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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

CHAPTER 3 ACCEPTANCE AND REJECTION OF OFFER

1-3 Corbin on Contracts § 3.25

§ 3.25 Acceptance by Telephone or Other Electronic Means

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In a few cases the courts have dealt with the making of a contract by telephone. Restatement, Contracts, § 65, 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 which 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.n1 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.n2

The result in England would appear to be different. In Entores Ltd. v. Miles Far East Corp., n3 an offer was sent by telex from London to Amsterdam. An acceptance was sent by the same means from Amsterdam to London, being recorded instantly in London without intervention of any third person. The issue, for determining a jurisdictional question, was where was the contract made? The court held that the contract was consummated in London. Although this was not a case involving telephonic communication, the court analogized it to telephonic cases and expressed disagreement with the American cases.

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.n4 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.

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For related research and practice materials, see the following legal topics:

Contracts LawFormationAcceptanceMethods of AcceptanceGeneral Overview

FOOTNOTES:

(n1)Footnote 1.

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) .

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) .

Okl. - Sims v. United Bridge & Iron, 402 P.2d 911 (Okl.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. -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) .

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.''

(n2)Footnote 2. Restatement (Second) of Contracts § 64, comment c.

(n3)Footnote 3. [1955] 2 Q.B. 327 , noted in 72 Law Q.R. 10. Although fax messages sometimes go awry [ (see Evra Corp. v. Swiss Bank Corp., 673 F.2d 951 (7th Cir.1982) , cert. denied, 459 U.S. 1017 (1982) ] there appears to be no case turning on an acceptance by this medium.

(n4)Footnote 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.''