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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 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.20

Supp. to § 2.20 Revocation Otherwise Than by Direct Notice

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(A) The following case cited the predecessor to this section:

(1) RGC Intl Investors, LDC v. ARI Network Servs., 2004 U.S. Dist. LEXIS 1161 (D. Del. 2004) . The defendant corporation issued and sold to the defendant a debenture and an option to purchase additional shares of common stock (''the Securities''). Several months later, the plaintiff offered to sell the Securities back to the defendant (''August 28 Offer''). Under the proposal, the defendant would make an initial payment and, in return, the plaintiff would promise to forbear exercising its default rights under the Securities for a period of eight months (''stand-still period''). During the eight months, the defendant would have the right to repurchase the Securities with three days' notice to the plaintiff (''Repurchase Agreement''). On September 12, 2002, the plaintiff sent a document (''Term Sheet'') confirming the offer. The defendant asserted that the Term Sheet was not an accurate reflection of the terms of the August 28 Offer. On September 13, 2002, the defendant accepted the August 28 Offer and the defendant sent a redlined version of the Term Sheet and a signed agreement reflecting certain alterations (''Amended Term Sheet''). The plaintiff sued the defendant claiming, inter alia, that no Repurchase Agreement existed affecting the plaintiff's rights with respect to the Securities. The plaintiff moved for summary judgment. In response, the defendant contended that a Repurchase Agreement was created between the parties which arose from one of the following events: ''(1) [the] defendant's acceptance of [the] plaintiff's August 28 Offer; (2) [the] defendant's acceptance of the Term Sheet; or (3) [the] plaintiff's acceptance of [the] defendant's Amended Term Sheet through [the] plaintiff's conduct.'' Citing Corbin, the court stated that an offer is revoked where the offeror makes a second offer to the offeree that is inconsistent with the first offer. Finding that the plaintiff's August 28 Offer was superseded and revoked by the Term Sheet transmitted on September 12, the court determined that the offeree's power of acceptance was terminated with respect to the August 28 Offer. Accordingly, the court granted the plaintiff's motion for summary judgment.

(B) The following cases cite this section:

(1) Abrams Rodkey v. Summit County Children Servs., 2005 Ohio 4359, 178 L.R.R.M. 2952, 163 Ohio App. 3d 1, 836 N.E.2d 1 (2005) . The plaintiffs, union employees for the defendant, stopped working after negotiations for a new contract failed. The plaintiffs sought unemployment compensation that was denied by the Unemployment Compensation Commission. They appealed to the trial court which denied their request. The statute provided that the plaintiffs would not be entitled to unemployment compensation due to a labor dispute other than a ''lockout'' defined as a cessation of furnishing work to employees in an effort by the employer to secure more favorable terms. On the instant appeal, the plaintiffs claimed that they suffered such a ''lockout'' because the defendant had proposed a new contract along with a written statement (Exhibit T) that, as of 11:59, July 13, 2002, all previous offers made by the defendant to the union were withdrawn and any tentative agreements would be null and void. The defendants claimed that this statement was, in effect, the announcement of a lockout. The court, however, found that the findings of fact by the hearing officer revealed that, after the written statement was issued, the defendants were orally but clearly informed that they could continue working under the same terms and conditions of the expired contract since the defendant would remain open for business. Moreover, some of the union employees did continue to work and received the same compensation they had received under the expired contract. The plaintiffs claimed that any such oral statements were nullities in light of Exhibit T. The court interpreted Exhibit T as announcing that the proposed contract would be on the table until 11:59 on July 13. If no new contract had been formed at that time, the agreements, enhancements and concessions that the defendant had made to that time were withdrawn and negotiations would resume afresh the following day. Such a bargaining tactic is lawful so long as it is done in good faith. The court held that Exhibit T was not controlling. The later oral offer to permit the plaintiffs to continue working under the status quo was a subsequent offer, inconsistent with the previous offer. Citing the Restatement (Second) of Contracts, § 43, the court held that a latter-made offer will revoke a previous offer to the extent that the offers are inconsistent, an indirect revocation of the earlier offer. Since the latter offer was controlling, the plaintiffs were entitled to continue working under the status quo. Thus, there was no lockout and the plaintiffs were not entitled to unemployment compensation.

(2) Kidwill v. Werner, 2006 Tex. App. LEXIS 10659 . Werner was negotiating separately with Kidwill and Mast for the sale of Werner's property. Kidwill made an offer to Werner to which Werner responded with a counter offer. Werner's agent testified that before Kidwill attempted to accept Werner's counter offer, Werner's agent had informed Kidwill's agent who informed Kidwill that Werner had accepted Mast's offer. Thus, the court concluded that there was evidence in the record that Werner had ''impliedly'' revoked her counter offer to Kidwill. Kidwill argued that Werner never spoke directly to Kidwill or Kidwill's agent. The court rejected this argument on the footing that Kidwill gave insufficient effect to indirect, or as the court called it, ''implied'' revocation of an offer. The court affirmed the judgment below on the footing that the evidence was sufficient for the trial court to conclude that Kidwill did not accept Werner's counter offer since the counter offer had been revoked prior to Kidwill's attempted acceptance.

(3) Keim v. Richland Township Board of Supervisors, 2007 U.S. Dist. LEXIS 23627 (W.D. Pa. 2007) . The plaintiff alleged that the defendant orally promised to hire him as a police officer on a full-time basis by conditioning the making of an offer of part-time employment upon plaintiff's agreement to work full-time in the event a full-time position became available. The court explained that it was not indicated whether the plaintiff's acceptance of the initial offer of part-time employment included his promise to work full-time if full-time employment became available. However, a subsequent offer made by the defendant concerning the same subject matter was made in written form and it did not contain a requirement that the plaintiff promise to work full-time. It only contained a promise to complete a physical examination and training requirements. Thus, the court concluded that the initial verbal offer was rescinded by the defendant through a subsequent written offer concerning the same subject matter which the plaintiff accepted. Citing Corbin, the court explained that an alteration in the terms of the offer or the making of a new offer involving the same subject matter, communicated to the offeree, will end the power to accept the original offer, without using any express words of revocation. The court concluded that the plaintiff failed to state a claim for breach of contract under Pennsylvania law.

Supplement to Notes in Main Volume

1. Monsour's Inc. v. Menu Maker Foods, Inc., 2007 U. S. Dist. LEXIS 39870 (D. Kan. 2007) . On March 14, 2007, Monsour's (the plaintiff) offered to settle a dispute for $420,000 to which the defendant made a counter offer of $250,000. This counter offer was rejected by the plaintiff's counter offer of $400,000. Counsel for the defendant sent a recitation of the negotiations in which he stated that he had been authorized to offer the $250,000 settlement by his client. On the morning of March 26, the defendant's counsel restated the $250,000 offer and further expressed doubt that his client would pay more than $300,000. Later that day, plaintiff's counsel stated that, if the defendant offered $300,000, he would take that offer to the plaintiff. The defendant informed its counsel that it would not pay $300,000 and it was reconsidering whether to settle at all. On the afternoon of March 26, defendant's counsel informed the plaintiff's counsel that the owner of the defendant ''will not pay $300,000'' and the owner ''was getting 'iffy' about his $250,000 offer. An hour later, plaintiff's counsel sent an email to the defendant's counsel accepting the $250,000 offer. The defendant claimed that its $250,000 offer had been rejected or revoked or both. The court held that no contract of settlement had been formed. The defendant's $250,000 offers of settlement were induced the plaintiff's counter offers of $400,000 and $300,000 which had the usual effect of counter offers of rejecting the defendant's $250,000 offer. There was no evidence that the plaintiff's counter offers were accompanied by any manifestation of intent to preserve the defendant's $250,000 offer. Even if the defendant's $250,000 offer was not extinguished by the plaintiff's counter offers, when the defendant's counsel characterized the continuation of the $250,000 offer as ''iffy,'' the court found that the defendant's offer became ''equivocal.'' Citing the ''leading case'' of Hoover Motor Express found in this note in the main volume, the court found that this characterization was sufficient to constitute a revocation of the $250,000 offer in accordance with § 42, illustration 5, of the Restatement (Second) of Contracts.