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

Case Brief Contracts

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.
Houston Dairy, Inc. v. John Hancock Mutual Life Insurance Co. case brief
Houston Dairy, Inc. v. John Hancock Mutual Life Insurance Co. case brief summary
643 F.2d 1185 (1981)
CASE SYNOPSIS
Appellant borrower challenged an order from the United States District Court for the Northern
District of Mississippi which found appellee lender had both waived a seven-day limitation and
validly accepted appellant's counter offer. Accordingly, the court held that the parties had
entered into a binding contract and awarded appellee the $ 16,000 deposit as valid, liquidated
damages for breach of the loan agreement.

CASE FACTS
Appellant borrower returned appellee lender's loan commitment letter and good faith deposit
after the seven days appellant required when it offered the loan. Appellee then obtained a
better loan, and requested a refund of its deposit, which was refused. The district court ruled
that there was a binding contract between the parties and that the deposit represented valid,
liquidated damages forfeited by appellant when it breached the contract.

DISCUSSION
 On appeal, the court held the expiration of the seven-day time period, terminated
appellee's offer.
 Appellant's action in signing and returning the commitment letter subsequent to the
termination of the offer constituted a counter offer which appellee could have accepted
within a reasonable time.
 Appellee's silence plus retention of appellant's money was not acceptance and
notification.
 Nor was the depositing of the check sufficient to constitute acceptance of an offer when
appellant had no previous dealings or statements that would indicate appellant knew of
appellee's policy concerning offers it would not accept.

CONCLUSION
The judgment finding appellant borrower breached its contract to obtain a loan and forfeited
its good faith deposit was reversed. When appellant returned appellee's loan commitment
letter several days late, it was proposing a counter offer which appellee lender rejected.
Because appellant's policies were unknown to appellant, appellant was entitled to revoke its
counter offer and obtained a refund of its deposit.