70 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 § 2.23

Supp. to § 2.23 Options Created by a Conditional Contract or Covenant

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(A) The following case cites the predecessor to this section:

(1) Wilson Courts Tenants Association, Inc. v. 523- 525 Mellon Street, LLC, 924 A.2d 289, 2007 D.C. App. LEXIS 237 (2007) . The tenants claimed that the owner violated the city code requiring the owner to give the tenant an opportunity to purchase the property at a price and terms which represent a bona fide offer of sale. Borland had sold the property to Mellon, which claimed it had no duty to provide the original tenants an opportunity to purchase because it was a subsequent owner, and only the original owner had the duty to safeguard the tenants' statutory rights. The trial court granted Mellon judgment on the pleadings, but the appellate court reversed. The court determined that a right of first refusal is a conditional option empowering its holder with a preferential right to purchase the property on the same terms offered by or to a bona fide purchaser. Hence, when the tenant finally received notice of the owner's sale of the property to Mellon, the tenant had a conditional option to purchase the property. The court cited Corbin for the proposition that a holder of an enforceable option is entitled to injunctive protection against conveyance to a bona fide purchaser, which may render performance impossible. Accordingly, the court remanded for further consideration

71 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 § 2.26

Supp. to § 2.26 Offers Made Irrevocable by Statute and Public Policy

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(A) The following cases are noteworthy:

(1) Shelton v. Sloan, 977 P.2d 1012 (N.M. App. 1999) . Under Rule 1-068 NMRA 1999, defendant may serve plaintiff with an offer to allow judgment to be taken against the defendant for a specified amount, together with accrued costs. If the plaintiff accepts within ten days of service, judgment may be entered in accordance with the offer. If the plaintiff does not accept, and obtains a judgment lower than the offer, the plaintiff must pay the costs incurred after the date of the offer. The question before the court was whether a plaintiff may accept an offer within the ten-day period despite having made a previous counteroffer during the period. The court held that a Rule 1-068 offer is irrevocable during the ten-day period, and plaintiff can accept the offer at any time during the period, regardless of whether the plaintiff made a counteroffer.

The court cited similar treatment by courts of the analogous Rule 68 of the Federal Rules of Civil Procedure. It also cited a policy consideration: ''Given the consequences when the plaintiff errs in rejecting what turns out to be a good offer, it seems appropriate to permit the plaintiff the full ten days to investigate the case, including exploring alternative settlement possibilities.'' Following the comments of a member of the Advisory Committee that drafted Rule 68, the court likened an offer under the Rule to ''an option that you have for ten days based upon a valuable consideration,'' where ''the risk of consequences acts as consideration for the offeree's power to ponder the offer for the full ten days'' [quoting Judge George Donworth]. Section 37 of the Restatement (Second) of Contracts provides that an offeree who gives consideration for an option retains the power to accept the offer for the full duration of the option, regardless of intervening negotiations and counteroffers. The court noted that even apart from the option analogy, Section 39 of the Restatement states: ''An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.'' In the court's view, offers and counteroffers in the context of Rule 1-068 manifest such a contrary intention.

However, in Cain v. City of St. Johns, 2007 U. S. Dist. LEXIS 24940 (D. Ariz. 2007) , where a rule 68 offer was made and subsequently revoked prior to the plaintiff's acceptance, the court held that the offer was revocable. The plaintiff claimed it was irrevocable under the authority of Erdman v. Cochise County, 996 F. 2d 877, 880 (9th Cir. 1991) . The court, however, found that the issue in Erdman was whether a rule 68 offer could be withdrawn after it was accepted. In the instant case, the plaintiff attempted to accept the rule 68 offer with knowledge that it had been revoked four days earlier. The court applied the usual rule as set forth in § 42 of the Restatement (Second) of Contracts that the revocation of an offer terminates an offeree's power of acceptance.

(2) Basha v. Mitsubishi Motor Credit of Am., Inc., 2002 U.S. Dist. LEXIS 13777 (E.D. La. 2002) . To encourage settlement and avoid litigation, Federal Rule of Civil Procedure 68 allows a party defending against a claim to make a settlement offer more than ten days prior to trial that places the risk on the plaintiff that it will secure a judgment in excess of the offer. The defendants presented a ''lump sum'' offer to the plaintiff to settle his claim against them for a ''nuisance value'' of $2000. The plaintiff accepted the offer but later claimed $22,000 in attorneys' fees. Though Rule 68 indicates that the offer includes ''costs then accrued,'' ''costs'' do not include attorneys' fees. The court recognized that the issue of whether attorneys' fees are included is not free from doubt.

While the Supreme Court has held that a Rule 68 offer need not itemize the amounts being tendered for settlement, courts grappling with this question have arrived at conflicting results. In Nusom v. Comh Woodburn, Inc., 122 F.3d 830, 832 (9th Cir. 1997) , the court held that it was incumbent upon a Rule 68 offeror to state clearly that attorneys' fees were included in the total sum offered. However, in Nordby v. Anchor Hocking Packaging Co., 199 F.3d 390, 393 (7th Cir. 1999) , the court rejected this approach, though it recognized that a prudent party would explicitly deal with attorneys' fees to avoid just the kind of issue before the court in this case. The instant court applied ''principles of contract law'' to Rule 68 offers and found that the manifestations of mutual assent in this case indicated that both parties were aware of the unambiguous offer as a ''lump sum'' offer that did not contemplate any additional amounts for attorneys' fees.

(3) Arbor Hill Concerned Citizens Neighborhood Ass'n v. County of Albany, 369 F.3d 91 (2d Cir. 2004) . The plaintiffs had obtained a reversal of a district court order refusing to order special elections under the Voting Rights Act. The instant motion sought recovery of attorneys' appellate fees and other costs. The defendant claimed that a fee award to the plaintiffs was foreclosed by the county's offer of judgment under Rule 68 of the Federal Rules of Civil Procedure. Holding that Rule 68 offers are construed in accordance with ordinary contract law principles, the court quoted the Restatement (Second) of Contracts, § 24 definition of an offer that requires a manifestation of willingness to enter into a bargain, so made that the other party is justified in understanding that his assent to the bargain is invited and will conclude the contract without further action by the offeror or another party. Since the county's proposal for a revised redistricting plan was contingent on the approval of the county legislature and thus also made clear that the plaintiffs' acceptance would not conclude a contract, the court held that the proposal was not an offer within the meaning of ordinary contract principles.

(4) 2949 Inc. v. McCorkle, 2005 Wash. App. LEXIS 1167 (May 23, 2005) . The McCorckles signed the plaintiff's pre-printed form contract for the lease of a commercial sign. The form contained a clause stating that only an executive officer of the plaintiff could accept the offer and by their signing the form, the McCorkles's offer was irrevocable for 60 days. An executive officer signed the form on February 26 but did not notify the McCorkles who revoked the offer on February 28. The plaintiff claimed that the attempted revocation was ineffective because of the irrevocability clause. The district court agreed and granted summary judgment for the plaintiff and awarded damages and costs in the amount of $11,000. The court of appeals affirmed. On this appeal, the instant court held that the irrevocability clause was unenforceable. The court viewed the clause as an option contract clause. The court viewed the Restatement (Second) of Contracts, § 87(1)(a) as requiring bargained-for consideration to support an option contract, ignoring the fact that this section supports option contract via a mere recital of consideration. Here, however, there was not even a recital of consideration to make the McCorkle's offer irrevocable. The court also reviewed Section 2A-205 of the Uniform Commercial Code, the companion (lease) version of § 2-205 (sale of goods) which is the ''firm offer'' section allowing an offer in a signed writing to become irrevocable if it provides assurance that it will not be revoked. The court held that this statutory provision was not satisfied. When such a clause appears on a form supplied by the offeree, it must be separately signed by the offerors who did not separately sign the clause. This case is also discussed in § 2.31 of this supplement.