## Facts

- John Hancock sent Houston Dairy a written loan commitment offering to lend $800,000 at 9¼% if, within seven days, Houston Dairy returned a written acceptance plus a $16,000 letter of credit or cashier’s check labeled a “Good Faith Deposit” and described as liquidated damages upon default.
- Houston Dairy did not respond within the seven-day period.
- Eighteen days after the commitment was issued, Houston Dairy’s president signed and returned the commitment letter with a $16,000 cashier’s check.
- John Hancock received the signed letter and check, forwarded the check internally “for deposit,” and sent closing information to a loan-closing attorney.
- Houston Dairy’s counsel later contacted the closing attorney, and they discussed closing logistics and fees.
- Houston Dairy obtained alternative financing at a lower interest rate and demanded return of the $16,000; John Hancock refused.
- Houston Dairy sued to recover the deposit, asserting no binding loan contract was formed; after a bench trial, the district court held a contract existed and the $16,000 was forfeited as liquidated damages.
- Houston Dairy appealed.

## Issues

1. Whether Houston Dairy’s signed return of the commitment letter after the stated seven-day acceptance period operated as an acceptance or as a counteroffer.
2. Whether John Hancock accepted any counteroffer through conduct such as depositing the cashier’s check and taking internal steps toward closing, despite not communicating acceptance to Houston Dairy.
3. Whether, absent a formed contract, John Hancock could retain the $16,000 deposit as liquidated damages.

## Decision

- The Fifth Circuit reversed the district court’s judgment.
- The court held Houston Dairy’s late signed return of the commitment letter could not accept the expired offer and therefore operated as a counteroffer.
- The court held John Hancock’s silence and uncommunicated internal acts, including depositing the cashier’s check and initiating closing preparations, did not constitute acceptance under Mississippi contract law.
- Because no acceptance was communicated to Houston Dairy, no contract was formed, and Houston Dairy was entitled to return of the $16,000.

## Legal Principles

- An attempt to accept an offer after an express time-for-acceptance has expired is ineffective as an acceptance and is treated as a counteroffer.
- Acceptance generally must be communicated to the offeror through an objective manifestation of assent; uncommunicated intent or internal processing does not suffice.
- Silence ordinarily is not acceptance absent recognized exceptions (e.g., prior dealings or circumstances creating a duty to speak).
- Depositing or cashing a check, without notice to the other party or other outward indication of assent, does not by itself communicate acceptance.
- Contract remedies such as liquidated damages provisions apply only if a contract is formed; without contract formation, a party has no contractual right to retain a “deposit” as liquidated damages.

## Conclusion

The court concluded that Houston Dairy’s untimely response functioned as a counteroffer and that John Hancock never accepted it through a communicated, objective manifestation of assent; with no contract formed, the lender could not keep the $16,000 deposit and had to return it.


Houston Dairy, Inc. v. John Hancock Mut. Life Ins. Co., 643 F.2d 1185 (5th Cir. 1981)