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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 § 3.9

§ 3.9 Unilateral Contract-Acceptance by Beginning Requested Performance

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Some generations ago, the American Law Institute approved the rule that when a promise is offered in exchange for specified action or forbearance the promise becomes binding and irrevocable as soon as part of the requested performance has been actually rendered or a proper tender of performance has been made. It said: ''If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time.''n1 The Restatement (Second), promulgated in 1979, continues the same idea under somewhat different terminology.n2 It should be understood, however, that the new Restatement provisions are in a somewhat altered conceptual context. The first Restatement was written in a context where it was assumed that all offers looked to either to a promissory acceptance or to an acceptance by performance. If there was any doubt as to the appropriate mode of acceptance, a promise was needed to create the contract. This treatise never accepted that rigid dichotomy, as § 3.8 of the treatise demonstrates. The profession has come to realize that frequently the offeror has only indifferently contemplated or expressed, if at all, the desired manner of acceptance. In such cases any reasonable response-express promise, performance, or the beginning of performance, if reasonable-creates the contract. In such a contract, unless the offeree has fully performed, both parties are bound by a bilateral contract.n3 Yet, there is still a wide range for unilateral contracts; cases in which the offeror has made it clear that only a performance will do. Reward offers are of this nature, but there are also a broad range of commercial contracts of this kind.n4 It is to this kind of offer, the offer that can only be accepted by performance, that this section of the treatise addresses itself.

In order to make this rule applicable it must be a part of the requested consideration that is given or tendered. It is not enough that the offeree has begun the preliminary preparations for performance. It is not always easy to find an exact dividing line between the performance requested and preparations to perform it. It may not be necessary to draw the line in most cases, for, as the Institute recognizes, a promise may become binding and irrevocable by reason of substantial action by the promisee in reliance upon it.n5 Preparations to render a requested performance may be substantial and expressive, and the promisor may have ample reason to foresee that they will be made.

The reason for the rule above laid down is, not that part performance or tender is the ''equivalent'' of full performance, but that honorable persons do not repudiate their promises after part performance has been given or tendered. The Institute says ''it is obviously unjust to allow so late withdrawal.'' In a number of countries where the Civil Law prevails, an offered promise is irrevocable, for either the expressly stated or a reasonable time, even without any part performance or tender. Our own businesses are becoming accustomed to making ''firm offers'' (meaning irrevocable for some period). The Uniform Commercial Code and certain other state statutes recognize and regulate the making of ''firm offers''n6 The United States has ratified the United Nations Convention on Contracts for the International Sale of Goods which permits the making of firm offers without considerationn7 and which also provides for the irrevocability of offers ''if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.''n8

Holding that the offered promise has become binding and irrevocable involves no injustice to the promisor. Although now bound by an option contract, the duty to render the performance that the offeror has promised is conditional on completion of the consideration as the offeror requested in the offer. This is exactly as it would have been if the bargain had been bilateral. There can be no actionable duty on the part of the offeror until he has received all that he demanded, or until the condition is excused by his own prevention of performance by refusing a tender.n9

This section is quoted in Lazarus v. American Motors. n10 While the court approves of first Restatement sections 45 and 90, it holds that the offer was revoked by notice prior to any substantial change of position by the offeree. This treatise would put more weight on the offeree's change of position, but its main difference with the decision is that the act of acceptance should be interpreted as a promise to complete the performance, making a bilateral contract.

Legal Topics:

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

Contracts LawPerformancePartial PerformanceGeneral OverviewContracts LawFormationAcceptanceGeneral OverviewContracts LawPerformanceTender & DeliveryContracts LawTypes of ContractsUnilateral ContractsGeneral Overview

FOOTNOTES:

(n1)Footnote 1. Restatement, Contracts, § 45. ''Revocation of Offer for Unilateral Contract; Effect of Part Performance or Tender.''

The common ''listing'' arrangement whereby a land owner promises to pay a commission to a real estate broker for finding a purchaser (or other specific service) is an offer of a promise to be accepted by the broker's actual performance. The resulting contract is unilateral and is made at the place where the service is performed. Richardson v. Rose, 197 Cal.App.2d 318, 17 Cal.Rptr. 84 (1961) . See fuller discussion and other cases cited under § 2.30.

(n2)Footnote 2. Restatement (Second) of Contracts § 45(1) provides: ''Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.''

(n3)Footnote 3. The Uniform Commercial Code § 2-206(3) provides: ''Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.'' The comment that follows this shows that the draftsmen had in contemplation only cases in which the offeree is reasonably expected ''to engage himself,'' that is, to promise performance.

An illustrative supporting case is Mid-Continent Petroleum Corp. v. Russell, 173 F.2d 620 (10th Cir.1949) , where the acceptance consisted of actions by the offeree, and a suit for damages was sustained against him for breach of the promise implied therein.

Allied Steel & Conveyors, Inc. v. Ford Motor Co., 277 F.2d 907 (6th Cir.1960) , is another illustrative case. See the notes on this case under §§ 3.38 and 3.34.

Classic Restorations, Inc. v. Bean, 155 Ga.App. 694, 272 S.E.2d 557, 562 (1980) is noted under § 3.8.

(n4)Footnote 4. See § 1.23 above.

(n5)Footnote 5. Restatement (Second) of Contracts § 87(2) provides: ''An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to prevent injustice.'' This section found support in comment b, to Section 45 of the first Restatement, where it is said: ''Moreover, merely acting in justifiable reliance on an offer may in some cases serve as a sufficient reason for making a promise binding.'' Cases of this type were discussed in § 2.31 above.

(n6)Footnote 6. Such offers have been declared to be irrevocable by statute in New York. McKinney's-N.Y.Gen. Obl. Law § 5-1109. The Uniform Commercial Code § 2-205 lays down the same rule, now adopted in New York and many other states. There are some differences among the statutes. The particular statute needs close examination. See § 2.26 above.

(n7)Footnote 7. Article 16(2).

(n8)Footnote 8. Ibid.

(n9)Footnote 9. Restatement (Second) of Contracts § 45(2) provides: ''The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.'' Restatement, Contracts, § 45 comment b agreed. In this Comment, the Institute further argues: ''The main offer includes a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promise.'' Such an ''implication'' as this may not be based on pure fiction, but the present writer prefers to justify the rule on the basis of business morality and actual practice. The law enforces many an obligation in the contract field that the parties themselves never clearly expressed or contemplated.

That substantial performance by the offeree of the terms of an offer that has become irrevocable is required before the offeror's promise has been earned is supported by Walker v. American Optical Corp., 265 Or. 327, 509 P.2d 439 (1973) (en banc), noted § 3.8 above.

(n10)Footnote 10. 21 Wis.2d 76, 123 N.W.2d 548 (1963) . See note under § 3.23.