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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 3 ACCEPTANCE AND REJECTION OF OFFER

1-3 Corbin on Contracts § 3.2

§ 3.2 In a Bargaining Transaction, Only the Offeree Has Power to Accept

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In making an offer of a bargain, the offeror controls not only all the terms of the agreement but also the person or persons in whom a power of acceptance is created. An offer may be made by A to one specific person B. In such case B is the sole person who can accept A's offer. The power of acceptance is not assignable by B to any third person; nor can any third person who learns of A's offer substitute for B as the second party to the contract.n1 This is true even though the offer is one that requires no personal performance by B and no financial responsibility is to be assumed by B. It is true even though A is not acquainted with B and would be equally willing to contract with C instead. In such case A may be content with the substitution and may proceed with performance without objection, but C's attempt to accept in place of B operates as a new offer to A and not as an acceptance. A can accept this new offer by words or conduct as in the case of other offers.n2 Generally it would not be necessary for A to send a reply to C, since C's communication purports to be an acceptance and assumes that no reply is required. Nevertheless, there is no contract made until A has in some sufficient manner expressed assent to C's proposal.

The rule stated above is based in part upon the fact that in many cases it actually makes a difference to A who the other party to the contract shall be. In even larger measure it may be based upon the once prevailing notion that ''contract'' involved a strictly personal relation, so personal indeed that contract rights were thought to be impossible of assignment. Even after the decline and final demise of that notion, the non-assignability of the power of acceptance created by a revocable offer persists. It persists, also, in spite of the fact that in nearly all cases B can accept A's offer and at once thereafter assign the contract rights and delegate the performance of the duties to C without A's assent.n3

There are many contracts requiring personal performance by B, but even in these, B's rights against A are assignable. In no case has B the power to rid himself or herself of duties by assigning them to C, even though their performance is not personal and can be delegated. This leads to the observation that when B attempts to assign the power of acceptance or when C attempts to act in substitution as acceptor, their action is usually to be interpreted as an attempt to substitute C for B in all respects as party to the contract with A. They mean not only that C shall have the rights against A, but also that performance shall be by C in place of B and that the duty to render that performance shall be in C alone, with no duty whatever in B. Such a result as this cannot be brought about, even today, by the process of assignment without A's assent, nor can it be brought about by substituting C for B as acceptor.n4

There are some offers by A that do not provide that B shall render any personal performance or undertake any legal duty whatever. The proposed contract is to be unilateral, as where A promises B a sum of money for the rescue of A's child or for procuring a buyer for Blackacre. In such a case, B can accept A's offer by causing C to rescue the child or to procure the buyer, and at the same time B can assign to C the right to the money.n5 It may be that the law will so develop that in cases like this the offeree can assign the power to accept, but thus far it has not been suggested by the courts.

An offer may be made in such terms that the offeree can accept tendering the full performance for which the offeror is bargaining. In this case the resulting contract is unilateral, and if the performance is not a ''personal'' one, the offeree can accept, by making the tender of performance by other hands than his or her own. In such a case an assignment of the right to the promised payment is not invalidated by the fact that the delegation of performance and the assignment of the right are by a single instrument or otherwise made simultaneously.n6

The offeror, A, can restrict the power of acceptance to a single offeree B, but also can instead create such a power in more than one offeree. The offeror can make the offer to a group of offerees who must accept all together,n7 or to several specific persons who can each accept separately, or to a large number of unspecified persons any one of whom can accept or all of whom can separately accept. This is wholly within the offeror's power when making the offer. But in all these cases alike, no one of the offerees has any power to substitute a new acceptor, creating a power of acceptance in any one who did not already have it direct from A.

If the offeree is acting for an undisclosed principal and this is known to the offeror, the offer is made to that principal and the agent's acceptance is the principal's acceptance. But if the offeree does not disclose the fact of the existence of a principal, the latter has no power to accept the offer that was made to the person who was secretly acting for the principal. It is true that if the agent personally accepts the offer, the undisclosed principal can enforce the contract thus made, but such enforcement does not deprive the other party of any defense that would be good as against the agent nor does it deprive the other of the benefit of the agent's personal responsibility.n8

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

Contracts LawFormationAcceptanceMethods of AcceptanceGeneral OverviewBusiness & Corporate LawAgency RelationshipsAuthority to ActContracts & ConveyancesEnforcement & ExecutionContracts LawFormationAcceptanceGeneral OverviewContracts LawFormationAcceptanceMethods of AcceptanceOvert Acts

FOOTNOTES:

(n1)Footnote 1.

U.S. - Ott v. Home Savings & Loan Ass'n, 265 F.2d 643 (9th Cir.1958) , holding that the offeree's power of acceptance cannot be assigned, citing this section. The defendant wrote a letter to Shaw as follows: ''Home agrees to purchase from you or your nominee up to $7,500,000 of permanent real estate loans.'' of a specified kind on stated terms. Thereafter, Shaw in writing designated Ott as his ''nominee'' and assigned to Ott all his ''right, title and interest'' in the said agreement by Home. Ott in writing accepted the designation and assignment, notified the defendant, and tendered to the defendant in acceptance of its agreement loans of the specified kind amounting to $7,500,000. The court held that the defendant's letter was a mere offer to Shaw and was not assignable to Ott. The words ''or your nominee'' were interpreted as authorizing Shaw to name a representative on his own behalf and not as empowering him to name a substituted offeree. On this interpretation, the decision is correct; but it makes the quoted words mere surplusage, since any offeree can accept an offer by a representative, unless the offer expressly declares otherwise. Very likely, the defendant's promise was improvident, sharp advantage being taken of it by plaintiff. The case is noted also under § 535.

In Aurora Gasoline Co. v. Coyle, 174 F.Supp. 331 (E.D.Ill.1959) an offer of a settlement was made to certain heirs of a decedent. The attorney for the administrator inserted another name as offeree. An attempted acceptance by the party so named was operative as no more than an offer by him to the party making the offer to the heirs.

In Merrill v. Fidelity & Casualty Co. of N.Y., 304 F.2d 27 (6th Cir.1962) , the defendant maintained a vending machine at an airport, containing a liability insurance policy on the life of an intending passenger who would personally sign the application therefor and cause a quarter to be dropped into the slot. In this case, the plaintiff obtained such a policy from the machine on the life of his son who was the intending passenger. He signed his son's name to the application, knowing and understanding that the insurer required the application to be signed by the passenger in person. The son was killed on the flight, and the plaintiff testified that the son had directed him to sign his son's name. The court held that the requirement that the passenger sign was clear and reasonable and was understood by the plaintiff, and that the policy so obtained was not a valid contract.

Ariz. - Daru v. Martin, 89 Ariz. 373, 363 P.2d 61 (1961) .

Cal. - Grieve v. Mullaly, 211 Cal. 77, 293 P. 619 (1930) . Compare San Francisco Hotel Co. v. Baior, 189 Cal.App.2d 206, 11 Cal.Rptr. 32 (1961) , with the Ott case cited in this note. The defendant signed a written promise to lend on stated terms to ''Fred Whitman or nominee,'' acknowledging receipt of a down payment. This deposit receipt also contained a promise to buy, signed, ''Fred Whitman or nominee by E.M.J. agent.'' The agent E.M.J. had no written authority to sign for any principal. Whitman assigned his rights under this deposit receipt to the plaintiff, and it tendered the price in cash to defendant. These facts were held sufficient to justify specific enforcement in favor of the plaintiff. Apparently E.M.J. acted for Whitman and not for his ''nominee.'' See also § 1192.

Md. - Routzahn v. Cromer, 220 Md. 65, 150 A.2d 912 (1959) , offer to Binus to sell a tract of land, whose name was scratched out by buyer's broker and Cromer substituted. Seller would not assent to the change.

N.Y. -See In re Zacoum's Estate, 115 N.Y.S.2d 42 (1952) . The administrator addressed a letter to Alexander Mango, an English lawyer in Istanbul, requesting a search for certain adoption records. The administrator received a reply on the stationery of ''Alex A. Mango, M.A., LL.B. (Barrister-at-Law of Lincoln's Inn).'' After further correspondence, the requested records were furnished and a bill for services was submitted. The cover letter was signed ''A. Mango.'' The administrator became aware that Alexander Mango had died prior to receipt of any of the correspondence and that the ''A. Mango'' with whom he had corresponded was Alexander's son, Anthony. It was held that no contract was formed. (Death of the offeree might have been an alternative ground for the same result.) Moreover, no quasi-contractual relationship was created inasmuch as Anthony had rendered the services as a volunteer.

Eng. -Boulton v. Jones, 157 Eng. Rep. 232, 2 H. & N. 564 (Ex.1857). The buyer of the business could not accept an order addressed to the prior owner. It is perhaps significant that the buyer and prior owner had a running account; the buyer having a positive balance.

(n2)Footnote 2. In Orcutt v. Nelson, 67 Mass. (1 Gray) 536 (1854) , an order was placed for some alcoholic beverages. The recipient notified the offeror that he had taken over his brother's business and was making the requested shipment. The court ruled that ''receipt of the goods pursuant to notice, and payment of the freight, are decisive proof of the assent ... to the change.''

This elementary principle stated in the text is sometimes lost sight of. In Apostolic Revival Tabernacle v. Charles J. Febel, Inc., 131 Ill.App.2d 579, 266 N.E.2d 545 (1970) , defendant's offer was made to a pastor in his individual capacity. It was accepted by him on behalf of his church, a not-for-profit corporation. This was held to be ineffective. The court ignored the fact that the defendant's refusal to perform had nothing to do with the substitution of offerees. Defendant's attempt to get out of the contract by sending the pastor a release indicated that it had assented to the contract with the corporation. The decision is an excellent example of ''afterthought law.'' The parties' dispute had absolutely nothing to do with the point the court found to be decisive. Compare Preload Technology, Inc. v. A.B. & J. Constr. Co., Inc., 696 F.2d 1080 (5th Cir.1983) (Texas law), where the general contractor accepted the offer on the letterhead of a different corporation (Preload Company) than the one that had solicited the bid (Preload Technology). The subcontractor, when refusing to perform, did not make this fact an issue. If there was no contract by a process of offer and acceptance, there was one by promissory estoppel.

(n3)Footnote 3. See, for example, Carluccio v. 607 Hudson St. H. Co., 141 N.J. Eq. 449, 57 A.2d 452 (1948) (assignee was denied specific performance for inequitable conduct); Macke Co. v. Pizza of Gaithersburg, Inc., 259 Md. 479, 270 A.2d 645, 53 A.L.R.3d 461 (1970) ; S & L Vending Corp. v. 52 Thompkins Ave. Restaurant, Inc., 26 A.D.2d 935, 274 N.Y.S.2d 697 (1966) ; Weathers v. M.C. Lininger & Sons, Inc., 68 Or.App. 30, 682 P.2d 770 (1984) , review denied, 297 Or. 492, 683 P.2d 1372 (1984) .

In Polhamus v. Roberts, 50 N.M. 236, 175 P.2d 196, 170 A.L.R. 991 (1946) , an owner made an offer to lease property to A. The latter accepted, requiring however that the lease should be executed in the name of B. This was not an effective acceptance. This would be correct even though A would have had power to assign the lease to B by first accepting the terms of the lease.

(n4)Footnote 4. Restatement (Second) of Contracts § 52 provides: ''An offer can be accepted only by a person whom it invites to furnish the consideration.'' Comment a thereto states: ''The rule that the power of acceptance is personal to the offeree is applied strictly, even in cases where the offeree after acceptance could assign his rights and delegate performance to the assignee....''

An offeree cannot substitute a corporation that the offeree controls. Strauss & Co. v. Berman, 297 Pa. 432, 147 A. 85 (1929) .

An offer of guaranty to J.M. & Co., a partnership, cannot be accepted by J.M. & Co., a corporation later formed, even though its incorporators and stockholders are identical with the partners. Jordan-Marsh Co. v. Beals, 201 Mass. 163, 87 N.E. 471 (1909) .

If a corporation makes an offer with reason to know that the offeree believes it is a different corporation with a similar name it cannot hold the offeree who accepts under the mistaken belief. Nutmeg State Mach. Corp. v. Shuford, 129 Conn. 659, 30 A.2d 911, 147 A.L.R. 1168 (1943) .

A bid made to a partnership cannot be accepted by a corporation. Brook v. Oberlander, 49 Ill.App.2d 312, 199 N.E.2d 613 (1964) .

This section was cited in Schneider v. Pioneer Trust & Savings Bank, 26 Ill.App.2d 463, 168 N.E.2d 808 (1960) . The plaintiff made an offer to the defendant to buy property held by it in trust for Harmon. It was Harmon, the beneficiary, who gave notice of acceptance, not the defendant trustee to whom the offer was made. The court held that only the trustee had power to accept. The court said: ''Retaining the nature of his interest in order to be entitled to the advantages of a land trust, he [the beneficiary] may not then deal with the property as if no such trust existed.'' This is a close case, since it seems that the plaintiff knew that Harmon was the trust beneficiary, and Harmon had power to order a conveyance by the trustee.

Mass. - Huntington v. Knox, 61 Mass. (7 Cush.) 371 (1851) .

(n5)Footnote 5. Such cases as Boston Ice Co. v. Potter, 123 Mass. 28, 25 Am.Rep. 9 (1877) , may possibly belong to this class, so that the decision should be disapproved. If, however, the offeree was requested not only to deliver ice or goods of a specified kind and quality, but was also asked to make a promise that ice or other goods would be delivered over some period of time, or a promise guaranteeing quality, there could be no operative acceptance by the mere delivery of goods unaccompanied by B's promise as requested. The making of this promise by B might properly be implied from the fact that B causes the delivery of the goods by C in response to A's offer, but no such promise can be ''implied'' if the offer is intercepted, or otherwise directly received, by C, and he delivers the goods wholly of his own motion in substitution for B.

An offer to guarantee payment, made to H, cannot be accepted by K, by supplying the principal with the goods for which credit was to be given. King v. Batterson, 13 R.I. 117, 43 Am.Rep. 13 (1880) .

(n6)Footnote 6. See Petroleum Products Distributing Co. v. Alton Tank Line, 165 Iowa 398, 146 N.W. 52 (1914) . Order for goods turned over to another who made proper delivery. The offeree both accepts and performs by an agent. In such a case, however, for the breach of any warranty that goes with the goods the original offeree would be liable.

(n7)Footnote 7.

D.C. - Clayman v. Goodman Properties, Inc., 518 F.2d 1026 (D.C.Cir.1973) , an option made jointly to three optionees could not be accepted by two. The court stressed that the creditworthiness of the optionees was a material matter.

Iowa -An offer to three joint owners of land to buy the tract for a stated price is not accepted by the signatures of two only, the third refusing to sell. Of course, a contract for the sale of the interests of the two, without including the interest of the third, would be enforceable, but evidence that such was the intention is necessary. Jasperson v. Bohnert, 243 Iowa 1275, 55 N.W.2d 177 (1952) .

N.Y. -An offer made to two joint lessees cannot be accepted by either of them individually. The court points out that the landlord would possibly be enmeshed in litigation by selling to one of them individually. Spitalnik v. Springer, 59 N.Y.2d 112, 463 N.Y.S.2d 750, 450 N.E.2d 670 (1983) , reargument denied, 60 N.Y.2d 702 . The result would be different if one of the lessees had the authority to bind the other and was acting on behalf of both.

Ore. - Meister v. Arden-Mayfair, Inc., 276 Or. 517, 555 P.2d 923 (1976) . An offer was made to sell a business to three couples acting as a group. A purported acceptance by two of the six offerees was ineffective.

(n8)Footnote 8.

U.S. - Queen Ins. Co. of America v. Citro, 58 F.2d 107 (7th Cir.1932) .

Kans.- Powers v. Coffeyville Livestock Sales Co., Inc., 665 F.2d 311 (10th Cir.1981) .

La. - Intercontinental Engineering-Manufacturing Corp. v. C. F. Bean Corp., 647 F.2d 621 (5th Cir.1981) .

Mich. - American Enam. B. & T. Co. v. Brozek, 251 Mich. 7, 231 N.W. 45 (1930) .

N.Y. - Kelly Asphalt B. Co. v. Barber Asphalt P. Co., 211 N.Y. 68, 105 N.E. 88 , 1915 C.L.R.A. 256 (1914).

See Restatement (Second) of Agency §§ 306-309, 322; Randy Barnett, Squaring Undisclosed Agency Law with Contract Theory, 75 Calif.L.Rev. 1969 (1987).