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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 § 3.29

Supp. to § 3.29 An Acceptance May Be Unconditional Even Though the Acceptor Makes a Conditional Promise

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(A) The following case is noteworthy:

(1) Arnold v. Amoco Oil Co., 872 F. Supp. 1493 (W.D. Va. 1995) . Amoco was considering ceasing all direct sales of motor fuel in the Roanoke market. It made a deal with Workman to purchase all six of Amoco's Roanoke area service stations. Two of these were operated by Arnold. The Petroleum Marketing Practices Act (PMPA) required that before Amoco could terminate Arnold's franchise agreement and sell his stations to Workman, it had to offer Arnold a right of first refusal on the two stations or make Arnold a bona fide offer. The agreement with Workman reflected the contingency that Arnold might buy his stations. Amoco notified Arnold that his franchise agreement would be terminated, and made the offer required by the PMPA. Arnold told Amoco that he believed its offer failed to comply with the PMPA and was seeking a declaratory judgment on the matter in state court. He told Amoco:

This is to advise Amoco that in the event the Court should find that the right of first refusal does comply with the requirements of the PMPA, then I will accept Amoco's offer of the right of first refusal for the two service stations. If, however, the Court should declare that the right of first refusal is invalid, then I will not accept this right of first refusal.

Amoco and Workman removed Arnold's action to federal district court, and Amoco counterclaimed against Arnold for a declaration that Arnold had failed to timely accept the right of first refusal, since he had not accepted before the offer expired. Both moved for summary judgment.

The court held, without explanation, that Arnold's response to Amoco's offer was ''plainly'' not an unconditional acceptance. Certainly Arnold's language was unfortunate. ''[T]hen I will accept,'' and ''then I will not accept,'' do not indicate a present disposition to accept, and Arnold seems to be conditioning his acceptance. However, given the time limit on Amoco's offer and Arnold's pending action attacking its validity under the PMPA, one ought to be able to protect Arnold's obvious expectations without putting too much stress on doctrine.

Try this. Arnold was saying: ''I accept unconditionally. What I accept, however, is an offer that conforms to the PMPA. If the state court declares that Amoco's offer does not, then my acceptance is inoperative, because there is nothing for me to accept.''

Arnold was in a tough spot. Had he simply said, ''I accept,'' he risked a court finding that he made a contract with Amoco, and not releasing him from it on the ground of, say, mutual mistake should the offer be found at some future date not to conform to the PMPA. Surely a court ought to release him, but it is unfair-and not in the spirit of the PMPA-to make Arnold take the risk that a court would not.

Supplement to Notes in Main Volume

4. This section is quoted in Safeco Insurance Co. v. City of White House, Tennessee, 36 F.3d 540 (6th Cir. 1994) . A city's invitation to bid required the successful bidder to submit documents directly to the EPA for the purpose of obtaining EPA funding for part of the project. The condition of satisfying the EPA of compliance with its requirements was incorporated by reference into the bid itself, and when the city accepted the bid, subject to EPA approval, a binding contract was formed. The trial court erred by granting summary judgment on the issue whether the successful bidder exercised good faith in its attempts to comply with the EPA's requirements, hence breaching the contract.