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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 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.3

Supp. to § 2.3 Request for an Offer Is Not an Offer-Auctions and Solicited Offers

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(A) The following cases cite this section or its predecessor:

(1) Heartland Express, Inc. v. Terry, 631 N.W.2d 260 (Iowa 2001) . An application for employment is not a contract, but rather a mere solicitation of an offer of employment. This case is also noted at § 1.11 of this supplement.

(2) Nat'l Constr. Servs. v. Phila. Reg'l Port Auth., 789 A.2d 306 (Pa. Commw. Ct. 2001) . The plaintiff alleged that the defendant breached a contract by not awarding a contract to the plaintiff which was the lowest bidder. Quoting Corbin at § 2.3, the court recognized that an advertisement for bids is the same as an advertisement pertaining to auctions. The advertisement is not an offer. It is a request for offers. In Pennsylvania, the ''best'' or lowest bidder does not have any right to receive the contract award because a bidder does not have any standing to challenge the award. Only a taxpayer of the public entity funding a public contract has standing to enjoin its award to anyone other than the lowest responsible bidder since only a taxpayer, having an interest in the expenditure of public funds, may maintain an action to prevent unauthorized or unlawful expenditure of such funds. The plaintiff had no cause of action.

(3) First Tee Capital Advisors, Ltd. v. Caron, 2003 R.I. Super. LEXIS 117 (R.I. Super. Ct. Sept. 22, 2003) . The plaintiff, a real estate advisory firm that specialized in golf course financing, agreed to perform necessary services to secure financing for the defendants' purchase of a golf course. In exchange for its services, the plaintiff would receive a fee of a 1.5% of the gross loan amount payable at closing. The plaintiff presented to the defendants a financing proposal which contained a seasonal payment schedule that elicited some concern from the defendants. In large part as a result of these concerns, the defendants secured financing through an alternate lending institution, without the plaintiff's assistance, and closed on the transaction. Upon closing, the plaintiff presented the defendants with an invoice for its fee, which the defendants refused to pay, and the plaintiff sued for breach of contract. The court relied on Corbin's elucidation of the common unilateral real estate broker's contract which typically entails an offer to pay a commission in exchange for the production of a purchaser ready, able and willing to buy on terms specifically stated in advance by the owner. Thus, the power of acceptance is exercised by the actual rendition of the services, and a broker is not entitled to a commission or fee if it has not fully performed under the contract.

The court distinguished this case from the unilateral broker's contract since the contract language required an actual closing utilizing the financing arranged by the plaintiff. A closing of this type was a condition precedent to the plaintiff's right to compensation. Since there was no such closing, the court found no breach of contract.

The court further found that the severe amortization schedule of the plaintiff's proposed financing arrangement was a factor not contemplated by the defendants' term sheet, and that the defendants' dissatisfaction with it was both reasonable and a genuine ground for the good faith rejection of the plaintiff's loan proposal. While the good faith standard provides a party a good deal of subjective latitude (since the test is not whether the party exercising good faith should be satisfied, but whether he is actually satisfied), the dissatisfaction must be genuine and must not be inspired by ill faith or capriciousness. The good faith test was satisfied here.

(4) Loegering Mfg. v. Grouser Products, Inc., 330 F. Supp. 2d. 1057, 2004 U.S. Dist. LEXIS 15687 (D.N.D. 2004) . The plaintiff and defendants filed Motions for partial summary Judgment against each other in a dispute over whether the defendants held a valid patent to a design to be used for over-the-tire skid steer loader tracks. The plaintiff claimed that the defendant's patent was invalid under the ''on-sale bar defense'' set forth in 35 U.S.C.S. § 102(b). A person is not entitled to a patent if the invention was on sale in the United States for more than a year prior to the application of the patent. Since Hoffart applied for the patent on December 10, 1997, the on-sale bar date was December 10, 1996. The on-sale bar applies when the product was the subject of a commercial offer for sale and the invention was ready for patenting. The court explained that it is for the court to determine whether there was an offer for sale by applying traditional contract law. To do so, a court must look closely at the language of the proposal itself. Citing Corbin, the District Court determined that factors ''that may be looked at to determine whether an offer has been made include the following: 1) the ordinary meaning of the language used, 2) the context of the language in connection with prior communications between the parties, 3) the selectivity of the communication, 4) the parties' course of dealings, 5) local usage or trade usage, 6) the social relationship of the parties, 7) the relative completeness of the terms, 8) the nature of the subject matter, and 9) the foreseeability that the addressee will rely upon it.'' The court determined that the defendant did make an offer to sell the product more than a year prior to the patent application but other factual issues remained that could not be resolved by summary judgment.

(5) White v. Simard, 152 Md. App. 229, 831 A.2d 517 (Ct. Spec. App.) , cert. granted, 378 Md. 617, 837 A.2d 928 (2003) . The terms of a public sale of foreclosed property appearing in an advertisement required settlement to be completed within ten days and also stated, ''The purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of the property.'' The plaintiff's bid of $53,000 won the auction but he defaulted because he did not complete settlement within 10 days. The parcel was auctioned again and the plaintiff again was the winning bidder, this time with a bid of $101,141. When he could not complete settlement on this sale within ten days, having assigned his rights to new buyers, he petitioned the court to substitute purchasers while retaining primary responsibility for all liabilities concerning the sale. The court granted his petition. The resale of the property to the assignees produced a surplus of $46,831.20. Though a defaulting purchaser such as the plaintiff would ordinarily be entitled to this surplus under Maryland law, the auditor determined that the plaintiff was not so entitled because of the advertisement precluding the recovery of the surplus. In the plaintiff's action to recover the surplus, the instant court held that a judicial sale transaction is governed by principles of contract law. Under Maryland law, before selling property at public auction, the trustee must publish a notice or advertisement of sale that contains the terms of the sale in a newspaper of general circulation. Citing Corbin and the Restatement (Second) of Contracts, § 28(2), the court held that, absent a contrary manifested intention, the bid (offer) made at such a public auction includes the terms of the previously published advertisement. By choosing to enter a bid pursuant to such an advertisement, the plaintiff offered to purchase the property on the terms found in the trustee's advertisement and was, therefore, precluded from recovering surplus proceeds. In Heartwood 88, Inc. v. Montgomery County, 156 Md. App. 333, 846 A.2d 1096 (Ct. Spec. App. 2004) , the court restated this analysis on the basis of the Restatement (Second) of Contracts, § 28(2).

(6) In re: Yes! Entertainment Corporation, (2006) . The debtor was in the toy development and manufacturing business. In 1998, debtor and Wham-O, Inc. (''Wham-O'') executed an asset purchase agreement pursuant to which Wham-O purchased from the debtor certain brand names, trademarks, inventory, equipment, and related intellectual property associated with certain of the debtor's toy products. The purchase price included a cash increment and royalties on sales for seven years. The agreement was subsequently amended to limit the obligation to pay royalties on one of the products (the Baskin Robbins Ice Cream Maker) to three years at the rate of one percent of sales. Royalties on all other products were two percent of sales for seven years. Thereafter, the debtor filed a voluntary petition under Chapter 11 of the bankruptcy code. A dispute then arose over ''whether accessories and other Baskin Robbins products [were] subject to the three year limit on royalties as [was] the Baskin Robbins Ice Cream Maker.'' The trustee argued that under the express language of the agreement, only the Ice Cream Maker itself was subject to the reduced royalty provision and that royalties on the accessories, mixes and other Baskin Robbins products were due for seven years at two percent. Wham-O disagreed and argued that the reduced royalty provision was meant to encompass all the Baskin Robbins products. Wham-O contended that the language of the agreement supported its position because the Baskin Robbins mixes, accessories and smoothie/shake maker were all listed under ''Baskin Robbins Ice Cream Maker'' in Exhibit C to the agreement. Wham-O claimed that this evidenced the parties' intent to include them with the concept of the Baskin Robbins Ice Cream Maker. Wham-O asserted that the principal of noscitur a sociis applied and, citing Corbin, noted that the principal of noscitur a sociis teaches that a term that is part of a series should be interpreted like the other words in that series. The court determined that the express language of the agreement stated that only the Baskin Robbins Ice Cream Maker was to be subject to the reduced royalty provision. The listing of the other Baskin Robbins products below the Baskin Robbins Ice Cream Maker did not convince the court that those products were meant to be part of the Ice Cream Maker. If that were the parties' intent, they would have expressed it. Therefore, the court concluded from the plain language of the agreement that the trustee was entitled to royalties on the other Baskin Robbins products at the rate of two percent of next sales for seven years.

(B) The following case is noteworthy:

(1) Cal Wadsworth Constr. v. City of St. George, 898 P.2d 1372 (Utah 1995) . That city's advertisement required bids to remain open for 45 days and bidders to furnish bid bond did not displace usual rule that advertisements for bids are not offers and cannot be accepted by submitting the lowest bid. These requirements are common to municipal bid solicitations and, moreover the advertisement specifically reserved the City's right to reject any and all bids. This case is also noted in § 3.28.

Supplement to Notes in Main Volume

3. Ill.- Talbert v. Home Savings of America, F.A., 265 Ill. App. 3d 376, 202 Ill. Dec. 708, 638 N.E.2d 354 (1994) (advertisement of mortgage loans without certain fees was an invitation to an offer; subsequent application, which included an undertaking to pay fees, was an offer). This case is also noted in § 2.4.