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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 § 3.7

§ 3.7 Acceptance ''Subject to Approval'' by a Third Party

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Generally, a purported acceptance that adds conditions to the terms of the offer is not a good acceptance.n1 Thus, there is no contract if an offer to sell land is accepted ''subject to'' approval of title by the offeree or the offeree's attorneys.n2 The meaning usually attributed to such words as ''subject to'' is that a promise that is so limited is a conditional promise, one that is different from that for which the offeror bargained. An acceptance ''subject to a formal contract'' or ''subject to a proper contract to be prepared by our solicitors'' has been held in a number of cases not to be an operative acceptance.n3

If a purported acceptance, ''subject to the approval of title by my solicitor'' means only that my duty to pay shall be conditional on your transferring to me the marketable title that you promise in your offer, the acceptance may properly be held to be unconditional. The condition is only that the solicitor verify if the promised title can be conveyed. The solicitor has no veto over the terms of the deal. But the quoted words do not necessarily have so limited a meaning. Instead, they seem to indicate that the acceptance is conditional on the opinion of ''my solicitor'' on the question of title.n4 If so, there is no contract.

A transaction that consists of an unconditional offer followed by a conditional acceptance must be distinguished from one in which neither party has yet made an operative offer. In the process of negotiation an agreement may be expressed on certain matters, both parties knowing that on other matters of importance agreement has not been reached. In such a case, the expected contract is still ''subject to'' expressions of agreement by both parties.n5

The topic under consideration is not the same as the situation where the mutual agreement of the parties contains a provision that it is subject to the approval of a third party. Rather, the topic here is a subspecies of the topic of conditional acceptances. It must be borne in mind that an acceptance subject to the assent or ''permit'' of a third party is not a conditional acceptance if the offer was in identical terms subject to that very assent or ''permit.''n6 It is quite possible for the parties to make a valid contract in which the rights and duties of each are conditional on the happening of some event not within their control, such as the expression of opinion by a third party. For such a result it must be shown that the parties intend that negotiation between themselves is closed, leaving no power of revocation or withdrawal in either one. This being shown, the acceptance is not a ''conditional acceptance'' varying from the offer, but the rights and duties created by such a contract are conditional rights and duties.n7 Thus an offer that states that it is ''subject'' to the approval of the attorneys of both parties creates a contract the moment it is accepted.n8

On the other hand, if one who initiates a transaction or one who solicits offers expressly provides that any contract is subject to ''approval at the home office,'' there will be no contract until that approval takes place,n9 unless there are subsequent expressions of agreement to be bound without it. Such a solicitation is simply not an offer. This is quite different from a provision in a proposition that performance will be subject to the approval of a third person. One who has imposed the home office requirement should not be permitted to trick the other party into a contract by ''waiving'' it,n10 as long as the other party reasonably believes that its own expression of assent is revocable until it occurs. The obverse if that situation does not involve trickery. Instead, it sometimes happens that the party who has imposed the ''home office'' provision acts, with the knowledge of the other, as if the contract had been approved. Thereafter a dispute arises and the party who had imposed the provision for its own protectionn11 seeks to escape from the deal for other reasons, but seeks refuge in the ''home office'' provision. It should not be allowed to do this, and ''waiver'' is an appropriate term to explain how a contract has been created.n12 At other times the case may be analyzed under the heading of ''acceptance by silence.''n13

In Markmann v. H.A. Bruntjen Co., n14 the plaintiff made a written offer to purchase the distribution rights for defendant's product and accompanied it by a down payment of $1,000. Also, plaintiff and defendant's agent both signed a distributor's agreement. These documents were sent to defendant's home office for approval. This approval came back, with a change in the territory. The documents sent to the home office operated only as an offer. The reply was a counter-offer. The plaintiff got restitution of his down payment.

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Contracts LawFormationAcceptanceMethods of AcceptanceGeneral OverviewContracts LawFormationAcceptanceGeneral Overview

FOOTNOTES:

(n1)Footnote 1. See § 3.35 below.

(n2)Footnote 2. Dickey v. Hurd, 33 F.2d 415 (1st Cir.1929) , cert. denied, 280 U.S. 601 , acceptance of offer to sell land held conditional when made ''subject to examination of titles by my attorneys and survey of property to show acreage you claim.''

Richardson v. Greensboro W. & S. Co., 223 N.C. 344, 26 S.E.2d 897, 149 A.L.R. 201 (1943) , ''subject to the approval of the title of our attorneys.''

In Gumbin v. Alexander, 22 F.2d 889 (7th Cir.1927) , in accepting an offer to sell land, the offeree added ''with the understanding that the 99 year lease is to be canceled.'' There was no contract made.

This section is cited in Lawrence Block Co. v. Palston, 123 Cal.App.2d 300, 266 P.2d 856 (1954) . The owner of property purported to accept an offer to buy it on stated terms, but inserted the words, ''Subject to Seller securing a First Deed of Trust'' for $60,000. This was held not to consummate a contract, so that the broker had not earned a commission.

Where the purported acceptance is subject to the approval of a third person, a contract is formed when the third person expresses approval, provided that neither party has notified the other of a change of mind. See Housing Authority v. Foster, 237 So.2d 569 (Fla.App.1970) , where the approval was communicated inferentially.

(n3)Footnote 3.

U.S. - Burwell v. American Coke & Chem. Co., 7 F.2d 435 (1st Cir.1925) . In Dooley v. West, 210 F.Supp. 239, 245 (W.D.Ark.1962) , the defendant's letter concluded with: ''I want my attorney to pass on all papers before I accept.'' It was held that the letter could not be an acceptance. The further statement by the court that it could not be an offer is dubious. See Indoe v. Dwyer, noted in note 7 below.

Conn. - Atlantic Terra Cotta Co. v. Chesapeake Terra Cotta Co., 96 Conn. 88, 113 A. 156 (1921) .

Ga. - Southern Bell Tel. & Tel. v. John Hancock Mut. Life Ins. Co., 579 F.Supp. 1065 (N.D.Ga.1982) . (''Subject to the review of the contract by our legal counsel'').

N.J. - Stallings v. Eypper & Beckmann, 5 N.J.Misc. 671, 137 A. 784 (1927) .

N.Y. - Chain Locations of America, Inc., v. T.I.M.E. DC, Inc., 81 A.D.2d 993, 440 N.Y.S.2d 69 (1981) .

N.D. - Davis v. Satrom, 383 N.W.2d 831 (N.D.1986) . A purported acceptance by seller contained a condition that the agreement be approved by the seller's attorney. This was a counter-offer. If the buyer in turn accepted the counter-offer, the issue is whether the attorney fraudulently withheld approval. In this case there were good tax grounds to disapprove.

Eng. - Lockett v. Norman-Wright [1925] 1 Ch. 56 ; Chillingworth v. Esche [1924] 1 Ch. 97 (C.A.); Proctor v. Pugh [1921] 2 Ch. 256 ; Coope v. Ridout [1921] 1 Ch. 291 (C.A.); Rossdale v. Denny [1921] 1 Ch. 57 (C.A.).

(n4)Footnote 4. Richardson v. Greensboro, W. & S. Co., supra.

The opinion of the Court of Appeal in Hussey v. Horne-Payne, L.R. 8 Ch.D. 670 (1878) agrees with this text. See however the case on appeal in 4 A.C. 311 (1879), where the decision is affirmed on another ground.

(n5)Footnote 5. Pure Oil Co. v. Petrolite Corp., 158 F.2d 503 (5th Cir.1946) , cert. denied, 330 U.S. 834 , ''subject to the terms of a sales and purchase agreement to be entered into between the parties.''

See §§ 2.8 and 2.9 above.

In Brown v. N.Y. Central R. Co., 44 N.Y. 79 (1870) , there was a proposal to lease a railroad to the defendant on stated terms including an option to buy at a named price and ''at a time to be agreed upon,'' stating also that the form and covenants of the lease and other details would require consideration and would be thereafter arranged. An acceptance of this ''proposal'' was held to make no contract. See the similar case of Ansorge v. Kane, 244 N.Y. 395, 155 N.E. 683 (1927) .

A document that on its face purported to be a contract for the sale of land was signed by both parties and was taken away by the plaintiff (buyer). In a suit for specific performance, the defendant testified that there was an oral agreement not contained in the writing that the document was not to be legally operative until a payment of $500 was made and until the written and oral agreements were approved by her attorney. The vendor's notice of revocation before payment or approval was held effective. Good v. Robinson, 85 Ohio App. 91, 88 N.E.2d 200 (1949) . On this evidence, it appears that neither party made an operative offer.

(n6)Footnote 6. In Henderson & Corbin, Inc. v. West Carteret Water Corp., 107 N.C.App. 740, 421 S.E.2d 792 (1992) , it was held that acceptance of a bid subject to approval of the Farmer's Home Administration was not an acceptance and the bidder was entitled to withdraw its bid. Atlas Trading Corp. v. S.H. Grossman, 169 F.2d 240 (3d Cir.1948) , judgment for damages because the defendant caused the failure to obtain the ''permit.''

See § 589, ''Evidence that a written contract is subject to an oral condition'' in the chapter on The Parol Evidence Rule; also § 3.29 below.

In Morse v. Tillotson & Wolcott Co., 253 F. 340, 1 A.L.R. 1485 (2d Cir.1918) , the court said: ''There is a clear difference between an agreement to sell 'subject to the approval' of title by counsel and an agreement which declares that the entire writing is not to be binding unless a certain thing happens which never happens.'' It must be asserted, with deference to the court, that this is a ''difference'' without a distinction. If there is in fact an ''agreement'' between two parties making a sale, subject to an approval of title by counsel, the parties are already irrevocably, but conditionally, bound. The same result is reached if they agree on a sale, ''this agreement not to be binding unless counsel approves title.'' In both cases alike, the duty to pay will never be enforceable unless the condition is performed; but in both cases, that duty will be enforceable, without any further expression of assent, if the condition is performed.

This section is cited in Langdon v. Sibley, 100 N.H. 373, 127 A.2d 156 (1956) where it appears that the parties mutually agreed upon a sale, the only memorandum saying: ''contract to have consent of Mrs. Edna Colbath.'' See also note under § 501.

(n7)Footnote 7. In Indoe v. Dwyer, 176 N.J.Super. 594, 424 A.2d 456 (1980) , the agreement provided: ''This contract, except as to price and financing terms (if any) is contingent upon approval by the respective attorneys for purchasers and sellers within three (3) business days of the date hereof.'' This is clearly a contract, the issue being the standard by which the attorney's disapproval must by judged.

(n8)Footnote 8. Southwest Motel Brokers, Inc. v. Alamo Hotels, Inc., 72 N.M. 227, 382 P.2d 707 (1963) .

(n9)Footnote 9. In Chertkof v. Philadelphia, B & W.R. Co., 254 Md. 557, 255 A.2d 14 (1969) , an ''option'' provided that the buyer's payment would be refunded ''In the event the Grantor's Board of Directors fails to approve the sale.'' In the chain of internal review, the grantor's Vice President, Operations, opposed the sale. The matter never got to the Board and the buyer was notified of disapproval. No contract was ever formed. The Board could delegate the power to disapprove to an official of the company.

(n10)Footnote 10. Venters v. Stewart, 261 S.W.2d 444 (Ky.1953) . The defendant placed an order with the plaintiff's sales representative. It provided: ''This contract is not binding on Eagle Home Insulation Co. [plaintiff seller], until accepted by signature of Branch or District Manager.'' The seller's managers did not sign but fabrication of the ordered goods started at the factory. It was held that the buyer could revoke. Cf. U.C.C. § 2-206.

Kuzmeskus v. Pickup Motor Co., 330 Mass. 490, 115 N.E.2d 461 (1953) . The purchase order provided: ''This order is not binding unless authorized by an officer of the company and purchaser's credit has been OK'd by Finance Company.'' The buyer was empowered to revoke.

In both of these cases, the party who had imposed the ''home office'' clause sought to avoid its impact.

(n11)Footnote 11. Home office approval clauses have a supervisory function. The home office can monitor whether the sales representative or local office has made improvident tentative commitments as to price, credit terms, delivery dates, etc. Whatever its purposes, such a clause indicates a lack of present commitment.

(n12)Footnote 12. Neal-Cooper Grain Co. v. Texas Gulf Sulphur Co., 508 F.2d 283 (7th Cir.1974) (N.Y. law applied). The defendant seller's printed form provided, ''contract shall not be binding upon the seller until duly accepted at its New York office.'' It was signed in Chicago by the seller's sales manager. Shipments were ordered out by buyer, shipped, and accepted. Seller refused to make further shipments because market prices were higher. The ''New York office'' clause was held to be waived.

(n13)Footnote 13. See § 3.18 below.

(n14)Footnote 14. 249 Minn. 281, 81 N.W.2d 858 (1957) . The court quoted §§ 3.7, 3.28 and 3.29 of this treatise.