54 Of 174 documents

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 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.1

Supp. to § 2.1 Preliminary Negotiations

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(A) The following cases cite this section:

(1) Nunley v. Westates Casing Services, Inc., 1999 UT 100, 989 P.2d 1077 (1999) . This case is fully discussed in § 4.3 of this supplement.

(2) Summit Investors II, L.P. v. Sechrist Indus., Inc., 2002 Del. Ch. LEXIS 117 (Del. Ch. Sept. 20, 2002) . The plaintiffs entered into a ''Put and Call'' agreement with the defendants under which the defendants were to purchase the plaintiffs' stock upon proper notice. When the defendants refused to purchase the stock, the plaintiffs filed this suit for specific performance. The claim was dismissed. The court also granted the plaintiffs' motion to dismiss the defendants' counterclaim for breach of contract based on the plaintiffs' alleged failure to provide proper notice as required by the agreement. The court found the notice provisions to be conditions to the defendants' obligations and not covenants. As this treatise explains, conditions are events that must occur before a party is obligated to perform. The non-occurrence of a condition is not a breach unless a party is under a duty to make the condition occur. The plaintiffs were under no such duty. This case is also cited at § 30.12.

(3) Flake v. Flake (In re Estate of Flake), 71 P.3d 589 (Utah 2003) , reh'g denied (Utah June 17, 2003). The plaintiff widow brought suit against the defendant trustee seeking enforcement of an earlier (1987) version of a trust. The defendant argued that a later (1998) version controlled. The defendant also alleged that prior to the filing of this action the parties met and entered into a settlement agreement. The trial court held that the parties entered into an enforceable settlement agreement but there was no mutual release of claims and the 1987 version of the trust controlled. Citing Corbin, the instant court held that, in determining whether the parties created an enforceable agreement, a court should consider all preliminary negotiations, offers, and counteroffers and interpret the various expressions of the parties to decide whether the parties reached an agreement on complete and definite terms. Reversing the trial court, the court recognized the general policy of the law to encourage family settlement agreements. It determined that the settlement agreement before it manifested the intention of the parties to reach a complete and definite agreement that the 1998 version of the trust as modified by the settlement agreement should govern the disposition of the estate.

55 Of 174 documents

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 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.2

Supp. to § 2.2 Preliminary Communications Compared to Offers-Interpretation

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(A) The following cases cite this section:

(1) MLMC, Ltd. v. Airtouch Communications, Inc., 215 F. Supp. 2d 464 (D. Del. 2002) . The court considered whether a commercial offer for sale was made more than one year prior to the patent application date so as to implicate the ''on sale'' bar to patent validity which is determined by application of general contract principles. The court reviewed the factors Corbin suggests in making the determination whether an offer was made, such as the ordinary meaning of the language and the relative completeness of terms, as well as Corbin's suggestion that price quotations are generally not offers. The court concluded that the budgetary quotations submitted by the plaintiff to potential customers for the purposes of filing for FCC licenses did not constitute offers. This case is also cited at § 2.5.

(2) Pechiney Rhenalu v. Alcoa, Inc., 224 F. Supp. 2d 773 (D. Del. 2002) . This case is fully discussed at § 2.5.

(3) Engate, Inc. v. Esquire Deposition Servs., LLC, 2003 U.S. Dist. LEXIS 10050 (N.D. Ill. June 13, 2003) . The plaintiff alleged patent infringement on the grounds, inter alia, that the defendant had made an ''offer to sell'' as found in 35 U.S.C. § 271(a) by advertisements. Consistent with general contract principles (Restatement (Second) of Contracts § 26), the court held that advertisements, price lists, catalogs and other promotional materials are not offers to sell unless they contain language of commitment or some invitation to take action without further communication. The court also held that the statute only prohibited offers to sell ''a patented invention.'' Thus, even if an offer to sell were established, unless that offer described what was disclosed in the asserted claims, it would not be a violation of the statute.

(4) Fisher-Price, Inc. v. Safety 1st, Inc., (9th Cir. 2004) . This case is discussed at § 1.11 of this supplement in note 6.

(5) Trani v. Weymouth Trust, 2005 Cal. App. Unpub. LEXIS 6583 (2005) . Trani defaulted on a loan, which was secured by a deed of trust, for property she owned located in San Pedro, California. The property was eventually sold at trustee sale to the Weymouth Trust (the ''Trust''). After the sale, the attorney for the Trust sent Trani a letter dated February 22, 2002 which stated that the Trust would sell the property back to Trani under certain conditions. One of the conditions was that a scheduled ''lock out'' would occur unless Trani made a $50,000 down payment. The letter further stated that Trani needed to respond as soon as possible. Trani's attorney sent a letter in response on April 24, 2002 stating that Trani accepted the offer to purchase back the property. The Trust, however, did not sell the property back to Trani, and Trani filed an action, inter alia, for breach of contract. Trani claimed that the letter from the Trust was an unexpired offer to sell the property. The Trust contended that it was not an offer but rather was an invitation to negotiate. Citing Corbin, the court stated that the determination of whether a communication constitutes an offer, rather than a step in the preliminary negotiation of contract, depends on all the surrounding circumstances. The court reasoned that the pertinent inquiry for the present situation was whether the individual to whom the communication was made had reason to believe that it was intended as an offer. The court determined that the February 22nd letter was an offer since its terms were complete as to the property at issue, the price, and the time and condition for performance. The Trust argued in the alternative that if the letter was an offer then the April 24th reply came too late. The court agreed since Trani did not respond prior to the scheduled ''lock out'' which the court viewed as the expiration date of the offer.

(B) The following cases are noteworthy:

(1) McVey v. Munzert, 887 S.W.2d 764 (Mo. App. 1994) . Munzert had four children, two by his first wife, Clara, and two by Dorothy, his fourth. He died intestate while married to Dorothy. Munzert owned four acres of real property in St. Louis County. Under the laws of intestate succession, which the trial court applied, half this property went to Dorothy, the children sharing the other half equally. Before he died, Munzert told Clara's children that each of his four children would get one-fourth of the property when he and Dorothy had both died. After his death, Clara's children asked Dorothy many times about the location of Munzert's will and the disposition of the property. Dorothy told one of them that all four children would receive equal shares upon her death. They didn't. Clara's children claimed against Dorothy's estate, having refrained from suing her while she was alive.

The trial court found that Dorothy had made an oral contract to make a will leaving Clara's children each a one-fourth share of her one-half interest in the property. The appellate court reversed. Missouri law provides that to constitute an offer sufficient to result in a contract, the offer must be so definite in its terms, or require such definite terms in its acceptance, that the promises and performances to be rendered by each party are reasonably certain. Unlike many other states, Missouri allows an oral contract to make a testamentary disposition of real property, but requires proof by ''clear, cogent and convincing evidence.''

Using this heightened evidentiary standard, the court concluded that Dorothy's promise to Clara's children was not an offer, but a ''mere disposition'' to make a will for which Dorothy sought no consideration. Against the argument that not suing Dorothy was consideration, the court said that Clara's children had presented no evidence that Dorothy's promise was in exchange for the consideration. From this it follows that there was no clear, explicit and definite offer, hence no contract.

(2) Black & Decker Inc. v. Shanghai Xing Te Hao Indus. Co., 2003 U.S. Dist. LEXIS 10127 (N.D. Ill. June 13, 2003) . In a patent infringement suit, the plaintiff alleged that the defendant had made an ''offer to sell'' in violation of 35 U.S.C. § 271(a) by displaying its product at a trade show. The court held that such a display, in itself, did not meet the traditional requirement of a ''manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it'' to constitute an offer as defined in the Restatement (Second) of Contracts, § 24.

(3) Reed v. Pittsburgh Bd. of Pub. Educ., 862 A.2d 131 (Commw. Ct. 2004) Under State law, no one could be hired to teach in the Pittsburgh School District unless the applicant's name was among the top ten percent on the eligibility list. The plaintiff's name was among the top ten percent. She was not hired, but four applicants whose names were not among the top ten percent were hired. The trial court found that the plaintiff had no claim for breach of contract. On appeal, the instant court found that the eligibility list was an invitation to apply that required a further manifestation of assent by the defendant. The eligibility list stated that applicants would be ''considered'' for employment. Moreover, the list was too uncertain to be an offer in that it did not specify when the hiring was to occur, the position for which an applicant might be considered or the duration of any possible contract. The court affirmed the judgment.

(C) The following case also cites this section:

(1) Donovan v. RRL Corp., 26 Cal. 4th 261, 109 Cal. Rptr. 2d 807, 27 P.3d 702 (2001) . This case is also noted at §§ 2.4 and 4.11 of this supplement and in §§ 28.39 and 28.40 in Volume 7 of the treatise. The defendant automobile dealership listed a used car for sale in a local newspaper. Due to a typographical error, the price listed was significantly lower than the intended sales price. The plaintiff, interested in purchasing the vehicle, attempted to purchase it by tendering the advertised price, but the dealership refused to sell. The plaintiff sued for breach of contract. The municipal court found for the dealership, holding that the mistake in the advertisement precluded the existence of a contract. The Appellate Department reversed, basing its decision upon a local vehicle code which makes it unlawful for an automobile dealer not to sell a motor vehicle at the advertised price if the vehicle has not yet been sold and the advertisement has not yet expired.

The California Supreme Court reversed the decision of the Appellate Department, finding that although a contract resulted from the defendant's advertisement and the plaintiff's tender, that contract may be rescinded based upon the defendant's unilateral mistake. The court held that although the local vehicle code did in fact apply, that rescission is warranted because the evidence establishes that the defendant's unilateral mistake of fact was made in good faith, that the defendant did not bear the risk of the mistake, and that enforcement of the contract with the erroneous price would be unconscionable. The court, citing this section of Corbin, held that whether the particular communication, here a newspaper advertisement, constitutes an operative offer, rather than an inoperative step in the preliminary negotiation of a contract, depends upon all the surrounding circumstances. Here, the court held that the advertisement did constitute an offer, which could be accepted by the plaintiff's tender of the advertised price for the automobile. Although the municipal court found that the defendant's advertisement did not constitute an offer based upon the court's factual determination that the erroneous price in the advertisement was the result of a good faith mistake, the supreme court found that whether the price was mistaken in the advertisement was irrelevant, but that instead the inquiry ought to have been whether a contract resulted from the acceptance of an offer containing mistaken terms, or whether any such contract could be voided or rescinded. Corbin at § 4.11. The defendant argued that the newspaper advertisement did not constitute an offer, but rather ''an invitation to consider, examine, and negotiate.'' Corbin at § 2.4. The court noted that certain advertisements have been held to constitute offers where they invite the performance of a specific act without further communication and leave nothing for negotiation. Here, the court relied upon the California Vehicle Code and concluded that the advertisement is intended to constitute an offer and that the consumer's assent to the bargain is invited and will conclude the transaction.

The defendant dealership argued that even if the advertisement was found to constitute an offer that was accepted by the plaintiff's tender of the advertised price, the plaintiff cannot enforce the contract because there was no signed writing that satisfied the requirements of the statute of frauds for the sale of goods. The plaintiff argued that the defendant's name, as it appeared in the newspaper advertisement for the sale of the vehicle, constituted a signature within the meaning of the statute. Finding that the advertisement reasonably justified the plaintiff's understanding that the communication was intended as an offer, the advertisement with the dealership's name printed therein satisfies the Statute of Frauds.

Once finding that there was a valid offer and acceptance, the court next discussed whether enforcement of the contract could be avoided on the basis of mistake. The court reversed the lower court's finding that the mistake was one of law, not of fact. Applying Restatement Second of Contracts § 153(a), which authorizes rescission for unilateral mistake of fact where enforcement would be unconscionable, the court deviated from the traditional rule and that of Restatement First of Contracts, which held that unilateral mistake did not render a contract voidable unless the other party knew of or caused the mistake. As such, the court held that a contract properly may be rescinded on the ground of unilateral mistake of fact. Applying the rule to the instant case, the court found that the mistake satisfied that four-pronged test: (1) the defendant made a mistake regarding a basic assumption upon which the defendant made the contract; (2) the mistake had a material effect upon the agreed exchange of performances that is adverse to the defendant; (3) the defendant did not bear the risk of the mistake; and (4) the effect of the mistake is such that enforcement of the contract would be unconscionable. Accordingly, the court held that the contract could be rescinded by the defendant based upon a unilateral mistake.

Supplement to Notes in Main Volume

3. U.S.- Travelers Ins. Co. v. Westridge Mall Co., 826 F. Supp. 289 (D. Minn. 1992) (letter stating lender was ''willing to discuss a workout proposal consistent with the general outline'' discussed in prior meeting was an invitation to continued negotiations, not an offer).

In re Windsor Plumbing Supply Co., 170 B.R. 503 (Bankr. E.D.N.Y. 1994) (label ''DRAFT'' on an agreement does not by itself serve to prevent binding effect; length and complexity of the document indicates that more than a proposal was intended). This case is also noted in § 4.1.

This section is quoted in Kiley v. First National Bank, 102 Md. App. 317, 649 A.2d 1145 (1994) . This case is also noted in § 2.4.

13. U.S.- Arsenault v. PNC Mortgage Corp., (6th Cir. 2002) (Sixth Circuit Rule 28(g) limits citation to specific situations). When mortgage rates fell, PNC sent form letters to Arsenault and other mortgagors soliciting a refinancing of mortgages to a lower rate. Arsenault telephoned PNC at the number stated in the letter to indicate acceptance of the arrangement pursuant to the 6.625% rate in the letter and was informed that he would be contacted by PNC within 48 hours. When no contact was forthcoming, Arsenault pursued his own contact and was finally informed that refinancing would be available at a rate that was higher than the rate in the PNC letter, though still lower than Arsenault's rate in the original mortgage loan. Arsenault claimed a breach of contract which focused on the issue of whether the original PNC letter constituted an offer.

Applying Kentucky law, the court pursued the common definition of ''offer'' under the Restatement (Second) of Contracts § 24, i.e., whether a reasonable party would be justified in understanding that his assent to the manifestation of willingness to enter into a bargain would form a contract. The court held that the PNC solicitation letter spoke only hypothetically about potentially lower interest rates. The letter referred to ''today's rate of 6.625%'' and stated that this rate would result in an ''example of typical repayment terms.'' The letter also stated that the 6.625% rate was ''based on interest rates available at the time of the offer'' and ''prices and programs [were] subject to change without notice.'' The court held, therefore, that the 6.625% rate may have been offered as of the date of the letter, but not on the later date when Arsenault called. Other terms were also left open including closing costs and the decision to finance such costs as part of a new loan balance. The court held that the lower court's grant of summary judgment was proper since the language of the letter was ''in no way'' definite.

Mo.- Gateway Exteriors, Inc. v. Suntide Homes, Inc., 882 S.W.2d 275 (Mo. App. 1994) (proposal by potential subcontractor to do siding work in a subdivision together with representation by the general that plaintiff would be one of the subcontractors insufficient to establish a contract; the general represented only that plaintiff would do some work, hence agreement was unduly uncertain and indefinite; plaintiff proved only a proposal for a contract, not the essential terms of a completed contract).