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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 2 OFFERS; CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts § 2.18

§ 2.18 Offers Are Usually Revocable

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An offer has no effect until it is received by the offeree. Consequently, it can be withdrawn prior to receipt. This conclusion is especially important in the case where the offer, if effective, would have created an irrevocable power of acceptance.n1 The United Nations Convention on Contracts for the International Sale of Goods provides in Article 15(1): ''An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.'' This is a sound provision because the purpose of contract law is to protect expectations. No expectations arise under the circumstances posited here.n2 The rule at common law is no different from this provision.

When an offer is received, the offeror creates a power of acceptance in the offeree, however, except in the cases that are hereafter discussed, the offeror retains a power of revocation and withdrawal. The method of exercising this power varies, usually it is by giving notice to the offeree.n3 By exercising this power to revoke-by an effective revocation, the offeree's power of acceptance is terminated.n4 After an acceptance has become effective, there is no power in either party to revoke or withdraw.

Even though the offeror states when making the offer that the offeree shall have a definitely stated time in which to accept, or states that the offer will remain open for a definite time, the offer is nevertheless revocable at the will of the offeror.n5 An offer of this kind seems to be what some business persons mean by a ''firm offer''. There is an implied promise not to revoke, but if the parties think that it is effective to deprive the offeror of the power to revoke, they are, as a common law proposition, mistaken.n6 Promises generally are not binding unless they are supported by consideration, a seal, or an estoppel. A partial change, by statutory rules governing firm offers, in the legal effect of such a promise is discussed below.

Not infrequently, especially in the case of written offers, it is expressly stated that it shall ''not be subject to countermand.'' By this, no doubt the offeror understands that the offer contains a promise that the offer will not be revoked for the prescribed period, or for a reasonable time, and both parties may believe that the offer is thereby made irrevocable. Nevertheless, there may still remain a power to revoke.n7 The express or implied promise not to revoke is not enforceable, unless it is under seal, or a consideration is given in exchange, or the offeree has changed position in reliance upon it, or a statute governing firm offers provides otherwise.n8 One observer regards the revocability of offers as the product of a doctrine of ''mutuality of obligation,'' rather than of the doctrine of consideration.n9 This is a puzzling distinction for a number of reasons. First, an offer can be made irrevocable if a promise of irrevocability is made in exchange for a consideration. This irrevocable offer, the typical option contract, contains no ''mutuality of obligation.'' Second, as demonstrated in § 152 and following, the common law has no doctrine of mutuality of obligation that is separate from a requirement of consideration.

A statement by the offeror that the offer will remain open for a specified time is not wholly inoperative, even though it does not curtail the power to revoke. Its effect is to determine exactly the duration of the power of acceptance, in the absence of some new terminating factor such as a notice of revocation or a rejection. It makes no difference whether the stated time is unreasonably long or unreasonably short; it is nevertheless controlling, so that an acceptance after the expiration of the stated time is too late and an acceptance prior to such expiration is in time even though the contract is now very disadvantageous to the offeror.

It appears that by the law of Italy, Germany, Switzerland and some other Civil Law countries, the law is different from the common law with respect to revocability. There, it seems that an offeror is held to the promise to keep the offer open; the offer cannot be revoked during the period that the offeror has said it shall remain open.n10 Even if no time at all has been stated, the offer when made is not revocable for a reasonable time. By the Civil Law, promises are binding if they have what the court regards as sufficient ''cause,'' or reason for being made and enforced. The doctrine of consideration, as we know it, does not exist in Civil Law countries, although a consideration given for a promise may be a sufficient cause or reason for enforcing it. Without doubt, this approach is at least as satisfactory in operation as is the Anglo-American law. The United Nations Convention on Contracts for the International Sale of Goods provides in Article 16 that ''an offer cannot be revoked (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable ...''. The stating of a fixed time may, but need not, raise an inference of irrevocability during that period.n11 The Uniform Commercial Code Sales, § 2-205 provides: ''An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration during the time stated or if no time is stated for a reasonable time but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.'' New York had a similar statute even before its adoption of the Code, one that was not limited to ''merchants''.n12 The Uniform Commercial Code provision is expressly limited to offers to buy or sell goods and to offers made ''by a merchant.'' There is thus a convergence between a common-law statute and a United Nations Convention to which the U.S. is a party. Yet, the provisions vary, primarily as to their formal requirements and as to the nature of the language that will create irrevocability.n13

As a matter of course, the offeror's power of revocation ceases at the instant that an acceptance by the offeree becomes effective. As will appear later, the mailing of a letter of acceptance will frequently consummate a contract at once, depriving the offeror of all power to revoke even though the notice of revocation is already dispatched by mail, telegram, or private messenger. Even though an offer is revocable, an acceptance within the allotted time and before revocation makes a contract.n14

An order for goods may be either an offer to buy or the acceptance of an offer to sell. In the latter case, it consummates the contract, and no power of revocation or withdrawal remains in either party. If it is an offer to buy and has not yet been accepted by the seller, the order can be revoked in the same manner as other offers.n15

There are continuing offers that create power in the offeree to make a series of separate contracts by a series of independent acceptances. After one such proper acceptance, the power of revocation ceases as to it, but a notice of revocation will terminate the offeree's power to make any further contract by a later acceptance.n16 So, a continuing offer to supply goods at stated prices cannot be revoked after an order for a specific quantity, as to that quantity; but a revocation deprives the offeree of power to bind the offeror by a subsequent orders.n17

A promise of guaranty, when it is a mere offer by the guarantor, is revocable like other offers.n18 This is true whether the offer of guaranty provides for acceptance by a return promise, by appointing someone to a position of trust, or by the giving of credit in the form of goods or money or acceptances to some third person. It becomes irrevocable after the indicated acceptance has been given. A letter of credit or promise to guarantee the repayment of advances to be made to a third person is ordinarily an offer that can be accepted by the making of an advance, a unilateral contract being the result. As to the advance once made, the offer of guaranty is no longer revocable;n19 if the offer is a divisible one creating power to make a series of separate unilateral contracts, a notice of revocation is effective as to advances not yet made.n20 Reasonable interpretation of the words of the parties may show that their contract is really bilateral as a whole and not divisible into parts. In this case the first act of acceptance makes the contract and binds both parties. It is possible also that the offer contemplates a binding and irrevocable option, to be consummated by the giving of a single order or the making of a single payment or the advancement of a single amount upon the credit of the offeror. The contract so consummated may be either unilateral or bilateral;n21 but there is no promise of further orders or payments or advancements, and yet the standing offer is irrevocable.

This section is cited in Danby v. Osteopathic Hospital Ass'n. n22 The president of the Hospital Association, in order to give it sufficient credit for building purposes, promised it to guarantee payment of advancements to it by a bank in the sum of $40,000 and at the same time guaranteed payment to the bank of a series of notes amounting to that sum. In reliance on this, the Association borrowed money from the bank and entered into building contracts. The guaranty promise of the president became irrevocable as soon as the Association either promised to perform the contemplated work or actually obligated itself to others as contemplated. In the former case, the contract was bilateral, in the latter unilateral. In either case the guaranty promise became binding as a whole and was not divisible into a series of promises to guarantee separate advances.

Legal Topics:

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

Contracts LawFormationOffersRevocable OffersContracts LawFormationOffersIrrevocable Offers

FOOTNOTES:

(n1)Footnote 1. Miller v. United States, 62 F.Supp. 327 (Ct.Cl.1945) .

(n2)Footnote 2. John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention 165.

(n3)Footnote 3. An oral notice of revocation is effective, even though the offer itself was in writing. Collins v. Morgan Grain Co., 16 F.2d 253 (9th Cir.1926) . The same is true, even though the offer stated that it was not subject to countermand or that it could be withdrawn only by notice in writing. If an offer has become irrevocable, neither an oral nor a written notice would be effective.

A bid submitted to the U.S. Government, the amount of which was based upon a substantial error of the bidder, can be withdrawn on grounds of mistake at any time before the bids are opened. The court held that the federal regulations as to revocation of bids do not establish a federal rule different from that of the common law. United States v. Lipman, 122 F.Supp. 284 (E.D.Pa.1954) .

See § 2.19 below.

(n4)Footnote 4.

Ala. - Consolidated Portrait & Frame Co. v. Barnett, 165 Ala. 655, 51 So. 936 (1910) ; Eskridge v. Glover, 5 Stew. & P. 264 (Ala.1834) .

Cal. - North Confidence Mining & Development Co. v. Morrice, 56 Cal.App. 145, 204 P. 851 (1922) .

Conn. - Lloyd & Elliott v. Parke, 112 Conn. 504, 152 A. 825 (1931) , an order for goods is revocable before acceptance.

Iowa - Younglove v. Hoberg, 195 Iowa 281, 191 N.W. 985 (1923) .

Ky. - Walton's Ex'r v. Franks, 191 Ky. 32, 228 S.W. 1025 (1921) .

Minn. - Anderson v. Wisconsin Cent. Ry. Co., 107 Minn. 296, 120 N.W. 39 (1909) .

Neb. - Pribil v. Ruther, 200 Neb. 161, 262 N.W.2d 460 (1978) .

N.Y. - Petterson v. Pattberg, 248 N.Y. 86, 161 N.E. 428 (1928) ; Capalongo v. Desch, 81 A.D.2d 689, 438 N.Y.S.2d 638 (1981) , aff'd, 57 N.Y.2d 972, 457 N.Y.S.2d 243, 443 N.E.2d 491 (1982) .

Ore. - R.J. Taggart, Inc. v. Douglas County, 31 Or.App. 1137, 572 P.2d 1050 (1977) .

Restatement (Second) of Contracts § 36(1)(c) (1981).

Article 16(1) of the United Nations Convention on Contracts for the International Sale of Goods provides: ''Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.''

A bid at auction is an offer, and can be revoked at any time before the hammer falls or the auctioneer otherwise indicates acceptance: Baker v. Sproul, 37 F.2d 937 (W.D.Pa.1929) , aff'd, 37 F.2d 938 (3d Cir.1929) ; Anderson v. Wisconsin Cent. Ry. Co., 107 Minn. 296, 120 N.W. 39 (1909) ; Payne v. Cave, 3 T.R. 148 (1789); Uniform Commercial Code § 2-328(2). See § 2.3 above.

In Thomson v. James, 18 Sess.Cas. (Dunlop) 1 (Sess.1855), Lord Curriehill (in a dissenting opinion) said: ''But the defender's offer to the pursuers, although it did not create a binding obligation on him so long as nothing followed upon it, had then the twofold effect of conferring one power upon the pursuers, and of reserving another power to the defender himself. On the other hand, the power which was thereby conferred upon the pursuers was to accept the offer at any moment, within a reasonable period... On the other hand, the power which the defender reserved to himself was to retract that offer, and thereby put an end to it at any moment, so long as the pursuers did not exercise their power by accepting of the offer to the effect above mentioned.''

(n5)Footnote 5.

Minn. - William Weisman Realty Co. v. Cohen, 157 Minn. 161, 195 N.W. 898 (1923) .

Eng. -Dickinson v. Dodds, 2 Ch.D. 463 (1876).

In Boston & M.R. Co. v. Bartlett, 57 Mass. (3 Cush.) 224 (1849) , there was a written offer to sell, at any time within 30 days. The court said: ''The counsel for the defendants is most surely in the right, in saying that the writing when made was without consideration, and did not therefore form a contract. It was then but an offer to contract, and the parties making the offer most undoubtedly might have withdrawn it at any time before acceptance. But when the offer was accepted, the minds of the parties met, and the contract was complete.''

In Ellis' Adm'r v. Durkee, 79 Vt. 341, 65 A. 94 (1906) , the court said: ''The only importance of inquiring whether or not an offer is supported by a consideration is to determine whether it can be withdrawn by the party making it before it is accepted by the party to whom it is made. If it is based upon a consideration, the power of revocation is not attached to it. But, though it be without consideration, it may be accepted so as to make a binding contract if not sooner revoked, but it may be revoked at any time before it is accepted-and this is so though it states a certain time during which it is to remain open.'' See also Perkins v. Hadsell, 50 Ill. 216 (1869) ; Merchant v. O'Rourke, 111 Iowa 351, 82 N.W. 759 (1900) .

In Sokol v. Hill, 310 S.W.2d 19 (Mo.App.1958) a written offer to buy land, accompanied by an earnest deposit, stated that the owner should have three days for acceptance. An oral notice of revocation, the next day after the offer was made and before any notice of acceptance, was held effective. The offeror recovered judgment for his deposit.

In Bellasi v. Shackelford, 201 Cal.App.2d 265, 19 Cal.Rptr. 925 (1962) , an offer to sell contained in escrow instructions to a title company (agent of both parties) provided that it should be ''effective for 30 days and thereafter until revoked by written demand.'' The seller made an oral demand and revocation, before acceptance by the purchaser. The oral revocation was held effective, since there was no consideration for the express limitation.

(n6)Footnote 6. In Refining Assocs. v. United States, 109 F.Supp. 259 (Ct.Cl.1953) , the court held that the bidder on a government contract could not withdraw its bid after the opening but before the award. The bidder had agreed to keep its bid open for 15 days; the court does not refer to the necessity of a consideration. See also § 2.22-2.31 below.

See article by Franklin M. Schultz, the Firm Offer Puzzle: A Study of Business Practice in the Construction Industry, 19 U.Chi.L.Rev. 237 (1952); Note, Another Look at Construction Bidding and Contracts at Formation, 53 Va.L.Rev. 1720 (1967).

(n7)Footnote 7.

U.S. - Collins v. Morgan Grain Co., 16 F.2d 253 (9th Cir.1926) .

Ark. - Cedar Rapids Nat'l Bank v. McCord, 98 Ark. 81, 135 S.W. 365 (1911) .

Conn. - Lloyd & Elliott v. Parke, 112 Conn. 504, 152 A. 825 (1931) , appeal after retrial 114 Conn. 12, 157 A. 272 (1931) .

Mich. - Night Commander Lighting Co. v. Brown, 213 Mich. 214, 181 N.W. 979 (1921) ; Peck v. Freese, 101 Mich. 321, 59 N.W. 600 (1894) ; Challenge Wind & Feed Mill Co. v. Kerr, 93 Mich. 328, 53 N.W. 555 (1892) .

Mo. - Krohn-Fechheimer Co. v. Palmer, 282 Mo. 82, 221 S.W. 353, 10 A.L.R. 673 (1920) .

N.Y. - Howe Scale Co. v. Wolfshaut, 170 N.Y.S. 943 (1918) . But New York has adopted the Uniform Commercial Code.

(n8)Footnote 8. See § 2.23-2.26 below.

(n9)Footnote 9. E. Allan Farnsworth, Contracts § 3.17 (2d ed. 1990).

(n10)Footnote 10. 1 Rudolph B. Schlesinger, Formation of Contracts: A Study of the Common Core of Legal Systems 109 (1968); see also Wenceslas J. Wagner, Some Problems of Revocation and Termination of Offers, 38 Notre Dame L.Rev. 138 (1963).

(n11)Footnote 11. The language of the Article is intentionally ambiguous, being based on compromise between advocates of different systems. See John O. Honnold, Uniform Law for International Sales under the United Nations Convention 143 (1987).

(n12)Footnote 12. Now found in N.Y.-McKinney's Gen.Oblig.Law § 5-1109 which provides: ''Except as otherwise provided in section 2-205 of the uniform commercial code with respect to an offer by a merchant to buy or sell goods, when an offer to enter into a contract is made in a writing signed by the offeror, or by his agent, which states that the offer is irrevocable during a period set forth or until a time fixed, the offer shall not be revocable during such period or until such time because of the absence of consideration for the assurance of revocability. When such a writing states that the offer is irrevocable but does not state any period or time of irrevocability, it shall be construed to state that the offer is irrevocable for a reasonable time.''

(n13)Footnote 13. These matters will be treated in greater detail when §§ 259 through 274 below are revised.

(n14)Footnote 14.

Ill. - Threlkeld v. Inglett, 289 Ill. 90, 124 N.E. 368 (1919) .

Ky. - Murphy Thompson & Co. v. Reid, 125 Ky. 585, 101 S.W. 964 (1907) .

Mass. - Boston & M.R. Co. v. Bartlett, 57 Mass. (3 Cush.) 224 (1849) .

Vt. - Ellis' Adm'r v. Durkee, 79 Vt. 341, 65 A. 94 (1906) .

(n15)Footnote 15.

Conn. - Lloyd & Elliott v. Parke, 112 Conn. 504, 152 A. 825 (1931) , appeal after retrial 114 Conn. 12, 157 A. 272 (1931) .

Mich. - Peck v. Freese, 101 Mich. 321, 59 N.W. 600 (1894) ; Challenge Wind & Feed Mill Co. v. Kerr, 93 Mich. 328, 53 N.W. 555 (1892) .

In Kuzmeskus v. Pickup Motor Co., 330 Mass. 490, 115 N.E.2d 461 (1953) , an order for motor buses on a printed form supplied by the seller provided that it would not be binding until authorized by an officer and purchaser's credit approved, with a blank line for the officer's signature. Before such approval the purchaser revoked the order. The court gave judgment for the repayment of the purchaser's deposit.

(n16)Footnote 16. In Christie, Lowe & Hayworth v. Patton, 148 Ala. 324, 42 So. 614 (1906) , the defendant promised to pay three dollars per day for such teams as the plaintiff would thereafter furnish. After various teams were furnished and used, the defendant notified the plaintiff to send no more. This notice was an effective termination of the plaintiff's power to accept by sending teams.

In Hazlewood v. Empire Gas & Fuel Co., 268 Fed. 829 (5th Cir.1920) , the defendant promised to pay a commission of 10 cents per acre on all oil and gas leases obtained by the plaintiff. After he had obtained and been paid for 511 leases, the defendant notified him to obtain no more. This was a valid revocation.

(n17)Footnote 17.

Wis. - Hopkins v. Racine Malleable & Wrought Iron Co., 137 Wis. 583, 119 N.W. 301 (1909) .

See also:

Ga. - Morrow v. Southern Exp. Co., 101 Ga. 810, 28 S.E. 998 (1897) , standing offer to carry milk at specified rates.

Eng. -Great Northern R. Co. v. Witham, L.R., 9 C.P. 16 (1873).

(n18)Footnote 18. Lightsey v. Orgill Bros. & Co., 454 So.2d 1002 (Ala.Civ.App.1984) ; Consolidated Portrait & Frame Co. v. Barnett, 165 Ala. 655, 51 So. 936 (1910) .

(n19)Footnote 19. Chevron Chem. Co. v. Mecham, 536 F.Supp. 1036 (D.Utah 1982) .

(n20)Footnote 20.

N.J. - Grob v. Gross, 83 N.J.L. 430, 84 A. 1064 (1912) .

Eng. -Offord v. Davies, 12 C.B. (N.S.) 748 (1862).

(n21)Footnote 21. There was such an irrevocable option in Vickrey v. Maier, 164 Cal. 384, 129 P. 273 (1912) .

In the case of Great Northern R. Co. v. Witham, L.R., 9 C.P. 16 (1873), the first order for goods under the standing offer (not enclosing cash in payment) made a separate bilateral contract for the purchase and sale of the goods so ordered. It did not make the offer irrevocable as to new orders, although this was a question that the court did not have to decide. The court talked of the contract as if it were unilateral.

(n22)Footnote 22. 34 Del.Ch. 172, 101 A.2d 308 (1953) , aff'd, 34 Del.Ch. 427, 104 A.2d 903 (Sup.Ct.1954) .