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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

Supp. To CHAPTER 3 ACCEPTANCE AND REJECTION OF OFFER

1-3 Corbin on Contracts Supp. to § 3.18

Supp. to § 3.18 Silence as a Mode of Acceptance

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(A) The following cases cite this section:

(1) 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. However, the agreement also required the plaintiff 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 this section of Corbin, 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.

(2) Lexington Ins. Co. v. Lindahl Constr. & Eng'g, Inc., 47 P.3d 1081 (Alaska 2002) . Five insurance companies paid $18 million on fire insurance policies when three of four buildings in a lodge complex were destroyed by fire in 1996. The insurers then sued the state and the contractor alleging that the state had negligently approved building plans that did not meet the requirements of the 1979 Uniform Building Code (UBC), and the contractor had negligently failed to follow that Code, which required a one-hour fire wall to be constructed around the furnace. The defendants claimed that the applicable building code was the 1985 UBC, which did not require the fire wall. The 1985 UBC became effective on August 2, 1986. A July 31, 1986 letter from the contractor confirmed a discussion with a deputy fire marshal and stated that the project would be reviewed under the 1979 UBC. The state received a letter recounting that discussion on August 15. On September 11, 1986, the contractor was permitted to begin work on foundations but was informed that the project was subject to the 1985 UBC. There was no objection to that notice from the contractor or the owner's project manager.

The court rejected the insurer's contention that the state's silence upon receiving the contractor's letter operated as an acceptance of a proposal that the project would be subject to the 1979 UBC. Corbin is cited in support of the accepted view that silence as acceptance is usually limited to cases where conduct of a party denying the contract or agreement would lead the other to reasonably believe that silence would be sufficient, as where the party ''is so certain that the [other] will accept that the [other's] silence will be taken as acceptance.'' The court, however, found any such prior agreement to be irrelevant since the insurer only made a negligence claim against the state. Thus, the only question was whether the state, through its fire marshal, was negligent in approving the plans. That approval occurred in September of 1986 when the 1985 UBC was in effect. This case is also cited at § 3.21.

(3) Ohio Bank v. Beltz, 2002 Ohio App. LEXIS 4931 (Ohio Ct. App. Sept. 19, 2002) . Mr. Beltz agreed to purchase a 1999 Ford Ranger from a Ford dealer subject to the approval of his credit application with the bank. As part of the transaction, Mr. Beltz executed a promissory note to the Ohio Bank. Some of the loan proceeds were to be used to pay the existing loan Mr. Beltz had with Ford Motor Company secured by his 1997 Ford Ranger, which he traded as part of the purchase price of the new truck. After taking possession of the new truck, the bank denied the credit application. The dealer then required Mrs. Beltz to sign the promissory note. The bank, however, later accepted Mr. Beltz's individual application but Mr. Beltz refused the dealer's requests that he sign a new application and note in his name only. Mr. Beltz returned the new truck to the dealer but did not retrieve his old truck or re-institute his old loan with Ford Motor Company. The bank, without knowledge that Beltz returned the truck, forwarded the loan proceeds to the dealer. When loan payments were not made, the bank repossessed and sold the truck and initiated the underlying action against the Beltzes seeking to enforce the terms of the note. The trial court granted the Beltzes' motion for summary judgment concluding that any purported agreement failed for lack of consideration. On appeal, the appellate court cited Corbin for the principle that formation of a contract requires both an offer and an acceptance which the court found in Mr. Beltz's offer to purchase and the dealer's acceptance conditioned upon Beltz's ability to secure financing. Without examining the purchase agreement and the nature of the condition, the court was unable to determine whether the Beltzes were excused from performance. Even if they were excused from performance of their obligations under the contract, the Beltzes may have been estopped from denying those obligations. While technical estoppel typically requires that the other party act in reliance on the party to be estopped, a party's ratification of the agreement through retention of the benefit with knowledge of all underlying facts may be sufficient. Here Beltz did retain the benefit of the satisfaction of the existing loan for his old truck, but a material fact remained as to whether he did so with full knowledge of the facts and his rights. Finally, there were discrepancies in the documents concerning the note upon which the bank sought recovery. This case is also cited at § 3.28.

(4) University Hosps. of Cleveland, Inc. v. Lynch, 96 Ohio St. 3d 118, 772 N.E.2d 105 (Ohio 2002) . The plaintiff hospital, a medical school, and numerous ''practice plans'' formed an academic medical center. Each of the medical center's practice plans, which were similar to a physician's private practice, corresponded to a department of the medical school. The hospital's director of the dermatology department formed a dermatology professional corporation for profit (UDI) with his own funding and operated it as one of the medical center's practice plans. He and the dean of the medical school discussed the disposition of UDI shares upon termination of his employment. In that case, the dean proposed that the stock be transferred to the director's successor. The dean testified the director had not rejected this proposal nor indicated resistance to transferring the shares to the successor. Each of the parties prepared a draft agreement to govern this contingency and each draft suggested different resolutions. No final agreement was ever executed. When the director left the center, he transferred the shares to the current shareholder (Lynch), a surgeon he had recruited to join UDI. The hospital hired a new director of dermatology (Cooper), who sought the transfer of the UDI shares. Lynch refused to surrender them. Cooper and the hospital sued Lynch and UDI alleging that the new director was entitled to the shares. They based their claims on the allegation that UDI was created for the benefit of the hospital and the shareholder merely held legal title as a trustee and as a fiduciary. They sought inter alia specific performance of a contract or, alternatively, damages based upon quantum meruit or breach of contract. Although the medical school dean had proposed that the founder transfer his shares to the successor director, no agreement was reached. Corbin states that contract formation requires acceptance and silence generally does not operate as acceptance. The court held there was also no error in the granting of summary judgment on the legal claims. This case is also cited at § 3.28.

(B) The following case is noteworthy:

(1) Burkett v. Union Sec. Ins. Co., 2007 U. S. Dist. LEXIS 41858 (W.D. Wash. 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.

Supplement to Notes in Main Volume

5. R.I.- Kenney Manufacturing Co. v. Starkweather & Shepley, 643 A.2d 203 (R.I. 1994) (parties' past dealings do not establish pattern of acceptance by silence whereby offeror mechanically issued commitments for coverage of marine insurance in response to messages left by offeree in the absence of additional conversations between the parties in which crew information and potential risk issues were discussed; prior course of dealings demonstrates a series of information-gathering discussions which ended with a confirmatory call from offeror assuring offeree that it would receive coverage).