Hous. Dairy, Inc. v. John Hancock Mut. Life Ins. Co.

643 F.2d 1185 (5th Cir. 1981)



It is fundamental that a contract is formed only upon acceptance of an offer. Just as basic is the principle that an offeror is free to limit acceptance to a fixed time period. Once the time period has expired, a belated attempt to accept would be ineffective. However, such an untimely attempt to accept normally constitutes a counter offer which would shift the power of acceptance to the original offeror. Additionally, acceptance of a counter offer is established only by conforming to the rules governing acceptance, not a separate theory of "waiver and ratification."


A borrower returned it's lender's loan commitment letter and good faith deposit after the seven days the lender required when it offered the loan. The lender deposited the funds and began planning the closing. The borrower then obtained a better loan and requested a refund of its deposit, which was refused by the lender. The district court found the lender had both waived a seven-day limitation and validly accepted the borrower's counter offer. Accordingly, the court held that the parties had entered into a binding contract and that the$ 16,000 deposit represented valid, liquidated damages forfeited by the borrower when it breached the contract. The borrower appealed the decision to the United States Court of Appeals for the Fifth Circuit.


Did the lender validly accept the borrower's counter offer?




The court held that the expiration of the seven-day time period terminated the lender's offer. The borrower's action in signing and returning the commitment letter subsequent to the termination of the offer constituted a counter offer which the lender could have accepted within a reasonable time. However, the lender's silence plus retention of the borrower's money was not acceptance and notification. Nor was the depositing of the check sufficient to constitute acceptance of an offer when appellant had no previous dealings or statements that would indicate the borrower knew of the lender's policy concerning offers it would not accept. As such, the borrower did not breach its contract to obtain a loan and should be entitled to a refund of its good faith deposit.

Click here to view the full text case and earn your Daily Research Points.