Facts
- John Petterson owned Brooklyn real property subject to a third mortgage securing a bond held by George Pattberg, with $5,450 unpaid principal as of April 4, 1924, payable in quarterly installments.
- Pattberg sent Petterson a letter stating he would accept cash for the mortgage and allow a $780 reduction if (i) the April 25, 1924 installment was paid when due and (ii) the mortgage was paid in full on or before May 31, 1924.
- Petterson timely paid the April 25 installment.
- In late May 1924, before May 31, Petterson went to Pattberg’s home with cash to pay the mortgage in full.
- At the door, Petterson said he had come to pay off the mortgage; Pattberg responded that he had sold the mortgage.
- After being told this, Petterson displayed the cash and said he was ready to pay according to the agreement; Pattberg refused to accept payment.
- Petterson (or his estate) later paid the full, undiscounted amount to the new holder and sued for $780 plus interest as damages for breach of the discount promise.
Issues
- Whether Pattberg’s letter constituted an offer for a unilateral contract, accepted only by completed performance (full payment), rather than by a promise to pay.
- Whether an offer for a unilateral contract may be revoked at any time before the offeree completes the requested performance.
- Whether Pattberg effectively revoked the discount offer before acceptance when he stated he had sold the mortgage and refused payment at the door.
Decision
- The Court of Appeals reversed the judgment for the plaintiff and directed judgment for the defendant.
- The court characterized Pattberg’s letter as an offer for a unilateral contract, requiring full performance (payment in full by May 31) for acceptance.
- The court held the offer was revocable at any time before the requested act was fully performed.
- Because Pattberg’s revocation occurred before Petterson made a legally effective tender completing performance, no contract was formed.
- Two judges dissented, reasoning that Petterson did all he could to perform and that Pattberg prevented completion of the condition.
Legal Principles
- An offer inviting acceptance only by performance creates a unilateral contract only upon completion of the requested performance.
- Under the court’s rule, a unilateral offer remains revocable until the offeree completes performance; preparation to perform, or arriving ready to perform, does not itself constitute acceptance.
- A purported acceptance that occurs after revocation is ineffective, even if the offeree is ready and willing to perform.
- Absent separate consideration or another recognized basis for irrevocability, a time-limited promise to accept a discounted payoff does not bind the offeror before acceptance by performance.
Conclusion
The court held that the mortgage-holder’s discount proposal was a unilateral offer that could be revoked before full performance, and that revocation at the door preceded any acceptance by tender; therefore, no contract arose and the estate could not recover the promised $780 reduction.