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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

Supp. To CHAPTER 3 ACCEPTANCE AND REJECTION OF OFFER

1-3 Corbin on Contracts Supp. to § 3.9

Supp. to § 3.9 Unilateral Contract-Acceptance by Beginning Requested Performance

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(A) The following case cites this section:

(1) Harry M. Weiss & Assocs. v. Eric Nelson Auctioneering (In re Sunrise Suites, Inc.), 266 B.R. 895 (D. Nev. 2001) . A bankruptcy reorganization of Sunrise Suites resulted in a confirmation order declaring that the properties would be sold at auction. The order stated that from the 3% auctioneer commission, the auctioneer would offer a 1% commission to a buyer's participating broker subject to requirements determined by the auctioneer. The auctioneer promulgated a four-step qualification process for the 1% commission which included accompanying the prospect to a preview of the property, executing a broker's registration letter with appropriate signatures, accompanying the prospect to the auction, and closing the escrow. Entrepreneur Carl Ichan employed the plaintiff law firm as its agent. The plaintiff was provided with all of the information to qualify for the commission in an auction brochure which conspicuously stated that there were no exceptions to the process and no oral registrations would be accepted. The plaintiff failed to comply with the required process but represented Ichan and made the winning bid. The court, citing Corbin at § 3.9, held that the offer to pay the 1% commission was an offer to enter into a unilateral contract that requires not a promise to perform but a fulfillment of the terms of the offer. The plaintiff, an experienced attorney, could not rely upon an oral waiver of the required process in the offer to exercise its power of acceptance.

(B) The following cases are noteworthy:

(1) Magnusson Agency v. Public Entity Nat'l Co.-Midwest, 560 N.W.2d 20 (Iowa 1997) . An offer for a unilateral contract was made when an insurance company informed an insurance agent that it would be awarded the bid if it was the first to submit an application containing the insured's budget and the insured's signature. The agent accepted this offer upon submission of such a completed application, as the submission constituted the agent's act of performance and was induced by the promise made in the offer.

(2) Abbott v. Schnader, Harrison, Segal & Lewis, LLP, 805 A.2d 547 (Pa. Super. Ct. 2002) . The plaintiffs, retired partners of the defendant law firm, signed a 1984 retirement agreement that provided retired partners who had served for twenty-five years or more with certain income benefits. The plaintiffs continued their work with the firm for many more years. In 1999, the active partners substantially modified the retirement benefits pursuant to a provision allowing the partnership agreement to be amended. The plaintiffs brought an action for breach of contract, contending that their rights had vested upon their retirement, which had occurred prior to the amendment. The defendant claimed that the broad language of the amending power allowed it to change the benefits to retired partners.

Faced with an issue for which there was little precedent, the court adopted the analysis suggested in Kemmerer v. ICI Americas Inc., 70 F.3d 281 (3d Cir. 1995) . The retirement benefits promised in the partnership agreement constituted an offer that was accepted by the continued performance of the partners (a unilateral contract). Once that performance occurred, the offer became irrevocable. The rights of a retiring partner who had accepted the offer by continuing to perform vested upon retirement. To have allowed the amending provision of the agreement to interfere with such rights would not only be unfair but would necessarily make the retirement benefit promises illusory. This case is also noted at § 2.29 note 1 in this supplement.

Supplement to Notes in Main Volume

8. Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236, 2002-1 Trade Cas. (CCH) P73680 (S.D.N.Y. 2002) , raised the issue of whether the United Nations Convention on Contracts for the International Sale of Goods (CISG) preempts state law with respect to a promise validated by promissory estoppel. The court held that while the issue is not specifically addressed in CISG, analogously, Article 16(2)(b) of CISG makes an offer irrevocable 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. The court interpreted Article 16(2)(b) as requiring neither foreseeability nor actual detriment to the offeree and concluded that, in the context of irrevocable offers, CISG would preempt state law. In support of this view, the court quoted from Henry Mather, Firm Offers Under the UCC and the CISG, 105 Dick. L. Rev. 31, 48 (2000). The quoted excerpt, however, states that Article 16(2)(b) does not expressly require foreseeability or actual detriment to the promisee.

A more comprehensive analysis reveals the author's further suggestion that the requirement that an offeree must be reasonable in relying on the offer as being irrevocable clearly indicates that a promisor must foresee such reliance (citing Unidroit Principles, Art. 24, comment 2(b)). Moreover, the CISG requirement of actual reliance certainly contemplates some form of actual detriment to the promisee. Thus, the author properly concludes that courts are quite likely to interpret this provision of CISG in keeping with traditional common law and UCC analyses. It is important to note that Article 16(2)(a), however, may be interpreted as making an offer ''firm'' simply because it states a fixed time for acceptance of the offer, contrary to U.C.C. § 2-205, which requires an assurance in writing that the offer will not be revoked. Since the issue before the court did not deal with firm offers, its misanalysis of the analogous Article 16(2)(b) was dictum. No evidence supporting CISG preemption of making a promise enforceable on the basis of promissory estoppel was presented. Thus, the court held that the application of traditional state law was appropriate with respect to this issue.