Empire Machinery Co. v. Litton Business Telephone Systems
566 P.2d 1044 (1977)
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Rule of Law:
An offeree's conduct, such as beginning performance or taking steps in furtherance of contractual obligations, can constitute acceptance of a contract and bind the offeree, even if the written agreement contains a clause specifying a different, exclusive mode of acceptance (like a home office signature).
Facts:
- After negotiations for a new telephone system, Litton's representative, Russell Murphy, sent Empire Machinery Co. a letter stating that upon receipt of a signed order and deposit, Litton would install the system.
- Empire's president, Jack Whitman, then signed Litton's 'Equipment Sales Agreement' and gave Murphy a down payment check for $8,546.00.
- The agreement contained a clause stating, 'This agreement shall become effective and binding... only upon approval, acceptance, and execution hereof by BTS [Litton] and its home office.'
- Litton never formally executed the agreement at its home office.
- At Litton's request, Empire sent a letter to Mountain Bell designating Litton as its representative and stating, 'We have this date entered into a contractual agreement with LITTON.'
- A Litton representative, John Parlett, also wrote to Mountain Bell, stating, 'We have this date entered into a contractual agreement with Empire Machinery Company.'
- Litton requested that Empire purchase approximately $12,000 worth of supplemental electrical equipment, which Empire did.
- Months later, Litton informed Empire it could not deliver the promised system and attempted to return the down payment.
Procedural Posture:
- Empire Machinery Co. filed a lawsuit against Litton Systems Co. in the trial court for breach of contract.
- Both parties filed cross-motions for summary judgment.
- The trial court granted summary judgment in favor of Litton, finding that no binding contract had been formed.
- Empire Machinery Co., as the appellant, appealed the trial court's judgment to the Arizona Court of Appeals.
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Issue:
Does an offeree's conduct, which indicates assent to an agreement, create a binding contract when the written offer form specifies that acceptance can only occur through execution by the offeree's home office?
Opinions:
Majority - Jacobson, J.
Yes. An offeree's conduct can manifest assent to a contract and make it binding, even if it deviates from a prescribed mode of acceptance. The court first determined that Empire was the offeror and Litton was the offeree, as Litton's 'Equipment Sales Agreement' solicited an offer from Empire that was subject to Litton's acceptance. While an offeror can specify the manner of acceptance, this requirement can be waived by the offeror and assented to by the offeree through conduct. Here, Litton's actions—such as cashing the down payment check, its representatives repeatedly representing to a third party (Mountain Bell) that a contract existed, and encouraging Empire to make related purchases—created a genuine issue of material fact as to whether Litton had assented to the contract through its conduct. The court concluded that such conduct, if performed by individuals with apparent authority, could lead a reasonable businessperson to believe the contract had been accepted, thereby precluding summary judgment.
Analysis:
This decision clarifies that 'home office acceptance' clauses do not provide an absolute shield against contract formation. It establishes that an offeree's objective conduct, rather than its subjective intent or formal execution, can be sufficient to manifest assent. The ruling emphasizes that courts will look to the totality of the circumstances, including performance and representations to third parties, to determine if a contract was formed. This precedent requires companies using such clauses to carefully manage the post-offer conduct of their agents, as their actions can inadvertently bind the company to a contract it has not formally executed.
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