2006) (court considered parol evidence because agreement was ambiguous, but different interpretations provided by the parties were each reasonable and court concluded there was no meeting of the minds on an essential term of the agreement).

N.J.

—Caullett v. Stanley Stilwell & Sons, Inc., 67 N.J. Super. 111, 170 A.2d 52 (1961) (reservation to the grantor in a deed of “the right to build or construct the original dwelling or building on said premises.”); Heim v. Shore, 56 N.J. Super. 62, 151 A.2d 556 (1959) (parties negotiated orally and loosely for the sale of a tract of land, and development of the tract for residential purposes, definiteness could not be achieved by the making of “reasonable implications,” citing § 95 from a prior edition of this treatise); Cooper v. Kensil, 31 N.J. Super. 87, 106 A.2d 27 (1954), aff’d, 33 N.J. Super. 410, 110 A.2d 559 (1954) (specific performance of an alleged option to participate in any subsequent transaction by the other party for the construction of dwellings was refused).

N.Y.

—Saunder v. Baryshnikov, 110 A.D.2d 511, 487 N.Y.S.2d 51 (1985), appeal dismissed without opinion 65 N.Y.2d 637 (1986). A private secretary’s claim against her employer on an alleged oral promise “he would take care of her and her financial needs for the rest of her life,” violates the lifetime provision of the N.Y. statute of frauds, but is also held to be too vague for enforcement. The court cited, inter alia, Varney v. Ditmars, 217 N.Y. 223, 227–228, 111 N.E. 822 (1916) (defendant’s promise to give plaintiff a “fair share of his profits” too vague where there was no market or other standard). Musco v. Pares, 2 A.D.2d 689, 152 N.Y.S.2d 612 (1956) (specific enforcement of an agreement for the sale of many lots was refused because of terms still to be agreed on); Feldman v. Rockaway News Supply Co., 6 Misc. 2d 406, 157 N.Y.S.2d 671 (1956) (holding that an arbitrator’s award was not too uncertain for enforcement, citing § 95 from a prior edition of this treatise); Norton v. Correctional Medical Care, Inc., 2010 U.S. Dist. LEXIS 110541 (N.D.N.Y. Oct. 18, 2010) (no agreement where parties negotiating agreement with issues unresolved, court cited § 95 from a previous edition).

N.C.

—Smith v. House of Kenton Corp., 23 N.C. App. 439, 209 S.E.2d 397, 85 A.L.R.3d 407 (1974), cert. denied, 286 N.C. 337, 211 S.E.2d 213 (contract to lease with no provision of time when rents are to be paid); Johnson v. Johnson, 418 B.R. 682 (Bankr. E.D. N.C. 2009) (citing this § 4.1, 1993 ed., the court held that writings stating that Nancy Johnson shall receive a “home in Fearrington Village,” or alternatively, “a home in Fearrington Village or elsewhere” too vague to enforce); Horton v. Humble Oil & Refining Co., 255 N.C. 675, 122 S.E.2d 716 (1961).

Ohio

—Ross v. Belden Park Co., 2001 Ohio App. LEXIS 1862 (Ohio App. Apr. 16, 2001). Although trial court has discretion to encourage and promote settlements and to enforce settlement agreements, “vagueness of expression, indefiniteness and uncertainty as to any of the essential terms of an agreement, have often been held to prevent the creation of an enforceable contract” (quoting this § 4.1, 1993 ed.). Here, the plaintiff’s version of the settlement agreement was incapable of insertion into the settlement agreement because it contained a clause that would violate public policy.

Militiev v. McGee, 2010-Ohio-6481 (Ohio 2010). Defendants made a written offer to purchase the plaintiff’s commercial real estate. Plaintiff accepted the offer, which included the contingency that the closing would take place after the defendants received funds from the sale of Florida property. The closing did not take place, and the plaintiff filed suit. Citing this § 4.1, 1993 ed., the court found that the contingency provision was not only ambiguous but also too indefinite to enforce.

See also, Trammell v. Morgan, 158 N.E.2d 541 (Ohio App. 1957) (contract for exclusive services of a pugilist, the manager in return only to buy a home suitable for promisee’s family, at a fair price, to be paid for out of earnings of pugilist); Rulli v. Fan Co., 79 Ohio St. 3d 374, 683 N.E.2d 337 (1997) (quoting this sentence); Stewart v. Moon, 2015 U.S. Dist. LEXIS 163687 (N.D. Ohio Dec. 7, 2015) (citing this § 4.1, 1993 ed., the alleged contract could not be enforced: “Unfortunately, the copy of the contract attached to Plaintiff’s filing is virtually illegible … .”); Bertovich v. St. John, 2012-Ohio-475 (Ohio App. 2012) (citing § 95 from a previous edition); Shapnick v. L.C.A.-Vision, Inc., 2005 U.S. Dist. LEXIS 11006 (S. D. Ohio June 8, 2005) (many important terms were unresolved); Phu Ta v. Chaudhry, 2016-Ohio-4944 (Ohio App. 2016) (too many terms lacked specificity or were unresolved).

See also Carkido v. Sweeney, 2019-Ohio-460, 2019 Ohio App. LEXIS 484 (2019). Carkido was a passenger in a vehicle driven by Coleman when Coleman got in an accident with Sweeney. Sweeney’s insurer, GEICO, through its adjuster, spoke with Carkido about settlement. GEICO claimed that the parties entered into a settlement agreement—and a telephone transcript of a discussion between a GEICO representative and Carkido reveals Carkido acknowledging that she settled her claim. But “Carkido maintains that she did not understand the following essential terms: (1) that she would become subrogated to Cleveland Clinic Employee Health Plan; (2) whether GEICO would pay the cost of her subrogation to her health plan; (3) the total cost of her medical treatment due to the accident as of the time of the alleged settlement; and (4) whether GEICO would pay for future medical costs associated with the accident.” According to Carkido, her hesitancy in the telephone discussion indicated her “uncertainty as to whether she understood the essential terms of the alleged settlement agreement.” Sweeney moved to enforce the alleged settlement, and the trial court granted the motion. But on appeal, the instant court reversed. Quoting precedent that cited a prior edition of this treatise, the court explained that in order to be enforceable, an agreement must be capable of being understood. But in this case, it was not the court that could not understand the terms, it was Carkido. The court explained:

Carkido never executed a release (or cashed the check for that matter); GEICO failed to follow its own policy of obtaining the medical records and any bills associated with Carkido’s damages prior to settling (and Carkido did not have any indication what her damages were at the time of the alleged settlement); the record seems to indicate that Carkido had little familiarity with the legal process of settling a claim; and, according to Carkido, there were portions of her conversation with Beverage that were not recorded. Additionally, the alleged settlement occurred a mere 11 days after the accident and under circumstances that evidence the company’s confusion about who was at fault for the accident.

The court held that the trial court erred in granting the motion to enforce the settlement agreement.

Okla.

—Central Mortgage Co. v. Michigan State Life Ins. Co., 43 Okl. 33, 143 P. 175 (1914) (vague agreement to buy mortgages and to procure insurance).

Or.

—Klimek v. Perisich, 231 Or. 71, 371 P.2d 956 (1962) (specifications of a building contract); Bonnevier v. Dairy Cooperative Ass’n, 227 Or. 123, 361 P.2d 262 (1961) (quoting § 95 from a prior edition of this treatise).

Pa.

—Soar v. National Football League Players’ Association, 550 F.2d 1287 (1st Cir.1977) (even assuming there had been a manifested intent to contract, sufficient authority in the Commissioner, and consideration, the agreement was too indefinite to constitute a contract) (applying Pennsylvania law); Glenn Distribs. Corp. v. Sanford, LP, 2014 U.S. Dist. LEXIS 55454 (E.D. Pa. April 22, 2014) (court enforced agreement because the portion of the agreement that was insufficiently indefinite was not an essential term).

R.I.

—Acinapura v. Natalizia, 2003 R.I. Super. LEXIS 98 (R.I. Super. Ct. July 30, 2003) (quoting § 4.1, 1993 ed., the court held that vagueness of expression, indefiniteness, and uncertainty as to the essential terms rendered the contract unenforceable).

S.D.

—Werner v. Norwest Bank of S.D., 499 N.W.2d 138 (S.D. 1993) (would-be borrower asserting oral promise to loan money could not withstand summary judgment motion where terms of alleged promise did not specify the amount of the loan or the interest rate).

Tex.

—Ski River Dev. Inc. v. McCalla, 167 S.W.3d 121 (Tex. App. Waco 2005), petition for review denied, 2005 Tex. LEXIS 920 (2005) (unresolved issues indicated that the parties were only agreeing to make a future contract); Spinal Concepts v. Curasan, 2006 U.S. Dist. LEXIS 63987 (N. D. Tex. Sept. 7, 2006) (absence of quotas—and, therefore, a quantity term—for the last three years of the contract made contract for those years fatally indefinite); Shipley v. Vasquez, 534 S.W.3d 482 (Tex. App. 2017), petition for review denied, 2017 Tex. LEXIS 1178 (2017) (agreement “that [Shipley] would take care of [Vasquez] so long as their daughter was a child and living under [Vasquez’s] roof and in exchange [Vasquez] would raise their daughter like a Shipley” held fatally indefinite).

Vt.

—Evarts v. Forte, 135 Vt. 306, 376 A.2d 766 (1977). One acre was to be carved out of a four acre tract. There was insufficient description in the writing; as important, no clear idea was conveyed to the buyer as to the boundaries.

Wis.

—Shetney v. Shetney, 49 Wis. 2d 26, 181 N.W.2d 516 (1970). The wife sued the husband alleging she agreed to help him get his Ph.D. in exchange for his promise to help her get her Ph.D. The wife fully performed, but the court thought that “help” was too indefinite a term. Note this is a case where it is likely that a presumption against intending legal consequences attaches.

Dunlop v. Laitsch, 16 Wis. 2d 36, 113 N.W.2d 551 (1962), reh’g denied, 16 Wis. 2d 36, 114 N.W.2d 857) (merely an agreement to agree in the future as to a specified important matter); AVL Powertrain Eng’G, Inc. v. Fairbanks Morse Engine, 2016 U.S. Dist. LEXIS 51709 (W.D. Wis. Apr. 18, 2016) (evidence of undisclosed intentions inadmissible to show meaning of ambiguous agreement); Lake Michigan Contractors, Inc. v. Manitowoc Co., 2002 U.S. Dist. LEXIS 9547 (W.D. Mich. May 21, 2002) (applying Wisconsin law and citing § 95 from a previous edition); Redprairie Corp. v. Jerome’s Furniture Warehouse, 2007 U.S. Dist. LEXIS 71680 (E.D. Wis. Sept. 26, 2007) (court cited § 95 from a previous edition and found an agreement for buy and sell a warehouse management system; the court implied a duty of good faith for the drafting of the specifications).

Eng.

—British Homophone v. Kunz, etc., Mfg. Co., 152 L.T.R. 589 (1935).

3 It is a good general rule that their expressions should be interpreted ut res magis valeat. In American Sugar Refining Co. v. Newnan Grocery Co., 284 F. 835 (5th Cir. 1922), the court said: “A contract will be given that construction which will make it valid and binding instead of a construction which would make it void or unenforceable.” Agreements containing some indefiniteness may be enforced if the facts indicate other parts of it may be enforced. Lo Bosco v. Kure Engineering Ltd., 891 F. Supp. 1020 (D.N.J. 1995). In Busching v. Griffin, 542 So. 2d 860, 863 (Miss. 1989), the court, quoting its earlier precedent, said: “Determination that an agreement is sufficiently definite is favored in the courts so as to carry out the reasonable intention of the parties if it can be ascertained. A contract is sufficiently definite if it contains matter which would enable the court under proper rules of construction to ascertain its terms, including consideration of the general circumstances of the parties and if necessary relevant extrinsic evidence. Having found a contract to have been made, an agreement should not be frustrated where it is possible to reach a reasonable and fair result.”

See Penn-Ohio Steel Corp. v. United States, 354 F.2d 254, 173 Ct. Cl. 1064 (1965); Unitas v. Temple, 74 Md. App. 506, 538 A.2d 1201 (1988), cert. granted, 313 Md. 9, 542 A.2d 846, rev’d en banc, 314 Md. 689, 552 A.2d 1285; Computer Network, Ltd. v. Purcell Tire & Rubber Co., 747 S.W.2d 669 (Mo. App. 1988); Corti v. Continental Copper & Steel Export Corp., 223 F. Supp. 503 (S.D.N.Y. 1963).

4 Restatement (Second) of Contracts § 33(2) (Am. Law Inst. 1981). See Visiting Nurse Ass’n, St. Louis v. VNAHealthcare, Inc., 347 F.3d 1052 (8th Cir. 2003). The lower court refused the plaintiff’s request to enforce an oral settlement agreement on the ground that the agreement did not evidence a “meeting of the minds.” The instant court reversed. After lamenting the continuation of the confusing phrase “meeting of the minds,” which could create the impression that the parties to an agreement must entertain the same subjective views, the court found that the parties’ objective manifestations of assent were sufficiently clear and definite to enforce and to allow an appropriate remedy. The district court had found fatal ambiguity in a provision of the oral agreement that required the defendant to disclaim any connection with the plaintiff within the plaintiff’s trade area. The court found no ambiguity in this provision. The agreement clearly covered the defendant’s stationery and other printed materials. Though it did not deal with the precise fate of the defendant’s website, the instant court found that this was an ancillary matter that could be resolved by a construction of the term, “promotional materials used within the Trade Area.”

5 In Thomson v. Gortner, 73 Md. 474, 21 A. 371 (1891), it was said: “In order to constitute a valid verbal or written agreement, the parties must express themselves in such terms that it can be ascertained to a reasonable degree of certainty what they mean. And, if an agreement be so vague and indefinite that it is not possible to collect from it the full intention of the parties, it is void; for neither the court nor the jury can make an agreement for the parties. Such a contract can neither be enforced in equity, nor sued upon at law.”

In Clark Res., Inc. v. Verizon Bus. Network Servs., 2010 U. S. Dist. LEXIS 127137 (M.D. Pa. Dec. 1, 2010), Verizon agreed with plaintiff that if the state awarded it a contract for telecommunications managed services, Verizon would enter into good faith negotiations with the plaintiff to provide services to Verizon in support of a prime contract. The “teaming” arrangement left unstated the services for which Verizon would be negotiating as well as the price terms or the scope of any services. Moreover, nothing in the agreement outlined what the plaintiff would be obligated to do to comply with the teaming arrangement. The court cited this § 4.1, 1993 ed., and held the agreement insufficiently clear to enforce.

The statement is quite untrue in those cases in which the court enforces a written instrument in accordance with a meaning that the contractors themselves did not intend. This is sometimes done by the exclusion of convincing relevant evidence of actual intention on the theory that the written words have a meaning of their own and constitute the “contract” in accordance with that meaning, one by which some “substantive” rule of law requires the parties to abide. The courts never do this if it is found as a fact that the parties intended not to make a contract.

6 In R.H. Lindsay Co. v. Greager, 204 F.2d 129 (10th Cir. 1953), cert. denied, 346 U.S. 828, the seller’s memorandum of a contract for the sale of wool was not signed by the buyer and it contained no express words of promise by the buyer to purchase. The court carefully reviewed the evidence, found a promise to buy by implication, and decreed specific performance of the bilateral contract in a suit by the buyer against the seller.

A provision in a lease for an extension “for ________ years” may be given effect for one or two years and specifically enforced. Starr v. Holck, 318 Mich. 452, 28 N.W.2d 289, 172 A.L.R. 413 (1947).

In James Talcott, Inc. v. Fullerton Cotton Mills, Inc., 208 F.2d 81 (5th Cir. 1953), the plaintiff purchased certain accounts held by the Mills, by a written contract. On the same sheet was printed a guaranty of payment signed by a guarantor. The printed guaranty began thus: “In order to induce you to enter into an agreement dated ________ with ________.” These blanks were not filled. The court held that the connection between the guaranty and the written contract above it was sufficiently proved. The statute of frauds was not mentioned.

This treatise (§§ 36, 95–96 from a prior edition) is cited in Miller v. Campello Co-operative Bank, 344 Mass. 76, 181 N.E.2d 345 (1962), a case in which the court uses its equitable powers to fill a gap and to provide for a situation that the parties had not contemplated.

In Born v. Hammond, 218 Md. 184, 146 A.2d 44 (1958), a somewhat complicated contract for the sale of land for sand and gravel purposes was held not too indefinite for enforcement, even though in case certain unforeseen contingencies arose it might be difficult to apply. The court said: “a contract is not rendered unenforceable merely because the parties do not supply every conceivable detail or anticipate every contingency that may arise.”

In Da Rocha v. Macomber, 330 Mass. 611, 116 N.E.2d 139 (1953), there was an agreement for use of pool room equipment with also a named purchase price. In holding it to be a lease with option to buy and not a sale, the court said: “This agreement is ambiguous and vague. It lacks clarity in many respects but is not unintelligible. It is not too indefinite for enforcement although difficult of satisfactory interpretation. It is not surprising that the parties do not agree upon its meaning.”

See Harvey Constr. Co. v. Parmele, 253 Iowa 731, 113 N.W.2d 760 (1962); McGee v. Clark, 343 So. 2d 486 (Miss. 1977), opinion supplemented 346 So. 2d 914; Smith v. Smith, 43 Va. App. 279, 597 S.E.2d 250 (Ct. App. 2004) (holding a contract too indefinite to enforce a “last resort”).

7 Moncada v. West Coast Quartz Corp., 221 Cal. App. 4th 768, 164 Cal. Rptr. 3d 601 (2013), petition for review denied, 2014 Cal. LEXIS 1600 (2014).

8 This section (§ 95, from a prior edition of this treatise) is cited in Hartung v. Billmeier, 243 Minn. 148, 66 N.W.2d 784 (1954), enforcing an employer’s informal promise to pay a hundred dollars a year bonus if “you boys stick with me for five years.” The court explained: “Although vagueness and indefiniteness may prevent the creation of a contract, it is not to be forgotten that any offer or agreement is indefinite and uncertain in some degree since words are but imperfect symbols of what each party understands and intends. A proper administration of justice does not permit an overzealous quest for subtle ambiguity to destroy the intent of the parties when the court, despite some incompleteness and imperfection of expression, can reasonably find that intent by applying the words used, with all their reasonable implications, to the subject matter as the parties themselves, under all the surrounding circumstances, must have applied, used, and understood them. This court is reluctant to invoke the principle that indefiniteness prevents the creation of a contract where a just result, consistent with a reasonably expressed intent of the parties, can be reached by upholding the agreement.” See Bahr v. Tech. Consumer Prods., 601 Fed. App’x 359 (6th Cir. 2015) (citing Hartung); Walz v. Peplinski, 2007 Minn. App. Unpub. LEXIS 74 (Jan. 16, 2007), review denied, 2007 Minn. LEXIS 145 (2007) (citing Hartung).

In Heiland v. Lee, 207 F.2d 939 (4th Cir. 1953), although certain letters were rather indefinite and rambling, they were held to indicate sufficiently that a testatrix had promised to convey specific land for services of personal care and support. The plaintiff had a right to damages based on the value of the land and not merely to quantum meruit.

In F & K Supply Inc. v. Willowbrook Dev. Co., 288 A.D.2d 713, 732 N.Y.S.2d 734 (App. Div. 2001), the court quoted this treatise’s admonition that courts should not be “pedantic or meticulous” in the interpretation of contract expressions (§ 95 from a previous edition), but found the agreement fatally indefinite.

9 A good example of this is Chiapparelli v. Baker, Kellogg & Co., 252 N.Y. 192, 169 N.E. 274 (1929), in which the Court of Appeals unanimously set aside a verdict and judgment for a commission for service rendered in procuring a foreign loan.

10 An agreement to “negotiate,” made in a collective bargain, has certain sanctions by virtue of labor legislation not applicable in commercial contracts. In government contracts, a provision for “renegotiation” is enforceable by virtue of statute. Even in a commercial contract it may be an enforceable agreement depending on the words of the contract. See Noel v. Dumont Builders, Inc., 178 Cal. App. 2d 691, 3 Cal. Rptr. 220 (1960), where the original writing was merely an invalid agreement to make a contract but the parties subsequently consummated an oral agreement.

In Fremon v. W.A. Sheaffer Pen Co., 209 F.2d 627 (8th Cir. 1954), after the assignment of an invention for an agreed consideration, the parties orally agreed for a further consideration that the parties would reconsider everything that had occurred and would reassess the value of the rights previously assigned, and that when “we have reached that agreement” the defendant would pay fair compensation for the rights. This required mutual agreement on more than reasonable value. It was held to be an unenforceable agreement to renegotiate.

In M.F. v. F., 40 Del. Ch. 17, 172 A.2d 274 (1961), the father of an illegitimate child contracted to pay $75 per month for its support for 5 years, and promised at the expiration of this period to renegotiate the terms of his financial obligation in the light of the needs of the child and the financial circumstances of the father. This promise “to renegotiate” was held too indefinite for enforcement.

See Portman v. Zoetrope Corporation, 2005 Cal. App. Unpub. LEXIS 4093 (May 9, 2005) (where parties merely expressed their interest in the possibility of working together in the future to produce and develop science fiction projects, there was no contract).

11 E.g., Stevens & Wilkinson of S.C., Inc. v. City of Columbia, 409 S.C. 568, 762 S.E.2d 696 (2014); Trapp v. Vollmer, No. 297116, 2011 Mich. App. LEXIS 1081 (June 16, 2011); Lire, Inc. v. Bob’s Pizza Inn Restaurants, 541 N.W.2d 432 (N.D. 1995); Candid Productions, Inc. v. International Skating Union, 530 F. Supp. 1330 (S.D.N.Y. 1982) (agreement to negotiate); Etheridge v. Ramzy, 276 So. 2d 451 (Miss. 1973); Tribune Printing Co. v. 263 Ninth Ave. Realty, Inc., 88 A.D.2d 877, 452 N.Y.S.2d 590 (1982), aff’d, 57 N.Y.2d 1038, 457 N.Y.S.2d 785, 444 N.E.2d 35; Parrinelli v. Parrinelli, 138 Misc. 2d 49, 524 N.Y.S.2d 159 (1988); Reed v. Boykin, 282 S.C. 614, 320 S.E.2d 68 (App. 1984).

12 “[L]ack of a key term is not necessarily fatal to the enforcement of a contract, as long as the missing term does not indicate a lack of contractual intent.” Pelletier v. Pelletier, 2012 ME 15, P15, 36 A.3d 903, 908 (2012).

13 See § 2.8 –2.9.

14 Citing this section (§ 95, 1963 ed.) of the treatise, among many on this point, is Berg Agency v. Sleepworld-Willingboro, Inc. 136 N.J. Super. 369, 346 A.2d 419, 423–24 (1975). Here there was a letter agreement, a “binder” check and a modified letter and the parties contemplated signing a formal lease. The letter agreements lacked terms dealing with maintenance, repairs, assignment and insurance, but the court held the essentials were there and that the parties had evidenced their intent to be contractually bound.

15 See § 2.8.

16 Ridgeway Coal Co. v. FMC Corp., 616 F. Supp. 404 (S.D. W.Va.1985).

17 Busching v. Griffin, 542 So. 2d 860 (Miss. 1989). Cf. J.W. Knapp Co. v. Sinas, 19 Mich. App. 427, 172 N.W.2d 867 (1969).

In Shull v. Sexton, 154 Colo. 311, 390 P.2d 313 (1964), payment terms were left open; buyer offered to pay cash.

In Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), Wigod had applied for a modification of her home mortgage loan pursuant to the Home Affordable Mortgage Program (HAMP). The court recognized that Wells Fargo had limited discretion to establish the terms of a modified mortgage loan since it was required to pursue the standards and test authorized under HAMP. Wells Fargo, however, did not offer any modification at all to the plaintiff, though the court assumed she had met all of the preliminary requirements to receive such an offer. The court quoted the language here (§ 4.1, 1993 ed.) and held that Wigod’s complaint sufficiently pled a breach of contract claim under Illinois law.

18 In Southern Airways Co. v. DeKalb County, 102 Ga. App. 850, 118 S.E.2d 234 (1960), a complex, long-term lease of an airport was held valid and enforceable, even though some of its “subsidiary” provisions might be found to be so “indefinite” as to be unenforceable. They could be regarded as collateral and severable.

19 United States v. City of New York, 131 F.2d 909 (2d Cir. 1942), cert. denied, 318 U.S. 781, 63 S. Ct. 858, 87 L. Ed. 1149, is an excellent case supporting the text above. A contract binding the city to pay several millions of dollars to the federal government was held to exist, even though its terms were to be found only in a series of letters over a long period, the parties contemplated the drawing of a formal document but never did so, and some comparatively “minor details” were never agreed upon. The conduct of both parties showed, however, that they regarded the contract as consummated.

Haggerty v. Warner, 115 Cal. App. 2d 468, 252 P.2d 373 (1953). “The trend of recent decisions indicates a policy of upholding contracts if a reasonable construction may be reached … .” Also, “The law does not favor, but leans against, the destruction of contracts because of uncertainty … .”

In Fifer v. Hoover, 163 Md. 381, 163 A. 848 (1933), the court said: “A lack of definiteness in an agreement may concern the time of performance, property to be transferred; or … miscellaneous stipulations in the agreement. In construing such agreements a court should endeavor, if possible, to attach a sufficiently definite meaning to a bargain of parties who evidently intended to enter into a binding contract.”

In Laveson v. Warner Mfg. Corp., 117 F. Supp. 124, 127 (D.N.J. 1953) the court held an agreement by a manufacturer to supply the sales agent’s requirements for 5 years to be enforceable, even though prices were left open for future determination. The court said: “Warner conceded at oral argument that it intended to enter into a binding contract. When the parties intend to enter into a binding contract the courts should strive to assist this intention,” citing § 4.3.

In Platts v. Arney, 46 Wash. 2d 122, 278 P.2d 657 (1955), the court held that an agreement indefinitely expressed was made sufficiently definite by their subsequent writings. The court said: “Courts do not lightly declare a contract void for lack of certainty, but will endeavor to discover the true meaning and intent of the parties. The intent of the parties is definite and unmistakable when the exchange contract and the various instruments executed pursuant to it are examined.”

In Denver D. Darling, Inc. v. Controlled Environments Constr., Inc., 89 Cal. App. 4th 1221, 108 Cal. Rptr. 2d 213 (2001), general contractor alleged that plaintiff had failed to comply with contractual specifications regarding the flatness required for a concrete floor. The court found ambiguity in the contract as to the flatness requirement, but it relied upon custom and usage in the building industry in order to supply the deficiency left by the parties’ failure to agree on the flatness requirement. Citing this section (§ 95, 1953 ed.) the court reasoned that because the trend in the law is to favor enforcement of contracts and to carry out the intentions of the parties if possible, custom and usage may be relied upon to supply a deficiency if it does not vary or alter the terms of the agreement.

See also:

U.S.—

In re C & K Mkt., 2014 Bankr. LEXIS 1510 (Bankr. D. Ore. April 14, 2014) (quoting this § 4.1, 1993 ed.).

D’Apuzzo v. United States, 2019 U.S. Dist. LEXIS 107794 (S.D. Fla. June 27, 2019). Plaintiff filed this action seeking recovery of 80 cents based on his claim that the United States government breached a contract when it charged him to access two documents on the Public Access to Court Electronic Records (“PACER”) system. Plaintiff tried to file this suit as a class action, but the court refused to certify the class. The contract at issue provided that users who register for an account with PACER receive “judicial opinions” for free but for other documents, the “[u]se of the PACER system will generate a $.10 per page charge.” Plaintiff was charged for accessing other documents, not judicial opinions. The government moved for summary judgment, arguing that there was no express contract because the term “judicial opinion” is insufficiently definite to give rise to contractual obligations. The court disagreed. “Through the registration process, the Government offered [plaintiff] ‘[j]udicial opinions accessed via PACER’ for free and other court documents for 10 cents per page.” The term “judicial opinion” was sufficiently definite—“the Court interprets the term ‘judicial opinion’ to mean only the documents that are designated ‘opinions’ on PACER.” The court explained: “Because the parties intended to contract, the Court is hesitant ‘to deny enforcement on the basis of indefiniteness.’ Id. (citing 1 A. Corbin, Corbin on Contracts § 97 (1963)).” But the court denied the breach of contract claim because the government did not charge plaintiff for judicial opinions.

Tower Loan of Miss., L.L.C. v. Willis (In re Willis), 944 F.3d 577 (5th Cir. 2019) is an interesting illustration of this principle. Willis sued Tower Loan in adversary bankruptcy proceedings for purportedly violating the Truth in Lending Act. The Fifth Circuit reversed the district court, which had denied Tower’s motion to compel arbitration, and remanded with directions that the dispute be arbitrated. Willis had signed two arbitration agreements in connection with a loan—one was contained in the loan agreement and the other in the agreement to purchase insurance policies. Both agreements “broadly require arbitration for all disputes between and among Willis, Tower Loan, and the insurance companies … .” Both agreements delegated gateway arbitrability issues to the arbitrator. The problem was that “the agreements conflict over several” matters—which the majority labelled “procedural aspects of the arbitration.” These inconsistencies “relat[ed] mainly to the selection and number of arbitrators, time to respond, location, and fee-shifting.” Specifically, the inconsistencies concerned the following: “(1) the number of arbitrators, (2) selection of arbitrators, (3) time allowed to respond, (4) location of the arbitration, (5) who pays the arbitration costs, (6) who is entitled to attorneys’ fees and on what showing, and (7) when arbitration doesn’t apply.” The court noted that the agreements were executed at the same time and were part of the same transaction, so the agreements should be construed as one. But the court held that, despite the inconsistencies between the two documents, the parties entered into a valid arbitration agreement. Where the parties intend to enter into an agreement, the court will, if possible, construe it as a binding contract. The inconsistencies in the instant documents were over how the arbitration should proceed (that is, procedural matters), not whether it should proceed. The court explained: “The parties’ intentions were unmistakable: They wished to arbitrate any dispute that might arise between them. Not once but twice they stated that any dispute arising from the loan Willis purchased should be arbitrated.” The dispositive fact was that the parties intended to enter into an arbitration agreement. “Though the agreements differ over procedural details, they speak with one voice about whether to arbitrate. … . We will not shut our eyes to an agreement that demonstrates a baseline intent to arbitrate just because it contains inconsistent terms about procedural minutiae.” (Citing Ragab v. Howard, 841 F.3d 1134 (10th Cir. 2016) (Gorsuch, J. dissenting)). The inconsistencies instantly were over non-essential terms that did not prevent mutual assent.

The dissent, among other things, argued that there was no mutual assent; the inconsistent terms included essential terms; and that the majority’s analysis missed the mark—a more appropriate analysis, according to the dissent, was the “mirror image rule” invoked in common law battle of the forms scenarios.

Ariz.

—Antonson v. Red Mt. Med Spa, LLC, 2015 Ariz. App. Unpub. LEXIS 785 (June 11, 2015), review denied, 2015 Ariz. LEXIS 347 (2015); AROK Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 848 P.2d 870 (1993) (quoting this section, § 95, 1963 ed.).

Ark.

—Mears v. Nationwide Mut. Ins. Co., 91 F.3d 1118 (8th Cir. 1996). A contest provided: “Here’s what you could win: His and Her’s Mercedes. An all expense paid trip for two around the world. Additional prize to be announced.” The contract resulting from the contest was enforceable. Concerning the model of car, there was a minor ambiguity, so the winner was limited to the reasonable interpretation least favorable to him—two new bottom-of-the-line Mercedes-Benz automobiles, not two top-of-the-line models.

Cal.

—Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777 (9th Cir. 2012); Thomas Dee Eng’g Co. v. Khtikian, 2018 Cal. App. Unpub. LEXIS 18 (Jan. 2, 2018) (citing the language from this footnote); Vasile v. Flagship Fin. Group, LLC, 2014 U.S. Dist. LEXIS 81266 (E.D. Calif. Jan. 13, 2014); Darling Int’l, Inc. v. Baywood Partners, Inc., 2007 U.S. Dist. LEXIS 50985 (N.D. Cal. July 13, 2007); Tire Distribs., Inc. v. Superior Court of Los Angeles County, 2004 Cal. App. Unpub. LEXIS 974 (Cal. Ct. App. Jan. 30, 2004) (citing this section, § 95, 1963 ed.); Barstow v. O.U. Real Estate, III, Inc., 2002-Ohio-4989 (Ohio Ct. App. Sept. 19, 2002) (citing this section, § 95 from a prior edition of this treatise).

Warren v. Sharabi, 2002 Cal. App. Unpub. LEXIS 3342 (Cal. Ct. App. Mar. 6, 2002). Plaintiffs sought specific performance of a contract for the sale of a partially completed house they had agreed to purchase. The court quoted this section (§ 95, 1963 ed.) and found no violation of the parol evidence rule in admitting extrinsic evidence to clarify ambiguities. Notwithstanding some uncertainty as to finishes and fixtures at the time they entered into the purchase agreement, the uncertainty was insufficient to make the contract unenforceable.

Wong v. Di Grazia, 60 Cal. 2d 525, 35 Cal. Rptr. 241, 386 P.2d 817 (1963). “A minor possible ground of disagreement in an otherwise complete agreement will not render the agreement uncertain. ‘Where the matters left for future agreement are unessential, each party will be forced to accept a reasonable determination of the unsettled point … ,’ ” quoting from an earlier case.

Ontario Downs, Inc. v. Lauppe, 192 Cal. App. 2d 697, 13 Cal. Rptr. 782 (1961), is an excellent illustration. A long, very detailed, written escrow agreement provided for the sale of a 450 acre tract of land to be conveyed on stated terms in installments, with an “option” in the purchaser to select a tract of 15.87 acres for immediate conveyance, “subject to approval by the Optionor” [vendor]. See also Burrow v. Timmsen, 223 Cal. App. 2d 283, 35 Cal. Rptr. 668, 100 A.L.R.2d 544 (1963).

Conn.

—Strang v. Witkowski, 138 Conn. 94, 82 A.2d 624 (1951).

Del.

—Weston Invs. v. Domtar Indus., 2002 Del. Super. LEXIS 150 (Sept. 4, 2002) (citing this § 4.1, 1993 ed.).

Fla.

—Brewster v. MSC Crociere, S.A., 2015 U.S. Dist. LEXIS 190367 (S.D. Fla. June 11, 2015); AGSC Marine Ins. Co. v. Spectrum Underground, Inc., 2013 U.S. Dist. LEXIS 197363 (M.D. Fla. Dec. 12, 2013).

Ga.

—Milton Frank Allen Publications, Inc. v. Georgia Ass’n of Petroleum Retailers, Inc., 219 Ga. 665, 135 S.E.2d 330 (1964) (some “ambiguity” of terms, but contract valid).

Ill.

—GLS Development, Inc. v. Wal-Mart Stores, Inc., 944 F. Supp. 1384 (N.D. Ill. 1996) (applying Illinois law). Wal-Mart promised GLS: (i) $500,000 if GLS would relinquish contractual rights to build a new Wal-Mart store and (ii) “a few” other opportunities if GLS would allow another developer to build the store for Wal-Mart. GLS relinquished its contract rights, but Wal-Mart refused to pay the $500,000 and provided no other opportunities. The court analyzed the two promises separately, finding that the promise to pay $500,000 was sufficiently definite to furnish a reasonable basis for supplying a remedy even though the date of payment was not expressly stated and the precise identify of the promisor was unstated. The other promise was too indefinite to enforce, however, because, for example, the size and type of development job were not mentioned.

Md.

—In Baker v. Dawson, 216 Md. 478, 141 A.2d 157 (1958), a contract provided for the sale of 80 acres of land out of a larger tract, reserving certain areas to the vendor. The court carefully considered the detailed description in the contract and found it to be sufficiently definite for specific enforcement. The same was true as to the terms of a deed of trust required to secure payment of a deferred balance, although nothing was said as to taxes, insurance, and some other matters often dealt with in deeds of trust.

Miss.

—Jones v. McGahey, 187 So. 2d 579 (Miss. 1966), suggestion of error overruled, 191 So. 2d 532 (enforcing as sufficiently definite a contract between controlling shareholders to acquire outstanding shares in equal shares).

Mo.

—Arkansas-Missouri Forest Prods., LLC v. Lerner, 486 S.W.3d 438 (Mo. App. 2016) (citing the language from this footnote).

N.H.

—Scott v. Grinnell, 102 N.H. 490, 161 A.2d 179 (1960) (promise to leave plaintiff sufficient money to support her in the style to which the plaintiff and the promisor’s family were accustomed).

N.J.

—This section (§ 95, 1963 ed.) is quoted in Paley v. Barton Savings & Loan Ass’n, 82 N.J. Super. 75, 196 A.2d 682 (1964), cert. denied, 41 N.J. 602, 198 A.2d 446 (promise to hold $1,000,000 ready for the purchase of land development mortgages was not vague or illusory, even though conditional on approval of counsel and of credit standing); Leitner v. Braen, 51 N.J. Super. 31, 143 A.2d 256 (1958) (defendant orally promised to “sponsor” a bowling team organized by the plaintiff and to pay “the usual sponsoring fees,” plaintiff must prove what is “usual”); Silverstein v. Dohoney, 32 N.J. Super. 357, 108 A.2d 451 (1954), aff’d, 19 N.J. 1, 115 A.2d 1 (holding that two apparently conflicting terms in a writing could be reconciled, quoting § 95). Lynch v. New Deal Delivery Serv., 974 F. Supp. 441 (D.N.J. 1997) (quoting § 95).

Or.

—Olympia Bottling Works v. Olympia Brewing Co., 56 Or. 87, 107 P. 969 (1910). An exclusive agency for five years to sell beer was given with an option in the agent for another five years. The option was held not to be too indefinite even though the agreement provided that there should be a revision of the selling prices. It was not a mere “agreement to agree.” Anaheim Co. v. Holcombe, 246 Or. 541, 426 P.2d 743 (1967) (contract to purchase land subject to financing arrangements being made).

Va.

—Coastland Corp. v. Third National Mortgage Co., 611 F.2d 969 (4th Cir.1979). A construction loan commitment for 2.2 million dollars at 4½ % over the prime interest rate for up to 18 months was oral but many details were not discussed. Note that the details that were not discussed played no role in the lender’s breach. The lender had overextended itself. High Knob, Inc. v. Allen, 205 Va. 503, 138 S.E.2d 49 (1964) (a parol agreement to supply water to a housing development).

S.D.

—Matter of Estate of Eberle, 505 N.W.2d 767 (S.D. 1993) (in-court stipulation settling major terms of probate dispute “was sufficiently definite to enable the court to give it an exact meaning” and “[m]inor points implementing the agreement, though not listed, can be implied as necessary to carry out the terms of the agreement”).

Utah

—Evans v. Bd. of County Comm’rs, 2005 UT 74, 123 P.3d 432 (2005) (citing this § 4.1, 1993 ed.).

Wis.

—Taylor v. Bricker, 262 Wis. 377, 55 N.W.2d 404 (1952).

See, also, Harlow Pub. Co. v. Patrick, 181 Okla. 83, 72 P.2d 511 (1937).

In very numerous cases, specific performance has been decreed of an option contract giving a “first refusal” to purchase on any terms proposed in good faith by any third party. Such a case is Gutch v. Meccia, 142 N.J. Eq. 430, 60 A.2d 649 (1948).

Because of the absence of a price term lessees were denied specific performance of this promise: “Should I, Lillian J. Whatley, decide to sell at the end of three years, I will give Peggy and Jimmy Duke the first chance to buy.” There was no reference to a price offered by a third party, and the promisor sold the premises to her stepson, who presumably had notice of the provision. Duke v. Whatley, 580 So. 2d 1267 (Miss. 1991). This absence of a price term was not seen as an unsurmountable problem in Moore v. Dodge, 603 S.W.2d 236, 238 (Tex. Civ. App. 1980) (writ refused n.r.e., where a written promise to give the lessee “first crack” at buying the leasehold was held sufficiently definite).

A bargain is not made too definite for enforcement by the fact that a party is given an option between alternative performances. Wood County Grocer Co. v. Frazer, 284 F. 691 (8th Cir. 1922) (option in buyer of sugar to buy at a stated maximum price and option in seller to sell at a stated minimum).

Restrictive covenants against competition are not too indefinite because the extent is measured by a “radius of twenty city squares,” or “ten blocks”: Mazie v. Wilson, 103 N.J. Eq. 569, 144 A. 13 (1928); Sandullo v. La Bruna, 111 N.J. Eq. 4, 160 A. 834 (1932).

Cases for comparison:

In Bentzen v. H.N. Ranch, Inc., 78 Wyo. 158, 320 P.2d 440, 68 A.L.R.2d 1213 (1958), an agreement for the sale of land was held to be unenforceable because of an indefinite provision as to payment of the “balance”; and yet the court denied recovery of the down payment by the purchaser.

Nebraska Aircraft Corp. v. Varney, 282 F. 608 (8th Cir.1922).

An agreement in which a builder undertook to build houses for the owner and the latter promised to pay as compensation for the service fifty percent of the amount that the cost of each house was less than $13,000 was held too indefinite for enforcement, because there was no agreement as to what cost items were to be considered. Maloney v. Boston Development Corp., 98 N.H. 78, 95 A.2d 129 (1953).

In Gerruth Realty Co. v. Pire, 17 Wis. 2d 89, 115 N.W.2d 557 (1962), the plaintiff sued on a promissory note given by the defendant as a down payment on the purchase of land that accompanied the defendant’s written “offer.” But the alleged “offer” contained this provision: “contingent upon the purchaser obtaining the proper amount of financing.” Since there were no facts on which the court could determine what the parties might understand by the phrase “proper amount,” it held that the “offer” was too indefinite to create a power of acceptance. The plaintiff’s “acceptance” created no contract. The purchase price was $30,000. But the purchaser was dealing for additional property and desired a loan big enough to finance both purchases. He tried in good faith to obtain a loan of $75,000. He had refused an offer of a loan of $45,000. The defendant’s promise was “illusory.”

An apparent promise to sell 50 automobiles is illusory if it is expressly provided that no order from the buyer shall be binding on the seller unless it is in writing and accepted by the seller. Oakland Motor Car Co. v. Indiana Auto Co., 201 F. 499 (7th Cir. 1912). The contract as a whole had provisions that were sufficiently definite for enforcement.

In Biothermal Process Corp. v. Cohu & Co., 283 App. Div. 60, 126 N.Y.S.2d 1 (1953), aff’d, 308 N.Y. 689, 124 N.E.2d 323 (1954), a letter confirming an agreement to supply the funds necessary for constructing a garbage disposal plant was held to be too indefinite and uncertain for enforcement.

In re Windsor Plumbing Supply Co., 170 B.R. 503 (Bankr. E.D.N.Y. 1994). A consignment agreement omitted names and addresses to which notices were to be directed, together with an Exhibit A (detailing all products the consignor manufactured), and an Exhibit B (trademarks, trade names, and patents included in the agreement). The court held that these omissions were not essential to the creation of a contractual relationship. The contract was not void for indefiniteness. The court noted that although these items may be material, a court could easily have filled in the gaps. The information that was to be contained in the exhibits, while not set forth, is readily available, and notice could properly have been directed to any corporate officer, despite the absence of names and addresses.

A good example where the court outright admits it is crediting the parties’ intention to contract and disregarding the absence of specificity in the terms is Scartelli Constr. Servs. v. Chesapeake Bldg. Components, 2019 U.S. Dist. LEXIS 10581 (M.D. Pa. 2019). Defendant Chesapeake contracted with plaintiff to supply a “roof system” for the North Pocono Library Project. A dispute arose, plaintiff sued, and defendant filed a motion to dismiss because, defendant alleged, the complaint failed to spell out the material terms of the contract. The court refused to dismiss even though it acknowledged “that the specific terms of this contract with respect to price, time for delivery, and whether the goods delivered conformed to the Plaintiff’s specifications are quite ambiguous.” That is, “the parties here did not fully and carefully define their respective rights and responsibilities when entering the contract at issue.” Nevertheless, the court denied the motion to dismiss because what matters most is that the parties intended to enter into a contract, and the fact that there are open terms does not prevent contract formation. Here, the complaint spelled out a plausible claim for relief. Defendant contracted to supply a “roof system” for the North Pocono Library Project at a cost of $37,100.00. Chesapeake acknowledged the existence of a contract between these parties, but even if it had not, the parties’ conduct clearly demonstrated that they mutually agreed to a joint undertaking of some sort. The court held that parol evidence could help fill in the gaps.

20 Compare Rialto Theatre, Inc. v. Commonwealth Theatres, Inc., 714 P.2d 328 (Wyo. 1986). A provision in a lease agreement that, if lessor or lessee built another theater in the community, they would enter into a construction contract. The lease agreement was held to be too vague.

A contract to have a house suitably remodeled as a rooming house for $10,000 without further specifications was held to be too indefinite. Klimek v. Perisich, 231 Or. 71, 371 P.2d 956 (1962).

21 Bettancourt v. Gilroy Theatre Co., 120 Cal. App. 2d 364, 261 P.2d 351 (1953).

22 Comment b. See Andrus v. DOT, 128 Wn. App. 895 (2005), review denied, 157 Wn. 2d 1005, 136 P.3d 759 (2006). The plaintiff applied for a position as a building inspector in the City of Olympia. A City supervisor called the plaintiff and said, “You’re our number one choice and I’m offering you the job.” The plaintiff replied, “Great” and “Yes,” requesting the supervisor to fax the details of the job including salary, duties, starting date, retirement benefits and potential labor union membership. After further reference checks, the supervisor informed the plaintiff that he would not be hired. The plaintiff had not relied on the offer. The plaintiff sued for breach of contract and the district court granted summary judgment for the defendant. The instant court affirmed on the footing that the number of missing terms and the understanding that the call was to be followed by a written offer and request for acceptance of the terms demonstrated that the parties did not intend to be bound by the telephone discussion. The court added that, even if a contract had been formed, the plaintiff admitted that the position was terminable-at-will under which there could be no actionable breach in the absence of a contractual modification of the at-will relationship or a firing that contravenes public policy or a legislative enactment.

Linton v. E.C. Cates Agency, Inc., 2005 Wy. 63, 113 P.3d 26 (2005), review denied, 157 Wn. 2d 1005, 136 P.3d 759 (2006) (citing this § 4.1, 1993 ed., the court reversed a summary judgment because under the buyers’ version of the facts, there were no material contractual terms remaining to be negotiated).

Alaska

—Dunlap v. Dunlap, 131 P.3d 471 (Alaska 2006) (divorce settlement agreement did not specify how an educational fund was to be administered, the court cited this § 4.1, 1993 ed., and concluded that this failure did not render the agreement too indefinite to be enforced); Rohaley v. Compere, 2004 Alas. LEXIS 116 (Oct. 6, 2004) (court rejected argument that the failure to provide for interest charges in the original settlement agreement reached in court precluded the enforcement of the settlement agreement).

Ind.

—Frey vs. Workhorse Custom Chassis, LLC, 2006 U.S. Dist. LEXIS 41846 (S.D. Ind. June 21, 2006) (not possible to enforce a promise that Frey would receive a “normal” or “reasonable” amount of participation in equity growth).

Mich.

—Holmes v. Holmes, 2014 Mich. App. LEXIS 2623 (Mich. App. Dec. 30, 2014), leave to appeal denied, 498 Mich. 884, 869 N.W.2d 571 (2015) (citing § 95, the court enforced contract requiring ex-husband to “participate” in children’s college education).

N.Y.

—Metro-Goldwyn-Mayer v. Scheider, 40 N.Y.2d 1069, 392 N.Y.S.2d 252, 360 N.E.2d 930 (1976) (custom of the television industry as to when filming begins for the season); Oquendo v. CCC Terek, 2015 U.S. Dist. LEXIS 67169 (S.D.N.Y. May 22, 2015) (court cited this § 4.1 and relied on trade usage to determine heavyweight boxing challenger purse); Dimario v. Coppola, 10 F. Supp. 2d 213 (E.D.N.Y. 1998) (discussion of importance of trade usage in thoroughbred horse racing industry).

24 In Sonnenblick-Goldman Corp. v. Murphy, 420 F.2d 1169 (7th Cir. 1970), the plaintiff was entitled to a commission if it procured a financing commitment. It procured a commitment which contained this provision: “You shall be furnished with evidence satisfactory to you that funds you have on hand, whether from the proceeds of your loan less required reserves, including a reasonable reserve for contingencies or otherwise are sufficient to complete all of the improvements and pay all other charges … .” Because the reserves were not specified, defendant alleged the commitment was too indefinite to be deemed a commitment. The court deemed that the standard of reasonableness was definite enough. Note that the dispute between the parties had nothing to do with this clause. As in so many other cases the indefiniteness issue was an afterthought.

25 There is an excellent discussion of this problem in Mantell v. International Plastic Harmonica Corp., 141 N.J. Eq. 379, 55 A.2d 250 (1947), where an agreement between the producer of a new invention and a distributor left the price to be paid by the latter subject to later determination in large degree by the producer.

A contract may properly provide for revision of its terms in case of changed conditions and for arbitration as to the change of terms if the parties do not agree on the changes. Zelle v. Chicago & N.W.R. Co., 242 Minn. 439, 65 N.W.2d 583 (1954).

In Roberts v. Adams, 164 Cal. App. 2d 312, 330 P.2d 900 (1958), a lease provided that the lessee should have an option to purchase “for the total sum of $85,000, payable as mutually agreed by both parties.” The court held that the terms were too indefinite for enforcement—a mere agreement to agree—even though the lessee was willing to pay cash in full. The court said: “It is firmly established as the law of California that failure to specify or furnish a standard for determination of terms of payment and method of securing the unpaid balance of the purchase price of real or other property is fatal to its enforceability notwithstanding any desire of the courts to be liberal and helpful.” Other California cases show that this supposed rule, as applied to variant facts is not so “firmly established.”

See Roussalis v. Wyoming Medical Center, Inc., 4 P.3d 209 (Wyo. 2000) (citing this § 4.1, 1993 ed.).

26 An oral “binder” is an enforceable contract of insurance, in spite of its informality and indefiniteness. National Investors Fire & Casualty Ins. Co. v. Pacific Indemnity Co., 359 F.2d 203 (10th Cir. 1966).

Cal.

—Parlier Fruit Co. v. Fireman’s Fund Ins. Co., 151 Cal. App. 2d 6, 311 P.2d 62 (1957), appeal after remand, 178 Cal. App. 2d 357, 2 Cal. Rptr. 906. The provisions that are “usual” in such cases will be found by implication in order to attain the purpose of the insurance applied for.

Ky.

—Hartford Accident & Indemnity Co. v. Middlesboro-LaFollette Bus Line, 357 S.W.2d 671 (Ky. 1962). An oral insurance binder was enforceable even though amount of premium was still to be determined, and loss occurred before issuance of policy and determination of premium. The insurer agreed to carry the risk and the insured agreed to pay the premium, both knowing that the amount of the premium would depend on a subsequent valuation and estimation of the risk.

N.Y.

—Cees Restaurant, Inc. v. Lobdell, 15 N.Y.2d 275, 258 N.Y.S.2d 87, 206 N.E.2d 180, 14 A.L.R.3d 562 (1965).

27 A contract for a lease is not made too indefinite by the fact that it provides merely for a lease with the “usual and proper covenants.” Bondy v. Harvey, 62 F.2d 521 (2d Cir.1933), cert. denied, 289 U.S. 740; Flexman v. Corbett, [1930] 1 Ch. 672; Melzak v. Lilienfeld, [1926] 1 Ch. 480. Compare Herley, Inc. v. Harsch, 61 Ohio App. 260, 22 N.E.2d 515 (1938), where it was not shown that there was any customary form of lease.

In M. De Matteo Constr. Co. v. Daggett, 341 Mass. 252, 168 N.E.2d 276 (1960), a contract for the sale of land was sufficiently definite for specific enforcement, although it provided “that the buyer shall execute and deliver … a mortgage deed in the usual form with statutory mortgage covenants, conditions and powers of sale.” The unpaid amount to be secured, the annual payment and the rate of interest were specified; but a promissory note was not referred to.

Mont.

—Lee v. Lee Gold Mining Co., 71 Mont. 592, 230 P. 1091 (1924).

N.Y.

—Duplex Safety Boiler Co. v. Garden, 101 N.Y. 387, 4 N.E. 749 (1886).

Or.

—Western Hills, Oregon, Ltd. v. Pfau, 265 Or. 137, 508 P.2d 201 (1973).

29 In Marek v. McHardy, 101 So. 2d 689, 234 La. 841 (1958), a contract whereby the defendant promised to employ the plaintiff as a roentgenologist for three years at a stated salary, and thereafter to make him a participating partner with 10% interest in a medical clinic, was held not to be too “vague and indefinite” for enforcement in an action for damages. The defendant repudiated the promise of a partnership. Validity did not require that details such as “hours, days off, vacations, sick leave, retirement and plans depending on contingencies such as death or retirement of partners” should be expressly provided for.

In McMurray v. Bateman, 221 Ga. 240, 144 S.E.2d 345 (1965), an agreement taking a doctor into partnership was held not too vague for enforcement of the agreement not to compete, even though the agreement was left open on the matters of time-off, vacations and time for further study and provided that unforeseen problems would be dealt with on the basis of the “spirit” contained in the contract, the Golden Rule and accepted Christian principles where the parties had performed under the agreement for two years.

Burr v. Greenland, 356 S.W.2d 370 (Tex. Civ. App. 1962), writ refused, n.r.e. (alleged oral partnership and oral agreement of dissolution, both held to be too indefinite).

30 In Delorafano v. Delafano, 333 Mass. 684, 132 N.E.2d 668 (1956), there was a finding that, in return for a son’s leaving a job and coming to work for his father, the latter promised to pay $50 a week in cash, $10 a week in kind, to increase wages if business should improve, and that if anything happened to the father the store business should be the son’s. This was held not to be too indefinite for enforcement; but the case was dismissed on other grounds.

In other cases the exact amount of compensation was left for subsequent agreement after experience should indicate profits, but the court held that there was a valid preliminary contract. See Eno v. Prime Mfg. Co., 314 Mass. 686, 50 N.E.2d 401 (1943); Ellis v. Victor Elec. Products, Inc., 85 Ohio App. 170, 40 Ohio Op. 122, 88 N.E.2d 275, 55 Ohio L.Abs. 445 (1949); Vincent v. Palmer, 179 Md. 365, 19 A.2d 183 (1941) (granting a decree for an accounting in a case in which the employee was promised a percentage of the profits of the business).

In Stork v. Troeger, 103 Ohio App. 144, 3 Ohio Op. 2d 207, 144 N.E.2d 675 (1956), appeal dismissed, 165 Ohio St. 405, 60 Ohio Op. 33, 135 N.E.2d 675, an elderly man executed a written agreement to pay, for services rendered by the plaintiff in caring for him, such an amount as the elderly man “determines to be a just consideration.” At the same time the elderly man executed a will leaving all of his property to the plaintiff. Sometime later he executed a second will leaving his property to others. The court held that there was no breach of contract. The writing contained no promise to make a will and no promise not to revoke the first will. The plaintiff’s remedy, if any, was for quantum meruit.

Ladas v. California State Auto. Ass’n, 19 Cal. App. 4th 761, 23 Cal. Rptr. 2d 810 (1993) (“promises by an employer to pay ‘parity’ or ‘according to industry standards’ are not sufficiently definite to be enforceable”).

Cal.

—Bohman v. Berg, 54 Cal. 2d 787, 8 Cal. Rptr. 441, 356 P.2d 185 (1960) (to turn a Greyhound Bus into a luxurious “land yacht.” Note that there were some specifications and performance cured much of the uncertainty).

This section (§ 95 from a prior edition of this treatise) is cited in Rivers v. Beadle, 183 Cal. App. 2d 691, 7 Cal. Rptr. 170 (1960). The parties executed a written contract whereby, in consideration of the plaintiff’s waiving her right to a commission on the sale of three lots purchased by the defendant, the latter promised to build on each of the three lots “a speculative home” and to place it on the market for sale; also to give to the plaintiff “the exclusive right to sell each of such houses” at a commission of 3% of the sale price, such agency to last for one year after the completion of each house. This contract was held sufficiently definite for enforcement even though the term “speculative home” required explanation by parol evidence.

Mass.

—In Jones v. Parker, 163 Mass. 564, 40 N.E. 1044 (1895), a leasing agreement providing that the defendant would complete the building with apparatus sufficient “reasonably to heat and light the demised premises.” Either a jury or a judge, so said Holmes, J., would have no undue difficulty in determining whether what was done amounted to reasonable heating and lighting, even though the agreement prescribed no particular method.

N.Y.

—This section (§ 95, 1963 ed.) is cited in Tobin v. Union News Co., 13 N.Y.2d 1155, 247 N.Y.S.2d 385, 196 N.E.2d 735 (1964), affirming mem. 18 A.D.2d 243, 239 N.Y.S.2d 22. The lessee of a restaurant property covenanted to “change the living quarters on second floor to banquet and restaurants facilities.” The court held that this was not too vague. Note that this was to be done within a year after commencement of the lease. Tenant’s failure to do anything deprived the landlord of a valuable part of the consideration promised in exchange for the leasehold. In Lawrence v. Saratoga Lake R. Co., 36 Hun. 467 (N.Y.1885), an agreement by the railroad, in consideration of a right of way conveyed to it, to build a “neat station” and two overhead bridges across a cut was enforced. Note that plaintiff was willing to accept as “neat” any station similar to those which the railroad had built elsewhere.

Cases refusing enforcement:

Hunt v. Hammonds, 257 Ala. 586, 60 So. 2d 355 (1952) (plaintiff promised to supply about 8 acres of land on a certain highway, on which the defendant agreed to erect a drive-in theater and cafe, plaintiff to be manager at a stated salary and to have one fifth of all proceeds).

In Atlantic Coast Line R. Co. v. Georgia, Ashburn, Sylvester & Camilla R. Co., 91 Ga. App. 698, 87 S.E.2d 92 (1955), cert. denied, 350 U.S. 887, the defendant covenanted, in consideration of the grant of a right to cross the plaintiff’s road, to build an interlocking plant at the point of crossing and to “further alter and improve or erect new and improved signals upon demand of the party of the first part.”

In Academy Chicago Publishers v. Cheever, 144 Ill. 2d 24, 161 Ill. Dec. 335, 578 N.E.2d 981 (1991), widow of John Cheever agreed to provide a manuscript of “The Uncollected Stories of John Cheever.” More than 60 such stories were found. She repudiated. The trial court found the agreement sufficiently definite, declaring she should deliver a manuscript “including at least 10 to 15 stories totalling at least 140 pages.” Other gaps were also filled by the order. The Supreme Court held, however, that the contract was too indefinite. The length and content of the book were the very issues that disrupted the relationship and led to litigation.

32 United States v. Orr Constr. Co., 560 F.2d 765 (7th Cir.1977). But compare Wilson v. Wilson, 46 F.3d 660 (7th Cir. 1995), decided under Illinois law (Orr had been decided under federal law) and reaching the opposite result. In Wilson, the parties had conducted settlement negotiations privately, whereas in Orr, the parties conducted them on the record in court, and the parties agreed to let the judge accomplish the releases any way he saw fit.

33 The contract was held to be consummated and sufficiently definite in Ouston v. Scammell, [1940] 1 All E.R. 59 (C.A.), where two business men agreed upon the delivery of a new truck in exchange for a used truck and a balance in money to be paid within 2 years in accordance with a “hire-purchase” agreement to be negotiated with a finance company. The parties would be bound to perform according to some reasonable and customary “hire-purchase” agreement. This decision seems reasonable; but it was reversed by the House of Lords. Scammell v. Ouston, [1941] 1 All E.R. 140.

Bishop & Baxter v. Anglo-Eastern Trading & I. Co., [1944] 1 K.B. 12. The court, perhaps justifiably, felt itself bound to decide as it did by the decisions of the House of Lords in Love & Love & Stewart (Ltd.) v. S. Instone & Co. (Ltd), 33 T.L.R. 475 (1917) (“subject to strike and lockout clauses”) and Scammell v. Ouston, above.

With the Ouston case compare Pure Oil Co. v. Petrolite Corp., 158 F.2d 503 (5th Cir. 1946), cert. denied, 330 U.S. 834 (1947), in which the lessee of certain processing machinery was given an option to purchase at a specified price, “subject to the terms of a sales and purchase agreement, to be entered into between the parties.” Since the use of the machinery involved also the use of the lessor’s “process,” the contemplated agreement included provisions as to license and royalty. These the court could not “imply” or determine.

34 In Deck House, Inc. v. Scarborough, Sheffield & Gaston, Inc., 139 Ga. App. 173, 228 S.E.2d 142 (1976), a written contract for the sale of building supplies for $58,817, was sufficiently definite under the Code standard despite the absence of a payment term, a vague term relating to later price adjustments and no time for performance. The two requisites of intent to contract and the availability of an appropriate remedy were met.

In Pennsylvania Co. v. Wilmington Trust Co., 39 Del. Ch. 453, 166 A.2d 726, 731 (1960), aff’d in part, and appeal dismissed in part, 40 Del. Ch. 1, 172 A.2d 63, the court considers the effect of the Uniform Commercial Code, § 2-204(3), as adopted in Pennsylvania. It held that a letter agreement purporting to be an offer and acceptance might be found to be operative as a contract, because so intended by the parties, even though the letter indicated that there were some matters still to be drafted in a formal document.

In H.C. Schmieding Produce Co. v. Cagle, 529 So. 2d 243 (Ala. 1988), this section of the U.C.C. is applied to effectuate the intent of the parties.

The Uniform Commercial Code—Sales, § 2-311 provides:

“(1) An agreement for sale which is otherwise sufficiently definite (Subsection (3) of Section 2-204) to be a contract is not made invalid by the fact that the agreement leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.”

“(2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer’s option and except as otherwise provided in subsections (1)(c) and (3) of Section 2-319 specifications or arrangements relating to shipment are at the seller’s option.”

Subsection (3) also provides for the effect of failure to exercise the option seasonably.

35 U.C.C. § 2-305.

36 This passage is quoted and implemented in Yellow Run Coal Co. v. Alma-Elly-Yv Mines, Ltd., 285 Pa. Super. 84, 426 A.2d 1152, 1154 (1981), Peterson v. Snodgrass, 683 F. Supp. 2d 1107 (D. Or. Jan. 5, 2010), and Althaus v. Cornelio, 203 Ariz. 597, 58 P.3d 973 (Ariz. Ct. App. 2002). See also, Wells Fargo Bank, N.A. v. Loop 76, LLC (In re Loop 76, LLC), 465 B.R. 525 (Bankr. 9th Cir. 2012) (despite missing terms, contract valid because parties performed, citing § 95, 1963 ed.).

37 In Gaswint v. Case, 265 Or. 248, 509 P.2d 19 (1973), plaintiff was to be employed as a foreman in the plastics department. Defendant fired him and argued that the job description in the contract was too vague. It was held that the job had become sufficiently well defined by the actions of the parties.

Innkeepers Int’l, Inc. v. McCoy Motels, Ltd., 324 So. 2d 676 (Fla. App. 1975), cert. denied, 336 So. 2d 106 (Fla.). McCoy agreed to employ a management consulting firm for its yet to be built motel. When the motel was built, the consulting firm sued to enforce the contract. Despite the argument that the contract was too vague because it contained no date of beginning, the court filled the gap, pointing out that it was common sense to conclude that the beginning date for providing services was when the motel was completed.

Restatement (Second) of Contracts § 34(2) (Am. Law Inst. 1981) provides: “Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed.”

38 In Fenton v. Federal State Bldg. Trust, 310 Mass. 609, 39 N.E.2d 414 (1942), the court enforced a vaguely worded promise of a commission. It said: “The promise by the testator to see that the plaintiff, if he would withdraw from further negotiations with the firm, would be taken care of was not too vague, uncertain or indefinite to render it incapable of being enforced. The jury might find that, in the circumstances, the plaintiff was to be paid the same compensation as if he himself had successfully negotiated the lease. In other words, the agreement could be reasonably understood to mean that the plaintiff was to be made whole. This could not be accomplished unless the plaintiff were put in the same position as he would have been in if his services had not been interrupted by the testator.”

In Bohman v. Berg, 54 Cal. 2d 787, 8 Cal. Rptr. 441, 356 P.2d 185 (1960), the two lower courts held the agreement too uncertain for enforcement. The Supreme Court reversed, holding that the testimony showed that the parties had “entered into an agreement which they understood, by which they intended to be bound and which was eventually performed.”

See, also, Phillips Petroleum Co. v. Rau Const. Co., 130 F.2d 499 (8th Cir.1942), cert. denied, 317 U.S. 685, rehearing denied 317 U.S. 713.

In Brown v. Bivings, 277 P.2d 671 (Okla.1954), the plaintiff brought suit to establish ownership of an interest in certain oil and gas leases held by defendant. The claim was based on an oral agreement whereby the parties were to procure properties for their joint ownership, sharing equally in profits and income. The defendant was to make all financial arrangements and the plaintiff to supply his skill and experience in development and operation at a nominal salary of $200 per month. Property was acquired and operated for a period of two years, when the defendant discharged the plaintiff, repudiated the agreement, and refused to convey or to account. The trial court gave judgment for plaintiff, but the Supreme Court reversed this by six judges to three, holding that the record showed a number of essential items never agreed on and that no oral contract existed. The minority thought otherwise, and that even though the parties expected to reduce their agreement to writing they proceeded to operate for two years without doing so. Both parties contended that they had made a contract, the plaintiff contending that it was a partnership or joint venture, the defendant that it was merely one of employment at a salary. The dissenting judges thought the evidence to be such that the trial court was justified in finding for the plaintiff.

In Dale’s Shoe Store, Inc. v. Dale, 104 Ga. App. 371, 121 S.E.2d 695 (1961), the plaintiff sued for the value of services rendered in reliance on the defendant’s promise to pay for them “When the store got on its feet and got to making a profit.” Was this too indefinite and uncertain for enforcement? This court held that it was. The plaintiff introduced evidence as to the financial condition of the business. See also Burden v. Thomas, 104 Ga. App. 300, 121 S.E.2d 684 (1961), decided in the same week.

39 If an agreement is too indefinite and uncertain for enforcement, but performances of value have been received under it, a restitutionary remedy is available. See Tompkins v. Sandeen, 243 Minn. 256, 67 N.W.2d 405 (1954).

40 “The law will favor upholding a contract against the claim of uncertainty where one of the parties has performed his side of the contract.” Hays v. Underwood, 196 Kan. 265, 411 P.2d 717, 721 (1966).

See Jones v. Chapungu Safaris, 2013 U.S. Dist. LEXIS 157233 (Oct. 31, 2013). Jones and Townsend formed a joint venture whereby Jones would ship vehicles to Zimbabwe and Townsend would sell them. In June 2008, Jones sent two vehicles to Zimbabwe, and Jones claimed he later sent four other vehicles. Jones sued, and Townsend sought summary judgment, claiming that the contract was too uncertain to be enforced. The court held that even though there was no evidence as to what Townsend would be paid for his services, the contract was enforceable because Jones submitted evidence demonstrating that he performed his part of the contract. The court relied on this § 4.1, 1993 ed. Since plaintiff performed with defendant’s knowledge and approval, the court held it was appropriate to fill in the missing price term with a reasonable one.

41 In McLaughlin v. Gunning, 132 A.D.2d 796, 517 N.Y.S.2d 338 (1987), the court, quoting earlier cases, said, “[r]ejection of a contract ‘is at best a last resort’ [and a] promise that can be made definite by outside matters is not too indefinite.”

42 Okun v. Morton, 203 Cal. App. 3d 805, 250 Cal. Rptr. 220 (1988), review denied.

McLean v. Continental Wingate Co., 212 Ga. App. 356, 442 S.E.2d 276 (1994). Wingate terminated McLean’s employment. McLean sued for breach. McLean’s compensation package gave him a salary and a percentage of profits (“net proceeds”) earned by Wingate. Wingate claimed that the compensation agreement was too vague to be enforceable because it did not contain a formula for the calculation of the profits to which McLean was entitled. The court held that the agreement was not vague, because the parties, based upon their past dealings, understood the meaning of the term “net proceeds,” and the method of establishing the percentage of profits due for his services.

43 Hall v. Add-Ventures, Ltd., 695 P.2d 1081 (Alaska 1985). Add-Ventures sought to quite title to 140 mining claims. Hall counterclaimed for specific performance of an alleged contract by which Add-Ventures was to sell the claims to him. The trial court held that no such contract existed, but the Supreme Court reversed, holding, inter alia, that other writings exchanged between the parties could be examined in order to find a sufficient description of the realty described as the claims. The court cited § 95, 1963 ed. for the proposition that vagueness or uncertainty about any essential term often will “prevent the creation of an enforceable contract,” 695 P.2d at 1087 n. 10, but also quoted from an earlier case which also referred to this section to show that Corbin’s statements “are tempered by language in the same section encouraging courts to give legal effect to the intentions of the parties where necessary to reach a fair and just result.”Kantner v. Boutin, 624 So. 2d 779 (Fla. App. 1993) (“there must be some expression in the incorporating document … of an intention to be bound by the collateral document”).

44 See § 4.3 -4.7.

Cal.

—Murphy v. Travelers Ins. Co., 534 F.2d 1155, 1162 (5th Cir. 1976) (California law) (citing § 95). When Donald and Barbara were divorced, their property settlement obligated him to “make the minor children of the parties irrevocable beneficiaries of up to one-half of his pension plan and group life insurance policy for a period of twenty years.” Parol evidence was admitted to demonstrate that “up to one-half” was intended to mean “one-half.”

In Harris v. Klure, 205 Cal. App. 2d 574, 23 Cal. Rptr. 313 (1962), a partnership provided clearly that a surviving partner should have an option to purchase the interest of a deceased partner, with other provisions as to interest and profits that were in some degree uncertain and ambiguous. Relevant extrinsic evidence to aid interpretation would be admissible, but no such evidence was offered. The court felt able to eliminate the uncertainty and ambiguity by interpreting the provisions so as to make them lawful and effective, consistently with what seemed to the court to be reasonable, fair and just.

Colo.

—In Shull v. Sexton, 154 Colo. 311, 390 P.2d 313 (1964) (a property description was fleshed out by the records at the county clerk’s office).

Md.

—Nee v. Dillon, 239 F.2d 953 (D.C. Cir. 1956) (citing § 95). A contract was made for the sale of a tract of land with a dwelling in course of construction. Possession was taken. A small sum was put in escrow on an agreement somewhat indefinite in terms as to work still to be done. The court said: “The indefiniteness of this term [as to a patio terrace] is not fatal to the enforcement of the contract’s basic obligation, the conveyance of the property. The appellees are not precluded from proving by parol evidence the details of appellant’s obligation in this respect and the damages suffered by reason of default. See 1 Corbin, Contracts, § 95 (1950) [now § 4.1]; 3 Corbin, Contracts, § 579 (1951).”

Mass.

—In Trafton v. Custeau, 338 Mass. 305, 155 N.E.2d 159 (1959), the plaintiff lent $2,175 to defendant, taking her interest free note payable in 22 years at $100 per year, secured by a mortgage on her land. Later, after having made two payments, and wishing to sell her land, the defendant wrote: “please mail the deed to me … . After everything is completed, I will settle with you.” In response, the plaintiff sent the mortgage deed to her by mail. The court held that the surrender of the deed was sufficient consideration for the defendant’s promise “to settle”, that the contract was not too vague and uncertain for enforcement, that the parties should be permitted to testify as to what they understood by the transaction when it occurred, and that it was for the jury to determine what were the terms and to apply the law thereto.

Mont.

—In Klein v. Brodie, 167 Mont. 47, 534 P.2d 1251 (1975), plaintiff was given a right of first refusal. There was no description of the property and extrinsic evidence, although admitted, failed to clarify the intent of the parties. There was no contract.

N.Y.

—In St. Regis Paper Co. v. Stuart, 214 F.2d 762 (1st Cir.1954), cert. denied, 348 U.S. 915, an employment contract evidenced by a letter signed by both parties was enforced, even though it did not clearly show whether the employer’s promise to two salesmen was “joint” or “several,” or show how commissions for “excess” sales were to be divided. Extrinsic evidence was permitted to go to the jury.

Aristocratic Leisure Limited v. Deutsche Bank Trust Company Americas, 2005 U.S. Dist. LEXIS 16788 (S.D.N.Y. Aug. 12, 2005).

Pa.

—In Specker v. Sun Ray Drug Co., 163 Pa. Super. 39, 60 A.2d 400 (1948), an employer sold his business to a successor. The latter wrote to an employee continuing the employment and saying: “All existing privileges as to vacations, bonuses, etc., will be continued and wherever possible improved.” Evidence was sufficient to show the agreement and practice of the former employer.

Wis.

—In Central Supply, Inc. v. Roosevelt Capital, LLC, 329 Wis. 2d 711, 2010 WI App 135 (2010), Central Supply agreed to sell Roosevelt on “open terms” with “a workable line of credit.” The court cited this § 4.1, 1993 ed., and found that the parties understood the phrase “workable line of credit” to mean a line of credit similar to that afforded to PUC.

46 The Restatement (Second) of Contracts § 33 cmt. b (Am. Law Inst. 1981) states: “In some cases greater definiteness may be required for specific performance than for an award of damages; in others the impossibility of accurate assignment of damages may furnish a reason for specific relief.” Comment b to § 362 provides: “If specific performance or an injunction is to be granted, it is important that the terms of the contract are sufficiently certain to enable the order to be drafted with precision because of the availability of the contempt power for disobedience. Before concluding that the required certainty is lacking, however, a court will avail itself of all the usual aids in determining the scope of the agreement … . Apparent difficulties of enforcement due to uncertainty may disappear in the light of courageous common sense. Expressions that at first appear incomplete may not appear so after resort to usage (§ 221) or the addition of a term supplied by law (§ 204).”

Cytogenix, Inc. v. Waldroff, 213 S.W.3d 479 (Tex. App. 2006), petition for review denied, 2007 Tex. LEXIS 550 (2007). Where a trial court entered a permanent injunction requiring specific performance of a licensing agreement, the court of appeals noted that the agreement contained no duration term. Though it recognized the general rule that an otherwise enforceable contract without a duration term can be enforced by the implication of a reasonable time, to support specific performance via injunctive relief, a contract must have precise terms capable of enforcement. Even if the absence of a duration term is not enough to deny enforcement entirely, the court held that it is enough to preclude specific performance by permanent injunction. The contract did not provide that the parties contemplated perpetual duration and, therefore, it did not support perpetual injunctive enforcement.

47 Morris v. Ballard, 16 F.2d 175, 56 App. D.C. 383, 49 A.L.R. 1461 (1927) (where after a part performance equity decreed specific performance on tender of all cash by the plaintiff, although the agreement was to pay a named sum on terms to be agreed upon).

Kann v. Wausau Abrasives Co., 81 N.H. 535, 129 A. 374 (1925), appeal after remand, 85 N.H. 41, 153 A. 823 (1931) (option to buy all the output of a garnet mine in excess of the defendant’s own requirements, at a base price of $45 per ton to increase with cost of production at a reasonable rate. The remedy in damages, if available, was very inadequate).

In Starr v. Holck, 318 Mich. 452, 28 N.W.2d 289, 172 A.L.R. 413 (1947), a provision in a lease for an extension “for years” was specifically enforced so as to enable the lessee to exercise an option to purchase after the expiration of the original term.

See Phillips Petroleum Co. v. Buster, 241 F.2d 178 (10th Cir.1957), cert. denied, 355 U.S. 816, where the court specifically enforced the defendant’s promise to supply sufficient gas to run a water pump, the plaintiff having completed a well at a cost of $10,000 in reliance on the promise. The plaintiff made no return promise to use or buy gas. The court held that neither the indefiniteness of time and price and amount, nor the lack of “mutuality” of remedy or obligation, was a defense.

In Nelson v. Richia, 232 F.2d 827 (1st Cir.1956), the defendant, for a sufficient consideration, orally promised to execute one of two written licensing contracts submitted to him. He had an “option” between two alternatives only. Specific performance of this oral promise was held appropriate, in spite of apparent difficulties in enforcement.

Two brothers bequeathed to each other their shares in a corporation and agreed that on the death of one the other “shall use his best efforts to arrange for the payment out of the business … of a weekly sum which shall be consistent with the ability of the business to pay to the widow of the deceased party, to apply toward her maintenance and support, … which shall be within the discretion of the surviving party.” The amount was to depend on “the ability to pay” and was to be “as near $200 per month as is possible.” This was held not to be too indefinite for specific enforcement. Fountain v. Fountain, 9 N.J. 558, 89 A.2d 8 (1952).

See Berg v. Devore, 141 N.E.2d 481, 74 Ohio L. Abs. 447 (Ohio App.1953) (specific enforcement of a poorly drawn agreement. “A court of chancery will aid the parties … .”).

In Bryant v. Clark, 163 Tex. 596, 358 S.W.2d 614 (1962), rehearing of cause overruled, the court refused specific performance of a simple contract for the sale of land for reasons that seemed utterly inadequate to two of the judges and equally seem so to this treatise. Here was the contract, after description of the property: “Price to be $10,000. Mr. Bryant agrees to pay $2,000 cash and balance at 6% interest, payments to be agreed upon by seller and buyer. We have agreed as follows: 15 annual installments as balance.” This case was followed in Wheeler v. White, 398 S.W.2d 93 (Tex. 1965), rehearing of cause overruled. The dissent, citing this treatise’s criticism, would have enforced the contract. In this case, however, the court allowed a promissory estoppel recovery for the party who had extensively relied on the agreement.

Description of land which incorporated sketches made by a person who was not a surveyor, coupled with parol evidence was held to be sufficiently definite in Hanners v. Woodruff, 257 Ga. 73, 354 S.E.2d 826, 73 A.L.R.4th 129 (1987).

Specific performance was denied in Tri-States Investment Co. v. Henryson, 179 N.W.2d 362 (Iowa 1970), where an option on land provided: “Cash or Land Contract. Land Contract terms to be agreed upon after optionee exercises this option.” The optionee exercised the option and offered cash. Parol evidence showed that the choice of methods of payments was intended to be the optionor’s. The total indefiniteness of the Land Contract terms was held to be fatal. It does not appear that the optionor suggested any terms that were refused. If so, the optionor’s bad faith should not have been rewarded.

48 Mr. Mark Corp. v. Rush, Inc., 11 Ohio App. 3d 167, 464 N.E.2d 586 (1983). But in Farmer v. Argenta, 174 Ga. App. 682, 331 S.E.2d 60 (1985), the court found the contract to be too indefinite and refused the vendor’s request for specific performance. The contract provided that the seller would remain in possession as a tenant at a specified rental “as long as necessary until seller finds a new home.” For reasons unrelated to this provision the vendee repudiated. The court could well have awarded specific performance on the condition of turning over of possession or could have found a good faith limitation on the vendor’s ability to retain possession. Or it might have applied the rule of an earlier case to the effect that “Collateral provisions in a contract, though … indefinite [and thus unenforceable], will not destroy the validity of the contract if the main purpose of the parties is sufficiently clear to be capable of enforcement.” Hartrampf v. Citizens & Southern Realty Investors, 157 Ga. App. 879, 278 S.E.2d 750 (1981), quoting from a still earlier case.

Alaska

—Hall v. Add-Ventures, Ltd., 695 P.2d 1081 (Alaska 1985).

Cal.

—This section (§ 95, 1963 ed.) is cited in Okun v. Morton, 203 Cal. App. 3d 805, 250 Cal. Rptr. 220 (1988), review denied, where a provision in a contract between an investor and a promoter to develop a commercial enterprise gave the investor the right to participate in “all business opportunities which arise in connection with the business of HRC, the partnership or that which utilizes the name and mark HARD ROCK CAFE” was sufficiently certain so as to be specifically enforceable. The uncertainty was largely overcome by framing the decree on the pattern of the parties’ own conduct in setting up the initial enterprise. Doryon v. Salant, 75 Cal. App. 3d 706, 142 Cal. Rptr. 378 (1977) (missing payment term filled in by gap-filler). Hennefer v. Butcher, 182 Cal. App. 3d 492, 227 Cal. Rptr. 318 (1986) (time and manner of payment).

Colo.

—Shull v. Sexton, 154 Colo. 311, 390 P.2d 313 (1964).

Fla.

—In Blackhawk Heating & Plumbing Co. v. Data Lease Financial Corp., 302 So. 2d 404, 409 (Fla. 1974), an option was exercised, one of the terms of which was: “Any cash flow benefit, including any tax benefits derived by Data as a consequence of its holding, hypothecation, assignment, pledge, etc., of MNB stock shall inure proportionately to Blackhawk in calculation of any payment due … .” The trial judge found that there was no general understanding within the accounting profession as to the meaning of “cash flow benefit.” Despite this, the appellate court thought that a meaning could be constructed and specifically enforced, based on the position of the parties at the time this agreement was reached. Extensive later proceedings in this case are recounted in 446 So.2d 127 n. 1 (1983), followed by 478 So. 2d 77 (App.1985).

McTeague v. Treibits, 388 So. 2d 309 (Fla. App. 1980).

Mass.

—In Rand-Whitney Packaging Corp. v. Robertson Group, Inc., 651 F. Supp. 520 (D. Mass. 1986), specific performance was granted on the basis of a binding letter of intent. Further details were implied.

Mich.

—J.W. Knapp Co. v. Sinas, 19 Mich. App. 427, 172 N.W.2d 867 (1969). Sinas bought furniture on an open account. The parties then agreed that the buyer would pay on a “deferred payment” plan involving a 36 month payout. There was no agreement on interest rates. The buyer offer to pay 7% simple interest. The seller demanded 8% add-on interest, a rate of more than double the buyer’s proposal. The store sued for the full amount, but the buyer’s counter-claim for specific performance was successful. The court implied the 5% legal interest then in effect. The appellate court indicated that the trial judge could have awarded a higher rate of interest if such a rate were reasonable.

Miss.

—Busching v. Griffin, 542 So. 2d 860 (Miss.1989).

49 McCandless v. Schick, 85 Idaho 509, 380 P.2d 893 (1963).

50 Schuh v. Schuh, 368 Mich. 568, 118 N.W.2d 694 (1962).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.2 »

1 Corbin on Contracts § 4.2 (2020)

§ 4.2. Time of Performance Indefinite—Promises of “Permanent” Employment—At Will Employment

It is characteristic of many offers and agreements to neglect to specify a time for acceptance or a time for the rendition of performance. Yet it may be clear that there is an intention to create a power of acceptance or a valid contract. In such cases it is evident that the party or parties do not regard any specific point of time as essential. Usually acceptance is given or performance rendered without the occurrence of any dispute. When such a dispute does arise, it is necessary for the court to decide whether the power of acceptance was to last forever, or if not, for how long, also to decide whether the time for performance was left to the discretion of the one promising to render it. The result generally reached is that the time is neither unlimited nor discretionary. Acceptance must be within a “reasonable time”1 and the promised performance must be rendered within a “reasonable time.”2

There is a large element of uncertainty in the determination of the length of a “reasonable time” in any particular case. Of course, parol testimony on the question is always admissible in spite of the so-called “parol evidence rule.”3 Furthermore, there is a difference between what may be reasonable in the light of the circumstances existing at the time the contract is made and what is reasonable in the light of circumstances as they occur during the course of performance.4

Parties often make a bilateral agreement for the sale of goods at a specified price or for the rendition of services at specified wages, fixing a time for delivery of the goods or rendition of the services but not fixing a date for making the money payment. In such cases the gap is so readily supplied from general usage or the previous course of dealing that no uncertainty is perceived and both parties are bound. In the absence of agreement or course of dealing to the contrary, the price is payable when the goods are received,5 and payment for services are payable at the end of a period of actual service, a period that is indicated either by the terms of agreement or by custom, but in the case of protected classes of workers, as dictated by statute.6

Simple agreements for the sale of goods are frequently made without expressing in words any time for either delivery or payment. Seldom will it be held that this makes it too uncertain for enforcement. Usage and custom will generally furnish a basis for determining whether the transaction is a cash sale or a credit sale, including the length of the credit period, and the finding is most likely to be that delivery is promised within a reasonable time.7 Under a contract to sell goods still to be manufactured, a reasonable time for delivery must take into account such factors affecting performance as the seller’s factory capacity, the extent of prior orders to be filled, and the availability of labor and materials.8

It appears, therefore, that a contract is usually not too indefinite for enforcement merely because it fixes no time for an agreed performance. If that performance is something that is simple and can readily be rendered at any one or more of many moments of time, the court will infer that the parties have agreed upon performance within a reasonable time. Of course, this standard is itself indefinite. What is reasonable is a question of fact9 and a matter on which opinions will differ. Nevertheless, it is a standard that is practically workable and one that results in satisfactory solutions.

In certain kinds of contracts, this reasoning may not be applicable. Thus, where one party promises to make a loan of money to another, the promise is hardly enforceable unless the length of the period of credit is agreed on.10 The borrower would probably not be satisfied with a loan repayable “on demand,” and usually there would be no data upon which to determine a reasonable time. If such data exist, indicating the probable intention of the parties, the evidence thereof should be received.11 Thus, if security, and some notes of definite duration are given for the promise of a line-of-credit, it should be clear that the parties had something relatively definite in mind as to the duration of the line-of-credit, such as the maturity cycles of the promisee’s livestock.12

Not infrequently parties make an agreement containing promises of reciprocal continuing performances to be rendered for a period of time that is not specified expressly or impliedly.13 Sale of goods arrangements of indefinite time are frequent. Such arrangements may be informal or take the form of contracts of indefinite duration. Distribution, requirements, output, franchise and other arrangements for the supply and purchase of goods often contain no period of duration or indicate that they continue until termination by notice. The Uniform Commercial Code addresses these in U.C.C. § 2-309, which provides:

“(2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.”

“(3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification shall be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.”

This provision contemplates that even if an agreement has no duration term, it is valid but is terminated after a reasonable time, and in addition may be terminated by a party by giving reasonable notice. By reasonable notice is meant a reasonable period of notice. This is quantified by taking into account the period the terminated party needs to make a substitute arrangement as well as the period of time this party may need to recoup its investment that may have been made to perform the contract.14 If the agreement provides that it may be terminated at any time, the provision would nonetheless require reasonable notice. If it provided that it is terminable without notice, or upon a specified period of short notice, it must be determined if the agreement is unconscionable.15 If it is, the agreement must be reformed to allow a reasonable period of notice. More particularized statutes govern some industries.16

Leasehold contracts, generally executed on a standard printed form, may contain a provision that the lease shall be “renewable” at the lessee’s option, without specifying any definite period of time. Such a provision is not too indefinite to enforce. It will be “implied” that the renewal shall be for the same time as the original one and on similar terms.17 A provision for an extension “for … years” has been given similar effect.18

Employment contracts. One of the most significant developments in recent decades has been the clarification of the obligations created by the employment relation of indefinite duration. Traditionally, except for some exceptional circumstances, American courts have taken the position that employment agreements that have no defined period of obligation, are terminable at will. The employer may discharge the employee “with or without cause, at pleasure, unless restrained by some contract.”19 Similarly the employee may walk off the job at any time. In short, these relations are not executory contracts. No executory obligations existed except as they were created by performance. With some important qualifications, this remains the law.

If, on proper interpretation, the parties intend that performance is terminable at will by either party, the agreement is not a contract at all. Yet it is not vague or unclear. A refusal to perform is not a breach, it is merely the exercise of the reserved power to terminate.20 Where the agreement provides for payment of a stated weekly, monthly, or yearly salary, the facts may or may not justify the implication of a promise that the employment shall continue for at least one complete salary period. Agreements for employment at a specified salary, without mentioning any time limit, are generally interpreted as terminable at will by either party, the specification of salary merely fixing the rate of payment, not the time the employment is to last.21 Of course, as services are actually rendered, a unilateral contract for payment at the agreed rate arises. The traditional approach described in this paragraph remains the general rule and for most purposes there is a rebuttable presumption that a hiring is at will. Certain qualifications, however, have been made and expanded in recent decades.22

Even if a position is described by the employer as permanent, the majority of cases have held that the hiring is at will.23 A frequently recurring case is found in agreements for continuing employment, often described as permanent, in settlement of claims for personal injury, claims against an alleged tort-feasor or against an employer bound to pay workers’ compensation or against some liability insurer. In some of these cases, the agreement was held to be too uncertain and indefinite for enforcement, partly because there was no statement of the character or amount of the work to be done or of the payment to be made therefor.24 In addition to making short shrift of the word “permanent,” courts have been reluctant to base a contract on other words of assurance made by employers to employees.25

If the employee has given an executed consideration, such as the discharge of a claim for damages, in return for a promise of permanent employment, the promise is more likely to be found to mean employment as long as proper service is performed (or it would not be terminated absent just cause). In cases of this kind, if the promisee has already rendered the requested action or forbearance and the promisor has received the benefit, the court should be very ready to hold that the promise is not too indefinite for enforcement. The process of reasonable implication should be carried much further than in cases where performance by the plaintiff has not yet been rendered.26 It is not easy to estimate the value of the benefits received, thus making the quasi-contractual remedy inadequate, and the delay may make it impossible or difficult to maintain suit on the original claim. The only just and adequate remedy may be the enforcement of the express promise, filling its gaps by reasonable implications. If this is not possible, the quasi contract remedy is all that is left.27 In addition to performing its usual function of cementing a bargain, the presence of consideration in addition to the rendition of services is a strong evidentiary factor in reaching a conclusion that the parties had something definite in mind. Other evidentiary factors may also prove such definite intent.28

Contracts of employment for life are sometimes made for their own sake and not for the purpose of settling some unliquidated claim. The term “lifetime” is far more definite29 than the term “permanent.” This latter term is frequently used in classified ads and in common speech to denote a position that is not seasonal or otherwise of a reasonably certain temporary duration. The word “permanent” is commonly used to mean much less than “eternal”30 or “until death do us part.” Courts have been more willing, and properly so, to regard “lifetime” as a definite period of time.31

Legislation has been enacted protecting at-will employees from dismissal because of union activities, racial or religious prejudice, age discrimination, gender and other similar grounds.32 The courts of many jurisdictions have added to the protection of employees by holding employers liable for discharges that are based on grounds that violate public policy. By way of example, if a worker is fired for filing a workers’ compensation claim for an on-the-job injury, the employer has breached an obligation inherent in the employment relation. Workers’ compensation legislation, having been enacted for the protection of workers could effectively be nullified by the overhanging threat of discharge.33 From decisions such as this, even broader protection has been conferred upon employees. Rules of basic dignity whether based on legislation or not have been incorporated into the employment relation.34 Thus, where a married woman refused the sexual advances of her foreman and because of this found herself dismissed, she was accorded a cause of action for breach of contract.35 Such cases are often classified under the title of a “public policy” exception to the at-will employment rule.36 Some cases have spoken of an action for abusive discharge.37 Of course, the characterization of a discharge as tortious, though it may represent muddled analysis, has the practical effect of being, in some jurisdictions, a predicate for punitive damages.38

Of course, hirings are not at will if the parties have agreed upon a definite term of employment.39 Employment contracts of indefinite duration may be subject to personnel manuals or employee handbooks indicating certain procedural protections for employees or providing that employees will not be terminated except for cause. These manuals, to the extent they make promises, are often treated as offers to unilateral contracts.40 Indeed, this is the same analysis as applies to fringe benefits such as pensions. Despite certain resistance to the application of somewhat elementary and basic principles of contract law, many courts have given effect to these contracts.41 Where the manual or a written disclaimer explicitly states that the manual forms no part of the employment contract or that it is not binding, courts generally,42 but not always43 have held that it is not contractual. The resistance seems to stem from the notion that anything but at-will employment is anomalous. Yet when one considers the job protection given to workers under collective bargaining agreements, legislation concerning public employees, and tenure policies at universities, procedural guarantees for workers pursuant to voluntarily established company procedures seem not at all deviant.

An agreement for employment terminable at the will of either party is not an enforceable contract when made. But performance rendered by the employee under it, before any notice of revocation, creates a unilateral contract binding the employer to pay the specified wage and to perform all other promises that he may have made in the agreement.44 If the party rendering performance has made no promise of any other performances, either expressly or tacitly, the contract now created is a unilateral contract. Often, however, it would be reasonable to find a promise, tacit if not express, to complete a performance begun or to render some other collateral performance. In such case, the rendering of part performance may create a bilateral contract. In addition and instead, substantial acts of reliance on a promise of indefinite duration should be redressed under the doctrine of promissory estoppel, but courts are reluctant to apply promissory estoppel to overcome an explicit notice of at-will employment.45

No matter what the contractual relation, an employee may be fired for “just cause,” which in the case of an employment contract for a specific term simply means that if the employee materially breaches the contract, a constructive condition has failed, and the employer may cancel the contract.46

(1) Smith v. Denture, 2018 U.S. Dist. LEXIS 125715 (D.S.C. July 27, 2018). Plaintiff filed suit against Palmetto Denture after her employment was terminated. Plaintiff’s breach of contract claim alleged that her at-will employment status was altered when she and Denture entered into a contract. Specifically, she claimed that Denture’s Employee Handbook formed a binding contract that overcame the presumption that she was an at-will employee. Plaintiff argued that Denture’s “Harassment and Conduct of Employees” policies created in her an expectation that defendant “would conduct investigations, punish employees and refrain from terminating her employment when incidents of sexual or physical harassment were reported.” The court rejected this argument. “Applying South Carolina law, courts in this District have previously held that typical anti-discrimination and anti-retaliation polices found in most employee handbooks are insufficient to form a contract of employment necessary to overcome the at-will presumption.” Plaintiff failed to provide the court the specific policy provisions to support her general claims. Nor did she even identify specific mandatory language that spelled out obligations binding on Denture. General and conclusory allegations are not enough to overcome the presumption of at-will employment. The court dismissed the breach of contract claim.

Footnotes — § 4.2:

1 See § 2.14.

U.S.

—Automatic Sprinkler Co. v. Sherman, 294 F. 533 (5th Cir. 1923) (to install apparatus, seller “promises no time for performance”); Eastern Brass & Copper Co. v. General Elec. Supply Corp., 101 F. Supp. 410 (S.D.N.Y. 1951) (implication of a promise to deliver within a reasonable time).

R & L Acoustics v. Liberty Mut. Ins. Co., 2001 Conn. Super. LEXIS 2854 (Conn. Super. Ct. Sept. 27, 2001) (reasonable time is not an unlimited time).

Gonzalez v. Chinatown Hotel Corp., 2020 U.S. App. LEXIS 11704 (11th Cir. April 14, 2020). Gonzalez sued Chinatown, operator of a hotel, claiming, inter alia, that Chinatown failed to maintain a website containing adequate information about the hotel’s accessibility to persons with disabilities. Chinatown made an offer of judgment under Fed. R. Civ. P. 68. Among other things, Chinatown offered to allow a judgment against it, and the order would require Chinatown, “by a date certain,” to bring its website into compliance. The district court entered an order, inter alia, ordering Chinatown to bring its website into compliance “within a reasonable period of time.” Gonzalez appealed, claiming that the district court’s order was inconsistent with the offer to which he agreed. Among other things, the offer contemplated an unspecified “date certain, but the order required that Chinatown to bring its website into compliance within a “reasonable time.” The court rejected this argument: “It is an elementary principle of contract law that ‘when a contract does not expressly fix the time for performance of its terms, the law will imply a reasonable time.’ Denson v. Stack, 997 F.2d 1356, 1361 (11th Cir. 1993) (discussing Florida contract law) … .” The district court properly applied a rule of contract law to impose a reasonable time. The 11th Circuit affirmed on this point but remanded based on others. (Among other things, the Rule 68 offer differed from the order in another, unrelated respect. Moreover, the order failed to award a just and appropriate amount of compensatory damages to Gonzalez.)

Mass.—

Duff v. McKay, 89 Mass. App. Ct. 538 (2016); Miller v. Campello Co-operative Bank, 344 Mass. 76, 181 N.E.2d 345 (1962) (citing §§ 95–96); Cohen v. Wintman, 236 Mass. 471, 128 N.E. 778 (1920) (reasonable time to transmit money to Russia and obtain bank book for rubles); LimoLiner, Inc. v. Dattco, Inc., 809 F.3d 33 (1st Cir. 2015) (when contract is silent on time of performance, reasonable time implied).

Mich.

—Giffels & Vallet, Inc. v. Edw. C. Levy Co., 337 Mich. 177, 58 N.W.2d 899 (1953). An engineer promised to supply services “as required and as you may direct.” By implication, his duty was conditional on a notice of instructions with a reasonable time thereafter to render the performance.

Minn.

—Deutsche Bank Nat’l Trust Co. v. Roberts, 2018 Minn. App. Unpub. LEXIS 82 (Jan. 29, 2018) (when contract is silent, reasonable time is implied).

N.J.

—West Caldwell v. Caldwell, 26 N.J. 9, 138 A.2d 402 (1958) (a contract between two boroughs for the use by one of a sewage system built by the other, with no stated time limit, did not operate in perpetuity).

N.Y.

—In Haines v. New York, 41 N.Y.2d 769, 396 N.Y.S.2d 155, 364 N.E.2d 820 (1977), the City of New York had entered into a contract with an upstate municipality whereby New York City endeavored to protect its upstate water supply from local pollution. The City agreed to construct a described sewage plant and system to process local sewage before its flow into the water supply system. In time, the demands on the plant exceeded its capacity, and the City refused to allow new hookups into its sewage system. One of a number of issues was, what was the duration of the City’s obligation to process upstate sewage? Among the possibilities was that the obligation was terminable at will, was perpetual, or endured for a reasonable time. The last of these possibilities was approved by the court. See also, Jafari v. Wally Findlay Galleries, 741 F. Supp. 64 (S.D.N.Y. 1990) (sale of goods; price must be tendered within a reasonable time); ABKCO Music & Records Inc. v. Chimeron LLC, 517 Fed. App’x 3 (2d Cir. 2013) (royalty agreement). In Silverman v. Alpart, 282 A.D. 631, 125 N.Y.S.2d 602 (1953), a contract for sale of land provided for delivery of possession “on or before June 1”, but also that closing and possession depended on removal of a building on or before that date, and that the price should be reduced a stated amount month by month until the building should be removed. The building was not removed and the purchaser sued for specific performance five months after June 1. This relief was granted, the court finding “by implication” that the vendor had promised to convey by June 1 or within a “reasonable time” thereafter.

Ore.

—Stricklin v. Flavel, 180 Or. App. 360, 43 P.3d 1116 (Ct. App. 2002). Citing § 96, 1963 ed., the court held that where an agreement is not specific as to time for performance, the promised performance must be rendered within a reasonable time. Here, the defendants had had a reasonable time to make payment since, at the time of the hearing, almost one year had passed since the settlement agreement had been reached.

Pa.

—Evergreen Cmty. Power LLC v. Riggs Distler & Co., 513 Fed. App’x 236 (3d Cir. 2013) (reasonable time implied when specific time expressed in agreement becomes inapplicable).

S.D.

—Huffman v. Shevlin, 76 S.D. 84, 72 N.W.2d 852 (1955) (indefinite home-drawn contract by the buyer of machines to pay for them as they were resold to third parties, no time being specified, was held to make it the buyer’s duty to pay after the expiration of a reasonable time within which to effect a resale).

Vt.

—Greene v. Rainbow Properties, Ltd., 145 Vt. 576, 496 A.2d 178 (1985). In July, the tenant took occupancy and soon thereafter asked the landlord to substitute overhead blowers for baseboard radiators. The landlord agreed, apparently without consideration, but this point was not discussed, and ordered the blowers. On August 8, the tenant told the landlord that no rent would be paid until the blowers were installed. Whereupon the landlord canceled the order for blowers and sought to evict the tenant. It was held that the landlord had a reasonable time in which to install the blowers and tenant by withholding rent prematurely was in material breach of the lease, justifying eviction. See also Hayden v. Hoadley, 94 Vt. 345, 111 A. 343 (1920) (reasonable time to complete repairs on a house).

Wash.

—Merchants’ Bank of Canada v. Sims, 122 Wash. 106, 209 P. 1113 (1922) (to extend credit up to a certain amount from time to time).

Wis.

—Int’l Prod. Specialists, Inc. v. Schwing Am., Inc., 580 F.3d 587 (7th Cir. 2009) (reasonable time implied when contract is silent).

3 Kwik-Lok Corp. v. Pulse, 41 Wash. App. 142, 702 P.2d 1226 (1985). The promise, for a consideration, stated: “We hereby grant you two (2) free breedings a year to Canadian Gil and two (2) free breedings a year to Drum Fire.” These were both stallions. The trial judge erred in refusing to admit parol evidence concerning the intended duration of these rights.

Balon v. Hotel & Restaurant Supplies, Inc., 103 Ariz. 474, 445 P.2d 833 (1968). The parties’ silence as to the time for their performances raises certain presumptions, but these may be rebutted as to evidence of their actual expressed intent.

Notice how Professor Corbin talked about the parol evidence rule: “Arthur L. Corbin, who wrote half a volume on the [parol evidence rule], disliked it intensely and almost always either put it in quotation marks or referred to it as ‘the so-called parol evidence rule.’ ” Peter Linzer, Contract Law Present and Future: A Symposium to Honor Professor Charles L. Knapp on Fifty Years of Teaching Law: Contract as Evil, 66 Hastings L.J. 971, 989 (2015).

4 In Hall v. Hall, 158 Tex. 95, 1 Tex. Sup. Ct. Jour. 108, 308 S.W.2d 12 (1957), rehearing of cause overruled, the court held that such a contract was within the one year clause of the statute of frauds, because the jury found that the reasonable time for performance was 3 years. The decision should be otherwise if the term “reasonable time” is given the second of the above meanings-the meaning that should usually be given.

A group annuity policy provided that the insurer would pay an annuity, on specified terms, to an employee of the promisee employer who might apply for coverage and for whom the required premium should be paid. This was held to be an irrevocable unilateral contract, giving to the promisee a continuing option to purchase annuities for its employees. The contract did not specify any time for the expiration of the insurer’s promissory duty or of the promisee’s continuing option. The court held that the duty of the insurer and the power of the insured would not continue forever, but would be limited by the law to a reasonable time. In determining this time, holding it to be 20 years, the court considered, not only the provisions of the contract as to an increase of premiums, but also new and changing conditions such as the decline in interest rates and the increase in life expectancy. Freeport Sulphur Co. v. Aetna Life Ins. Co., 206 F.2d 5, 41 A.L.R.2d 762 (5th Cir. 1953).

5 U.C.C. § 2-310(a).

6 See, e.g., NY CLS Labor § 191 “Frequency of payments.”

7 Uniform Commercial Code § 2-309(2) provides: “The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.”

See Magna Oil & Refining Co. v. Parkville Oil Corp., 1923 OK 1084, 96 Okla. 157, 221 P. 65 (1923), and Newspaper Readers Service, Inc. v. Canonsburg Pottery Co., 146 F.2d 963 (3d Cir. 1945). In Atlantic Terra Cotta Co. v. Chesapeake Terra Cotta Co., 96 Conn. 88, 113 A. 156 (1921), the court said: “although neither the offer nor the acceptance contained any express intent as to the time of delivery or payment, yet in such case, the absence of the ordinary stipulations as to time of delivery and time of payment would be supplied by implication of law. Where no time for delivery is fixed by such a contract, the law implies delivery within a reasonable time. Where no time of payment is fixed, the law implies that the time of payment is upon the delivery of the goods.” See also:

Conn.

—Santoro v. Mack, 108 Conn. 683, 689, 145 A. 273 (1929); Soper v. Tyler, 73 Conn. 660, 49 A. 18 (1901).

An agreement for the manufacture and sale of goods “to be shipped as specified” does not leave the time of performance wholly discretionary. Both shipment and specification are to be within a reasonable time. Doehler Die Casting Co. v. Correct Measure Co., 307 Pa. 187, 160 A. 772 (1932).

8 In Memphis Furniture Mfg. Co. v. Wemyss Furniture Co., 2 F.2d 428 (6th Cir. 1924), the buyer ordered special articles on a rising market, with full information that the seller had many prior orders yet to fill. The agreement stated, “Due to the uncertainty of manufacturing, this order is accepted subject to prices in effect on shipping date, and our ability to ship.” The buyer was satisfied with this, permitted manufacture to begin, and later requested and obtained delay in the time for delivery. There was a valid contract for delivery within a reasonable time at the market prices then prevailing. See also Weiford v. Fields Dev. Co., C.A. 1996 Tenn. App. LEXIS 133 (Mar. 4, 1996).

9 Zidell Explorations, Inc. v. Conval International, Ltd., 719 F.2d 1465 (9th Cir. 1983) (reasonable period of notice of termination); Dolgos v. Liberty Mut. Ins. Co., 2013 U.S. Dist. LEXIS 129369 (N.D. Ind. Sept. 4, 2013) (whether party performed in reasonable time is question of fact).

10 Elks v. North State Life Ins. Co., 159 N.C. 619, 75 S.E. 808 (1912) (promise to make a loan without specifying date of repayment or the security to be given).

McErlean v. Union National Bank of Chicago, 90 Ill. App. 3d 1141, 46 Ill. Dec. 406, 414 N.E.2d 128 (1980) (duration of line-of-credit, interest rate, and duration of contemplated loans were all missing).

If the money is actually advanced it must be repaid within a reasonable time after demand, even though the signed note provided for repayment “when payor and payee shall mutually agree,” if the borrower refuses to assent to a reasonable time. Page v. Cook, 164 Mass. 116, 41 N.E. 115 (1895).

11 Such data existed in Camden v. South Jersey Port Com., 2 N.J. Super. 278, 63 A.2d 552 (1948), modified, 4 N.J. 357, 73 A.2d 55, where the court held that the City was bound to advance the money and that the Port Commission had promised to repay it when able, out of funds that according to its honest and reasonable judgment were not required for certain other purposes.

12 Carrico v. Delp, 141 Ill. App. 3d 684, 95 Ill. Dec. 880, 490 N.E.2d 972 (1986).

13 In Helsby v. St. Paul Hospital & Cas. Co., 195 F. Supp. 385 (D.Minn.1961), aff’d, 304 F.2d 758 (8th Cir.), an insurance agent’s commission contract was for an indefinite period, but it was terminable only “with cause” by giving 12 months written notice. The provision for termination was not rendered too indefinite by the fact that the meaning and coverage of the word “cause” was not spelled out. The court sustained an instruction to the jury that as used here the term “cause” “is not limited to a ‘legal’ cause which would justify a rescission of the contract, and it need not be an act or omission on the part of the plaintiff which would constitute a breach of the contract. The provision now under consideration simply protected the plaintiff from an arbitrary or capricious termination of the contract; and the term ‘cause’, as used by the parties, means anything which has prompted a reasonably prudent insurance company, acting honestly, fairly and in good faith, to put an end to the agency relationship … .”

In Ravel v. Hubbard, 112 Cal. App. 2d 255, 246 P.2d 88 (1952), the defendant promised exclusive rights of haulage to the plaintiff as long as the latter maintained specified facilities. The indefiniteness of time did not make the promise unenforceable, inasmuch as the plaintiff had rendered an executed consideration.

In Hampton Tree Farms, Inc. v. Jewett, 125 Or. App. 178, 865 P.2d 420 (1993), the sole supplier of logs to a financially distressed milling company agreed, for an unspecified time period, to supply logs in exchange for an increase in his percentage of the miller’s receivables and additional security. The court held that summary judgment for the supplier on grounds of indefiniteness was inappropriate because a jury could find that the parties intended to continue the supply agreement until the miller “had cleared away its indebtedness and the mill had become profitable.” On the other hand, the evidence did not provide a sufficient basis on which the supplier’s liability could be fixed in respect of a separate alleged agreement under which the supplier promised to arrange to sell one of the miller’s mills “on the best possible terms.”

In Wagner Enters. v. John Deere Shared Servs., 397 F. Supp. 2d 1097 (N. D. Iowa 2005), the court held that a year-to-year licensing agreement under which the plaintiff carried the defendant’s logo on certain items it would then sell to stores was not modified by defendant’s statement to plaintiff that “I will tell you that unless you just totally screw up, it won’t be cancelled,” or “I would tell you that unless you just totally screw up, it’s an automatic thing to renew.” Such statements were insufficiently definite and lacked consideration.

14 Cambee’s Furniture, Inc. v. Doughboy Recreational, Inc., 825 F.2d 167 (8th Cir. 1987) (South Dakota law).

Precursors to U.C.C. § 2-309 are well illustrated by J.C. Millett Co. v. Park & Tilford Distillers Corp., 123 F. Supp. 484 (N.D. Cal. 1954), where the court analyzes the facts in great detail and holds that a partly implied and partly express contract for distribution of defendant’s products was not too indefinite for enforcement, even though no specific time was fixed for duration of performance or for giving notice to terminate. The court held that the contract required performance for at least one year and a 3 months’ notice to terminate. Another precursor case is C.C. Hauff Hardware, Inc. v. Long Manufacturing Co., 257 Iowa 1127, 136 N.W.2d 276, 19 A.L.R.3d 191 (1965).

A case similar to the J.C. Millett case noted above is San Francisco Brewing Corp. v. Bowman, 52 Cal. 2d 607, 343 P.2d 1 (1959). By reason of a long course of dealing between the parties to a beer distributorship contract, the court found that the Brewing Co. had promised by implication that the agency relation should continue for a reasonable time, and the jury found that such reasonable time was three years. The court held that this finding brought the contract within the one year clause of the statute of frauds.

This section (§ 96 from a prior edition of this treatise) is cited in Simons v. American Dry Ginger Ale Co., 335 Mass. 521, 140 N.E.2d 649 (1957). The defendant offered to supply “a minimum of 400 cases per week” (for repair) and would pay 35 cents per case. The plaintiff accepted. This was held not too indefinite for enforcement. Each party could terminate by giving reasonable notice. Until such notice the defendant was liable in damages for failure to supply at least 400 cases per week.

As to the burden of proof in these cases, see Circo v. Spanish Gardens Food Mfg. Co., 643 F. Supp. 51, 55 (W.D. Mo. 1985). “In the present case there is no proof concerning whether alternate sources of supply were available, how much time would have been involved in implementing any such alternate sources, or what plaintiffs’ efforts in those connections might have been. In fact, the only evidence even touching the point is that plaintiffs had always been free to buy or distribute the products of other manufacturers, and indeed had done so. Whether any of these products were substitutable for defendants’ products, and were readily available, is unknown; but that certainly does not translate into affirmative evidence which supports a finding of injury.”

It has been held, however, that a termination without advance notice is per se a breach of the duty imposed by U.C.C. § 2-309. Jo-Ann, Inc. v. Alfin Fragrances, Inc., 731 F. Supp. 149 (D.N.J. 1989). This may not be contrary to the case in the previous paragraph as the context of the quotation was focused on proof of damages. Indeed, evidence of lack of harm caused by an abrupt termination indicates that a reasonable period of notice can be very short. Teitelbaum v. Hallmark Cards Inc., 25 Mass. App. Ct. 555, 520 N.E.2d 1333 (1988).

In contrast to contracts of indefinite duration are contracts that provide for termination events—but that might possibly last for a very long time until such events occur. See Lamoureux v. MPSC, Inc., 2015 U.S. Dist. LEXIS 163648 (D. Minn. Dec. 7, 2015), where the court acknowledged that contracts of indefinite duration are generally terminable at will upon reasonable notice, but that this maxim did not apply here since “the obligor’s performance is conditioned on some event or conduct … .” Rather, “the contract is governed by its terms and not by any overarching rule favoring at-will termination.”

The Lamoureux decision was affirmed by Lamoureux v. MPSC, Inc., 849 F.3d 737 (8th Cir. 2017).

15 McGinnis Piano & Organ Co. v. Yamaha International Corp., 480 F.2d 474 (8th Cir. 1973).

Bak-A-Lum Corp. of America v. Alcoa Bldg. Products, Inc., 69 N.J. 123, 351 A.2d 349 (1976).

“Two days’ notice was not reasonable or adequate for Wartburg to find accounts to replace these two accounts nor to obtain a new distributorship agreement.” Jonibach Mgmt. Trust v. Wartburg Enters., 136 F. Supp. 3d 792, 820 (S.D. Tex. 2015).

16 E.g., Automobile Dealers Day in Court Act, 15 U.S.C.A. § 1222. There are particularized state statutes as well.

Ark.

—Nakdimen v. Atkinson Improv. Co., 149 Ark. 448, 233 S.W. 694 (1921).

Conn.

—Karn v. Di Lorenzo, 95 Conn. 267, 111 A. 195 (1920).

Ga.

—Thornton v. Ellis, 184 Ga. App. 884, 363 S.E.2d 584 (1987); Saunders v. Sasser, 86 Ga. App. 499, 71 S.E.2d 709 (1952).

Ky.

—Raff v. Freiberg, 207 Ky. 246, 268 S.W. 1110 (1925).

Mass.

—Gardella v. Greenburg, 242 Mass. 405, 136 N.E. 106, 26 A.L.R. 1411 (1922).

Mo.

—Davison v. Rodes, 299 S.W.2d 591 (Mo. App. 1956) (lease provided that the “Lessor grants an option to release premises to Lessee on expiration of this lease”).

Va.

—King v. Wilson, 98 Va. 259, 35 S.E. 727 (1900).

Wis.

—Fergen v. Lyons, 162 Wis. 131, 155 N.W. 935 (1916).

See Eagle-Picher Co. v. Mid-Continent Lead & Zinc Co., 209 F.2d 917 (10th Cir. 1954) (“Promises of Performance Without a Time Limit,” interpreting a joint adventure contract between two lessees, with no provision as to termination).

In Farber v. Dewey-Davis Estate, Inc., 83 Idaho 394, 364 P.2d 173 (1961), an option contract for a long term lease of ground on which the lessee intended to erect buildings was not too indefinite for specific enforcement, even though it provided: “A suitable lease agreement of standard provisions acceptable to both parties for bank financing to be drawn upon acceptance of said option.”

Mich.

—Starr v. Holck, 318 Mich. 452, 28 N.W.2d 289, 172 A.L.R. 413 (1947).

Cf:

N.Y.

—58–59 Realty Corp. v. Park Cent. Valet, 252 A.D. 72, 297 N.Y.S. 40 (1937).

19 Henry v. Pittsburgh & Lake Erie Railroad Co., 139 Pa. 289, 297, 21 A. 157, 157 (1891). The rule set forth in Henry is still generally the law in Pennsylvania, and elsewhere, but there are important modern exceptions. For instance, in Pennsylvania: “[T]he presumption of all non-contractual employment relations is that it is at-will and that this presumption is an extremely strong one. An employee will be entitled to bring a cause of action for a termination of that relationship only in the most limited of circumstances where the termination implicates a clear mandate of public policy in this Commonwealth.” McLaughlin v. Gastrointestinal Specialists, Inc., 561 Pa. 307, 314, 750 A.2d 283, 287 (2000). See Jackson v. Home Team Pest Def., Inc., 2013 U. S. Dist. LEXIS 163269 (M.D. Fla. Sept. 18, 2013) (no unlawful duress in requiring employee to sign arbitration agreement on threat of losing his employment since employment was at-will); Jenkins v. KLT, Inc., 308 F.3d 850 (8th Cir. 2002) (employment contract with no duration is terminable at will); Ford v. Trendwest Resorts, Inc., 146 Wash. 2d 146, 43 P.3d 1223 (2002).

20 This treatise is quoted in Bixby v. Wilson & Co., 196 F. Supp. 889, 898 (N. D. Iowa 1961). A promise of “permanent employment” was held, under Iowa law, to be too indefinite for enforcement, under conditions of considerable hardship.

Morsinkhoff v. DeLuxe Laundry & Dry Cleaning Co., 344 S.W.2d 639 (Mo. App. 1961) (oral agreement of employment at a stated salary, to begin June 6, for an indefinite period, terminable at will; employer not liable in damages for repudiating prior to June 6, even though employee gave up his former job in reliance). Compare Reust v. Alaska Petroleum Contrs., Inc., 127 P.3d 807 (Alas. 2005), also raising the question of whether an employment that is terminable-at-will is a contract if the employee never commences performance. The defendant offered the plaintiff employment as a project manager and provided an employment packet for him to complete. The plaintiff returned the completed packet the following day and the defendant instructed him to report to the field the next morning to assume his duties. That evening, however, the defendant informed the plaintiff that he was “let go” because he had testified adversely to the defendant in litigation several years earlier. The plaintiff brought this action for wrongful termination. The court concluded that the parties had made a bilateral contract through their exchange of promises manifesting consideration. The defendant conceded that, under its argument, a wrongfully terminated employee fired one minute after commencing performance for reasons against public policy would have a claim, while the same employee fired one minute before performance was to commence would have no claim. The court found no value in this distinction. The court held that, while the defendant was free to withdraw its at-will employment offer for a legitimate reason, the defendant could not rely on the plaintiff’s failure to perform as a shield against liability when the non-performance was caused by the defendant’s own illegal conduct.

The question whether an employment agreement terminable-at-will constitutes a contract has arisen in other contexts. For example, in Spriggs v. Diamond Auto Glass, 165 F. 3d 1015 (4th Cir. 1999), the issue was whether a terminable-at-will employment agreement constituted a contract to qualify for inclusion under 42 U. S. C. § 1981 that guarantees to all persons the same right to make and enforce contracts as is enjoyed by white citizens. Whether a contract had been made was determinable as a matter of state law. The court stated that the lack of an agreed-upon duration does not invalidate the underlying contract and, under Maryland law, terminable-at-will employment agreements are contracts. While the court arrived at that conclusion in the principal case, its suggestion that the defendant was free to withdraw its “at-will employment offer” for a legitimate reason suggests a confused analysis. The offer of employment had been accepted forming a contract which included mutual powers of termination since the contract was at-will. A more precise analysis suggests that an executory at-will employment contract created by an exchange of promises may be terminated by either party at any time, even before performance begins, for a reason that does not offend public policy.

Goldstein v. Unilever, 2004 Conn. Super. LEXIS 1126 (Conn. Super. Ct. May 3, 2004). When the plaintiff received a written offer of employment from the defendant, the plaintiff ended her previous employment. When she reported for her first day of work, the plaintiff was informed that the defendant was rescinding its offer on the ground that the plaintiff was not qualified to perform the work. Since the offer was for an indefinite term, the trial court found and the appellate court agreed that it was an offer of employment terminable-at-will. Inter alia, the plaintiff claimed that the defendant’s breach of promise was actionable under the doctrine of promissory estoppel. The court recognized the probability that a majority of jurisdictions would conclude that a cause of action does not exist where a prospective at-will employee is terminated before commencing work. Similarly, reliance on a promise of at-will employment is typically viewed as unreasonable as a matter of law since such a promise creates no enforceable right. Since such an employee terminated shortly after commencing work has no cause of action, to recognize a cause of action in an employee who never commences work would place such an employee in a better position than the employee who actually worked. The instant court, however, focused on the damages sustained by an employee because of the employer’s broken promise to hire her. Where a terminable-at-will employee commences work and is then terminated, the employer has not broken any promise. Where promised employment to such a worker is denied, however, the employer has broken a promise.

As to what is necessary to rebut the at-will presumption, in Degen v. Investors Diversified Services, Inc., 260 Minn. 424, 110 N.W.2d 863 (1961), defendant’s encouraging assurances “fall far short of establishing a lifetime contract.” In Shapiro v. Massengill, 105 Md. App. 743, 661 A.2d 202 (1995), an employment contract which anticipated the “term of employment to go for at least one year” if “both [parties] continue working” as expected did not create a fixed term of employment.

Ala.

—Dalton v. University of Alabama, 591 So. 2d 93 (Ala. Civ. App. 1991).

Colo.

—Dorman v. Petrol Aspen, Inc., 914 P.2d 909 (Colo. 1996) (en banc). A letter from an employer to a person employed as the general manager of a gas station did not identify a term of employment, but contained provisions relating to stock options, a schedule of salaries applicable to various time periods during which the employee might be working, and references to the employee’s “long-term status” as an employee of the employer. These provisions were sufficiently ambiguous to permit the employee to introduce extrinsic evidence concerning whether they expressed an intention to create an employment contract rather than employment at will. A dissenting judge viewed the letter as unambiguously contemplating and creating an employment at will.

Mont.

—Basta v. Crago, Inc., 280 Mont. 408, 930 P.2d 78 (1996) (memorandum referring to so much for the first year and so much for the second year did not create contract for a specified term).

N.Y.

—Martin v. New York Life Ins. Co., 148 N.Y. 117, 42 N.E. 416 (1895).

Gabriel v. Therapists Unlimited, L.P., 218 A.D.2d 614, 631 N.Y.S.2d 34 (1st Dep’t 1995). A Master of Arts degree holder sued a placement service for therapists for breach of a written offer of employment. A written offer from the defendant was made to the plaintiff in the form of a memorandum on its business letterhead, entitled “Employment Offer,” detailing the position, hours, salary, and benefits and lacking the slightest indication that the defendant was acting as an employment agency for a third party. The court held that a reference to a “Clinical Fellowship Year” permitted the introduction of parol evidence to define the program’s minimum term at nine months, in satisfaction of the State license requirements. The court went so far as to decline to follow the Fourth Department’s ruling in Matter of Tyson v. Hess, 109 A.D.2d 1068, 487 N.Y.S.2d 206 (4th Dep’t 1985), aff’d, 66 N.Y.2d 943, 498 N.Y.S.2d 778, 489 N.E.2d 747, in which the term of employment “for the 1983–1984 academic year” was held as too vague for enforcement. Conversely, the dissent urged that the plaintiff was aware of the defendant’s status as a referral agency, unconnected to the entities with which the plaintiff would have had to interview and be accepted as an employee. Moreover, the dissent states that the alleged contract’s reference to a “Clinical Fellowship Year” or a fixed annual salary of $43,600 does not set forth a fixed duration resulting in employment at will, but rather refers to the position or requirement that the plaintiff needs to fulfill prior to being awarded a license.

22 “[A] review of other jurisdictions shows that the employment-at-will doctrine has been adopted in nearly all American jurisdictions.” Canton v. V.I. Humanities Council, 2017 V.I. LEXIS 116, *15 (V.I. Super. July 26, 2017).

While employment agreements that are terminable at will are not executory contracts, even agreements that are terminable at will may indeed contain executory elements. Copeco, Inc. v. Caley, 91 Ohio App. 3d 474, 632 N.E.2d 1299 (1992): A restrictive covenant may be enforceable even though it is executed in the midst of an at-will employment relationship. “As a practical matter,” wrote the court, “every day is a new day for both employer and employee in an at-will relationship.” No additional consideration need be exchanged.

Pennsylvania, for one, requires new consideration for a restrictive covenant entered into after the commencement of the at-will employment relationship: “[A]n agreement containing a non-compete clause will be upheld, if, among other considerations, it is supported by adequate consideration. In the context of requiring an employee to agree to a restrictive covenant mid-employment, however, such a restraint on trade will be enforceable only if new and valuable consideration, beyond mere continued employment, is provided and is sufficient to support the restrictive clause.” Socko v. Mid-Atlantic Sys. of CPA, Inc., 633 Pa. 555, 571, 126 A.3d 1266, 1275–1276 (2015).

As for the formation of a unilateral contract, see Kaplan v. Aspen Knolls Corp., 290 F. Supp. 2d 335 (E.D.N.Y. 2003). The plaintiff, a former at-will employee of the defendant real estate development company, initiated suit for breach of an oral contract under which the defendant had promised to pay the plaintiff a $2,000 bonus for every house sold in a development after the sale of the 334th house. The court rejected the defendant’s argument that the plaintiff was unable to establish consideration for the promise of the bonuses. Citing § 4.2 of this treatise, the court held that performance rendered by an at-will employee in response to an offer before any notice of revocation creates a unilateral contract binding the employer to perform the promise. The employee’s continued service following the oral promise constituted the consideration to support the employer’s promise to pay an at-will employee bonuses based on the sale of houses beyond the 334th house. See also Levy v. Lucent Techs., Inc., 2003 U.S. Dist. LEXIS 414 (S.D.N.Y. Jan. 13, 2003) (an agreement for at-will employment is not enforceable when made, but the employee’s performance creates a unilateral contract requiring the employer to perform all promises).

Lamplugh v. PFB Energy, 2020 U.S. Dist. LEXIS 13758 (D. Del. Jan. 28, 2020). Plaintiff claims he accepted an offer of employment with defendant on January 13, 2016, was scheduled to start work on February 16, 2016, but on February 10, 2016, was unjustly informed by defendant that it was rescinding the offer of employment based on information allegedly brought to its attention. Plaintiff filed suit alleging, inter alia, breach of contract, and defendant moved to dismiss. The court noted that there is a “heavy presumption” that employment is at-will, unless otherwise expressly stated. An at-will employee can be dismissed at any time without cause. The court explained: “The majority of courts have held that when a proposed employment is at-will, an employer is not liable to a prospective employee for breach of contract if the job offer is withdrawn before the employment began.” The court noted that, as pleaded, it could not discern the nature of plaintiff’s employment. But because plaintiff was proceeding pro se, rather than strictly apply the aforementioned “heavy presumption,” the court dismissed the contract claim but allowed plaintiff leave to file an amended complaint, if appropriate, to plead that his employment was not at-will.

23 See Bernard v. IMI Sys., 131 N.J. 91, 618 A.2d 338 (1993). In many cases, a contract for “permanent” employment has been held, in the absence of other expressions showing that the intention was for “life” or for the duration of a business, to be terminable at will:

Cal.

—Siddoway v. Bank of America, 748 F. Supp. 1456 (N.D. Cal. 1990) (employment described in writing as permanent, but providing for dismissal without cause on two weeks’ notice); Lord v. Goldberg, 81 Cal. 596, 22 P. 1126 (1889).

Ga.

—Bentley v. Smith, 3 Ga. App. 242, 59 S.E. 720 (1907).

Iowa

—Faulkner v. Des Moines Drug Co., 117 Iowa 120, 90 N.W. 585 (1902).

Mass.

—Phelps v. Shawprint, Inc., 328 Mass. 352, 103 N.E.2d 687 (1952) (for services performed, promise to pay $100 per month as long as promisor should be connected with a corporation).

Minn.

—Skagerberg v. Blandin Paper Co., 197 Minn. 291, 266 N.W. 872 (1936); Bolles v. Sachs, 37 Minn. 315, 33 N.W. 862 (1887).

Miss.

—Rape v. Mobile & O.R. Co., 136 Miss. 38, 100 So. 585, 35 A.L.R. 1422 (1924) (“steady and permanent” employment held too indefinite, but there was strong dissent).

Mo.

—Minter v. Tootle-Campbell Dry Goods Co., 187 Mo. App. 16, 173 S.W. 4 (1914).

N.Y.

—Arentz v. Morse Dry Dock & Repair Co., 249 N.Y. 439, 164 N.E. 342 (1928).

N.C.

—Roberts v. Wake Forest Univ., 55 N.C. App. 430, 286 S.E.2d 120 (1982), review denied, 305 N.C. 586, 292 S.E.2d 571 (1982).

Pa.

—Hogle v. De Long Hook & Eye Co., 248 Pa. 471, 94 A. 190 (1915).

Eng.

—Elderton v. Emmens, 4 C.B. 479 (1847).

Atlas Brewing Co. v. Huffman, 217 Iowa 1217, 252 N.W. 133 (1933) (held that an agency contract on commission basis was not too indefinite for enforcement merely because it was terminable on reasonable notice).

Crossland v. Kentucky Blue Grass Seed Growers’ Co-op Ass’n, 103 F.2d 565 (6th Cir.1939) is another instructive case, the contract being held valid even though it was for indefinite part-time service the duration of which was not specified.

An agreement between two insurance agents that each would continue to solicit a specific prospect, and to divide the commission on any policy that either one might procure, is not invalid merely because no time limit is specified. The two will be bound for a reasonable time, which will not be less than their own subsequent conduct shows that they contemplated. Albright v. Hughes, 107 Ind. App. 651, 26 N.E.2d 576 (1940).

Iowa

—Benishek v. Cody, 441 N.W.2d 399 (Iowa App. 1989).

Md.

—Baltimore & O.R. Co. v. King, 168 Md. 142, 176 A. 626 (1935); Heckler v. Baltimore & Ohio R. Co., 167 Md. 226, 173 A. 12 (1934).

Miss.

—Ingram-Day Lumber Co. v. Rodgers, 105 Miss. 244, 62 So. 230 (1913).

N.J.

—Bird v. J.L. Prescott Co., 89 N.J.L. 591, 99 A. 380 (1916) (a life job). An agreement for “permanent” employment was held to be too indefinite in Savarese v. Pyrene Mfg. Co., 9 N.J. 595, 89 A.2d 237 (1952). The contract was held to be terminable at will, with the employer bound to pay the agreed rate for services received. It would have been otherwise if the employer had made the identical promise in exchange for an executed consideration.

Pa.

—Seiss v. McClintic-Marshall Corp., 324 Pa. 201, 188 A. 109 (1936); but see Greene v. Oliver Realty, Inc., 363 Pa. Super. 534, 526 A.2d 1192 (1987) (a “lifetime” case, but the court has a penetrating discussion of “permanent” and “lifetime” employment).

An employment contract that does not state the length of service may be terminable at will, but “implications” arise from special circumstances indicating an agreement for continued performance for a “reasonable time” or for a time to be determined by special circumstances. This problem is considered in § 684, Interpretation of Service Contracts-Term of Service.

Ill.

—Tolmie v. United Parcel Service, Inc., 930 F.2d 579 (7th Cir. 1991). Employee had a secure union job with defendant. When the employer offered him a management position he was assured that he need not worry about job security as “it is harder to fire management than other employees.” This did not amount to a promise of job security. Also, his surrender of his union job was not additional consideration for the promise as it was not bargained for as part of an exchange.

Kan.

—Dickens v. Snodgrass, Dunlap & Co., 255 Kan. 164, 872 P.2d 252 (1994) (continued employment of an at-will employee with pay increases does not create an implied contract of continuing employment over and above written contract).

Md.

—Page v. Carolina Coach Co., 667 F.2d 1156 (4th Cir.1982) (facts almost identical to Tolmie, supra).

Mich.

—Enos v. J.C. Penney Co., 769 F. Supp. 239 (W.D. Mich.1990), aff’d, 940 F.2d 659 (6th Cir.). Plaintiff asked for three successive weeks of vacation. The request was denied and two consecutive weeks were allotted to her. She was warned that if she “did not return to work as scheduled the week of July 16, 1988, without good cause she would be terminated.” This threat did not amount to a promise to retain her as an employee if she could show a medical reason for remaining away from work. See further, Rowe v. Montgomery Ward & Co., 437 Mich. 627, 473 N.W.2d 268 (1991).

Minn.

—Ruud v. Great Plains Supply, Inc., 526 N.W.2d 369 (Minn. 1995). An owner and his vice president told an at-will employee that “Good employees are taken care of” and “You are considered a good employee” in response to questions about what would happen to him if a proposed transfer did not work out. Held: the statements were not sufficiently definite to create an offer of permanent employment. The owner and vice president did not intend to offer permanent employment but were rather making policy statements about the goodwill of the company toward its employees. Also, the statements were vague, leaving the nature of the modification indeterminate.

Nev.

—Turnbull v. Memeo, 2008 U.S. Dist. LEXIS 50873 (D. Nev. July 1, 2008) (“aphoristic statements” of an employer’s current intentions not to fire anyone that are made within the context of rebutting rumors of mass terminations do not constitute promises to modify the at-will presumption).

N.D.

—Aaland v. Lake Region Grain Cooperative, 511 N.W.2d 244 (N.D. 1994) (board resolution permitting employee to remain at his job “until a replacement has been found and he finds another position” construed not as promise for permanent employment but as expression of intention to employ employee “for a reasonable time to allow him to look for a job”).

Wash.

—Siekawitch v. Washington Beef Producers, 58 Wash. App. 454, 793 P.2d 994 (1990). During the initial employment interview, the Chief Executive Officer told the plaintiff, if he did his job he would stay and advance. These words of assurance were held not to be contractual promises. A personnel manual was given a very narrow interpretation. See also Smoot v. Boise Cascade Corp., 942 F.2d 1408 (9th Cir.1991).

U.S.

—Pierce v. Tennessee Coal, Iron & R. Co., 173 U.S. 1, 19 S. Ct. 335, 43 L. Ed. 591 (1899).

Ala.

—United Sec. Life Ins. Co. v. Gregory, 281 Ala. 264, 201 So. 2d 853 (1967).

Ark.

—St. Louis, I.M. & S.R. Co. v. Morgan, 107 Ark. 202, 154 S.W. 518 (1913).

Ill.

—Farr v. Continental White Cap, Inc., 774 F. Supp. 522 (N.D. Ill. 1991) (forgoing other employment opportunities not consideration).

Ind.

—Pennsylvania Co. v. Dolan, 6 Ind. App. 109, 32 N.E. 802 (1892) (discharge of a claim for damages).

Iowa

—Collins v. Parsons College, 203 N.W.2d 594, 60 A.L.R.3d 218 (Iowa 1973).

Ky.

—Louisville & N.R. Co. v. Cox, 145 Ky. 667, 141 S.W. 389 (1911) (release of claim for injuries).

Mass.

—Carnig v. Carr, 167 Mass. 544, 46 N.E. 117 (1897) (promisee discontinued former business).

In Boothby v. Texon, Inc., 414 Mass. 468, 608 N.E.2d 1028 (1993), the Supreme Judicial Court of Massachusetts applied its 1897 holding in Carnig v. Carr to a situation in which an employee was recruited away from a job he had held for 30 years and given numerous assurances that his new job would be for “permanent employment.” The court stated that what the parties mean when using the term “permanent employment” depends on the specific circumstances. It distinguished between permanent in the sense of “not temporary” and permanent in the sense of “lifetime.” The court concluded that the jury’s finding that the employee had been offered an express contract for permanent employment in the lifetime sense was supported by the evidence, which included fact that employee increased his tax burden to take the job, relocated his family to Massachusetts from Thailand and repeatedly communicated his concerns about job security to the employer’s agents, who in turn expressed them to the employer’s board of directors.

Mo.

—Harrington v. Kansas C.C.R. Co., 60 Mo. App. 223 (1895).

N.C.

—Humphrey v. Hill, 55 N.C. App. 359, 285 S.E.2d 293 (1982).

In Fisher v. John L. Roper Lumber Co., 183 N.C. 485, 111 S.E. 857 (1922), a promise to employ plaintiff for life at such service as he should be able to do, paying him “a living wage sufficient for support of himself and family” was held to be legally enforceable. And in Jones v. Carolina Power & Light Co., 206 N.C. 862, 175 S.E. 167 (1934), where the plaintiff was induced to give up a position in order to help the defendant break a strike, in reliance on a promise of employment for at least ten years, the agreement was held not too indefinite for enforcement, even though the exact kind of service and the wages to be paid were not stated.

Pa.

—Cashdollar v. Mercy Hospital of Pittsburgh, 406 Pa. Super. 606, 595 A.2d 70 (1991) (implied promise of performance for a reasonable time, employee gave up secure job, uprooted family); Bergstein v. Jordache Enterprises, Inc., 767 F. Supp. 535 (S.D.N.Y. 1991) (sales representative invested $200,000 of his own money to increase his customer base).

W.Va.

—Rhoades v. Chesapeake & O. R. Co., 49 W.Va. 494, 39 S.E. 209 (1901) (“so long as I give satisfaction.”).

The promise was held sufficiently definite in F.S. Royster Guano Co. v. Hall, 68 F.2d 533 (4th Cir. 1934). The court said: “And, upon the principle id certum est quod certum reddi potest, the promise of employment for life was sufficiently definite, as was also the promise of top wages for common labor. The fair meaning of the promise was that defendant would furnish plaintiff employment so long as he might live at the highest rate of wages which it paid for common labor, with the implied provisos that he perform the work assigned him satisfactorily and that defendant continue in business.”

Wyo.

—Wilder v. Cody Country Chamber of Commerce, 868 P.2d 211 (Wyo. 1994) (“a claim by an employee that the employer promised ‘permanent’ employment does not alter the at will presumption without additional consideration supplied by the employee or explicit language in the contract of employment stating that termination may only be for cause”).

There was nothing indefinite or uncertain where an engineer retired at the age of 67 and was promised the sum of $125 per month “for life,” in return for which he promised to hold himself ready to serve as consulting engineer when requested, being free to engage in other employment not inconsistent with so serving. The period “for life” was definite, the amount payable was specified. The promise to serve as “consulting engineer” as requested was not made insufficient as a consideration by the fact that the employer had the option of requesting or not as he saw fit. Abbott v. Arkansas Utilities Co., 165 F.2d 339 (8th Cir. 1948). Other cases “for life” are Eggers v. Armour & Co., 129 F.2d 729 (8th Cir. 1942) and Gerard B. Lambert Co. v. Fleming, 169 Ark. 532, 275 S.W. 912 (1925).

In Ireland v. Charlesworth, 98 N.W.2d 224 (N.D. 1959), at the request of a majority stockholder and in reliance on her promise of a stock option, an air force officer resigned his position and entered into the employ of a Lumber Company. He made no promise to remain in such employ, but his right to the option was conditional on his remaining and qualifying himself for the position of general manager. This was held to be sufficiently definite for enforcement, so that he had a right to damages for being discharged, thus making it impossible for him to fulfill the condition.

27 Buschmeyer v. Advance Machinery Co., 27 Ohio C.A. 337, 7 Ohio App. 202, 27 Ohio C.C. (n.s.) 337, 29 Ohio Cir. Dec. 207 (1916), motion overruled, held that a promise of permanent employment at a stated salary, the employee buying shares in the company and changing his home, was not too indefinite for enforcement by compelling restitution of the price of the shares when discharged before a reasonable time has expired.

28 Martin v. Federal Life Ins. Co., 109 Ill. App. 3d 596, 65 Ill. Dec. 143, 440 N.E.2d 998 (1982).

29 Although “lifetime” is a definite enough term, promises of lifetime employment are sometimes fatally vague as to other terms. For example, a founding member of a corporation alleges he was promised he “would be employed by the corporation as long as the corporation was viable … .” In exchange he transferred the rights to an important and valuable software system he had created. The court finds the employment agreement to be indefinite because neither duties nor wages were discussed or agreed upon. Yost v. Early, 87 Md.App. 364, 589 A.2d 1291 (1991), cert. denied, 324 Md. 123, 596 A.2d 628. See also Alter v. Resorts International, Inc., 234 N.J. Super. 409, 560 A.2d 1290 (1989). Other reasons for non-enforcement include the absence of consideration, as where the employee never expressly or impliedly promises to remain in the promisor’s employ (Savarese v. Pyrene Manufacturing Co., 9 N.J. 595, 89 A.2d 237 (1952)), and lack of authority of the promisor to bind the employer to such an unusual contract (Alter v. Resorts International, Inc., supra). A statement by a former supervisor, “You do us a good job, do your work, and we’ll see that you are employed by Middletown Hospital as long as you do your work,” did not create a contract for lifetime employment. Moore v. Middletown Reg. Hosp., 1987 Ohio App. LEXIS 7638 (Ohio App. June 22, 1987). See also Boggs v. Avon Products, Inc., 56 Ohio App. 3d 67, 564 N.E.2d 1128 (1990).

D.C. & Va.

—Choate v. TRW, Inc., 14 F.3d 74 (D.C. Cir. 1994) (applying principles of at-will employment applicable under Virginia and District of Columbia law) (employee must present evidence of a “clearly expressed” contractual intent to overcome presumption of at-will employment, and letter reciting understanding that employment would be on a “long term basis” is insufficient since it is clearly consistent with the underlying principle of at-will employment).

Mich.

—Barber v. SMH (US), Inc., 202 Mich. App. 366, 509 N.W.2d 791 (1993) (sales representative did not rebut presumption of employment at will in asserting that he was promised employment “as long as he was profitable and doing the job” because he did not “assert that the promise was made in response to his articulated concerns that he be terminated for just cause only” and because court was “unable to determine the substance of the negotiations or the context in which the alleged promise was made”).

N.Y.

—Rooney v. Tyson, 91 N.Y.2d 685, 674 N.Y.S.2d 616, 697 N.E.2d 571 (1998) (citing this § 4.2, 1993 ed.).

Pa.

—Dugan v. Bell Telephone of Pennsylvania, 876 F. Supp. 713 (W.D. Pa. 1994) (applying Pennsylvania law, employer’s promise not to retaliate against employees, as well as policy against retaliatory discharge, held not to result in implied-in-fact contract).

30 “Forever,” is definite enough, but is generally held to be within the statute of frauds. Roberts v. Southern Wood Piedmont Co., 571 F.2d 276 (1978) (contract to supply crossties).

31 See Am. Lecithin Co. v. Rebmann, 2017 U.S. Dist. LEXIS 162037 (S.D.N.Y. Sept. 30, 2017); Roberts v. Southern Wood Piedmont Co., 571 F.2d 276 (5th Cir. 1978); Arentz v. Morse Dry Dock & Repair Co., 249 N.Y. 439, 164 N.E. 342 (1928); Greene v. Oliver Realty, Inc., 363 Pa. Super. 534, 526 A.2d 1192 (1987), appeal denied, 517 Pa. 607, 536 A.2d 1331; Minter v. Tootle-Campbell D.G. Co., 187 Mo. App. 16, 173 S.W. 4 (1915). But see Murphy v. Publicker Industries, Inc., 357 Pa. Super. 409, 516 A.2d 47 (1986), holding that, as a matter of law, “lifetime” is an indefinite period.

In Thompson v. Miller, 251 Iowa 324, 100 N.W.2d 410 (1960), a distributorship contract, partly written and partly oral, contained neither “permanent” nor “for life”; but the court held that there was evidence sufficient to go to the jury supporting the plaintiff’s contention that it was “for life.”

In Rancourt v. Waterville Osteopathic Hospital, 526 A.2d 1385 (Me. 1987), plaintiff’s supervisor allegedly promised her she could have her job for “as long as she wanted.” There was no evidence that the supervisor had authority to contract, therefore summary judgment against plaintiff was proper.

32 E.g., Kouff v. Bethlehem-Alameda Shipyard, Inc., 90 Cal. App. 2d 322, 202 P.2d 1059 (1949) (statute prohibiting discharge for serving as an election officer).

Colo.

—Sidlo v. MillerCoors, LLC, 2018 U.S. App. LEXIS 5712 (10th Cir. Mar. 7, 2018).

Ind.

—Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425, 63 A.L.R.3d 973 (1973).

Ill.

—Weller v. Paramedic Servs. of Ill., Inc., 2018 U.S. Dist. LEXIS 41684 (N.D. Ill. Mar. 14, 2018); Kelsay v. Motorola, Inc., 74 Ill. 2d 172, 23 Ill. Dec. 559, 384 N.E.2d 353 (1978).

Iowa

—Hagen v. Siouxland Obstetrics & Gynecology, P.C., 964 F. Supp. 2d 951 (N.D. Iowa 2013).

Nev.

—Miller v. United States, 2018 U.S. Dist. LEXIS 42645 (D. Nev. Mar. 15, 2018).

N.J.

—Cerracchio v. Alden Leeds, Inc., 223 N.J. Super. 435, 538 A.2d 1292, 75 A.L.R.4th 1 (1988).

S.D.

—Niesent v. Homestake Mining Co., 505 N.W.2d 781 (S.D. 1993) (“this court now joins the majority of jurisdictions in holding that the public policy exception to the at-will doctrine includes a cause of action for wrongful discharge if dismissal is in retaliation for filing a worker’s compensation claim; a concurring judge canvassed state law on this subject throughout the United States, noting the widespread legislative expression of public policy on which the majority opinion rested”).

W.Va.

—Herbert J. Thomas Mem. Hosp. Ass’n v. Nutter, 238 W. Va. 375, 795 S.E.2d 530 (2016); Shanholtz v. Monongahela Power Co., 165 W.Va. 305, 270 S.E.2d 178 (1980).

Wash.

—Danny v. Laidlaw Transit Servs., Inc., 165 Wn. 2d 200, 193 P.3d 128 (2008).

34 This is sometimes accomplished by characterizing the discharge as a breach of the covenant of good faith and fair dealing. Ray v. Nampa School Dist. # 131, 120 Idaho 117, 814 P.2d 17 (1991).

The scope of the covenant of good faith and fair dealing in the context of employment at will was held to be quite narrow in E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436 (Del. 1996) (termination in response to an employee’s questioning the propriety of the business practices of his supervisors did not constitute violation of the covenant of good faith in the context of an at-will employment relationship). It has also been rejected outright as a basis for limiting the right of employers to terminate at-will employees. Brehany v. Nordstrom, Inc., 812 P.2d 49 (Utah 1991).

In O’Tool v. Genmar Holdings, Inc., 387 F.3d 1188 (10th Cir. 2004), the court recognized that many courts do not imply the covenant of good faith in a terminable-at-will employment contract. While Delaware does imply it in such contracts, it does so narrowly requiring an allegation and proof of fraud, deceit or misrepresentation.

35 Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549, 62 A.L.R.3d 264 (1974).

36 The vast majority of jurisdictions recognize a public policy exception. Ramos v. Docomo Pac., Inc., 2012 Guam 20 (2012). Some jurisdictions allow employees under contract to assert the public policy exception. Byrd v. VOCA Corp., 2011 D.C. Super. LEXIS 8 (Oct. 6, 2011).

Palmateer v. International Harvester Co., 85 Ill. 2d 124, 52 Ill. Dec. 13, 421 N.E.2d 876 (1981), appeal after remand, 140 Ill. App. 3d 857, 95 Ill. Dec. 253, 489 N.E.2d 474: Employee was discharged for providing authorities with information concerning criminal conduct of a fellow employee. The court explains the public policy exception in this context as follows: “Although there is no precise line of demarcation dividing matters that are the subject of public policies from matters purely personal, a survey of cases in other States involving retaliatory discharges shows that a matter must strike at the heart of a citizen’s social rights, duties and responsibilities before the tort will be allowed. Thus, actions for retaliatory discharge have been allowed where the employee was fired for refusing to violate a statute. Examples are: for refusing to commit perjury … for refusing to engage in price fixing … for refusing to violate a consumer credit code … for refusing to practice medicine without a license … . It has also been allowed where the employee was fired for refusing to evade jury duty … for engaging in statutorily protected union activities. and for filing worker’s compensation statute … . The action has not been allowed where the worker was discharged in a dispute over a company’s internal management system … where the worker took too much sick leave … where the worker tried to examine the company’s books in the capacity of a shareholder … where the worker impugned the company’s integrity … where the worker refused to be examined by a psychological-stress evaluator … where the worker was attending night school … or where the worker improperly used the employer’s Christmas fund. The cause of action is allowed where the public policy is clear, but is denied where it is equally clear that only private interests are at stake. Where the nature of the interest at stake is muddled, the courts have given conflicting answers as to whether the protection of the tort action is available.”

Ark.

—City of Green Forest v. Morse, 316 Ark. 540, 873 S.W.2d 155 (1994) (police officer who drove police car at high speeds in contravention of departmental policy and endangered lives of other in order to immediately arrest a misdemeanant was not discharged for complying with a statutory duty or in violation of a substantial and well-established public policy).

Colo.

—Martin Marietta Corp. v. Lorenz, 823 P.2d 100 (Colo. 1992) (as modified on denial of rehearing).

Mo.

—May v. Pratt Indus., Inc., 2008 U.S. Dist. LEXIS 31256 (E.D. Mo. Apr. 16, 2008).

N.J.

—Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 417 A.2d 505, 12 A.L.R.4th 520 (1980) (recognizes the rule but finds no violation); Cerracchio v. Alden Leeds, Ltd., 223 N.J. Super. 435, 538 A.2d 1292, 75 A.L.R.4th 1 (1988) (retaliation for filing a worker’s compensation claim and reporting safety conditions to OSHA).

N.Mex.

—Sanchez v. The New Mexican, 106 N.M. 76, 738 P.2d 1321 (1987).

N.D.

—Ressler v. Humane Soc. of Grand Forks, 480 N.W.2d 429 (N.D. 1992).

Okla.

—Smith v. Farmers Co-op. Assoc., 1992 OK 11, 825 P.2d 1323 (Okla. App. 1992). Employee of the co-op was also acting mayor. In the latter capacity he denied a zoning variance to a director of the co-op, for which act he was fired; Gilmore v. Enogex, Inc., 878 P.2d 360 (Okla. 1994) (not against public policy to dismiss an at-will employee for refusing to submit to a random drug test).

Pa.

—Bergstein v. Jordache Enterprises, Inc., 767 F. Supp. 535 (S.D.N.Y. 1991); Smith v. Calgon Carbon Corp., 917 F.2d 1338 (3d Cir. 1990), cert. denied, 111 S. Ct. 1597, reh’g denied, 111 S. Ct. 2843.

Tex.

—Winters v. Houston Chronicle Pub. Co., 795 S.W.2d 723 (1990). Public policy exception is limited to discharge for refusal to engage in criminal activity or where discharge is prohibited by a statute. Discharges for “whistle-blowing” are not actionable.

Utah

—Fox v. MCI Communs. Corp., 931 P.2d 857 (Utah 1997) (answering “No” to the following certified question from a federal district court: “Does the termination of a private sector employee in retaliation for the good faith reporting to company management of the alleged violation by one or more co-workers [of state law prohibiting fraud or embezzlement, including computer-assisted fraud] implicate a ‘clear and substantial public policy’ of the State of Utah”).

Wis.

—Reilly v. Waukesha County, 193 Wis. 2d 527, 535 N.W.2d 51 (Wis. App. 1995). An at-will employee was fired from a county child-care facility for “insubordination,” when she refused to follow her employer’s unlawful order. She was instructed to violate a regulation of the Wis. Adm. Code which prohibits staff from watching juveniles in both secured and non-secure living units at the same time. The employee asked for written confirmation of the direction and a “statement indemnifying her from any liability created by the County’s violation of the State mandated staffing requirements.” The employer refused this request. The employee alleged that this discharge was in violation of public policy. The circuit court granted defendant’s motion for summary judgement. On appeal, the court held that this case did not fall into the public policy exception because the employee’s refusal jeopardized significant lawful interests of either the employer or the public. It is easy to agree with the dissent, who argued that the employee should be entitled to submit to a jury the factual question of whether the rule she refused to violate was “a fundamental and well defined public policy, she must merely prove that the discharge violated that policy.”

Larson v. City of Tomah, 193 Wis. 2d 225, 532 N.W.2d 726 (1995). A police officer cannot state a cause of action for wrongful discipline by invoking the public policy exception to the employment at-will doctrine where the legislature had already created a statutory mechanism to handle wrongful disciplining of officers. The court noted that police officers may only be discharged for cause under that statute and are not employees at-will so the exception is simply not relevant.

37 Littleton v. Maryland, 2018 U.S. Dist. LEXIS 33231 (D. Md. Mar. 1, 2018); Murphy-Taylor v. Hofmann, 968 F. Supp. 2d 693 (D. Md. 2013).

38 Cmty. Care Ctr. of Aberdeen v. Barrentine, 160 So. 3d 216 (Miss. 2015); Palmateer v. International Harvester Co., 85 Ill. 2d 124, 52 Ill. Dec. 13, 421 N.E.2d 876 (1981), appeal after remand, 140 Ill. App. 3d 857, 95 Ill. Dec. 253, 489 N.E.2d 474.

N.C.

—Broussard v. Local Book Publ’g, Inc., 2017 U.S. Dist. LEXIS 163445 (E.D. N.C. Oct. 3, 2017) (contract for definite term removes at-will presumption).

Pa.

—Carlson v. Arnot-Ogden Memorial Hospital, 918 F.2d 411 (3d Cir. 1990) (a contract providing for termination on 90 days notice is a contract for 90 days of employment).

S.D.

—Larson v. Kreiser’s, Inc., 472 N.W.2d 761 (S.D. 1991). Harold repeatedly promised David that one day he would be the president of the family business in which he was employed. Twenty years after his employment started, he was fired. The court held that under such a contract David could only be discharged for good cause.

Tex.

—Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654 (Tex. App. 1992). An agreement contained the following termination clause: “If the president of Zep, in his sole discretion, determines that Employee’s performance of duties hereunder is unsatisfactory, Employee’s services may be terminated … .” This is not a hiring at will. The president must use a good faith and honest discretion.

40 See, e.g., Bahr v. Tech. Consumer Prods., 601 Fed. App’x 359 (6th Cir. 2015).

[C]ourts have been very liberal in their findings of acceptance of offers contained in handbooks. Courts have been willing to assume acceptance by employees who did not read the promissory language, and have assumed reliance by employees who may never have even received the handbook itself. The result of these decisions, in their respective jurisdictions, has been to turn the existence of an employment contract into the default assumption in cases interpreting handbooks that contain discipline and discharge procedures. It is important to remember, however, that not all jurisdictions have taken these approaches. Most jurisdictions recognize employee handbooks as binding under at least some circumstances, but courts have differed radically in their particular requirements and interpretations.

While it is true that not all courts have been solicitous of employees in their decisions regarding implied employment contracts, the cases that have emerged as landmarks in this evolving field “share a penchant for protecting long-term employees despite a lack of clear doctrinal reasoning.” In the employee handbook cases, courts seem to have extended this protective penchant beyond the interests of long-term employees to cover all workers governed by handbooks. One can understand these decisions as forcing those employers who wish to benefit from the use of employee manuals to also share with their employees vital information about the realities of termination in an at-will world.

Rachel Leiser Levy, Judicial Interpretation of Employee Handbooks: The Creation of a Common Law Information-Eliciting Penalty Default Rule, 72 U. Chi. L. Rev. 695, 718 (2005).

In Hany v. General Electric Co., 221 Ill. App. 3d 390, 163 Ill. Dec. 790, 581 N.E.2d 1213 (1991), appeal denied, 143 Ill. 2d 638, 167 Ill. Dec. 400, 587 N.E.2d 1015 (1992), it was held that an offer of overtime pay was revocable, but note, such an offer looks to a series of unilateral contracts, not a single contract.

In Pennsylvania, such documents will not alter the at-will presumption unless they reasonably manifest an intent to do so. “A reasonable employee may be presumed to regard such handbooks as having legally binding contractual significance when the handbook, or oral representations about the handbook, in some way clearly state that it is to have such effect. Absent such an indication by the employer, the form of which can only be determined on a case-by-case basis, the at-will employee cannot reasonably be said to believe that his at-will status has been legally changed by the handbook.” Martin v. Capital Cities Media, Inc., Martin v. Capital Cities Media, Inc., 354 Pa. Super. 199, 222, 511 A.2d 830, 841–842 (1986). See Braun v. Wal-Mart Stores, Inc., 24 A.3d 875, 2011 PA Super 121 (June 10, 2011).

Some courts have strained to fit employment manuals within the traditional mold of an offer by stretching the factual context in which the employee asserted his claim. In Burnside v. Simpson Paper Co., 123 Wash. 2d 93, 864 P.2d 937 (1994), for example, the court held that an employment manual entitled the “Management Guide to Simpson Paper Company” could apply to a non-manager, the court reaching this conclusion by emphasizing that whether an employment policy manual issued by an employer contains a promise, whether an employee’s reliance thereon was reasonable and whether a promise was breached are all questions of fact. The court also stated that the manual “at least arguably … was binding on [the employee’s] superiors in the company, thus binding the company in its dealing with him.” Together with language in the manual that “suggest[ed] termination will be for cause only, and will occur after warning,” this led the majority to conclude that reasonable minds could differ as to whether there was a promise and whether it was made to the employee. A judge concurring on other grounds would have rejected this contract claim because, among other reasons, the manual was distributed only to management and not to employees generally.

In Frymire v. Ampex Corp., 61 F.3d 757 (10th Cir. 1995), policies that were disclosed in a supervisor’s manual were held to constitute a binding contract on the employer. Here, the employer had sent to the employees a memorandum stating the termination as exactly put forth in the manual. As proof of the acceptance of the policy, the court found that their continued employment could reasonably have been motivated by the offer.

Often, these documents will make clear that they do not disturb the at-will presumption, and courts respect such express statements. Of course, sometimes courts hold these documents are not contractual because they are nothing more than “ ‘aspirational statement[s]’ or vague expressions of company policy … with no intent that they be given contractual significance. See Martin v. Capital Cities Media, Inc., 354 Pa. Super. 199, 511 A.2d 830, 838–39 (Pa. Super. Ct. 1986).” Enslin v. Coca-Cola Co., 2017 U.S. Dist. LEXIS 49920 (E.D. Pa. Mar. 31, 2017).

A handbook can leave the at-will status undisturbed while providing for certain other rights and obligations. See Mills v. United Producers, Inc., 2012 U.S. Dist. LEXIS 38002 (E.D. Mich. Mar. 21, 2012) (whistleblower policy was single exception to at-will presumption).

Roberts v. Mercy Catholic Med. Ctr. & Mercy Health Sys. of Southeastern Pa., 2019 U.S. Dist. LEXIS 68443 (E.D. Pa. 2019) presented another occasion for a court to wade into the contractual significance of employee handbooks. As the court framed the factual background, plaintiff “alleges that when she attempted to return from a period of medical leave taken to undergo treatment for cancer, Defendants refused to reinstate her, despite a guarantee in their 1992 employee handbook.”

The court construed Pennsylvania law, where the law on the contractual significance of employee handbooks has been settled since Judge Cavanaugh’s thoughtful opinion in Martin v. Capital Cities Media, 511 A.2d 830, 839 (Pa. 1986)—a landmark in the employment handbook milieu. In Martin, the Pennsylvania Superior Court discussed decisions suggesting that handbooks had no contractual significance because the language expressly disclaimed their contractual significance. “We believe that the above-stated presumption should be reversed—that the employment should be presumed to be ‘at-will’ unless an intent to alter the at-will relationship is clearly stated in the handbook. Such a holding would be more in keeping with the policy underlying the at-will presumption.” Martin v. Capital Cities Media, Inc., 354 Pa. Super. 199, 220, 511 A.2d 830, 841 (1986). The Martin court spelled out the rule with unusual clarity:

It is for the court to interpret the handbook to discern whether it contains evidence of the employer’s intention to be legally bound and to convert an at-will employee into an employee who cannot be fired without objective just cause. A reasonable employee may be presumed to regard such handbooks as having legally binding contractual significance when the handbook, or oral representations about the handbook, in some way clearly state that it is to have such effect. Absent such an indication by the employer, the form of which can only be determined on a case-by-case basis, the at-will employee cannot reasonably be said to believe that his at-will status has been legally changed by the handbook.

Martin v. Capital Cities Media, Inc., 354 Pa. Super. 199, 221–222, 511 A.2d 830, 841–842 (1986).

The instant court did not stray from the test established by Martin. The court began its analysis with the traditional statement affirming that Pennsylvania adheres to the at-will presumption. “To overcome the presumption of at-will employment,” the court explained, “a plaintiff must demonstrate either: (1) an express contract, (2) an implied contract where circumstances around the hiring indicate that the parties did not intend the employment to be ‘at-will,’ or (3) that the employee gave the employer some additional consideration from which the court can infer that the parties intended to overcome the presumption of at-will employment.” At issue here was whether the handbook constitutes an express contract overcoming the at-will presumption. To answer that question, the court repeated the test established by Martin: “In order for an employee handbook to constitute an enforceable contract, ‘it must contain clear indication that the employer intend[ed] to overcome the at-will presumption.’ [Raines v. Haverford College, 849 F. Supp. 1009, 1012 (E.D. Pa. 1994).] There is no such clear indication here.” The absence of a contract was beyond question here: plaintiff signed an acknowledgement when she started her employment expressly disclaiming any contractual significance in the handbook. The actual handbook also disclaimed any contractual significance and expressly reserved the right to alter the handbook. A reasonable employee would understand that when the employer reserves the right to alter the handbook, the employee cannot reasonably regard the handbook as an enforceable contract. The court stated: “Because the express terms of the employee handbook do not contain any indication the employer intended to overcome the presumption of at-will employment, the handbook does not constitute an enforceable contract.” The disclaimers made the court’s job easy here, but it is important to note that under Martin and its progeny, the contractual significance of the handbook did not depend on a disclaimer in the handbook. To have contractual significance under Pennsylvania law, the handbook needed to clearly state that it had such significance, and this handbook contained no such statement. The court granted summary judgment in favor of the defendant on this claim.

See Nicholson v. Sheetz Inc., 2020 U.S. Dist. LEXIS 144843 (W.D. Pa. Aug. 12, 2020). A former Sheetz convenience store employee sued Sheetz for, inter alia, breach of contract following the closure of the store where he worked. He claimed that Sheetz failed to pay him a bonus allegedly promised in its employee handbook. The court dismissed this claim because the plaintiff failed to attach a copy of the handbook and failed even to specify the terms that would entitle him to a bonus. Moreover, the pleading was fatally deficient because plaintiff failed to allege facts “suggesting that the terms of a handbook were intended by Sheetz Inc. to have a binding effect.” (The court’s holding is entirely consistent with settled Pennsylvania law. Employee handbooks are not presumed to have binding contractual significance. Where an employee alleges a contract right based on an employee handbook, it is necessary for the employee show that “either the handbook itself or the employer’s representation of it clearly indicate that the handbook is to have a binding effect.” Imdorf v. Public Sch. Employes’ Retirement Sys., 162 Pa. Commw. 367, 373, 638 A.2d 502, 505 (1994), citing Martin v. Capital Cities Media, 354 Pa. Superior Ct. 199, 511 A.2d 830 (1986)).

Ala.

—Hoffman La-Roche, Inc. v. Campbell, 512 So. 2d 725 (Ala.1987).

Alaska

—Zuelsdorf v. University of Alaska, Fairbanks, 794 P.2d 932 (Alaska 1990), rehearing denied.

Ariz.

—Leikvold v. Valley View Community Hospital, 141 Ariz. 544, 688 P.2d 170 (1984), en banc.

Ark.

—Sexton Law Firm, P.A. v. Milligan, 329 Ark. 285, 948 S.W.2d 388 (1997) (attorney hired as independent contractor received handbook containing language held sufficiently clear to constitute an offer and attorney’s continued performance constituted acceptance and furnished consideration even though he was free to leave).

Colo.

—Tuttle v. ANR Freight System, Inc., 797 P.2d 825 (Colo. App. 1990); Salimi v. Farmers Insurance Group, 684 P.2d 264 (Colo. App. 1984).

Del.

—Crisco v. Board of Ed. of the Indian River School Dist., 1988 Del. Ch. LEXIS 120, *10–12 (Del. Ch. Aug. 29, 1988) (cited in Hitchens v. Yonker, 943 F. Supp. 408 (D. Del. 1996) as providing that an “employee handbook can create contractual rights if: (1) the language is specific enough to constitute an offer, (2) the offer was communicated to the employee by issuance of the handbook or otherwise, and (3) the employee accepted the offer by retaining employment after he has become generally aware of the offer”).

D.C.

—Nickens v. Labor Agency of Metropolitan Washington, 600 A.2d 813 (D.C. App. 1991).

Ga.

—Lane v. K-Mart Corp., 190 Ga. App. 113, 378 S.E.2d 136 (1989) is contra. The rule in Georgia is said to be hard and fast.

Haw.

—Kinoshita v. Canadian Pacific Airlines, 68 Hawaii 594, 724 P.2d 110 (1986).

Idaho

—Ray v. Nampa Sch. Dist. # 131, 120 Idaho 117, 814 P.2d 17 (1991).

Ill.

—Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 106 Ill. Dec. 8, 505 N.E.2d 314 (1987).

Iowa

—Anderson v. Douglas & Lomason Co., 540 N.W.2d 277 (Iowa 1995); Phipps v. IASD Health Services Corp., 558 N.W.2d 198 (Iowa 1997) (treating employee handbooks as creating unilateral contracts if “(1) the handbook is sufficiently definite in its terms to create an offer, (2) the handbook is communicated to and accepted by the employee as to constitute an acceptance; and (3) the employee provides consideration”); Vajda v. Arthur Andersen & Co., 253 Ill. App. 3d 345, 191 Ill. Dec. 965, 624 N.E.2d 1343 (1993) (genuine issues of material fact existed with respect to existence of employment contract based on various alleged oral promises and statements in employee handbook such as employment was “for a time of indefinite duration,” “no one would be discharged except for just cause,” and matters of employment are decided “on the basis of qualifications and merit alone”).

Md.

—Staggs v. Blue Cross of Maryland, Inc., 61 Md. App. 381, 486 A.2d 798 (1985), cert. denied, 303 Md. 295, 493 A.2d 349. In Fournier v. United States Fidelity & Guaranty Co., 82 Md. App. 31, 569 A.2d 1299 (1990), cert. denied, 319 Md. 581, 573 A.2d 1337, no protection was found in the personnel manual which stated, “Dismissals for [causes other than dishonesty, etc.] are resorted to only after efforts to remedy the trouble have failed.” This vague language, together with the fact that the employee’s application stated that either party could terminate on two weeks’ notice, indicated that the employee had no reasonable grounds to understand that job security beyond the two weeks’ notice had been promised.

Mo.

—Johnson v. McDonnell Douglas Corp., 745 S.W.2d 661 (Mo. 1988), en banc. The court in a strong dictum stated that there is no handbook exception to the at-will doctrine in Missouri. The actual holding appears to be that the handbook was informational and could not be construed as making definite promises. Moreover, the handbook stated that its rules were subject to change at any time.

N.J.

—Woolley v. Hoffmann-La Roche, Inc., 99 N.J. 284, 491 A.2d 1257 (1985), modified, 101 N.J. 10, 499 A.2d 515.

In Tripodi v. Johnson & Johnson, 877 F. Supp. 233 (D.N.J. 1995), a former employee brought a wrongful discharge action against his former employer alleging that an employment manual created an enforceable promise not to terminate plaintiff’s employment under certain circumstances. Under New Jersey law, an employment manual, distributed to and relied on by employees, may contractually bind an employer to its terms, if when fairly read, it provides that certain benefits are an incident of the employment. The plaintiff relied on the following provisions of the manual: (1) employees “must have a sense of security” in their jobs; (2) “employees must feel free to make suggestions and complaints;” and (3) “we must provide competent management, and their actions must be just and ethical.” The court held the statements to be too general and thus did not create a contractual obligation.

See also Jackson v. Georgia-Pacific Corp., 296 N.J. Super. 1, 685 A.2d 1329 (1996) (considering the reasonable expectations of the employee as well as the manual’s express provisions and the context of its preparation and distribution, holding that manual did not create implied contract where absolutely nothing in the manual would lead an employee reasonably to believe that he was not an at-will employee, and especially where manual contained disclaimer provision).

N.Mex.

—Sanchez v. The New Mexican, 106 N.M. 76, 738 P.2d 1321 (1987).

N.Y.

—Mycak v. Honeywell, Inc., 953 F.2d 798 (2d Cir. 1992); Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441, 33 A.L.R.4th 110 (1982). In DeSimone v. Skidmore College, 159 A.D.2d 926, 553 N.Y.S.2d 240 (1990), the manual was expressly incorporated into the written contract of employment. It was properly, however, held that there was no breach of any promise in the manual. Cf. Valvo v. Chautauqua Area Girl Scout Council, Inc., 159 A.D.2d 1021, 552 N.Y.S.2d 727 (1990) (manual “does not contain a promise limiting defendant’s unfettered right to discharge … .”). The New York cases indicate that the handbook promise must be express. In addition, there seems to be a suggestion that the elements of promissory estoppel should be present. Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 514 N.Y.S.2d 209, 506 N.E.2d 919 (1987).

N.C.

—Trought v. Richardson, 78 N.C.App. 758, 338 S.E.2d 617 (1986), disc. review denied, 316 N.C. 557, 344 S.E.2d 18, explained in Salt v. Applied Analytical, Inc., 104 N.C.App. 652, 412 S.E.2d 97 (1991), cert. denied, 331 N.C. 119, 415 S.E.2d 200.

N.D.

—Pratt v. Heartview Foundation, 512 N.W.2d 675 (N.D. 1994) (the language “is authorized … to implement a reduction in force policy” is not sufficiently specific or definite to create a contractual obligation requiring defendant to implement a policy before it may terminate employees based on a reduction in force).

Pa.

—In a particularly well-reasoned statement of the law, the court in Braun v. Wal-Mart Stores, Inc., 24 A.3d 875, 941, 2011 PA Super 121 (2011) adopted the analysis of, and quoted Caucci v. Prison Health Servs., Inc., 153 F. Supp. 2d 605, 611 (E.D. Pa. 2001):

An employment handbook is enforceable against an employer if a reasonable person in the employee’s position would interpret its provisions as evidencing the employer’s intent to supplant the at-will rule and be bound legally by its representations in the handbook. The handbook must contain a clear indication that the employer intended to overcome the at-will presumption. The court may not presume that the employer intended to be bound legally by distributing the handbook nor that the employee believed that the handbook was a legally binding instrument. Generally, explicit disclaimers of contract formation in an employee handbook preclude a breach of contract claim.

Notwithstanding this, provisions in a handbook or manual can constitute a unilateral offer of employment which the employee accepts by the continuing performance of his or her duties. A unilateral contract is a contract wherein one party makes a promissory offer which calls for the other party to accept by rendering a performance. In the employment context, the communication to employees of certain rights, policies and procedures may constitute an offer of an employment contract with those terms. The employee signifies acceptance of the terms and conditions by continuing to perform the duties of his or her job; no additional or special consideration is required. Thus, the provisions comprising the unilateral contract may be viewed as a contract incidental or collateral to at-will employment. An employer who offers various rewards to employees who achieve a particular result or work a certain amount of overtime, for example, may be obligated to provide those awards to qualifying employees, although retaining the right to terminate them for any or no reason.

S.C.

—Small v. Springs Industries, Inc., 292 S.C. 481, 357 S.E.2d 452 (1987), appeal after remand, 300 S.C. 481, 388 S.E.2d 808, noted 43 S.Car.L.Rev. 387; Fleming v. Borden, Inc., 316 S.C. 452, 450 S.E.2d 589 (1994) (implied contract of employment created by an employee handbook is a unilateral contract that may be modified by a subsequent employee handbook; to be effective the employee must have reasonable notice of the modification).

Tenn.

—Shelby v. Delta Air Lines, Inc., 842 F. Supp. 999 (M.D. Tenn. 1993). Two employer documents were at issue in Shelby, an employee handbook reciting that the employer may terminate the employment relationship with any individual at any time and for any reason and a memorandum describing an anti-drug-use program and announcing a 90-day amnesty period during which employees with drug problems could volunteer for professional assistance with the understanding that they would be returned to the job following treatment. Holding that the memorandum became part of the employment contract, the court also held that because a reasonable person could not construe the memorandum as creating any fixed term of employment, the at-will employment doctrine applied.

Tex.

—Aiello v. United Air Lines, 818 F.2d 1196 (5th Cir.1987). Cf. Zimmerman v. H.E. Butt Grocery Co., 932 F.2d 469 (5th Cir. 1991).

Wash.

—Thompson v. St. Regis Paper Co., 102 Wash. 2d 219, 685 P.2d 1081 (1984), en banc.

W. Va.

—In Tobin v. Ravenswood Aluminum Corp., 838 F. Supp. 262 (S.D. W. Va. 1993), the court stated that any promises “alleged to alter the presumption of at will employment ‘must be very definite to be enforceable’ ” and that claims of “permanent employment or other substantial employment right[s]” must be established by “clear and convincing” evidence. Applying these standards, the court concluded there were genuine issues of material fact regarding “explicit promises of job security” to employees hired as replacements for striking union workers. The promises included statements such as “the company did not intend to agree with [the union] that replacements would lose their jobs, and that replacements would only be terminated if they quit, retired, or were fired for cause for violating company rules” and communications stating, for example, that the company was “firmly committed to,” would “stand by” and “be loyal” to these “permanent replacement workers.”

U.S.

—Sharpe v. American Tel. & Tel. Co., 66 F.3d 1045 (9th Cir. 1995) (applying Washington law). A disclaimer on the first page of an employee handbook stating that it “is not a contract of employment, and it should not be interpreted to create any expressed or implied contractual rights” effectively disclaimed all guarantees in the handbook as to how the employer would accommodate the employee.

Ariz.

—Thomas v. Garrett Corp., 744 F. Supp. 199 (D. Ariz.1989), aff’d, 904 F.2d 41 (9th Cir.).

Ill.

—Daymon v. Hardin County General Hospital, 210 Ill. App. 3d 927, 155 Ill. Dec. 316, 569 N.E.2d 316 (1991); Habighurst v. Edlong Corp., 209 Ill. App. 3d 426, 154 Ill. Dec. 226, 568 N.E.2d 226 (1991); Kay v. First Continental Trading, Inc., 966 F. Supp. 750 (N.D. Ill. 1997) (applying Illinois law) (refusing to negate employment-at-will basis of relationship, court notes that “the company’s employment handbook—as all such handbooks from informed employers tend to do these days—expressly disclaimed any contractual undertaking of employment”). Boll v. Hyatt Corp., 243 Ill. App. 3d 1005, 184 Ill. Dec. 870, 614 N.E.2d 71 (1993) (“disclaimer included in the manual forecloses any reasonable belief of contract formation”).

D.C.

—Youngblood v. Vistronix, Inc., 2006 U.S. Dist. LEXIS 51460 (D.D.C. July 27, 2006) (The plaintiff’s allegation that an employee handbook implied something beyond a terminable-at-will contract was contradicted by express statements in the handbook that the “guidelines do no constitute a contract or promise,” and “any individual can be terminated at any time, with or without cause and with or without notice.”).

Ind.

—Orr v. Westminster Village North, Inc., 689 N.E.2d 712 (Ind. 1997) (emphasizing that Indiana law still requires “adequate independent consideration” in order for an employee handbook to constitute a valid unilateral contract, the court notes that the handbook in this case would still fail to create such a contract even if consideration had been furnished on the grounds that (a) it contained no clear promise and (b) it contained a disclaimer stating that the manual is not a contract and that its terms can be changed at any time). In McCalment v. Eli Lilly & Co., 860 N. E. 2d 884 (Ct. App. Ind. 2007), both parties to the litigation pointed to Orr v. Westminster Village North, Inc. in support of their respective positions. The instant appellant argued that he Lilly handbook devoted 40 pages to how Lilly will treat its employees fairly and on merit while devoting only two paragraphs on one page to say that the handbook is not a contract. The court held that “we cannot say that the remaining portions of the handbook contained a promise clear enough that an employee would reasonably believe than an offer of other than at-will employment had been made.”

Mich.

—Rood v. General Dynamics Corp., 444 Mich. 107, 507 N.W.2d 591 (1993) (“where an employer establishes a policy of discharge for cause, it may become part of an employment contract only when the circumstances (e.g., the language in the handbook itself, or an employer’s oral statements or conduct) clearly and unambiguously indicate that the parties so intended”). In Howart v. Byron Area School Dist., 2007 U. S. Dist. LEXIS 28795 (E.D. Mich. April 19, 2007), the court cited the Rood case in holding that express agreements concerning job security must be clear and unequivocal to overcome the presumption of employment at will. The test is whether any “promise” (as defined in § 2 of the Restatement (Second) of Contracts (Am. Law Inst. 1981)) has been made to the employee and, if made, whether it was reasonably capable of instilling a legitimate expectation of “just cause” employment. While there were statements to the effect that the employer pursued a progressive disciplinary policy involving warnings and suspension before termination, the employee handbook did not discuss discipline at all. Discipline remained as a matter of the employer’s discretion. The court granted the employer’s motion for summary judgment. See also Shaughnessy v. Interpublic Group of Cos., 506 Fed. App’x 369 (6th Cir. 2012) (plaintiff’s claim that his employment could only be terminated on just cause rested solely on language in the employee handbook that contained an express reminder that nothing changed the employee’s at-will status).

Neb.

—Hillie v. Mutual of Omaha Insurance Co., 245 Neb. 219, 512 N.W.2d 358 (1994).

N.J.

—Jackson v. Georgia-Pacific Corp., 296 N.J. Super. 1, 685 A.2d 1329 (1996) (finding no contract in part because of disclaimer).

N.M.

—Hartbarger v. Frank Paxton Co., 115 N.M. 665, 857 P.2d 776 (1993) (numerous oral and written statements did not constitute promise that employee was anything other than at-will).

N.D.

—Bykonen v. United Hospital, 479 N.W.2d 140 (N.D. 1992); Olson v. Souris River Telecommunications Coop., Inc., 558 N.W.2d 333 (N.D. 1997) (handbook statement that “This written policy statement is not a contract” demonstrates employer’s intention not to create a contract and the employment remains at-will).

Ohio

—Karnes v. Doctors Hospital, 51 Ohio St. 3d 139, 555 N.E.2d 280 (1990); Tucker v. Life Line Screening of Amer., Inc., 2005 Ohio 3236 (2005).

Pa.

—Henderson v. NutriSystem, Inc., 634 F. Supp. 2d 521 (E.D. Pa. 2009).

Utah

—Johnson v. Morton Thiokol, Inc., 818 P.2d 997 (Utah 1991).

Cabaness v. Thomas, 2010 UT 23, 232 P.3d 486 (2010). Employment manual, in various provisions, expressed employer’s intolerance for harassment, irrational demands, and physical threats and actions. The court found a unilateral contract protecting employees against such misconduct created through the employees’ continuing employment after receiving the manual. The manual, however, included a disclaimer stating, “No contract exists between [employer] and its employees with respect to salary, salary ranges, movement within salary ranges, or employee benefits.” The employer pointed to a provision precluding operative effect to any statement in the manual. The court, however, distinguished cases involving general disclaimers of any intent to make the terms of a manual a contract between the parties. Unlike a disclaimer of all contractual liability in clear and conspicuous language, this disclaimer dealt only with contractual liability with respect to the few items just quoted. Thus, the language suggested that the City intended to be contractually bound with respect to the other items in the manual including those upon which the plaintiff sought to establish an enforceable contract.

Wash.

—Smoot v. Boise Cascade Corp., 942 F.2d 1408 (9th Cir.1991).

Wyo.

—Trabing v. Kinko’s, Inc., 57 P.3d 1248 (Wyo. 2002). Two days before she began her employment with the defendant, Kathleen Trabing received the defendant’s employee handbook, which implied she could not be terminated except for cause. On the day her employment began, however, she signed an employment agreement stating that her status was terminable at will. Trabing argued that the terms of the handbook prevailed. The court held that the employment documents were provided to Trabing during the same time frame making them, in essence, a part of one transaction. While the handbook lacked a conspicuous clause disclaiming any obligation by the employer to terminate only for cause, the employment agreement signed by Trabing clearly established her terminable-at-will status. Loghry v. Unicover Corp., 878 P.2d 510 (Wyo. 1994); see also related case, Loghry v. Unicover Corp., 927 P.2d 706 (Wyo. 1996).

Scott v. Pacific Gas & Electric Co., 11 Cal. 4th 454, 46 Cal. Rptr. 2d 427, 904 P.2d 834 (1995) (employee handbook provided basis for an implied agreement of employer not to demote employee except for good cause). Cf. Niesent v. Homestake Mining Co., 505 N.W.2d 781 (S.D. 1993) (while a “for cause only” agreement will be implied “where an employment handbook or policy contains a detailed list of exclusive grounds for discipline or discharge and a mandatory and specific procedure which the employer agrees to follow prior to an employee’s termination,” terms of a collective bargaining agreement expressing at will employment control over such other terms and employment is at will).

43 Aiello v. United Air Lines, Inc., 818 F.2d 1196 (5th Cir. 1987); Cronk v. Intermountain Rural Electric Ass’n, 140 L.R.R.M. 2149 (Colo. App. 1992). Farnum v. Brattleboro Retreat, Inc., 164 Vt. 488, 671 A.2d 1249 (1995) (“mere inclusion of boilerplate language providing that the employee relationship is at will cannot negate any implied contract and procedural protections created by an employee handbook;” successive handbooks sent sufficiently “mixed messages” that whether they created an implied contract was question for jury). O’Loughlin v. The Pritchard Corp., 972 F. Supp. 1352 (D. Kan. 1997) (applying Kansas law) (express disclaimer not dispositive in light of other evidence including series of letters and surrounding circumstances showing sufficient evidence of intent to be bound to create genuine issues of material fact that preclude summary judgment). See Greene v. Howard University, 412 F.2d 1128 (1969).

In Thompson v. Revonet, Inc., 2005 U.S. Dist. LEXIS 29129 (D. Conn. Nov. 21, 2005), the plaintiff was employed by the defendant pursuant to an unsigned contract at a salary of $150,000 annually. When he began working for the defendant, he received a copy of an employee handbook containing a policy of progressive discipline. The handbook, however, also contained disclaimers of any binding commitment and to the progressive discipline policy. The plaintiff was discharged, and claimed that in negotiating the contract, the defendant promised to give him the benefit of the progressive discipline policy. While recognizing the binding effect of disclaimers in employee handbooks, the court held that such handbook disclaimers do not immunize an employer from such liability based on based on alleged promises in the course of negotiations.

44 General Paint Corp. v. Kramer, 57 F.2d 698 (10th Cir.1932), cert. denied, 287 U.S. 605. But this is not a case of vagueness. The subsequent action is not mere interpretation of previous expressions. It is really the acceptance of an offer, the exercise of a power created by the expression of agreement made by the employer.

In Rubin v. Dairymen’s League Co-op. Ass’n, 284 N.Y. 32, 29 N.E.2d 458 (1940), reh’g denied, 284 N.Y. 816, 31 N.E.2d 927, the defendant promised an exclusive agency as long as the plaintiff’s service was satisfactory. The plaintiff made a return promise in terms so uncertain as to be illusory. Yet the rendition of satisfactory service by the plaintiff for a considerable period was held sufficient to make the defendant’s promise binding.

45 Ladd v. Mohawk Carpet Distribution, L.P., 2010 U. S. Dist. LEXIS 60021 (D. Minn. April 1, 2010) (promissory estoppel can be applied when a party relies on a firm employment offer, but the reliance must be reasonable). See also Cronk v. Intermountain Rural Electric Assn., 140 L.R.R.M. 2149 (Colo. App. 1992); Helmick v. Cincinnati Word Processing, Inc., 45 Ohio St. 3d 131, 543 N.E.2d 1212 (1989); Kelly v. Georgia-Pacific Corp., 46 Ohio St. 3d 134, 545 N.E.2d 1244 (1989); Kermavner v. Wyla, Inc., 250 F. Supp. 3d 325 (N.D. Ohio 2017); Peters v. Gilead Sciences, Inc., 2008 U.S. App. LEXIS 14894 (7th Cir. July 24, 2008); Schoff v. Combined Insurance Company of America, 604 N.W.2d 43 (Iowa 1999).

See Vajda v. Arthur Andersen & Co., 253 Ill. App. 3d 345, 191 Ill. Dec. 965, 624 N.E.2d 1343 (1993), appeal denied, 153 Ill. 2d 570, 624 N.E.2d 818 (1993) (trier of fact could have found sufficient evidence of detrimental reliance to justify liability based on promissory estoppel where employer allegedly promised that employee could not be fired without good cause and not unless a three-warning policy had been followed).

But in Blodgett v. Siemens Indus., 2018 U.S. Dist. LEXIS 5347 (E.D.N.Y. Jan. 11, 2018), the court held that under both New York and New Jersey law, an employee given explicit notice of his or her at-will employment status cannot establish the reasonable reliance necessary to establish a claim for promissory estoppel. See also Barker v. CTC Sales Corp., 199 Ga. App. 742, 406 S.E.2d 88 (1991). But see Peck v. Imedia, Inc., 293 N.J. Super. 151, 167, 679 A.2d 745, 753 (N. J. Super A.D. 1996), in which the court reversed a trial court’s holding that promissory estoppel was inapplicable to an at-will employment contract in recognizing that there are losses incident to reliance upon the offer of employment.

In Pennsylvania, an employee can overcome the at-will presumption by proving that he or she afforded the employer additional consideration in the form of a substantial benefit or hardship beyond than the services for which he or she was hired. There is a reliance aspect to these cases. For example, where an employee responds to the employer’s persistent efforts to hire him by giving up a stable position in another state, selling his house, and relocating to a new city with his pregnant wife—only to be fired after sixteen days on the job—the employee has extended sufficient consideration. Donahue v. Federal Express Corp., 753 A.2d 238, 2000 PA Super 146 (2000). But the consideration must be substantial, not merely the hardships commensurate with those routinely incurred by salaried professionals. Veno v. Meredith, 357 Pa. Super. 85, 515 A.2d 571 (1986). When a court finds sufficient additional consideration, the employment is deemed to be for a reasonable time commensurate with the consideration extended. Woods v. Era Med LLC, 677 F. Supp. 2d 806 (E.D. Pa. 2010).

Ohio

—Boggs v. Avon Products, Inc., 56 Ohio App. 3d 67, 564 N.E.2d 1128 (1990) (covering up a production error).

Or.

—Bewley v. Evanite Fiber Corp., 111 Or. App. 314, 826 P.2d 74 (1992) (neglect of duty and insubordination). Towson Univ. v. Conte, 384 Md. 68, 862 A.2d 941 (2004). The university hired the defendant as director of an institute for a definite term, April 1, 1996 through June 30, 1999. The contract stated that the university could terminate the employment for certain enumerated causes including “incompetence” and “wilful neglect of duty” which the university relied upon as the bases for terminating the plaintiff’s employment. The plaintiff claimed breach of contract, resulting in a jury verdict for the plaintiff on the footing that the university had failed to prove just cause for termination by a preponderance of the evidence. The court held, the proper role of the jury is to review the employer’s objective motivation, i.e., whether the employer operated in good faith and in accordance with a reasonable employer under the circumstances in deciding whether there was just cause for termination. The jury’s inquiry should focus on whether the employer’s termination was based upon arbitrary, capricious, or illegal reasons, or on facts not reasonably believed to be true by the employer. The court concluded that this “balanced” view was in accord with the majority of other jurisdictions. See also Helsby v. St. Paul Hospital and Cas. Co., 195 F. Supp. 385 (D. Minn. 1961), aff’d, 304 F.2d 758 (8th Cir.).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.3 »

1 Corbin on Contracts § 4.3 (2020)

§ 4.3. Indefiniteness of Price or Terms of Payment—Money as a Commodity

In the process of negotiating an agreement, a term that is frequently left indefinite and to be settled by future agreement, or by some other specified method, is the price in money—the compensatory exchange for the subject matter of purchase. This is true both of agreements for the rendition of service1 and of those for the purchase, sale, or leasing of realty2 or goods.3 If the parties provide a practicable method for determining this price or compensation there is no such indefiniteness or uncertainty as will prevent the agreement from being an enforceable contract. The same is true if they agree upon payment of a “reasonable” price or compensation.4 There are cases, however, in which it is clear that the parties have not expressly or implicitly agreed upon a “reasonable price,” and also have not prescribed a practicable method of determination. Where this is true, the agreement is too indefinite and uncertain for enforcement.5 Such cases should be rare, but are not as shown by the cases cited in note 5. If the agreement is a commercial one it can be presumed that the parties, as actors in the market, intend a market or some other reasonable price.6

There are two distinct kinds of reasons for the refusal of a court to enforce an agreement that is too indefinite. First, the agreement may be too indefinite for the court to administer—no remedy can be properly framed. Secondly, the indefiniteness of the agreement may be an indicium of a lack of contractual intent. The court should be slow to come to this conclusion if it is convinced that the parties themselves meant to make a “contract” and to bind themselves to render a future performance.7 Many a gap in terms can be filled, and should be, with a result that is consistent with what the parties said and that is more just to both than would be a refusal of enforcement.8

A good case for analysis is that of a lease with an option by the tenant to renew “for an additional period of five years at annual rentals to be agreed upon … .” Some courts have found such a renewal option to be void for indefiniteness.9 One such court plausibly, but perhaps erroneously, explained:10

This liberty [to contract] is no right at all if it is not accompanied by freedom not to contract. The corollary is that, before one may secure redress in our courts because another has failed to honor a promise, it must appear that the promisee [promisor?] assented to the obligation in question.

It also follows that, before the power of law can be invoked to enforce a promise, it must be sufficiently certain and specific so that what was promised can be ascertained. Otherwise, a court, in intervening, would be imposing its own conception of what the parties should or might have undertaken, rather than confining itself to the implementation of a bargain to which they have mutually committed themselves. Thus, definiteness as to material terms is of the very essence in contract law.

This result and this reasoning is reached despite the obvious intent to contract as demonstrated by the formal appearance of the lease, and as further shown by the entry in possession by the tenant and the tenant’s payment of the rent for the leasehold term. This result was obtained despite the fact that the payment of rent during the leasehold term has in indivisible part been payment for the option. Thus, such a result ignores the obvious intent to contract and enrichment of the landlord at the tenant’s expense by that portion of the rent attributable to the renewal option. It also provides for the forfeiture of the tenant’s leasehold and its good will. Other courts have reached results more in accordance with the equities of the case, which heavily favor enforcement.11

In the usual case of an “agreement to agree,” it is implicit that the parties intended that a reasonable price would be negotiated.12 At times, the agreement is explicit that a reasonable price will be agreed upon. In such a case all should agree that the agreement is sufficiently definite.13

In these cases, the exact words of the lease must always be considered, but in many of these cases the option has been specifically enforced even though the parties could not agree.14 The fact that the lessee has acted in reliance on the option may be of controlling importance. The lessee may have made valuable improvements, and in any case, has occupied the premises and paid the rent. In must be remembered that part of the rent is attributable to the option. The result is strengthened if the option provides for some mode of determination (e.g. by arbitration) in case of failure to agree.15

The “subject matter” of an agreement for the sale of goods is two-fold: the goods and the price. The price is as much the subject matter of agreement, and as important a part, as are the goods. The “subject matter” of a contract for the rendition of services is both the labor and the wages or fee. These agreements are for the exchange of two performances, agreed to be of equal value, quid pro quo. When parties agree upon an exchange of goods or services for money, they are putting an agreed valuation, in terms of money, upon the goods or services. Whether they realize it or not, they are also putting an agreed valuation upon the money in terms of goods or services. There have been long periods of time during which people have thought of the dollar, or the pound, or the franc, as if it were a mere “unit” incapable of fluctuation. Two world wars, with their astronomical expenditure, followed by wars in Korea and Vietnam and the resulting periods of inflation, have taught most of us better. These so-called “units” are indeed a convenient “medium of exchange”—of exchanging goods and services for other goods and services. This “medium” of exchange is itself a subject of exchange, one that will determine the amount of other goods and services that the receiver of the money may in the future enjoy. If, therefore, the court cannot determine how much money the parties have agreed to exchange for specified goods, the agreement is no more enforceable as a contract than it would be if the court cannot determine the amount or kind of goods to be exchanged. It is true, however, that parties are much more likely to leave the “price” of goods or services open and unstated than to so leave the amount of the goods or services. The apparent gap can be more readily and justly filled by recourse to the “market” for the goods or services, or to the parties’ own “course of dealing,” or to a multitude of factors called “reasonableness.”

In the following cases, the agreement as to price was held too indefinite for enforcement: a promise to divide profits “upon a very liberal basis”;16 to pay “good wages” to a teacher;17 to pay “not exceeding $300 per week”;18 to pay “a fair share of my profits” in addition to a specified salary;19 to pay an amount “commensurate with the earnings of the company” in addition to salary;20 to pay “a satisfactory amount.”21 There are cases in which the court has been much more willing to find the meaning “reasonable compensation” in language that seems fully as indefinite as in the cases just cited.22 If compensation is expressed in a workable formula it is certainly expressed with sufficient definiteness.23

If one party has greatly benefited by part performance24 or if one party has relied extensively on the agreement,25 the court should go to great lengths to find a construction of the agreement that will salvage it. Indeed, as a great jurist has written, “Indefiniteness must reach the point where construction becomes futile.”26 If construction is indeed futile, it must be borne in mind that after a part performance has been received, a just compensation must be paid even if the agreement is indefinite as to price.

An agreement to sell goods or land at a price that shall not be more than a specified amount may be too indefinite for enforcement against the buyer, but in most such cases it should be operative as an offer to sell at the stated maximum.27 An acceptance at that maximum should make an enforceable contract. If such a provision is in the form of an option contained in a lease or other more inclusive contract, the power of the option holder to buy at the specified maximum is not revocable.28 Contracts containing minimum prices have also been found sufficiently definite.29

Frequently the price is agreed upon but the terms of payment are left to be agreed upon later. Many cases have found that such an agreement is fatally defective.30 This should not be the result in cases where the party urging the indefiniteness defense refuses to consider any offer of terms by the other.31 Nor should a finding of fatal defectiveness be the result where, although the payment terms are not agreed upon, the seller refuses an offer of cash, except in circumstances where the vendor for tax or other good faith reasons had indicated to the purchaser that cash payment was unacceptable. Uncertainty as to the value of services ancillary to a basic agreement with an agreed price is less important than uncertainty as to price of the basic exchange. As one court has aptly said, “an agreement for fixing reasonable compensation for some adjunctive service in connection therewith does not render the contract so indefinite as to be unenforceable.”32

The Uniform Commercial Code has been a spur to the relaxation of the insistence by some courts that an agreement must have a price or a successful price mechanism. The Code recognizes that, for the sale of goods, the parties are actors in the market and are often contemplating acting in concert with market forces even if they leave the settlement of the price to later agreement or to another mechanism that proves unsuccessful.

The Uniform Commercial Code § 2-305 provides:

“(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

(a) nothing is said as to price; or

(b) the price is left to be agreed by the parties and they fail to agree; or

(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

“(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

“(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as canceled or himself fix a reasonable price.

“(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.”

As indicated above, the rule that a contract must be reasonably definite stems from two different goals. One is to avoid enforcing agreements that the parties had not intended to be final. This section of the U.C.C. commences by emphasizing that, if the parties do not intend to contract, the pricing mechanisms laid out in the provision do not take effect. Subdivision 4 also emphasizes intent to contract. Once contractual intent is found, the section rejects the notion that a contract will fail for indefiniteness of price alone.33 The mechanisms of the section will normally assure that there is an adequate and reasonable basis for administering the contract by providing a remedy.34 Although the Code recognizes the importance of market forces, the term “reasonable price” takes cognizance of the fact that for many goods the term “market” is only a metaphor. Not all goods are traded with frequency in the marketplace. In such cases the “reasonable price” may be the seller’s usual selling price, a “posted price,” or a formula such as cost of production plus a reasonable profit. Some courts have applied the Code’s “open price term” provision to contracts not governed by the U.C.C.35

Footnotes — § 4.3:

1 Where an agency contract empowered the agent to sell insurance and to receive premiums and provided that the agent should report monthly and should within 60 days remit all money received, less such part thereof as the parties might thereafter agree upon as his commission, the court held that the company could maintain suit on the agent’s promise to remit within 60 days, even though the amount of his commission was so indefinite that a court could not enforce a promise to pay it. The contract was “in writing” sufficiently to determine the applicable statute of limitations. Meehan v. Grimaldi & Grimaldi, Inc., 240 F.2d 775 (5th Cir. 1957). Observe that the writing was perfectly definite. The promise was to remit all money received, unless a deduction should later be agreed on.

2 See Barling v. Horn, 296 S.W.2d 94 (Mo. 1956). A lease created in the lessee a first right to buy, without specifying the price. The court found by reasonable implication that the lessees had a preference right to buy at the price that the lessor agreed to accept from a third party. The “implication” afforded an agreed method of fixing the price.

In Duke v. Whatley, 580 So. 2d 1267 (Miss. 1991), on similar facts the court found the agreement to be too indefinite.

Agreements for the sale of land are probably less often held invalid for indefiniteness as to price. There are cases so holding in respect of the terms of payment and security.

Cal.

—In Burgess v. Rodom, 121 Cal. App. 2d 71, 262 P.2d 335 (1953), a written agreement for the sale of land was executed, with a deposit of $200 by the purchaser. It provided: “The balance of the price [$5,000] is to be paid within 30 days from date hereof, as follows: Terms to be made as soon as new purchaser arranges for new mortgage.” This document was held not to be a contract, since no terms of payment were agreed on.

Ga.

—In Williams v. Gottlieb, 90 Ga. App. 438, 83 S.E.2d 245 (1954), a contract for the sale of land was too indefinite for enforcement because, as to terms of payment of the stated price of $14,000, it merely said: “Buyer to secure $10,000 loan, Balance of $4,000 cash.” The buyer was held free to refuse to complete and got judgment for restitution of his down payment.

N.Y.

—In Ansorge v. Kane, 244 N.Y. 395, 155 N.E. 683 (1927), rehearing denied, there was an agreement for the sale of land for “$32,625; payable $12,625 cash; balance of $20,000 on mortgage for 5 years. The sum to be paid on signing of contract on March 26 to be agreed on. The balance of cash payment on passing of title on May 26.” This was held not to be enforceable.

Pa.

—Driebe v. Fort Penn Realty Co., 331 Pa. 314, 200 A. 62, 117 A.L.R. 1091 (1938); Stevens v. Doylestown Bldg. & Loan Ass’n, 321 Pa. 173, 183 A. 922 (1936) (agreement stated that price to be paid for land “approximates $8,000” and that conveyance would be made “at the above price or less.”).

3 See U.C.C. § 2-305, reproduced in the text below.

U.S.

—Winston & Strawn, LLP v. FDIC, 2007 U. S. Dist. LEXIS 50681 (D.D.C. July 13, 2007) (court interpreted “reasonable” attorney’s fees in accordance with § 202 of the Restatement (Second) of Contracts (Am. Law Inst. 1981)—a term should be interpreted in accordance with its generally prevailing meaning; here, according to the common fund concept) absent a different manifested intention).

Gardiner, Kamya & Assocs., P.C. v. Jackson, 369 F.3d 1318 (Fed. Cir. 2004) (citing this section, § 97 from a prior edition of this treatise).

Ariz.

—Schade v. Diethrich, 158 Ariz. 1, 760 P.2d 1050 (1988) (en banc, promise of fair and equitable severance payment).

Fla.

—Walker v. Coen Auto Transporters, Inc., 2015 U.S. Dist. LEXIS 182411 (M.D. Fla. Nov. 10, 2015); United States Golf Learning Institute, LLC v. Club Managers Association of America, 2011 U.S. Dist. LEXIS 132592 (E.D. Va. Nov. 15, 2011) (citing § 97 from a prior edition of this treatise); Real Estate World Florida Commercial, Inc. v. Gurkin, 943 So. 2d 270 (Fla. 2006) (citing this § 4.3, 1993 ed., the court held that since the agreement provided for a six percent commission, the agreement was sufficiently definite to be enforced); In re Annicott Excellence, LLC, 259 B.R. 782 (Bankr. M.D. Fla. 2001) (citing this § 4.3, 1993 ed.).

Ill.

—In Miller v. Bloomberg, 26 Ill. App. 3d 18, 324 N.E.2d 207 (1975), appeal after remand, 60 Ill. App. 3d 362, 17 Ill. Dec. 602, 376 N.E.2d 748, later proceeding, 126 Ill. App. 3d 332, 81 Ill. Dec. 540, 466 N.E.2d 1342 (the lessees had an option to purchase at the “then prevailing market price”).

N.J.

—DiCarlo v. St. Mary’s Hospital, 2006 U.S. Dist. LEXIS 49000 (D.N.J. July 19, 2006). The plaintiff went to the defendant hospital suffering from an increased heart rate. He did not have health insurance and did not qualify for Medicare or Medicaid. He was required to sign a form stating that he guaranteed the payment of “all charges” as well as collection expenses. The term “all charges,” which the plaintiff agreed to pay, was not an open price term since the charges were based on the hospital’s published charges.

Tenn.

—Moody v. Lea, 83 S.W.3d 745 (Tenn. App. 2001) (citing this § 4.3, 1993 ed.).

Wis.

—Gerard v. Gerard, 2015 Wisc. App. LEXIS 480 (July 1, 2015) (quoting this treatise, § 4.3, 1993 ed., that “the lack of a definite price is not fatal to a contract’s enforceability. If parties do not state an exact price, a contract still is sufficiently definite if it specifies a ‘practicable method for determining … price or compensation.’ ”); Metropolitan Ventures, LLC. v. GEA Associates, 688 N.W.2d 722, 2004 WI App. 189 (2004) (citing this § 4.3, 1993 ed).

U.S.

—Brooks v. Federal Surety Co., 24 F.2d 884, 58 App. D.C. 56, 57 A.L.R. 745 (1928) (a doubtful decision).

Cal.—

Western Homes, Inc. v. Herbert Ketell, Inc., 236 Cal. App. 2d 142, 45 Cal. Rptr. 856 (1965) (citing § 97 from a previous edition) (an agreement that contemplated the hiring of plaintiff as rental manager too vague for enforcement partly because no salary was specified); Citizens Utilities Co. v. Wheeler, 156 Cal. App. 2d 423, 319 P.2d 763 (1957). A written contract for the sale of all the stock of a water company provided a method for determination of the purchase price of such an indefinite and uncertain character as to be unenforceable. It was sufficient, however, to indicate that the seller did not impliedly agree to sell at a “reasonable price,” especially in view of the fact that the stock had no established market price and that there was no prior course of dealing or established practice in the industry by which reasonable value could be determined. The buyer had no right to either specific performance or damages. No binding contract existed.

Colo.

—Kosoy v. Kieselstein-Cord, 2002 U.S. Dist. LEXIS 224 (S.D.N.Y. Jan. 9, 2002) (citing this § 4.3).

Conn.

—SS-11, LLC v. Bridge Street Assocs., 293 Conn. 287, 977 A.2d 189 (2009). An option under a lease to purchase the leased premises provided a purchase price of $1.2 million, subject to certain adjustments that were to be calculated by a formula pertaining to the time the option was exercised. It also provided that it would be further adjusted to take into consideration environmental conditions “which adjustment shall be mutually determined by Lessor and Lessee.” The court found this language to anticipate a future agreement between the parties. A mere statement that the parties will negotiate a future price does not mean that they, in fact, will establish a mutually satisfactory price. The court concluded that the parties had transacted an “agreement to agree.”

Del.

—Sourcinglink, Net, Inc. v. Carrefour, S.A., 2008 Cal. App. Unpub. LEXIS 2902 (April 8, 2008) (citing this § 4.3).

Fla.

—Helitrans Co. v. Rotorcraft Leasing Co., LLC, 2015 Tex. App. LEXIS 1410 (2015) (quoting this § 4.3, 1993 ed.).

Idaho

—Bauchman-Kingston Partnership, LP v. Haroldsen, 233 P.3d 18 (2008) (citing § 97, 1963 ed.).

Mo.

—In Bengimina v. Allen, 375 S.W.2d 199 (Mo. App. 1964), the defendant’s promise of space in his place of business for the installation and operation of coin-operated music machines was held void for lack of consideration. The writing contained words of promise by the plaintiff to install ________ machines, and that receipts from the machines were to be divided in the stated proportions. The blank was not filled in, and the court held that the promise to divide receipts created no obligation. It appears that machines were in fact installed and operated for more than 2 years. The court held that “part performance” could not make the previously void contract enforceable. This seems doubtful. No reference is made to the notion of promissory estoppel.

N.Y.

—Tradeways, Inc. v. Chrysler Corp., 342 F.2d 350 (2d Cir.1965) (citing § 97, 1963 ed.) (oral discussions in which plaintiff was selected to develop promotional efforts for defendant’s dealers did not result in the formation of a contract because the price was not determined and because defendant requested a written offer that was never signed by it); Sun Printing & Pub. Ass’n v. Remington Paper & Power Co., 235 N.Y. 338, 139 N.E. 470 (1923). The plaintiff agreed to buy and defendant agreed to sell 1,000 tons of paper per month during the months of September, 1919, to December, 1920, inclusive, 16,000 tons in all. Sizes and quality were adequately described. Payment was to be made on the 20th of each month for all paper shipped the previous month. The price for shipments in September, 1919, was to be $3.73¾ per 100 pounds, and for shipments in October, November and December, 1919, $4 per 100 pounds. “For the balance of the period of this agreement the price of the paper and length of terms for which such price shall apply shall be agreed upon by and between the parties hereto fifteen days prior to the expiration of each period for which the price and length of term thereof have been previously agreed upon, said price in no event to be higher than the contract price for newsprint charged by the Canadian Export Paper Company to the large consumers, the seller to receive the benefit of any differentials in freight rates.” This was held, two judges dissenting, to be too indefinite to enforce as to paper after December, 1919. It was an agreement to agree. Even if the price of the Canadian Company was a maximum and should be tendered by the buyer, that price is a variable and the period for which any particular quotation is to control is not agreed upon. There are other cases in which the court was much more willing to fill the gap and hold the parties to a contract. It was precisely cases such as this that U.C.C. § 2-305, quoted in the text below, was designed to overturn.

Tenn.

—Spurling v. Forestland Group, LLC, 187 Fed. App’x 566 (6th Cir. 2006). Plaintiff sought a real estate broker’s commission for property that defendant purchased. Defendant disputed any obligation to pay plaintiff a commission since the defendant had been introduced to the property by another party prior to any involvement of the plaintiff. The evidence of an agreement to pay a commission was defendant’s letter stating that defendant’s willingness to pay a commission of any kind would depend upon its further interest in the property, after which it would discuss a “reasonable commission.” The plaintiff’s response to this letter asked the defendant to “clarify in writing” the definition of “reasonable commission.” Citing § 33 of Restatement (Second) of Contracts (Am. Law Inst. 1981), the court held that this completely undermined the plaintiff’s assertion that any agreement, oral or written, had been reached. There was no binding contract.

Tenn.

—Pendergrass v. Ingram, 2016 Tenn. App. LEXIS 440 (June 29, 2016) (citing § 4.3, 1993 ed.); M.R. Stokes Company, Inc. v. Shular, 2008 Tenn. App. LEXIS 108 (Feb. 26, 2008), appeal denied, 2008 Tenn. LEXIS 653 (2008); Vatt v. James, 180 S.W.3d 99 (Tenn. App. 2005), appeal denied, 2005 Tenn. LEXIS 874 (2005) (citing § 4.3, 1993 ed., the court could discern no mutual assent regarding a reasonable price for alleged agreement, or evidence to allow a practicable determination of price, so alleged agreement was unenforceable); Doe v. HCA Health Servs. of Tenn., Inc., 46 S.W.3d 191 (Tenn. 2001) (citing § 4.3, 1993 ed.).

Utah

—Prince, Yeates & Geldzahler v. Young, 2004 UT 26, 94 P.3d 179 (Utah 2004). Young, an attorney in plaintiff’s law firm, claimed that he and the law firm entered into an express contract during the time that Young was handling a contingent fee lawsuit on behalf of the firm. The firm’s representatives purportedly expressed the firm’s intention to be “fair” in negotiating the amount of “fair and equitable” compensation that Young would receive upon the receipt of the contingent fee award. The firm’s statements were too indefinite to create an express contract. The court cited § 4.3 (1993 ed.). See also Pack v. Case, 2001 UT App. 232, 30 P.3d 436 (Ct. App. 2001), write of cert. denied, 40 P.3d 1135 (Utah 2001); Richard Barton Enters., Inc. v. Tsern, 928 P.2d 368 (Utah 1996) (citing this § 4.3, 1993 ed.).

Wis.

—Schweiger v. Kia Motors Am., Inc., 347 Wis. 2d 550, 830 N.W.2d 723 (2013) (no agreement on price in settlement agreement, citing § 4.3, 1993 ed.).

6 Professor Corbin’s philosophy on this point is echoed in Herder Hallmark Consultants, Inc. v. Regnier Consulting Group, Inc., 275 Wis. 2d 349, 685 N.W.2d 564 (Wis. App. 2004), review denied, 004 WI 138, 276 Wis. 2d 28, 689 N.W.2d 56 (2004). Herder, the owner of an actuarial firm, entered into negotiations to sell the business to one of his actuaries, Regnier. Regnier sent out notices to the firm’s clients about a change in management of the firm, formed Regnier, Inc., hired Herder’s employees, took most of Herder’s files and customer lists, used Herder’s computers, furniture, and trade secrets, and rented and occupied the same location as Herder. The parties had not, however, reached an agreement as to the purchase price of Herder’s assets. Herder argued that a valid contract existed to sell the firm’s assets at a fair price. Regnier, on the other hand, argued that no contract existed due to indefiniteness. The court of appeals affirmed the trial court’s grant of summary judgment in favor of Herder in finding an enforceable contract. The court stated that “Wisconsin’s approach to contract formation accords with Corbin on Contracts” where certain terms are left to future negotiations between the parties. Quoting this treatise (§ 4.3, 1993 ed.), the court stated that cases where it is clear that the parties have not expressly or implicitly agreed upon a reasonable price and have not prescribed a practical method of determination are too uncertain for enforcement. Such cases, however, should be rare. This is particularly true where the agreement is a commercial one where it can be presumed that the parties intend a market price or other reasonable price. The court found that the parties indeed had an enforceable agreement due to their conduct, particularly Regnier’s in running Herder’s business, and that no evidence was submitted rebutting the presumption that a “reasonable price” had been agreed upon by the parties.

See also North Star Steel Co. v. United States, 58 Fed. Cl. 720 (2003) (implied agreement to negotiate a price in good faith cures indefiniteness).

7 In Zucker v. Katz, 708 F. Supp. 525 (S.D.N.Y. 1989), a contract for the transfer of stock in a group of corporations in exchange for continued employment was not so lacking in material terms as to be unenforceable. The court says, in deciding a motion to dismiss, that whether “[t]erms are too indefinite to be enforced is an issue better left for summary judgment or trial, at which time the court can better consider whether’ the parties themselves meant to make a contract and to bind themselves,’ ” quoting from Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447 (2d Cir. 1977).

8 This part of the text is quoted and applied in Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447 (2d Cir. 1977).

In Garmo v. Clanton, 97 Idaho 696, 551 P.2d 1332 (1976), the plaintiff had the right of first refusal on a strip of land “at a price no higher than offered by any other person.” The vendor sought to circumvent the optionee’s right by including it in a sale of other parcels to a third party. The court held that the optionee could exercise the right by paying “fair market value.”

In Adair Homes, Inc. v. Jarrell, 59 Or. App. 80, 650 P.2d 180 (1982), a construction contract contained a total job price. It was also agreed that certain parts of the work would be eliminated so as to reduce the cost of the contract. The amount of the credits to be given by the contractor for these eliminations was not computed, but it was agreed that the contractor’s profit margin would be maintained. The contract was definite enough, being considerably more definite than “reasonable value.”

Where the buyer of goods permitted manufacture to begin and later requested and obtained delay in the time of delivery, the buyer was held bound by contract, even though the seller’s acceptance of the order stated: “Due to the uncertainty of manufacturing, this order is accepted subject to prices in effect on shipping date, and our ability to ship.” The parties had discussed fully the extent of prior unfilled orders at the seller’s factory, the rapidly rising market prices, and the difficulties respecting labor and materials. Memphis Furniture Mfg. Co. v. Wemyss Furniture Co., 2 F.2d 428 (6th Cir. 1924).

In Abrams v. George E. Keith Co., 30 F.2d 90 (3d Cir. 1929), there was a continuing “sales agency” agreement between factory and dealer for Walk Over Shoes, the dealer’s orders to be filled at prices to be agreed upon. After operating on this basis for 15 years, the seller refused, without previous notice, to fill a reasonable order by the dealer. A claim for damages held sustainable. The result is more clearly sustainable today under U.C.C. § 2-309. Another excellent case is Mantell v. International Plastic Harmonica Corp., 141 N.J. Eq. 379, 55 A.2d 250 (1947), where the agreement between the producer of a new invention and a distributor left the price to be paid to the later determination in large degree by the producer. The price had to be a “reasonable” one in relation to subsequent production costs and the demand to be created.

This section (§ 97, from a previous edition of this treatise) is cited in Laveson v. Warner Mfg. Corp., 117 F. Supp. 124, 125, 127 (D.N.J. 1953), a case holding valid a sales agency agreement to supply the agent’s requirements for five years, even though the price was left open for determination as experience was acquired. The parties had operated under the contract for three years without difficulty as to price.

In Schneider v. Walts, 186 Kan. 140, 348 P.2d 593 (1960), the defendant so negligently sprayed plaintiff’s trees and crops that he admitted liability. It was mutually agreed that a stated amount should be paid in settlement of the injury to the crops (this amount being in fact paid) and that the parties would meet in the spring when the injury to the trees could more accurately be determined and that the defendant would then pay the amount so estimated. In a suit for damages for breach of the defendant’s promise so made, the court held that the parties made a valid compromise contract and not a mere contract to make a contract. The court said that the compromise was itself substituted for the antecedent liability in tort, but an action would lie for its breach even if regarded as an executory accord. See § Restatement (Second) of Contracts § 281 (Am. Law Inst. 1981). It was not too uncertain or indefinite for enforcement.

See also:

Cal.

—Wilson v. Brown, 5 Cal. 2d 425, 55 P.2d 485 (1936); Himmelfarb v. First Int’l Diamond, Inc. (In re Himmelfarb), 2015 Bankr. LEXIS 2046 (Bankr. D. Haw. June 22, 2015) (applying California law).

Ky.

—Patrick v. Howard, 243 S.W.2d 486 (Ky. 1951) (express promise of “reasonable pay” for services).

Okla.

—Edens v. Miller, 315 P.2d 954 (Okl.1957) (agreement to pay “costs” of paving-reasonable costs, reasonable time).

Tenn.

—Greene v. Leeper, 193 Tenn. 153, 245 S.W.2d 181 (1951) (rental to be agreed on according to business conditions).

Tex.

—Bendalin v. Delgado, 406 S.W.2d 897 (Tex.1966) (agreement to buy corporate stock was not too indefinite for enforcement, despite failure to specify the price, where the agreement was clearly proven and a reasonable price could be implied).

Wash.

—Diettrich v. J.J. Newberry Co., 172 Wash. 18, 19 P.2d 115 (1933).

Ark.

—Phipps v. Storey, 269 Ark. 886, 601 S.W.2d 249 (App. 1980).

Cal.

—ETCO Corp. v. Hauer, 161 Cal. App. 3d 1154, 208 Cal. Rptr. 118 (1984).

Fla.

—Edgewater Enterprises, Inc. v. Holler, 426 So. 2d 980 (Fla. App. 1982), rehearing denied.

Neb.

—R.A.S., Inc. v. Crowley, 217 Neb. 811, 351 N.W.2d 414 (1984).

Idaho

—Giacobbi Square v. PEK Corp., 105 Idaho 346, 670 P.2d 51 (1983).

N.Y.

—Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 436 N.Y.S.2d 247, 417 N.E.2d 541 (1981).

Ohio

—irth Solutions, LLC v. Windstream Communs., LLC, 2017 U.S. Dist. LEXIS 10442 (S.D. Ohio Jan. 25, 2017) (defendant promised to pay for plaintiff’s services while the parties explored entering into agreement for future services; the court resolved the question of the amount of consideration owed by referring to parties’ course of dealing).

S.D.

—Deadwood Lodge No. 508, Benev. & Protective Order of Elks v. Albert, 319 N.W.2d 823 (S.D. 1982).

10 Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109, 436 N.Y.S.2d 247, 249, 417 N.E.2d 541 (1981).

11 One of the better opinions is that of the intermediate court of appeal in Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 70 A.D.2d 1, 419 N.Y.S.2d 558 (1979), reversed by the Court of Appeals, supra note 10.

The court in Moolenaar v. Co-Build Cos., 354 F. Supp. 980 (D.V.I. 1973), explained why the implication of “reasonable” rents should be found: “First, it will probably effectuate the intent of the parties better than would striking out the clause altogether. A document should be construed where possible to give effect to every term, on the theory that the signatories inserted each for a reason and if one party had agreed to the clause only in the secret belief that it would prove unenforceable, he should be discouraged from such paths.”

“Secondly, a renewal option has a more sympathetic claim to enforcement than do most vague contractual terms, since valuable consideration will often have already been paid for it. The option of renewal is one factor inducing the tenant to enter into the lease, or to pay as high a rent as he did during the initial period. To this extent the landlord benefitted from the tenant’s reliance on the clause, and so the tenant has a stronger claim to receive the reciprocal benefit of the option … . Finally, I might take note of the policy of construing ambiguities in lease agreements against the landlord, or, with more theoretical justification but little difference in practical result, against the party responsible for drafting the document.”

Alaska

—Berrey v. Jeffcoat, 785 P.2d 20 (Alaska 1990); Hammond v. Ringstad, 10 Alaska 543 (1945).

Ariz.

—Hall v. Weatherford, 32 Ariz. 370, 259 P. 282, 56 A.L.R. 903 (1927).

Nev.

—Cassinari v. Mapes, 91 Nev. 778, 542 P.2d 1069 (1975).

N.Dak.

—Drees Farming Assoc. v. Thompson, 246 N.W.2d 883 (N.D.1976).

Ohio

—Moss v. Olson, 148 Ohio St. 625, 36 Ohio Op. 252, 76 N.E.2d 875 (1947).

Wash.

—Anderson v. Frye & Bruhn, Inc., 69 Wash. 89, 124 P. 499 (1912); Young v. Nelson, 121 Wash. 285, 209 P. 515, 30 A.L.R. 568 (1922); Diettrich v. J.J. Newberry Co., 172 Wash. 18, 19 P.2d 115 (1933).

Tenn.

—Playmate Club v. Country Clubs, Inc., 62 Tenn. App. 383, 462 S.W.2d 890, 58 A.L.R.3d 494 (1970), cert. denied.

12 Huber v. Calloway, 2007 Tenn App. LEXIS 435 (June 12, 2007); Allied Disposal, Inc. v. Bob’s Home Service, Inc., 595 S.W.2d 417 (Mo. App. 1980).

Ala.

—Gardens at Glenlakes Prop. Owners Ass’n v. Baldwin County Sewer Serv., LLC, 225 So. 3d 47, 55 (Ala. 2016). Not a lease case, but the court cited § 4.3, 1993 ed., and wrote: “SASS agreed that it would charge sewer rates ‘competitive with charges made by others for similar services in the South Baldwin County vicinity.’ The parties have cited no cases interpreting similar language, but the phrase is analogous to phrases such as ‘fair market value’ or ‘reasonable price,’ which have been uniformly held to be sufficiently definite for enforcement.”

Or.

—Edwards v. Tobin, 132 Or. 38, 284 P. 562, 68 A.L.R. 152 (1930) (“reasonable rental under then existing conditions.”)

D.C.

—George Y. Worthington & Son Management Corp. v. Levy, 204 A.2d 334 (D.C. App. 1964) (“prevailing fair rentals for similar property at the time.”).

N.Y.

—Northrup v. Hushard, 129 A.D.2d 1005, 514 N.Y.S.2d 304 (1987) (“reasonable market value price.”)

Tex.

—Aycock v. Vantage Management Co., 554 S.W.2d 235 (Tex. Civ. App. 1977) (writ ref. n.r.e., “prevailing rates.”).

Vt.

—Toys, Inc. v. F.M. Burlington Co., 155 Vt. 44, 582 A.2d 123 (1990).(option to renew lease at “the then prevailing rate in the mall.”).

Ariz.

—Hall v. Weatherford, 32 Ariz. 370, 259 P. 282, 56 A.L.R. 903 (1927).

Mass.

—Mutual Paper Co. v. Hoague-Sprague Corp., 297 Mass. 294, 8 N.E.2d 802 (1937); Shayeb v. Holland, 321 Mass. 429, 73 N.E.2d 731 (1947) (lessee’s option to buy the land specifically enforced, though no price was named, the court finding “reasonable price” by implication, the lessee had made valuable improvements as the lease permitted).

Mich.

—Bird v. Couchois, 214 Mich. 607, 183 N.W. 36 (1921).

Mo.

—Arnot v. Alexander, 44 Mo. 25 (1869).

Ohio

—Moss v. Olson, 148 Ohio St. 625, 36 Ohio Op. 252, 76 N.E.2d 875 (1947).

Or.

—Edwards v. Tobin, 132 Or. 38, 284 P. 562, 68 A.L.R. 152 (1930).

Pa.

—Kaufmann v. Liggett, 209 Pa. 87, 58 A. 129 (1904).

S.C.

—Rainwater v. Hobeika, 208 S.C. 433, 38 S.E.2d 495, 166 A.L.R. 1228 (1946).

Wash.

—Young v. Nelson, 121 Wash. 285, 209 P. 515, 30 A.L.R. 568 (1922).

Harvey Constr. Co. v. Parmele, 253 Iowa 731, 113 N.W.2d 760, 762 (1962). In a lease of 27.51 acres out of a larger tract of 174 acres at a rental of $1,500, there was a provision for renewals and also for an option to lease additional land: “Lessors agree to lease to the Lessee any additional real property belonging to the Lessors adjacent and contiguous to the real property herein leased upon the same terms and conditions as herein stated … as the Lessee shall demand from time to time …” Later, the Lessee demanded and was given several small additions amounting to perhaps 8 acres, at $50 per acre. The Lessors, in a declaratory judgment action, insisted that the terms of the option were so indefinite as to be wholly inoperative. The Lessee contended that the option included the entire remaining tract. The court held that parol evidence was admissible to remove the indefiniteness, giving special consideration to the terms “adjacent and contiguous.” The Lessee leased the land for use as an airport. The lower court’s judgment sustaining the Lessee’s contention was erroneous. The Lessors’ contention was likewise erroneous. The case was remanded with directions to determine the number of acres within the reasonably foreseeable needs of the Lessee, which must be land actually “touching” the original quantity and not separated by a road or including certain dwellings. The rental must be the average price per acre paid in the beginning: $1,500 divided by 27.51, this being 54.53. It would be highly unreasonable to interpret the option as tying up the whole large tract for a long period. The trial court must “apply the rule of reasonableness to the remaining lands.” Difficult, perhaps not too difficult.

Other cases and texts state that such an option is unenforceable:

Ark.

—Keating v. Michael, 154 Ark. 267, 242 S.W. 563 (1922).

Fla.

—Camichos v. Diana Stores Corp., 157 Fla. 349, 25 So. 2d 864 (1946).

Ga.

—Candler v. Smyth, 168 Ga. 276, 147 S.E. 552 (1929).

La.

—Haeuser v. Schiro, 106 So. 2d 306, 235 La. 909 (1958).

Mass.

—Conos v. Sullivan, 250 Mass. 376, 145 N.E. 529 (1924).

Miss.

—Giglio v. Saia, 140 Miss. 769, 106 So. 513 (1926).

N.Y.

—Shur-on Standard Optical Co. v. Viopake Co., 221 A.D. 261, 223 N.Y.S. 157 (1927).

N.C.

—R.J. Reynolds Realty Co. v. Logan, 216 N.C. 26, 3 S.E.2d 280 (1939).

Ky.

—Cain v. Lawrence Drug Co., 235 Ky. 12, 29 S.W.2d 550 (1930).

Mass.

—Shayeb v. Holland, 321 Mass. 429, 73 N.E.2d 731 (1947).

Mich.

—Maas Bros. v. Weitzman, 288 Mich. 625, 286 N.W. 104 (1939).

N.Y.

—166 Mamaroneck Ave. Corp. v. 151 East Post Rd. Corp., 78 N.Y.2d 88, 571 N.Y.S.2d 686, 575 N.E.2d 104 (1991).

Or.

—Houston v. Barnett, 90 Or. 94, 175 P. 619 (1918).

Pa.

—Kaufmann v. Liggett, 209 Pa. 87, 58 A. 129 (1904).

R.I.

—Town of Bristol v. Bristol Warren Waterworks, 19 R.I. 413, 34 A. 359 (1896).

Wash.

—Murray v. Odman, 1 Wash. 2d 481, 96 P.2d 489 (1939).

16 Butler v. Kemmerer, 218 Pa. 242, 67 A. 332 (1907) (promise to divide profits “on a very liberal basis”).

A statute that determined the criminal or the lawful character of a contract in restraint of trade by making it depend on whether its purpose was merely the making of a “reasonable profit” was held to be so uncertain as to be unconstitutional in People v. Building Maintenance Contractors’ Ass’n, 41 Cal. 2d 719, 264 P.2d 31 (1953).

Ind.

—Fairplay School Tp. v. O’Neal, 127 Ind. 95, 26 N.E. 686 (1891).

18 United Press v. New York Press Co., 164 N.Y. 406, 58 N.E. 527 (1900). Here the money was to be paid for “news.” Both the news to be supplied and the amount to be paid would vary.

Ga.

—Burney v. Jones, 140 Ga. 758, 79 S.E. 840 (1913) (promise to give “part of the money that had been received.”).

Ky.

—Gaines & Sea v. R.J. Reynolds Tobacco Co., 163 Ky. 716, 174 S.W. 482 (1915) (cost plus “a nice profit.”).

N.Y.

—Varney v. Ditmars, 217 N.Y. 223, 111 N.E. 822 (1916), with a strong dissent.

A promise to pay “a fair and equitable share of the net profits” of a business in return for expert services of the plaintiff is not too uncertain for specific enforcement after the services have been rendered and profits made. Noble v. Joseph Burnett Co., 208 Mass. 75, 94 N.E. 289 (1911).

A promise to pay an employee a “share of the profits” in addition to salary held too indefinite for enforcement; but a new trial was granted to determine reasonable compensation. Petersen v. Pilgrim Village, 256 Wis. 621, 42 N.W.2d 273 (1950).

This treatise (§ 97 from a previous edition) is cited in Turcott v. Gilbane Bldg. Co., 94 R.I. 225, 179 A.2d 491 (1962). The plaintiff, an engineer, had been employed by the defendant under a contract providing for a fixed weekly salary and that in addition to his weekly salary he was to receive “a fair and equitable share of the profits, fees and earnings of the respondent corporation resulting from complainant’s efforts, the calculation of the amount … to be based upon the particular type of project on which complainant was engaged and the provisions of the respondent corporation’s construction contract with respect to such profits, fees and earnings.” The plaintiff sued to enforce payment of the additional compensation and for an accounting to determine its amount. The court sustained a demurrer to the complaint, holding that the terms alleged were too “vague, indefinite, ambiguous, and uncertain” to justify an order for an accounting. The defendant’s demurrer stated that the complaint showed that the plaintiff had an “adequate remedy at law.” The court held that if the plaintiff had a right to reasonable compensation in addition to the weekly salary, his remedy was in an action “at law” and not in equity for an accounting. The case was “remanded to the superior court for further proceedings.”

In a case in which there was a promise of a specified salary in addition to a “fair share,” Cardozo, J., thought that the contract was not wholly unenforceable and that an action for a discharge without just cause would lie. Varney v. Ditmars, 217 N.Y. 223, 111 N.E. 822 (1916). See also Von Reitzenstein v. Tomlinson, 249 N.Y. 60, 162 N.E. 584 (1928) (holding that a promise of “an appropriate percentage” was too indefinite for enforcement, but that it showed that the value of the services had not been liquidated at the stated wages, so that an action for quantum meruit would lie); Eno v. Prime Mfg. Co., 314 Mass. 686, 50 N.E.2d 401 (1943).

In Guest v. Baldwin, 104 Ga. App. 809, 123 S.E.2d 194 (1961), the owner of a farm induced a tenant to move to the farm, tend the stock, plant, cultivate, and harvest, and promised to pay him $35 per week, allow him the use of a tractor, and at the end of the year pay him enough more to “make it right.” After the harvesting was done, they agreed upon $1,500 as the amount necessary to “make it right.” The original agreement, too uncertain in terms for enforcement, was made sufficiently certain by their subsequent agreement. In Stan-Rich Co. v. Schneider, 105 Ga. App. 6, 123 S.E.2d 166 (1961), a provision for payment of “an equitable share of the profits from the sales” would have been too uncertain for enforcement, except for the fact that it was followed by a sufficiently definite method by which that share was to be computed. To the same effect is Shermans Food Stores, Inc. v. Campbell Food Markets, Inc., 59 Wash. 2d 251, 367 P.2d 141 (1961).

Mont.

—Donovan v. Bull Mountain Trading Co., 60 Mont. 87, 198 P. 436 (1921).

N.Y.

—Mackintosh v. Kimball, 101 A.D. 494, 92 N.Y.S. 132 (1905).

Eng.

—In re Vince, [1892] 2 Q.B. 478 (“a due allowance”).

22 A contract is not made invalid by a provision, assented to by both parties, that the named price is “subject to change pending tariff revision.” Doubtless, this made the seller’s duty to deliver at the named price conditional upon there being no increase in tariff prior to the time for delivery from abroad. If no such increase occurs, the contract is enforceable at the named price. Outlet Embroidery Co., Ltd. v. Derwent Mills, 254 N.Y. 179, 172 N.E. 462, 70 A.L.R. 1440 (1930).

Similar cases are:

U.S.

—Henderson Bridge Co. v. McGrath, 134 U.S. 260, 10 S. Ct. 730, 33 L. Ed. 934 (1890); Pillois v. Billingsley, 179 F.2d 205 (2d Cir.1950).

Me.

—Corthell v. Summit Thread Co., 132 Me. 94, 167 A. 79, 92 A.L.R. 1391 (1933) (agreement to turn over inventions, for which “reasonable recognition will be made … the amount of recognition to rest entirely with the Company.”).

Mass.

—Eno v. Prime Mfg. Co., 314 Mass. 686, 50 N.E.2d 401 (1943); Noble v. Joseph Burnett Co., 208 Mass. 75, 94 N.E. 289 (1911) (“a fair and equitable share of the net profits.”).

N.Y.

—Varney v. Ditmars, 217 N.Y. 223, 111 N.E. 822 (1916), dissenting opinion by Cardozo.

See Silver v. Graves, 210 Mass. 26, 95 N.E. 948 (1911), where in return for withdrawal of a will contest the defendant promised to “make it right” and to pay a “sum of money that would be satisfactory.” The recovery here may be regarded as quasi-contractual, performance by the plaintiff being complete and having resulted in pecuniary benefit to the defendant.

In Schloss v. Davis, 213 Md. 119, 131 A.2d 287 (1957), the defendant offered to pay plaintiff “$550 or $600 a month” for specified services. The plaintiff accepted and performed the work. The court held that this was not indefinite or uncertain and gave judgment at the rate of $550. It cited similar cases and “distinguished” United Press v. New York Press Co., 164 N.Y. 406, 58 N.E. 527, 53 L.R.A. 288 (1900), adding, “See also the criticism of this case in Corbin, Contracts, § 97 [now § 4.3].” See note 27 below.

In Holt v. Swenson, 252 Minn. 510, 90 N.W.2d 724 (1958), the plaintiff, an attorney, offered to conduct litigation for a contingent fee “equal to one-third to one-half of the amount recovered.” The court found that the defendant accepted this offer either expressly or tacitly by his conduct instructing the plaintiff to proceed. The contract so made was not too indefinite for enforcement, since it included a definite promise to pay a minimum fee of one-third of the amount recovered. The fact that the agreement did not make it clear under what circumstances the fee might be increased to one-half was not fatal to the contract. This is true even though we draw the inference that any excess above one-third would have to be agreed upon by the parties.

23 In Fries v. United Mine Workers, 30 Ill. App. 3d 575, 333 N.E.2d 600 (1975), the plaintiff was promised that his pension would be computed on the same basis as the pensions for officials covered by the union pension plans even though he did not qualify for the plan. This seems to have been definite enough, but later he was promised a specific monthly amount.

24 Blackhawk Heating & Plumbing Co. v. Data Lease Financial Corp., 302 So. 2d 404 (Fla.1974).

25 Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475, 548 N.Y.S.2d 920, 548 N.E.2d 203 (1989).

26 Heyman Cohen & Sons, Inc. v. M. Lurie Woolen Co., 232 N.Y. 112, 133 N.E. 370, 371 (1921) (Cardozo, J.). A good illustration of such a construction is DiMaria v. Michaels, 90 A.D.2d 676, 455 N.Y.S.2d 875 (1982). A lease provided that the tenant “shall have the first option to buy said premises at a price to be agreed upon in the event the party of the first part places the premises for sale.” When the tenant learned that the appellant had contracted to sell the premises for $14,000, the tenant exercised the option. The landlord argued that the price term was an impermissible “agreement to agree” making the contract void under New York law. The court ruled instead that the term “first option to buy” was a term of art which implies that the price term is to be determined by the price at which the lessor offers the property to a third party. Therefore, the “price to be agreed upon” was the price of the acceptable offer of the third party.

It has been said that “The judicial bias is towards interpreting a contract ‘so as to make it a valid and enforceable undertaking rather than of no force and effect.’ ” Finn v. McNeil, 23 Mass. App. Ct. 367, 502 N.E.2d 557, 561 (1987).

Sateriale v. Rj Reynolds Tobacco Co., 2015 U.S. Dist. LEXIS 182172 (C.D. Cal. April 8, 2015) (citing this § 4.3).

27 An agreement for sale of a specified amount of sugar, “price not over 26 cts. per lb.” is not too indefinite for enforcement. “It is a stipulation for a reasonable price, to be determined by market conditions existing at the time of delivery, but not in any event to be more than the maximum named.” Burlington Grocery Co. v. Lines, 96 Vt. 405, 120 A. 169 (1923). Whether the parties had in mind “a reasonable price to be determined by market conditions existing at the time of delivery” may be doubted, but they meant to make a “contract.” Clearly the buyer should win if it offered to pay 26 cents per pound. Cf. United Press v. New York Press Co., 164 N.Y. 406, 58 N.E. 527 (1900), agreement by plaintiff to supply for daily publication, for 8 years, its night news report, quantity and quality to be equal to its average at date of contract, the price to be not more than $300 per week. This was declared to be a valid contract. For the defendant’s repudiation after 2 years, the plaintiff was awarded only 6 cents. A poor solution of the issue.

In Schloss v. Davis, 213 Md. 119, 131 A.2d 287 (1957), an oral contract for supervising construction of a home for “$550 or $600 a month” was held not too indefinite for enforcement at the smaller rate.

In Shaughnessy v. Eidsmo, 222 Minn. 141, 23 N.W.2d 362, 166 A.L.R. 435 (1946), the lessor gave the lessee an option to purchase at a price between $4,750 and $5,000. When the lessee accepted, there was a contract to pay $5,000.

In Pacific Mut. Life Ins. Co. v. Westglen Park, Inc., 160 Tex. 1, 325 S.W.2d 113 (1959), an agreement between vendor and vendee that the vendor’s lien should be subordinated to a construction loan not exceeding $14,000 to be obtained later by the vendee was sufficiently definite for enforcement by the construction lender, so long as the loan was on reasonable terms and not in excess of the maximum stated. It was so held even though they also agreed that when the loan was obtained a specific “subordination agreement” should be executed stating the amount of the loan.

In Lavitt v. Aberle, 144 Conn. 723, 138 A.2d 318 (1957), a broker who had produced a satisfactory purchaser testified that he had been promised a fee of $7,500 and that he had refused $5,000. The defendant testified that he had promised to pay $5,000. The court held that, although the defendant’s testimony was inconsistent with that of the plaintiff, it was sufficient to sustain a judgment for $5,000. This was not a judgment for “reasonable value”; the court merely accepted the defendant’s testimony as the more credible. It was the defendant who had appealed. In Norton v. Menard Lumber Co., 523 S.W.2d 791 (Tex. Civ. App. 1975), the plaintiff promised to do the work for an “approximate cost … between $4,400 to $4,900.” It was held that this meant a maximum of $4,900 with the possibility of a “reasonable variance.”

28 Trotter v. Lewis, 185 Md. 528, 45 A.2d 329 (1946) (lessee’s option to buy at a price “not to exceed $2,500” was specifically enforced). See also Mutual Paper Co. v. Hoague-Sprague Corp., 297 Mass. 294, 8 N.E.2d 802 (1937), enforcing an option in a lease for a renewal at a rental to be agreed upon but not to be in excess of 10 percent over the existing rental.

29 Don King Productions, Inc. v. Douglas, 742 F. Supp. 741 (S.D.N.Y. 1990), collecting cases at p. 762 n. 21. Later proceedings in the case are too lengthy to report here.

30 Bentzen v. H.N. Ranch, Inc., 78 Wyo. 158, 320 P.2d 440, 68 A.L.R.2d 1213 (1958). However, the court refused to grant judgment to the purchaser for the restitution of its down payment. The seller was not unjustly enriched as the agreement caused vendor to take the land off the market and gave the purchaser time to inventory and appraise the subject property. Thus, the down payment could be retained as if it were the price of an option.

In Willmott v. Giarraputo, 5 N.Y.2d 250, 184 N.Y.S.2d 97, 157 N.E.2d 282 (1959), the parties failed to agree on payment terms for interest and amortization. It appears, however, that negotiations took place and failed.

31 See Morris v. Ballard, 16 F.2d 175, 56 App. D.C. 383, 49 A.L.R. 1461 (1926). Failure of vendor to accept proffer of cash or to name any terms of his own is a violation of the duty to negotiate in good faith.

32 Ferris v. Jennings, 595 P.2d 857, 859 (Utah 1979).

33 U.C.C. § 2-305 comment 1.

34 Intent to contract and reasonable basis for a remedy are the two touchstones of the Code provision on indefiniteness. See § 4.1.

35 See Grand Valley Local Sch. Dist. Bd. of Educ. v. Buehrer Group Architecture & Eng’g, Inc., 2016-Ohio-716, 48 N.E.3d 626 (2016) (code can be applied by analogy to apply a reasonable price to a contract for services if the parties intend to contract). In Aycock v. Vantage Management Co., 554 S.W.2d 235 (Tex. Civ. App. 1977), writ denied n.r.e., a lease of real property with a missing price term was upheld by analogy to U.C.C. § 2-305. In Allied Disposal, Inc. v. Bob’s Home Service, Inc., 595 S.W.2d 417 (Mo. App. 1980), a contract between a disposer of chemical wastes and the owner of a chemical waste site was binding despite the absence of a price term. The court found the Code to be supporting authority.

But see Nuline Indus. v. Media Gen., Inc., 35 Va. Cir. 232 (1994) (Virginia does not apply § 2-305 to non-sale of goods cases).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.4 »

1 Corbin on Contracts § 4.4 (2020)

§ 4.4. Agreed Methods of Determining the Price or Amount

An agreement is not unenforceable for lack of definiteness of price or amount if the parties specify a practicable method by which the amount can be determined by the court without any new expression by the parties themselves.1 An agreement to sell shares of stock that is commonly bought and sold on a stock exchange is enforceable if the price is agreed to be the “market price” at a certain time on that exchange. If there is a “market price” for the goods or services that are the subject of agreement, it is sufficient that the agreement is for payment at the market price.2 Sometimes, however, there is no market or “market price” that can be established by proof, but “market” is a very flexible term.

It is sufficient if the agreement provides that the price shall be the amount that arbitrators or that X, a specific third person, shall fix as a fair price.3 The agreed price is sufficiently definite if it is “the rate that A paid to B” for similar goods or services.4 If it is a specified proportion of the amount for which the buyer shall thereafter sell the goods to a third person, there is some indefiniteness as to the period within which the subsequent sale may be made, but the method of determining the price is sufficiently definite for enforcement.5 If the goods are delivered and are, in fact, resold at a price, the indefiniteness is removed, but if the seller refuses to deliver and the buyer makes no contract for resale to a third person it may be difficult to determine the price to be paid. Even in the latter case, however, it may be possible to determine with a sufficient degree of accuracy the amount that the buyer could have obtained on resale by the use of ordinary skill and diligence. Whenever a workable formula for pricing is present in the agreement, the price term is sufficiently definite.6

An agreement that provides that the price to be paid, or other performance to be rendered, shall be left to the will and discretion of one of the parties has been held not enforceable. This is supportable if the party having such discretion makes no real promise to pay or to perform.7 An illusory promise is no promise at all and is not a sufficient consideration for a return promise. But the fact that one of the parties reserves the power of fixing or varying8 the price or other performance is not fatal if the exercise of this power is subject to prescribed or implied limitations, as that the variation must be in proportion to some objectively determined base or must be reasonable or in good faith.9 If the transaction is a contract for sale of goods, U.C.C. § 2-305(2) eliminates any doubt as to the validity of such a contract by providing: “A price to be fixed by the seller or the buyer means a price for him to fix in good faith.”10 This validates agreements for sale of goods containing such a price term and at the same time protects the one party against the bad faith of the other.11 A promise to pay a “satisfactory” amount or to render satisfactory service is generally found to mean that the determination of price or performance must be that of a reasonable person; it is not a matter of uncontrolled will and discretion.12 In like manner, a promise to afford credit facilities by purchasing “acceptable retail time sales obligations” has been held not too uncertain for enforcement.13 A promise by promoters of a business to supply enough money to finance it is not too indefinite when it is a going concern with the needs of which the parties are familiar.14

Where a price of goods per unit, to be manufactured, was agreed upon, with a provision that subsequent changes therein should be effected by mutual agreement in supplemental contracts based upon a time study of cost analysis, there was no sufficient basis for the court to act upon when the parties could not subsequently agree.15 This line of cases has been eradicated by U.C.C. § 2-305. As discussed in § 4.1 of this treatise, agreements to agree on price are validated by this provision unless the parties have an intent to be bound only if agreement is reached. Similarly if one factor in a pricing formula is left open and the parties are unable to agree upon it, the court will fill the gap with a reasonable figure.16

The California Lettuce Growers, being the lessee of land from the Union Sugar Co., by written contract promised to grow and deliver, during 1949, 239 acres of beets. In a supplemental writing the Sugar Co. promised to pay a price per ton computed “on the basis of net return of Company,” meaning by this “the average net selling price actually realized by Company per 100 lbs. for 1948 crop sugar sold and delivered during the period August 1, 1948, to July 31, 1949, and shall be computed in accordance with the established system of accounting of Company by deducting from the gross selling price actually realized by Company for such sugar all such charges and expenditures as are regularly and customarily deducted by, and as determined by Company.” The average net selling price was to be “verified” by independent accountants “chosen by the Company, which verification shall be conclusive.” California Lettuce delivered 117 acres of beets, and sued for the purchase price of $29,655.37, less a sum paid on account. Union Sugar admitted the debt sued for, but counterclaimed for damages for failure of California Lettuce to deliver the full 239 acres as agreed (and for other breaches). The court gave judgment to California Lettuce for the amount claimed by it for the beets delivered, with interest, but it held the Sugar Company’s counterclaim invalid because the contract was void for lack of “mutuality.” It said: “[T]he contract provided Union Sugar was to determine unilaterally the price to be paid California Lettuce. It could sell at any price … make deductions in accordance with its system of accounting, and conclusively verify its methods and conclusions by accountants of its own choice. By no rationalization may this be called mutuality.”17

Neither the court’s reasoning nor its decision can be supported. This is one more case in which the court got lost in the fog of “mutuality.” The Sugar Company’s promise to pay was far from being “illusory.” While the prescribed method of determining the price seems superficially favorable to the buyer, at every step in the process it would be bound to exercise good faith. No court, including the present one, would interpret this contract as permitting the buyer to pay for sugar beets only so much as it might wish. Indeed, acting under this very contract, the parties seem to have had no difficulty in determining the amount due for the 117 acres of beets actually delivered. It is true that other courts have been lost in a similar fog, although some of the cases cited by the present court can be readily distinguished. In this case, the seller’s promises were amply supported by binding return promises, express as well as implied. This decision was reversed, after the above criticism was written18 with reasons in harmony with the criticisms herein. The method of determining price was in accord with “the prior dealings of the parties and the practice of the industry.” This “usage of the trade” was known to the plaintiff. The court also wrote: “The ‘net return’ formula is sufficiently definite to satisfy the requirements of certainty and mutuality … . Union Sugar may not alter its accounting system for the purpose of varying the resulting ‘net return’ figures … . In any event, where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.”19

In Kirkwood & Morgan, Inc. v. Roach,20 the parties orally agreed upon the construction of a road from dry land to a point under water (approximately located by a stake) at which the defendant expected to drill for oil, and at that point to construct a turn-around. The exact size of the road and the turn-around was not fixed, but was to be large enough for the usual traffic to an oil drilling rig. The price to be paid was $1 per cu. yd. of the sand necessary for the construction. The plaintiff was directed to begin work at once and did so. After he had moved 1,696 yards of sand, the defendant changed the location of the well and asserted that no contract had been consummated. The court held that the agreement was not too indefinite for enforcement and that there was “mutuality of obligation” (a bilateral contract). The court wrote: “Here both parties were well acquainted with this type of construction work and knew what was called for in the construction of a ‘T head.’ They knew the approximate dimensions, but the actual number of yards of sand necessary could not be known until the contract was completed.” The court held that the agreement was sufficiently definite to sustain a judgment for “damages” and that one measure thereof “would be the contract value of the work actually done, plus any profit the contractor would have made had he been permitted the performance of his contract.” It sustained the trial court’s judgment for “the agreed contract price for the sand actually delivered and spread before the appellant stopped the work.” This amount was $1,696. Observe that this included the cost and profit on the performance rendered, with no profit on the balance, a result that might be described as “restitution” (instead of “damages”).

In Landow-Luzier Co. v. Grey,21 an exclusive brokerage contract was not too indefinite for enforcement by reason of the fact that “the terms whereby the plaintiff would earn commissions were not spelled out but depended on agreement between defendants [the employer] and the respective third parties. If the terms to be agreed upon never became definite because of the defendants’ initially wrongful action in breaching the contract, the defendants cannot plead lack of definiteness as a defense.” This indicates that the agreement was sufficiently definite in the beginning to create an obligation on the defendant not to interfere with the plaintiff’s performance. The defendant was bound to negotiate in good faith with the third parties, and the amount of the plaintiff’s compensation was merely conditional on their reaching an agreement.

Many of the themes mentioned above in this and the previous section of this treatise are brought out in the case of Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp.22 Hollander was indicted by state and federal grand juries for crimes involving unwarranted health and medical care reimbursements to a nursing home owned by his corporation. As part of a plea bargain, he agreed to divest himself of all connections with any occupation involving health care or custody. Pursuant to that bargain, four parties—plaintiff (a not-for-profit community organization), Hollander, the corporation controlled by Hollander, and the Department of Health—entered into an agreement whereby plaintiff was appointed receiver and also became lessee of the nursing home. The lease provided that plaintiff was to have the option to purchase the premises during the term of the lease “at a price determined by the Department in accordance with the Public Health Law and all applicable rules and regulations of the Department … .” The day following the execution of the agreements, Hollander was sentenced to five years’ probation plus a fine and an obligation to make restitution to the state, as well as to permanently divest himself from all nursing home interests. Three years later, the plaintiff exercised the option. Defendant refused to sell, arguing, inter alia, that the option was void for indefiniteness of price in that no provision of the Public Health Law or Department’s rules and regulations provide a method for fixing the sales price of real property. The Court of Appeals found the agreement to be sufficiently definite. The contract had a stated means for the fixing of the price—a decision by a third party. Although the Department regulations do not contemplate the fixing of sales price of realty, many Department regulations concerning reimbursement of costs refer to “real property costs” and deal with amortization, interest, and return of equity. The Department was willing and able to calculate a price using these rules for guidance. It was clear that a market price was not contemplated. It was contemplated that the plaintiff, a not-for-profit institution, would purchase the premises for its continued use as a nursing home funded largely by state reimbursement revenues. Finally, the entire context had to be viewed. The defendant had gotten the benefit of his plea bargain. The findings of indefiniteness by the courts below allowed defendant “to walk away with its property after enjoying the benefits of the bargain-defeat[ing] the reasonable expectations of the parties in entering into the contract and is a misuse of the indefiniteness doctrine.”23

Where a practicable means of fixing or adjusting the price exist, but subsequently fails, the court must endeavor to fill the ensuing gap,24 provided that the parties intended a contract to subsist even if the price-fixing mechanism fails.25 In Oglebay Norton Co. v. Armco, Inc.,26 a contract had been made in 1957 and with subsequent modifications was to continue through 2020. The contract provided: “Armco agrees to pay … for all iron ore transported hereunder the regular net contract rates for the season in which the ore is transported, as recognized by the leading iron ore shippers in such season for the transportation of iron ore … . If, in any season of navigation hereunder, there is no regular net contract rate recognized by the leading iron ore shippers for such transportation, the parties shall mutually agree upon a rate for such transportation, taking into consideration the contract rate being charged for similar transportation by the leading independent operators engaged in transportation of iron ore from The Lake Superior District.” (Emphasis added by the court). Up until 1985, a publication, “Skillings Mining Review” published the rate that was recognized by the parties as the “regular net contract rate recognized by the leading iron ore shippers.” After 1985 this rate was no longer published. The parties continued to ship iron ore during 1986 and 1987 but were unable to agree upon a rate. Armco sought a declaratory judgment that the contract was no longer binding because of the complete breakdown of the pricing mechanisms. Oglebay Norton counterclaimed. It was held that the trial court correctly determined that the parties intended to contract and, in view of the failure of the pricing mechanism, came to the correct conclusion that a reasonable rate could be set by the court for the 1986 shipping season. As to future years, the court ordered that if the parties could not come to an agreement, the chief executive officers of the companies should meet with a court appointed mediator to set the rate. This order was appropriate in the light of the parties’ intentions to maintain a contractual relation expressed over the years and Oglebay’s $95 million-dollar capital improvement program to service Armco’s needs.27

Footnotes — § 4.4:

1 Illustrative cases:

U.S.

—United States v. Bethlehem Steel, 215 F. Supp. 62 (D. Md. 1962), aff’d, 323 F.2d 655 (4th Cir.); Palmer v. Chamberlin, 191 F.2d 532, 27 A.L.R.2d 416 (5th Cir. 1951), reh’g denied, 191 F.2d 859, 27 A.L.R.2d 434.

Ariz.

—In Graham County Elec. Cooperative, Inc. v. Town of Safford, 84 Ariz. 15, 322 P.2d 1078 (1958), the Co-op made an agreement to sell to Safford certain utility property at a price to be determined “upon a replacement new cost less depreciation basis.” The court by a majority of 3 to 2 held this method of determining the price was not so vague or indefinite as to make the agreement unenforceable. This decision should be sustained for the same reasons that agreements to sell property at a “reasonable price” are enforced. It is not necessary for the parties to specify the price in dollars or to specify a method by which the amount to be paid can be reduced to certainty by mere mathematical calculation. The determination of “replacement new cost” requires the introduction of the testimony of witnesses expert in the valuation of property such as that involved. Such testimony is often conflicting and widely variant, especially in the case of large public utilities, yet such valuations are continually held sufficient in sale cases as well as in rate cases. The dissenting judges put special emphasis upon the fact that “depreciation” may be determined by several different methods leading to different results. This variation in method appears especially in applying the federal statute permitting “accelerated depreciation” for tax purposes in certain cases. This statute has no bearing on the present case, where the depreciation is determined with reference to the estimated useful life of the subject matter. The fact that the litigating parties have not agreed upon an exact method of valuation of depreciated property is not fatal to the contract. So also as to the fact that they cannot now agree and are engaged in violent and expensive litigation as to the amount to be paid. So also as to the fact that even disinterested experts in valuation may reach different results. These are the facts in practically all of the litigated cases in which the agreed price is a “reasonable price.” In enforcing such contracts, the court does not “make a contract for the parties.” They have made their own contract, intentionally leaving the exact amount to be paid to the triers of fact in a court. This is true even though those “triers” must be aided by the testimony of engineers and accountants who must make inventories, estimate the prices and quantities of labor and material, take account of obsolescence, and predict the length of useful life. All the judges agreed in reversing the judgment below because the plaintiff had not established its own readiness to perform on its part.

Muccilli v. Huff’s Boys’ Store, Inc., 12 Ariz. App. 584, 473 P.2d 786 (1970).

Cal.

—Mancuso v. Krackov, 110 Cal. App. 2d 113, 241 P.2d 1052 (1952) (sale of four carloads of wine “at the maximum price allowed by the next O.P.A. schedule.”).

Colo.

—Tallman v. Smith, 112 Colo. 217, 148 P.2d 581 (1944); Hauser v. Rose Health Care Systems, 857 P.2d 524 (Colo. App. 1993) (contract providing compensation based on the costs saved from contracts renegotiated by plaintiff on defendant’s behalf was not indefinite by reason of difficulty of calculating savings or dispute between parties over proper method of determining savings).

Del.

—Branhaven, LLC v. Beeftek, Inc., 965 F. Supp. 2d 650 (D. Md. 2013) (citing this § 4.4); Seidensticker v. Gasparilla Inn, Inc., 2007 Del. Ch. LEXIS 89 (June 19, 2007) (citing this § 4.4, 1993 ed.).

Ill.

—Elliott v. Northern Trust Co., 178 Ill. App. 439 (1913) (“In case I return from Alaska, whatever riches I possess, she shall have 50 percent of same.”).

Ky.

—Lewis v. Creech’s Adm’r, 162 Ky. 763, 173 S.W. 133 (1915) (agreement to make a natural child equal with the legitimate children).

Md.

—Foard v. Snider, 205 Md. 435, 109 A.2d 101 (1954) (§ 97 from a previous edition is quoted and the rule as to a provision for a method of estimating price is illustrated).

Mo.

—Morris v. Perkins Chevrolet, Inc., 663 S.W.2d 785 (Mo. App. 1984) (contract for the sale of a Corvette Indy 500 Pace Car for $100 over manufacturer’s list price).

In Allied Disposal, Inc. v. Bob’s Home Service, Inc., 595 S.W.2d 417 (Mo. App. 1980), a waste disposal agreement was exclusive on both sides. The price was to be fixed as to each new contract of hauling the plaintiff had. Because of the exclusive dealing arrangement, the court stated the agreement was enforceable as an exception to a general rule of non-enforceability.

N.Y.

—In States Marine Lines, Inc. v. Crooks, 13 N.Y.2d 206, 245 N.Y.S.2d 581, 195 N.E.2d 296 (1963), a dispute as to the wages of the Commodore and the Deck Officers of the nuclear powered ship Savannah was submitted to arbitration. The award provided that the Commodore’s wage should be at the rate of “1,500 or $200 more than the Chief Engineer’s monthly wage (whichever is greater).” The employer moved to set aside this award as not being “final and definite” as required by statute. The court held that the award complied with the statute, since it fixed a method for determining the amount that required no more than an arithmetical calculation. This was so held even though the wage of the Chief Engineer was and must be fixed by an agreement or arbitration between the plaintiff and a different labor union, and even though that wage might later be fixed in a manner such that it could not be used in the arithmetical calculation. In such an event, a similar contract (or this award) would become impossible of performance, but contracts are not uncertain or invalid for such a reason. An example is East Coast Aviation Corp. v. Massachusetts Port Authority, 346 Mass. 699, 195 N.E.2d 545 (1964). In Elias v. Serota, 103 A.D.2d 410, 480 N.Y.S.2d 344 (1984), a buy-sell agreement among partners provided a sufficient mechanism for determining the price. In re McManus, 55 N.Y.2d 855, 447 N.Y.S.2d 708, 432 N.E.2d 601 (1982) (per curiam). The court affirmed the Appellate Division’s holding that there was a binding contract to sell stock “at the price to be computed in accordance with the formula contained in the shareholders agreements.”

Ohio

—Ellis v. Victor Elec. Products, Inc., 85 Ohio App. 170, 88 N.E.2d 275 (1949).

S.D.

—LaMore Rest. Group, LLC v. Akers, 2008 SD 32, 748 N.W.2d 756 (2008) (citing § 98, 1963 ed.).

Tex.

—Stanley v. Sumrell, 163 S.W. 697 (Tex. App. 1914) (contract by landlord to buy all of tenant’s corn except what the tenant wished to feed his teams).

Utah

—Morgan v. Child, Cole & Co., 41 Utah 562, 128 P. 521 (1912) (agreement by defendant, for information to be supplied by plaintiff, to purchase stock in corporations owning mines affected by the information and to share resulting profits and losses equally).

Wash.—

C & R Elec., Inc. v. T.R.J. Dev., Inc., , 2017 Wash. App. LEXIS 670 (Mar. 20, 2017) (citing this § 4.4 (1993 ed.) (contract for time and materials is an example of an adequate contract); Combs v. Frigid Foods Products, Inc., 67 Wash. 2d 862, 410 P.2d 780 (1966), the court cited § 98, 1963 ed., holding that a contract for the sale of raspberries, the price to be competitive with prices for a three-county area, was valid. Howard v. Fitzgerald, 58 Wash. 2d 403, 363 P.2d 386 (1961) cited § 98 from a previous edition, the plaintiff offered to sell merchandise “at the wholesale price,” and the defendant accepted by using the merchandise. “The wholesale price was ascertainable with reasonable certainty by a practicable method, without any new expression by the parties.”

2 Toys, Inc. v. F.M. Burlington Co., 155 Vt. 44, 582 A.2d 123 (1990) (option to renew tenancy, “the fixed minimum rental shall be renegotiated to the then prevailing rate within the mall.”).

Memphis Furniture Mfg. Co. v. Wemyss Furniture Co., 2 F.2d 428 (6th Cir.1924) (“prices in effect on shipping date.”).

McConnell v. Hughes, 29 Wis. 537 (1872) (ten cents per bushel less than the Milwaukee price on any day thereafter named by the seller).

The price may properly be made dependent on quotations posted at a specified date on a particular “Exchange” or “Board of Trade.” Louisville Soap Co. v. Taylor, 279 F. 470 (6th Cir. 1922), cert. denied, 259 U.S. 583, 42 S. Ct. 586, 66 L. Ed. 1075 (not enforceable if no legitimate quotations posted, but this conclusion of nonenforceability is overruled by U.C.C. § 2-305(1)(c)).

A promise to pay for services as an appraiser “at the rate established by the Boston Real Estate Exchange” was held sufficiently definite for enforcement, even though the rates established by the Exchange were for work done by its own members. W.H. Ballard Co. v. Lipp, 288 Mass. 163, 192 N.E. 492 (1934).

The price of goods to be manufactured may properly be made variable on an agreed scale according to market prices of materials. D.R. Vivion Mfg. Co. v. Robertson, 176 Mo. 219, 75 S.W. 644 (1903). Likewise, the price may be made to vary in accordance with the market ratio of gold to greenbacks. Ames v. Quimby, 96 U.S. (6 Otto) 324, 24 L.Ed. 635 (1878).

U.S.

—United Fuel Gas Co. v. Columbian Fuel Corp., 165 F.2d 746 (4th Cir.1948) (the provision directed the arbitrators to “base their decision upon the then reasonable market value of gas in that territory.”).

Ala.

—Francis-Chenoweth Hardware Co. v. Bailey, 104 Ala. 566, 18 So. 10 (1894) (stock of goods sold at a price to be fixed by appraisers).

Cal.

—Murphy v. Hansen, No. B256441, 2015 Cal. App. Unpub. LEXIS 4677 (July 1, 2015) (citing this § 4.4, 1993 ed.).

Conn.

—New Haven Trap Rock Co. v. Tata, 149 Conn. 181, 177 A.2d 798 (1962) (contract to buy and to sell land at a price to be determined by appraisers).

Md.

—Scamardella v. Illiano, 126 Md. App. 76, 727 A.2d 421 (1998), writ of cert. denied, 354 Md. 115, 729 A.2d 406 (1999) (citing this § 4.4).

See Hanna v. Bauguess, 49 Md.App. 87, 430 A.2d 104 (1981). The Bauguesses owned 2½ acres with a furniture store on it. In 1973 they leased it to the Hannas for 5 years with an option to renew or else to buy “at price arrived at by three independent realty appraisers.” The lease, prepared by a non-lawyer, did not specify how the appraisers were to be chosen or how they were to arrive at the price. The Hannas immediately made major improvements. When the end of the lease term approached, the option was exercised by a letter from Hannas’ attorney suggesting that Bauguess select an appraiser, Hannas select one and these two select a third, which the court characterized as a “time-honored practice.” Bauguess made no reply. Reversing the trial court, the appellate court ruled that the parties had provided a practicable method for setting the price. On remand the trial court could specify the method for selection of appraisers or it could appoint them itself. The price they should determine “would perforce be the fair market value of the property.”

N.J.

—Keppler v. Terhune, 88 N.J.Super. 455, 212 A.2d 683 (1965) (lease with option to purchase at price to be fixed by arbitrators if the parties cannot agree—specific performance of the arbitration clause decreed).

N.Y.

—166 Mamaroneck Ave. Corp. v. 151 East Post Rd. Corp., 78 N.Y.2d 88, 571 N.Y.S.2d 686, 575 N.E.2d 104 (1991).

Tex.

—Penwell v. Barrett, 724 S.W.2d 902 (Tex. App. 1987) (appraiser).

Eng.

—Foley v. Classique Coaches, Ltd., [1934] 2 K.B. 1 (by arbitration if parties could not agree).

A promise to give the “first refusal,” or first opportunity to buy property, has been interpreted as a promise to give an option at a price offered by any other willing buyer, and so held not to be too indefinite.

See:

Ill.

—Hayes v. O’Brien, 149 Ill. 403, 37 N.E. 73 (1894).

N.H.

—R.F. Robinson Co. v. Drew, 83 N.H. 459, 144 A. 67 (1928).

N.Y.

—DiMaria v. Michaels, 90 A.D.2d 676, 455 N.Y.S.2d 875 (1982).

Vt.

—Krupinsky v. Birsky, 129 Vt. 400, 278 A.2d 757 (1971).

Va.

—Parker v. Murphy, 152 Va. 173, 146 S.E. 254 (1929).

Eng.

—Manchester Ship Canal Co. v. Manchester Racecourse Co., [1901] 2 Ch.D. 37.

But cf. Fogg v. Price, 145 Mass. 513, 14 N.E. 741 (1888).

Additional cases are cited in § 4.3.

A bargain to pay for goods on the basis of prices charged at a specified time by some “price leader” such as Standard Oil or International Harvester, the ratio to those prices being specified, is sufficiently definite.

Luetkemeyer Co. v. Murdock, 267 F. 158 (6th Cir. 1920). See Turman Oil Co. v. Sapulpa Refining Co., 124 Okl. 150, 254 P. 84 (1926) (as to effect of the “price leader’s” adopting a new pricing system).

Cf.:

N.Y.

—Sun Printing & Pub. Ass’n v. Remington Paper & Power Co., 235 N.Y. 338, 139 N.E. 470 (1923); Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475, 548 N.Y.S.2d 920, 548 N.E.2d 203 (1989) (option permitting receiver to purchase home “at a price determined by the Department of Health in accordance with the Public Health Law and all applicable rules and regulations of the Department” not so indefinite in price as to preclude enforcement).

Specific enforcement of contract to purchase corporate stock at an amount fixed by specified accountants. Their appraisal conclusive if made in good faith without gross error. Sanitary Farm Dairies v. Gammel, Inc., 195 F.2d 106 (8th Cir. 1952) (subsequent history too lengthy for citation here).

In Shell Oil Co. v. Federal Power Commission, 292 F.2d 149 (3d Cir.1961), cert. denied, 368 U.S. 915, the court held that a 25-year agreement for the sale of gas was a valid and enforceable contract for the whole period, even though it specified a definite price for only the first 5 years and provided that for each of the four subsequent 5-year periods the price was to be determined by mutual agreement or in default of such agreement by arbitration. It was held to be sufficiently definite because it “does contain a valid, workable price-fixing standard.” At the beginning of the third 5-year period, the parties agreed in writing upon an increased price for gas sold and delivered during that period under the 25-year “gas purchase contract.” In Texas Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263, 80 S. Ct. 1122, 4 L. Ed. 2d 1208 (1960), the court held that the agreement of the parties fixing an increased price for the third 5-year period was not a “contract for the purchase of gas.” It was merely a price redetermination, limited to that one issue, in performance of an obligation imposed upon the parties by the earlier 25-year contract. Therefore, it did not activate an escalation provision in a contract between Shell and Texas Gas, whereby Shell was entitled to be paid an increased price if Texas Gas made a “contract for the purchase of gas”, at a price higher than that being paid to Shell, with any third party.

4 Lungerhausen v. Crittenden, 103 Mich. 173, 61 N.W. 270 (1894) (as much as defendant paid other attorneys in the case); Salem King’s Products Co. v. Ramp, 100 Or. 329, 196 P. 401 (1921) (agreement by farmer to sell total production for 10 years at a specified price, to be increased automatically if buyer should raise the price paid to others, seller held not bound to deliver at reduced “market” prices); New York Oversea Co. v. China, Japan & South America Trading Co., 206 A.D. 242, 200 N.Y.S. 449 (1923) (bargain by a middleman to sell goods at manufacturer’s price plus dealer’s profit). But in Gaines & Sea v. R. J. Reynolds Tobacco Co., 163 Ky. 716, 174 S.W. 482 (1915), a price at “original cost, plus cost of handling and a ‘nice’ or reasonable profit” was held too uncertain. The U.C.C. has driven such holdings into obsolescence.

U.S.

—Hazeltine Corp. v. Zenith Radio Corp., 100 F.2d 10 (7th Cir.1938), cert. denied, 306 U.S. 656 (licensee under a patent promised a royalty which was to be not more than that paid by any other licensee).

Iowa

—Miller v. Kendig, 55 Iowa 174, 7 N.W. 500 (1880) ($1650 and half of what buyer should get above that sum on resale).

Mich.

—Lungerhausen v. Crittenden, 103 Mich. 173, 61 N.W. 270 (1894) (to pay plaintiff as much as defendant paid other attorneys connected with the case).

W.Va.

—Paull v. Pittsburgh, W. & K.R. Co., 72 W.Va. 263, 78 S.E. 100 (1913) (to pay for a lot, in addition to a named amount then paid, as much as he should thereafter pay for certain other lots in excess of that amount).

In Brooks v. Federal Surety Co., 24 F.2d 884, 58 App. D.C. 56 (1928), the defendant promised to deliver 25,000 tons of coal to the plaintiff for a price which was to be the amount for which the plaintiff should resell the coal in the market less ten percent as the plaintiff’s compensation. The court held the agreement not enforceable, thinking that its terms left the price to be paid absolutely at the discretion of the buyer. It would not have been unreasonable to hold that the plaintiff had impliedly promised to resell the coal with as much skill and diligence as would be required of an ordinary factor. Under the criteria of U.C.C. § 2-204(3) of intent to contract and reasonably certain basis for a remedy, the case should be decided differently today.

In Canadian Nat. Ry. Co. v. George M. Jones Co., 27 F.2d 240 (6th Cir.1928), there was a mutual agreement for the purchase of 150,000 tons of coal, deliveries to begin April 1, 1922, the price to be “the same as paid seller by other railroads on contract for mine run coal from the Hocking district at the time this contract becomes effective.” On April 1, the seller had no contracts in force with other railroads, because of a coal strike. Work was resumed in August. On Sept. 29 the buyer and seller agreed that the price should be $3.50 per ton. The original agreement was a valid contract, but the fixing of the price in the mode specified never was fulfilled. (Cf. U.C.C. § 2-305(4)). The new agreement fixed the price specifically without reference to other contracts, and it was definite and enforceable. Other contracts thereupon became immaterial, and non-disclosure of existing negotiations with other companies was not fraudulent.

6 Moorestown Management, Inc. v. Moorestown Bookshop, Inc., 104 N.J. Super. 250, 249 A.2d 623 (1969) (formula for assessing dues).

Me.

—Corthell v. Summit Thread Co., 132 Me. 94, 167 A. 79, 92 A.L.R. 1391 (1933).

In Henry v. Scott, 136 So. 2d 101 (La. App. 1961), a dealer received a jeep and a trailer, giving in return two “credit memoranda” in which he promised to credit the customer with specified amounts in trade only and not in cash. The dealer could fix his own price on a new truck and the customer was not bound to buy any new car or truck. The court held that the memoranda were subject to a “potestative condition” and were nudum pactum under Louisiana law. At common law, the dealer’s promise should be regarded as a valid unilateral contract, binding him to give the customer an opportunity to buy a new car or truck at the dealer’s currently established price, with the specified allowance. No breach being definitely established, it is not clear that the action of the customer would be sustained, but the Louisiana court, regarding the agreement as void, gave judgment for reasonable value (not the stated trade-in allowance) in order to avoid “unjust enrichment.” The dealer’s promise should not be regarded as “illusory.”

8 Powell v. Central California Federal Sav. & Loan Ass’n, 59 Cal. App. 3d 540, 130 Cal. Rptr. 635 (1976) (variable interest rate does not make the contract illusory). Accord, Constitution Bank & Trust Co. v. Robinson, 179 Conn. 232, 425 A.2d 1268 (1979).

In Perdue v. Crocker Nat. Bank, 38 Cal. 3d 913, 216 Cal. Rptr. 345, 702 P.2d 503 (1985), appeal dismissed, 475 U.S. 1001, it was held that a signature card permitting the bank to set a fee for checks returned for insufficient funds is binding and not unconscionable.

In Sprik v. Regents of University of Michigan, 43 Mich. App. 178, 204 N.W.2d 62 (1972), aff’d, 390 Mich. 84, 210 N.W.2d 332 (1973), the University’s lease with married students permitted unilateral changes in the rent. None of the judges contested the validity of such a reservation of power by the University. The dissent, however, thought that the power had been abused.

U.S.

—Larson v. Johnson, 184 F. Supp. 2d 26 (D. Me. 2002). Where an agreement to pay a specific amount permits the promisor to select the form or nature of the payment, the promise to pay is not illusory or subject to the “whim” of the promisor. The court cited Restatement (Second) of Contracts, § 34(1) (Am. Law Inst. 1981) to the effect that reasonable certainty may be attained though the contract allows one or both parties to make a selection of terms in the course of performance. Cf. Uniform Commercial Code § 2-311 which recognizes a contract as sufficiently definite though it leaves particulars of performance to be specified by one of the parties.

In Hogan v. Wright, 356 F.2d 595 (6th Cir. 1966), an attorney drafted a letter signed by his client, stating: “you are to pay me a percentage figure acceptable to you.” The client tendered $2,000 which the trial court found to be so insufficient as to amount to bad faith. On appeal, it was held that the trial court’s finding was clearly erroneous.

Cal.

—Badie v. Bank of America, 67 Cal. App. 4th 779, 79 Cal. Rptr. 2d 273 (Cal. 1998), review denied, 1999 Cal. LEXIS 1198 (Feb. 24, 1999); Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777 (9th Cir. 2012) (citing § 4.4 and many other sections of this treatise).

A well-reasoned opinion: Stone v. Golden Wexler & Sarnese, 341 F. Supp. 2d 189 (E.D.N.Y. 2004), where the court, applying California law, cited § 98, 1963 ed., by analogy. Stone obtained a credit card from the defendant bank. The bank’s customer agreement contained a provision stating that the bank could amend or change any part of the agreement and promised to give notice of any such change. In October, 2001, the bank mailed Stone a notice indicating that unless she opted out within one year, the bank would add an arbitration clause to the customer agreement. Stone did not take any steps to opt out and asserted that she was unaware of the arbitration provision until the commencement of the subsequent litigation, in which she challenged the propriety of arbitration. The court concluded that the change-in-terms provision in the agreement should be afforded a narrow interpretation, and that such a provision did not authorize the bank to unilaterally add an arbitration clause. The court stated the issue as whether a person in Stone’s position should have anticipated that the Bank would change the method and forum for resolving disputes. The court concluded that there was nothing in the customer agreement suggesting that Stone intended to grant the Bank any such latitude. The change-in-terms provision contained no mention of dispute resolution mechanisms. Rather, both the change-in-terms provision, and the customer agreement as a whole, addressed issues relating to finance charges and similar matters. The court held that the terms discussed in the change-in-terms clause must supply the universe of terms which could be altered or affected pursuant to that clause. To hold otherwise would permit the Bank to add terms to the customer agreement without limitation either as to substance or the nature of such terms. As one court noted, a contrary holding would allow a bank to “amend” the agreement to include a clause permitting the bank to take a security interest in the customer’s home, or to require the customer to pay a penalty if she failed to convince three friends to sign up with the bank. “Such provisions were as much within the agreement at the outset of the relationship as the arbitration provision.” Accordingly, the change-in-terms provision did not authorize the Bank to unilaterally add an arbitration clause. The court cited Corbin’s explanation (§ 98 from a previous edition) that a reservation of a power to vary price or other performance is not fatal so long as the exercise of such power is subject to prescribed or implied limitations such that the variation is in proportion to some objectively determined base or must be reasonable.

Del.

—Branhaven, LLC v. Beeftek, Inc., 965 F. Supp. 2d 650 (D. Md. 2013) (citing § 4.4).

Me.

—Corthell v. Summit Thread Co., 132 Me. 94, 167 A. 79, 92 A.L.R. 1391 (1933) (“reasonable recognition” for inventions by employee, “the basis and amount of recognition to rest entirely with the Summit Thread Co. at all times.”).

Mass.

—Silver v. Graves, 210 Mass. 26, 95 N.E. 948 (1911).

Or.

—Moore v. Shell Oil Co., 139 Or. 72, 6 P.2d 216 (1931) (contract for the sale of gasoline was held valid though the agreed price was to be at a rate of 4 cents less than the sellers “full market price at N.P. Oregon.”).

Pa.

—Jessup & Moore Paper Co. v. Bryant Paper Co., 283 Pa. 434, 129 A. 559 (1925), appeal after remand, 297 Pa. 483, 147 A. 519 (seller to fix price of goods but promised to meet the price made by other dealers).

Va.

—American Trading and Production Corp. v. Fairfax County Bd. of Supervisors, 214 Va. 382, 200 S.E.2d 529 (1973). American’s land was partially inside Fairfax County. It contracted for Fairfax to allow it to hook up to the Fairfax sewer system in exchange for its promise to pay “all applicable charges set by the board” for sewer services. Then American decided to hook up to the sewer system of the other county. Fairfax, in turn, charged it an “availability fee” on all American’s structures within the county. It was held that the agreement was binding, relying on § 98, 1950 ed., to show than an “open price” agreement is enforceable. The party setting the price must not act arbitrarily.

On this ground the bargain made in Weston Paper Mfg. Co. v. Downing Box Co., 293 F. 725 (7th Cir. 1923), should have been held a valid contract, even though the price payable was to be fixed by the seller every three months at “the seller’s market price then existing under this the seller’s standard form of quarterly price fixing contract.” The seller did not have complete discretion. He was bound to treat the buyer like his other customers under a “standard form” agreement.

In Lipman v. Arlington Seating Co., 192 F.2d 93 (7th Cir. 1951), the court refers with approval to its former decision in the Weston Paper case. The defendant’s alleged acceptance of plaintiff’s order contained the words “Acknowledgment of order only,” but the court justified its decision against plaintiff on the ground of “want of mutuality.” It said that “the price is conditioned entirely on the will of one of the parties.” If this was supported by the facts, the defendant either made no promise or made an illusory promise.

The decision in Washington Chocolate Co. v. Canterbury Candy Makers, Inc., 18 Wash. 2d 79, 138 P.2d 195 (1943), can be sustained because the agreement to buy and to sell at the seller’s “current price list” was left indefinite by reason of proof that the seller maintained no such price list but made separate prices for his customers.

In Ken-Rad Corp. v. R.C. Bohannan, 80 F.2d 251 (6th Cir. 1935), the court said: “The validity of the contract is challenged on the ground that it lacks definiteness and mutuality. We do not so regard it. While price is not fixed, it is capable of definite ascertainment by reference to the manufacturer’s list prices, even though the latter reserved the right from time to time to change price and rate of discount. While no quantity is specified in the agreement, that too was determinable. The contract required the distributor to maintain an adequate supply of tubes to meet the needs of dealers. The dealer contracts involved definite commitments to be supplied by the distributor.”

The court said in Moon Motor Car Co. v. Moon Motor Car Co., Inc., 29 F.2d 3, 4 (2d Cir.1928), “There is no objection to a promise that it is indefinite so long as the parties can tell when it has been performed, and it is enough if, when the time arrives, there shall be in existence some standard by which that can be tested.”

A contract fixing the price of goods, to be imported, at $3.10 per box, price to be “subject to change pending tariff revision,” is not too indefinite for enforcement. If no tariff change occurred before the time fixed for performance the price was $3.10 per box. If the tariff should be increased, the agreement might mean, either that a new price must be agreed on, or that the price should be augmented by the amount of the increase. The court did not need to choose between these two interpretations, for the reason that no change in tariff occurred. Outlet Embroidery Co. v. Derwent Mills, Ltd., 254 N.Y. 179, 172 N.E. 462, 70 A.L.R. 1440 (1930).

A contract for the sale of sugar “basis 22.50” is not made too uncertain for enforcement by the fact that this contemplated the ordering of an assortment of grades on which prices would vary, when there was a published list of the “differentials” that would be applicable. See: American Sugar Ref. Co. v. Colvin Atwell & Co., 286 F. 685 (W.D. Pa. 1923).

See also:

Or.

—Nelson Equipment Co. v. Harner, 191 Or. 359, 230 P.2d 188 (1951) (an agreement provided that the price of a machine should be the manufacturer’s price at place and time of delivery to carrier, a price that was not yet fixed).

Pa.

—Franklin Sugar Ref. Co. v. Howell, 274 Pa. 190, 118 A. 109 (1922).

In Warren v. Skelly Oil Co., 235 F.2d 722 (10th Cir.1956), a producer and a distributor agreed upon the sale and purchase of a minimum quantity of gasoline at “seller’s current tank car price to jobbers on date of shipment.” As to this the court said: “The uncontroverted testimony reveals that the phrase ‘seller’s current tank car price to jobbers on date of shipment’ is a common phrase in the industry sometimes shortened to ‘spot price’, and indicates a price at which a refiner or distributor will sell to those purchasers qualified by contract or custom to buy quantity amounts at wholesale rates. The spot price may vary from day to day and is within the discretion of the seller as to amount, the essence of seller’s agreement being that he will not sell to different jobbers at different prices. Competition in the industry is relied upon to level the spot price among producers.”

Wash.

—C & R Elec., Inc. v. T.R.J. Dev., Inc., 2017 Wash. App. LEXIS 670 (Mar. 20, 2017) (citing this § 4.4 (1993 ed.) (contract for time and materials is an example of an adequate contract).

Wyo.

—Roussalis v. Wyoming Medical Center, Inc., 4 P.3d 209 (Wyo. 2000) (citing § 4.4, 1993 ed.).

10 It has been held that the obligation to fix a price in good faith does not necessarily require that the price be a market or “competitive” price. Good faith was equated with “reasonableness,” a concept which is not always the same as the concept of good faith. Au Rustproofing Center, Inc. v. Gulf Oil Corp., 755 F.2d 1231 (6th Cir. 1985).

Corsale v. Sperian Energy Corp., 2020 U.S. App. LEXIS 19433 (3d Cir. June 23, 2020). Plaintiffs filed a putative class action claiming that Sperian Energy Corporation, an electric generation supplier (a middleman who bought electricity from generators and sold it to consumers) breached their electricity supply contracts when it established retail prices that did not track prices in the local wholesale market. The district court granted Sperion’s motion to dismiss. On appeal, the Third Circuit affirmed. The parties’ contract initially said this: “The price … will be calculated monthly and may change each month in response to market fluctuations based on several conditions including the wholesale electricity prices in [the local wholesale market]. Sperian Energy’s price may be higher or lower than the [local utility company’s] rate in any given month.” Then the terms were updated—apparently before plaintiffs even paid under the initial terms—to say this: “[T]he price will be calculated monthly and may change each month in response to market fluctuations and conditions at the discretion of Sperian Energy. Sperian Energy’s price may be higher or lower than the [local utility company’s] rate in any given month.” The plaintiffs could have opted out but chose not to. They paid higher prices than the local utility companies charged and sued. The Third Circuit held that their claim was not actionable. The court held that the contract did not impose any duty on Sperian to tie its prices to local wholesale prices. Both sets of contract terms “include permissive, rather than mandatory, language regarding price setting.” Further, both sets of terms “provide that Sperian’s prices may be higher or lower than the local utility company’s prices in any given month.” Further, the updated terms “provide that prices may change in response to market conditions ‘at Sperian’s discretion.” The court concluded: “This language does not obligate Sperian to base its prices on prices in the local wholesale market, and therefore, its failure to do so cannot constitute a breach of contract.” The court held that Sperian waived its argument that Sperian breached the duty of good faith and fair dealing, but then it added this: “[T]he implied duty does not displace the clear terms of the parties’ written agreement, see, e.g., USX Corp. v. Prime Leasing Inc., 988 F.2d 433, 439 (3d Cir. 1993), which do not constrain Sperian’s price setting in this way.” The court fails to explain whether the sale of electricity here was governed by Article 2 of the Uniform Commercial Code, which requires “honesty in fact and the observance of reasonable commercial standards of fair dealing.” (In Pennsylvania, this requirement is found at 13 Pa.C.S. § 1201(b)(20).) Further, “[a] price to be fixed by the seller or by the buyer means a price for him to fix in good faith.” (13 Pa.C.S. § 2305 (b).) If the UCC governed the initial contract terms, the court’s decisions seems wanting—finding waiver is one thing; saying that there is no duty to act in good faith based on this contract language seems incorrect: “[T]he price will be calculated monthly and may change each month in response to market fluctuations and conditions at the discretion of Sperian Energy. Sperian Energy’s price may be higher or lower than the [local utility company’s] rate in any given month.” Moreover, it is not clear why the updated language, though it says the seller can charge at its discretion, excuses the seller from its obligation under UCC § 2-305 since the contract does no more than expressly spell out, per the words of the UCC, that it is “[a] price to be fixed by the seller … .” The contract language also says that a criteria to be used is “market fluctuations,” and arguably the remainder of that sentence ought to be interpreted to mean similar verifiable, real world events that would impact pricing—not that Sperian can charge whatever it wants as if that language did not exist, and as if it was not governed by the UCC.

11 This entire section of the Code, § 2-305, is printed herein at § 4.3.

12 A contract for services as an agent provided: “My compensation for such services shall be such sum as you, in your sole judgment, may decide is reasonable.” This was held to require an exercise of judgment “in good faith” by the employer. On a finding that he had failed in this, a judgment for the reasonable value of services actually rendered was sustained. Pillois v. Billingsley, 179 F.2d 205 (2d Cir.1950).

U.S.

—Commerical Credit Co. v. Insular Motor Corp., 17 F.2d 896 (1st Cir.1927).

In Ouston v. Scammell, [1940] 1 All E.R. 59 (C.A.), the court held that a contract for the delivery of a truck was consummated even though it provided that payment should be in installments under a “hire-purchase” agreement to be made with a finance company. The court said: “I think it is right to say that everything must turn upon the actual arrangement made between these particular parties, having regard to the fact that they were business men, dealing with a commercial matter in a usual or very familiar way. For myself, I do not think that the authorities help at all in this matter.” It is true that the terms of the “hire-purchase” agreement might vary in important matters, but the parties agreed to be satisfied with any reasonable and customary form. It was significant here that the defendant’s refusal to perform was in no way related to the terms of “hire-purchase” contract to be made with a finance company.

The decision in this case was reversed in the House of Lords. Scammell v. Ouston, [1941] 1 All E.R. 14 (H.L.), the Lords being convinced that “the parties never in intention, nor even in appearance, reached an agreement … never got beyond negotiations.” The terms of the hire-purchase agreement were never settled. See the note on this case under § 4.1.

N.Y.

—Stern v. Premier Shirt Corp., 260 N.Y. 201, 183 N.E. 363 (1932).

See also:

U.S.

—Auto-Chlor Sys. of Minn., Inc. v. JohnsonDiversey, 328 F. Supp. 2d 980 (D. Minn. 2004). Where the defendants agreed to sell parts and equipment to the plaintiffs “virtually at cost,” the court rejected the defendants’ assertion that U.C.C. § 2-305 should apply, since the price term was not left “open” as the defendants claimed. The court interpreted “virtually at cost” to mean that the defendants were obligated to sell parts/equipment “at a price that is near their cost.”

U.S.

—Beech Aircraft Corporation v. Ross, 155 F.2d 615 (10th Cir. 1946).

16 D.R. Curtis, Co. v. Mathews, 103 Idaho 776, 653 P.2d 1188 (App. 1982).

17 California Lettuce Growers, Inc. v. Union Sugar Co., 278 P.2d 106 (Cal. App. 1954), vacated, 45 Cal. 2d 474, 289 P.2d 785, 49 A.L.R.2d 496.

18 California Lettuce Growers v. Union Sugar Co., 45 Cal. 2d 474, 289 P.2d 785 (1955).

19 The California Lettuce decision, supra, is followed, with respect to the requirement of “mutuality,” in Hunt Foods, Inc. v. Phillips, 248 F.2d 23 (9th Cir.1957).

This treatise (§ 98 from a previous edition) is quoted in Automatic Vending Co. v. Wisdom, 182 Cal. App. 2d 354, 6 Cal. Rptr. 31 (1960), where the court followed the decision of the Supreme Court in the California Lettuce case discussed herein. The plaintiff sued for breach of a written contract whereby the defendant gave an exclusive concession for the sale of cigarettes by vending machines. A commission at a stated percentage of the price received was promised by the plaintiff; but the contract also provided that the plaintiff “may change the above commission rates upon written notice.” The court held that the contract was not lacking in mutuality of obligation. Any change of rates would have to be made in good faith and not unreasonably.

20 Kirkwood & Morgan, Inc. v. Roach, 360 S.W.2d 173 (Tex. Civ. App. 1962), writ refused n.r.e. and rehearing of writ of error over.

21 Landow-Luzier Co. v. Grey, 34 Misc. 2d 1061, 232 N.Y.S.2d 247 (1962).

22 Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475, 548 N.Y.S.2d 920, 548 N.E.2d 203 (1989), reargument denied, 75 N.Y.2d 863, 552 N.Y.S.2d 925, 552 N.E.2d 173, cert. denied, 111 S. Ct. 58.

23 74 N.Y.2d at 485.

24 Marder’s Nurseries, Inc. v. Hopping, 171 A.D.2d 63, 573 N.Y.S.2d 990 (1991), appeal denied, 79 N.Y.2d 757, 583 N.Y.S.2d 193, 592 N.E.2d 801. Here, the appraisal method agreed upon by the parties resulted in a stalemate.

Garmo v. Clanton, 97 Idaho 696, 551 P.2d 1332 (1976). A right of first refusal was sought to be thwarted by the subterfuge of a contract to devise to a third party. The court held that this transmuted the right of first refusal into a right to purchase at fair market value.

25 In Interstate Plywood Sales Co. v. Interstate Container Corp., 331 F.2d 449 (9th Cir. 1964), the price of plywood under an option to purchase was to be “market price” defined as the average price of five other named manufacturers. When this method failed for lack of published price lists and because some of the named manufacturers went out of business, the parties fixed the price by negotiation and by ascertaining as best they could the prevailing prices. If no agreement was reached, the buyer simply failed to exercise the option as to that lot. Seller eventually repudiated. Held, there was no contract. This finding was upheld on appeal. It is correct only if it can be said that seller proved that there was no contractual intent to be bound if the pricing mechanism failed. The facts are at best ambiguous on this question, but if such intent was lacking, there is no basis to enforce the contract.

26 Oglebay Norton Co. v. Armco, Inc., 52 Ohio St. 3d 232, 556 N.E.2d 515 (1990). The intermediate court opinion in this significant case is unpublished but available at 1989 Ohio App. LEXIS 1365 (Ohio App. April 13, 1989).

27 In Kenai v. Ferguson, 732 P.2d 184 (Alaska 1987), the court ordered the landlord and tenant to negotiate pursuant to an escalation clause that provided that “the rents or fees specified herein shall be subject to renegotiation for increase or decrease at intervals of every five years.” The court retained jurisdiction to set the rent in the event the parties were unable to agree.

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.5 »

1 Corbin on Contracts § 4.5 (2020)

§ 4.5. Reasonable Price—Quasi-Contractual Remedy After Performance

An agreement to pay a “fair price” for land or goods or services may be regarded as identical with a promise to pay a “reasonable price.”1 If such is the accepted meaning, the agreement is sufficiently definite for enforcement. It is obvious that a contract to pay a reasonable price, or reasonable compensation for service, leaves plenty of opportunity for difference of opinion and dispute. It cannot properly be assumed that only one price or wage is reasonable under the particular circumstances of any case. Reasonableness is a matter of opinion, and opinions differ, even though they are equally honest and well informed. A promise to pay a reasonable price or wages is, in its legal effect, a promise to pay a sum that a court or jury may determine in case of dispute. Interest, as damages for delay in payment, may in many cases be justly held to begin only after the amount due has been liquidated by a verdict or finding of fact. No hard and fast rule to this effect should be laid down by judicial decision, but often statutes are explicit on this question.

How much is reasonable in any particular case is a question of fact, not one of law.2 There is no rule of law by which the amount can be deductively determined. Like other inferences of fact, however, the evidence from which it must be drawn might be so clear and convincing as to justify the court in withdrawing it from the jury. It is then generally said that the question is “one of law for the court.” It would rarely be so.

After goods have actually been delivered and accepted, or services actually rendered, the defendant is bound to make reasonable compensation therefor, whether the agreement under which the benefit was conferred was too indefinite for enforcement or not. It then becomes unnecessary to determine whether the defendant in reality promised to pay a reasonable price. If the promise was made, the court is enforcing the express promise. If the promise was not made, the duty to pay is described as quasi-contractual,3 but it is identical in result.4 “Reasonable value” is often expressed in the law-Latin phrase quantum meruit. This phrase, or its English equivalent, reasonable value, is used in express or implied-in-fact contracts,5 and in quasi contract cases. Often it is difficult to know which theory is being applied by the court.6 Often the court seems confused as to these distinctions.7 In any of these cases, unless the equities dictate otherwise, the measure of recovery includes cost plus a reasonable profit.8

Even if the subsequent action of the parties fails to clarify an indefinite agreement sufficiently to make it enforceable, it may nevertheless confer such an uncompensated benefit upon one of the parties as to create an obligation to pay the reasonable value of such benefit.9 This obligation is limited to the duty of making payment at a reasonable rate for value generally paid on the market for similar performances.

The indefiniteness and uncertainty may be either as to the performance to be rendered for pay, or as to the amount to be paid for the performance, or as to both at once. If it is the first of these, and a performance has actually been rendered, the defendant must pay the reasonable value of that performance. If it is the second or third, exactly the same result is reached. So where the plaintiff offered to give valuable information for pay, and the defendant promised to “do the right thing and be liberal” in return for such information, the plaintiff could get judgment for quantum meruit.10 The information to be given was not specified in advance, but it became definite when given. The price to be paid was not determinable by any available method, but it was understood that the service was not to be gratuitous. The express agreement was not enforceable, but there is a duty to pay.

In Air Technology Corp. v. General Electric Co.,11 defendant sought to obtain a government contract for construction of a detection system for identification of nuclear explosions. Plaintiff submitted information and plans to be used in defendant’s proposals to the government. After initial discussions, defendant said the plaintiff would be a member of its “team” subject to Air Force approval if a certain meeting between personnel of both parties proved successful. After the meeting, defendant’s representative stated that they were “all set.” Plaintiff furnished advice and information utilized by defendant in obtaining government approval of its proposal. Plaintiff understood it would then be awarded the subcontract for the devices on which it had furnished help, but defendant decided to produce the devices itself. The court held that plaintiff was entitled to recover. The measure of its recovery was not less than the higher of two alternative measures: (a) the value reasonably expended by plaintiff in the performance of its joint arrangement, and (b) the fair value of its contribution to that arrangement. Each of these is, in some sense of the word, a restitutionary recovery.

Footnotes — § 4.5:

1 “The test for a fair price is whether the mortgagee obtained ‘a fair and reasonable price under the circumstances in which [it] acts.’ Reconstruction Fin. Corp. v. Faulkner, 101 N.H. 352, 361, 143 A.2d 403 (1958).” McCarthy v. WPB Partners, LLC, 2017 U.S. Dist. LEXIS 170455, *12 (Oct. 16, 2017).

2 E.L. Klewicki Co. v. American Screw Products Co., 690 F.2d 85 (6th Cir. 1982) (a promise of “some compensation.”); In Hoops v. Gateway Food Products, 824 S.W.2d 451 (Mo. App. 1991), plaintiff, an accountant, testified as to his regular rate, but gave no testimony as to its reasonableness. Thus, there was a failure of proof.

In Ekl v. Knecht, 223 Ill. App. 3d 234, 165 Ill. Dec. 760, 585 N.E.2d 156 (1991) (plumber’s regular rates were unreasonable).

3 Goichman v. Rheuban Motors, Inc., 682 F.2d 1320 (9th Cir.1982). Plaintiff’s illegally parked car was towed away. Plaintiff owed an “implied in law” obligation to pay reasonable value for the towing “service” which he neither asked for nor wanted.

U.S.

—Wehner v. Bauer, 160 F. 240 (C.C. Cal. 1908).

Ariz.

—IMA N. Am., Inc. v. Marlyn Nutraceuticals, Inc., 2008 U.S. Dist. LEXIS 7867, *14–15 (Feb. 1, 2008) (“[U]njust enrichment is warranted when the plaintiff has conferred a benefit upon the defendant in reliance upon an agreement which is unenforceable.”).

Cal.

—Dimas, LLC v. Inv. Grade Loans (In re Dimas, LLC), 2007 Bankr. LEXIS 2516 (Bankr. N.D. Cal. July 24, 2007).

Conn.

—Rowell v. Ross, 87 Conn. 157, 87 A. 355 (1913).

D.C.

—In Bird v. Frye, 216 A.2d 579 (D.C. App. 1966), there was a dispute as to which of two rates applicable to transcript, regular or expedited. Amount between the two had actually been paid and was found to be reasonable under the circumstances.

Ga.

—Brown v. Home Security Corp., 106 Ga. App. 147, 126 S.E.2d 439 (1962).

Iowa

—Hsu v. Vet-A-Mix, Inc., 479 N.W.2d 336 (Iowa App. 1991).

Kan.

—Brakensiek v. Shaffer, 203 Kan. 817, 457 P.2d 511 (1969) (brokerage services in selling a business, promise to compensate); Millspaugh v. McKnab, 134 Kan. 579, 7 P.2d 51 (1932) (to pay an indefinite sum for procuring an oil lease).

Me.

—Corthell v. Summit Thread Co., 132 Me. 94, 167 A. 79, 92 A.L.R. 1391 (1933) (“reasonable recognition” for inventions to be turned over by employee held to mean reasonable compensation).

Mich.

—Huhtala v. Travelers Ins. Co., 401 Mich. 118, 257 N.W.2d 640, 647 n. 14 (1977) (“full and fair settlement.” Indefiniteness was not argued, therefore the court expressed no opinion.).

N.J.

—Van Doren v. Robinson, 16 N.J. Eq. 256 (1863).

S.Car.

—In Costa & Sons Constr. Co. v. Long, 306 S.C. 465, 412 S.E.2d 450 (S.C. App. 1991) (there was no contract because of a misunderstanding, but construction work was done and accepted).

Ohio

—Dixon v. Kittle, 109 Ohio App. 257, 10 Ohio Op. 2d 479, 164 N.E.2d 806 (1959) (services rendered for an indefinite promise to convey “a choice lot.”).

Eng.

—British Bank for Foreign Trade, Ltd. v. Novimex, Ltd., [1949] 1 All E.R. 155 (K.B.).

This treatise (§§ 98 and 99 from a previous edition) is cited in Howard v. Fitzgerald, 58 Wash. 2d 403, 363 P.2d 386 (1961), where the plaintiff offered to sell gasoline station equipment at its “reasonable value,” and the defendant accepted by using the equipment.

Where an owner promised to pay a builder a stated weekly wage and also to pay a percentage of the cost of the building, with no definite percentage agreed, after completion of the building the builder can maintain an action for quantum meruit. Cook v. Saltzer, 74 Idaho 97, 257 P.2d 228 (1953).

This treatise (§ 99, 1950 ed.) is cited in Heim v. Shore, 56 N.J. Super. 62, 151 A.2d 556 (1959), holding that where the parties intended to be bound by a contract to sell land but no enforceable contract resulted because of indefiniteness and uncertainty of terms, a party who has with the other’s assent made improvements on the land is quasi-contractually entitled to reasonable compensation therefor.

5 E.g., Eaton v. Engelcke Mfg, Inc., 37 Wash. App. 677, 681 P.2d 1312 (1984). See Young v. Young, 164 Wn. 2d 477, 191 P.3d 1258 (2008) (dissent, citing § 4.5, 1993 ed.).

6 In Hedges v. Schinazi, 144 Vt. 605, 481 A.2d 1046 (1984), the plaintiff did some paving work. “It is irrelevant whether the parties actually entered into a contract for the partial repair of the driveway.” Under the circumstances the plaintiff was justified in conferring this benefit on the defendant. Reasonable compensation was owed.

7 See United States use of Falco Constr. Co. v. Summit General Contracting Corp., 760 F. Supp. 1004 (E.D.N.Y. 1991). The contractor asked the subcontractor to do additional work. The work was done. The court states that the subcontractor could make no contract claim as a material term—price—had not been agreed upon, but had a quasi-contractual claim. The result would be the same, but the court overlooks the thousands of cases where it is held that if the parties did not discuss price, it is presumed that reasonable price was intended. See § 4.3, 4.4.

Similarly, in Marta v. Nepa, 385 A.2d 727 (Del. 1978), decedent rendered brokerage services for defendant but no rate of compensation agreed upon. Decedent was the procuring cause of a long-term lease entered into by defendant as landlord. The court held that decedent’s estate was entitled to quasi-contractual relief based on quantum meruit. Note that these circumstances typify contracts implied-in-fact.

In Elliot v. Villa Park Trust & Savings Bank, 63 Ill. App. 3d 714, 20 Ill. Dec. 529, 380 N.E.2d 507 (1978), the defendant kept goods in which it had a security interest on plaintiff’s property with the knowledge and consent of plaintiff. The duty to pay storage charges seems implicit under the circumstances detailed. Yet the court characterizes the obligation to pay as implied in law. Similarly, in Comm v. Goodman, 6 Ill. App. 3d 847, 286 N.E.2d 758 (1972), an implied-in-fact contract is treated as an implied-in-law (quasi) contract.

JP White, LLC v. Poe Cos., LLC, 2011 Ky. App. Unpub. LEXIS 392 (May 6, 2011) is a perfect illustration of the confusion between contracts implied-in-fact and implied-in-law and the use of the phrase, “quantum meruit.” Having concluded that evidence was sufficient to produce a prima facie case that an implied-in-fact contract existed in the plaintiff’s services to create a website at the defendant’s request, the court proceeded to hold that the plaintiff could also bring its action under a quantum meruit theory but could not prevail on an unjust enrichment theory. The court suggested that recovery under quantum meruit is proper when a benefit is received and retained as in restitution, but unlike restitution, quantum meruit may also lie where no benefit is conferred, received, or retained. Quantum meruit, however, is simply one of the “common counts” under the old terminology of “special assumpsit” used to recover for services rendered (“work and labor done”). It is not a separate theory. The court recognizes that an action for restitutionary relief based on quantum meruit is an alternative remedy that would be unavailable if there is recovery for breach of contract. If the action is based on an implied-in-fact contract, it has the same effect as an express contract since all real contracts are express—the implied-in-fact contract is expressed in conduct rather than words. If there is no factual promise, the recovery is described as “quasi contractual” entitling the plaintiff to a recovery for the reasonable price of the services rendered. Such “reasonable value” is sometimes called “quantum meruit” which is used in express or implied-in-law contracts.

8 Fairbanks North Star Borough v. Tundra Tours, Inc., 719 P.2d 1020 (Alaska 1986); Heaton v. Imus, 93 Wash. 2d 249, 608 P.2d 631 (1980).

9 In First Nat. Bank v. Burton, Parsons & Co., 57 Md. App. 437, 470 A.2d 822 (1984). Rankin was a successful inventor in the employ of defendant under a series of agreements. The crux of the agreements was specific compensation plus royalties on named products. As to other products he might invent for defendant, royalties would be agreed upon. As to certain of these products negotiations failed to produce agreement. The court ruled that the agreement to agree on royalties for these products was too indefinite. The court also ruled that Rankin’s estate was not entitled to quasi-contractual recovery because Rankin had been compensated by his salary. The court relied on the general rule that when a contract covers the parties’ relationship, there is no role for quasi contract. The application of this rule to these facts involves a logical fallacy as well as an injustice. Having ruled that the portions of the contract involving the royalties in issue were too vague and therefore void, where is the logic in stating that the “contract” governed their relationship?

A better reasoned case is Varney v. Ditmars, 217 N.Y. 223, 111 N.E. 822 (1916). The plaintiff was promised a salary of $40 a week plus “a fair share of my profits.” The majority, over Judge Cardozo’s dissent, ruled that the promise was too vague for enforcement. Therefore, although a share of profits would not be awarded as damages, plaintiff was held to be entitled to the reasonable value of his services minus the $40 a week salary already paid. To the same effect is Marine Development Corp. v. Rodak, 225 Va. 137, 300 S.E.2d 763 (1983).

Another well-reasoned case is Montanaro Bros. Builders, Inc. v. Snow, 190 Conn. 481, 460 A.2d 1297 (1983), appeal after remand, 4 Conn. App. 46, 492 A.2d 223 (1985). Purchaser paid $16,000 for an option to purchase a farm, the seller to subdivide and retain a house with 6 acres of indefinite description. The sellers successfully defended an action for specific performance on grounds of indefiniteness, but also under the statute of frauds. Having so defended, the sellers were estopped from relying on the agreement’s terms to prevent restitution of the option price.

Kan.

—Stewart v. Fourth Nat. Bank, 141 Kan. 175, 39 P.2d 918 (1935).

A restitutionary remedy was also given in Buschmeyer v. Advance Machinery Co., 27 Ohio C.A. 337, 7 Ohio App. 202, 27 Ohio C.C. (n.s.) 337, 29 Ohio Cir. Dec. 207 (1916), motion overruled.

11 Air Technology Corp. v. General Electric Co., 347 Mass. 613, 199 N.E.2d 538 (1964).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.6 »

1 Corbin on Contracts § 4.6 (2020)

§ 4.6. Uncertainty of Subject Matter to Be Exchanged for Price; Requirements and Output Contracts

It is not always the price in money that is left uncertain in an agreement, sometimes it is that for which the price is to be paid. If no method is agreed upon for rendering this subject matter sufficiently definite for enforcement, the agreement must nearly always fail of legal effect.1 It is not customary for courts to fill the gap by finding that a “reasonable” amount of goods or land or labor has been agreed upon as the exchange for the money. It should not be said, however, that such a finding may not be just and true in some cases.2

If the agreement expresses the subject matter of exchange in such a way that it can be identified or definitely determined by the court, it is enough for enforcement. If a method of identification and determination is agreed upon, such that its application produces a reasonable degree of definiteness, the same is true.3 If for $15,000, paid or promised, A promises to convey to B any motor car in A’s stock, there is a valid contract. Of course, it is a condition precedent to A’s duty of immediate transfer that B shall make a selection. The uncertainty will be removed by the method agreed upon, that is, the exercise of B’s power of selection.4

The fact that one of the parties is given an option does not make an agreement too uncertain for validity; it merely makes it necessary that the holder of the option shall exercise the power before asking enforcement by a court. It is to be observed that in cases like the foregoing, in which B has an unlimited option of buying or not buying, B has made no promise whatever. It is only by the exercise of the power of choice that B eventually makes a promise that can be enforced, the contract then becoming bilateral in a new respect. But this fact does not invalidate the original agreement. If B has given some other sufficient consideration for A’s promise, that promise is an enforceable contract according to its express terms.

An agreement for construction work may be sufficiently definite even though it provides that building materials shall be those ordinarily used.5 Indeed, this is true even though no materials are specified in any form.6 Often, a contract for construction of a road, a crossing, a bridge, or a building will not be unenforceable, even though the exact place for such construction is not specified.7 It may be clear that the place is, within certain limits, left to the option of one of the parties. In other cases, the location may so greatly affect the cost or value of performance that the parties did not intend to be bound until further expression of agreement. If one contracts to produce a definite result, the promisor is nonetheless bound because the means of producing that result are left to one’s own discretion.8

Requirements and Output Contracts

A promise by A, for a sufficient consideration, to deliver to B all the coal that B needs to run a factory for a year, is not invalid even though this leaves to B the option of not running the factory at all or of running it at such a rate as B honestly believes it is most beneficial to run it.9 Contracts for the sale of the “entire output” of a mine, factory, farm, or other business are not too indefinite for enforcement.10 Because of the frequency of litigation about the meaning and effect of contracts that measure the quantity of goods by the requirements of the buyer or the output of the seller, such contracts are explicitly validated and regulated by the Uniform Commercial Code. Section 2-306 provides:

(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

This provision removes lingering historical doubts about the validity of contracts of this type.11

Insistence on unneeded goods by a buyer is not in good faith.12 The historical notion that estimates are merely statements of opinion has been abolished in this context. It has generally been held that the requirements buyer may, with impunity, diminish requirements even if the reductions are disproportionate to the normal prior requirements or to any stated estimate, provided the buyer is in good faith.13The seller, too, has some flexibility to deviate from estimates in these contracts.14 Despite the fact that a requirement or output contract is a form of exclusive dealing, the courts seem to have ignored the “best efforts” obligation of U.C.C. § 2-306(2), as applied to these kinds of contracts.15

Footnotes — § 4.6:

1 “A valid contract must be specific as to its essential terms, such as the identity of the parties to be bound, the subject matter of the contract, and consideration.” Phu Ta v. Chaudhry, 2016-Ohio-4944, P13 (Ohio App. 2016). See Berkson v. Gogo LLC, 97 F. Supp. 3d 359 (E.D.N.Y. 2015).

“Although the Credit Policy states it applies to all purchases of goods, nowhere in the credit agreement are the actual goods listed. Nor is the price for such goods listed. It is axiomatic that a contract for the sale of goods must specify both the goods and price by some determinable means.” MP Nexlevel, LLC v. Codale Elec. Supply, Inc., 2010 U.S. Dist. LEXIS 40828, *6 (D. Utah April 6, 2010) (citing this § 4.6).

See also:

U.S.

—King Lumber Co. v. National Bank of Summers, 286 F. 906 (4th Cir.1923) (contract to erect a building with no plans or specifications).

Fla.

—Truly Nolen, Inc. v. Atlas Moving & Storage Warehouses, Inc., 125 So. 2d 903 (Fla. App. 1961), cert. dismissed, 137 So. 2d 568 (lease of wall space for an “advertising sign,” size and character wholly indefinite).

Ga.

—Peachtree Medical Bldg., Inc. v. Keel, 107 Ga. App. 438, 130 S.E.2d 530 (1963) (indefiniteness as to the building as to which plaintiff was to act as a contractor).

Idaho

—Snoderly v. Bower, 30 Idaho 484, 166 P. 265 (1917) (hay to be measured by “government rule,” when there were several such rules).

Mo.

—Southwest Drayage Co. v. Crawford Moving Vans, Inc., 377 S.W.2d 293 (Mo. 1964) (joint venture to bid on government moving job omitted which job would be bid and how much bid would be).

Mont.

—Price v. Stipek, 39 Mont. 426, 104 P. 195 (1909) (goods ordered on a list without saying how many of each).

Wis.

—Factor v. Peabody Tailoring System, 177 Wis. 238, 187 N.W. 984 (1922) (agreement to deliver tailor-made suit or overcoat for $50 without specifying any material).

“If this alleged contract was intended as an agreement ‘to do a particular thing,’ no man, from the documents, can ascertain the thing. It purports to concern the purchase and sale of a house, but whether the house is of one room or one hundred, whether it is built of straw or stone, whether it stands on a lot or a section, whether it is located in Denver or Dublin, are mere matters for conjecture. Not only are these essentials unsettled, but no hint of a method of settlement can be gleaned from the writing.” Greater Service Homebuilders’ Inv. Ass’n v. Albright, 88 Colo. 146, 293 P. 345 (1930).

A contract is not made too indefinite for specific enforcement by the fact that it provides for the conveyance of a tract described by metes and bounds, with the exception of 60 acres to be “designated by the buyer prior to taking title to the land” and giving to the seller “a right of way of 25 feet to the excepted land.” Before filing his petition, however, the buyer must validly designate the 60 acre tract to be excepted. E.M. Loews, Inc. v. Deutschmann, 337 Mass. 42, 147 N.E.2d 832 (1958).

In Francois v. Alexius, 82 So. 2d 113 (La. App. 1955), appeal transferred, 77 So. 2d 734, 226 La. 978, an exchange of lands was agreed on, 4 acres to be selected by mutual agreement out of one tract in exchange for a specific second parcel of land. This was unenforceable for uncertainty of subject matter, but the parties later agreed upon a specific 4 acres and thus validated their contract. The court’s opinion is involved with interpretation of a statute dealing with “potestative” conditions, a statute that is confusing in its terms and definitions.

In Stekoll Petroleum Co. v. Hamilton, 152 Tex. 182, 255 S.W.2d 187 (1953), an option to acquire “leases on 4,000 of the 5,000 acre block No. 2 … said 4,000 acres to be selected by Buyer leaving Sellers 1,000 acres equitably checker-boarded …” without any definite mode indicated, was held too indefinite for enforcement.

2 An agreement to support a person is not too indefinite. The court or jury can determine in each case what performance is reasonably necessary for support.

Ala.

—Limbaugh v. Boaz, 16 Ala. App. 411, 78 So. 421 (1918) (contract by lessor to furnish supplies for lessee and his family).

Colo.

—Henderson v. Spratlen, 44 Colo. 278, 98 P. 14 (1908).

N.D.

—Coykendall v. Kellogg, 50 N.D. 857, 198 N.W. 472 (1924).

Or.

—This treatise (§ 100 from a previous edition) is quoted in Klimek v. Perisich, 231 Or. 71, 371 P.2d 956 (1962) (parties agreed upon a maximum price for the remodeling of a house, but the nature and extent of the remodeling were left for future determination).

A contract to put a barge “in good repair” is not too uncertain and indefinite. Ollinger & Bruce Dry Dock Co. v. James Gibbony & Co., 202 Ala. 516, 81 So. 18 (1919).

An agreement to furnish two hundred pieces of tricotine at $3.02 per yard, provided further that the buyer should have the “privilege to confirm more of the above if the seller can get more.” This was held to create a binding option in the buyer, to buy as much as he might choose to order, conditioned only on the seller’s ability to get the goods. This was so held, even though there was no definite word as to quantity, time, or price. The buyer promptly ordered as much more as the seller could procure. With the buyer’s assent, the seller procured 500 pieces and actually delivered only sixteen. Heyman Cohen & Sons v. M. Lurie Woolen Co., 232 N.Y. 112, 133 N.E. 370 (1921).

A promise by a lessee to drill a gas well “at a location agreed upon by the parties” is not too indefinite for enforcement. There is a duty to assent to some reasonable location. Golston v. Bartlett, 112 S.W.2d 1077 (Tex. Civ. App. 1938), writ dismissed w.o.j.

3 A contract is not made too indefinite by the fact that it provides for an amount described as “approximately” so many, or a definitely stated amount “more or less.”

Mass.

—Nickel v. Zeitz, 258 Mass. 282, 154 N.E. 769 (1927).

Mo.

—Browning v. North Missouri Cent. R. Co., 188 S.W. 143 (Mo. 1916).

Compare George W. Wilcox, Inc. v. Shell Eastern Petroleum Products, Inc., 283 Mass. 383, 186 N.E. 562 (1933). The same is true where a quantity is specified as a total, the buyer or the seller having the privilege of dividing it up into various sorts or sizes with variations from a base price according to a list of differentials.

U.S.

—American Sugar Ref. Co. v. Colvin Atwell & Co., 286 F. 685 (W.D. Pa. 1923).

Pa.

—Franklin Sugar Ref. Co. v. Howell, 274 Pa. 190, 118 A. 109 (1922).

A promise to pay all the debts of a person deceased is not too uncertain. The beneficiaries are made certain by the proper establishment of their claims. Planters’ Warehouse & Com. Co. v. Barnes, 229 Ala. 572, 159 So. 63 (1934). In Bowles v. Babcock & Wilcox Co., 209 Ga. 858, 76 S.E.2d 703 (1953) an option contract for the purchase of a tract of land was not too indefinite for specific enforcement because it provided that one of the boundaries was to be the line of a highway to be fixed later by public authority. The price was $4,000 per acre to be determined by accurate survey after the line was fixed.

An express contract to supply labor and materials for “approximately $900 or $1000” will not support a judgment for $1,454. Muir Bros. Co. v. Sawyer Const. Co., 328 Mass. 413, 104 N.E.2d 160 (1952).

A written option contract provided for the purchase of an interest in an oil lease, including 4,000 acres out of a 5,000 acre tract, to be selected by the purchaser in a “checkerboard” pattern. This was not fatal to validity. The purchaser was bound to make a selection. There was not a mere contract to make a contract. Hamilton v. Stekoll Petroleum Co., 250 S.W.2d 645, 1 O.&G.R. 1362 (Tex. Civ. App. 1952), rev’d, 152 Tex. 182, 255 S.W.2d 187 (1953).

For a doubtful case involving “more or less”, see Green v. K.S. Webster & Sons, 77 Idaho 281, 291 P.2d 864 (1955).

In Byrne v. Shell Oil Co., 295 F.2d 797 (7th Cir. 1961), the plaintiff developed a design for an “animated motor oil window display” and forbore to submit it to Shell’s competitors in reliance on Shell’s oral promise to purchase its “requirements” for a year at a reasonable price, with a minimum of 1000 displays, the “requirements” to be determined by the number that Shell’s dealers (some 23,000 in number) might order. The court held that this agreement was not too indefinite for enforcement, that Shell was bound to ascertain by good faith effort how many the dealers would order, and that the evidence as to the amount of damages was not too uncertain. Shell had prevented performance by informing its dealers that a different display had been adopted.

In McKinley v. Lagae, 207 Cal. App. 2d 284, 24 Cal. Rptr. 454 (1962), a contract for the sale of a ranch, in the form of a Deposit Receipt and Escrow Instructions, described the property as follows: “The Chimney Rock Ranch with all appurtenances; Real Property and personal property as declared in sale as on property at this moment … . A complete inventory will be included in sale.” This was held not to be too uncertain as to the personal property for enforcement, even though no inventory was ever completed. The defendant purchaser prevented the completion of the inventory by repudiation of the contract.

An agreement “substantially” to charge $6500 “or nearly so” for landscaping was held not to be invalid in Janzen v. Phillips, 73 Wash. 2d 174, 437 P.2d 189 (1968).

Ark.

—The exact case here put is illustrated by Dolly Parker Motors, Inc. v. Stinson, 220 Ark. 28, 245 S.W.2d 820 (1952). Damages for buyer’s refusal to make a selection would be the smallest profit that seller would make on any of the cars. Cf. U.C.C. § 2-311.

See:

U.S.

—Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., 855 F.3d 1356 (Fed. Cir. 2017) (citing § 4.6).

Nev.

—Delaney v. Shellabarger, 76 Nev. 341, 353 P.2d 903 (1960) (contract to convey to purchaser any 520-acre tract which he might choose out of a larger tract of 3,518.91 acres).

Cf:

U.S.

—Nebraska Aircraft Corp. v. Varney, 282 F. 608 (8th Cir.1922), a doubtful decision.

In Langer v. Lemke, 78 N.D. 383, 49 N.W.2d 641 (1951), the agreement was for the sale of a number of acres to be selected by the buyer out of a larger tract. The number of acres could be determined by the value of the shares of stock to be given in exchange, at a stated price per acre. A method for determining the specific acres to be conveyed, but giving the buyer some freedom of choice. The terms were held not too indefinite.

A contract for the sale of land is not too indefinite for enforcement if it provides for conveyance of a stated portion of a larger tract that is clearly described, the specific portion to be selected by the purchaser. A purchaser who repudiates may be ordered to make his selection, and on his refusal the court may appoint commissioners to make it. Calder v. Third Judicial Dist. Court, 2 Utah 2d 309, 273 P.2d 168, 46 A.L.R.2d 887 (1954).

N.Y.

—Singer v. Henry Disston & Sons, 178 A.D. 108, 165 N.Y.S. 94 (1917).

Ga.

—Farkas v. S. Cohn & Son, 19 Ga.App. 472, 91 S.E. 892 (1917) (a new glass front for a building).

Mass.

—Jones v. Parker, 163 Mass. 564, 40 N.E. 1044 (1895).

N.Y.

—Lawrence v. Saratoga Lake R. Co., 36 Hun. 467 (N.Y. 1885) (specific enforcement of contract for a bridge and a “neat station.”).

In spite of the truth of the above statement in the text, it must be borne in mind that in negotiations for building construction the parties do not often intend to be bound at all until they have expressed agreement upon elaborate plans and specifications, including time, place, labor, kind and quantity of materials. See, for example, Nave v. McGrane, 19 Idaho 111, 113 P. 82 (1910). All that is being said above is that parties may make an enforceable contract without making so many specifications, if they clearly express an intention so to be bound. In Tobin v. Union News Co., 18 A.D.2d 243, 239 N.Y.S.2d 22 (1963), aff’d, 13 N.Y.2d 1155, 247 N.Y.S.2d 385, 196 N.E.2d 735, the lease of a restaurant provided that the second floor of the building should be altered by the lessee within one year from existing living quarters to banquet and restaurant facilities. The court reversed the decision below and held that the provision was not too indefinite and uncertain for enforcement. It said: “The language of the clause is neither meaningless or ambiguous … . The specifics of implementing the intention of the parties are absent but the liability is present.” Parol evidence to do this implementing was admissible, so long as it did not contradict what was written. “All the circumstances leading to its execution may be shown for the purpose of elucidation … .”

Ky.

—Chesapeake & O. Ry. Co. v. Herringer, 158 Ky. 267, 164 S.W. 948 (1914) (private crossing).

N.Y.

—Lawrence v. Saratoga Lake R. Co., 36 Hun. 467 (N.Y. 1885).

8 In Strakosch v. Connecticut Trust & Safe Deposit Co., 96 Conn. 471, 114 A. 660 (1921) it was held that the mere fact that the promisor retained the privilege of determining the method of carrying out a promise to make provision for the plaintiff so as to secure for her an assured income of $2,500 to $3,000 a year, did not make the promise too indefinite for enforcement.

A contract to supply an aged person with a home, support and care for life is not made invalid by the fact that the exact location and the means of support are not specified, that the promisee was 91 years old, or that successful performance of such a contract requires “patience, adaptability and accord on all sides.” Podkowicz v. Slowineski, 41 N.J. Super. 474, 125 A.2d 427 (1956), aff’d, 44 N.J. Super. 149, 129 A.2d 885, cert. denied, 25 N.J. 43, 134 A.2d 539.

See Bettancourt v. Gilroy Theatre Co., 120 Cal. App. 2d 364, 261 P.2d 351 (1953) (contract to build a “First Class Theatre”); and Bohman v. Berg, 54 Cal. 2d 787, 8 Cal. Rptr. 441, 356 P.2d 185 (1960) (contract to construct a “land yacht” out of a motor bus, with specified items).

This treatise (§ 100, 1963 ed.) is quoted in Southern Land, Timber & Pulp Corp. v. Davis & Floyd Engineers, Inc., 109 Ga. App. 191, 135 S.E.2d 454 (1964), in holding that a general supervisory engineering contract was not too vague to support a suit for breach.

The implied duty of good faith applies to contractual obligations that leave the manner of performance to one party’s discretion. See, e.g., United States Bank Nat’l Ass’n v. PHL Variable Life Ins. Co., 112 F. Supp. 3d 122 (S.D.N.Y. 2015). A party generally does not have unbridled discretion as to the manner of performance merely because the contract does not expressly dictate how performance is to be accomplished.

Cal.

—Fisher v. Parsons, 213 Cal. App. 2d 829, 29 Cal. Rptr. 210 (1963). A tenant orally agreed to lease from the plaintiff all the office space that the tenant might need in its business. The plaintiff, owner of the building, promised to provide such space to the extent that it should be available. This was not too indefinite for enforcement against the tenant, who committed a breach by vacating the floors and refusing to pay rent.

Ill.

—Minnesota Lumber Co. v. Whitebreast Coal Co., 160 Ill. 85, 43 N.E. 774 (1895).

N.Y.

—Orange & Rockland Utilities, Inc. v. Amerada Hess Corp., 59 A.D.2d 110, 397 N.Y.S.2d 814, 96 A.L.R.3d 1263 (1977) (requirements of fuel oil to generate electricity).

Okla.

—M.W. Kellogg Co. v. Standard Steel Fabricating Co., 189 F.2d 629, 26 A.L.R.2d 1090 (1951) (all the fabricated steel needed for a particular project).

A contract by a pipe line company to buy the gas produced by certain gas wells, to be taken in amounts to be prorated among the wells and limited by the amount needed for distribution among the pipe line’s customers is not too indefinite for specific enforcement. Southwest Pipe Line Co. v. Empire Natural Gas Co., 33 F.2d 248, 64 A.L.R. 1229 (10th Cir. 1929).

Cal.

—Rosenberg v. Rogers, 44 Cal. App. 196, 186 P. 366 (1919) (fig crop).

Del.

—Liberty Brand Canning Co. v. Denby, 30 Del. (7 Boyce) 465, 108 A. 142 (1918) (tomato crop).

Ky.

—Ross-Vaughan Tobacco Co. v. Johnson, 182 Ky. 325, 206 S.W. 487 (1918) (tobacco crop).

Mo.

—Warren v. Ray County Coal Co., 200 Mo. App. 442, 207 S.W. 883 (1919) (output of coal).

Or.

—Propst v. William Hanley Co., 94 Or. 397, 185 P. 766 (1919) (hay crop).

Tex.

—Arcola Sugar Mills Co. v. Farmer Hamlett’s Co., 220 S.W. 385 (Tex. Civ. App. 1920), writ dismissed w.o.j., (syrup output of a mill).

11 “Section 2.306 renders output and requirements contracts sufficiently definite as to quantity and enforceable by reading into such contracts a quantity that is the actual good faith output or requirements of the particular party.”

Lenape Resources Corp. v. Tennessee Gas Pipeline Co., 925 S.W.2d 565, 570 (Tex. 1996). See comments 2 and 3 to U.C.C. § 2-306.

12 Homestake Mining Co. v. Washington Public Power Supply System, 476 F. Supp. 1162 (N.D. Cal. 1979), aff’d per curiam, 652 F.2d 28 (9th Cir.); Orange & Rockland Utilities, Inc. v. Amerada Hess Corp., 59 A.D.2d 110, 397 N.Y.S.2d 814, 96 A.L.R.3d 1263 (1977).

13 Including an estimate in a requirements or an output contract does not transform it into a fixed quantity contract. “The majority of courts to interpret this portion of the statute and address the issue of whether a party to an output or requirements contract under U.C.C. section 2-306(1) may reduce its output or requirements, even to zero, despite stated estimates in the contract, have concluded a party may do so as long as the reduction is made in good faith.” Keyes Helium Co. v. Regency Gas Servs., L.P., 393 S.W.3d 858, 864 (Tex. App. 2012). See Structural Polymer Group, Ltd. v. Zoltek Corp., 543 F.3d 987, 995 (8th Cir. 2008) (“A buyer under a requirements contract may, consistent with the contract, reduce its requirements even to zero, as long as the buyer is acting in good faith.”). “Reasonable variation” can be of “an extreme sort” under the right circumstances. See U.C.C. § 2-306 comment 2.

In Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333, 1338 (7th Cir. 1988), one of the landmark decisions in this area of the law, Judge Posner made clear that the standard is vague, there is no strict legal formula that can be applied to furnish an answer. This is because the term “good faith” does not have “a settled meaning in law generally; it is a chameleon.” A party would be considered to have acted in good faith if its deviation from stated estimates was motivated by a business reason independent of the terms of the contract or any other aspect of its relationship with the seller. Posner grappled with the question of “how exigent the [party’s] change of circumstances must be to allow him to” deviate from an estimate “or, in the absence of estimate, the ‘normal’ level.” He concluded that it need not rise to the level of impossibility, impracticability, or frustration, “although more than whim is required … how much more is unclear. There is remarkably little authority on the question.” Here is the closest he came to providing a test: “The essential ingredient of good faith in the case of the buyer’s reducing his estimated requirements is that he not merely have had second thoughts about the terms of the contract and want to get out of it.” A party “cannot arbitrarily declare his” obligations to be zero in the face of an estimate. Thus, the party has to be able to articulate a business reason for the deviation. See also, Brewster of Lynchburg v. Dial Corp., 33 F.3d 355 (4th Cir. 1994) (adopting Empire Gas’ analysis regarding “second thoughts”). A classic case where even an extreme deviation was allowed is Southwest Natural Gas Co. v. Oklahoma Portland Cement Co., 102 F.2d 630 (C.C.A.10, 1939). Judge Posner described that case as follows: “A cement company agreed to buy all of its requirements of gas from the seller for 15 years. Seven years later, the cement company replaced its boiler, which had worn out, with more modern equipment; as a result its need for gas fell by 80 percent. The court deemed this a bona fide change in the cement company’s requirements. It would have been unreasonable to make the company replace its worn-out plant with an obsolete facility.” Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333, 1338 (7th Cir. 1988). See also, Atlantic Track & Turnout Co. v. Perini Corp., 989 F.2d 541, 544 (1st Cir. 1993) (“[W]hile § 2-306 precludes buyers from demanding a quantity of goods that is unreasonably disproportionate to a stated estimate, it permits ‘good faith reductions that are highly disproportionate.’” Further: “[A] party who ceases performance under an output contract for independent business reasons acts in good faith.”). See, e.g., Dienes Corp. v. Long Island R.R., 2002 U.S. Dist. LEXIS 6824 (E.D. N.Y. Mar. 19, 2002); Canusa Corp. v. A & R Lobosco, 986 F. Supp. 723 (E.D.N.Y. 1997); Angelica Uniform Group, Inc. v. Ponderosa Systems, Inc., 636 F.2d 232 (8th Cir.1980); R.A. Weaver & Associates, Inc. v. Asphalt Constr. Co., Inc., 587 F.2d 1315 (D.C.Cir.1978); Wilsonville Concrete Products v. Todd Building Co., 281 Or. 345, 574 P.2d 1112 (1978).

See also Brewster of Lynchburg, Inc. v. Dial Corp., 33 F.3d 355 (4th Cir. 1994) (applying Arizona law). Dial entered into an oral contract with Brewster for Brewster to supply all Dial’s plastic bottle needs for a plant in Salem, Virginia. The deal was struck after a blizzard of price quotes, purchase orders, change orders, and conversations worthy of a law school exam question on U.C.C. § 2-207. Settling the dust, the Fourth Circuit concluded that the contract allowed Dial to exercise an escape clause only on the contract’s anniversary—June 30. In August Dial authorized the sale of its Salem plant because it continued to be unprofitable, and in September gave notice of termination to Brewster. Brewster ultimately sued. The Fourth Circuit held that though no Arizona authority has addressed the issue, under Arizona law a requirements contract allows a buyer to reduce the quantity demanded to any amount, including zero, so long as it does so in good faith. If the seller wishes to reallocate some of the risks inherent in such a contract, the court said, it may specify some minimum requirement, which Brewster had not done. Thus, though Dial had wrongly assumed a power to terminate prior to June 30, it was nonetheless entitled to reduce its requirements to zero, so long as it did so in good faith. The court found that Dial acted in good faith. Dial closed the Salem plant as part of its overall restructuring of the Special Business Division. Dial ultimately closed all but one of the plants within this division. Hence, Dial’s decision to have no requirements “did not stem from any desire to avoid its obligations to Brewster, but rather from a legitimate business decision.” 33 F.2d at 366.

14 Canusa Corp. v. A & R Lobosco, 986 F. Supp. 723 (E.D.N.Y. 1997). Canusa held that the test for assessing the propriety of a seller’s deviation from contractual estimates is good faith: honesty and commercial reasonableness. Id. There is a great emphasis on the seller’s motivation for deviating from the estimate in a requirements or output contract. In Keyes Helium Co. v. Regency Gas Servs., L.P., 393 S.W.3d 858 (Tex. App. 2012), the supplier reduced the stated estimates in the contract to zero when it shut down the plant that supplied the product. The supplier had a legitimate business reason for shutting down the plant: it had learned that a large, unrelated customer was going to stop purchasing its supply from supplier, and to blunt that loss, supplier shut down the plant. At trial, the court directed a verdict in favor of the supplier on the claim that its variation from the contract’s stated estimate (to zero) was unreasonable. But see Feld v. Henry S. Levy & Sons, Inc., 37 N.Y.2d 466, 373 N.Y.S.2d 102, 335 N.E.2d 320 (1975): A bakery ceased making bread crumbs because it was no longer profitable. and the court said it violated U.C.C. Section 2-306. While the court suggested that a seller would not have to face bankruptcy before ceasing production, the situation would have to be fairly austere (something “more than trivial”).

15 Feld v. Henry S. Levy & Sons, Inc., 37 N.Y.2d 466, 373 N.Y.S.2d 102, 335 N.E.2d 320 (1975), is a case in point. The defendant had contracted to sell its output of bread crumbs to plaintiff. Because of increasing costs, it demanded an increased price which plaintiff refused to pay. Defendant ceased to make bread crumbs. The court ruled that this cessation was permissible if the seller’s losses were more than trivial.

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.7 »

1 Corbin on Contracts § 4.7 (2020)

§ 4.7. Effect of Subsequent Verbal Clarification or Action by the Parties

Even though the parties have expressed an agreement in terms so vague and indefinite as to be incapable of interpretation with a reasonable degree of certainty, they may cure this defect by later verbal clarification1 or their subsequent conduct that indicates their own practical interpretation.2 If the parties have used such indefinite language as to leave it uncertain whether or not they intend to close the deal and make a contract, subsequently proceeding with or accepting performance under it may remove the uncertainty. If the expressions used leave the subject matter, or the price or the time or any other element of the performance incapable of determination, the rendition of a part or all of the performance may make clear the meaning that should be given to those expressions.3

Even if the subsequent conduct of the parties does not make clear the meaning of their original expressions, it may be such as to create a new and definite tacit contract. This new tacit contract may be enforceable in itself without regard to whether it is identical with the earlier expressions of agreement. If it is identical, well and good; if it is not identical, it is nevertheless enforceable, and the earlier inconsistent agreement is discharged by a substituted agreement. Just as parties may replace a definite verbal contract with another and different verbal contract, so may they replace one with another and different tacit contract.4 Actual performances under a general indefinite arrangement may amount to no more than a series of separate transactions, valid in themselves, but not clearing up the indefiniteness as to time, price, or amount so as to make the general arrangement an enforceable contract.5

In very many cases, however, the subsequent performance does not create a new contract. It is instead merely a new and more definite expression of the agreement they have already made but have defectively expressed. The distinction here indicated is a matter of some importance, especially where the agreement is one that is required by statute to be in writing. If the subsequent conduct is regarded as the making of a new tacit contract, the statute may make it unenforceable. If, however, the subsequent conduct is merely the clarification of a previous agreement, reduced to a writing that is capable of more than one interpretation, that writing as now interpreted may be a sufficient fulfillment of the requirements of the statute.6

It must be remembered, however, that a new tacit contract, differing materially from a former agreement, may be made enforceable by reason of its part performance and without any writing whatever even though it is clearly within the statute of frauds.

Even in the case of a fully “integrated” contract, the parties may use language the exact application of which they know to be uncertain and to which they are too indifferent at the time the contract is executed to try to make clear. This does not prevent the existence of a valid contract. It makes necessary the introduction of testimony as to the property, persons, and events to which the language is related, and it causes much greater weight to be put upon the subsequent practical interpretation and construction of the parties themselves.7

The Sales Article of the Uniform Commercial Code is in general agreement with the views herein. Section 2-208(1) of the Code provides:

“Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.”

A good illustration is Bayer Chems. Corp. v. Albermarle Corp.8 Albermarle agreed to supply 100 percent of Bayer’s requirements of a C16-C18 compound, alkenyl succinic anhydride (ASA), used in the paper sizing industry. The parties’ contract defined the ASA compound in this manner: “C16-C18 alkenyl succinic anhydride (hereinafter referred to as ‘PRODUCT’).” Importantly, the percentages of C16 and C18 were not mentioned in the express terms of the contract. Nevertheless, after contract formation, beginning in 1997, the formulation of the product that was actually supplied was this: 65 percent C16 and 35 percent C18.

Section 1.7 of the agreement stated that if Bayer decided to “reformulate or substitute another material or compound for Product,” the parties would enter into negotiations to agree upon the supply of the new chemical. If an agreement was not reached following good-faith negotiations, then Bayer had the right to seek the supply of the chemical from a third party. Albermarle had the first right of refusal to match any third-party offer. Pursuant to this clause, in 2003, with two years remaining under the agreement, Bayer notified Albermarle that it wanted to reformulate the composition of the Product by changing the percentages of C16 and C18 from 65 percent C16 and 35 percent C18, to 75 percent C16 and 25 percent C18. Albermarle, however, claimed that under the express provisions of the parties’ contract, the term “Product” did not establish any percentages of each component. It also pointed to the sales agreement’s merger clause to argue that course of performance evidence was inadmissible to alter the agreement. It argued that it had the exclusive right to provide any formulation of C16/C18 that Bayer required—because of the broad definition given to Product in the contract. In essence, Albermarle argued that there was nothing to reformulate since the way the Product was originally defined in the contract encompassed Bayer’s reformulation.

Bayer argued that the formula supplied since 1997—65 percent C16 and 35 percent C18—had become the contract formula via the parties’ course of performance. Thus, Bayer argued it was permitted to invoke the reformulation clause when it sought to alter that formulation. The district court granted Bayer’s motion for judgment on the pleadings. On appeal, the Third Circuit affirmed on the footing that the term “Product,” as intended by the parties, was clearly defined not by the express words of the contract but by the parties’ course of performance because the seller had manufactured and shipped the 65/35 product as 65 percent C16 and 35 percent C18, and the buyer had accepted that product on a continuous basis over several years. Course of performance was clearly demonstrated.

Although the basic purpose of U.C.C. § 2-208(1) is to provide guidance on the interpretation of what are conceded contracts, it is also applicable to determine whether a particular relationship is contractual.9

It is no doubt possible that an indefinitely expressed agreement may later be made clear and enforceable by the action of one party alone. Usually, however, such a result requires some interpretative conduct by both parties, consisting either of the rendition of some performance by each one or by the willing acceptance by one of them of such a performance rendered by the other. After an agreement has already been made, neither party acting alone has power to change it by self-serving declarations or interpretations, or by proceeding with a performance other than as agreed. So, too, neither party can by subsequent action fashion an insufficiently expressed agreement to his or her will by self-serving action or interpretation.10 There may be cases in which a party’s subsequent action is not self-serving. It may be an interpretative admission against interest, one that removes all doubt as to the terms of the previous agreement that was not sufficiently expressed.

There are many cases in which an agreement fixes no time limit and provides that it shall be terminable at the will of either party. This is not an enforceable contract when made. Nevertheless, if performance as specified is rendered under it, a valid obligation to pay the specified compensation is created.11 The rendition of the service is the exercise of a power, and creates a contract, that may be either unilateral or bilateral. Previously, it is clear, there was no contract and nothing to be made clear and definite by any process of interpretation.

Footnotes — § 4.7:

1 Perreault v. Hall, 94 N.H. 191, 49 A.2d 812 (1946). The defendant promised to pay plaintiff “well and enough.” Upon plaintiff’s retirement, defendant promised to pay her $20 a week, a promise to which she acquiesced. The indefiniteness had been cured.

U.S.

—United States v. New York, 131 F.2d 909 (2d Cir.1942), cert. denied, 318 U.S. 781.

Conn.

—Roessler v. Burwell, 119 Conn. 289, 176 A. 126 (1934); Strang v. Witkowski, 138 Conn. 94, 82 A.2d 624 (1951); Palumbo v. George A. Fuller Co., 99 Conn. 353, 362, 122 A. 63, 67 (1923).

Ga.

—In Pine Valley Apartments Limited Partnership v. First State Bank, 143 Ga. App. 242, 237 S.E.2d 716 (1977), there was a blank left in a note for the amount of a future advance for construction. Held: recovery can be had for the amount actually advanced. In Self v. Smith, 98 Ga. App. 876, 107 S.E.2d 721 (1959), the court held that indefiniteness of terms of a contract would not prevent enforcement of one specific assumption of certain debts by the defendant, when the contract had in all other respects been fully performed. In Breed v. National Credit Ass’n, 211 Ga. 629, 88 S.E.2d 15 (1955), a salesman under an existing employment became sales manager. The parties then executed a written agreement whereby “In consideration of $1 and his employment” the defendant promised to serve faithfully and not to enter a competing business for three years after termination of service. It was agreed that either party might terminate employment by one week’s notice. Neither the compensation nor the place and character of the services were stated. Employment at a salary and commissions continued for two years, whereupon the defendant gave the required notice to terminate and set up a competing business. A demurrer to the employer’s complaint for “lack of mutuality” and indefiniteness was overruled, the court holding that even though the contract when made may have been invalid, full performance under it for two years eliminated those defects. Also, the terms of restraint were reasonable and lawful. See also § 170, 1185, 1394.

Ill.

—Smithereen Co. v. Renfroe, 325 Ill. App. 229, 59 N.E.2d 545 (1945).

Ind.

—Jackson v. First Nat. Bank & Trust Co., 115 Ind. App. 313, 57 N.E.2d 946 (1944). A promise to convey property in return for “taking care” of promisor as long as he lives is made sufficiently definite by actual performance rendered and received.

Kan.

—Nelson v. Schippel, 143 Kan. 546, 56 P.2d 469 (1936).

Ky.

—A promise in exchange for shares “to pay, or properly secure the payment, of $18,000,” even though indefinite as to the alternative in form of security, was held to be sufficient to justify specific enforcement of the return promise to sell the shares, if the buyer tendered full payment in cash. Talamini v. Rosa, 257 Ky. 228, 77 S.W.2d 627 (1934).

Md.

—Eastern Woodworks v. Vance, 206 Md. 419, 112 A.2d 231 (1955) (uncertainty of meaning of the phrase “contract value,” as the measure of commissions to be paid for services in procuring contracts, was eliminated by the subsequent “practical construction” of the term by the parties).

Mich.

—Berry v. Dalman, 335 Mich. 646, 56 N.W.2d 209 (1953). Facts appearing subsequently to the time of agreement, not known to the parties at that time, are not relevant on the issue of what the terms agreed on were.

Minn.

—Johnson v. Quaal, 250 Minn. 154, 83 N.W.2d 796 (1957) (specifically enforcing an oral contract by a lessor to sell the land to the lessee, citing § 101 from a previous edition).

Neb.

—Nebraska Nutrients, Inc. v. Shepherd, 261 Neb. 723, 626 N.W.2d 472 (Neb. 2001). Although an agreement did not contain an essential term, when this term was supplied by a subsequent agreement approximately 35 days later, it defined with reasonable certainty the nature and extent of the parties’ obligations under the original agreement such that the agreement was enforceable. (The court cited § 4.7, 1993 ed.)

N.Y.

—Rubin v. Dairymen’s League Co-op. Ass’n, 284 N.Y. 32, 29 N.E.2d 458 (1940), reh’g denied, 284 N.Y. 816, 31 N.E.2d 927. This treatise (§ 101, 1963 ed.) is cited in Koleinimport “Rotterdam” N.V. v. Foreston Coal Export Corp., 283 F. Supp. 184 (S.D.N.Y. 1968), where it was held that summary judgment should not be granted on the question of whether a series of cables and discussions, whose meaning and significance was disputed, constituted a contract.

Pa.

—In Widmer v. Widmer, 176 Pa. Super. 264, 106 A.2d 875 (1954), an employee was promised a bonus of not less than $500 for extra work while the employer was absent. After the employer’s return, the employer fixed the amount at $2,000 for the services performed. The court held that there was a sufficient consideration for the promise to pay $2,000.

R.I.

—Acinapura v. Natalizia, 2003 R.I. Super. LEXIS 98 (R.I. Super. Ct. July 30, 2003). The plaintiff claimed to be a partner under an agreement with the defendants for the purchase and sale of a controlling interest in the plaintiff’s publications. The agreement, however, was unenforceable because it was vague, uncertain and indefinite, making it incapable of interpretation with reasonable certainty. The court cited this treatise (§ 4.13, 1993 ed.) in recognizing that it is possible to cure such defective language by evidence of the parties’ course of performance. The court, however, held that the plaintiff failed to present sufficient evidence to meet his burden of demonstrating the existence of a partnership through such evidence.

Tenn.

—Gurley v. King, 183 S.W.3d 30 (Tenn. App. 2005). The court cited authority that cited this § 4.7, 1993 ed., for the proposition that partial performance by one party to a bargain may cure an indefinite term in the contract.

Wash.

—In Platts v. Arney, 46 Wash. 2d 122, 278 P.2d 657 (1955), a written agreement for the exchange of properties left many details unexpressed and was too indefinite to satisfy the statute of frauds. But the court held that subsequent instruments executed by the parties cured the indefiniteness. The court said: “The defense of uncertainty in the terms of a contract is not applicable in an action based upon the contract when performance has made it certain in every respect in which it might have been regarded as uncertain.”

Wis.

—Woodward v. Vegetable Packing House, Inc., 4 Wis. 2d 310, 90 N.W.2d 586 (1958) (uncertainty of terms and as to which of two corporations was a party to the contract was cured by the subsequent actual performance that was rendered); Nelsen v. Farmers Mutual Auto. Ins. Co., 4 Wis.2d 36, 90 N.W.2d 123 (1958). An oral contract whereby the defendant made the plaintiff its district supervisor contained no provision as to rates of commission. This defect was cured and the contract became enforceable because the parties performed for some years, paying and accepting a definite commission, quoting this section (§ 101 from a prior edition of this treatise).

Wyo.

—Wheatland Irrigation District v. Dodge, 387 P.2d 679 (Wyo. 1963). Evidence of an oral contract made some 50 years ago, between plaintiff’s predecessor and defendant’s grandfather was somewhat indefinite, but it was confirmed by the conduct of the parties through the years.

But see Bengimina v. Allen, 375 S.W.2d 199 (Mo. App. 1964) where an agreement for installation of vending machines which failed to list the machines to be supplied was held not cured by subsequent installation of the machines.

Okla.

—Harlow Pub. Co. v. Patrick, 181 Okl. 83, 72 P.2d 511 (1937).

Wis.

—Lake Michigan Contractors, Inc. v. Manitowoc Co., 2002 U.S. Dist. LEXIS 9547 (W.D. Mich. May 21, 2002). The defendant shipbuilder’s allegation that it had provided the price schedule for a building project was confirmed by the parties’ six-month course of performance. The defendant billed the plaintiff according to the price schedule and the plaintiff paid those bills. The court cited this section (§ 101, 1950 ed.) in support of this holding to the effect that a vague and indefinite agreement may be cured by the subsequent conduct of the parties.

Wyo.

—Casper Nat. Bank v. Curry, 51 Wyo. 284, 65 P.2d 1116, 110 A.L.R. 360 (1937).

In Memphis Furniture Mfg. Co. v. Wemyss Furniture Co., 2 F.2d 428 (6th Cir. 1924), although the seller accepted the buyer’s order “subject to prices in effect on shipping date and our ability to ship,” the buyer made no objection, knowingly permitted manufacture to begin, and asked and obtained delay in the time of delivery.

In Dayton v. Gibbons & Reed Co., 12 Utah 2d 296, 365 P.2d 801 (1961), the plaintiff subcontractor understood that the sales tax on goods supplied by him to the prime contractor would be paid by the latter. After he was specifically informed that the contract required him to pay the tax, he continued to make delivery of the goods. The court held that even if the contract when made was unenforceable for mistake, the plaintiff had by his continued performance assented to its terms and was bound thereby.

Where the proposal is uncertain as to the amount of goods to be sold, but the buyer makes it clear that he understands the amount to be “1,000 cords,” the seller is bound by that amount if he says nothing to the contrary. Allen v. Wolf River Lumber Co., 169 Wis. 253, 172 N.W. 158, 9 A.L.R. 271 (1919).

In Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 184 F.Supp. 116 (S.D.N.Y. 1959), aff’d, 274 F.2d 805 (2d Cir.), cert. denied, 363 U.S. 843, there may have been a misunderstanding of important words in a ship construction contract, but with knowledge of the fact that the ship was built in accordance with the understanding of the ship builder, the other party received and used the ship for some months. The court held that it was then too late to assert that no contract was made on the ground that there was no meeting of the minds.

In Paullus v. Fowler, 59 Wash. 2d 204, 367 P.2d 130 (1961), a lessor and lessee executed a lease with an option to purchase on an installment plan. The option agreement provided that, on exercise of the option by the lessee, the lessor would “execute a real estate contract providing for payments of not less than $200 per month … with interest at 6% per annum on deferred balances from date of exercise of option.” The lessee’s assignee gave proper notice exercising the option and sent to the lessor a draft of a contract of sale. The lessor made no reply. The lessee’s assignee then continued to make payments of $200 per month to the lessor’s escrow agent. At the expiration of the leasehold term, the lessor sued to recover possession. The assignee counterclaimed for specific performance. The court held that the terms of purchase, as to the installment payment with interest, were not too uncertain or indefinite for specific enforcement. The court said that the lessor, after receiving the notice exercising the option, “was obligated to execute an installment contract, within the purview of the option agreement. Had he performed his obligation in this respect, the alleged uncertainties would have been resolved to appellant’s [lessor’s] satisfaction.” The decision is well justified by reason of the lessor’s silence and the acceptance of many installments by his escrow agent. The lessor might in the beginning have insisted on a larger monthly payment (perhaps limited to a “reasonable” one). The court said that the option did not require a monthly payment of $200 plus accrued interest, because the phrase “with interest at 6%” might mean “not less than $200 including” the interest, instead of $200 “in addition to” the interest. The little word “with” is “ambiguous”, a quality possessed by other words.

This section (§ 101, 1950 ed.) is quoted in Hallinan Mackin Lumber Co. v. Esquire Lumber Co., 231 Or. 341, 372 P.2d 781 (1962). A purchase order of lumber provided that it should be “thoroughly dry”; the written acceptance said “thoroughly AD” [air dried]. Evidence was admissible to show that by telephone the parties had agreed that the moisture content should not exceed 12 percent. Immediately after receiving the acceptance, the buyer had sent a “Change Order. To read AD to 12% or less moisture content.” The seller, without further comment, made delivery. The evidence of the telephone conversation explained but did not contradict the writing. The subsequent “Change Order” showed the buyer’s understanding of the terms of agreement, known to the seller. The latter’s shipment without comment was an assent to the terms thus understood.

In Associated Hardware Supply Co. v. Big Wheel Distributing Co., 355 F.2d 114, 17 A.L.R.3d 998 (3d Cir. 1965), actual receipt and payment for goods as per seller’s price quotation was held to establish the contract price as to subsequent deliveries despite preliminary correspondence in which buyer refused to agree to that price.

This section (§ 101, 1950 ed.) is cited in Bohman v. Berg, 54 Cal. 2d 787, 8 Cal. Rptr. 441, 356 P.2d 185 (1960). A written instrument was executed by the parties whereby the plaintiff agreed to turn a Greyhound Bus into a luxurious “land yacht” for the defendant for a total cost not to exceed $25,000. The plans and specifications were numerous and detailed, and in some matters were cryptic and indefinite. The parties understood that the undertaking was experimental and that variations and additions would be required as work proceeded. In the course of performance, many such variations and additions occurred. The defendant paid the agreed $25,000 and $6,820 in addition. The plaintiff then sued for the reasonable value of the total performance, asserting that to be $46,004. The trial court and the District Court of Appeal sustained the plaintiff’s claim, holding that the terms of the writing, with the numerous variations later made therein, were too indefinite for enforcement, and that the obligation resulting from the actual performance was to pay reasonable value. This was reversed by the Supreme Court. The court said: “This is not a case where specific performance is involved, nor is this an action for damages caused by the failure to perform. It is well-settled law that, although an agreement may be indefinite and uncertain in its inception, subsequent performance by the parties under the agreement will cure this defect and render it enforceable.” The plaintiff himself testified that when he signed the agreement he fully understood what was intended by each provision, and he enumerated the work that was extra. The court said that this showed that the parties had “entered into an agreement which they understood, by which they intended to be bound and which was eventually performed.” Each item of the specifications described a result, with some leeway and variation in the exact manner of producing that result. Actual performance of these items, acquiesced in as such, was the agreed performance. The fact that one manner rather than another was adopted did not make it an “extra.” Therefore, for all the specified items, so performed, the plaintiff was bound by the agreed maximum of $25,000. The court remanded the case with directions to determine what “extras” were performed and to award their reasonable value. The plaintiff’s proposal to build the experimental “land yacht” for a maximum of $25,000 was not, as the lower court had held, too uncertain and indefinite for acceptance as a valid contract.

4 In Weston Paper Mfg. Co. v. Downing Box Co., 293 F. 725 (7th Cir. 1923), a bargain thought to be void because it left the price to be fixed by the seller was at least a basis for a more definite bargain made by giving orders after the seller had named a definite price. Here the later contract should be described as “express.”

In Noel v. Dumont Builders, Inc., 178 Cal. App. 2d 691, 3 Cal. Rptr. 220 (1960), the plaintiff executed a written document expressing a desire to buy a specified lot and authorizing the defendant vendor to begin construction of a house according to certain plans. It provided, however: “Exact price of lot and house to be determined before final papers are signed,” and also that “the sale of the property [plaintiff’s then existing home] will have to be consummated before contract relating to the Knollwood property [now in suit] becomes binding and valid.” This instrument was merely an agreement to make a contract on terms not specified and had no validity, even though a deposit of $2,000 was made and construction begun. But the court held that the plaintiff’s subsequent conduct, including another payment of $8,500, constant supervision and alteration of plans until full completion of the house, and the purchase of furnishings, was sufficient evidence of an oral contract to pay a reasonable price, one that was not conditional on sale of the other property. Even though this contract was within the statute of frauds, the plaintiff’s attempted rescission and suit for restitution of the money paid must fail because the defendant tenders actual delivery as agreed and is holding possession only for plaintiff’s account.

5 In Mobil Oil Corp. v. Schlumberger, 598 So. 2d 1341 (Ala. 1992), the parties entered into a “master pricing agreement” defining the terms and conditions for the rental of oil-well drilling equipment. As no particular equipment was rented, it was not a binding contract. Once an order was sent and accepted, the terms of the formerly non-binding agreement bound the parties, including an indemnity clause.

Red Wing Shoe Co. v. Shepherd Safety Shoe Corp., 164 F.2d 415 (7th Cir. 1947). A continuing offer is not made an irrevocable contract by a purported acceptance that is so worded as to be wholly “illusory.” A specific order subsequently given, definite in all respects, may consummate a valid contract with respect to the content of the order, without making the standing offer irrevocable and binding.

6 Thus, in Harlow Pub. Co. v. Patrick, 181 Okl. 83, 72 P.2d 511 (1937), the court held that the contract was a written contract, so that a statute limiting actions on unwritten contracts to three years was not applicable, even though the indefinite writing was supplemented by oral testimony as to the actual performance.

In United States v. New York, 131 F.2d 909 (2d Cir. 1942), cert. denied, 318 U.S. 781, a long series of letters of negotiation were held to satisfy the statute of frauds, even though the subsequent action of the parties under the agreement was necessary to make sure that they had consummated the contract and to fill gaps as to a few “minor details.”

Going beyond this case is Murphree v. Henson, 289 Ala. 340, 267 So. 2d 414 (1972), holding an oral indefinite contract with respect to real property can be made definite by the acts of the parties which clarify the description of the property, the price, and the time for performance. This definiteness not only supplies the substantive need for sufficient certainty, but also satisfies the writing requirement.

7 Nolte v. Hudson Nav. Co., 16 F.2d 182 (2d Cir. 1926) is an excellent illustration.

8 Bayer Chems. Corp. v. Albermarle Corp., 171 Fed. App’x 392 (3d Cir. 2006) (the present writer was one of the attorneys for Bayer).

9 In Smith-Scharff Paper Co. v. P.N. Hirsch & Co. Stores, Inc., 754 S.W.2d 928 (Mo. App. 1988), for thirty-six years (with one exception), seller sold to buyer specially imprinted bags with buyer’s logo on the bags. To facilitate deliveries, seller maintained an inventory of these bags for the buyer. It was held that a course of dealing had been established that buyer could cease purchasing only after notifying seller of this intent and accepting all of the seller’s inventory of bags specially printed for buyer.

A similar result may have been available under U.C.C. § 2-309, not discussed by the court. Although the provision talks of “repeated occasions for performance,” official comment 4 states: “A single occasion of conduct does not fall within the language of this section but other sections such as the ones on silence after acceptance and failure to specify particular defects can affect the parties’ rights on a single occasion (see Sections 2-605 and 2-607).”

10 This section (§ 101, 1963 ed.) was quoted, perhaps inappropriately, in Nodolf v. Nelson, 103 Wis. 2d 656, 309 N.W.2d 397 (App. 1981). This was a contract to purchase real property “subject to financing.” There was no statement of what the terms of the financing might be, thus making the contract too indefinite. The buyer announced that he had secured financing satisfactory to himself. The court, relying on this passage of the text, held that the purchaser could not unilaterally clarify the meaning of the agreement by conduct not acquiesced in by the other. However, if, as is usually the case, the financing contingency was for the sole benefit of the buyer, it may freely be waived by the buyer.

11 General Paint Corp. v. Kramer, 57 F.2d 698 (10th Cir.1932), cert. denied, 287 U.S. 605. In this case, the court held that after performance rendered for a period the contract so made was a written contract, since its terms were fixed by a previously made written agreement. It therefore applied a statute that provided that a written contract could not be altered by oral agreement. Such a statute is not a beneficial one. Its application in the instant case was not necessary and indeed, may be regarded as erroneous. Even though the writing fixed the terms of the contract to pay for service rendered, it neither created nor evidenced any obligation with respect to future service. A new oral agreement for further service on different terms did not alter any contract for that service. The statute should not have been held applicable to it. It would be applicable to a new oral agreement altering the obligation to pay for the service already rendered.

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.8 »

1 Corbin on Contracts § 4.8 (2020)

§ 4.8. Subsequent Action May Create a Quasi Contract

[Note: This section from a prior edition has been merged into § 4.5.]

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.9 »

1 Corbin on Contracts § 4.9 (2020)

§ 4.9. Mistake—Difficulty and Complexity of the Subject

The subject of mistake is one of the most difficult in the law.1 This is because we make so many mistakes, of so many different kinds, with so many varying effects. To err is indeed human. It would be a very damaging mistake to suppose that we know just what to do and say as to every mistake, or that we can lay down safe and easy rules and generalizations based upon judicial experience. Nevertheless, it is by this experience that the future must be guided. To guide the future requires some kind of classification and generalization, broad or narrow, by which each new case can perhaps be placed and determined.

Both judicial and extra-judicial experience shows that at times we are punished, or otherwise held responsible, for our mistakes, while at other times we are forgiven. Sometimes mistakes will be corrected, and at other times disregarded. Sometimes we are held bound by a promise in spite of a mistake and at other times not so held. It is this variable experience that must be analyzed and classified, but this experience is now so vast and so complex that generalization is difficult and may be very misleading. Earlier rules and doctrines based upon a single case or upon a few cases must give way, even though our comforting illusion of certainty is lost. However often they have been repeated, we can no longer rely upon such familiar rules as that there is no contract unless there is a “meeting of the minds,” or that mistake does not affect a contract unless the mistake was “mutual,” or that mistake as to a “collateral” fact is immaterial. In order that new generalizations may be of real assistance to lawyers and judges, they must be limited in scope and tentative in form. To suppose that there has been uniformity of statement and action by the courts of any jurisdiction would be to make a serious mistake of fact. To lay down a dogmatic generalization as to what the courts have done and will do in the future is to make a serious mistake of law. It is without question that in any treatise or Restatement many such serious mistakes are made. We can only mitigate the resulting harm by appealing to courts and lawyers to realize that these generalizations must be tentative and subject to correction in the light of greater experience, as new cases arise to test their capacity to satisfy our changing notions of justice and human welfare.

Because of this complexity and difficulty, it is necessary to devote several chapters to the subject of Mistake. At this point, there will be stated only enough to prevent a reader of the chapter dealing with Offer and Acceptance and Mutual Assent from being misled, and to give the reader some tentative direction as to such supposed requirements as a “meeting of the minds” and as to “objective” and “subjective” theories of contract. Even the doing of this much requires some repetition. The citation and discussion of specific cases will mainly be postponed to the subsequent sections dealing with Mistake, 28.26–28.54. In those sections will be found a discussion of the many varieties of mistake and of the several remedies that are available.

In the process of coming to an agreement, mistakes are frequently made, either by one or by both of the parties. If both are mistaken, the mistakes that they made are seldom identical. Accurate analysis will show that this is true, even in those cases where the court declares that the mistake was “mutual.”

One party may be mistaken as to what the other party said—the words and other expressions that were used, or, be mistaken as to what the other party intended to convey. Although one knows the exact words and expressions used, one gives to these words and expressions a meaning different from that which the other party gave to them. The meanings given by the two parties may not only be different from each other, one of them or both of them may be different from that which would be given by some third person, or by a reasonably prudent and intelligent third person.

Again, although no mistake is made as to either the words used or the meaning given to them, there may be a mistake as to some factor that was influential in inducing assent. One party may be mistaken as to the identity or the solvency of the other party, or as to the correct addition of certain figures used in determining the amount of a bid, or as to market values.

Again, one party may know, or have reason to know, the fact that the other party is laboring under a mistake. One party may know or have reason to know the meaning that is given to words and expressions by the other party. A party may be negligent in choosing words and expressions, or in failing to know the meaning given to words and expressions by the other party.

Finally, the mistake may be discovered and notice given before there has been any material change of position, or the change of position may have occurred before discovery or notice.

The operative effect of the mistake and the kind of relief to be given will depend upon factors such as those listed above. At times, as discussed in § 4.10, the mistake will prevent the formation of a contract. At other times, the mistake will be grounds for avoidance of the contract. In many cases, however, the mistake will not be grounds for relief, rather the burden of the mistake will be placed on the shoulders of the party who made it.

Footnotes — § 4.9:

1 Milligan v. Grinnell Mut. Reinsurance Co., 2013 U.S. Dist. LEXIS 176125 (S.D. Ill. Dec. 16, 2013) (quoting this sentence from the 1993 ed.).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.10 »

1 Corbin on Contracts § 4.10 (2020)

§ 4.10. Mistake as to the Words Used, or as to the Meaning Given to Words and Expressions

In coming to an agreement, the expressions of the parties may be wholly oral, in which case mistakes may arise out of faulty enunciation or faulty hearing. If a seller offers to sell a horse for $165, and the offeree hears the offer as $65, the words “I accept your offer” will not consummate a contract.1 No one would doubt this result if the words of acceptance had been “I accept your offer at $65.” Defective enunciation can be avoided, but few people are so well trained in expression as to avoid it and it is seldom that they can be charged with “negligence” because of it. Defective hearing also can sometimes be avoided, and no doubt careful persons will generally avoid mistakes by realizing that they may not have heard distinctly and correctly, but even more seldom will they be charged with “negligence” for not avoiding mistakes due to the inaccurate hearing of words. It is always a mere question of fact, however, whether the words were not correctly heard and also whether one of the parties did not have reason to know what the words were and how they were heard.

In the case of a contract that has been reduced to writing, there is less probability of a mistake as to the words in fact used and a greater probability that the mistake, if made, will be held to be negligent. Most such mistakes are made by reason of signing a document without reading it, or after a hasty and inaccurate reading.2 In one case, however, an agent drew up a written building contract in duplicate, causing the builder to promise to erect the building for $33,500 and the owner to promise to pay $23,000 for erecting it.3 If either party was negligent in this case, the two parties were equally negligent.

One party may make an offer to another and assume that the other’s silence and other conduct are intended to express an acceptance, when in fact the other did not hear the offer at all. In such a case, there is no contract.4 There was in fact no actual assent or any expression of assent, and the offeree did not negligently lead the offeror to believe that there was.

A much more common form of mistake is as to the meaning of words and expressions. Both parties know with accuracy the words used but understand them differently. Either party may inadvertently or ignorantly use words that by common usage do not express the user’s own meaning and intention. Either party may inadvertently or ignorantly give to another’s words a meaning that the other did not intend or that may not accord with common usage. In such a case there is a misunderstanding of the terms used in making a contract, a misunderstanding that prevents a “meeting of the minds,” that is, prevents a true agreement. Nevertheless, there may be a valid contract in spite of such a lack of true agreement.

When two parties have reduced their agreement to writing, using the words that each of them consciously intends to use, it is often not a sufficient ground for declaring that the agreement is void or subject to cancellation by the court that the parties subsequently gave different meanings to the agreed language, or even that they gave different meanings thereto at the time that the agreement was expressed. If the meaning that either one of them gave to the words was the only reasonable one under the existing circumstances, as the other party has reason to know, the latter is bound by that meaning and there is a contract accordingly.5 If one of the parties gave a meaning to the language that is not the only reasonable one under the circumstances, and the other expressed assent knowing that the first party was giving it this meaning, that is the meaning that the court should adopt, and there is a contract accordingly. But if the parties had materially different meanings, and neither one knew or had reason to know the meaning of the other, there is no contract.6

If the expressions of one party were used only as a practical joke and without intention to be bound, they will create no contract if the other party understands it to be a joke or ought to have so understood it. But if the words are taken seriously and the joker has reason to know that they are so taken, the joker may be held bound by contract.7 One who secretly intends the bargain to be only an illegal wager is bound if the other party knows nothing of this and innocently agrees.8

The statements in the preceding paragraphs are equally true of agreements orally expressed—not in writing, if the oral expressions of the two parties are in identical words. Thus, if A makes an offer to B in definite words, and B replies with words of acceptance, it is the definite words of A that constitute the terms of the contract and must be interpreted. For this purpose, they are just the same as if the words were in writing. But in the case of orally expressed agreements it may not be possible to prove what were the exact words used. If misunderstanding occurs, it may be more difficult to determine whether one party had reason to know the intentions of the other.9

Raffles v. Wichelhaus is a well-known English case that has been very much discussed. A buyer and a seller made what appeared to be an agreement for the purchase and sale of a stated amount of Surat cotton to arrive by the ship Peerless from Bombay. It happened that there were two ships then at Bombay, both named the Peerless. The buyer knew of only one of these ships and depended on the arrival of the cotton on that ship in October. The seller knew only of the other ship, the one on which the cotton at issue was shipped, and asserted a breach of contract when the buyer refused to receive the cotton on its arrival in December. The court held that no contract existed and that the plaintiff had no right to damages.10 Had there been delivery and acceptance of the goods, a quasi contract would have been constructed.11

The decision in this case is clearly correct, and it would be the same if the parties had been reversed. No convincing reason was shown for charging either party with the loss or for penalizing one for the benefit of the other. The possibility of dividing the loss has not been recognized at common law. In this case the parties used identical words, equally well descriptive of the two ships, but by those words they meant different things, a fact that neither one of them had reason to know. Each one used words with reasonable prudence and according to the common usage of humanity.

There are cases in which the mistake is due to the negligence of both parties equally. When such is the case, there is no agreement in fact, and there is no sufficient reason for holding either one bound by the contract that the other intended to make.12

In cases now under discussion, there may be a valid contract even though there is no actual “meeting of the minds,” but for such a result there must be agreement in expression, interpreted in accordance with the reasonable understanding of one of the parties, an understanding that the other party had reason to know.13 Indeed, there may be no contract even though there is an actual “meeting of the minds,” as where an offeree means to accept unconditionally, but uses language that leads the offeror reasonably to believe that the acceptance is conditional.14

Footnotes — § 4.10:

Ill.

—Rupley v. Daggett, 74 Ill. 351 (1874).

Mass.

—Neel v. Lang, 236 Mass. 61, 127 N.E. 512 (1920).

2 Where a contract for the sale of goods incorporated by express reference a Standard Cotton Textile Salesnote that contained a provision for arbitration, a party was held bound to arbitrate even though its agents had never read the Salesnote. Level Export Corp. v. Wolz, Aiken & Co., 305 N.Y. 82, 111 N.E.2d 218 (1953). As discussed in § 2.12, if the document appears to be contractual in nature, there is a duty to read it.

See United States Fidelity & Guaranty Co. v. Burress, 844 F. Supp. 1475 (D. Kan. 1994). The parties agreed to a settlement providing for a ten-year annuity payable in specified monthly amounts. In preparing the agreement, lawyers for the paying party used an annuity agreement from a prior case that included language providing for an annuity for life and the parties signed this agreement. The court held this agreement contained a mutual mistake of fact because there was never any agreement to pay a lifetime annuity.

Mass.

—Vickery v. Ritchie, 202 Mass. 247, 88 N.E. 835 (1909).

4 Royal Ins. Co. v. Beatty, 119 Pa. 6, 12 A. 607 (1888). As to when silence, with knowledge of the offer, operates as an acceptance, see § 3.18 –3.21.

5 Lamson v. Horton-Holden Hotel Co., 193 Iowa 355, 185 N.W. 472 (1921). The opinion in this case contains a long and intelligent discussion, but we may disagree with some of the statements expressed therein. The parties executed a written lease of a hotel in which the lessee promised to pay as rent “$2,000 per month … and in addition thereto, one third of the receipts for guest rooms in excess of $200 per day.” The lessor interpreted that to mean one third of the excess over $200, treating each day as a separate unit. The lessee interpreted it to mean one third of the excess over the average of $200 for each entire year. The court held that even if their interpretations thus differed from the beginning, that fact did not show that there was no contract, as argued by the lessee. Reformation was not asked. Apparently, the court thought that the reasonable meaning was that given by the lessor, for it affirmed a judgment for the lessor. It does not expressly tell us what that judgment was, what meaning was adopted, or by what process it was arrived at. It states, however, that a mistake by one party as to “the legal meaning and effect” of a contract is not ground for either reformation or rescission. Such a mistake it calls a “mistake of law,” further saying: “Nor will a mutual mistake as to the construction of a contract entitle either party to equitable relief.” With these statements, the present treatise does not agree. It seems to be true that the lessee asked for a rescission on a ground that was too broad to be tenable.

In Norton & Lamphere Constr. Co. v. Blow & Cote, Inc., 123 Vt. 130, 183 A.2d 230 (1962), the court held that a letter enclosing a form contract for signature and return was operative as an offer to be accepted by signature and return, because the plaintiff so understood it, as the defendant had reason to know.

In Swartz v. Carmen, 111 Ohio App. 27, 13 Ohio Op. 2d 383, 167 N.E.2d 505 (1959), the defendant’s sister wrote to the plaintiff offering to pay a stated amount in settlement of the debts owed by defendant to plaintiff. The latter accepted the offer, signing a specific statement attached to the written offer. It is the plaintiff’s contention that he understood the offer to apply only to an open accommodation account and not to a debt secured by mortgage. The court interpreted the written offer in accordance with the offeror’s intention and not according to the plaintiff’s. Also, the plaintiff received and retained the money paid and did not ask reformation or rescission. There was a binding accord and satisfaction as to the mortgage sought to be foreclosed.

6 Some of the better known cases so holding are:

Cal.

—Rovegno v. Defferari, 40 Cal. 459 (1871).

Conn.

—Rowland v. New York, N.H. & H.R., 61 Conn. 103, 23 A. 755 (1891).

Ill.

—In Bailey v. Eater, 53 Ill. App. 2d 37, 202 N.E.2d 656 (1964), a contract for sale of land provided for transfer of “possession of land on or before 25th of April” and for “possession to be given on or before 25th day of June.” Purchaser understood the first date to refer to the land and the second date to refer to the buildings. Vendor contended that both land and buildings were not to be transferred in possession and declared the contract void. Held no contract was formed because the parties had not agreed on the date for the transfer of possession, with the apparent unjust result that purchaser forfeited the down-payment.

Mass.

—Kyle v. Kavanagh, 103 Mass. 356 (1869).

Minn.

—Stong v. Lane, 66 Minn. 94, 68 N.W. 765 (1896) (mistake as to identity of land described).

Ohio

—Irwin v. Wilson, 45 Ohio St. 426, 15 N.E. 209 (1887) (same).

Okla.

—In Altshuler v. Malloy, 388 P.2d 1 (Okla. 1963), the plaintiff operating a genealogical service wrote a letter to defendant offering to disclose the existence of certain assets that had been owned by her husband now many years deceased, for a commission of ⅓ of the amount recovered. The defendant accepted the offer, with the result that certain bonds that were already in defendant’s safe were shown to be worth $33,000. In this suit for a commission the court permitted the defendant to testify as to her understanding of the terms of the plaintiff’s letter. “The decisive question presented for our determination is whether the above quoted letter is ambiguous.” The court held that it was ambiguous, and that the defendant’s testimony showed that no contract existed for lack of mutual agreement.

Eng.

—Raffles v. Wichelhaus, 2 Hurl. & C. 906 (1864) (among the most famous of all “mistake” cases).

In Peerless Glass Co. v. Pacific Crockery & Tinware Co., 121 Cal. 641, 54 P. 101 (1898), a seller offered goods at definite prices, stating in his letter “Freight allowance is seventy-four cents.” The buyer asserts that this meant 74 cents per 100 pounds, but the court failed to find that the words had one reasonable meaning. If difference in understanding as to this prevented the sale contract from being consummated, the seller was entitled to the reasonable value of the goods, so far as they were received and kept.

It is believed that Restatement (Second) of Contracts, § 20 (Am. Law Inst. 1981), “Effect of Misunderstanding” is substantially in harmony with the present treatise. It provides:

“(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestation and

(a) neither party knows or has reason to know the meaning attached by the other; or

(b) each party knows or each party has reason to know the meaning attached by the other.

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or

(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.”

This section of the Restatement (Second) deals with whether or not a contract exists. If a contract exists, § 201 deals with whose meaning prevails if the parties have different meanings.

In Julius Kayser & Co. v. Textron, Inc., 228 F.2d 783 (4th Cir. 1956), in making a contract for the assignment of a lease, the parties agreed that the assignee should be responsible for the rent from the time of “occupancy.” The assignor understood that term to mean use of the premises for any purpose, such as for storage or for making alterations, and the assignee understood it to mean the beginning of manufacturing operations. The court held that, since neither party misled the other there was no contract. It was also found that they did not intend to be bound until the agreement was reduced to writing and signed.

If the parties gave different meanings to the words of a fully “integrated” contract, either party who sues for enforcement in accordance with his or her own meaning has the burden of proving that the other party knew or had reason to know what that meaning was and that he or she had no reason to know that the other party gave the words a different meaning. See Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F. Supp. 116 (S.D.N.Y. 1960), and followed on this burden of proof point in United Steelworkers of America, AFL-CIO-CLC v. North Bend Terminal Co., 752 F.2d 256 (6th Cir. 1985).

Iowa

—Deitrick v. Sinnott, 189 Iowa 1002, 179 N.W. 424 (1920).

Mich.

—Keller v. Holderman, 11 Mich. 248 (1863).

N.J.

—McClurg v. Terry, 21 N.J. Eq. 225 (1870) (marriage ceremony).

Tex.

—Chiles v. Good, 41 S.W.2d 738 (Tex. Civ. App. 1931), rev’d, 57 S.W.2d 1100 (Com. App. 1933).

W.Va.

—Plate v. Durst, 42 W.Va. 63, 24 S.E. 580 (1896).

The jesting cases are discussed at § 2.13.

Mass.

—Farnum v. Whitman, 187 Mass. 381, 73 N.E. 473 (1905).

9 In Embry v. Hargadine, McKittrick Dry Goods Co., 127 Mo. App. 383, 105 S.W. 777 (1907), the court held that the employer had reason to know that his employee understood that they made a contract for a full year’s employment. The employer was therefore held bound accordingly, although the employer did not intend to make such a contract.

10 Raffles v. Wichelhaus, 2 Hurl. & C. 906 (1864). “The ambiguity in that contract arose, not from the words, but from their connection to the real world … .” Stryker Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 842 F.3d 422, 427 (6th Cir. 2016) (discussing Raffles v. Wichelhaus).

In Oswald v. Allen, 417 F.2d 43 (2d Cir. 1969), Mrs. Allen showed the plaintiff two coin collections, one that she called the “Swiss Coin Collection,” the other, the “Rarity Coin Collection.” She showed the first collection to the plaintiff and also showed him some Swiss coins from the Rarity collection. Speaking through an interpreter, plaintiff offered to buy all her Swiss coins for $50,000. She agreed, believing that she was selling the “Swiss Coin Collection.” The trial court ruled that because the parties misunderstood each other no contract existed, basing its conclusion on the credibility of the witnesses, the records of the defendant, the values of the coins involved, the circumstances of the transaction and the reasonable probabilities. The circuit court affirmed, relying on Raffles v. Wichelhaus.

In Flower City Painting Contractors, Inc. v. Gumina Constr. Co., 591 F.2d 162 (2d Cir. 1979), a painting subcontract was ambiguous as to the scope of the work. A trade usage might have clarified it, but the plaintiff, as a neophyte in the trade, was not held to know the usage. The court ruled that no contract existed.

In Balistreri v. Nevada Livestock Production Credit Assn., 214 Cal. App. 3d 635, 262 Cal. Rptr. 862 (1989), plaintiffs signed a deed of trust (known in most of the United States as a mortgage) on their residence. The cover letter from the mortgagee indicated that the mortgage would cover a house in Sebastopol they owned together with their son, who was the borrower. They signed but did not read the instrument. In fact, the mortgage was drawn to cover their home in Petaluma. The son defaulted. The lender threatened to foreclose, and the plaintiffs brought this action to quiet title. The court applied the rule in Raffles v. Wichelhaus, granting cancellation of the instrument. In this case, plaintiff’s carelessness in failing to read the instrument was not culpable as they were induced to act as they did by defendant’s carelessness.

In Konic International Corp. v. Spokane Computer Services, Inc., 109 Idaho 527, 708 P.2d 932 (App. 1985), defendant-purchaser asked an employee to check out the availability and cost of a surge protector for its computer. The employee found several that ranged in price from $50 to $200, but none of these were suitable. He then contacted plaintiff and determined that plaintiff’s met the employer’s needs. When asked its price, plaintiff’s salesman replied, “fifty-six twenty.” The salesman meant $5620, but the purchaser’s employee understood this to mean $56.20. Purchaser sent out a purchase order describing the item and listing the price as $56.20. The seller did not notice the discrepancy. The surge protector was delivered and installed. The next day plaintiff’s president returned from vacation, noticed the installation, and immediately realized that an error had been made and had the protector turned off. Defendant brought this action for the price. The court, based on Raffles v. Wichelhaus, ruled that no contract had been made.

See Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp. 116 (S.D.N.Y. 1960) (discussed in Vol. 5, § 24.5).

In Local Motion, Inc. v. Niescher, 105 F.3d 1278 (9th Cir. 1997), A distribution agreement provided that a distributor would “be granted the option to extend her distribution rights to three more years at the same terms” if she bought a specified dollar amount of merchandise. The court affirmed the district court’s conclusion that the parties attached different meanings to the emphasized phrase: the distributor understood the renewal arrangement to apply indefinitely, so long as she bought the specified dollar amount of merchandise, while the supplier understood it to consist of a one-time three year extension only. On that basis, said the court, the agreement was entered into on “the basis of a mutual mistake as to the renewal,” showing a lack of a “meeting of the minds” on an ambiguous material term. (The court cited this § 4.10, 1993 ed.)

In International Paper Co. v. Suwyn, 966 F. Supp. 246 (S.D.N.Y. 1997) (applying New York law). A noncompete provision restricted an employee’s right to work for a “major paper company” but the meanings assigned to the phrase by the parties were different and were both reasonable. The employee understood it to mean the employer’s largest paper competitors while the employer understood it to mean all companies in the paper and forest products industry generally. This reasonable difference in the attached meanings of a key provision of the agreement meant that no enforceable agreement had been reached. (The court cited this § 4.10, 1993 ed.)

The case of Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P.3d 604 (2007) underscored an important factual distinction that made Raffles v. Wichelhaus inapplicable. Clear Lakes operated a fish hatchery and entered into a six-year contract with Griffith, a trout grower, which required Griffith to purchase small trout from Clear Lakes, which Griffith would then grow and resell to Clear Lakes. Clear Lakes agreed to sell sufficient trout to Griffith to allow it to grow up to 2 million pounds, live weight, each year. Griffith was obligated to sell the trout back to Clear Lakes when it had grown to “market size.” The parties performed satisfactorily for the first three years of the contract. When customers began to demand fish larger than the 12-to-16-ounce trout supplied by Griffith, Clear Lakes began to diminish and delay taking shipments from Griffith, which sued. Clear Lakes moved for summary judgment on the footing that no contract was ever formed because the parties had fundamentally different interpretations of “market size.” Clear Lakes understood “market size” to vary depending upon customer demand, while Griffith the term had a static meaning approximately one pound, live weight. The district court agreed with Griffith and awarded damages for its lost profits except for the last two years of the contract on the ground that such profits would be too speculative. On appeal, the instant court noted that courts do not favor the destruction of contracts because of uncertainty. The applicable standard is “reasonable certainty” as suggested by the Uniform Commercial Code, § 2-204(3) that requires only such reasonable certainty accompanied by a manifested intention of the parties to be contractually bound plus a sufficient basis for affording a remedy. Clear Lakes argued that this case was similar to the famous case of Raffles v. Wichelhaus (the “Peerless” case), because of the “drastic difference” in the parties’ understanding of the meaning of “market size.” The court rejected this argument because the parties manifested no difficulty in performing the contract for the first three years. Such course of performance was very strong evidence of their intended meaning of “market size.” The famous “Peerless” case did not manifest course of performance, trade usage, or course of dealing evidence that may have allowed the court to choose between their different understandings of which ship “Peerless” would bring the cotton to the buyer at a particular time. While agreeing with the other holdings below, the court disagreed with the trial court’s view that Griffith’s damages for the last two years of the contract were fatally uncertain. The case was remanded for that determination.

Meyer v. Meyer, 952 So. 2d 384 (Ala. Civ. 2006). Based upon paragraph 5 of the parties’ agreement, the trial court entered a divorce judgment stating that the wife was awarded all benefits to which she may be mandatorily entitled under the Uniformed Former Spouses Protection Act (UFSPA). When the wife was informed that she would not be entitled to a portion of her husband’s military retirement pay because the divorce judgment did not award her a specific amount or a specific percentage of that pay, she sought a “clarification” of paragraph 5 of the agreement. The parties’ subsequent appearances in court clearly indicated that both parties understood that the UFSPA would require certain portions of the husband’s compensation to be paid to the wife. Both parties, however, were mistaken since there was no requirement of mandatory payment to the wife under UFSPA. The trial court found paragraph 5 to be ambiguous and issued an order that it be reformed to award the wife 32 percent of the husband’s military retirement pay. On appeal, the instant court recognized two forms of ambiguity, patent ambiguity that is apparent on the face of an instrument because of inconsistency or uncertainty of the language used, and latent ambiguity where language appears to have only one meaning but it is later discovered to allow for two reasonable meanings. The court noted the classic example of latent ambiguity in the case in Raffles v. Wichelhaus. In the case before it, the court found no patent ambiguity since the language of paragraph 5 was clear, consistent and certain. The court also found that the language contained no latent ambiguity since there was no later discovered uncertain meaning in the language. Both parties believed that the wife was entitled to a certain portion of the retirement pay under that paragraph as a matter of law, though neither party was aware of what that percentage was to be. Since the reformation granted by the trial court was based exclusively on the assumption that paragraph 5 was ambiguous and ambiguity was the only issue presented to the instant court on appeal, the court reversed the judgment below and remanded the case. Since the parties had expressed no intention as to what share of the retirement pay the wife would have received, the remedy of reformation was problematic since it requires clear evidence of the true intention of the parties, which did not appear in these facts. Rather, the agreement appeared to be fatally uncertain as to what the wife should have received.

11 In Anderco, Inc. v. Buildex Design, Inc., 538 F. Supp. 1139 (D.D.C. 1982), a construction agreement about which there was a material misunderstanding of the terms did not form a contract. To the extent plaintiff performed, it was entitled to quasi-contractual relief. The court erroneously thought that this relief was limited to the value of the benefit derived from plaintiff’s performance. Quantum meruit evaluates the performance, not the defendant’s enrichment.

12 In Falck v. Williams, [1900] A.C. 176, one party sent a proposal to another by cable in code words so carelessly arranged that they meant nothing. The other party so negligently decoded the message that in mistaken assent he sent a ship from the Fiji Islands to Barcelona instead of a ship from Australia to England. The parties were equally negligent. Neither could hold the other bound by contract.

In L & L Corp. v. Ammendale Normal Institute, 248 Md. 380, 236 A.2d 734 (1968), plaintiff broker negotiated a contract of sale, conditioned on industrial zoning, of certain land to be used for an electronics plant site. When it became apparent that industrial zoning was not possible, representatives of both parties met with plaintiff and agreed that commercial zoning of a part of the land, if acceptable to buyer (whose representative there did not have final negotiating authority) would suffice. Buyer’s representative stated that it would be acceptable, not knowing that such zoning did not permit construction of a high antenna, a necessity for the plant. The other parties were ignorant of the need for an antenna. Lower court found a modified agreement had been reached. On appeal, reversed, holding there had been no mutual assent.

Gould v. Board of Ed., 81 N.Y.2d 446, 599 N.Y.S.2d 787, 616 N.E.2d 142 (1993) (resignation tendered by teacher who had earned tenure-by-estoppel ineffective because she and school board that accepted it both held mistaken belief that she was untenured; school board’s good intentions and innocent unawareness held irrelevant).

13 The following cases held that a party was bound by a contract that the party did not intend to make:

U.S.

—New York C. & H. R. R. Co. v. Beaham, 242 U.S. 148, 37 S. Ct. 43, 61 L.Ed. 210 (1916) (railway ticket plainly stating terms of contract); Castor v. Coppock, 211 F.2d 136 (8th Cir. 1954); Mefer S.A.R.L. of Paris v. Naviagro Maritime Corp., 533 F. Supp. 337 (S.D.N.Y. 1982). Raffles v. Wichelhaus “applies [only] when both parties hold different understandings of an agreement, do not disclose their respective positions to each other, nor have any reason to know of any difference of interpretation.” Murphy v. Gutfreund, 583 F. Supp. 957, 962 n. 6 (S.D.N.Y. 1984), later proceeding 624 F. Supp. 444. To the same effect is Prudential Ins. Co. v. Miller Brewing Co., 789 F.2d 1269 (7th Cir. 1986).

Colo.

—Sunshine v. M.R. Mansfield Realty, Inc., 195 Colo. 95, 575 P.2d 847 (1978). Sunshine listed property for lease with Plaintiff who found a prospect who agreed to lease conditioned on the Small Business Administration guaranteeing the rent to the landlord. The prospect obtained a guarantee of 80% of the rent, by law the maximum the SBA was allowed to guarantee. Sunshine repudiated the agreement to lease and refused to pay plaintiff’s claimed commission, claiming that the agreement required a 100% SBA guarantee. The court held that Sunshine’s understanding of the agreement was unreasonable because it was legally impossible to obtain a 100% SBA guarantee.

In BA Mortgage Co. v. Unisal Development, 469 F. Supp. 1258 (D. Colo. 1979), a loan commitment contained an option to extend. It was unclear which party had the option. Although the court thought that the defendant’s interpretation was the more reasonable one and therefore plaintiff had no claim, it also said that because each party’s interpretation was reasonable, there was no contract and therefore plaintiff had no claim for this reason as well.

Ky.

—C.W. Craig & Co. v. Thomas S. Jones & Co., 200 Ky. 113, 252 S.W. 574 (1923).

Mass.

—Goldstein v. D’Arcy, 201 Mass. 312, 87 N.E. 584 (1909); Hobbs v. Massasoit Whip Co., 158 Mass. 194, 33 N.E. 495 (1893); Mansfield v. Hodgdon, 147 Mass. 304, 17 N.E. 544 (1888).

Minn.

—Field-Martin Co. v. Fruen Milling Co., 210 Minn. 388, 298 N.W. 574 (1941).

N.H.

—Kilroe v. Troast, 117 N.H. 598, 376 A.2d 131 (1977). Two neighbors executed an agreement to settle a boundary dispute, pursuant to which Kilroe gave Troast a 15-foot right of way. Troast promised there would be no industrial or commercial traffic on the right of way and no parking on the side. Troast hired a contractor to make the right of way passable by vehicles, who used industrial vehicles such as bulldozers and parked them on the side at night. Kilroe sued, alleging there was no meeting of the minds, since he meant no industrial traffic at any time. The court held that a valid contract had been made and that the grant of a right of way necessarily implies allowing such industrial vehicles as are necessary to construct a passable way. The fact that the parties had different understandings of the meaning of the agreement is immaterial if one of their meanings is unreasonable.

Wash.

—Hill’s, Inc. v. William B. Kessler, Inc., 41 Wash. 2d 42, 246 P.2d 1099 (1952). A buyer ordered goods on an order blank specifying that it must be accepted by the seller. The seller later wrote thus: “You may be assured of our very best attention to this order.” The buyer understood this as an acceptance. The court held that the seller had reason to know that it would be so interpreted.

U.S.

—United States v. Braunstein, 75 F. Supp. 137, appeal dismissed, 168 F.2d 749 (2d Cir.).

Wis.

—Jacob Johnson Fish Co. v. Hawley, 150 Wis. 578, 137 N.W. 773 (1912).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.11 »

1 Corbin on Contracts § 4.11 (2020)

§ 4.11. Mistake in Transmission of Messages

The telegraph is no longer a viable means of communication. It fell victim to far more efficient means. As noted in § 3.27, Western Union sent its last telegram in 2006. This chapter is retained in this revision for its historical significance and because the principles stated here may be applied analogously to other situations.

In days gone by, a misunderstanding as to the terms of an agreement was frequently caused by an error in the transmission of a telegram. A telegraphic offer that was correctly written out by the offeror was handed to the telegraph clerk. Because of the negligence of this clerk, or of the clerk who received the message, the terms of the offer were changed so that a materially different offer was delivered to the offeree.

If the offeree knew or had reason to know that such a change had occurred, the offeree had no power to bind the offeror by an acceptance of the offer as delivered. The change may have been such as to make it unintelligible, or perhaps the proposal was one that no reasonable person would make. Thus, the price at which goods were offered for sale may have been so greatly reduced that a reasonable receiver of the message would suspect error. The offeree was not permitted to “snap up” such an offer.1

The troublesome case was the one in which the change was such that the offeree had no reason to know that it had been made. The offer as delivered was one that the offeree reasonably believed to be the one that the offeror intended to make. In one case, laths were offered for sale at $2.10 per thousand. The telegraph clerk left off the 10, and the offer as delivered read $2 per thousand. The court held that acceptance made a contract at $2, binding the offeror to deliver.2 This result was supported by a considerable number of cases in the United States,3 but there were very well-considered cases to the contrary.4

The reason for such a conflict in decision is that there were two innocent sufferers from the fault of another, and the courts felt it necessary to choose one of them to bear the entire loss. The truth is that usually there was no convincing reason for making such a choice. Sometimes it was said that one of the parties had “assumed the risk” of telegraphic mistake, this one being either the one who sent the telegram in question, or the one who first used the telegraph, or the one who suggested that it be used.5 More often than not, such a statement as this was a mere statement of the result reached rather than the reason for reaching it. Again, it may be said that the sender of the telegram had chosen the telegraph company as an agent, thus making it appear that some general rule of agency could be deductively applied. While it is true that the sender of a telegram knew that it must be translated by the clerks into a telegraphic code and back into words, with some possibility of error in the process, this was hardly enough to establish a relation of agency. Assuredly, the sender did not hold out the telegraph clerk as an agent with power to contract in the sender’s behalf. Nor was the clerk the sender’s servant. The telegraph company was an independent contractor, much like the post office, under compulsion to serve all comers and to bear the responsibility that accompanies public service.6

Perhaps a reason for choosing the sender of the telegram instead of the receiver to take the first impact of the loss can be found in actual business practices and mores or in business convenience.7 In some of the cases, it appeared as a fact that the sender felt bound to supply the goods at the mistaken price, or at least made a settlement with the receiver of the telegram and then brought suit against the telegraph company. Even though the court held that the sender of the telegram was not bound by the incorrectly delivered offer, in one case it was further held that the settlement was a reasonable effort to avoid losses and that the telegraph company had reason to foresee that such a settlement would be made.8

Whether the first impact of the loss was thrown upon one party or the other, the impacted party had a remedy over against the negligent telegraph company. As against the sender of the telegram, the company had committed a breach of contract. It was liable in damages for any harm that it had reason to foresee. Attempts were made to limit the extent of liability for such negligent breach of contract, attempts that had often been held to be ineffective as against public policy, but later were generally effective as regulated by the federal government.9 The receiver of the telegram had made no contract with the company, but if harmed, the sender should have had a remedy in damages as for tortious negligence by a public servant,10 at least for small claims.

Cases in which the offeror was held bound by the offer as delivered were applications of the so-called “objective theory” of contract. It is clear that the offeror did not actually assent to the terms of the contract so formed. The offeree was given a contract right because of the expressions of the offeror as actually communicated to the offeree. The cases holding otherwise did not oppose application of this objective theory. They merely indicated that there was no sufficient reason for holding the offeror responsible for the mistake. It was not the offeror’s mistake, and the words were not the offeror’s words. The objective theory should be applicable only when one party has reason to know that the other party is being misled.

It may be that the price fixed in a telegraphic offer was sometimes raised rather than lowered in transmission. The offeree was not very likely to accept at the higher price, but if the offeree did accept, this assent was not based upon a mistake, and no harm is suffered by the offeror.

The mistake dealt with in this section is one that was caused by the telegraph company, not one that the sender of the telegram caused. One who used a telegraphic code word meaning 30,000 bushels intending to say only 3,000 bushels was bound by the offer as made.11 This is for just the same reason that an offeror was bound when telephoning an order for 50 tons, forgetting that the antecedent estimate of needs was only 10 tons.12

As noted above, the telegram has gone the way of the Pony Express. More modern means of electronic transmission of messages raise their own unique issues.13

Footnotes — § 4.11:

Cal.

—Germain Fruit Co. v. Western Union Tel. Co., 137 Cal. 598, 70 P. 658 (1902).

Mass.

—Holtz v. Western Union Tel. Co., 294 Mass. 543, 3 N.E.2d 180 (1936).

Mo.

—J.L. Price Brokerage Co. v. Chicago, B. & Q.R. Co., 199 S.W. 732 (Mo. App. 1917), is contra and should be disapproved. An offer to sell potatoes at $1.35 per bushel was changed so as to read 35 cents per bushel.

Me.

—Ayer v. Western Union Tel. Co., 79 Me. 493, 10 A. 495 (1887).

Ark.

—Des Arc Oil Mill v. Western Union Tel. Co., 132 Ark. 335, 201 S.W. 273, 6 A.L.R. 1081 (1918).

Ga.

—Western Union Tel. Co. v. Flint River Lumber Co., 114 Ga. 576, 40 S.E. 815 (1902); Western Union Tel. Co. v. Shotter, 71 Ga. 760 (1883).

Ill.

—Bowman & Bull Co. v. Postal Telegraph-Cable Co., 290 Ill. 155, 124 N.E. 851 (1919), cert. denied, 251 U.S. 562, 40 S. Ct. 342, 64 L. Ed. 415.

Mich.

—Butler v. Foley, 211 Mich. 668, 179 N.W. 34 (1920).

Mo.

—Haubelt Bros. v. Rea & Page Mill Co., 77 Mo. App. 672 (1899).

Vt.

—Durkee v. Vermont C.R. Co., 29 Vt. 127 (1856).

Wis.

—Sherrerd v. Western Union Tel. Co., 146 Wis. 197, 131 N.W. 341 (1911).

See also:

Conn.

—Penobscot Fish Co. v. Western Union Tel. Co., 91 Conn. 35, 98 A. 341 (1916).

Miss.

—Postal Tel. & Cable Co. v. Wells, 82 Miss. 733, 35 So. 190 (1903).

This section (§ 105, 1950 ed.) is cited in Estherwood Rice Mill, Inc. v. Western Union Telegraph Co., 127 So. 2d 231 (La. App. 1961). The defendant transmitted plaintiff’s bid on a certain contract erroneously, but on its repeat back message the error was not repeated. The bid as received was accepted. The parties had agreed that the bid as received should control the terms, and the acceptor (the Commodity Credit Corp.) insisted on and received performance. The error in transmission was not such that the offeree had reason to know of the error. The defendant was held bound to pay damages, measured by the loss caused by its error.

In Buchanan v. Thomas, 230 Ark. 31, 320 S.W.2d 650 (1959), a subcontractor submitted his bid to the prime contractor by telegram. As delivered, the telegram read $2,723, instead of $3,723. The prime contractor at once submitted his general bid along with a performance bond, in reliance on the telegram. The next day, a confirmatory letter from the subcontractor expressed his bid as $3,723. Much later, the general bid was accepted and performance rendered in accordance. The subcontractor also rendered performance, along with various inconclusive conversations with the prime contractor. The court held that the subcontractor was entitled to only $2,723. There is no discussion of various factors that were of importance in determining the issue.

U.S.

—Western Union Tel. Co. v. Cowin & Co., 20 F.2d 103, 54 A.L.R. 1362 (8th Cir. 1927).

Idaho

—Strong v. Western Union Tel. Co., 18 Idaho 389, 109 P. 910 (1910).

Ky.

—McKee v. Western Union Tel. Co., 158 Ky. 143, 164 S.W. 348 (1914).

Mass.

—Holtz v. Western Union Tel. Co., 294 Mass. 543, 3 N.E.2d 180 (1936).

Miss.

—Shingleur v. Western Union Tel. Co., 72 Miss. 1030, 18 So. 425 (1895).

N.C.

—Mt. Gilead Cotton Oil Co. v. Western Union Tel. Co., 171 N.C. 705, 89 S.E. 21 (1916).

S.C.

—Harper v. Western Union Tel. Co., 133 S.C. 55, 130 S.E. 119, 42 A.L.R. 286 (1925).

Tenn.

—Pepper v. Western Union Tel. Co., 87 Tenn. 554, 11 S.W. 783 (1889).

Eng.

—Henkel v. Pape, L.R., 6 Ex. 7 (1870); Flynn v. Kelly, 12 Ont. L.R. 440; Verdin v. Robertson, 10 Ct. Sess. 3d 35 (1871 Scot.).

5 In Butler v. Foley, 211 Mich. 668, 179 N.W. 34 (1920), a counter-offeror was held bound by his telegram as delivered even though the other party had been the first to use the telegraph.

In Western Union Tel. Co. v. Flint River Lumber Co., 114 Ga. 576, 40 S.E. 815 (1902), one party made a telegraphic inquiry for prices. The other replied with a telegraphic offer. In transmitting this offer, the telegraph company made an error. It was held that the offeror was bound in accordance with the telegram as delivered.

6 Western Union Tel. Co. v. Southwick, 214 S.W. 987 (Tex. Civ. App.1919), is a case in which the telegraphic error accompanied a real estate agency. The plaintiff authorized his agent by telegraph to sell land at $55 per acre. As delivered to the agent, the telegram read $50 per acre, and the agent contracted to sell the land at this price. The principal was bound by the contract so made with the purchaser. It should not be said that the plaintiff appointed the telegraph company as his agent to appoint another agent with power to sell. This was reversed, on the ground that a limitation of liability clause should have been given effect. 255 U.S. 565, 41 S. Ct. 446, 65 L. Ed. 788.

7 In Ayer v. Western Union Tel. Co., 79 Me. 493, 10 A. 495 (1887), the court said: “It is evident that in case of an error in the transmission of a telegram either the sender or receiver must often suffer loss. As between the two, upon whom should the loss finally fall? We think the safer and more equitable rule, and the rule the public can most easily adapt itself to, is that, as between sender and receiver, the party who selects the telegraph as the means of communication shall bear the loss caused by the errors of the telegraph. The first proposer can select one of many modes of communication, both for the proposal and the answer. The receiver has no such choice, except as to his answer.”

Mass.

—Holtz v. Western Union Tel. Co., 294 Mass. 543, 3 N.E.2d 180 (1936).

9 See Western Union Tel. Co. v. Priester, 276 U.S. 252, 48 S. Ct. 234, 72 L. Ed. 555 (1928).

10 In Barnett v. Western Union Tel. Co., 287 S.W. 1064 (Mo. App. 1926), coal was offered by X to plaintiff by telegram. The price was changed by error from $1.95 to $1.25. Plaintiff accepted in good faith (and seemingly reasonably), and made contracts of resale that could not be performed without getting the coal of X. X refused to perform for less than $1.95, so plaintiff paid that sum and performed the resale contracts. The plaintiff was given judgment for damages, even though he could have refused to purchase and held X for breach of contract. This seems to be a correct decision, because plaintiff’s loss was suffered by reason of economic compulsion caused by defendant’s negligence and was one that it had reason to foresee.

Kan.

—Cargill Commission Co. v. Mowery, 99 Kan. 389, 161 P. 634 (1916), modified, 99 Kan. 389, 162 P. 313, questioned in Squires v. Woodbury, 5 Kan. App. 2d 596, 621 P.2d 443 (1980).

Ky.

—In Whitaker v. Associated Credit Services, 946 F.2d 1222 (6th Cir. 1991), defendant made an offer of judgment. The written offer, by clerical error, read “$500,000” instead of the intended “$500.” Plaintiff accepted with alacrity. The judgment, however, was vacated pursuant to the Federal Rules and general principles of contract law.

N.J.

—Carnegie Steel Co. v. Connelly, 89 N.J.L. 1, 97 A. 774 (1916).

13 These are explored in § 3.25, Acceptance by Telephone or Electronic Means. A notable case involving a telex message that failed to arrive, perhaps because the addressee’s machine was out of paper, is Evra Corp. v. Swiss Bank Corp., 673 F.2d 951 (7th Cir.1982), cert. denied, 459 U.S. 1017.

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.12 »

1 Corbin on Contracts § 4.12 (2020)

§ 4.12. Objective and Subjective Theories

There has been a good deal of discussion with respect to two so-called theories of contract, known as the “objective theory” and the “subjective theory.” By the first, it is argued that a valid contract is created by agreement in expression, the subjective intention of the parties being immaterial. By the second, it is argued that a contract is not created unless there is agreement in intention, properly expressed. The law of contract cannot be explained by either of these theories.1

As usually understood, the “objective theory” is based upon a great illusion—the illusion that words, either singly or in combination, have a “meaning” that is independent of the persons who use them. It is crudely supposed that words have a “true” or “legal” meaning (described as “objective”), one that all persons of whatever race, origin, or education are bound to know, and in accordance with which the law requires them to perform and to accept performance. Words, oral or written, are merely a medium by which one person attempts to convey thoughts to another person. They are merely audible sounds or visible sights. It is individual humans who have “meanings” which they try to convey to others by the use of words, and it is individual humans who receive “meanings” by reason of words used by others. As a good dictionary shows, all words have been used to convey a variety of meanings, variable with time, place, and circumstance. The more incomplete the dictionary, and the more parochial and limited the linguistic education and experience of a person, the more firmly fixed is the illusion of “an objective meaning” and the more positive its assertion as the truth.

The cases demonstrate plainly enough that a person’s expressions as understood by the other party may bind the person even though the person’s own intention and meaning were different.2 This has led courts and writers to adopt the so-called “objective” theory, and to say that parties are bound by what they say and not by what they think, or even to say that they are bound in accordance with the meaning that reasonable third parties would give to their expressions3 without regard to the meaning given by either of the parties themselves. The actual decisions do not justify this statement.4 Other, perhaps more frequent, statements indicate that each party is bound by what reasonable persons similarly situated as were the parties to this transaction would understand. This has the merit of incorporating the knowledge and characteristics of the actual parties to the transaction. This is to the good. However, at times, the courts can and do get closer to the actual understandings of the parties. Particularly this is appropriate where the parties had a common understanding that may differ from the understanding of hypothetical third persons even if they be equipped with the knowledge and characteristics of the party whose reasonable understanding is in question. Also, we must not confine ourselves to the question of the understanding of the addressee of words. We must also blend into the inquiry the question of what the reasonable user and the actual user of the words might mean to convey.

It is certain that the purpose of the court is in all cases the ascertainment of the “intention of the parties” if they had one in common. The court may be convinced that they did so, in spite of their conflicting assertions in subsequent litigation. In cases in which the court is not so convinced, it must either hold that no contract was made5 (and determine justice on some other basis), or that one of the parties is bound in accordance with the intention and understanding of the other party. The court adopts the latter alternative if (and only if) the one party knew or had reason to know the intention and understanding of the other and the latter had no reason to know that a difference existed.6 In determining whether a party “knew or had reason to know,” the court must consider all of the relevant circumstances of the transaction. Among the most important of these are the linguistic usages of other people in similar cases, usages with which each party reasonably supposed the other to be familiar. This much is necessary in order that language may serve its purpose and that business transactions may proceed with confidence. This is the process that is described as “objective interpretation.” It is not, however, the simple one of finding “an objective meaning” of the words of the contract, a meaning by which the parties are bound even though neither of them held it.

In earlier times a so-called “will theory” of contract was generally held. Contract is made by the voluntary agreement of individuals and not by the state: a person is not bound by a contractual duty unless the person willed it so. Out of some theory like this came such terms as “meeting of the minds” or the equivalent phrases in Latin “aggregatio mentium” and “consensus ad idem.” When these phrases, applied with logical severity, produce a result that does not square with business mores and the prevailing ideas of justice, they must be disregarded as inapplicable and untrue. Nevertheless, they are in very common use and they have not been entirely thrown aside. The modern preference is to speak of a mutual manifestation of assent rather than of a meeting of the minds.

In the process of making a contract, the actual and proved intent of either of the parties should not be disregarded, unless one party knowingly or negligently has misled another person. If no other person has been so misled, it should make no difference what expressions would have been chosen by other reasonable or intelligent users of language or what meaning the expressions actually used would have conveyed to such third persons. Of course, the actual intent of the one party and the actual understanding of the other are matters of fact7 that may be difficult of proof, and in the process of making this proof the expressions that would be used and the meanings that would be given by others may be decisive.8

If one party has knowingly or negligently misled the other by the use of words, symbols, or non-verbal conduct, this party cannot escape responsibility by proving the meaning and intention actually intended.9 Even in such a case, however, that meaning and intention are not wholly immaterial. They should be considered along with the other circumstances in determining the remedy that justice requires.10 Many factors must be considered. These include the nature of the mistake, the promptness with which notice of the mistake is given, and the extent of change of position or injury.

This treatise adopts neither an objective nor subjective theory of contracts.11 Rather it adopts the basic notion that the reasonable expectations of the parties are to be effectuated. Reasonable expectations involve a complex interplay of subjective and objective elements. To illustrate, in Cox Broadcasting Corp. v. National Collegiate Athletic Ass’n,12 ABC and Cox intended when signing the contract for programming rights that the contract would preclude the NCAA from allowing WTBS to broadcast a “supplemental series” of NCAA games. Contrariwise, the NCAA intended to allow WTBS to broadcast this series. At the time the contract was signed both ABC and Cox on one side and the NCAA on the other knew the other’s intention. Each side asserted that the document they were about to sign effectuated its intention. Each side vigorously resisted the other’s attempt to clarify the writing. They agreed that the writing would “speak for itself.” Later, ABC and Cox sought to enjoin the NCAA from permitting broadcasts by WTBS of the supplemental series’ games. The court used some 19th century language about “meeting of the minds,” but then qualified it by saying that “courts apply an objective theory of intent whereby one party’s intention is deemed to be that meaning a reasonable man in the position of the other contracting party would ascribe to the first party’s manifestations of assent.”13 With this as a premise, the court concludes that ABC and Cox had no contract right to enjoin the NCAA from dealing with WTBS because they were aware that the NCAA’s interpretation of the writing differed from theirs on this point. This is an unsound approach. Here, as so often happens when negotiating parties are at loggerheads on a specific point but want to proceed with the deal, they buried the issue. There was neither a subjective meeting of the minds nor an objective understanding that either of the two contentions was correct. There was, however, consent to the terms of a written contract. Each party had the reasonable expectation that the writing would be interpreted by an independent judicial mind. Their expectations were not met. Under the approach suggested here, the parties’ subjective understandings are considered, at least to the extent that there is external evidence of it, and each of their objective understandings of the other party’s position is also considered, all of which must be considered in the light of the understanding and professional background of the court, and, in a proper case, of the jurors.

In practice, courts overwhelmingly parrot the mantra that mutual assent is based upon the parties’ objective and outward manifestations,14though the actual decisions reveal that the law of contracts cannot be wholly explained on an objective theory.

(A) The following case is noteworthy:

(1) Schoninger v. Green, 2019 U.S. App. LEXIS 5383 (2d Cir. 2019). Schoninger filed suit alleging that Green and Wilkison, executive officers at Islet, orally agreed that, in exchange for Schoninger’s $1 million investment, they would cause Islet to merge with BHV, a company separately held by Green and Wilkison that owned rights to the development of “Remo,” a pharmaceutical product to treat type 2 diabetes. The merger did not occur. The district court granted summary judgment in favor of defendants on Schoninger’s breach of contract claim, and the Second Circuit affirmed on appeal. Schoninger claimed that a contract existed whereby Schoninger would invest $1 million in exchange for defedants’ commitment to merge Islet with BHV. The problem is that there was no evidence for such a contract. There was no written agreement between the parties memorializing any such arrangement. In fact, there was no evidence of defendants’ assent to any such arrangement. Although one of the defendants gave Schoninger assurances that the merger would occur, that was merely a business projection, not a binding commitment. New York abides by the objective theory of contracts. the existence of a binding contract is not dependent on the subjective intent of either party but rather on their objective manifestations of the intent as shown by their outward words and deeds.” Here, there was no objective manifestation of assent.

Footnotes — § 4.12:

1 Yet, Professor Corbin has been branded “one of the great exponents of the subjective approach to intent,” Skycom Corp. v. Telstar Corp., 813 F.2d 810, 815 (7th Cir. 1987). That characterization leaves out too much to be accurate.

2 Illustrative cases are:

U.S.

—Gateway Co., Inc. v. Charlotte Theatres, Inc., 297 F.2d 483 (1st Cir.1961).

Ill.

—Heritage Commons Partners v. Village of Summit, 935 F.2d 1489 (7th Cir.1991).

Mass.

—Mansfield v. Hodgdon, 147 Mass. 304, 17 N.E. 544 (1888).

Mo.

—Embry v. Hargadine, McKittrick Dry Goods Co., 127 Mo.App. 383, 105 S.W. 777 (1907). A good short introduction to the conflict between objective and subjective theories in a historical context can be found in Newman v. Schiff, 778 F.2d 460, 464–465 (8th Cir.1985).

In Computer Network, Ltd. v. Purcell Tire & Rubber Co., 747 S.W.2d 669 (Mo. App. 1988), defendant signed a letter agreement to purchase 21 computers. He was permitted to testify that he did not intend to buy that many. Nonetheless, the court held his unexpressed intent to be irrelevant.

Ohio

—Akron Milk Producers, Inc. v. Isaly Dairy Co., 109 Ohio App. 155, 10 Ohio Op. 2d 381, 164 N.E.2d 579 (1959).

Pa.

—Delaware, L. & W. R. Co. v. Monroe County Water Power & Supply Co., 227 Pa. 639, 76 A. 425 (1910).

Vt.

—Taplin & Rowell v. Clark, 89 Vt. 226, 95 A. 491 (1915).

A good illustration is Church v. Bobbs-Merril Co., 170 F. Supp. 32 (S.D.Ind.1959), aff’d, 272 F.2d 212 (7th Cir.). A letter written by the plaintiff was understood by defendant as an offer to rescind an existing contract. The defendant assented in a letter clearly stating its understanding. The plaintiff made no objection or correction.

This section (§ 106 from a prior edition of this treatise) is cited in St. Paul Fire & Marine Ins. Co. v. Indemnity Ins. Co., 32 N.J. 17, 158 A.2d 825 (1960). After holding that the facts did not justify the creation of a quasi-contractual duty of contribution, the court held that the facts presented a question for the jury whether the defendant insurer had promised by implication to reimburse the plaintiff insurer a part of the cost of defending a suit against the insured who held policies in both companies. The court reviews evidence as to the correspondence of the parties and as to their conduct in previous cases, and says that “if the conduct of defendant, objectively viewed, reveals a promise to pay, defendant must meet that obligation whatever may have been its unrevealed expectation.” This is quite correct if we assume (as the facts certainly justified) that the plaintiff in fact understood the conduct of the defendant as expressing a promise to pay. If in fact the plaintiff did not so understand it, it would be wholly immaterial whether third parties, viewing the defendant’s conduct (or words) “objectively”, would have drawn the inference that the defendant made a promise to pay.

A contract was made for the sale of “the unsold lots in Fairmount Cemetery.” The parties differed in the meanings given to this quoted phrase. It was held that the seller could not compel payment for lots not understood to be included by the buyer, the latter’s understanding being the reasonable one. Miller v. Red Lion Cemetery Ass’n, 315 Pa. 421, 174 A. 105 (1934). It seems probable that the buyer could enforce the agreement, as he understood it, against the seller.

In Woburn Nat. Bank v. Woods, 77 N.H. 172, 175, 89 A. 491, 492 (1914), the court said: “A contract involves what is called a meeting of the minds of the parties. But this does not mean that they must have arrived at a common mental state touching the matter in hand. The standard by which their conduct is judged and their rights are limited is not internal, but external. In the absence of fraud or incapacity, the question is: What did the party say and do? ‘The making of a contract does not depend upon the state of the parties’ minds; it depends on their overt acts.’ ” That this is not a complete and accurate exposition.

The Woburn case was followed in A. Perley Fitch Co. v. Phoenix Ins. Co., 82 N.H. 318, 133 A. 340 (1926).

3 In Katz v. Abrams, 549 F.Supp. 668, 672 (E.D. Pa. 1982), the court goes so far as to state: “The subjective impressions of third persons are immaterial,” citing this treatise (§ 107, 1951 ed.). It is submitted that such a statement is erroneous. The understandings of third persons are not controlling, but they can be good circumstantial evidence of what the understandings of the parties might be or reasonably should be.

4 See the discussion by Frank, J., in Ricketts v. Pennsylvania R. Co., 153 F.2d 757, 164 A.L.R. 387 (2d Cir. 1946). With the author’s theory here stated, Mr. Glanville L. Williams appears to agree. In his article on “Mistake as to Party in the Law of Contract,” 23 Can. Bar. Rev. 271, 380 (1945), he says at p. 387, speaking of the well-known case of Boulton v. Jones, 2 H. & N. 564 (1857): “The law of contract has a ‘subjective’ as well as an ‘objective’ side, and although the ‘objective’ theory has now become fashionable, it is submitted that it is erroneous to regard it as a complete statement of the law.”

5 In Fairway Center Corp. v. U.I.P. Corp., 502 F.2d 1135 (8th Cir. 1974), the board of one party approved a proposed agreement. The board of the second party made amendments. The amendments were signed on behalf of the second party accompanied by a letter explaining its lack of assent to a material term of the amendment. There was no contract. This could have been analyzed as the making of a series of counter-offers. The court reached its conclusion by a broader look at the lack of a mutual manifestation of intent to the same terms.

In Swanson v. Holmquist, 13 Wash. App. 939, 539 P.2d 104 (1975), a written contract of sale of a house to be built was entered into. Each party thought the other would pay any excess of mortgage discount over two percent. After construction started the builder raised the price substantially. The court held the builder could do this because the parties had not reached agreement on the mortgage discount and therefore there was no contract.

6 In Dorchester Exploration, Inc. v. Sunflower Elec. Coop., Inc., 504 F. Supp. 926 (D. Kan. 1980), the court believed that the parties had the same intention as to the meaning of a price escalation clause. Alternatively, it thought one party was aware of an ambiguity of the clause and the meaning attached to it by the other party during negotiations. Thus the other party’s meaning prevailed.

Similarly, in the law of agency, “secret limitations on authority generally have no effect on the rights of third persons dealing with the agent.” DeBoer Constr., Inc. v. Reliance Ins. Co., 540 F.2d 486, 494 n. 5 (10th Cir. 1976), cert. denied, 429 U.S. 1041, 97 S. Ct. 741, 50 L. Ed. 2d 753 (1977).

7 Frey v. Friendly Motors, Inc., 129 Ga. App. 636, 200 S.E.2d 467 (1973), is one of many cases so holding. The parties vigorously disagreed as to what was said.

8 In United States v. Delegal, 678 F.2d 47 (7th Cir. 1982), a plea bargain had been accepted by the district court and the case set for sentencing. Some correspondence between the United States attorney and the defendant’s counsel indicated that there might be some question about whether the plea bargain dealt with the question of the coordination of the oncoming federal sentencing and a Florida state sentence. After a hearing, the district court vacated the guilty plea. After a trial before another judge, the defendant was convicted of one more count than that to which he had earlier pleaded guilty. Held, it was an abuse of discretion to vacate the guilty plea. The agreement should be treated as a contract and whether viewed objectively or by the actual understandings of the parties, there was an agreement as to the terms of the bargain.

U.S.

—General Warehousemen & Employees Union v. J.C. Penney Co., 484 F. Supp. 130 (W.D. Pa. 1980). At the expiration of a collective bargaining agreement the parties agreed that “the terms and conditions of employment” would be continued during the hiatus between contracts. While the quoted phrase has a “legal” meaning that would include all the terms and conditions of a contract, including terms with respect to the arbitration of grievances, the court rightly wanted to know how the parties reasonably understood the agreement. Was it an extension of the entire contract? The court concluded that inasmuch as the union maintained that it had a right to strike, despite a no-strike clause in the expired contract, it did not regard the entire contract as extended. The court concludes that the arbitration clause was not one of the “terms and conditions” reasonably understood to be carried forward.

Colo.

—This section (§ 107 from a prior edition of this treatise) is cited in Rasmussen v. Freehling, 159 Colo. 414, 412 P.2d 217 (1966), holding that plaintiffs in a personal injury case were entitled to a trial of their claim that a release signed by them had been obtained by fraud. How imprudent and negligent were they in failing to read what they signed? This is a factual question.

Mich.

—Banque de Depots v. Nat. Bank of Detroit, 491 F.2d 753 (6th Cir. 1974). Dunkel was trying to arrange a foreign loan, and as a customer of Detroit, asked it to serve as bailee to hold the shares of stock he was putting up as security, and to use its international telex facilities to help him set up the deal. Detroit then telexed Depots: “We confirm we hold in our collateral file” 267,000 shares, and that one James Dondich was authorized to pledge these shares for a loan. Depots replied questioning whether the shares were free of restrictions. Detroit said they were free. Depots asked for a “key tested” message to that effect (a message which in the banking world is treated as the equivalent of a signed writing). Detroit provided it. When Dunkel defaulted, Detroit refused to turn over the shares to Depots, claiming the 267,000 shares as collateral for its own loan to Dunkel. Depots sued, winning below. Held, affirmed. The court thought Detroit knew Depots was asking for certification that it had good collateral and quoted this section (§ 106, 1963 ed.) to show that Detroit’s own contrary intention was ineffective. Echols v. Nimmo, 586 F.Supp. 467 (W.D. Mich. 1984).

N.Y.

—Grimpel v. Hochman, 74 Misc. 2d 39, 343 N.Y.S.2d 507 (1972). A contract for painting and paperhanging called for “the best workmanship by union skilled craftsmen.” The owner was a perfectionist and had in mind a subjective standard of personal satisfaction. The owner did not prevail.

Vt.

—Bachli v. Holt, 124 Vt. 159, 200 A.2d 263 (1964). At request, the plaintiff subcontractor submitted a bid to the defendant general contractor. Plaintiff commenced work and received progress payments from the defendant. Final payments were not made and the defendant told plaintiff to look to the owner for payment. The defendant had expressed to third parties that the subcontractor was working directly for the owner, but had never expressed this to the subcontractor. The defendant was liable despite his apparent belief he had no contract with plaintiff.

10 The complex interplay between the parol evidence rule and the determination of whether assent has been expressed is demonstrated by Ely Constr. Co. v. S & S Corp., 184 Neb. 59, 165 N.W.2d 562 (1969). The defendant was bidding on a government subcontract. Government specifications called for steel windows or equivalent. Defendant submitted a bid explicitly based on aluminum and plaintiff was well aware of this. The written contract incorporated the government specifications. Plaintiff, the general contractor, sought unsuccessfully to get the government contracting officer to accept aluminum instead of steel. Plaintiff then demanded that defendant install steel windows. The majority of the court thought that the intent of the parties to use less expensive aluminum could be shown by parol evidence. The dissenter thought that the parol evidence rule barred evidence of the negotiating history of the contract.

11 This point is noted in Kabil Developments Corp. v. Mignot, 279 Or. 151, 566 P.2d 505 (1977). Kabil’s agent was allowed to testify he felt he had reached an agreement with Mignot for helicopter services. Mignot appealed claiming that admission of evidence of a subjective state of mind was reversible error. The court affirmed, holding that this evidence of the agent’s subjective understanding was evidence of an objective mutual manifestation of assent and the jury had properly been instructed as to the limited function of this evidence.

Transpacific Leasing, Inc. v. Klineline Sand & Gravel Co., 272 Or. 133, 535 P.2d 1360 (1975) suggests a subjective basis for its result, a wrong reason for an otherwise defensible holding. Under one version of the facts, Klineline’s president, Fuhrman, signed an offered lease as guarantor. He also wrote an accompanying letter stating that his liability was limited to $60,000. These were delivered to an intermediary, who was the agent of neither party. The lease was delivered to Transpacific, the lessor, but the letter was not delivered until later. The court correctly notes that Fuhrman’s sending the lease document together with the letter constituted a counter-offer. The undelivered counter-offer showed, said the court, a lack of “meeting of the minds” and therefore, if these were the facts, no contract was made with Fuhrman. A better explanation is that the intermediary’s delivery of only part of Fuhrman’s response to the offer was a negligent error in transmission. See § 4.11. If the intermediary deliberately withheld the letter, the conduct was akin to forgery.

12 Cox Broadcasting Corp. v. National Collegiate Athletic Ass’n, 250 Ga. 391, 297 S.E.2d 733 (1982).

13 297 S.E.2d at 737.

14 E.g., Akbar v. Bangash, 2017 U.S. Dist. LEXIS 106440 (E.D. Mich. July 11, 2017); Zepher v. Kaiser Found. Hosp., 687 Fed. App’x 636 (9th Cir. 2017); Trans-Western Petro., Inc. v. United States Gypsum Co., 830 F.3d 1171 (10th Cir. 2016); Comolli v. Huntington Learning Ctrs., Inc., 180 F. Supp. 3d 284 (S.D.N.Y. 2016); Coca-Cola Refreshments, USA, Inc. v. Binghamton Giant Mkts., Inc., 127 A.D.3d 1319, 6 N.Y.S.3d 766 (2015); Kahan v. Woodard-CM, LLC, 2009 U.S. Dist. LEXIS 48525 (N.D. Ohio May 28, 2009).

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.13 »

1 Corbin on Contracts § 4.13 (2020)

§ 4.13. Mutual Assent—“Meeting of the Minds”

It takes two to make a “bargain,” although there are some “unilateral” contracts that can be made without any expression of assent by the promisee.1 The great majority of contracts are bargaining contracts, the purpose of which is to effect an exchange of promises or of performances. To attain this purpose, there must be mutual expressions of assent to the exchange. These expressions must be in agreement, but it is not necessary that they consist of identical words or identical acts. Their words and acts are called “expressions” because they are external symbols of the thoughts and intentions of one party, symbols that convey these thoughts and intentions to the mind of the other party. The symbols so used by one party may be ill-chosen, or the experience and intelligence of the other party may be so variant from that of the first that the understanding of the second is materially different from that of the first. When this is the case, it cannot be said that there has been a “meeting of the minds” or that the parties are in “agreement,” in the sense in which those terms are usually understood.2

It has already been shown, and it will appear at many places in this treatise, that a “meeting of the minds” is not an unvarying prerequisite to an enforceable contract. But if it is made clear that there has in fact been no such “meeting of the minds,” the court will not hold a party bound by a contract varying from the party’s own understanding unless the context shows that this party’s words and conduct gave the party reason to know that the other party would be and was in fact misled. In determining whether a party had reason to know the other party’s understanding, the party must be judged in relation to the usage and understanding of other people, but in determining whether a party did in fact know the other party’s understanding, much more direct and cogent evidence (such as statements made to and by this party) may be available.

There is no actual “meeting of the minds,” even though the terms of the bargain are reduced to writing and signed by both parties, if one of them did not in fact read or understand the written terms. Yet the signatory is generally bound.3 In modern business life there are innumerable “standardized” contract forms, such as are found in insurance, transportation, sales of goods, and distribution agencies, prepared by one party for recurrent use in many transactions. They may contain many provisions, often in fine print, the purpose of which is to limit obligations and to avoid risks that the party preparing the form would otherwise have to bear. It may be presented to the other party, often much less well informed or advised, on the basis of “accept this or get nothing,” well knowing that the other party does not know or understand.4 In these cases, even an actual “meeting of the minds” may be unavailing in the event of unconscionability.5

Footnotes — § 4.13:

1 The text refers primarily to those unilateral contracts, such as a promise under seal, that are effective unless the promisee expresses dissent. If, however, the offer looks to a performance by the offeree and the offeree performs the requested return, this conduct acts as an expression of assent to the offered terms. Multicare Medical Center v. Department of Social and Health Services, 114 Wash. 2d 572, 790 P.2d 124 (1990), en banc. The court states: “The Hospitals are not entitled to perform the contract and then argue that there was no mutual intention that the contract establishes the payment rates.” 790 P.2d at 133.

2 See Kitzke v. Turnidge, 209 Or. 563, 307 P.2d 522, 527 (1957). This treatise (§ 128, 1950 ed.) is cited in the landmark Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69, 88, 75 A.L.R.2d 1 (1960), holding the limitation of liability provision used by all the members of the Automobile Manufacturers Association to be unconscionable and against public policy.

In J.H. Milner & Son v. Percy Bilton, Ltd., 2 All E.R. 895 (Q.B. 1966), a firm of solicitors which had represented one of the parties in a real estate development deal wrote to the subsequently formed development company stating that there was an understanding that all of the legal work connected with development and leasing of the property would be placed with the firm. The development company denied such an understanding but agreed to the proposition. Subsequently the leasing work was done by the company’s house counsel. Solicitors sued for breach. Held there was no contract for the leasing. Plaintiffs employed the vague term “understanding” in their offer in a deliberate attempt to induce agreement to uncertain terms and later benefit thereby.

This section (§ 107 from a prior edition of this treatise) is cited in Prince v. Western Empire Life Ins. Co., 19 Utah 2d 174, 428 P.2d 163 (1967), holding enforceable a life insurance policy binder stating that it would be effective from the date of application if the applicant subsequently was shown to have been insurable on that date. There was no evidence to the contrary, and insurer had delayed issuing the policy prior to the applicant’s accidental death.

This section (§ 107 from a prior edition of this treatise) is cited in Rasmussen v. Freehling, 159 Colo. 414, 412 P.2d 217 (1966), holding that plaintiff in an accident case is entitled to try the issue of fraud in the procuring of a release.

See:

U.S.

—02 Micro International, Ltd. v. Monolithic Power Systems, Inc., 467 F.3d 1355 (Fed. Cir. 2006) (citing this § 4.13, 1993 ed., the Court of Appeals found that the letters between the parties reflected offers and counter-offers, and that these letters did not constitute “a meeting of the minds” required for an enforceable agreement); Equatorial Marine Fuel Management Services PTE LTD. V. MISC Berhad, 591 F.3d 1208 (9th Cir. 2010) (citing this § 4.13, 1993 ed.); Colfax Envelope Corp. v. Local No. 458-3M, 20 F.3d 750 (7th Cir. 1994) (interesting discussion of “meeting of the minds”).

Turner Marine Fleeting, Inc. v. Quality Fab & Mech., Inc., 2002 U.S. Dist. LEXIS 24258 (E.D. La. Dec. 13, 2002) (contract is formed only if the parties have explicitly agreed that certain provisions will be included in the contract and no others).

Fla.

—State v. Family Bank of Hallandale, 623 So. 2d 474 (Fla. 1993), appeal after remand, 667 So. 2d 257 (Fla. App.). A bank that took possession of state-issued warrants from a third party since bankrupted asserted that the state had waived sovereign immunity in connection with its claim for prejudgment interest on the warrants. Held: although the State was the maker of the instrument, there was no contract between the State and the bank because there was no mutual assent and therefore no meeting of the minds.

Ill.

—Berntson v. Cheney, 815 F. Supp. 1145 (N.D. Ill. 1993) (plaintiff agreed to settle lawsuit with government for $1,500 but was unaware that the government had agreed to pay only $1,000 of that amount and her own attorney was going to pay the other $500; held: no valid contract).

Mass.

—Nortek, Inc. v. Liberty Mutual Insurance Company, 65 Mass. App. Ct. 764, 843 N.E. 2d 706 (Mass. 2006) (citing this section (§ 107, 1963 ed.)).

N.Y.

—International Paper Co. v. Suwyn, 966 F. Supp. 246 (S.D.N.Y. 1997). A noncompete provision restricted an employee’s right to work for a “major paper company” but the meanings assigned to the phrase by the parties were different and were both reasonable: no enforceable agreement had been reached.

Ohio

—Kotyk v. Rebovich, 87 Ohio App. 3d 116, 621 N.E.2d 897 (1993). Former altar boy alleging he was sodomized by parish pastor entered settlement agreement with the diocese, but in the lawsuit against the priest, since the priest had not agreed to the contract, there was no meeting of the minds between the priest and the former altar boy.

R.I.

—Acinapura v. Natalizia, 2003 R.I. Super. LEXIS 98 (R.I. Super. Ct. July 30, 2003). Where the parties’ agreement for the purchase and sale of a controlling interest in the plaintiff’s publications failed to manifest assent to essential terms, the court cited this treatise (§ 4.13, 1993 ed.) in holding that the absence of objective manifestations of mutual assent precluded the finding that a contract was formed.

3 This is well-illustrated by the cases interpreting so-called browsewrap agreements where the terms of use for a website that are hyperlinked on a website. While it is doubtful that few people bother to actually read such terms of use, they are binding on the internet user if the user had actual or constructive notice of them and the website alerted the user that by clicking a button to continue using the site or to complete a transaction, he or she agrees to the hyperlinked terms and conditions. There are many cases so holding, discussed in § 2.12

Ill.

—Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill. 2d 306, 113 Ill. Dec. 252, 515 N.E.2d 61 (1987). For a consideration, the defendant agreed to display plaintiff’s address and phone number in “appropriate listings” under “appropriate headings” in the Chicago Visitors Guide and Downtown Directory published by defendant. The defendant did not list plaintiff under “Hotels.” The defendant maintains that there was no “meeting of the minds” as it understood that it was to provide only a back-page advertisement. “The jury found that the defendant promised ‘appropriate listings’ and whether this promise accurately reflected the defendant’s subjective intention is simply irrelevant.”

Mo.

—Computer Network, Ltd. v. Purcell Tire & Rubber Co., 747 S.W.2d 669 (Mo. App. 1988). The defendant’s comptroller signed a letter agreement expressing consent to the purchase of 21 computers over the next twelve months. At the end of twelve months, the defendant had ordered for delivery only 12 computers. The comptroller denies any intent to purchase 21 computers. Clearly, if there was no such intent, the seller was misled by the expression of assent that was in writing in plain English. The court states: “An actual mental reservation does not prevent a contract from being formed if there is a manifestation of assent and nothing in Section 2-204 [of the U.C.C.] changes this approach.” 747 S.W.2d at 675.

N.H.

—Kilroe v. Troast, 117 N.H. 598, 376 A.2d 131 (1977).

Fleet Bank, NH v. Christy’s Table, Inc., 141 N.H. 285, 681 A.2d 646 (1996) (signature of parents of a co-adventurer in a corporate borrowing on a guarantee dated the same date as the loan held liable despite their denial that they knowingly signed it and their efforts—quite thin indeed—to support that denial).

Ohio

—Volpe v. Medical College of Ohio, 2005-Ohio-6312 (2005). The court found no contract but its analysis is wanting. The facts suggest no lack of mutual assent but that the agreement was voidable because of mutual mistake.

Utah

—John Call Engineering, Inc. v. Manti City Corp., 743 P.2d 1205 (Utah 1987), appeal after remand, 795 P.2d 678 (Utah App.). Engineer presented City with a proposed contract for the planning and completing of a sewer project. The Mayor and Council apparently believed it was a proposal for a preliminary study. The Council approved it and the Mayor signed it. There was no misrepresentation or duress. The agreement was in plain English. It was a binding contract.

Wash.

—Sherman v. Lunsford, 44 Wash. App. 858, 723 P.2d 1176 (1986). “Absent fraud, deceit or coercion, a voluntary signator is bound to a signed contract even if ignorant of its terms.” 723 P.2d at 1178.

Yakima County Fire Protection District v. City of Yakima, 122 Wash. 2d 371, 858 P.2d 245 (1993) (“Where a party has signed a contract without reading it that party cannot successfully argue that mutual assent was lacking as long as the party was not deprived of the opportunity to read the contract, the contract was ‘plain and unambiguous’, the party was capable of understanding the contract, and no fraud, deceit or coercion occurred.”).

Sometimes even where there is a signature on a document, the party that signed may not be bound if the context shows that the parties did not intend to have a contract. See Skyrise Constr. Group v. Annex Constr., 2019 U.S. Dist. LEXIS 26403 (E.D. Wis. 2019). Subcontractor Skyrise sued general contractor Annex, claiming that the parties entered into a final agreement for Skyrise to perform work on a construction project. Annex claimed that the parties never got beyond the negotiation phase before Annex terminated the discussions. Skyrise never did any work on the project. Annex filed a motion for summary judgment. The evidence showed that the parties negotiated a bid and never came to agreement. Up to a certain point, there was no disagreement that there was no contract. Skyline advised Annex that it was reviewing the latest version of contract documents, but it asked Annex to sign and return Skyrise’s previous bid proposal at that time, as that was Skyrise’s standard practice. Even though the contract documents were still under review, Skyrise purportedly “needed Annex to sign the bid in order for Skyrise to commit to perform” the subcontracting work under discussion. Annex proceeded to sign the proposal but no one acted as though a final contract had been entered into. Nevertheless, Skyrise claimed that this constituted a legally operative contract. The court recounted the context of the transaction and rejected this argument. The court granted Annex’s motion for summary judgment and held that no contract had been entered into.

4 See § 1.4, as to contracts of adhesion.

5 See Vol. 7, Ch. 29.

«Pt. I •«TOPIC A •«Ch. 4 •«§ 4.14 •

1 Corbin on Contracts § 4.14 (2020)

§ 4.14. Auction Sales—Offers to Sell and to Buy

The public auction sale has long been an established institution with customs and usages generally well known in the community. These customs and usages vary in different regions. They vary also in relation to the subject matter of the sale. The customs of a regularly established auction mart must be considered in determining the effect of a transaction there. The customs of a horse market may differ from those of auction sales of cotton, tobacco, or household goods. Also, statutory provisions are not infrequently found, as for example in the Uniform Commercial Code.1 Except when otherwise provided by statute,2 one who puts up goods at auction can by proper notice determine the legal effect of the auction,3 and one who makes a bid can do the same. General rules stated in this section, therefore, must be understood as widely prevailing but not necessarily universal.

When an auctioneer presents an article for sale at auction and asks for bids, the auctioneer is ordinarily not making an operative offer and creates no power of acceptance. Such an auction is often called an auction “with reserve;” that is, the seller reserves the right not to sell. The auctioneer is asking for offers. The bids made in response thereto are themselves offers that can be revoked by the bidders prior to an acceptance by the auctioneer.4 This is true even though the seller or the seller’s agent has issued advertisements or made other statements that the article will be sold to the highest bidder, or is offered for sale to the highest bidder. Such statements are usually5 merely preliminary negotiation, not intended and not reasonably understood to be intended to affect legal relations. When such is the case, the seller or seller’s agent is as free to reject the bids, highest to lowest, as are the bidders to withdraw them.6 The seller may at any time withdraw the article from sale, if a bid has not already been accepted. The seller need give no reasons; indeed, all bids are rejected by merely failing to accept them—by doing nothing at all. It is not necessary for the seller to say that “the privilege is reserved to reject any and all bids.”7 Such a statement is merely evidence that the goods are not being offered “without reserve.”

Some auctions are “without reserve” or “absolute.” Before these are discussed some unusual possibilities will be considered. It is quite possible, of course, for the seller to make an operative offer to sell goods, either singly or in gross. If the seller offers to sell an article at a specified price, this is not an auction sale. This is true whether the offer is made to a single person, or to a group of persons then present, or by a published notice to many persons not identified. Any offeree has power to accept such an offer, as long as the offeree has no reason to know that the offer has been withdrawn. The circumstances may be such that the first effective acceptance terminates the power of all other offerees. It is equally possible for a seller to make an operative offer to sell goods without specifying a price, although such offers are not very common. The seller can empower the offeree to fix the price as part of the acceptance. By such an acceptance the sale is consummated, but it is not an auction sale.

An auction sale is one in which the price is determined by the competition of bidders. Even at such a sale as this, it is possible for the seller to make an operative offer to sell and thus cause each bid to be an acceptance of the offer. All that is necessary is that the seller shall express such an intention clearly and bring it sufficiently to the attention of the bidders. One mode of expression has been in such common use as to have received judicial interpretation. If the seller states in advertising of the auction, or states openly at the place of the auction,8 that the sale will be “without reserve,” the seller thereby promises to sell the goods to the bidder who makes the highest bid in the competition at that time and place. Before any bid has been made in response to such an offer, the seller has power to revoke and to withdraw the goods from sale,9 but, after one bid has been made, the seller’s offer is held to be irrevocable. The seller is under a legal duty to sell the goods to the bidder at the price bid, conditional only on the absence of any higher bid at that time and place.10

It might be supposed that the bidder too would be irrevocably bound by bid when bidding in response to an offer to sell “without reserve,” but it seems that such is not the case. Although the seller’s offer has become irrevocable, it has been held that the bidder still has power to revoke the bid as long as it has not been accepted by the fall of the hammer or otherwise.11

It is obvious that after a bid has been made at a sale “without reserve,” there is a contract by which one party (the auctioneer or the principal) is bound and the others (the pool of potential bidders) are not. There is nothing unusual in this. It is merely one instance of a unilateral contract. The making of the bid, empowering the auctioneer to close the deal at once by letting the hammer fall, is a sufficient consideration for the seller’s promise that the sale shall be “without reserve.”

The acceptance of a bid at auction is commonly signified by the fall of the hammer or by the auctioneer’s announcement “Sold.” All that is necessary is that the auctioneer shall express an intention to accept the bid, in any mode that the bidder has reason to know and understand. After such an acceptance, the sale is consummated.12 Neither party can withdraw, and the auctioneer has no power to accept a higher or different bid.13 This is not affected by a reservation of the “right to reject any and all bids,”14 but it is otherwise if there is an express reservation of the power to “rescind the sale” within a stated time after the auction.15 This is the power to terminate a contract, not to reject an offer.

Subdivision 4 of U.C.C. § 2-328 makes reference to the practice of by-bidding. As stated in one case “a ‘by-bidder’ is one employed by the seller or his agent to bid on the property with no purpose to become the purchaser, so that the bidding thereon may be stimulated in others who are bidding in good faith, while he is safe from risk because of a secret understanding that he shall not be bound by his bids … . A person fitting the description of a by-bidder has been referred to as a ‘puffer,’ ‘sham bidder,’ ‘copper,’ ‘decoy duck,’ or a ‘white bonnet.’ ”16 Thus, the U.C.C. and the common law permits a buyer to avoid the sale upon discovering the infection created by by-bidding.17 Alternatively, the buyer can insist on reforming the contract to the price of the last good faith bid. Although the meaning of the phrase “last good faith bid” is obscure, it has been held that the buyer can take at the price of the buyer’s last bid prior to the first sham bid.18 If, however, the by-bidder is the highest bidder, there is no actionable fraud if the auction is with reserve; what has taken place is the lawful removal of property from the auction by subterfuge.19

The rule applied to bids at auction is equally applicable to competitive bids for the construction of buildings made in response to a request for such bids even though the request includes a statement that the contract will be awarded to the lowest bidder. No such bidder can maintain an action for damages against the owner who rejects a bid and accepts a higher one.20

(A) The following case is noteworthy:

(1) The Second Circuit considered the fundamental rules of auctions in Wells Fargo Bank, N.A. v. HoldCo Asset Mgmt., L.P., 2018 U.S. App. LEXIS 18374 (2d Cir. 2018). Wells Fargo was trustee of Soloso, an entity that issued collateralized debt obligations backed by investments in trust-preferred securities. Wells Fargo announced that it would be selling off the collateral in Soloso’s trust estate in a series of auctions. The invitation to bid included the following: “The Trustee shall not be obligated to make any Sale and reserves the right to sell all or a part of the Collateral at a subsequent public or private Sale.” HoldCo submitted the highest bids for four of the securities that Soloso held as collateral at the one of these auctions. However, Wells Fargo declined to sell three of these assets to HoldCo. Wells Fargo had instructed its intermediary not to sell any of the collateral for less than a predetermined reserve price that Wells Fargo set for each asset, and HoldCo’s bids fell below that price. In the ensuing litigation, the district court granted summary judgment in favor of Wells Fargo. On appeal, the instant court affirmed. The court explained that under New York law, applicable to this case, auctions are presumed to be “with reserve,” which means “that an invitation to bid is an advertisement for prospective buyers to make offers to the seller, which the seller may freely accept or reject.” The court explained:

Under the “normal procedure,” then, “[t]here is no contract until the offer made by the bidder is accepted by the auctioneer’s ‘knocking down’ the property to him.” [Drew v. John Deere Co. of Syracuse, 19 A.D.2d 308, 241 N.Y.S.2d 267, 269–70 (4th Dep’t 1963).] A seller may, through “express statement,” modify the normal procedures. Id. at 270. If a seller clearly indicates that an auction is “without reserve” or “absolute,” the invitation to bid functions as an offer to sell to the highest (qualified, bona-fide) bidder and bids are acceptances conditional on being the highest bid. Id. at 269; see also 7 Am. Jur. 2d Auctions and Auctioneers § 36. Conversely, a seller may declare that an auction is “conditional,” reserving her right to reject offers even after the bidding has closed.

The invitation to bid here did not contain the express statement necessary to make this auction “without reserve.” Merely stating that the sale will be made to the highest qualified bidder is not enough.

Footnotes — § 4.14:

1 The Uniform Commercial Code § 2-328, provides:

“(1) In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.

“(2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.

“(3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive any previous bid.

“(4) If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to completion of the sale. This subsection shall not apply to any bid at a forced sale.”

Although this provision applies to the sale of goods, it has been invoked in land sale auctions. E.g., Hoffman v. Horton, 212 Va. 565, 186 S.E.2d 79 (1972). See also Cuba v. Hudson & Marshall, 213 Ga. App. 639, 445 S.E.2d 386 (1994).

2 A statute making bids irrevocable at certain foreclosure sales is reported in Commercial Federal Sav. & Loan Asso. v. ABA Corp., 230 Neb. 317, 431 N.W.2d 613 (1988). The court then extended the rule of the statute to all judicial sales, but not retroactively.

3 The seller has power by proper notice to fix a minimum price below which no sale at the auction shall be made. Such a notice limits the power of the auctioneer to bind the seller. McManus v. Fortescue, [1907] 2 K.B. 1. Such a limitation is generally known as a “reserve price.”

4 Payne v. Cave, 3 Term R. 148 (1789), is the leading English case on this subject. A “worm-tub and a pewter worm in the same” were advertised for sale at auction to the highest bidder. “At the trial, the plaintiff’s counsel opened the case thus: The goods were put up in one lot at an auction; there were several bidders, of whom the defendant was the last, who bid £40; the auctioneer dwelt on the bidding, on which the defendant said ‘why do you dwell, you will not get more;’ the auctioneer said that he was informed the worm weighed at least 1,300 cwt., and was worth more than £40; the defendant then asked him whether he would warrant it to weigh so much, and receiving an answer in the negative, he then declared that he would not take it, and refused to pay for it. It was re-sold on a subsequent day’s sale for £30 to the defendant, against whom the action was brought for the difference. Lord Kenyon, being of opinion on this statement of the case, that the defendant was at liberty to withdraw his bidding any time before the hammer was knocked down, nonsuited the plaintiff.

The Court thought the nonsuit very proper. The auctioneer is the agent of the vendor, and the assent of both parties is necessary to make the contract binding; that is signified on the part of the seller, by knocking down the hammer, which was not done here till the defendant had retracted. An auction is not unaptly called locus poenitentiae. Every bidding is nothing more than an offer on one side, which is not binding on either side till it is assented to. But according to what is now contended for, one party would be bound by the offer, and the other not, which can never be allowed.”

Compare, however, the provisions of the Uniform Commercial Code, quoted above, with respect to auctions without reserve.

In accord:

Cal.

—Hibernia Sav. & Loan Soc. v. Behnke, 121 Cal. 339, 53 P. 812 (1898).

Ky.

—Grotenkemper v. Achtermeyer & Co., 74 Ky. (11 Bush) 222 (1875).

Md.

—Pyles v. Goller, 109 Md. App. 71, 674 A.2d 35 (1996) (a thorough and concise review of the legal principles governing auctions, the court holds that the rule prohibiting a seller in a without-reserve auction to bid applies equally to sellers holding property as tenants in common even if they seek to bid in their individual capacities); Express Auction Servs., Inc. v. Conley, 127 Md. App. 447, 732 A.2d 1012 (1999) (citing § 4.14, 1993 ed.).

Mich.

—J&L Investment Co. v. Department of Natural Resources, 233 Mich. App. 544, 593 N.W.2d 196 (1999). A case of first impression in Michigan, holding that auctions are presumed to be held “with reserve,” i.e., the owner reserves the right not to sell, unless otherwise specified, and an owner may withdraw the property at any time before the auctioneer signals the acceptance of the highest bid.

Minn.

—Anderson v. Wisconsin C.R. Co., 107 Minn. 296, 120 N.W. 39 (1909).

Neb.

—Marten v. Staab, 249 Neb. 299, 543 N.W.2d 436 (1996) (excellent discussion of difference between “with reserve” and “without reserve,” citing § 4.13, 1993 ed.).

Commercial Federal Sav. & Loan Asso. v. ABA Corp., 230 Neb. 317, 431 N.W.2d 613 (1988).

Pa.

—Fisher v. Seltzer, 23 Pa. 308 (1854) (even though seller announced that bids should not be revocable).

5 The exact wording of the announcement must be interpreted in the light of the circumstances. A written invitation to bid stating: “Contract will definitely be awarded on Friday, May 30, 1986 to the highest responsible bidder,” was held to be a commitment. The auction became “without reserve.” Golfinopoulos v. Padula, 218 N.J. Super. 38, 526 A.2d 1107 (App. Div. 1987).

An invitation for bids stating: “Minimum selling price is $25,000,” was held not to be a commitment to sell to the highest bidder over that minimum. The auction was “with reserve.” Weidel Sand & Gravel, Inc. v. Middletown, 19 Ohio App. 3d 311, 484 N.E.2d 724, 19 Ohio B.R. 483 (1984).

Merely stating that goods will be sold to the highest bidder is not the same as saying that the sale is without reserve. Drew v. John Deere Co., 19 A.D.2d 308, 241 N.Y.S.2d 267 (1963).

The term “absolute auction” is synonymous with “without reserve.” Holston v. Pennington, 225 Va. 551, 304 S.E.2d 287 (1983). Cf. Pillsbury v. McNabb, 37 D. & C.2d 283 (Pa. Cty. 1965), where the case was remanded for a factual finding as to whether an announcement of an “absolute” sale meant an auction without reserve.

Close attention to an invitation for bids to ascertain the meaning of the invitation was given in Forbes v. Wells Beach Casino, Inc., 307 A.2d 210 (Me. 1973), later proceeding 525 A.2d 1034.

The following are noteworthy decisions:

Je Ho Lim v. TV Corp. Int’l, 99 Cal. App. 4th 684 (Ct. App. 2002). The defendant posted the domain name “Golf.tv” on its website for auction to the highest bidder. The plaintiff bid $1,010. The defendant charged the plaintiff’s credit card and sent an e-mail confirming that the plaintiff had won the bid for the use of Golf.tv. The defendant then informed the plaintiff that he was being “released” from his bid and that the original e-mail was mistaken. The court found that the defendant’s promise to sell the Golf.tv name to the highest bidder was an offer that was accepted by the plaintiff’s highest bid. In effect, the court held that the defendant had advertised a “without reserve” auction.

Young v. Hefton, 173 P.3d 671 (Kan. App. 2007). The court discussed three types of auctions: “with reserve” and “without reserve” (as noted in U.C.C. § 2-328) and “conditional.” In auctions “with reserve,” the property can only be withdrawn before the closing of the bidding, but in “conditional” auction sales, the property can be withdrawn after close of bidding. This amounts to a power of termination in the seller. Instantly, on the day of the sale, there were signs and indications before and during the auction that the sellers were retaining some final approval or control.

See Rest. Supply, LLC v. Giardi L.P., 330 Conn. 642, 2019 Conn. LEXIS 28 (2019). According to plaintiff, defendant Giardi requested that potential buyers of its property submit their highest and best offers. Plaintiff alleged that it submitted the highest offer, but that Giardi accepted a lower offer from another party. The plaintiff filed this action against Giardi, then added the third party that made the allegedly lower offer, seeking an order requiring Giardi to convey the property to it. “The plaintiff claimed that, by requesting highest and best offers, Giardi was bound to accept the highest offer and, therefore, entered into an enforceable contract with the plaintiff for the sale of the property.” The trial court granted defendants’ motions to strike, holding that the plaintiff’s allegations were insufficient to allege an auction without reserve, and, thus, were insufficient to create an exception to the requirement under the statute of frauds that there be a “writing … signed by the party … to be charged … .” On appeal, the instant court affirmed. The court noted that General Statutes § 42a-2-328 (3) provides in relevant part: “In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive any previous bid.” Further, Section 42a-2-328 (3) provides that “a sale is with reserve unless the goods are in explicit terms put up without reserve.” The court cited a comment to § 42a-2-328, which makes clear the drafters’ intent to make auctions “with reserve” the normal procedure. A “prior announcement of the nature of the auction … as … without reserve will, however, enter as an ‘explicit term’ in the ‘putting up’ of the goods and conduct thereafter must be governed accordingly. …” Conn. Gen. Stat. Ann. § 42a-2-328 (West 2009), comment (2). Here, plaintiff failed to plead that Giardi explicitly stated that it was selling its property in an auction “without reserve.” Instead, Giardi merely requested “highest and best” offers. This was not sufficient to plead an auction without reserve. The court cited precedent from other jurisdictions to reach this conclusion. “Other jurisdictions that have adopted identical language to § 42a-2-328 have held that ‘[t]he statement that the sale [will] be made to the highest bidder is not the equivalent of an announcement that the auction [will] be without reserve.’ ” The court added that “the plaintiff’s amended complaint failed to mention the words ‘auction’ or ‘bid,’ or even to describe or attach the document or communication constituting the auction or bid, calling into question whether the plaintiff sufficiently alleged that Giardi’s request for offers constituted an auction at all.”

U.S.

—Blossom v. Milwaukee & C. Railroad Co., 70 U.S. (3 Wall.) 196, 18 L.Ed. 43 (1866); United States ex rel. Goldberg v. Meyer, 37 App. D.C. 282 (1911), aff’d, 231 U.S. 218.

Ga.

—Tillman v. Dunman, 114 Ga. 406, 40 S.E. 244 (1901).

Md.

—Warehime v. Graf, 83 Md. 98, 34 A. 364 (1896).

Mass.

—Weinstein v. Green, 347 Mass. 580, 199 N.E.2d 310 (1964); Hunt v. Rice, 25 Mass. App. Ct. 622, 521 N.E.2d 751 (1988).

Minn.

—Anderson v. Wisconsin C.R. Co., 107 Minn. 296, 120 N.W. 39 (1909).

N.J.

—Kingston Bituminous Products Co. v. New Jersey Turnpike Authority, 80 N.J. Super. 25, 192 A.2d 836 (1963).

N.Y.

—Taylor v. Harnett, 26 Misc. 362, 55 N.Y.S. 988 (1899).

Ohio

—Newman v. Vonderheide, 11 Wkly. L. Bull. 123 (1884).

R.I.

—Freeman v. Poole, 37 R.I. 489, 93 A. 786 (1915), reh’g denied, 94 A. 152.

Va.

—Hoffman v. Horton, 212 Va. 565, 186 S.E.2d 79 (1972). In a land foreclosure sale the auctioneer announced that he accepted a bid despite the fact that a higher bid was made prior to or simultaneously with the falling of the auctioneer’s fist. When apprised of this fact, the auctioneer declared the bidding to be reopened. This was held to be within the discretion of the auctioneer, by analogy to U.C.C. § 2-238(2).

Wash.

—McPherson Bros. Co. v. Okanogan County, 45 Wash. 285, 88 P. 199 (1907) (plaintiff was the sole bidder).

Canada

—Holder v. Jackson, 11 U.C.C.P. 543 (1862).

7 Such a reservation as this creates no power to withdraw after fall of the hammer. New York v. Union News Co., 169 A.D. 278, 154 N.Y.S. 638 (1915), aff’d, 222 N.Y. 263, 118 N.E. 635; but a power of cancellation can be expressly reserved. Erie Coal & Coke Corp. v. United States, 266 U.S. 518, 45 S. Ct. 181, 69 L. Ed. 417 (1925).

Even though a seller at auction reserves the power of rejecting any or all bids, the power is at an end as soon as a bid has been accepted by the auctioneer. The rights of such a bidder are superior to those of a subsequent purchaser with notice. Collins v. Heitman, 225 Ark. 666, 284 S.W.2d 628 (1955).

Compare Jenkins Towel Service, Inc. v. Fidelity-Philadelphia Trust Co., 400 Pa. 98, 161 A.2d 334 (1960), holding that an owner’s letter requesting bids was so worded that the recipient was justified in interpreting it as an offer to sell creating a power of acceptance by submitting the highest bid that complied with all stated requirements. In Eastern Electric Sales Co. v. Provident Tradesmens Bank & Trust Co., 400 Pa. 429, 162 A.2d 215 (1960), the alleged offeror was held justified in interpreting the bidder’s letter as a conditional acceptance.

In Udall v. T.D. Escrow Services, Inc., 159 Wn. 2d 903, 154 P.3d 882 (Wash. 2007), the court cited this treatise’s explanation of settled auction law (§ 4.14, 1993 ed.) where asking for bids is asking for offers which the seller remains free to reject prior to acceptance. Acceptance at auction is commonly signified by the fall of the hammer after which the sale is consummated. Only by express reservation announced prior to the sale can seller reserve the right to review and reject bids after the auctioneer closes the sale.

See also Garden v. Central Nebraska Housing Corp., 2011 U.S. Dist. LEXIS 116087 (D. Neb. Oct. 5, 2011) (a good discussion of these issues, the court cited this § 4.14 re: auctions with and without reserve).

8 If the terms of sale are clearly stated at the opening of the auction, it is generally held that this is sufficient notice of those terms to any subsequent bidder, even though he came late or for some other reason did not hear them. See:

Iowa

—Kennell v. Boyer, 144 Iowa 303, 122 N.W. 941 (1909).

Mo.

—Coleman v. Duncan, 540 S.W.2d 935 (Mo. App. 1976).

N.Y.

—Burling v. Brinn, 116 Misc. 130, 189 N.Y.S. 707 (1921); Josephy v. Golden, 113 Misc. 284, 184 N.Y.S. 549 (1920).

Tenn.

—Vanleer v. Fain, 25 Tenn. 104 (1845).

Wis.

—Clarke v. Maisch, 171 Wis. 225, 177 N.W. 11 (1920); Keske v. Boeder, 168 Wis. 369, 170 N.W. 247 (1919).

Restatement (Second) of Contracts § 28 cmt. e (Am. Law Inst. 1981).

It is generally held that the auctioneer may make oral modifications and additions to the advertised terms of sale. See Holston v. Pennington, 225 Va. 551, 304 S.E.2d 287 (1983).

In Well v. Schoeneweis, 101 Ill. App. 3d 254, 56 Ill. Dec. 797, 427 N.E.2d 1343 (1981), an advertised term was: “Buyer to enter into written real estate contract.” This term did not mean that there was no contract between the parties until a written memorial had been executed.

In Zuhak v. Rose, 264 Wis. 286, 58 N.W.2d 693, 37 A.L.R.2d 1041 (1953), where an auction sale was advertised as “without reserve,” the owner was held to have no power to withdraw the land from sale after bids were made, and the highest bidder was entitled to specific performance.

If the seller instructs the auctioneer to set reserve prices and the latter fails to do this, a buyer takes good title when the goods are knocked down at a lower price. Carrera v. Sandman, 65 Ohio App. 3d 422, 584 N.E.2d 753 (1989).

Ala.

—Kinmon v. J.P. King Auction Co., 290 Ala. 323, 276 So. 2d 569 (1973).

N.Y.

—Benjamin v. First Citizens Bank & Trust Co., 248 App.Div. 610, 287 N.Y.S. 947 (1936). Plaintiff’s assignor came from South Africa to attend an auction announced to be without reserve which was canceled on his arrival. He had no cause of action.

Wis.

—Milwaukee Stove & Furnace Supply Co. v. Apex Heating & Cooling, Inc., 142 Wis. 2d 151, 418 N.W.2d 4 (App. 1987).

10 See the cases cited under note 4, above—many of which contrast auctions with and without reserve.

See also:

Ill.

—Forbes v. Hunter, 223 Ill. App. 400 (1921).

Me.

—Willison v. Kearney, 1998 Me. Super. LEXIS 87 (Me. Super. April 7, 1998) (citing this § 4.14, 1993 ed.).

Wyo.

—In Pitchfork Ranch Co. v. The Bar TL, 615 P.2d 541 (Wyo. 1980), there was an advertised “no-reserves” auction of a ranch. At the auction, the auctioneer announced a policy of not recognizing bids that were not at least $25,000 more than the prior bid. This policy had not been authorized by the seller. The property was knocked down to a bidder for $1,600,000 who seeks specific performance. A bid for $1,610,000 by a non-party to the action was not recognized. It was held that there was no sale, the auctioneer did not comply with the rule that the property be sold to the highest bidder.

Eng.

—Johnston v. Boyes, [1899] 2 Ch. 75; Warlow v. Harrison, 1 El. & El. 316 (1856).

11 Restatement (Second) of Contracts § 26 (Am. Law Inst. 1981):

“Auctions”

“(1) At an auction, unless a contrary intention is manifested,

(a) the auctioneer invites offers from successive bidders which he may accept or reject;

(b) when goods are put up without reserve, the auctioneer makes an offer to sell at any price bid by the highest bidder, and after the auctioneer calls for bids the goods cannot be withdrawn unless no bid is made within a reasonable time;

(c) whether or not the auction is without reserve, a bidder may withdraw his bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive any previous bid.

(2) Unless a contrary intention is manifested, bids at an auction embody terms made known by advertisement, posting or other publication of which bidders are or should be aware, as modified by any announcement made by the auctioneer when the goods are put up.”

12 A good illustration is In re Grant, 303 B.R. 205 (Bankr. D. Nev. 2003). In this bankruptcy case, Woolman purchased the debtor’s real estate at a foreclosure sale in accordance with Nevada law. The following day, the debtor filed a chapter 13 bankruptcy petition and eight days later the foreclosure sale deed was recorded. Woolman filed a motion for relief from the stay in bankruptcy for the purpose of evicting the debtor from the property. The debtor argued that the post-petition recordation of the deed violated the automatic stay, rendering the foreclosure sale void. The court had to determine whether the debtor had any legal or equitable interest in the property at the time the bankruptcy petition was filed. This issue depended upon the effect of a foreclosure sale. Quoting Corbin (§ 4.14, 1993 ed.) to the effect that an auction sale is completed upon the fall of the auctioneer’s hammer or when the auctioneer declares the property as “sold,” the court held that a foreclosure sale is completed when the property is announced as sold and the bidder has paid the purchase price. There was no allegation that Woolman paid the purchase price after the petition was filed. There was no requirement that a deed must be filed to complete the sale. Holding that the debtor had no legal or equitable interest in the property when the bankruptcy petition was filed, the court granted Woolman’s motion to lift the stay.

See also Wakelan v. Hagood, 151 Idaho 688, 263 P.3d 742 (Idaho 2011). Hagood agreed to sell three parcels of land at an absolute auction (an auction without reserve), which he understood to mean an auction where “you had to sell it.” Two plaintiffs were the highest bidders on the three parcels. The party with whom Hagood had signed an exclusive representation agreement (Bullock) to organize and conduct this auction prepared purchase and sales agreements, which the plaintiffs signed. Hagood, however, refused to sign, stating that he required at least $2 million for the properties. The plaintiffs sought specific performance of the contracts they had made as the highest bidders in the completed auction sale. The district court granted Hagood’s motion for summary judgment because the statute of frauds had not been satisfied. On appeal, the instant court noted that the sale was the sale of land, which had to be evidenced by a writing under the Idaho statute of frauds. The plaintiffs argued that the definition of “absolute auction” made the statute of frauds inapplicable. The court noted that courts in other jurisdictions have reached different conclusions concerning the relationship between the statute of frauds and absolute auctions of land. While there is authority suggesting that such auction sales would become nullities if a party who made a contract to have his land sold to the highest bidder could defeat such a sale by relying on the statute of frauds, there is also authority holding that failure to comply with the statute bars enforcement of such a contract without an effective writing. Indeed, the cases that have recognized an exception to the statute of frauds in such cases have done so with little analysis. In this case, however, Hagood signed a representation agreement to authorize the sale that contained all of the essential terms of the contract. That agreement stated his promise to sell the described land at an absolute auction. The court viewed that writing as an “offer to the world” to sell the land to the highest bidder. There was no question that the plaintiffs accepted that offer and signed purchase and sale agreements to that effect. The representation agreement was a sufficient writing signed by Hagood that satisfied the statute of frauds against him. The district court erred in holding otherwise.

Fla.

—Coker v. Dawkins, 20 Fla. 141 (1883).

Ill.

—Russell v. Sammons, 217 Ill. App. 607 (1920).

Minn.

—Johnson v. City of Jordan, 352 N.W.2d 500 (Minn. App. 1984).

N.Y.

—Wells Fargo Bank, N.A. v. HoldCo Asset Mgmt., L.P., 2017 U.S. Dist. LEXIS 106969 (S.D. N.Y. July 11, 2017).

Wyo.

—State ex rel. Fitch v. State Board School Land Com’rs, 27 Wyo. 54, 191 P. 1073, 11 A.L.R. 539 (1920) (the highest bid was submitted in writing).

In Head v. Clark, 88 Ky. 362, 11 S.W. 203 (1889), it was held that where two bidders simultaneously bid the same amount and the auctioneer accepted one of them without hearing the other, the auctioneer could correct the mistake and accept a still higher bid by the second bidder. This has been codified in the Uniform Commercial Code. Acceptance of a bid consummates a contract, even though the terms have not yet been reduced to writing. State ex rel. Robins v. Clinger, 72 Idaho 222, 238 P.2d 1145 (1951).

Custom AG Serv., Inc. v. Watts, 2014 Wash. App. LEXIS 2455 (Wash. App. Oct. 14, 2014). Custom AG put up for auction, through Musser Brothers Auctioneers, seven parcels of farm land. Musser prepared a brochure to distribute to potential buyers that described the water rights to the property as water permits through the Washington State Department of Ecology, allowing for usage annually for 1,100± acres. It was discovered before the auction that the brochure inaccurately stated the water rights information: it was actually for 825 acres, not 1,100 acres. The correct information was posted online prior to the auction and was produced in a notebook available at the auction. Watts was the successful bidder on parcels 1 and 3, but Watts refused to sign the purchase agreement or make the down payment, stating that he bid with the understanding based on the description in the brochure that the sale included water rights for 1,100 acres. Ultimately, Custom AG sold the property to a third party and brought suit against Watts for breach of the agreement. In explaining the auction process, the court cited this § 4.14, stating that “[o]nce the auctioneer has accepted the bid in a mode clear to the bidder, the sale is consummated; neither party can withdraw and the auctioneer has no power to accept a higher or different bid.” The court reasoned that Watt’s position ignored the “as is-where is” language contained in the bidding terms and conditions and the disclaimer provisions unambiguously specifying the sole warranty concerning the property was merchantability of title. Further, Watts’ reasoning ignored the brochure’s risk allocation and due diligence provisions that placed the onus on potential bidders to verify accuracy of the brochure information. But the court concluded that there were genuine issues of material fact as to what Watts knew or should have known about the land, including the water right.

14 Coleman v. Duncan, 540 S.W.2d 935 (Mo. App. 1976). Auction notice indicated that some items had a reserve price, but did not indicate which items. A tractor was knocked down to plaintiff with the declaration, “sold.” Owner could not refuse to sell on the grounds that the reserve price had not been met. The implicit premise in the court’s decision is that the auctioneer has apparent authority to sell. This is undoubtedly a correct inference in the overwhelming number of auctions.

Trans World Airlines, Inc. v. Skyline Air Parts, Inc., 193 A.2d 72 (D.C. App. 1963).

Where the auctioneer is not empowered to contract, the owner may reject the high bid even after the bidding is concluded by the auctioneer. Eugene Stud & Veneer, Inc. v. State Bd. of Forestry, 3 Or. App. 20, 469 P.2d 635 (1970).

U.S.

—Erie Coal & Coke Corp. v. United States, 266 U.S. 518, 45 S. Ct. 181, 69 L. Ed. 417 (1925).

16 Nicholson v. Clark, 802 S.W.2d 934 (Ky. App. 1990), rehearing denied, review denied, quoting other sources.

The history of this practice is colorfully traced in McMillan v. Harris, 110 Ga. 72, 35 S.E. 334 (1900).

17 As in other cases of fraud, the buyer must act to avoid the sale within a reasonable time after ascertaining the facts. Berg v. Hogan, 322 N.W.2d 448 (N.D. 1982).

18 Nevada National Leasing Co. v. Hereford, 36 Cal. 3d 146, 203 Cal. Rptr. 118, 680 P.2d 1077, 44 A.L.R.4th 101 (1984). The plaintiff was also held to be entitled to punitive damages.

19 Drew v. John Deere Co., 19 A.D.2d 308, 241 N.Y.S.2d 267 (1963); Freeman v. Poole, 37 R.I. 489, 93 A. 786 (1915), reh’g denied, 94 A. 152.

Nicholson v. Clark, 802 S.W.2d 934 (Ky. App. 1990). In this curious case the owner unsuccessfully sought specific performance against the by-bidder who had been asked by the owner’s real estate broker to put in a bid on behalf of the owner at the reserve price. No one else bid.

Feaster Trucking Service, Inc. v. Parks—Davis Auctioneers, Inc., 211 Kan. 78, 505 P.2d 612 (1973). The auctioneer’s contract made it responsible for the collection of checks received for the auctioned goods. Feaster, the seller, persuaded Hobbs to bid on a truck to bring the price up. After Hobbs’ bid was accepted, it was agreed among Feaster, Hobbs, and Neff that the sale would be made to Neff. The truck broke down and Neff stopped payment on his check. Feaster brought action against the auctioneer on its guaranty of the collection of checks. It was held that the auctioneer was not liable. The sale to Neff was not by auction. It was sold by private treaty and the check did not come within the scope of the auctioneer’s guaranty.