Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 17

FACTS Defendants listed with a real estate agent a home for sale. Plaintiffs, Patrick and Anne Giannetti, offered $155,000 for the home and submitted a deposit in the amount of $2,500. The defendants countered the offer with an offer to sell the house for $160,000. The plaintiffs then inquired whether certain equipment and items of furniture could be included with the sale of the house. The defendants refused to include the questioned items in the sale. The plaintiffs then accepted the $160,000 offer, but changed the mortgage amount from $124,000 to $128,000. The agent failed to show this change to the defendants but instead told the defendants that the plaintiffs had accepted their counteroffer. Defendants then signed all papers, but before the closing sought to invalidate the agreement. The plaintiffs brought this action for specific performance to enforce the sale. The trial court granted plaintiffs' motion and the defendants appealed.
DECISION Judgment for the defendants.
OPINION Hood, J. Defendants' main argument is that the trial court clearly erred in finding that there was a contract where defendants never agreed to plaintiffs' change in the mortgage amount. We reluctantly agree.
As argued by defendants, ''[a]n offer is a unilateral declaration of intention, and is not a contract. A contract is made when both parties have executed or accepted it, and not before. A counterproposition is not an acceptance.'' [Citations.] An acceptance must be ''unambiguous and in strict conformance with an offer.'' [Citation.]
''[A] proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to the negotiation, unless the party who made the original offer renews it, or assents to the modification suggested.'' [Citation.] Thus, ''[a]ny material departure from the terms of an offer invalidates the offer as made and results in a counter proposition, which, unless accepted, cannot be enforced.'' [Citation.]
Plaintiffs argue that the modification of the mortgage amount did not vitiate their purported acceptance because the mortgage amount, unlike the purchase price, was not a material term of the contract. We disagree.
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In other words, before the change, plaintiffs were obligated to buy the property if they obtained a mortgage for $124,000; after the change, no obligation to buy arose unless they obtained a $128,000 mortgage. Thus, the modification had the legal effect of widening the door through which plaintiffs could escape the contract and it was therefore material. [Citation.]
INTERPRETATION A counteroffer generally operates as a rejection and thus terminates the power of acceptance.
ETHICAL QUESTION Was the defendant morally obligated to sell the property? Explain.
CRITICAL THINKING QUESTION What could the plaintiffs have done to protect themselves while at the same time seeking different terms?