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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 § 2.29

§ 2.29 Revocation After Part Performance or Tender by the Offeree

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There are many cases in which acceptance is to consist of the rendition of the performance for which the offeror offers a promise. This is often described as ''the offer of a promise for a performance''. When the acceptance is complete the resulting contract is unilateral.n1 As will again appear, in the chapter dealing with contracts without assent or consideration, a promise may become a binding contract by reason of a change of position by the offeree in reliance upon it. There can be no possible doubt of this, if the change of position is the very performance requested by the offeror. It is then the agreed equivalent for which the promise is exchanged and constitutes consideration therefor.

One question before us in the present section is whether an offer becomes irrevocable as soon as the offeree begins or tenders, or has rendered some part of, the performance for which the offeror is bargaining. A second question, closely related but not identical, is whether an offer becomes irrevocable as soon as the offeree has changed position in reliance upon it, such change being one that the offeror had reason to foresee but not constituting a part of the performance for which the offeror has bargained and for which the offered promise was made.

As to the first of these questions, decisions are now so numerous and so nearly uniform in result as to leave small doubt as to the general rule of law that must be stated. Where one party makes a promissory offer in such form that it can be accepted by the rendition of the performance that is requested in exchange, without any express return promise or notice of acceptance in words, the offeror is bound by a contract just as soon as the offeree has rendered part of the requested performance.n2 Indeed, the American Law Institute has stated the rule that the offeror is bound by an option contract, and the offer becomes irrevocable as previously discussed herein, just as soon as the offeree has tendered the requested performance or has actually rendered a part of it.n3 The Institute also supports the position that in some cases actions in reliance on an offer, even not involving part performance, can cause the offer to become irrevocable.n4

The cases that justify the part performance doctrine, in at least one of its forms, have been decided in the very teeth of two other doctrines that have been repeated many times as representing the common law. The first of these is that both parties to a contract must be bound by it or neither is bound. Even the judges who have repeated this misleading doctrine have themselves often enforced unilateral contracts, although they may not have described them as unilateral and were not aware that the decision was inconsistent with the stated doctrine. The doctrine must either be abandoned or be expressly limited to the class of cases in which it is true. The second doctrine is to the effect that, in the case of an offer of a promise for a performance or series of performances, there is no contract until the performances constituting the acceptance are entirely completed. If the decisions now to be discussed are to be supported-and they must be-this second doctrine must be wholly abandoned.

In order to help promote the construction of a street railway, the defendant executed a promissory note for $2,000, payable to the Traction Company thirty days after completion of the railway to a specified street. This was given to a bank to hold in escrow and to deliver after completion of the railway as specified. No time was fixed within which the completion must occur. About four months after the note was executed, the Traction Company paid $1500 for a franchise. Some months later construction work was begun in a desultory manner. About two years after execution of the note, its maker notified the Traction Company that the offer was revoked and the note would not be paid. The company thereafter proceeded with the work to completion. It was held that the revocation was wholly ineffective, after part performance by the company. The offeree still retained its power to complete the requested performance.n5 This exact conclusion may be questioned. An improper revocation is a repudiation of an obligation, one consequence of which is a right of action by the aggrieved party, another consequence of which is that the aggrieved party has no right to recover damages which could have been avoided by reasonable diligence to minimize damages. It may well be, however, that at the time of revocation, the Traction Company had so far proceeded as to have earned the promised bonus under a theory of substantial performance.

Another case bears close analysis. In Motel Services, Inc. v. Central Maine Power Co., n6 plaintiff entered into a contract with a housing authority to build two projects for the authority on a turnkey basis. Plaintiff subsequently prevailed upon the authority and the federal government to change the specifications of the construction project to provide for electrical rather than oil heat, in exchange for which the plaintiff lowered the contract price by $16,000. The plaintiff was motivated to take advantage of a promotional allowance offered by the defendant power company to the ''owner of a home-either new or existing-which is initially built for or converted to the use of electricity as the primary method of heating....'' Before completion of the project, but after installation of the heating system, the premises were conveyed to the housing authority. Thereafter, plaintiff duly completed the projected construction. The question before the court was whether the promised allowance should be paid to the plaintiff or to the housing authority. Clearly the authority had no rights under the promise. Prior to completion of the project, it did not know of the offer and could not have manifested any intent to accept. The court held that the power company's promise of a promotional allowance was an offer to a unilateral contract which became irrevocable when plaintiff commenced performance. Although plaintiff was not the ''owner'' at the time performance was completed, defendant got precisely what it bargained for.

Often, in order to encourage employees to remain, an employer promises them a ''bonus'' if they are still in the company's employ at the end of the year. The employer is especially likely to do this in cases where the employment is at will and the employee is not bound by any contract to remain at work. In such cases, the employer's promise is an offer to pay the added sum of money in return for continuing to work for a whole year. Does the employer still have the power to revoke this offer after the employee has remained in service for almost the whole year, or for some lesser period? The courts have held that the employer is not privileged to revoke then, although a revocation is so far effective as to deprive the employee of any power to complete the acceptance.n7 In this respect, and in the remedies that are available, such a revocation is the same as any other wrongful discharge. In no such case can the employee continue at work against the employer's will, and by completing the full period cannot make the employer a debtor for the full salary. The discharged employee has only a right to damages, measured by the full sum promised less what reasonably can be earned by reasonable effort elsewhere after the discharge. This should be the measure of damages in the case of the promised bonus.n8 In all these cases, however, the discharged employee has the alternative remedy of quantum meruit.

No rule is absolute, possibly including the rule stated in the first part of this sentence. Although generally part performance by the offeree will make the offer to a unilateral contract irrevocable, offers of pensions may be somewhat different. Pension promises, like promises of bonuses, frequently are offers to unilateral contracts. The employer may promise that, if an employee remains in its employ for a given period of time, the employee has earned a specified pension. In such a case, it may be that substantial performance by the employee is needed to create an irrevocable offer.n9 Mere part performance should not create pension eligibility in conflict with actuarial standards. Aside from contractual criteria, rights to pensions are generally defined by federal legislation.

Employees hired by an employer that issues a personnel manual have sometimes argued that promises in the manual are offers to unilateral contracts and part performance by them has made the promises irrevocable. This kind of case will be discussed in a subsequent section.n10

In one case, the defendant offered a reward for the arrest and conviction of some criminals. The plaintiff arrested them and induced their confession, but they were not convicted because the defendant wished to use their testimony in other cases and so had the indictments dismissed. It was held that the plaintiff was entitled to the reward.n11

Where a reward has been offered for the finding and return of lost property, the offer is not revocable after part performance in reliance upon it, even though the offeror gives notice before there has been actual return of the property. Even in such a case, the finder has a lien to secure payment of the reward.n12

A charitable subscription is not revocable, by either death or notice, if the promisee has partly performed the condition of the subscription in reliance on the promise before the supposed revocation occurs.n13 One who has offered a prize to the winner of a contest under stated rules cannot revoke the offer or change the rules thereof as against those who have already partly complied with its terms.n14 In cases of this sort there is little possibility of finding that the contract is bilateral, but it has become irrevocable.

In some of the cases, the court denies effect to a revocation for the reason that the offeror was acting ''in bad faith.''n15 But the only ground for asserting the offeror's bad faith is that the offeree has already acted in reliance on the offered promise. After such action, the court thinks it is unreasonable for the offeror to revoke. No doubt, the greater the action of the offeree and the greater the resulting benefit to the offeror, the more inequitable and unfair the revocation becomes. In general, it is not thought to be bad faith to revoke any offer before it has been accepted, even though the purpose is to avoid contracting with the offeree, but in the cases now under discussion, part performance by the offeree makes a subsequent revocation by the offeror a breach of contract.n16

Legal Topics:

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

Contracts LawBreachCauses of ActionElements of ClaimsContracts LawPerformancePartial PerformanceGeneral OverviewContracts LawFormationOffersRevocable OffersContracts LawFormationOffersIrrevocable Offers

FOOTNOTES:

(n1)Footnote 1. Of course, there is no power of revocation after the requested act has been fully performed. A defendant who promised to pay a commission on all sales made to a person or corporation introduced by the plaintiff must continue to pay as long as any sales are made to a person who has been so introduced. The offeror has no power of termination. Alexander v. Capital Paint Co., 136 Md. 658, 111 A. 140 (1920) . Somewhat similar is Potomac Chem. Co. v. Chapman, 146 F.2d 664, 79 U.S.App.D.C. 299 (1944) , cert. denied, 324 U.S. 881 . The offeror does not have to continue to pay the commission if the agreement expressly limits the duty to pay the commissions that fall due before termination. Ullmann v. May, 147 Ohio St. 468, 72 N.E.2d 63, 34 Ohio Op. 384 (1947) .

(n2)Footnote 2.

U.S. - Hollidge v. Gussow, Kahn & Co., 67 F.2d 459 (1st Cir.1933) equally reasonable here to find a return promise making a bilateral contract; A.B. Dick Co. v. Fuller, 213 Fed. 98 (D.C.N.Y.1914) , promise to pay for invention of stencil by an employee, irrevocable when latter ''began work in reliance upon it.''

Cal. -In Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757 (1958) , the court said:'' In the analogous problem of an offer for a unilateral contract, the theory is now obsolete that the offer is revocable at any time before complete performance. ''See full statement of this case herein under § 2.31. See also § 194 of this treatise, cited by the court.

Ga. - Fontaine v. Baxley, 90 Ga. 416, 17 S.E. 1015 (1892) ; Piedmont Life Ins. Co. v. Bell, 103 Ga.App. 225, 119 S.E.2d 63, 69 (1961) , a case involving ''anticipatory breach'' and many other points. See full discussion under § 987.

Kan. -In Sharpless v. J.B. Kirk Gas & Smelting Co., 128 Kan. 722, 280 P. 788 (1929) , the plaintiff alleged that, ''in consideration of plaintiff incurring the expense and inconvenience of having the gas properties owned by the Company inspected, investigated and appraised by engineers,'' the defendants would upon arrival of the engineers in Iola make a written option giving plaintiff the right to buy at a stated price. Plaintiff employed engineers and they came to Iola; but defendants then refused to let them inspect and sold the property to others. On demurrer this was held not to allege a valid contract, because the plaintiff made no promise and mutuality of obligation was lacking. The decision should be disapproved. It clearly appears that the plaintiff employed engineers and sent them to Iola before any notice of revocation. This was a substantial beginning of the requested process of acceptance. The offer was thereby made irrevocable as stated in Restatement (Second) of Contracts § 45.

Ky. - Louisville & N.R. Co. v. Goodnight, 73 Ky. 552 (1874) . In Louisville & N.R. Co. v. Coyle, 123 Ky. 854, 97 S.W. 772 (1906) , reh'g denied, 123 Ky. 854, 99 S.W. 237 , the defendant offered to buy all railroad ties'' you put on at Gap within the next twelve months. ''The plaintiff had supplied 1,000 ties and had secured material for 5,000 more, when the defendant gave notice of revocation. The court held the plaintiff to be entitled to damages for failure to take the remaining 5,000 ties.

Mich. - Ladd v. Teichman, 359 Mich. 587, 103 N.W.2d 338 (1960) , noted herein under § 2.30.

Mo. - American Pub. & Engraving Co. v. Walker, 87 Mo.App. 503 (1901) , bilateral contract by implication.

N.Y. - I. & I. Holding Corp. v. Gainsburg, 276 N.Y. 427, 12 N.E.2d 532 (1938) .

Tex. - Edwards v. Roberts, 209 S.W. 247 (Tex.Civ.App.1919) , reh'g denied, 212 S.W. 673 ; Halff Co. v. Waugh, 183 S.W. 839 (Tex.Civ.App.1916) , sale of a truck to be paid for out of earnings, buyer having partly performed, although not bound.

Wash. - Harding v. Rock, 60 Wash.2d 292, 373 P.2d 784 (1962) , citing and following Restatement, Contracts, § 45, facts stated under § 2.30; Taylor v. Ewing, 74 Wash. 214, 132 P. 1009 (1913) .

Wis. -In Nelsen v. Farmers Mutual Auto. Ins. Co., 4 Wis.2d 36, 90 N.W.2d 123 (1958) , the defendant promised that the plaintiff should be a ''district supervisor'' as long as the defendant sold policies there. The plaintiff made no return promise; but he rendered performance for some years. The court held that thereafter the defendant had no power to modify or revoke and was liable in damages for terminating the arrangement without cause. See also notes under § 3.16; § 4.7; § 446. Lazarus v. American Motors, 21 Wis.2d 76, 123 N.W.2d 548 (1963) ; Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912) , see 26 Harv.L.Rev. 274.

Eng. -In Errington v. Errington, [1952] 1 K.B. 290 (C.A.), the promisor bought a house, partly financed by a mortgage loan. He told his son and daughter-in-law that if they paid the loan, they would have title to the house, meanwhile they could live in it. The daughter-in-law was living there and making the payments when the promisor's widow sought to evict her. It was held that the promise was an offer which could not be revoked once the promisees entered on performance of the act. Also Daulia Ltd. v. Four Millbank Nominees Ltd., [1978] Ch. 231, 239.

New South Wales-In Abbott v. Lance, 2 Legge 1283 (1860), Lance offered to sell two cattle stations to Abbott on specified terms. The stations were located some 500 miles from the parties. It was agreed that Lance would keep the offer open for two months if plaintiff would make the journey to inspect the stations, and Lance would pay Abbott Ј100 if Lance were to sell to someone else in the meantime. When about half-way to the stations, Abbott received a letter from Lance stating'' I hasten to inform you that I have absolutely sold my stations to another party. Trusting this may overtake you before you have ridden far. ''Despite Lance's argument that the promise was merely a revocable offer, it was ruled that because ''plaintiff incurred inconvenience by part-performing the journey'' the offer had become irrevocable and the condition of visiting the stations excused.

In the very early case of Howe v. Beeche, 3 Lev. 244 (1685) the defendant promised to pay the plaintiff Ј100 if he would solicit a business with a third party and bring it to a conclusion. After the plaintiff partly performed, but before he could complete the performance, the defendant countermanded. The plaintiff obtained a verdict for Ј100 damages. The defendant argued that all the plaintiff was entitled to was quantum meruit for his part performance. The report continues thus:'' it was answered and agreed by the Court, that though the employment was countermandable, yet if after part of the business done the defendant countermands it, the plaintiff shall have his action for the whole; and upon the trial the jury shall give so much in damages as they find the business deserves; and although here it was not finished, yet that was by the defendant's own default; and perhaps when all the pains and labour to finish it are passed, the defendant would countermand it in order to finish it himself without any labour or pains, thereby to defeat the plaintiff of his recompense: and after the case had been twice argued in the Exchequer-Chamber, the judgment was affirmed.''

In Quick v. Wheeler, 78 N.Y. 300 (1879) , the defendant promised to pay four and a half cents per foot for from six to fifteen thousand feet of lumber, delivered at a stated place during the winter. The plaintiff made no return promise to deliver the lumber. But, with the knowledge of the defendant, he made purchases of lumber and delivered part of it at the agreed place. The defendant then told him that he did not want any more; but remained silent when the plaintiff told him of further purchases already made. The plaintiff then delivered at the agreed place a total of more than 11,000 feet. The court held that there had been no effective revocation by the defendant and that the plaintiff could get judgment for the full price as a contract debt for goods sold and was not limited to an assumpsit for damages.

(n3)Footnote 3. Restatement (Second) of Contracts § 45(1) provides:'' Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.''

(n4)Footnote 4. See § 2.31 below. At times, courts, in order to do justice, have found part performance where what apparently took place would be more accurately deemed action in reliance. E.g., Siegel v. Codner, 153 Ga.App. 438, 265 S.E.2d 287 (1980) , aff'd, 246 Ga. 368, 271 S.E.2d 465 , where the defendant was said to have offered to accept less than full payment of a debt in exchange for its payment in advance and the fulfillment of certain other conditions. Although no part payment was made, the court held that summary judgment for the creditor was in error and on remand it might be found that part performance had been rendered.

(n5)Footnote 5.

Cal. - Los Angeles Traction Co. v. Wilshire, 135 Cal. 654, 67 P. 1086 (1902) . The court said: ''The contract at the date of its making was unilateral, a mere offer that if subsequently accepted and acted upon by the other party to it, would ripen into a binding enforceable obligation. When the respondent purchased and paid upwards of $1,500 for a franchise it had acted upon the contract, and it would be manifestly unjust thereafter to permit the offer that had been made to be withdrawn. The promised consideration had then been partly performed, and the contract had taken on a bilateral character.''

By saying that ''the contract had taken on a bilateral character,'' the court must have meant only that the promisor could no longer revoke. It is not stated that the Traction Company made any promise to the defendant that it would complete the construction of the railway. It was quite correct for the court to hold that the offer was absolutely irrevocable, because it was reasonable for the company to proceed with its public service. It could not reasonably be expected to stop performance for the purpose of mitigating damages.

(n6)Footnote 6. 394 A.2d 786 (Me.1978) .

(n7)Footnote 7.

N.C. - Roberts v. Mays Mills, Inc., 184 N.C. 406, 114 S.E. 530, 28 A.L.R. 338 (1922) .

Pa. - Snyder v. Hershey Chocolate Co., 63 Pa.Super. 528 (1916) , judgment for entire bonus.

Minn. -Of course, if the period of employment stated in the offer is completed, the bonus is fully earned. Hartung v. Billmeier, 243 Minn. 148, 66 N.W.2d 784 (1954) .

Wash. - Scott v. J.F. Duthie & Co., 125 Wash. 470, 216 P. 853, 28 A.L.R. 328 (1923) .

Wis. - Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912) .

Contra:

Cal. - Russell v. H.W. Johns-Manville Co., 53 Cal.App. 572, 200 P. 668 (1921) .

(n8)Footnote 8. In Sigrist v. Century 21 Corp., 519 P.2d 362 (Colo.App.1973) , Century 21 organized auto races and offered $2,000 to the point leader in each racing division at the end of the season. Sigrist was the point leader for the figure 8 competition. Before the end of the normal racing season, Century 21 cut short the season on figure 8 competition because in its opinion there were insufficient entries to put on a good show for the spectators, and refused to pay Sigrist, arguing that it had merely revoked an offer to a unilateral contract. The court ruled that the offer had become irrevocable and Sigrist was entitled to the full promised sum as the ''season'' consisted of the six races in which Sigrist had competed.

(n9)Footnote 9.

Minn. - Sylvestre v. State, 298 Minn. 142, 214 N.W.2d 658 (1973) . The court applies Restatement of Contracts § 45, but it seems clear that substantial performance had been rendered. Note that the court found that the statutory pension plan was an offer. Compare § 1.11 above.

Ore. - Miller v. Dictaphone Corp., 334 F.Supp. 840 (D.C.Or.1971) . Miller worked for Dictaphone from 1934 until retirement in 1969. In 1966 Dictaphone announced changes in its existing pension plan by a letter which Miller heard about but did not read. He sent in a card to take advantage of those changes. Dictaphone continued to work on its plan until it came up with Plan G, an explanation of which in booklet form was given Miller in March 1969. Miller claimed he was entitled to the retirement benefits of the 1966 letter, instead of the less favorable Plan G. Held, for Miller. The court quoted from § 153 to show that a pension offer is enforceable when the employee begins performance, and cited § 2.29, 3.9 and 153 to show that such an offer cannot be revoked after substantial performance has begun. The court also cited § 3.6 to support holding that Miller was entitled to the benefits of the 1966 letter.

The decision of the court in Wallace v. Northern Ohio Traction & Light Co., 57 Ohio App. 203, 13 N.E.2d 139, 10 Ohio Op. 354 (1937) , can be reconciled with the text above, but the reasoning of the court can not. If the exigencies of the business honestly require the closing of a department and the discharge of workers, the existence of a pension system does not make such discharge a breach of contract. But the court definitely states that the employer has both power and privilege to revoke the promised pension system, even as against employees who have almost completed the prescribed pension period. It is believed that this is error. The court very justly says, ''we deplore the result.''

Other cases that consider whether a statute setting up a pension plan is an offer to a contract are collected in Pineman v. Oechslin, 637 F.2d 601 (2d Cir.1981) .

(n10)Footnote 10. See § 4.2 below.

(n11)Footnote 11.

U.S. - Williams v. United States, 12 Ct.Cl. 192 (1876) .

Similar cases are:

Kan. - Stone v. Dysert, 20 Kan. 123 (1878) .

Ky. - Mosley v. Stone, 108 Ky. 492, 56 S.W. 965 (1900) ; Louisville & N.R. Co. v. Goodnight, 73 Ky. 552 (1874) ; Stephens v. Brooks, 65 Ky. (2 Bush) 137 (1867) .

A minority case in conflict with the foregoing is Biggers v. Owen, 79 Ga. 658, 5 S.E. 193 (1888) , where a reward was offered for the arrest and conviction of the perpetrator of a crime. After the plaintiff had discovered the criminal but had not yet secured all the evidence necessary to convict, the offeror revoked. The plaintiff continued his efforts. As a result thereof there was a conviction. The court held the revocation to be effective. See also Gray v. Hinton, 7 Fed. 81 (C.C.Neb.1881) .

(n12)Footnote 12.

Md. - Wilson v. Guyton, 8 Gill 213 (1849) .

Mass. - Wentworth v. Day, 44 Mass. (3 Met.) 352 (1841) .

Mich. - Wood v. Pierson, 45 Mich. 313, 7 N.W. 888 (1881) .

Or. - MacFarlane v. Bloch, 59 Or. 1, 115 P. 1056 (1911) .

See also:

Pa. - Cummings v. Gann, 52 Pa. 484 (1866) .

(n13)Footnote 13.

N.Y. - I. & I. Holding Corp. v. Gainsburg, 276 N.Y. 427, 12 N.E.2d 532 (1938) .

Vt. - Eastern States Agricultural & Industrial League v. Vail's Estate, 97 Vt. 495, 124 A. 568, 38 A.L.R. 845 (1924) .

Under the terms of Restatement (Second) of Contracts § 90 a charitable subscription is binding without proof of reliance.

(n14)Footnote 14. In Wachtel v. National Alfalfa Journal Co., 190 Iowa 1293, 176 N.W. 801 (1921) , the defendant opened a circulation contest, offering prizes to those winning the most votes by securing subscriptions, but later discontinued the contest when the plaintiff was the leader therein. The plaintiff was held entitled to damages for breach of contract.

Other contest cases are:

Ala. - Hertz v. Montgomery Journal Pub. Co., 9 Ala.App. 178, 62 So. 564 (1913) .

D.C. - Minton v. F.G. Smith Piano Co., 36 App. D.C. 137 (1911) .

Iowa - Delier v. Plymouth County Agr. Soc., 57 Iowa 481, 10 N.W. 872 (1881) .

Minn. - Mooney v. Daily News Co. of Minneapolis, 116 Minn. 212, 133 N.W. 573 (1911) .

If power to change the rules is reserved, a published notice of change is not always effective against a contestant who does not see it. Long v. Chronicle Pub. Co., 68 Cal.App. 171, 228 P. 873 (1924) .

(n15)Footnote 15. In Zwolanek v. Baker Mfg. Co., 150 Wis. 517, 137 N.W. 769 (1912) , the court said: ''It is true as a general proposition that a party making an offer of a reward may withdraw it before it is accepted. But persons offering rewards must be held to the exercise of good faith and cannot arbitrarily withdraw their offers for the purpose of defeating payment.''

See, also, Goodman v. Marcol, Inc., 261 N.Y. 188, 184 N.E. 755, 88 A.L.R. 714 (1933) , and other land brokerage cases cited in the following section.

(n16)Footnote 16. Part performance does not operate as an acceptance if there was a specified mode of acceptance that was not used and if the offeror has no notice of the part performance. The offeror can still revoke by giving notice. Venters v. Stewart, 261 S.W.2d 444 (Ky.1953) ; cf. U.C.C. § 2-206.

The defendant promised to furnish water for houses that the plaintiff contemplated building, but the plaintiff made no return promise to build or to take water. A notice of revocation by defendant before the houses were begun was held effective in Cowan v. De Witt, 284 App.Div. 998, 135 N.Y.S.2d 379 (1954) .