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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 § 2.34

§ 2.34 Effect of Death or Insanity on Power of Acceptance

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It is very generally said that the death of the offeror terminates the offeree's power of acceptance even though the offeree has no knowledge of such death.n1 Such general statements arose out of the earlier notion that a contract cannot be made without an actual meeting of minds at a single moment of time, a notion that has long been abandoned. The rule has also been supposed to follow by some logical necessity from the dictum that it takes two persons to make a contract. It is not contrary to that dictum to deny that death terminates power to accept. The offer was made by a living human and is accepted by another living human. One and one make two. The rule has also been explained on the ground that the surviving offeree intended to contract with the deceased offeror and cannot be forced into relations with a personal representative, a different person. This explanation is not applicable in case the surviving offeree is the one who is insisting on the validity of the contract. It is somewhat more plausible if it is the surviving offeree who is defending against the contract. The acceptance was in reliance on the promise and credit of a specific living person, and the shift to those of a personal representative may be materially disadvantageous. In practically all cases, however, the accepting offeree is sufficiently protected by the rule that makes any contractor's duty constructively conditional on the ability of the other party to render substantially in full the agreed exchange for which the offeree bargained. If the offeror's personal representative can sufficiently assure the performance of this condition, there is little reason for refusing to enforce the contract against the offeree whose position is exactly the same as if the offeror's death had occurred the moment after acceptance instead of just before it. In either case, if the personal representative is unwilling or unable to render the agreed exchange substantially in full, the promises made by the offeree will not be enforced.

The Restatement (Second) of Contracts grudgingly continues the general rule to the effect that ''[a]n offeree's power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.''n2 Grudgingly, because the commentary adds: ''[t]his rule seems to be a relic of the obsolete view that a contract requires a '''meeting of the minds,'' and it is out of harmony with the modern doctrine that a manifestation of assent is effective without regard to actual mental assent.''n3

In Rojo v. Loeper Landscaping, Inc., n4 the decedent was injured at work. A lump-sum worker's compensation settlement was agreed to and signed by the parties. It was, however, subject to approval by a hearing officer. The day after signing the settlement agreement, the worker was murdered. Although the hearing officer concluded that the agreement was fair from the viewpoint of the day it was made, the agreement was disapproved. The Supreme Court reversed. The worker's death prior to approval did not terminate an agreement already made.

If the offer that was made is an irrevocable offer, being in essence a binding option contract, the rights and powers of the option holder are assignable without the offeror's consent. They are not terminated by the death of the offeror.n5 Likewise, it should be held that if the offer is so made that it can be accepted by the performance of a series of acts, the beginning of those acts before death of the offeror prevents the death from terminating the power of the offeree. By such action the offer has been made irrevocable.n6 Even irrevocable offers may fail to survive the death of the offeror or offeree if the terms of the offer indicate that the offer is personal.n7

It has even been held, and justly, that the doing of the requested acts after the death of the offeror, but in ignorance thereof, consummates a contract. Thus, where through an agent an offeror orders the shipment of goods to the agent, and the offeree ships the goods in ignorance that the offeror has died, the offeree can collect the price from the offeror's estate.n8 So, also, where one has promised to guarantee payment for goods to be sold, money to be lent, or service to be rendered to another, the sale or loan or service in ignorance of the promisor's death has been held to enable the promisee to enforce the promise of guaranty against the guarantor's estate.n9 Some cases have held the contrary, however,n10 and also it has been held that the offeree cannot accept after learning that the offeror is dead.n11

If the offer is one that is accepted by a mere expression of assent, as by the mailing of a letter of acceptance, there is no very serious objection to refusing to give effect to such an acceptance, occurring after the offeror's death, as long as the offeree has not materially changed position in reliance on the contract and without knowledge of the death. Furthermore, there are cases in which the offeror's death will make performance impossible, and in which such would be the case even though the death occurs after acceptance has taken place. Thus, if A offers to render personal services to B, A's death makes performance impossible and operates as a discharge of contractual duties, whether B's acceptance occurred before or after A's death. If A's promised performance is not one that is personal, death does not operate as a discharge. If B had accepted before A's death, the contract is binding upon both B and A's personal representative. There is no necessary reason to deny a similar effect to an acceptance by B in ignorance of A's prior death. Thus, if A promises to pay money asking for a promise by B to deliver goods or to render services that do not require A's personal cooperation, acceptance by B in ignorance of A's prior death could be held to consummate a contract binding on B and A's representative. Probably, this result would not be reached, however, if B learns of A's death before making any material change of position.

There is some analogy between the power of an offeree and the power of an agent. Just as in the case of an offer, it has been held that the death of the principal terminates the agent's power to contract, even though the agent acts in ignorance of the principal's death. This result, also, has been criticized, and it may cause severe injustice. In those cases in which the agent's power is said to be ''coupled with an interest,'' it is not terminated by the principal's death.

The death of the offeree, before acceptance, has also been held to terminate the power of acceptance, so that a subsequent acceptance by the offeree's representative is ineffective.n12 There is not much reason to criticize this result, since the representative has knowledge of the death and there can be no change of position with unforeseen injury. Here too, if the offer was a binding option contract or has become so by the offeree's action before the offeree's death, and if the contract is not one that has become impossible of performance by reason of the death, the offeree's personal representatives can accept the offer and consummate a contract.n13

It has been held that the insanity of the offeror, supervening after making the offer, terminates the power of acceptance.n14 This is even more doubtful than the rule as to the offeror's death. Insanity is far less easily determinable as a fact than is death, either by the contracting parties themselves or by a court. In Swift & Co. v. Smigel, n15 Swift extended credit under a contract of continuing guarantee signed by Smigel. Thereafter Smigel was adjudicated incompetent. The court cited this section as supporting the rule that the adjudication did not revoke the offer unless the offeree knew or should have known of it. Contract liability is based to a large extent on the reasonable expectations of the parties. It is certainly reasonable for the offeree to expect that the offeror's liability will attach to the extensions of credit it may make in reliance on the offer. It is certainly more reasonable to require that the incompetent's guardian notify the offeree of the adjudication of incapacity than to place the burden on the offeree to make inquiry prior to each extension of credit.n16

Some kinds and degrees of insanity have been held not to make an agreement void, or even voidable, even though the insanity existed before the offer was made. In these cases supervening insanity of the same kind and degree should not terminate the power of acceptance. It seems reasonable to say that supervening insanity should have no greater effect than it would have if it existed prior to the making of the offer.n17

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

Contracts LawFormationCapacity of PartiesGeneral OverviewContracts LawFormationOffersRevocable OffersContracts LawFormationAcceptanceGeneral Overview

FOOTNOTES:

(n1)Footnote 1.

Cal. - Watt's Estate v. Dickerson, 162 Cal.App.3d 1160, 208 Cal.Rptr. 846 (1984) . After a statutorily-prescribed compromise offer in a tort case, but within the non-expiration period, Watts died. Her administrator tried to accept the offer, and won below in the ensuing litigation. The Court of Appeals reversed. The court recognized that a different result would follow if an option were involved, but prior case law had established that this statutory offer was not an option.

In Shaw v. King, 63 Cal.App. 18, 218 P. 50 (1923) , A wrote to B promising to support her for life if she would come and live with him. A suddenly died; and in ignorance of that fact B started on the trip to A's place of residence. The court held that A's offer had lapsed before B's attempt to accept. There were other grounds of decision.

Ill. - Beach v. First Methodist Episcopal Church, 96 Ill. 177 (1880) ; Pratt v. Trustees of Baptist Soc. of Elgin, 93 Ill. 475, 34 Am.Rep. 187 (1879) .

Ky. - New Headley Tobacco Whse. Co. v. Gentry's Ex'r, 307 Ky. 857, 212 S.W.2d 325 (1948) .

La. - Union Sawmill Co. v. Mitchell, 122 La. 900, 48 So. 317 (1909) .

Mass. - Pearl v. Merchants-Warren National Bank, 9 Mass.App.Ct. 853, 400 N.E.2d 1314 (1980) ; Jordan v. Dobbins, 122 Mass. 168, 23 Am.Rep. 305 (1877) .

Me. - Vantassel v. Hathaway, 53 Me. 18 (1864) .

Md. - Beall v. Beall, 291 Md. 224, 434 A.2d 1015 (1981) . The husband died, terminating the power of acceptance made by the spouses as tenants by the entirety.

Miss. - American Oil Co. v. Estate of Wigley, 251 Miss. 275, 169 So.2d 454 (1964) .

N.Y. - Twenty-Third Street Baptist Church v. Cornwell, 117 N.Y. 601, 23 N.E. 177 (1890) .

Ohio - Wallace v. Townsend, 43 Ohio St. 537, 3 N.E. 601 (1885) .

Pa. - In re Helfenstein's Estate, 77 Pa. 328, 18 Am.Rep. 449 (1875) .

R.I. - National Eagle Bank v. Hunt, 16 R.I. 148, 13 A. 115 (1888) .

Tenn. - Hutsell v. Citizens' Nat'l Bank, 166 Tenn. 598, 64 S.W.2d 188 (1933) .

Under Austrian, German and Swiss law the death of the offeror does not end the power, unless the contrary intention is apparent. See 1 Formation of Contracts: A Study of the Common Core of Legal Systems 892-95 (Rudolph B. Schlesinger ed. 1968).

(n2)Footnote 2. Restatement (Second) of Contracts § 48.

(n3)Footnote 3. Id., comment a.

(n4)Footnote 4. 107 N.M. 407, 759 P.2d 194 (1988) .

(n5)Footnote 5.

U.S. - Ankeny v. Richardson, 187 Fed. 550 (8th Cir.1911) .

Ala. - Cowin v. Salmon, 244 Ala. 285, 13 So.2d 190 (1943) .

Ariz. - Mubi v. Broomfield, 108 Ariz. 39, 492 P.2d 700 (1972) .

N.Y. - Rockland-Rockport Lime Co. v. Leary, 203 N.Y. 469, 97 N.E. 43 (1911) .

Eng. -Dibbins v. Dibbins, 65 L.J.Ch. 724, 2 Ch. 348 (1896); In re Adams, 24 Ch.D. 199 (1884); Nicholson v. Smith, 22 Ch.D. 640 (1882); Townley v. Bedwell, 14 Ves.Jun. 591 (1808); Lawes v. Bennett, 1 Cox 167 (1805).

Restatement (Second) of Contracts § 37, § 48, comment d.

(n6)Footnote 6. In Bard v. Kent, 19 Cal.2d 449, 122 P.2d 8, 139 A.L.R. 1032 (1942) , an option for renewal of a lease was not made irrevocable by an untrue recital that $10 had been paid for it nor by the fact that the offeree had employed an architect to draw plans. The option contained no promise that it should continue for any time; and it was terminated by death of the option giver. The employment of the architect was not an attempt to accept.

(n7)Footnote 7. In Brauer v. Hobbs, 151 Mich.App. 769, 391 N.W.2d 482 (1986) , a right of first refusal was held to be terminable on the death of the offeror.

In Fisher v. Fisher, 23 Mass.App.Ct. 205, 500 N.E.2d 821 (1986) , the power of acceptance created by a right of first refusal was terminated by the death of the optionees, not by operation of law, but by interpretation of the option.

(n8)Footnote 8.

Ala. - Davis v. Davis, 93 Ala. 173, 9 So. 736 (1890) ; Garrett v. Trabue, 82 Ala. 227, 3 So. 149 (1886) .

(n9)Footnote 9.

Conn. - Gay v. Ward, 67 Conn. 147, 34 A. 1025 (1895) .

S.C. - Knotts v. Butler, 10 Rich.Eq. 143 (S.C.1858) , even though the offeree knew of the death.

Eng. - Bradbury v. Morgan, 1 H. & C. 249 , 31 L.J.Ex. 462 (1862); Harriss v. Fawcett, 8 L.R.Ch. 866 (1873). These and other English cases are reviewed in 1 Formation of Contracts: A Study of the Common Core of Legal Systems 880-886 (Rudolph B. Schlesinger ed. 1968).

Ir. -In re Whelan, [1897] 1 Ir.R. 575.

Can. -Fennel v. McGuire, 21 U.C.C.P. 134 (1870).

(n10)Footnote 10.

Ky. - Aitken v. Lang's Adm'r, 106 Ky. 652, 51 S.W. 154 (1899) .

Mass. - Hyland v. Habich, 150 Mass. 112, 22 N.E. 765 (1889) ; Jordan v. Dobbins, 122 Mass. 168, 23 Am.Rep. 305 (1878) , even though the guaranty was under seal.

N.J. - L. Teplitz Thrown Silk Co. v. Rich, 13 N.J.Misc. 494, 179 A. 305 (1935) .

(n11)Footnote 11.

Mich. - In re Kelley's Estate, 173 Mich. 492, 139 N.W. 250 (1913) .

Pa. - In re Estate of Lorch, 284 Pa. 500, 131 A. 381, 42 A.L.R. 922 (1925) .

R.I. - National Eagle Bank v. Hunt, 16 R.I. 148, 13 A. 115 (1888) .

Eng. -Coulthart v. Clementson, 49 L.J.Q.B. 204, 5 Q.B.D. 42 (1879).

(n12)Footnote 12. In Kennedy v. Thomassen, [1929] 1 Ch. 426 , one bound to pay an annuity offered to pay a lump sum for his discharge and sent a form of release to be executed. The annuitant signed the release and died five days later before sending any notice of acceptance. Later, the attorneys for the annuitant forwarded the release and received the lump sum without informing the payor of the death. The court held that the amount so received must be repaid. The question here is whether execution of the release, without more, constituted an acceptance.

Kan. - Ritchie v. Rawlings, 106 Kan. 118, 186 P. 1033 (1920) . Where a letter, including an agreement for the division of property left by a decedent, was signed by all heirs except one, his signature after the death of one of the other signers did not make the letter a binding contract.

Pa. - Achenbach v. Kurtz, 306 Pa. 384, 159 A. 718 (1932) . In this case, no argument was made as to the effect of the offeree's long forbearance, in reliance on the offeror's promise, to sell the bonds that the offeror had promised to buy. It might well have been held to make the offer irrevocable. The offeror, after selling bonds to the deceased, promised to buy them back for $2,850 if the buyer held them one year, for $3,000 if he held them two years, and for $3,300 if the buyer held them until the seller called for them after four years. The buyer died after six years, still holding the bonds.

(n13)Footnote 13.

U.S. - Ankeny v. Richardson, 187 Fed. 550 (8th Cir.1911) .

Eng. -In re Adams, 24 Ch.D. 199, 52 L.J.Ch. 758 (1884).

(n14)Footnote 14.

Ill. - Beach v. First Methodist Episcopal Church, 96 Ill. 177 (1880) . Church subscription voided by insanity occurring before action by the church in reliance.

Iowa - Union Trust & Sav. Bank v. State Bank, 188 N.W.2d 300 (Iowa 1971) . This section and § 38-41 were cited without discussion by the court to support a holding that the appointment of a conservator over an incompetent guarantor served to revoke a continuing guarantee over which no credit had as yet been extended.

Minn. -In Cooke v. Belzer, 413 N.W.2d 623 (Minn.App.1987) , the decedent had offered the appellant a partnership interest. The court holds that appellant's failure to manifest acceptance prior to decedent's incapacitation prevented the effectiveness of the assignment.

(n15)Footnote 15. 115 N.J.Super. 391, 279 A.2d 895 (1971) , aff'd, 60 N.J. 348, 289 A.2d 793 .

(n16)Footnote 16. Union Trust & Sav. Bank v. State Bank, 188 N.W.2d 300, 55 A.L.R.3d 336 (Iowa 1971) . The appointment, with the knowledge of the offeree, of a conservator for guarantor terminated the power of acceptance.

(n17)Footnote 17. If the offer was a binding option, the option holder's guardian has been held to have power to accept. Dibbins v. Dibbins, [1896] 65 L.J.Ch. 724, 2 Ch. 348.