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Ellefson v. Megadeth, Inc. - 2005 U.S. Dist. LEXIS 545 (S.D.N.Y. Jan. 12, 2005)

Rule:

Contracts are often formed after receipt of a defective acceptance. This is because an acceptance that does not unequivocally comply with the terms of original offer is considered a counteroffer. Cal. Civ. Code § 1585 (2004). Any new terms or modified terms in the defective acceptance are treated as new terms of the counteroffer, which the original offeror may then choose to accept or reject. A late acceptance is form of defective acceptance, and therefore is considered a counteroffer which the original offeror can decide to either accept or reject. A late acceptance is defective in two ways. First, because the acceptance is late, it is not in compliance with the terms of the offer. Second, when an offer sets a specific time for acceptance, the offer lapses upon the expiration of that time, Cal. Civ. Code § 1587 (2004), and therefore, a late acceptance cannot result in a contract because there is no longer an existing offer to accept. Therefore, in order for a contract to exist after receipt of a late acceptance, the original offeror must accept the offeree's counteroffer. Cal. Civ. Code § 1585 (2004). Without a communication of acceptance of the counteroffer by the original offeror, there is nothing to show the original offeror's willingness to be bound by the terms of the contract. Cal. Civ. Code § 1565 (2004). 

Facts:

Ellefson sued Megadeth, Inc, for fraud, violation of federal copyright, trademark laws and several other claims. The parties entered into negotiations which eventually began to focus on a buy-out of Ellefson’s share of the corporation. On April 16, 2004, Ellefson received a draft of the proposed “Settlement and General Release” stating that his interest in the corporation would be purchased. He was only given until 5 p.m. of May 14, 2004 to sign the agreement and complete the settlement. Effelson sent the completed signature page via fax shortly after receiving the final agreement at 4:45 p.m. on the same date. Ten days later, the counsel of
Effelson notified the counsel of Megadeth defendants that he was withdrawing from the negotiations and all the proposals. Megadeth defendants moved to enforce the settlement agreement.

Issue:

Should the Court grant the motion to enforce the settlement agreement?

Answer:

Yes

Conclusion:

The Court held that by faxing a signature page to an undisputed, executed version of the Agreement, Plaintiff already expressed his willingness to be bound by its terms and it cannot be construed as a desire to continue further negotiations. However, defendants had to manifest their consent to be bound by the counteroffer. The mailing of the contract on May 20, 2004 constituted defendants’ acceptance of plaintiff’s counteroffer and it came before plaintiff’s notice that he was withdrawing from the negotiations. The court further ruled that, contrary to plaintiff’s arguments, the original offer and plaintiff’s counteroffer contained no restrictions on the mode of acceptance and the use of fax and e-mail during the negotiations does not preclude the defendants from using a regular mail to accept the counteroffer. Thus, the defendants’ motion to enforce the settlement agreement was granted.

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