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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 § 3.29

§ 3.29 An Acceptance May Be Unconditional Even Though the Acceptor Makes a Conditional Promise

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It should be noted that a proposal fails to be an operative offer unless it specifies, directly or by reference, all the terms of the contract to be made. If the contemplated agreement is to be bilateral, the proposal must state the terms of each promise in full. The offer must not only state the terms of the promise that the offeror is willing to make, it must also state the promise that is sought in exchange for it.n1 If the offeree changes any term of either promise, the offeree is not accepting the offer. The offeror and offeree, alike, must express agreement as to every term of the contract. The offeror does this in the offer. The offeree must do it in the acceptance.

It is true the offeror can empower the offeree to name the price or some other term of the contract. This is no real exception to the above rule. The offer indicates the method by which the price, or other unexpressed term, is to be made definite, and the offeror agrees in advance to the price or term that is afterwards determined by that method.

To say that the acceptance must be unconditional is not to say that the promises assented to must be unconditional promises. If the offeror proposes an exchange of conditional promises, the offeree must assent unconditionally to that exact exchange.n2 Thus, where A offers to buy a patent at a named price, on condition that X shall express approval of the patent, and B promises to sell it at that price and subject to the same condition, they have made a valid and irrevocable contract. This is so, even though if X fails to approve, neither A nor B will be under any duty of paying or transferring. The failure of X to approve shows no defect in the expressions of assent-the offer and the acceptance. A and B were exactly agreed, and they exactly expressed their agreement. A conditionally promised to pay in exchange for B's promise to assign the patent subject to the very same condition. Both parties assented to the exchange of these very promises.

The result is the same even though one of the exchanged promises is conditional and the other promise is not. All that is necessary is that both parties shall assent to this exact exchange. Suppose that A offers to sell an automobile to B for $10,000, delivery and payment by June 1. Liking the appearance of the car, B replies: ''I will buy the car and pay $10,000 according to your offer, but only on condition that my mechanic X shall inspect the car and say that it is worth the price.'' A's offer asked for no such return promise as this. There is no contract. But B has made a counter-offer of this conditional promise to buy, an offer that A now has power to accept. A thereupon replies: ''I assent to your modification and agree to sell on your terms.'' A contract has been made.

The parties now reduce their agreement to a signed writing as follows:

''It is mutually agreed, (1) that A will sell [a described] automobile to B for $10,000, delivery and payment by June 1, and (2) that B will accept the car and pay the price by that date, if after an inspection Engineer X says that the car is worth the price.

[Signed] A

B.''

This is a valid written contract, creating the same rights and duties as did the previously made oral contract of which it is an exact written integration. The promises of both parties are conditional. A's promise to sell and deliver is constructively conditional on concurrent payment of $10,000. B's promise to pay is likewise conditional on concurrent delivery of the car and also expressly conditional on inspection and approval by X. The express condition can be waived by B if B so desires. If X refuses to inspect, and even if X inspects and states that the car is not worth $10,000, B can still make it A's duty to deliver by tendering $10,000 by June 1.n3

If, in the foregoing case, either party should give notice repudiating the contract, and thereafter but before June 1 Engineer X should inspect the car and say it was worth $10,000, the other party could enforce the contract against the repudiator. Also, if one of the parties without excuse causes Engineer X to refuse to inspect, this action is a breach. If a party to a contract which is conditional on the granting of a ''permit'' causes the granting authority to refuse the ''permit'', an action for damages for breach of contract is maintainable.n4 The same may be true of an agreement which provides: ''the provisions herein shall not be binding upon the parties until said final court approval has been secured.''n5

In construction contracts the promises of the two parties are often expressly made subject to different conditions. Thus if A promises to complete a building by a specified date on condition that no labor strike shall interfere, and B promises in return to pay seventy-five thousand dollars on condition that the architect shall certify approval of the work, no one doubts that a valid contract has been made. One of the parties offers the exchange of these exact promises and the other expresses unconditional assent thereto. The fact that each promise is conditional on an event on which the other promise is not conditional does not prevent mutual and unconditional assent to their exchange.n6

A good illustration of this section is found in Hartmann v. Windsor Hotel Co. n7 A lease by the Hotel granted to the lessee an option to buy on the same ''terms and conditions'' as those of a subsequent bona fide offer by a third party. Later, one Bayer made an offer to buy ''subject to the terms of that certain lease.'' The Hotel Co. notified Bayer that it accepted the offer ''subject to the terms of the lease.'' The court rightly held that this was an unconditional acceptance making a valid contract. But the obligation of each party was conditional; it was conditional on the lessee's failure to exercise the option to buy in accordance with the terms of the lease. The court said: ''Had such election not been made by [the lessee], either the Hotel Co. or Bayer could have enforced the contract....'' The court held, correctly, that Hartmann, a broker acting for Bayer, could maintain suit as a third party beneficiary of this contract (''in equity'' under West Virginia law). But Hartmann's right, like that of Bayer, was conditional on the lessee's failure to exercise the option. On a later appeal, the court held that the lessee had in fact failed, a holding with which this treatise disagrees. See § 543 below.

Another good illustration is United States v. National Optical Stores Co. n8 The United States invited bids on a former VA hospital reservation by a written invitation requiring financial information for credit sales and providing that the contract made by any acceptance of a bid could be avoided by either party if the Attorney General determines the sale might violate the antitrust laws. The invitation said that a bidder who received no ''notice of acceptance'' within 90 days could consider the bid rejected. National bid on March 14; the United States accepted on March 31 ''subject to credit approval and antitrust clearance''. Not until July 15, a month beyond the 90-day time limit, was National notified of clearance. Six months later National decided to back out of the deal, and asserted that the July 15 clearance came too late. The court affirmed summary judgment on behalf of the government. The court relied on this ''paradoxically stated'' section and similar rules of the Restatement (Second) of Contractsn9 to show that National was bound by the conditional acceptance. Because National's bid adopted the conditions stated in the invitation, National's offer clearly invited a conditional acceptance.

Legal Topics:

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

Contracts LawFormationOffersGeneral OverviewContracts LawFormationAcceptanceGeneral Overview

FOOTNOTES:

(n1)Footnote 1. In Klimek v. Perisich, 231 Or. 71, 371 P.2d 956 (1962) , the court held that no contract existed, for the reason that the offer stated a maximum price for services that were not made definite (quoting § 4.6 below). The court said: ''An offer must be certain so that upon an unqualified acceptance the nature and extent of the obligations of each party are fixed and may be determined with reasonable certainty.''

In Haugland v. Canton, 250 Minn. 245, 84 N.W.2d 274 (1957) , the plaintiff made an offer to buy land owned by several persons. One of the owners expressed assent to the offer, conditional on a like assent by the other owners. There was no acceptance and no contract. The court said that the two parties could have made a binding contract conditional on the assent of the other owners (citing § 3.29) but that they did not do so. On other points, §§ 1.23, 2.1 and 3.32 are also cited.

See Vitale v. Russell, 332 Mass. 523, 126 N.E.2d 122 (1955) noted herein at length under § 2.1, where the court held that the parties had not passed the stage of preliminary negotiation, although it could have held that the parties had assented unconditionally to a contract that was conditional on the granting of a town permit.

Bennett v. Treadaway, 134 So.2d 668 (La.App.1961) , illustrates perfectly the distinction made in this section. The plaintiff made an offer to buy property that was owned by a ''succession'' (deceased's estate), and deposited $800. The offer was accepted by the executor, with this addition: ''Sale of property subject to Court approval.'' This was a conditional acceptance, no such provision being contained in the offer. The court said: ''An acceptance conditioned upon the approval of a third person, where such condition is not contained in the offer either directly or by implication, does not conform to the offer....'' The executor had no power to sell without Court approval, but the plaintiff had no knowledge of the fact that the property was owned by a ''succession.'' The power of the executor was limited by the law, but the terms of the offer created no such limitation.

(n2)Footnote 2. Charbonnages De France v. Smith, 597 F.2d 406, 415-416 (4th Cir.1979) : ''It is quite possible for an acceptance that contains a condition nevertheless to be unconditional as an acceptance and thereby to manifest assent to an offer and create a contract. This occurs when the offer itself contains either expressly or by implication a condition, so that it invites acceptance with the condition intended to affect only the duty of performance under the contract as formed.'' The question was whether approval by the French government was a condition to formation of the contract or to its performance. The trial judge was chided for ruling on summary judgment that it was the former.

(n3)Footnote 3. See Pym v. Campbell, 6 El. & Bl. 370 (Q.B.1856) , where the facts were similar to those stated above. There was a written agreement signed by A and B; but the condition of the approval by X was not stated in the writing. The question was whether parol evidence was admissible to prove that the parties agreed orally, when they signed the writing, that their obligation should be conditional on approval by X. The court rightly held that this evidence was admissible, but it gave a bad reason, saying that until X expressed approval there was no contract made. The offered parol evidence would show, if believed, that A and B had exactly agreed on the exchange of promises; and this is so whether both promises were conditional on the approval of X or only the buyer's promise was thus conditional.

Even though the court's reasoning was unsound, the decision rendered has been followed in far too many other cases to be disapproved now. Further, the decision made is the only one that can be reconciled with justice. The offered evidence was not made inadmissible by the ''parol evidence rule,'' not because there was no contract but because by mutual agreement there was no complete integration of the contract. This is fully presented in § 589, Chapter 26, ''The Parol Evidence Rule.''

In Edmund J. Flynn Co. v. Schlosser, 265 A.2d 599 (D.C.App.1970) , a realty contract provided that ''Purchaser must be approved by the board of directors'' and ''this entire agreement is conditioned upon Purchaser's being approved....'' Before this approval was given, Schlosser notified the seller he had changed his mind. The court relied on this section to show that when mutual assent has been expressed, any condition is on the duty to perform, the contract itself is binding. Since here Schlosser's acceptance was not conditional on approval, nor was the seller's offer conditional on approval, clearly the thing that was conditional on approval was only their duties to convey and pay for the realty. Both bound themselves to await the result to see whether that approval would be given.

In Erving Paper Mills v. Hudson-Sharp Machine Co., 223 F.Supp. 913 (E.D.Wis.1963) , rev'd on other grounds, 332 F.2d 674 (7th Cir.) , cert. denied, 379 U.S. 946 , on remand, 271 F.Supp. 1017 (E.D.Wis.) , the plaintiff's order for two specially-made machines was held duly accepted by the defendant, creating a bilateral contract. A provision in the order made the buyer's promise to pay subject to a condition. But this was assented to by the acceptance, and the condition was either fulfilled or waived. The condition was not precedent to the formation of a contract, but to the buyer's duty to render immediate performance under the contract. The court's analysis and understanding of these distinctions is unusually clear and accurate. See also §§ 477, 506, 625. For a thoroughly confused analysis, see Omaha Public Power District v. Employers' Fire Ins. Co., 327 F.2d 912 (8th Cir.1964) , discussed under § 629.

In Bogle v. Potter, 72 N.M. 99, 380 P.2d 839 (1963) , a written offer of compromise and settlement was accepted and held to constitute a valid contract, specifically enforceable, even though one provision was that Potter's obligation should be conditional on an opinion by a specified accountant that the settlement would not subject him to additional tax liability. The accountant considered the facts and expressed a tentative oral opinion that there would be no tax liability. Before a detailed draft of his opinion was formulated, Potter dismissed the accountant, thus preventing the implementation of the condition of a written opinion. This was not a condition to the formation of the contract, but a mutually agreed condition to Potter's duty to proceed. Potter's prevention of the fulfillment of the condition eliminated it.

In Rothberg v. Charles H. Hardin Constr. Co., 111 Ga.App. 41, 140 S.E.2d 520 (1965) , there was a binding contract where, before the opening of the bids for a construction contract, bidders orally agreed that the low bidder would construct the building to be leased to the government if defendant received the lease contract from the government, and where subsequently, plaintiff, the low bidder, confirmed the agreement in writing which defendant signed, and the defendant subsequently did receive the lease contract.

In Metschke v. Marxsen, 176 Neb. 240, 125 N.W.2d 684 (1964) , an agreement in writing was signed, by which Marxsen agreed to sell a truck tractor to the plaintiff by a conditional sale with a down-payment of $2,500, the balance of $3,500 to be obtained by a bank loan secured by an assignment of the conditional sale contract. The contract date was left blank for a reason stated by Marxsen thus: ''it was to be dated and become effective only on the payment of the $2,500 in cash as the down payment.'' The plaintiff (buyer) could not raise the cash and the bank never made the loan, but the plaintiff made two cash payments of $3000 each, a payment in labor of $96, and delivered a pick-up truck which was valued at $900. Also, the seller allowed the buyer to use the truck tractor. After 43 days, the plaintiff notified the seller that he could not raise the balance of the down-payment, this being about $900, took back the pick-up truck and brought this suit for the return of the payments made on account. The court indicated that no contract had come into being, because the condition precedent to formation of the contract had not occurred. But its actual holding is to the contrary, allowing the seller damages for the plaintiff's breach. ''When Metschke failed to comply with his agreement a part of the resulting damages to Marxsen was the loss of use of the truck.'' The judgment was for the value of the use of the truck for 43 days, minus the part payments received, the difference being $1443.18. This looks like a pretty heavy penalty for breach of a contract that never became ''binding.'' While the outcome may be justified on quasi-contractual grounds, a contractual analysis is preferable. There is no doubt that the making of the down-payment was a condition precedent to the seller's duty to transfer title to the machine. This is not necessarily a condition precedent to the formation of a binding contract. If the buyer had tendered the balance of the down-payment at the time he notified the seller that he could not make it, the seller's refusal to receive it would have been a breach of contract. See also § 629A.

This section is cited in De Freitas v. Cote, 342 Mass. 474, 174 N.E.2d 371 (1961) , bilateral contract for the sale of land, the purchaser's promise (and not the seller's) being conditional on his obtaining a G.I. loan. The purchaser waived the condition, procured financing otherwise, and tendered performance. The seller was bound to perform.

In McPherson v. Warren, 55 So.2d 30 (La.App.1951) , there was a valid contract, although the purchaser's duty was conditional on procurement of a loan. His promise was expressly made ''subject to loan'', thus making what is called in the Louisiana code a ''suspensive condition.'' There are many similar cases.

In Main Line Theatres, Inc. v. Paramount Film Distributing Corp., 298 F.2d 801, 1962 Trade Cas. (CCH) P70193 (3d Cir.1962) , cert. denied, 370 U.S. 939 , the court held that the parties to the suit had made a valid oral bilateral agreement for settlement by payment of $10,000, conditional on the success of pending negotiations for the settlement of eight other cases.

In Pennsylvania Co. v. Wilmington Trust Co., 39 Del.Ch. 453, 166 A.2d 726 (1960) , aff'd in part and appeal dismissed in part, 40 Del.Ch. 1, 172 A.2d 63 (1961) , a letter purporting to be an acceptance of an offer to purchase 23,400 shares of a railroad company was expressly subject to ''such approval, if any, as may be necessary from the Interstate Commerce Commission.'' The fact that this provision would make each party's duty conditional on such approval did not prevent the instrument from operating as a valid contract. Other questions were raised, however, requiring extrinsic evidence to establish the fact of intention that the letter should be so operative. See also § 589 and cases there discussed, and § 629A, Conditional Contracts.

In Walker v. Air Conditioning Distributors, Inc., 131 So.2d 523 (La.App.1961) , rev'd, 242 La. 653, 138 So.2d 7 (1962) , the defendant submitted a proposal to furnish certain equipment. The plaintiff then sent a purchase order stamped: ''This order is subject to the approval and acceptance of the architects and engineers.'' The defendant accepted this order, but it later refused to deliver the equipment, contending that it was privileged to withdraw because the plaintiff's order was a ''conditional acceptance.'' The court held that a valid contract was made. Partly quoting from an earlier case, the court said: '''An acceptance burdened with some condition that was not included in the original offer constitutes a new offer that might be accepted or rejected by the original offeror as he sees fit.' In the instant case it is abundantly established that the original proposal and acceptance was burdened with a condition thoroughly understood and accepted by both parties, and, accordingly, there was no 'new offer' involved.'' See also § 629A.

In Olen Real Estate & Invest. Co. v. L.A. Zieman & Co., 269 Ala. 106, 110 So.2d 890 (1959) , a written contract for the sale of land was specifically enforced against the vendor, even though the contract as offered and accepted expressly provided: ''The acceptance of this offer is subject to the release and approval of Olen's contemplated mortgagee.'' That mortgagee had in fact released the mortgage held by it, and no ''approval'' was contemplated, other than such as was necessary to obtain the ''release.'' Observe that here the purchaser's offer was expressly a conditional promise to buy, but also that the vendor's acceptance (expressed in the same document) was an acceptance of the offer with its embodied condition. The court said: ''It may be stated as a general rule that where a material provision of a contract is left open for future treaty or negotiation the contract is rendered incomplete and uncertain, and for that reason it is unenforceable in equity. In the contract here involved nothing is left for future treaty or negotiation. The only thing left undetermined is 'the release and approval of Olen's contemplated mortgagee.' Such 'release and approval' is a matter resting entirely with said mortgagee, not a party to the contract. That this is a condition to be fulfilled before Olen Real Estate can be required to perform the contract is not disputed. But such provision is not a condition affecting the validity of the contract to convey. Rather, it is a condition precedent to requiring performance by Olen Real Estate. Accordingly, if this condition precedent has actually occurred then it no longer stands as a barrier to requiring performance of the contract.'' This case is noted also under § 589; and § 1175 which is cited by the court.

See also § 761 and cases there noted.

In Simpson v. Prudential Ins. Co., 227 Md. 393, 177 A.2d 417 (1962) , the company was held bound by a preliminary premium receipt contract, even though it made the company's liability conditional on the insured's compliance with the company's own ''objective'' standard of insurability. Here, the ''condition'' limited only the company's obligation, but the insured assented to it in his application. See statement of the case under § 644. The standard was objective, even though compliance with it depended on the company's ''honest satisfaction'' thereof.

Football Bonus Contracts, conditional on approval of Commissioner.

Los Angeles Rams Football Club v. Cannon, 185 F.Supp. 717 (S.D.Cal.1960) , well illustrates the text at this point. It is analyzed and discussed at length under § 589.

See Detroit Football Co. v. Robinson, 186 F.Supp. 933 (E.D.La.1960) , aff'd, 283 F.2d 657 (5th Cir.) noted at length under § 589. The court held that an acceptance was conditional on the approval of a third person and therefore sustained a notice of revocation. In fact, the offer contained the very same condition that the acceptance did as both parties signed the very same writing. On the court's interpretation, there would have been no contract even if Robinson had never given notice of revocation. See notes under § 589; § 649.

Compare with the Robinson and Cannon cases, cited in this note, New York Football Giants, Inc. v. Los Angeles Chargers Football Club, Inc., 291 F.2d 471 (5th Cir.1961) , stated at length under § 589.

It has been said of these cases: ''it is clear that even in the normal contractual setting, the Robinson and Cannon holdings are questionable authority.'' In re Fairfield General Corp., 75 N.J. 398, 383 A.2d 98, 105 (1978) .

Cases erroneously reasoned.

This section is cited in El Hoss Engineering & Transport Co. v. American Independent Oil Co., 183 F.Supp. 394 (S.D.N.Y.1960) , rev'd, 289 F.2d 346 (2d Cir.) , cert. denied, 368 U.S. 837 . The defendant thought it had consummated no contract for the reason that its written acceptance was expressly conditional on specified performances by the plaintiff, but those exact performances were made a part of the very written agreement to which it was assenting, except as to a time limit. The offeror had assented (by its conduct) to this change. This case and the Court of Appeals decision are noted at length under § 1444.

In McDonough Constr. Co. v. Tutt, 209 F.Supp. 45 (S.D.Ala.1962) , the facts as stated in the opinion indicate that the parties orally agreed that the defendant would charter four barges from the plaintiff on stated terms, with an option to purchase, provided that they were towed from Parkersburg to New Orleans and there inspected and found to be seaworthy and fit for the intended service. The plaintiff had them towed as specified; but on inspection at New Orleans they were found to be unseaworthy. The plaintiff sued for damages for breach of an oral contract to charter, and the defendant cross-claimed for damages for failure of the plaintiff to furnish seaworthy barges. The court held that no contract was consummated for lack of mutual agreement, and so denied both claim and counterclaim. On the facts stated, it appears that a valid contract existed, by which the plaintiff promised to deliver at New Orleans four seaworthy barges, and the defendant promised to charter them on fully stated terms on condition that on inspection they proved to be seaworthy. There was a mutual agreement whereby the plaintiff exchanged his unconditional promise for the defendant's conditional promise. Since the condition was not fulfilled, the plaintiff's claim must fail, but the defendant's counterclaim would be sustainable. The finding of seaworthiness on inspection at New Orleans was not a condition precedent to the existence of a contract. It was merely a condition precedent to the defendant's contractual duty to accept the barges and pay rent as agreed. A conditional promise is a sufficient consideration for an unconditional one, if such is the exchange agreed upon. In this case, neither party was privileged to withdraw or cancel. The defendant's promise was not ''aleatory''. See the cases and discussion in § 589. See also § 148.

In Dane & Northrop v. Rittiner, 226 La. 1074, 78 So.2d 178 (1955) , the defendant requested the plaintiffs to procure FHA loans amounting to $408,800 to finance building operations. The plaintiffs acted with success and wrote defendant that they had procured the commitments for such loans from an insurance company, ''subject to the following conditions: ... 4. You are to deposit with us the sum of $4,088 in cash which represents 1% of the total amount of loans.'' On this letter the defendant wrote and signed: ''I accept the above and hereby hand you my check in the sum of $4,088.'' In fact, however, the check was not given and the plaintiffs sued for that amount. The court held, one judge dissenting, that no contract was consummated, because the deposit was never made. The court said: ''A mere reading of the contract shows that the securing of the commitment was contingent upon the deposit being made; in other words, the deposit was a condition precedent to the effectuation of the contract. Until it was made there was no contract between the parties and the defendant was at liberty to withdraw from the incomplete transaction.'' The present author agrees with the dissenting judge. The fact that the promise of the lenders to consummate the loan was conditional on the deposit does not make the defendant's acceptance also conditional on his own act of depositing. His acceptance of the conditional commitment to consummate the loan was an unconditional acceptance, thereby impliedly promising to make the deposit. This is not negatived by the fact that his statement of check enclosed was incorrect.

(n4)Footnote 4.

U.S. - Atlas Trading Corp. v. S.H. Grossman, Inc., 169 F.2d 240 (3d Cir.1948) .

See the sections on prevention of fulfillment of a condition, in Chapter 40.

(n5)Footnote 5. In re Fairfield General Corp., 75 N.J. 398, 383 A.2d 98 (1978) .

(n6)Footnote 6. In Bates v. Citizens & Southern Nat. Bank, 223 Iowa 385, 272 N.W. 412 (1937) , a contract for the sale of land was held to be specifically enforceable, even though the promise of each party was subject to the approval of a court. The offeror was the administrator of an estate, and its promise to buy was subject to approval by the probate court. The offeree was receiver of an insolvent bank, and his promise to convey was subject to approval by the supervising court.

Observe the difference between the two following cases:

(1) A offers his promise to pay B's prospecting expenses in Alaska in exchange for B's promise to repay $10,000. B replies that he will promise to repay $10,000 if he finds ore worth that much. There is no contract.

(2) A offers his promise to pay B's prospecting expenses in Alaska in exchange for B's promise to repay $10,000, if he finds ore worth that much. B replies that he will promise to repay $10,000, if he finds ore worth that much. There is a contract.

In the two cases, B's form of acceptance is identical. In each of them B makes a conditional promise. In the first, B gives a conditional acceptance. In the second, B gives an unconditional acceptance.

(n7)Footnote 7. 132 W.Va. 307, 52 S.E.2d 48 (1949) .

(n8)Footnote 8. 407 F.2d 759, 1969 Trade Cas. (CCH) P72740 (7th Cir.1969) .

(n9)Footnote 9. Restatement (Second) of Contracts § 59 comment c states: ''To accept the offeree must assent unconditionally to the offer as made, but the fact that the offeree makes a conditional promise is not sufficient to show that his acceptance is conditional. The offer itself may either expressly or by implication propose that the offeree make a condition promise as his part of the exchange. By assenting to such a proposal the offeree makes a conditional promise, but his acceptance is unconditional.''