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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 § 3.36

§ 3.36 Power to Accept an Offer Is Terminated by a Counter-Offer or Conditional Acceptance

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In addition to its effect in creating a power of acceptance, a counter-offer ordinarily terminates the power to accept the previously made offer to which it is a ''counter,'' or reply, in the negotiation.n1 The reasons for this seems to be that this is the general understanding of persons who actively negotiate and enter into contracts and the rule has been established without meeting serious criticism. Whether as an original proposition a counter-offer should have been treated as a rejection, the equation of counter-offer with rejection is too firmly imbedded to be questioned.n2

In one respect a counter-offer differs from a rejection in its legal effect. It may be alike in terminating the power to accept an offer previously made, as the courts have chosen to hold, but a counter-offer creates a new power of acceptance, and a mere rejection does not. A counter-offer is, of course, an offer, and subject to the rules that concern the acceptance of offers.n3

A question has been raised as to when a counter-offer becomes operative to terminate the power of accepting the prior offer. As an offer it creates no power of acceptance until it is received, just as in the case of other offers. It is believed also that it should not terminate the power to accept a prior offer until it has been received. Not until then can it produce any effect upon the original offeror's action or state of mind. So a counter-offer, or even a flat rejection, started in the mail and on the way, should not invalidate an acceptance by wire or other mode of communication, if the latter is received as soon as or prior to the counter-offer or rejection. But since acceptances by mail or telegraph are in certain cases held to be operative from the time they are started, the courts should protect the original offeror from being misled and injured thereby. If the offeror receives a counter-offer or rejection, and is led thereby to make a material change of position before receipt of the acceptance, the latter should be held to be inoperative as an acceptance, even though it was started before the counter-offer was received. The acceptance in such a case might reasonably be given the effect of a renewed offer of the same contract.n4

As one court has noted, a counter-offer terminates the power of acceptance and it is inaccurate to state that the offer itself was terminated. The context was the effect of a statutory offer pursuant to the California Code of Civil Procedure. It was held that although a counter-offer terminates the power to accept such an offer, it does not prevent the offer from having its statutory effect on the recovery of cost sanctions.n5 The court also noted that if an offer is made to a group and is of the kind that could be accepted separately by more than one member of the group, a counter-offer by one of them would have no effect upon the power of the others to accept.n6 Therefore, it would be inappropriate to describe the offer as having been terminated. While the case remains of intellectual interest, its predicate-that a counter-offer terminates the power to accept such a statutory offer-has been disapproved by the Supreme Court of California.n7

Legal Topics:

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

Contracts LawFormationOffersGeneral OverviewContracts LawFormationCounteroffersContracts LawFormationAcceptanceGeneral OverviewContracts LawFormationOffersRejections

FOOTNOTES:

(n1)Footnote 1.

U.S. - Beaumont v. Prieto, 249 U.S. 554, 39 S.Ct. 383, 63 L.Ed. 770 (1919) ; A.E. Staley Mfg. Co. v. Northern Cooperatives, Inc., 168 F.2d 892 (8th Cir.1948) ; Hoffstot v. Dickinson, 166 F.2d 36 (4th Cir.1948) ; In re Marcalus Mfg. Co., 120 F.Supp. 784 (D.N.J.1954) .

Alaska - Thrift Shop, Inc. v. Alaska Mut. Sav. Bank, 398 P.2d 657 (Alaska 1965) . A refusal to co-sign a corporate lease in individual capacity was held to be a counter-offer that terminated the power of acceptance of the proffered lease.

Colo. - Goodwin v. Eller, 127 Colo. 529, 258 P.2d 493 (1953) .

Ga. - Loyola Fed. S. & L. Assn. v. Fickling, 783 F.Supp. 620 (M.D.Ga.1992) , detaching a signature page from an offer of guaranty and attaching it to a revised document, without the consent of the offeror, is a counter-offer. Lamb v. Decatur Fed. S. & L., 201 Ga. App. 583, 411 S.E.2d 527 (Ga. App. 1991) .

Ill. - Venture Assocs. Corp. v. Zenith Data Systems Corp., 812 F. Supp. 788 (N.D.Ill. 1992).

Iowa - In re Marriage of Masterson, 453 N.W.2d 650 (Iowa App.1990) .

Md. - Ebline v. Campbell, 209 Md. 584, 121 A.2d 828 (1956) , opinion modified, 209 Md. 584, 121 A.2d 928 .

Minn. - Nodland v. Chirpich, 307 Minn. 360, 240 N.W.2d 513 (1976) ; Lewis v. Johnson, 123 Minn. 409, 143 N.W. 1127 (1913) ; Dataserv Equipment, Inc. v. Technology Finance Leasing Corp., 364 N.W.2d 838 (Minn.App.1985) .

Mo. - Egger v. Nesbit, 122 Mo. 667, 27 S.W. 385 (1894) .

N.M. - Corr v. Braasch, 97 N.M. 279, 639 P.2d 566 (1981) .

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) , mot. denied, 89 A.D.2d 669, 452 N.Y.S.2d 329 , appeal after remand, 99 A.D.2d 111, 472 N.Y.S.2d 462 .

Or. - Financial Indem. Co. v. Bevans, 38 Or.App. 369, 590 P.2d 276 (1979) .

Wash. - City of Roslyn v. Paul E. Hughes Constr. Co., Inc., 19 Wash.App. 59, 573 P.2d 385 (1978) .

Wyo. - Trautwein v. Leavey, 472 P.2d 776 (Wyo.1970) .

Eng. -Thornbury v. Bevill, 1 Y. & C.C.C. Ch. 554 (1842); Hyde v. Wrench, 3 Beav. 334 (1840) .

Restatement (Second) of Contracts § 36(1)(a).

If, after receipt of a counter-offer, the offeror attempts to hold the offeree on the terms of the original offer without an acceptance thereof, this attempt amounts to a counter-offer to the offer made by the offeree and operates as a rejection of the counter-offer. Bartone v. Taylor-Benson-Jones Co., 119 Cal.App.2d 79, 258 P.2d 1054 (1953) .

In Housing Authority of Lake Arthur v. T. Miller & Sons, 239 La. 966, 120 So.2d 494 (1960) , the defendant was low bidder on a public housing project, the plaintiff having an irrevocable 30-day period in which to accept, and thereafter until notice of revocation. After opening the bids, the Authority adopted a resolution authorizing its director to contract with the defendant but on the express condition of approval by the Federal Authority. After getting such approval, the director within the 30-day period (but after notice of an attempted revocation) gave notice of acceptance. The court held that a contract was made and that the defendant was liable in damages for refusal to execute a written contract. Here, the resolution was neither a conditional acceptance nor a counter-offer. It merely created a conditional power in the director, a power which, in spite of the attempted revocation, he could exercise when the condition (approval by Federal Authority) was fulfilled, within the 30 day period.

(n2)Footnote 2. D'Agostino v. Bank of Ravenswood, 205 Ill.App.3d 898, 150 Ill.Dec. 759, 563 N.E.2d 886 (1990) , appeal denied, 156 Ill. Dec. 560, 137 Ill. 2d 664, 571 N.E.2d 147 .

(n3)Footnote 3. In Russell v. United States, 320 F.2d 920, 162 Ct.Cl. 544 (1963) , the plaintiff made an offer of compromise and settlement. The defendant rejected this offer and made a counter-offer. The plaintiff, believing that the decision in another case then pending would be favorable to his claim, delayed acceptance of the counter-offer, and after six months the defendant revoked it. The other pending litigation was not favorable, but it was then too late to take advantage of the counter-offer.

(n4)Footnote 4. The American Law Institute has adopted a rule with which the above text is in harmony. Restatement (Second) of Contracts, § 40, is as follows: ''Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.'' A decision in substantial harmony with this is E. Frederics, Inc. v. Felton Beauty Supply Co., 58 Ga.App. 320, 198 S.E. 324 (1938) .

In Howard Smith & Co. v. Varawa (High Court of Australia) 5 C.L.R. 68 (1907) , an offer was made by cable, on the part of the plaintiff, and, after various intervening cable messages, the defendant cabled a conditional acceptance and counter-offer at 3:40 p.m. Twenty minutes later, at 4 p.m. the defendant cabled an unconditional acceptance. As to the effect of these messages the court said: ''The telegram of 3:40 appears to have arrived at Manila at 5:30 p.m. There was not evidence to show when that of 4 p.m. arrived there. An interesting argument was addressed to us to the effect that the telegram of 3:40 operated from the time of its dispatch, and had the effect of a refusal which could not be followed by an acceptance of the original offer, even if an acceptance of that offer were in fact received before it, and a fortiori if the acceptance were received after the refusal.'' The court found it unnecessary to pass upon the point.

(n5)Footnote 5. Glende Motor Co. v. Superior Court, 159 Cal.App.3d 389, 205 Cal.Rptr. 682 (1984) .

(n6)Footnote 6. 205 Cal.Rptr. at 688 n. 11.

(n7)Footnote 7. Poster v. Southern Cal. Rapid Transit Dist., 52 Cal.3d 266, 276 Cal.Rptr. 321, 801 P.2d 1072 (1990) .