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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 2 OFFERS; CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts § 2.20

§ 2.20 Revocation Otherwise Than by Direct Notice

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A power of acceptance can be terminated otherwise than by a direct notice or communication sent to the offeree by the offeror, containing express words of revocation. The purpose of requiring a communicated revocation is to prevent the offeree from accepting the offer and thereafter changing position in reliance upon the offeror's promise. Other facts besides a notice from the offeror may make it unreasonable for the offeree to accept and rely. The offeree should be held to the standard of a reasonable person. Any statement by the offeror to the offeree that even implicitly states that the offeror no longer regards the offer as a commitment constitutes a revocation.n1

In a much discussed English case there was no statement by the offeror to the offeree. One Dodds made an offer in writing to Dickinson to sell property for Ј 800, saying: ''This offer to be left over until Friday, 9 o'clock A.M.'' On Thursday, Dodds executed a formal contract to sell the property to one Allan, and on that same day Dickinson was told of this by his own associate and agent, one Berry. The report says that Berry told Dickinson that ''Dodds had been offering or agreeing to sell the property to Thomas Allan.'' This information at once spurred Dickinson into action. Before Friday at 9 o'clock, he had handed a written acceptance to Dodds' mother-in-law, and had caused Berry to deliver a written acceptance to Dodds in person. The court held that no contract was consummated by Dickinson's acceptance. It dismissed his bill in which he asked for specific performance, for an injunction against a conveyance to Allan, and for damages.n2

Lord Justice James said that Dickinson ''knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, ''I withdraw the offer.'''' If this statement is true, the decision should be supported. But the statement is not true, if all that Dickinson learned was that Dodds had been ''offering'' to sell the property to another. It is not unusual for an owner to make several offers to sell specific property, even though the owner may know that there is a possibility that more than one will accept and more than one binding contract may be formed. In the desire to find at least one purchaser, the owner takes that chance. It seems, therefore, that knowledge by an offeree that a later offer has been made to another is not knowledge that the offeror no longer wishes to honor the original offer.

The quoted statement appears to be true, however, if Dickinson was informed that Dodds had bound himself by a contract with Allan, a contract that was not in terms conditional on Dickinson's failure to accept in time. It may not be unusual for a prospective seller to make two offers. But it is very unusual to make two contracts to sell the same property to different buyers. Therefore, knowledge that one such contract has been made is enough to inform a reasonable purchaser that the offeror no longer desires to make a second contract. The same is true of knowledge of other action by the offeror that clearly indicates a desire not to keep an offer open. In the absence of knowledge, such action (e.g. a sale to another person) does not revoke the offer.n3

In cases like this, the offeree must have ''knowledge''. It is not enough to have heard a ''rumor.'' But Dickinson had ''knowledge'' of whatever Berry told him, for Berry was Dickinson's own agent and what Berry told him was true. If the information given the offeree is not true, of course, the power of acceptance continues. Even if it is true, the power continues if the offeree did not in fact believe it and was not unreasonable in refusing to believe it.

It is true that the rule here laid down requires an offeree to act in accordance with a standard that has elements of uncertainty-the standard of reasonableness. But it is the standard by which we are all judged in all the fields of law alike. In the present instance, a rule requiring direct communication of revocation would perhaps be easier of mechanical application. But the reasons against it are stronger and have induced American courts to follow the decision in the Dodds case.n4

Even a definite and communicated revocation may not terminate the power of acceptance, in case the offeree argues against revocation and the offeror remains silent knowing that the offeree will proceed with performance. The offeror, as well as the offeree, is judged by the standard of reasonableness.n5

The making of an alteration in the terms of an offer, or the making of a new offer involving the same subject matter, communicated to the offeree, will end the power to accept the original offer, without using any express words of revocation.n6

The American Law Institute accepted the rule of revocation, as applied in Dickinson v. Dodds, but in the first Restatement stated it in so limited a form that it applied only to offers for the sale of property.n7 This form of ''restatement'' was due to the criticism to which the English decision has been subjected, while at the same time it was felt that the actual court decisions thus far rendered require recognition of the rule as stated. The present writer believes that the rule will not be thus restricted in the later decisions of the courts. Indeed, the Institute does not state that it is not applicable to offers other than for the sale of property; and it should not be inferred that the Institute meant to deny that it is applicable to them. The Restatement of the law does not purport to contain all the law that now is, much less all the law that is to be. It does not crystallize or embalm the body of the law or attempt to prevent its subsequent judicial growth and evolution. Such an attempt, if made, would be footless and headless.n8

The Restatement (Second) of Contracts has accepted a broader statement of the doctrine of ''indirect revocation,'' freeing it from its application only to contracts for the sale of property. It provides, in § 43, ''An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.'' There are circumstances in which such broader application is doubtless appropriate.n9

Legal Topics:

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

Contracts LawFormationOffersRevocable Offers

FOOTNOTES:

(n1)Footnote 1.

Tenn. - Hoover Motor Express Co. v. Clements Paper Co., 193 Tenn. 6, 241 S.W.2d 851 (1951) . Clements made an offer to Hoover, open for a reasonable time. During a subsequent telephone call, while the power to accept was still open, Clements told Hoover,'' Well I don't know if we are ready. We have not decided, we may not want to go through with it. ''The offer was revoked.

Eng. - Financings Ltd. v. Stimson, [1962] 1 W.L.R. 1184 . A customer offered to purchase an automobile, making a down payment. Documents were signed that made the purchase non-binding until approved by the finance company. He drove the car for a bit, didn't like it and returned it to the dealer, offering to rescind what he thought was a purchase and even offering to forfeit the down payment. This offer of rescission was held to amount to a revocation of the offer. A subsequent acceptance was ineffective.

(n2)Footnote 2.

Eng. -Dickinson v. Dodds, 2 Ch.D. 463 (1876), James L. J., said:'' But it is clear settled law, on one of the clearest principles of law, that this promise, being a mere nudum pactum, was not binding, and that any moment before a complete acceptance by Dickinson of the offer, Dodds was as free as Dickinson himself. Well, that being the state of things, it is said that the only mode in which Dodds could assert that freedom was by actually and distinctly saying to Dickinson, ''Now I withdraw my offer.'' It appears to me that there is neither principle nor authority for the proposition that there must be an express and actual withdrawal of the offer, or what is called a retraction. It must, to constitute a contract, appear that the two minds were at one, at the same moment of time, that is, that there was an offer continuing up to the time of the acceptance. If there was not such a continuing offer, then the acceptance comes to nothing. Of course it may well be that the one man is bound in some way or other to let the other man know that his mind with regard to the offer has been changed; but in this case, beyond all question, the plaintiff knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, '''I withdraw the offer.''' This is evident from the plaintiff's own statements in the bill.''

(n3)Footnote 3. See Adams v. Lindsell, 1 B. & Ald. 681 (1818).

(n4)Footnote 4.

Md. - Coleman v. Applegarth, 68 Md. 21, 11 A. 284 (1887) .

Ga. - Stone Mountain Properties, Ltd. v. Helmer, 139 Ga.App. 865, 229 S.E.2d 779 (1976) . The court remanded to the trial court to determine whether Mitchell was aware the property had been sold, the trial record being unclear.

Kan. - Berryman v. Kmoch, 221 Kan. 304, 559 P.2d 790 (1977) .

Miss. - Bancroft v. Martin, 144 Miss. 384, 109 So. 859 (1926) .

N.J. - Giovanola v. Fort Lee Bldg. & Loan Ass'n, 123 N.J.Eq. 103, 196 A. 357 (1938) .

N.C. - Normile v. Miller, 313 N.C. 98, 326 S.E.2d 11 (1985) .

S.D. - Watters v. Lincoln, 29 S.D. 98, 135 N.W. 712 (1912) .

Tex. - Antwine v. Reed, 145 Tex. 521, 199 S.W.2d 482 (1947) .

Wyo. - Frank v. Stratford-Handcock, 13 Wyo. 37, 77 P. 134 (1904) .

Eng. -Cartwright v. Hoogstoel, 105 L.T. 628 (1911).

And see:

Ill. - Threlkeld v. Inglett, 289 Ill. 90, 124 N.E. 368 (1919) .

In Watters v. Lincoln, supra , the'' plaintiff was informed that the land had been sold. He was so informed by the tenant who farmed the land. Information from such a source is more than common rumor.''

The fact that the second offeree had knowledge of the prior offer does not make the second offeree's equity inferior, for the knowledge that another has a revocable power is very different from knowledge of an enforceable right. So, even if the court had held that Dickinson's acceptance made a contract, it should not deprive Allan of the benefits of a conveyance or of a contract already made. It would be otherwise, if Dickinson had had an irrevocable option and Allan knew this. See Cartwright v. Hoogstoel, supra. In Coleman v. Applegarth, supra , there had been a binding option, but the plaintiff's acceptance was of an oral extension that was without consideration.

(n5)Footnote 5. See Quick v. Wheeler, 78 N.Y. 300 (1879) .

(n6)Footnote 6.

U.S. - Travis v. Nederland Life Ins. Co., 104 Fed. 486 (8th Cir.1900) .

(n7)Footnote 7. Restatement, Contracts § 42, reads:'' Where an offer is for the sale of an interest in land or in other things, if the offeror, after making the offer, sells or contracts to sell the interest to another person, and the offeree acquires reliable information of that fact, before he has exercised his power of creating a contract by acceptance of the offer, the offer is revoked. ''This is quoted and applied in Giovanola v. Fort Lee Bldg. & Loan Ass'n, 123 N.J.Eq. 103, 196 A. 357 (1938) .

(n8)Footnote 8. See Arthur L. Corbin, ''The Restatement of the Common Law by the American Law Institute,'' 15 Iowa L.Rev. 19, 35 (1929), where it is stated that the rule ''was limited by the Reporter to sales of property because some of his Advisers, not including the present writer, believe that rule is not ''fundamentally sound.''''

(n9)Footnote 9.

Illustration 2 to Restatement (Second) of Contracts § 43 is a good hypothetical involving an offer to an employment contract.

N.Y. - Bankers Trust Hudson Valley, N.A. v. Christie, 68 A.D.2d 969, 414 N.Y.S.2d 787 (1979) , on reargument 72 A.D.2d 614, 420 N.Y.S.2d 521 (1979) . The defendant, a corporate officer, signed a writing whereby he unconditionally and irrevocably guaranteed payment to the plaintiff of all obligations of the corporation ''until written notice of revocation [is] actually received by the [plaintiff].'' Several weeks later, as plaintiff became aware, the defendant severed all ties with the corporation and moved from the area. About a year later, the plaintiff loaned $23,000 to the corporation, receiving the signature of the controlling stockholder in his individual capacity and as president of the corporation. Defendant's signature was not solicited. These facts and this course of performance led the majority of the court to hold that the offer of guaranty had been revoked. Note that, under a statute, written irrevocable offers are binding options in New York. Nonetheless, the plaintiff had sufficient notice that defendant no longer had an interest in guaranteeing future debts of the corporation and clearly plaintiff did not act under the offer of guaranty. The written revocation requirement was met by substantial compliance. The Ninth Circuit, over a dissent, has held that this case has been overruled by a subsequent decision of the New York Court of Appeals. Springs Industries, Inc. v. Kris Knit, Inc., 880 F.2d 1129 (9th Cir.1989). It is submitted that the Ninth Circuit was incorrect. The case on which it relied involved the interpretation, not the revocation, of an offer of guaranty. Nor did the New York Court of Appeals case appear to involve the ''harsh result'' which the Ninth Circuit appears to concede to have reached in Springs Industries. Alternative grounds for termination of the power of acceptance can be found in Restatement of Security § 124(1). See note on the case of Georgia-Pacific Corp. v. Levitz, 149 Ariz. 120, 716 P.2d 1057 (1986) , under § 2.33 below.

Wyo. -This section is cited in the dissent in Pangarova v. Nichols, 419 P.2d 688 (Wyo.1966) , where the decedent offered to adopt his niece and make her his heir if she were to move from Bulgaria to Casper. The dissent argues that the offeror's remarriage and the niece's knowledge of it constituted a revocation of the offer. The fact appears to be, however, that the offer was restated after the second marriage. The majority ordered a retrial.