Back to Basics: One-Sided Contract Acceptance
By James C. Man, Esq.
In the nuanced and complicated world of corporate and contract law, there are three fundamental properties that all agreements must have: offer, acceptance, and consideration. Generally speaking, once an offer is revoked, it cannot be accepted because there is, in effect, no outstanding offer. Nonetheless, in some jurisdictions (e.g., TX, NY, UT) a party’s “acceptance” after the revocation of an offer operates as a counteroffer which the non-signing party can accept, thus allowing enforcement of the contract against the signing party. This is called the “counteroffer theory” of contract acceptance.
However, in California (and other jurisdictions) revocation of an offer is a condition that can be “waived” by the offeror, thus allowing the party the condition benefits to extend the period in which an offer can be accepted. This is called the “waiver theory”. Examples of the court applying the waiver theory can be found in Sabo v. Fasano, 154 Cal.App.3d 502 (Cal.App. 2 Dist., 1984) and Forbes v. Board of Missions of Methodist Episcopal Church, South (1941) 14 Cal.2d 332, 339/
Sabo v. Fasano
In Sabo, Mr. and Mrs. Fasano listed their apartment building for sale. Mr. Sabo executed an offer on the property on December 23, 1976, in the form of a “Deposit Receipt,” which automatically revoked the offer unless accepted within 5 days. The broker in the transaction didn’t present the Fasanos the offer until six days after Mr. Sabo executed it himself. The Fasanos signed and the broker told Mr. Sabo the contract was signed. Mr. Sabo knew it was signed late but didn’t object. After getting the Fasanos’ signature, the broker had an escrow company open escrow and the Deposit Receipt and $3,000 were placed inside. Mr. Sabo signed the escrow documents, but the Fasanos did not because they wanted to exit the agreement.
The case was brought to trial and the court held in favor of the Fasanos, saying that their signature could not be an acceptance of Mr. Sabo’s offer because it was revoked when they signed. Rather, the court explained, the late acceptance was a counteroffer that Mr. Sabo had not accepted in writing. Thus, no contract was formed. Mr. Sabo appealed the case, arguing that there was a binding contract under the “waiver theory.” The appellate court agreed with him.
The court explains:
The appellate court explained that “It is well settled a contracting party may waive conditions placed in a contract solely for that party’s benefit. [Citations]. The provision in an offer specifying the means of acceptance is such a condition and may be waived by the offeror. [Citations]. We find no reason why this rule should not apply in the case of a time limited imposed by the offeror for acceptance by the offeree.” The court goes on to explain that while some jurisdictions follow the counterargument theory, California generally follows the waiver theory, and that under said theory, “the expiration or revocation of an offer creates ‘a right on the part of the offeror to refuse to recognize a belated acceptance.
Simply put, “It must be assumed the seller intends to bind herself by the act of acceptance, even if the act is untimely. Indeed … the Fasanos admitted that by signing the deposit receipt they intended to be bound by its terms. The buyer may or may not waive the time for acceptance, but generally, this decision [*508] will be expressed by his actions after receiving the late acceptance.” (Sabo at 507-508).
Forbes v. Board of Missions of Methodist Episcopal Church, South
Without going into too much detail as to the factual background, in Forbes (a California Supreme Court case) a property owner offered the Methodist Church (“Church”) her properties, subject to a life estate, in exchange for the Church’s agreement to provide an education to a relative of hers. The offeror sent the offer (without any explicit revocation time frame) and the Church accepted it 7 months later. The Church sent confirmation of the acceptance back to the property owner, and she recorded the deed, reflecting what both parties had agreed upon. The property owner eventually passed away, and her estate sued the Church, saying that the 7-month period was an unreasonable amount of time to ‘hold out an offer’, and thus, the offer expired before the Church accepted it. Accordingly, the Church had no right to the properties the decedent offered to the Church.
The California Supreme Court ultimately held that while the issue of what constituted a “reasonable time” between the offer and acceptance was a question of fact, the original property owner (the decedent) “made no objection to the delay, receive[d] the agreement and gave her written receipt for the same [to the offeree],” therefore waiving “the right to complain of said delay.” Similarly to Sabo, the Court here upheld the argument that the offeror’s decision to ignore the revocation of their offer operates as a “waiver” of a condition on acceptance- thus allowing the offeror to enforce a contract despite the offeree’s desire to terminate it.
Conclusion
In conclusion, contracts can be deceptively simple. Once they are signed, it is a steep uphill battle to get them terminated or dissolved. Remember to always think twice before you sign and if possible, consult with an experienced business and corporate attorney to ensure your interests are protected.
Consult With Experienced Counsel
These cases highlight the significance of understanding the complexities of contract law and seeking legal counsel when necessary to safeguard individual interests. At Law Stein Anderson, our team of experienced attorneys can help you navigate contract law. Whether you’re drafting agreements, facing disputes, or seeking clarity on legal matters, we’re here to provide expert counsel tailored to your needs. Don’t navigate the legal landscape alone – contact us today to ensure your interests are safeguarded with precision and confidence.