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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 § 2.33

§ 2.33 When a Standing Offer of a Series of Separate Contracts Is Irrevocable

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There is one sort of case in which the offer is not made irrevocable either by part performance or by an express notice of acceptance. This is the case in which an offer has been made in such terms as to create a power to make a series of separate contracts by a series of separate acceptances. The closing of one of these separate contracts by one acceptance leaves the offer still revocable as to any subsequent acceptance. The two most common instances of such offers are continuing guarantees of the credit of another and offers made by credit card agreements. Yet, offers of this type are not limited to these two situations.n1

In the continuing guarantee, typically a party offers to guarantee the repayment of such loans as the offeree may make from time to time to a third party, or the payment by a third party for such goods as the offeree may thereafter sell to this third party or the payment of such drafts as the offeree may discount for a third person. The making of one loan or one credit sale or one discount is final as regards that one performance but does not prevent revocation by notice before any further act of acceptance.n2 An illustrative case is Strang v. Witkowski, n3 where there was a standing promise to pay a commission of 5% on all orders obtained by the promisee. The latter made no return promise, but had power to make a series of unilateral contracts by sending in orders. The one-year clause of the statute of frauds could not apply to such a case, even though orders may be sent in long after the end of a year. Performance of the offered promise will be due immediately upon each acceptance. See § 445, 457. One separate contract of the contemplated series has been made and is irrevocable, but notice of revocation prevents the consummation of any other contract in the series.

The typical credit card fits the mold of an offer by the issuer to a series of unilateral contracts. While all credit cards are not necessarily the same,n4 typically the issuer makes an offer to pay the cardholder's bill at designated merchants. The offer is revocable. The first major case analyzing the contractual nature of the credit card agreement is City Stores Co. v. Henderson, n5 where the court said: ''The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason, or, indeed, for no reason at all, and its withdrawal breaches no duty-for there is no duty to continue it-and violates no rights. Acceptance or use of the card by the offeree makes a contract between the parties according to its terms, but we have seen none which prevents a termination of the arrangement at any time by either party. If notice of termination is required by either party, it must be so provided in the contract. As a rule there is no requirement of prior notice for termination by the issuer. A request to the person holding the card that it be surrendered upon termination of the extension of credit by the issuer is reasonable, and if he has the card it should be surrendered. ''Although conceptually accurate in its broad contours, the language of the court goes too far in its conceptual purity, ignoring issues of good faith and fair dealing that are inherent in any civilized contractual relationship. Even if the offer indicates it can be revoked at any time, without notice, what of the restaurant patron who consumes a meal with guests, presents a credit card only to be told, without prior notice, that the restaurant has been notified that the card is no longer to be honored? Clearly, the revocation should not be effective as to a transaction, (the sale of meals to the cardholder and guests), that has occurred prior to notification,n6 unless the revocation is for good cause as in the case of overdue accounts.n7 The payment of an annual fee for certain credit cards makes traditional analysis difficult. It is rare that one pays a price for a revocable offer. In return, there can be found an implied promise of good faith and fair dealing, nothing less, but also nothing more.

Just as in the case of an offer for a single acceptance, an offer to a series of contracts can be made irrevocable. It will create a binding option if a consideration is given for the offeror's promise to do the series of acts. The offer may itself specify that the making of one loan, or the giving credit on one bill of goods, or the discounting of one bill of exchange, will be a consideration making the offer irrevocable as to further transactions. Thus, if a guarantor writes: ''In consideration of your discounting the bill for $1000 that my son presented to you today, I will guarantee the repayment of all bills drawn by him and accepted by you in the next six months,'' the discounting of the specified bill is enough to prevent revocation as to subsequent bills drawn by the son. Also, if a dealer writes: ''In return for your buying twelve carloads of glass flasks, I promise to sell to you at the same price as many more carloads as you may care to order during the year, up to a maximum of ten additional carloads.'' On assenting to a contract for the twelve carloads, the buyer gets an irrevocable option on ten other carloads.n8

It is a question of interpretation, sometimes difficult, whether the offer contemplates a single transaction with one acceptance, involving a series of performances, or contemplates a series of independent transactions concluded by a series of separate acceptances. If the performances are so interrelated that the cost and the risks overlap, the former interpretation will generally be the more reasonable one.n9

Legal Topics:

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

Contracts LawFormationOffersRevocable OffersContracts LawFormationOffersIrrevocable OffersContracts LawTypes of ContractsUnilateral ContractsGeneral Overview

FOOTNOTES:

(n1)Footnote 1. Conger Life Ins. Co. v. Deimel, 441 So.2d 1116 (Fla.App.1983) . In this case the insurance company's offer to a broker was to a series of annual contracts and could be revoked or modified.

(n2)Footnote 2.

Ala. - Consolidated Portrait & Frame Co. v. Barnett, 165 Ala. 655, 51 So. 936 (1910) , letter of credit for future purchases of goods; Christie, Lowe & Hayworth v. Patton, 148 Ala. 324, 42 So. 614 (1906) .

Ariz. - Georgia-Pacific Corp. v. Levitz, 149 Ariz. 120, 716 P.2d 1057 (1986) . The defendant signed a continuing guaranty while he was chief executive officer. He sold his interest in the business and severed all ties with it as the plaintiff well knew. It was held that the power of acceptance was terminated. The plaintiff could not take advantage of defendant's obvious mistake in neglecting to revoke the offer, citing § 609 and 610 of this treatise. It also cited Restatement of Security § 124(1) concerning the creditor's knowledge of the financial condition of the debtor that is unknown to the guarantor. In addition, the court could have cited § 2.20 of this treatise.

Ga. - J. L. Lester & Son, Inc. v. Smith, 247 Ga. 710, 280 S.E.2d 732, 733 (1981) , appeal after remand, 162 Ga. App. 506, 291 S.E.2d 251 , cert. denied, 459 U.S. 1039, 103 S. Ct. 454, 74 L. Ed. 2d 607 . The deceased grocer had entered into an ''operating statement'' agreement with a wholesaler. This was held to be an agreement fixing the terms and conditions upon which purchases could be made from time to time. The grocer's promise to be responsible for the purchases of his successors did not bind his estate as the standing offer in the operating agreement was terminated by his death of which the wholesaler had notice.

Mass. - Jordan v. Dobbins, 122 Mass. 168, 23 Am.Rep. 305 (1877) (death of offeror acts as revocation).

Mo. - Merit Specialties Co. v. Gilbert Brass Foundry Co., 362 Mo. 325, 241 S.W.2d 718 (1951) . In Mercantile Trust Co. v. Carp, 648 S.W.2d 920 (Mo.App.1983) , one of the continuing guarantors argued that there was no consideration for the guaranty. The court rejected this, providing a lucid consideration analysis. In Hoffman v. Franklin County Mercantile Bank, 666 S.W.2d 446 (Mo.App.1984) , the court reiterates the nature of the offer of guarantee.

N.J. - Swift & Co. v. Smigel, 115 N.J.Super. 391, 279 A.2d 895 (1971) , aff'd, 60 N.J. 348, 289 A.2d 793 (1972) (death of offeror does not revoke the offer until the offeree has notice); Grob v. Gross, 83 N.J.L. 430, 84 A. 1064 (1912) .

N.Y. - American Chain Co. v. Arrow Grip Mfg. Co., 134 Misc. 321, 235 N.Y.S. 228 (1929) .

Wis. - Hopkins v. Racine Malleable & Wrought Iron Co., 137 Wis. 583, 119 N.W. 301 (1909) , standing offer to supply goods at named prices as ordered by the offeree.

Eng. - Great Northern R. Co. v. Witham, 9 L.R.C.P. 16 (1873) ; Offord v. Davies, 31 L.J.C.P. 319, 12 C.B. (N.S.) 748 (1862) , guaranty of bills to be discounted as presented.

See Restatement (Second) of Contracts § 31, 47.

(n3)Footnote 3. 138 Conn. 94, 82 A.2d 624 (1951) .

(n4)Footnote 4. In Gray v. American Express Co., 743 F.2d 10, 20 (D.C.Cir.1984) , the court states that the parties ''did agree, in their briefs and at oral argument (as did the District Court in its memorandum opinion) that the Cardmember Agreement is a [bilateral] contract.'' No explanation is given as to how this credit card agreement differs from others.

(n5)Footnote 5. 116 Ga.App. 114, 156 S.E.2d 818 (1967) . Similar analysis is found in Garber v. Harris Trust & Sav. Bank, 104 Ill.App.3d 675, 60 Ill.Dec. 410, 432 N.E.2d 1309 (1982) .

(n6)Footnote 6. Reliance on an offer to one or more unilateral contracts is justifiable until notice of revocation is received. See § 2.29 above.

D.C. - Gray v. American Express Co., 743 F.2d 10, 19 (D.C.Cir.1984) .

Or. - Flowers v. Bank of America Nat'l Trust & Sav. Asso., 67 Ore. App. 791, 679 P.2d 1385 (1984) , review denied, 297 Or. 601, 687 P.2d 795 , was an action for intentional infliction of emotional harm. Plaintiff was an authorized user, not a contracting party. There was no cause of action when the card was cancelled because of a computation error by the issuing bank of a Visa card.

(n7)Footnote 7.

N.J. - Novack v. Cities Service Oil Co., 149 N.J.Super. 542, 374 A.2d 89 (1977) , aff'd, 159 N.J.Super 400, 388 A.2d 264 , certif. denied, 78 N.J. 396, 396 A.2d 583 . The account was 40 days in arrears.

N.Y. - Feder v. Fortunoff, Inc., 114 A.D.2d 399, 494 N.Y.S.2d 42, 53 A.L.R.4th 227 (1985) . Lawyer-cardholder had exceeded the credit limit. Seizure of the card by a merchant to which the card was tendered was not a tort or a breach of contract.

Ore. - Flowers v. Bank of America Nat'l Trust & Sav. Asso., 67 Ore. App. 791, 679 P.2d 1385 .

(n8)Footnote 8.

Minn. - Koehler & Henrichs Mercantile Co. v. Illinois Glass Co., 143 Minn. 344, 173 N.W. 703 (1919) .

In Dambmann v. Lorentz, 70 Md. 380, 17 A. 389 (1889) , the court treats the case as if there were a conditional contract to deliver at the buyer's option. The court states a promise by defendant to deliver from 300 to 500 tons of phosphate, the plaintiffs to give 24 hours' notice of their wants. No promise by the plaintiff, or other consideration, is stated. After 300 tons had been delivered, the defendants repudiated further obligation; but the court held the defendants bound to fill later orders.

(n9)Footnote 9. Orders for publication of a series of advertisements at a specified rate for each often present this problem of interpretation. See Hollidge v. Gussow, Kahn & Co., 67 F.2d 459 (1st Cir.1933) where a dealer ordered ''160,000 copies'' to be divided into 8 monthly issues of 20,000 each, ''price $940 per issue, $7,520 complete for 8 issues.'' The first issue was published, the dealer then becoming bankrupt. A claim for profits lost on the other 7 issues was allowed. See note in 47 Harv.L.R. 873.

Similarly, in American Publishing & Engraving Co. v. Walker, 87 Mo.App. 503 (1901) , defendant agreed to pay for one engraving cut per month for use in advertising in newspapers in defendant's locality. It was held to be one contract with a series of performances. The conclusion appears simple enough but is buttressed by the additional fact that plaintiff's salesman was paid a commission of 33% when defendant's order was accepted.

In Rague v. New York Evening Post, 164 App.Div. 126, 149 N.Y.S. 668 (1914) , the defendant requested Rague to discontinue distribution of a rival newspaper and offered to pay $10 per week for so long as Rague abstained from such distribution. (This was before the state had an antitrust law). If one were to look at the words alone, one might conclude that it was an offer to a series of contracts. However, the initial act of discontinuance substantially jeopardized Rague's ability to reinstitute a relationship with the rival. The court holds that one contract had been formed with a weekly condition of non-resumption of the distribution of the rival paper. See Restatement (Second) of Contracts § 54, ill. 3.