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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 § 3.32

Supp. to § 3.32 Attempts by the Offeree to Restate in the Acceptance the Terms of the Offer

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(A) The following cases cite this section:

(1) Buesing v. United States, 42 Fed. Cl. 679 (1999) (quoting Corbin) (taxpayer sued the IRS to enforce a tax settlement; the IRS moved to dismiss for lack of subject matter jurisdiction under the Tucker Act, arguing that the letters by which taxpayer claims he and the IRS entered into the settlement agreement were not mirror-image; on appeal of the trial court's grant of the IRS's motion, the court held that the IRS's response to the taxpayer's offer added to but did not change any of the terms of taxpayer's offer; in the alternative, the court held that if the IRS's letter did constitute a counter-offer, the taxpayer could have accepted it by conduct).

(2) Cook's Pest Control, Inc. v. Rebar, 852 So. 2d 730 (Ala. 2002) . In August of 2000, Robert and Margo Rebar entered into a one-year termite control agreement with Cook's. The contract contained an arbitration clause. As the end of the term approached, Cook's notified the Rebars that it was time to renew the contract on the same terms for another year by the Rebars paying a renewal fee. The Rebars responded to Cook's notice with a payment along with an ''addendum'' stating that the Rebars were no longer bound to submit any disputes to arbitration. Cook's received and accepted the payment. Shortly thereafter, the Rebars brought an action in court against Cook's, alleging failure to treat and control termite infestation in the Rebars' home and repair the damage caused by the termites. Cook's motion to compel arbitration was denied by the trial court. On appeal, Cook's argued that it was already obligated to continue to provide its service for the Rebars under the original agreement and could not have terminated the service. In effect, Cook's argued that the Rebars were attempting to unilaterally modify an existing contract. The supreme court disagreed, holding that Cook's had no obligation to continue to render the service at the end of the one-year term. The court held that the Rebars did not accept Cook's terms in the renewal notice that would have continued the arbitration term. As Corbin states, whether the response is called a ''conditional acceptance'' or a counter offer is irrelevant since a conditional acceptance is a counter offer. By countering Cook's offer with materially different terms, the Rebars made a counter offer creating a power of acceptance in Cook's. By accepting the payment and continuing service to the Rebars, Cook's manifested its acceptance of the counter offer. Cook's argued that none of the employees in the office where the Rebars' check was processed had authority to enter into a contract on behalf of Cook's. The court held that Cook's had vested apparent authority in its office people. If it wished to limit the authority of its employees to enter contracts, it could have included appropriate language in the original agreement with the Rebars to that effect. Cook's provided no indication concerning the authority of its employees to do so. Over a dissenting opinion, the court affirmed the holding of the trial court. This case is also cited at § 3.35.

(3) Gingerich v. United States, 54 Fed. Cl. 222 (2002) . This case is also cited at § 3.28.

(4) Gingerich v. United States, (Fed. Cir. 2003) . The plaintiffs, partners in a business, reached a settlement with the IRS after they contested the IRS's disallowance of certain items of loss and deductions concerning the business. The IRS subsequently filed assessments against the plaintiffs individually. Summary judgment was entered against the plaintiffs by the Court of Federal Claims, which held the parties were bound by their settlement. The plaintiffs appealed and contended that the assessments were improper because they were made after the running of the one-year statute of limitations period, which commenced upon execution of the settlement agreement. The issue was whether the statute began to run on the date the plaintiffs submitted their acceptance forms to the IRS or when closing agreements were countersigned by the IRS. The court determined that tax settlements are governed by general principles of contract law, and cited Corbin for the principle that in accepting an offer, the offeree cannot change the terms of the offer in any material respect. The court determined that the facts were inconclusive as to whether the parties contemplated the need to execute a closing agreement to finalize settlement and, therefore, vacated the grant of summary judgment.

In Fenton Gingerich v. United States, 2007 U. S. Claims LEXIS 193 , the court held that the government had made a settlement offer and the response was an acceptance since its substantive terms matched the terms of the offers. Any variations in the language of the acceptance were merely linguistic. In support, the court quoted § 59, illustration 3, of the Restatement (Second) of Contracts, where an offer was construed as promising to convey marketable title to real estate. A response stating, ''I accept your offer if you can convey marketable title'' is an acceptance since the ''marketable title'' term in the response is not a variation of the terms of the offer. The court also found that the parties did not require a closing agreement to effectuate the settlement agreement.

(5) Bennett v. Truttman, 2004 Cal. App. Unpub. LEXIS 1648 (Cal. Ct. App. 2004) . Through their real estate agent, Mary de Malvinsky, the plaintiffs offered to purchase real estate from the defendants who, through their agent, Barry Dumont, faxed a counter offer requiring closing on the property within 15 days. To accept the counter offer, the buyers had to sign it and return it to the sellers. The counter offer specified that acceptance had to be received by the sellers or Dumont. A facsimile was listed as an effective communication. The plaintiffs signed the counter offer and faxed it to Malvinsky, who had received a call from the buyer's mortgage lender indicating that loan processing would require an additional three days since the plaintiffs had to take a trip to visit an ailing parent. Malvinsky called Dumont and told him that the counter offer had been accepted. She also told him about the problem of completing the mortgage process within 15 days. Dumont said that he saw no problem with an additional three days and suggested that the quickest way to make the change would be to cross out the 15 on the counter offer form and change it to 18. These instructions were followed. After faxing the completed form to Dumont, Malvinsky called Dumont to ascertain that he had received it. Dumont replied that the sellers had agreed to sell the property to another party because the plaintiffs had changed the terms of the counter offer.

In response to the plaintiffs' suit for specific performance, the defendants moved for summary judgment that was granted on the ground that the plaintiffs had not submitted an acceptance that matched the terms of the counter offer and Dumont had neither actual nor ostensible authority to change the terms of the counter offer. The court also awarded the $52,444 in attorneys' fees to the defendants pursuant to a provision in the buyer's original offer. On appeal, the instant court announced the usual rule that a qualified acceptance is a new proposal. It quoted Corbin's explanation that a variation in the substance of an offered term is material, albeit the variation is slight, though a ''forward-looking'' court may look to determine whether the change was of any significance to the offeror. The court then considered whether the change from 15 to 18 days was a material variation in the counter offer that operated like a rejection. It concluded that when the parties changed the period from 15 to 18 days, they already assumed they had a contract, i.e., they would not have made the change absent the instructions from Dumont. Since Dumont admitted that the change did not matter, it was an insignificant (immaterial) change. Thus, the plaintiffs' response was an acceptance of the counter offer and the plaintiffs were entitled to specific performance of the contract.

Supplement to Notes in Main Volume

4. U.S.- United States v. Lauckner, (3d Cir. 2004) . The plaintiff, the Internal Revenue Service, brought an action against the defendant to recover a statutory penalty for failure to collect and pay withholding taxes. The defendant claimed that his liability had been overstated. The district court held that there was a material issue of fact over the ''willfulness'' of the defendant's action as required by the statute. The parties then began extensive settlement negotiations culminating in an offer by the defendant. The plaintiff's response stated that the offer was accepted ''with the understanding that each party will bear its costs, including attorneys' fees.'' The defendant claimed that this was a new term that varied the terms of the offer. The district court held that, since the defendant was not entitled to attorneys' fees as a matter of law, the response to the offer constituted an acceptance. On appeal, the instant court held that the response to the offer violated the ''mirror image'' rule that requires the acceptance to match the terms of the offer. The court quoted Corbin's statement that a variation on the substance of the offered terms is material even though the variation is slight. It also relied on the Restatement (Second) of Contracts, § 59 that a reply to an offer purporting to accept it but conditional on assent to additional or different terms is a counteroffer. The court explained that, although the law would appear to have denied the defendant the right to costs and attorneys' fees had he sought them in litigation, the court could not categorically state that the parties could not have agreed as part of the settlement that the government would pay all of these expenses. Moreover, it was not beyond the realm of possibility that a court could have awarded costs to the defendant that he incurred in his initial defense against the government's alleged overstated assessment of his liability. Thus, the court rejected the district court's view that, as a matter of law, the costs and attorneys' fees term in the government's purported acceptance was clearly immaterial. Rather, as a matter of law it held that the government's response added a material term to the offer and was, therefore, a counteroffer rather than an acceptance. It is important to note that the court's analysis proceeded expressly on a common law basis rather than on even an analogous application of the well-known ''battle of the forms'' analysis under the Uniform Commercial Code § 2-207, which did not apply in this case since there was no contract for the sale of goods. Such an analysis would require a determination of whether any additional term in an otherwise definite expression of acceptance is material or immaterial. In contrast, as suggested elsewhere in this treatise, the common law ''mirror image'' rule ''has treated almost any variation as creating a conditional acceptance or counter-offer'' (text of main volume of Corbin, § 3.37, at note 1). The court's holding that the plaintiff's response to the offer was a counteroffer because the additional term was material is, therefore, disconcerting.