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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 § 3.21

Supp. to § 3.21 Silence Plus Additional Circumstances

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(A) The following cases cite this section:

(1) Lexington Ins. Co. v. Lindahl Constr. & Eng'g, Inc., 47 P.3d 1081 (Alaska 2002) . See the discussion of this case at § 3.18.

(2) International Brotherhood of Teamsters v. Willis Corroon Corp., 369 Md. 724, 802 A.2d 1050 (2002) . A federal statute (29 U.S.C. § 502(a)) required each official of the plaintiff union to be bonded in the amount of $500,000 to insure the union against losses incurred through potential fraud or dishonesty of the officials. The union purchased the insurance through a broker that held itself out as an expert relating to bond coverage for labor organizations and asserted that it had knowledge of the applicable federal statute's bonding requirements. When two of the union's officials misappropriated $906,000, the union sought to recover $1 million under the policy. The policy, however, was a ''Form A'' policy that limited recovery to $500,000 per loss rather than a ''Form B'' policy that would have provided $500,000 coverage per person as required by the statute. The union settled with the insurer and brought this action against the broker.

The trial court granted the defendant's motion for summary judgment on the ground that the union's contributory negligence in failing to read the policy barred any recovery. While an insured generally has a duty to read the policy and notify the insurer of his rejection of the policy, the mere acceptance of the policy and silence concerning its terms do not necessarily manifest acceptance of those terms. Silence does not generally constitute acceptance except where previous dealings between the parties or other circumstances make it reasonable that the offeree should notify the offeror if he does not intend to accept.

The Maryland Court of Appeals cited Corbin's illustration in the context of insurance, i.e., the course of dealing by which the insured sends a renewal policy with a bill for the premium shortly before expiration of the current policy and the insurer remains silent and retains the policy may operate as an acceptance. In this case, however, there was no question that the union had accepted the policy since it had paid premiums and had sought to enforce the policy. Nonetheless, the general rule that an insured has a duty to read the policy is subject to exceptions (1) where the agent has held himself out as an expert and the insured has reasonably relied on the agent's expertise to identify and procure the correct amount or type of insurance, unless an examination of the policy would have made it readily apparent that the coverage was not issued; and (2) where the evidence reflects a special relationship of trust or other unusual circumstances which would have prevented or excused the insured from the duty to exercise ordinary diligence to ensure that no ambiguity existed between the requested insurance and that which was issued. The court was not convinced that the union officials with no particular expertise in insurance language would have recognized the non-compliance with the statute even if they had read the policy carefully. Under these facts, a jury could find that the union acted reasonably in relying on the broker's expertise. The court reversed the summary judgment.

(3) 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 trial court held that in the absence of evidence of what the monthly proportionate share of the costs should be, it could not fashion an award. On appeal, the instant 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 Corbin, 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.

(4) SmartText Corp. v. Interland, Inc., 296 F. Supp. 2d 1257 (D. Kan. 2003) . The plaintiff sold business forms via the Internet through two websites hosted by the defendant's predecessor. After acquiring the plaintiff's account, the defendant notified the plaintiff via e-mail that the defendant would be migrating the plaintiff's two websites to the defendant's services. After completing the first website to be merged, the defendant sent an e-mail to the plaintiff requesting the plaintiff to accept or decline the new site. The plaintiff declined. The defendant addressed the problem and, by e-mail, sought the plaintiff's acceptance of the corrected site within five days. The plaintiff did not respond. A similar process occurred with respect to the second website. Again, the plaintiff did not respond to the defendant's e-mail. The defendant proceeded with the migration, which the plaintiff subsequently found defective, leading to this action. The defendant claimed that, by failing to respond to its e-mails and thereafter accepting the benefits of the defendant's services, the plaintiff had accepted the defendant's terms of service. The court quoted this section of Corbin to the effect that a party may not receive benefits, knowing they are offered for a price without paying for them, if the party had a reasonable opportunity to reject the benefits without expense or material inconvenience when they were offered. The court, however, found that there were genuine issues of material fact to be resolved by a jury in this case as to whether the plaintiff had a reasonable opportunity to reject the services (e.g., was five days a sufficient time?), and whether the plaintiff accepted the benefit of these services as contrasted with being forced to accept them when its original websites were closed and being left only the websites recreated by the defendant to allow the plaintiff's business to proceed.

(5) Citibank, N.A. v. Wilson, 160 S.W.3d 810 (Mo. Ct. App. 2005) . In December, 1999, Wilson applied for a Citibank credit card and signed an acceptance certificate agreeing to be bound by the terms and conditions of the credit card agreement. Citibank issued her a credit card, which she began using, and she made monthly payments to Citibank. In July 2001, Citibank mailed Wilson her credit card statement, which informed her that it was modifying the terms of the original agreement and that she would be bound by the modified terms unless she cancelled the agreement and did not use the card. After the July 2001 statement was mailed to her, Wilson continued to use her credit card and made monthly payments on her account balance. She stopped making payments after March 2002. The court concluded that there was no question as to whether Citibank had made a valid offer to Wilson concerning the revised agreement. The only issue was whether Wilson accepted the offer, and whether there was consideration to support the contract. The court explained that acceptance of an offer need not be made by spoken or written word. An offer may be accepted by the offeree's conduct or failure to act. Citing Corbin, the court explained that this is especially true where ''services are rendered under circumstances such that the party benefited thereby 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.'' The court held that Wilson accepted the revised agreement by conduct. Wilson's continued use the credit card after July 2001 manifested her acceptance of the revised agreement. There was consideration to support the contract. Each party received a benefit and incurred a detriment by entering into the agreement.

(6) Carter vs. Firestone, 2006 U.S. Dist. LEXIS 27874 (E.D. Mo. 2006) . The plaintiff commenced employment with the defendant in May 2003. When the plaintiff filled out his job application, he acknowledged that he would be bound by the terms of the defendant's ''Employee Dispute Resolution Plan'' or ''EDR Plan.'' On May 30, 2003, the defendant gave plaintiff a copy of the EDR Plan and the plaintiff signed an agreement and acknowledgment stating, ''As a condition of my employment ... I agree that I will be bound by the terms of the Plan, I acknowledge that I have received a copy of the Plan.'' The front cover of the EDR Plan that Plaintiff signed states that employees who apply for employment, accept employment, or continue working after receiving the EDR Plan agree to resolve all employment-related legal claims through mediation and arbitration. At a subsequent orientation class, the plaintiff received a copy of the defendant's handbook which discussed the EDR Plan and stated that employees who accept or continue employment with defendant agree to be bound by the terms of the EDR Plan. Thereafter, the defendant amended the EDR Plan. The first page of the amended plan conspicuously stated that continued employment after receipt of the amended plan constituted acceptance of the plan's terms. The amended plan was distributed and employees were asked to sign a form acknowledging receipt of the plan. The plaintiff did not sign and noted on the acknowledgment form, ''Refused to sign.'' Subsequently, the defendant terminated the plaintiff's employment for reasons unrelated to his refusal to sign the form. The plaintiff filed a complaint in federal court alleging a violation of Title VII of the Civil Rights Act of 1964. The court granted the defendant's motion to dismiss the action and concluded that the parties entered into a valid agreement to arbitrate. The court explained that whether a contract is entered into depends upon what was actually said and done, and not upon the understanding or supposition of one of the parties. Citing Corbin, the court explained that 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. Further, continued employment can constitute consideration to support an agreement. The defendant's offer was accepted in numerous ways. First, when plaintiff applied for a job he signed an application form stating he agreed to be bound by the terms of the EDR Plan. In addition, after beginning work, the plaintiff signed an acknowledgment form stating that he agreed to be bound by the terms of the EDR plan. Finally, the plaintiff's continued employment after receiving the amended plan constituted his agreement to be bound by the amended plan. The court explained that plaintiff's supposition that he did not have to abide by the terms of the EDR Plan because he did not sign an acknowledgment form when it was presented to him was misguided. Accordingly, the court held that a valid agreement to arbitrate existed, and the action was dismissed.

(7) Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (Md. 2007) . After signing a letter of intent concerning the sale of her property, the seller received a ''Residential Contract of Sale'' the buyers' real estate agent. She signed the contract but crossed out and did not sign the financing contingency provision. She neither returned these documents to the buyers nor otherwise communicated and acceptance. A week later, she told the buyers that she was taking the property off the market. The buyers initially filed suit seeking specific performance of the letter of intent. During the seller's deposition, buyers learned that she had signed portions of the contract. The buyers then filed an amended complaint seeking specific performance of the letter of intent and contract of sale between the parties. The parties then filed cross motions for summary judgment. The circuit court granted summary judgment in favor of the buyers. Both the intermediate appellate and instant courts found no enforceable contract on the basis of the letter of intent. The buyers argued the contract was enforceable because the document stated it was a complete agreement. The court held that seller did not accept the contract, and thus it was not enforceable. Citing Corbin, the court explained that silence is generally not to be considered an acceptance of an offer unless the parties had agreed previously that silence would be an acceptance, the offeree has taken the benefit of the offer, or because of previous dealings between the parties, it is reasonable that the offeree should notify the offeror if she does not intend to accept. The court explained that although seller signed portions of the contract, she did not manifest her acceptance by communicating with the buyers. The buyers were unaware that the contract was signed until discovery occurred, and thus, the parties did not have a meeting of the minds regarding the contract. This case is also discussed at §§ 1.16 and 2.9.

(B) The following cases are noteworthy:

(1) Brigdon v. Lamb, 929 P.2d 1274 (Alaska 1997) . Plaintiffs occupied defendants property pursuant to a contract of sale conditional upon plaintiffs being approved to assume a loan securing the property. After disapproval, the defendant's real estate broker delivered a proposed addendum to the plaintiffs providing for a one-year extension (the disapproval said if the plaintiffs lived in the premises for another year and stayed current on the monthly occupancy payments called for by the contract it would approve assumption at that time). The plaintiffs neither signed nor replied to that addendum nor said anything about it, but continued to reside in the premises, made the occupancy payments, and also paid a fee to the lender for a credit check. The plaintiffs say these acts did not amount to an acceptance of any offer to extend; the defendants say they amounted to acceptance by silence. The court thought both possible but the record insufficiently developed to permit an answer, so it reversed the trial court's grant of summary judgment on the question and remanded the case. The case is also noted in § 11.1 concerning the significance of the condition on characterizing the agreement as a contract of sale or an option contract.

(2) Shively v. Santa Fe Preparatory School, Inc., (10th Cir. 2001) . From 1988 through 1994, the plaintiff-teacher had received an annual contract stating that the school could refuse to reemploy a teacher without cause and the contract did not create an entitlement or expectation of reemployment. When the plaintiff received the contract for the 1994-95 academic year, the same statement appeared to which, for the first time, the plaintiff added, ''I agree with all of the last paragraph except the last sentence. I deserve and expect just cause for non-renewal of continuation of my teaching.'' The school did not respond but allowed the plaintiff to teach for the year. She was not offered a contract for the 1995-96 year. The court held that the plaintiff's notation was a counteroffer and that while silence does not normally indicate acceptance, an exception occurs where, because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept (citing Restatement (Second) of Contracts, § 69(1)(c)). Because the school should have notified the teacher if it chose not to accept her counteroffer, a contract was formed precluding termination without cause.

(3) 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 he could not remember seeing the CSA which, in any event, he claimed was not an offer. He also asserted that, if it was an offer it was not accepted by his silence. If offer and acceptance were established, he claimed that the contract lacked consideration. Assuming the court found none of these defects, Boomer asserted that the arbitration term was unconscionable. The court held that even though Boomer could not recall receiving the CSA, if a letter is mailed, there is a presumption that it was received. The unambiguous language of the CSA was an offer. It 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. Since the CSA announced that there would be no change in the charges for the continuing service, Boomer claimed that he received nothing in exchange for his commitment to the arbitration and other terms of the CSA. The court, however, held that, since AT&T had no pre-existing duty to continue services but did so only after Boomer manifested his acceptance of the offer by continuing to use the services, the continued services constituted a benefit to Boomer and a detriment to AT&T that were bargained-for. Boomer, however, also argued that consideration was absent under the demand that he either accept the terms of the CSA or be denied the services. The court held that this argument failed because the bargained-for-exchange requirement did not preclude the execution of form contracts on a ''take-it-or-leave-it'' basis. Citing Restatement (Second) of Contracts, § 71, the court held that AT&T's promise to continue services induced Boomer's assent to arbitration and the other CSA terms. Finally, the court held that Boomer's claim that the arbitration provision was unconscionable under state law failed because the Communications Act clearly demonstrated that the fairness and reasonableness of contract terms such as the arbitration clause in this case were to be determined by federal law rather than state law. Boomer's challenges to the validity of the arbitration clause were, therefore, impliedly preempted by the Communications Act.

(4) Roger's Backhoe Serv., Inc. v. Nichols, 681 N.W.2d 647 (Iowa 2004) . The plaintiff performed excavation work for the defendant to allow the building of a crematorium. The defendant's application for a city permit included a provision that the surface water from the adjacent parking lot would drain onto the adjacent street and alley. The city issued the permit. The plaintiff performed the excavation and then agreed to perform additional work for the contractor hired by the defendant to build the crematorium. City officials visited the jobsite and informed both the plaintiff and the contractor that the surface water had to drain into a subterranean creek that flowed into the city's sewer system. The defendant testified that he had informed the plaintiff and the contractor that he was refusing permission to pursue the exploratory excavation that the city required. Nonetheless, with the defendant's awareness and presence, the plaintiff excavated to a depth of twenty feet where the subterranean system was discovered. When the city officials observed that it was encased in brick walls, they determined that it was not feasible to penetrate the walls and reversed their decision, thereby allowing the water to drain in accordance with the original city permit. The defendant refused to pay for the additional excavation work. The district court found for the plaintiff, but the court of appeals reversed. Relying on § 69 of the Restatement (Second) of Contracts, the Supreme Court found that an implied-in-fact contract existed when the 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. Assuming the defendant had expressed his opinion that the work should not be done, the court held that he was bound to call off the digging if he did not intend to pay for it. The court found this situation to fit an exception to the general rule that silence does not constitute acceptance of an offer. The court disagreed with the court of appeals finding of no benefit to the defendant. Though the city eventually allowed the construction to proceed, the court noted substantial evidence that it could not have proceeded until it was determined that the drainage of the water into the subterranean system was not feasible. There was a clear benefit to the defendant in pursuing the city's initial directive to allow the work to be completed. The court vacated the decision of the court of appeals and affirmed the district court's decision.

(5) Management Recruiters of Boulder v. National Econ. Research Assocs., Inc., 2006 U.S. Dist. LEXIS 52076 (S.D.N.Y. 2006) . The plaintiff is a executive recruiting firm. On March 13, 2001, one of the plaintiff's recruiters (Levin) contacted the defendant concerning a party he was representing (Miesel). The defendant's director of recruiting (Hodas) told Levin that she did not accept candidates without a signed contract. Levin sent a contingent fee agreement (CFA) to Hodas to which Hodas suggested revisions. A revised CFA was then sent to Hodas. It contained a statement that the contingent fee would be payable for each candidate engaged by the defendant or its affiliate within one year after the plaintiff's most recent communication concerning the candidate. Hodas neither signed this agreement nor had any further discussion with Levin before receiving from him the resume of Miesel which Levin had sent to her by e-mail on March 15. Hodas never confirmed receipt of this resume to Levin. On March 15, Levin also separately sent to Hodas resumes and other information about parties in Miesel's support group. On March 20, Hodas informed Levin by telephone and e-mail that the defendant would not hire Miesel. Some months later, the defendant hired an entire group that included Miesel and the members of the support group whose resumes had been sent by Levin. The hiring of the larger group, however, had been brokered by a different recruiting firm. The plaintiff sought recovery of its fee under the revised CFA though it was never signed. The plaintiff argued that Hodas had abandoned the requirement of a signed contract and had accepted its terms without insisting on it being signed. Since Levin had sent the candidates' information after Hodas had insisted on a signed contract, the court relied on § 69, comment a, of the Restatement (Second) of Contracts in holding that Levin's sending of the information was an unsolicited offer which did not impair the offeree's freedom of action. Levin was on notice that a signed contract was essential and was required to do business with the defendant. By disregarding that notice, he proceeded at his peril. Since the plaintiff failed to prove that a contract was formed, it had no basis for recovering on its contract claim.

Supplement to Notes in Main Volume

4. U.S.- 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 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 counteroffer 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)). 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 been said to 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 plaintiff'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), 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.

Hoglund v. Meeks, 2007 Wash. App. LEXIS 2109 . 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. Thus, the combination of the current conduct against a background of the past conduct supported the trial court's finding of an agreement to which the offeree intended to be bound.

7. Golden Eagle Ins. Co. v. Foremost Ins. Co., 20 Cal. App. 4th 1372, 25 Cal. Rptr. 2d 242 (1993) (silence effective as acceptance of renewal of insurance policy where prior relationship existed, bill for new premiums had been sent, offeree had not objected to premiums for two months and had not obtained other insurance during that period).