Houston Dairy, Inc. v. John Hancock Mutual Life Insurance Co.

United States Court of Appeals for the Fifth Circuit · Contracts

ContractsOffer and AcceptanceCounterofferAcceptance by Silenceofferacceptancecounterofferlapse of time

Facts

John Hancock sent Houston Dairy a loan commitment letter offering to lend $800,000 at 9 1/4% if Houston Dairy returned the signed letter within seven days along with a $16,000 cashier's check or letter of credit as a good faith deposit. Houston Dairy did not sign and return the letter until eighteen days later, enclosing a $16,000 cashier's check. John Hancock deposited the check and sent information to its closing attorney, while Houston Dairy's attorney later spoke with John Hancock's closing attorney about closing procedures and fees. Before any communicated acceptance from John Hancock, Houston Dairy obtained a cheaper bank loan and requested return of the deposit, which John Hancock refused.

Issue

When an offeree attempts to accept a time-limited offer after the acceptance period has expired, does that late response become a counteroffer, and if so, did John Hancock accept that counteroffer by depositing the check, remaining silent, or through the attorneys' conversation? If not, could Houston Dairy revoke its counteroffer and recover the deposit?

Rule

An offeror may limit acceptance to a fixed time period, and once that period expires the offer terminates. A belated attempt to accept is ordinarily a counteroffer, and any contract thereafter arises only if the original offeror accepts that counteroffer in accordance with ordinary rules of acceptance, including communication of acceptance to the proposer. Silence or inaction operates as acceptance only in limited circumstances, such as when the offeror has reason to understand that silence will manifest assent; mere deposit of a check, without communicated acceptance or known circumstances making silence meaningful, is insufficient.

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Cedar Grove Storage, a warehouse operator in Tulsa, received a written financing proposal from Prairie Summit Funding promising a $2 million equipment loan if Cedar Grove signed and returned the proposal within 10 days with a $25,000 cashier's check. Cedar Grove mailed the signed proposal and check on day 16. Two days later, before hearing anything from Prairie Summit, Cedar Grove told Prairie Summit it was withdrawing and demanded the return of the check.

Which is the best analysis?

Explanation. An offeror may require acceptance within a fixed time. Once that period expires, the original offer terminates. A later attempted acceptance is treated as a counteroffer, and any contract then depends on the original offeror's acceptance of that counteroffer under ordinary acceptance rules. Because no acceptance was communicated before Cedar Grove withdrew, Cedar Grove could revoke its counteroffer. (Derived from Houston Dairy, Inc. v. John Hancock Mutual Life Insurance Co. (n.d.).)