Contracts I, Pages 372–376

Houston Dairy v. John Hancock Mutual Life Ins. Co.

United States Court of Appeals, Fifth Circuit, 1981

Facts:

Defendant mailed a letter to plaintiff agreeing to lend them $800,000 at 9¼% provided that defendant would return the letter within seven days with a written acceptance and a check for $16,000 for a "good faith deposit." Plaintiff did not execute the letter until eighteen days later, but sent a cashier's check along with the acceptance. An agent for defendant mailed the check to their Depository and Service Center in Champaign, Illinois, for deposit and sent the loan-closing attorney the necessary information to close the loan. Plaintiff's president delivered a copy of the letter to defendant's attorney and asked him to ascertain his fee for closing the loan. They talked and agreed to the method they would use to close the loan. Two days later plaintiff was able to obtain a 9% loan from a state bank and requested a refund of its $16,000 deposit, which was refused.

Procedural History:

District court found that defendant waived the seven-day limitation and accepted the counter offer. They ruled that there was binding contract and that the $16,000 deposit represented valid, liquidated damages forfeited by plaintiff when it breached the contract.

Issue:

Did plaintiff's late acceptance constitute a counter offer?

Plaintiff's Argument:

The return of the commitment letter constituted a counter offer since the seven-day time period for acceptance had expired. Defendant never communicated its acceptance of the counter offer, so plaintiff was allowed to revoke it.

Defendant's Argument:

Defendant did accept plaintiff's counter offer by depositing their check.

Rules:

  • Such an untimely attempt to accept normally constitutes a counter offer.

  • Acceptance must be communicated to the propose of the offer.

  • [R2C § 69]

    Note:

    Only Restatement that deals with intent

Reasoning:

Plaintiff had no prior dealings with defendant nor did they lead them to understand that their silence would operate as acceptance. Plaintiff could not even have known that the check was deposited as it was a cashier's check.

Holding:

Plaintiff could not have accepted defendant's offer once the time period had lapsed. Plaintiff proposed a counter offer which defendant's silence was not operative to accept. Reversed.

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