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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 § 2.26

§ 2.26 Offers Made Irrevocable by Statute and Public Policy

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There are certain statutes that facilitate the making of irrevocable offers. One illustration may be found in bids for the construction of a building or other public work, made to the state, a city, or some other governmental corporation. If a statute declares that such a bid shall be irrevocable for some period, there is no power of revocation by the bidder.n1 Although there is no federal statute on point, it has been held that in order to foster public policy, a bid on a federal project cannot be revoked, although it can be withdrawn prior to the opening of the bid by the United States.n2

There are a few statutes affecting the private sector making a ''firm'' offer irrevocable if it is in writing and states that it shall remain open for a definite time, or for a reasonable time.n3 The most important such statute is § 2-205 of the Uniform Commercial Code. It provides: ''An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.''n4 A similar provision is U.C.C. § 2A-205. It is not enough that the offer contain an expiration date, it must give assurance that the offer will not be revoked prior to that date.n5

These provisions were modelled after an earlier New York statute,n6 but differ in some respects.n7 It is interesting to note that the New York statute was designed to fill a void in the law that occurred when that state abolished the legal effect of the private seal. Despite the perception that the seal was an anachronism, it was thought that some device was needed to fill its role in facilitating the making of irrevocable offers. Neither statute precludes the parties from making an option contract by common law methods, including by the promisee's justifiable reliance on an offer.n8

By such statutes in this country we do in a limited class of cases what the codes and legal systems of many other countries do with respect to all offers, both public and private. The code provisions are not exactly uniform; but they provide for irrevocability under the circumstances and conditions that are specified.n9 A convergence of common law and civil law ideas is to be found in the United Nations Convention on Contracts for the International Sale of Goods. Article 16 provides that ''an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer being irrevocable and the offeree has acted in reliance on the offer.'' The danger to the American offeror who is familiar with common law rules of offer and acceptance is that merely stating an expiration date is likely to be taken by a German court as communicating irrevocability for the stated time.n10

Legal Topics:

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

Public Contracts LawBids & FormationOffer & AcceptanceAcceptances & AwardsContracts LawFormationOffersIrrevocable OffersPublic Contracts LawBids & FormationOffer & AcceptanceOffers

FOOTNOTES:

(n1)Footnote 1.

Md. - City of Baltimore v. J.L. Robinson Const. Co., 123 Md. 660, 91 A. 682 (1914) , city could accept bid for public work in spite of attempted revocation. Compare Lexington Housing Authority v. Continental Casualty Co., 210 F.Supp. 732 (W.D.Tenn.1962) , noted § 3.17, 3.28 below. The bid was held revocable, in spite of a provision for irrevocability for 30 days. No statute was referred to. The court held the provision inoperative for lack of consideration and action in reliance. There were other reasons.

Pa. - A.J. Colella, Inc. v. County of Allegheny, 391 Pa. 103, 137 A.2d 265 (1958) . No statute is cited, but the court holds that public policy demands that a bid on a public project be irrevocable once it is opened.

(n2)Footnote 2. W. Noel Keyes, Government Contracts in a Nutshell 107-08, 122-23. Bids may be avoided on grounds of mistake, however. Id. at 123-29 (2d ed. 1990); W. Noel Keyes, Consideration Reconsidered-The Problem of the Withdrawn Bid, 10 Stan.L.Rev. 441 (1958).

The public policy aspects of bids on government contracts was well explained in Scott v. United States, 44 Ct.Cl. 524, 527-28 (1909) . ''The agents of the Government stand upon a different footing from private individuals in the manner of advertising and letting contracts in behalf of the United States. They have no discretion. They must accept the lowest or the highest responsible bid, or reject all and readvertise. Private individuals are not required thus to act. Hence it is apparent that government agents should be allowed a reasonable time after the opening of bids before they are allowed to be withdrawn, so they can be afforded opportunities to ascertain whether collusion or fraud had been perpetrated against the United States by parties engaged in the bidding. It is also apparent that if the rule of allowing immediate withdrawals after the results of the bidding are made known, frauds innumerable could be perpetrated against the United States and thus public justice would be greatly hampered.''

(n3)Footnote 3. For comments on such statutes, see Franklin M. Schultz, The Firm Offer Puzzle, 19 U.Chi.L.Rev. 237 (1952); Note, Another Look at Construction Bidding and Contracts at Formation, 53 Va.L.Rev. 1720 (1967).

In Louisiana an offer to a guaranty providing that it continues until revoked in writing is binding under general principles of Louisiana contract law. Bonura v. Christiana Bros., 336 So.2d 881 (La.App.1976) , writs ref'd, 339 So.2d 11 .

(n4)Footnote 4. Another provision of the Code facilitates another kind of firm offer. Under U.C.C. § 2-328, when goods are put up for auction ''without reserve'' an irrevocable offer is made to sell to the highest bidder under the conditions stated in the provision.

(n5)Footnote 5. Friedman v. Sommer, 63 N.Y.2d 788, 481 N.Y.S.2d 326, 471 N.E.2d 139 (1984) . A cooperative apartment offering stated: ''Each tenant is granted the non-exclusive right to purchase his or her apartment ... for a period of thirty (30) days....'' The New York courts treat the sale of securities in a cooperative corporation as if it were a sale of goods. There were no words of assurance that the offer would not be revoked for thirty days. Indeed, the term ''non-exclusive'' implies the contrary.

(n6)Footnote 6. N.Y.-McKinney's Gen'l Obl.L. § 5-1109, enacted N.Y.Laws 1941, c. 238, as since amended, reads: ''Except as otherwise provided in section 2-205 of the uniform commercial code with respect to an offer by a merchant to buy or sell goods, when an offer to enter into a contract is made in a writing signed by the offeror, or by his agent, which states that the offer is irrevocable during a period set forth or until a time fixed, the offer shall not be revocable during such period or until such time because of the absence of consideration for the assurance of irrevocability. When such a writing states that the offer is irrevocable but does not state any period or time of irrevocability, it shall be construed to state that the offer is irrevocable for a reasonable time.''

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7. See note 7 on page 244.

The question of the relationship of the ''reasonable time'' gap-filler to the rule against perpetuities is considered in Buffalo Seminary v. McCarthy, 106 Misc.2d 707, 435 N.Y.S.2d 228 (1980) , judgment aff'd in part, rev'd in part, 86 A.D.2d 435, 451 N.Y.S.2d 457 .

A right of first refusal that recited a purported unspecified consideration but did not state it was irrevocable was held to be merely a revocable offer because the statute requires language of irrevocability. Capalongo v. Desch, 81 A.D.2d 689, 438 N.Y.S.2d 638 (1981) , order aff'd, 57 N.Y.2d 972, 457 N.Y.S.2d 243, 443 N.E.2d 491 . Compare Restatement (Second) of Contracts § 87, which provides that ''An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer and proposes an exchange on fair terms within a reasonable time....'' Apparently, the restaters were of the opinion that the intent that the offer be irrevocable can be deduced from the recital of consideration.

Pennsylvania has adopted the Model Written Obligations Act which permits making any promise binding without consideration. To have this effect it must be in writing and manifest an intention that it be legally binding. 33 Purdon's Statutes Ann. tit. 33 § 6-8.

(n7)Footnote 7. The U.C.C. provision is limited to offers made by merchants and is limited to offers to buy and sell goods. The irrevocable power of acceptance is limited to three months, but, of course, is renewable. (See comment 3 to U.C.C. § 2-205). Under the U.C.C., if the offer is made on a form supplied by the offeree, the offeror must sign twice, once to authenticate the offer and once to authenticate the language of irrevocability. The purpose of the separate signature requirement is to make it reasonably certain that the offeror is aware of this possibly onerous term.

Under the New York General Obligations Law § 5-1109 it would appear that a non-merchant cannot make an irrevocable offer to buy or sell goods by utilizing the formal requirements of that provision.

In Mid-South Packers, Inc. v. Shoney's, 761 F.2d 1117 (5th Cir.1985) , the plaintiff signed a letter containing prices of its meat products and the terms on which it would sell these products to defendant. The letter stated that the defendant would be notified forty-five days in advance of any price rise. More than three months later, plaintiff informed defendant of an immediate price rise. Defendant continued to place orders which were filled. Defendant subsequently began purchasing from another seller and withheld from plaintiff a sum of money designed to offset what defendant claims was an impermissible price rise. Because the letter contained no quantity term, the court casts doubt upon whether it constituted an offer, but assuming it was an irrevocable offer, its duration was limited to three months under the terms of U.C.C. § 2-205.

(n8)Footnote 8. Janke Constr. Co. v. Vulcan Materials Co., 386 F.Supp. 687 (W.D.Wis.1974) , aff'd, 527 F.2d 772 (7th Cir.) ; E.A. Coronis Assocs. v. M. Gordon Constr. Co., 90 N.J.Super. 69, 216 A.2d 246 (1966) . See also Jenkins & Boller Co. v. Schmidt Iron Works, Inc., 36 Ill.App.3d 1044, 344 N.E.2d 275 (1976) ; Restatement (Second) of Contracts § 87(2); but see Ivey's Plumbing & Elec. Co. v. Petrochem Maint., Inc., 463 F.Supp. 543 (N.D.Miss.1978) .

(n9)Footnote 9. Swiss Code of Obligations, sec. 3: ''One who makes an offer to another, and prescribes a definite time for acceptance, is bound by his offer until the expiration of the time fixed.'' German Civil Code, sec. 145: ''One who has conferred upon another the power to close a contract is bound by his offer unless he has provided to the contrary.'' (But the Code provides that if no time is specified, the acceptance must take place within a brief period according to circumstances. See secs. 147-150.) Sec. 658: ''An offer of a reward is revocable prior to the beginning of performance.''

Japanese Civil Code, art. 521: ''An offer of a contract made with a fixed period of time specified for acceptance cannot be withdrawn.'' Art. 524: ''An offer made to a person at a distance without fixing a period of time for acceptance thereof, cannot be withdrawn for such a period of time as is reasonably necessary for the offeror to receive notice of the acceptance.''

(n10)Footnote 10. See the analysis of this section in John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention 141-44 (1987), where the legislative language in part (a) of the Article is analyzed at length. Professor Murray is of the opinion that this provision mandates that a court must hold an offer to be irrevocable if it contains a date beyond which it cannot be accepted. John Murray, On Contracts § 152(A)5. Professor Honnold's review of the legislative history of the provision indicates such an inference is permissible, but not mandatory.