Ehlen v. Melvin
823 N.W.2d 780, 2012 ND 246, 2012 N.D. LEXIS 252 (2012)
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Rule of Law:
An acceptance that modifies or adds to the material terms of an offer is not a valid acceptance but rather a counteroffer, which must be accepted by the original offeror to form a binding contract.
Facts:
- The Melvins owned real property in McIntosh County.
- Paul Ehlen, through an intermediary, expressed interest in purchasing the Melvins' property.
- On February 16, 2011, Ehlen sent the Melvins a signed document titled "Purchase Agreement" offering to buy the property for $850,000, with a closing date of March 1, 2011.
- On February 18, 2011, the Melvins reviewed the agreement with their attorney and made several handwritten modifications.
- The Melvins' changes included adding an "as is" clause, limiting the mineral rights being conveyed, and noting the land was subject to a federal wetland easement and an agricultural lease.
- The Melvins initialed each change, signed the modified document, and sent it back to Ehlen.
- Ehlen did not contact the Melvins after receiving the modified documents, nor did he initial the changes they made.
- An intermediary informed the Melvins that Ehlen was concerned about the modified terms and that the deal was off, though he later said it was "back on."
Procedural Posture:
- Paul Ehlen sued John M. Melvin and LynnDee Melvin in a North Dakota district court (trial court) to enforce an alleged purchase agreement.
- After a bench trial, the district court found that no contract existed because the Melvins had made a counteroffer that Ehlen never accepted.
- The trial court dismissed Ehlen's claims with prejudice and entered a judgment awarding costs to the Melvins.
- Paul Ehlen (appellant) appealed the dismissal to the Supreme Court of North Dakota.
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Issue:
Does a party's response to a purchase offer, which includes handwritten additions and modifications to material terms, constitute an acceptance that forms a binding contract?
Opinions:
Majority - Kapsner, Justice.
No. A response to an offer that alters its material terms is a counteroffer, not an acceptance, and does not create a contract unless the original offeror accepts the new terms. To form a contract, acceptance must be absolute, unqualified, and mirror the terms of the offer. The Melvins' handwritten additions—such as the 'as is' clause, limitations on mineral rights, and notations of easements—were substantive changes, not mere suggestions. This qualified acceptance constituted a rejection of Ehlen's original offer and created a new offer, or counteroffer. The words 'THIS IS A LEGALLY BINDING CONTRACT' on the form are immaterial if the parties have not mutually assented to the same terms. Ehlen never accepted this counteroffer; he did not initial the changes, and his silence and inaction do not constitute acceptance. Therefore, no contract was formed.
Analysis:
This decision reaffirms the common law 'mirror image rule' in contract formation, which requires an acceptance to be an unequivocal assent to the terms of the offer. The court clarifies that even when a document is signed by both parties, substantive, un-agreed-upon handwritten modifications transform the purported acceptance into a counteroffer. This holding emphasizes the importance of ensuring a final, clean version of a contract is executed or that all modifications are explicitly initialed and agreed to by all parties. For future cases, this reinforces that courts will look for objective manifestations of mutual assent to the exact same terms, and a party cannot be bound to material terms they never explicitly accepted.
