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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 § 3.12

§ 3.12 Acceptance by Forbearance From Action

An acceptance may be by forbearance to act as well as by action, if it is forbearance that is requested by the offer. Thus, if an officer of a bank offers to guarantee a depositor against loss if the depositor will leave a deposit with the bank, the acceptance of the offer and the requested consideration are merely the depositor's forbearance to withdraw the deposit. The depositor makes no return promise, and is privileged to withdraw the deposit at any time, but in the absence of any notice of revocation, the guarantor is bound to indemnify the depositor against loss as long as any part of this money remains on deposit.n1 The same result was reached where a publisher promised to pay a distributor a weekly sum as long as the distributor forbore to handle a rival publication.n2 An insurer's promise to an injured party to effect a full settlement if the party refrained from retaining a lawyer creates a contract if the offeree refrains from retaining counsel.n3 Forbearance from suit constitutes the consideration for, and acceptance of, any offer, express or implied, that the offeror will refrain from certain action.n4

In the field of suretyship and guaranty, where a creditor is pressing for payment and some form of legal action is threatened or is imminent, it is not at all uncommon for the debtor to obtain the indorsement of a third party on the note or a written guaranty by a third party, for the purpose of inducing the creditor to forbear from action. In many such cases, it is reasonable for the creditor to understand that the debtor and guarantor are asking for forbearance in fact and not for a promise of forbearance. If the creditor so reasonably understands, the presentation of the indorsed note or the written guaranty creates in the creditor a power of acceptance by actual forbearance as expressly or impliedly requested, without making any promise to forbear or giving any notice of acceptance.n5 The actual forbearance is itself an expression of acceptance by the creditor and is the requested consideration for the promise of the indorser or guarantor. If no time of forbearance is specified, forbearance for a reasonable time is sufficient to bind the indorser or guarantor.n6 And it is believed that if the question is whether the promisor has power to revoke the offer, the ''reasonable time'' necessary to make the offer irrevocable may be considerably shorter than the reasonable time required before the indorser or guarantor can be considered in default and subject to immediate action by the creditor. The request for forbearance need not be put into words; the creditor may be quite reasonable in inferring such a request from the mere fact that an indorsement or guaranty is made.n7

Such a case as this may seem to be one in which mere silence by the creditor operates as an acceptance, but there is something more than ''mere silence''. The creditor's inaction, the creditor's forbearance to take action against his debtor, is itself an expression of assent, one that under the existing circumstances should be understood as such. This does not mean that it is to be understood as an expression of a promise to forbear. Just as much as in the case where an offeree accepts by overt action, non-promissory in character, the offeror has reason to know that the offeree's actual forbearance is in response to the creditor's request. This makes the offered promise a valid unilateral contract. Sometimes the creditor may be requested to make new advances as well as to forbear. The making of such advances is, of course, an expression of assent by overt action.n8

If the creditor is requested by the debtor or the debtor's surety to forbear for a definite, specified period, forbearance for the full period is certainly a condition precedent to any action on the surety's promise. But forbearance for the full period, without promise or notice, may be sufficient to sustain an action against the surety if payment is not made.n9 The specification of a definite period is a factor of some weight in deciding whether or not the creditor was asked to promise such length of forbearance, and not merely to forbear without promising.

When forbearance follows after a promise of a guaranty of credit, it is almost certainly in reliance upon the promise. In such cases, the concepts of unilateral contract and promissory estoppel overlap. The Restatement (Second) of Contracts has singled out such guarantees for separate treatment.n10 The Restatement provision explicitly refers to the existence of statutes under which guarantees are enforceable by virtue of a signed writing alone and indorsements on instruments require no consideration.n11

There are cases holding that if an offeree merely acts or forbears as requested, without making any promise thereof, there is no valid contract for lack of mutuality of obligation. These cases usually show a lack of understanding of the unilateral form of contract. They are discussed in Chapters 5-7 on Consideration.

Legal Topics:

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

Contracts LawFormationAcceptanceMethods of AcceptanceGeneral OverviewContracts LawConsiderationEnforcement of PromisesForbearanceContracts LawTypes of ContractsBilateral Contracts

FOOTNOTES:

(n1)Footnote 1.

Va. - Looney v. Blecher, 169 Va. 160, 192 S.E. 891 (1937) .

The grantee of mortgaged land offered his promise to pay the debt if the mortgagee would not foreclose. The mortgagee thereupon forbore to foreclose for ten years. There was a sufficient acceptance by the mortgagee. Carter v. Burns, 332 Mo. 1128, 61 S.W.2d 933 (1933) .

(n2)Footnote 2. Rague v. New York Evening Journal Pub. Co., 164 A.D. 126, 149 N.Y.S. 668 (1914) . The court held in this case that the defendant's offer had been accepted when the plaintiff had ceased to sell the rival paper. An alternative explanation is that the offer became irrevocable at that point.

(n3)Footnote 3. Allen v. Aetna Cas. & Sur. Co., 222 Va. 361, 281 S.E.2d 818 (1981) . The court's holding that the agreement was too vague and indefinite, however, is dubious at best. Certainly the promise could have been valued by what a jury thought the value of the original claim.

(n4)Footnote 4.

N.M. - Spray v. City of Albuquerque, 94 N.M. 199, 608 P.2d 511 (1980) . The homeowner's forbearance from suit was impliedly the agreed exchange for the City's implied promise to change the specifications for fencing a City owned golf course.

Tex. - Estes v. Oilfield Salvage Co., 284 S.W.2d 201, 78 A.L.R.2d 1410 (Tex.Civ.App.1955) . Forbearance can constitute consideration.

(n5)Footnote 5. In Kidwell & Kidwell, Inc. v. W.T. Galliher & Bro., Inc., 282 A.2d 575 (D.C.App.1971) , the plaintiff, an unpaid subcontractor, threatened to file a mechanics' lien and asked the owner and the surety for a written agreement ''protecting the $925.00 due.'' They complied. Although plaintiff made no promise to forbear from filing a lien, it in fact forbore. There was a valid unilateral contract.

(n6)Footnote 6.

Ind. - Wills v. Ross, 77 Ind. 1 (1881) .

Vt. - Hakes v. Hotchkiss, 23 Vt. 231 (1851) .

Eng. -Oldershaw v. King, 2 H. & N. 517 (Ex.Ch.1857).

(n7)Footnote 7. Crears v. Hunter, 19 Q.B.D. 341 (C.A.1887), a demand note, with interest payable semi-annually.

(n8)Footnote 8.

Pa. - Eddowes v. Niell, 4 U.S. (4 Dall.) 133, 1 L.Ed. 772 (1793) .

Eng. - Oldershaw v. King, supra.

(n9)Footnote 9.

Mass. - Lent v. Padelford, 10 Mass. 230 (1813) .

N.Y. - Muir v. Greene, 191 N.Y. 201, 83 N.E. 685 (1988) .

Okla. - Ross v. Russell, 475 P.2d 152 (Okl.1970) . Debtor fled the state owing many creditors, including plaintiff, an insurance agent, who located him, and hired an attorney at the place to which he had fled. Debtor's wife wrote the attorney asking for time and stating she personally intended to pay the agent ''when it gets his turn.'' The plaintiff terminated the attorney's retainer and did not sue. Later, the wife again assured plaintiff that payment would be forthcoming, saying, ''We now only owe you and the 1st State Bank.'' When about four years had gone by and the bank had been fully paid, plaintiff sued. The court relied on this section to show that a guaranty may be accepted by performance. The implicit conditions that the agent forbear for a reasonable time and perhaps also that he wait until the bank had been paid had been fulfilled.

Eng. -Miles v. New Zealand Alfred Estate Co., L.R. 32 Ch.D. 266 (1886); Wynne v. Hughes, 21 Wkly.Rep. 628 (Exch., 1873); Alliance Bank v. Broom, 2 Dr. & Sm. 289 (1864); Mapes v. Sidney, Cro.Jac. 683 (1623); Bidwell v. Cotton, Hob. 216 (1618); Rivett v. Rivett, 1 Leon. 118 (1588) .

If the debtor or surety specifies with reasonable clearness that he or she expects a promise of forbearance in return, merely beginning to forbear without other form of communication is not operative as acceptance. See Gaunt v. Hill, 1 Starkie 10 (K.B., 1815). Some of the court's reasoning, however, is not supported by later decisions. See also Strong v. Sheffield, 144 N.Y. 392, 39 N.E. 330 (1895) .

(n10)Footnote 10. Section 88 provides:

''A promise to be surety for the performance of a contractual obligation, made to the obligee, is binding if

(a) the promise is in writing and signed by the promisor and recites a purported consideration; or

(b) the promise is made binding by statute; or

(c) the promisor should reasonably expect the promise to induce action or forbearance of a substantial character on the part of the promisee or a third person, and the promise does induce such action or forbearance.''

This section will be further discussed in Chs. 5-7 on consideration and promissory estoppel.

(n11)Footnote 11. Under McKinney's-N.Y.Gen.Obl.Law § 5-1109 an offer of guarantee is made irrevocable if the offer is in a signed writing and contains language of irrevocability. Similar results can be obtained by similar statutes elsewhere. See § 2.26 above. A guarantee of a preexisting debt, without forbearance or other consideration, can be effectuated under McKinney's-N.Y.Gen.Obl.Law § 5-1105. An indorsement on commercial paper is effective without consideration or any substitute therefor. U.C.C. § 3-408.