We all learned pretty early on in law school that for a contract to be formed, there has to be an offer and acceptance. We also were taught that if, in responding to an offer, a party accepted some terms and proposed additional ones, that party was making a counter-offer, was deemed to have rejected the original offer, and no contract was formed. In the real world, it usually is clear whether an offer is being accepted or a counter-offer is being made. Nevertheless, and as the defendant in APB Realty, Inc. v. Geogia-Pacific LLC recently learned, a lack of precision in responding to an offer can lead to confusion as to whether or not a contract has been formed.

In APB Realty, Georgia-Pacific was offering 88 rails cars for sale, “where is, as is.” APB was interested in buying those rails cars, and it made the following offer to Georgia-Pacific’s broker:

     Total for all 88 x Log Stake Railcars $1,636,000 (Including 16% Buyer’s Premium).

Shortly thereafter, the broker responded as follows:

Here are the two options that [Georgia-Pacific] has brought back for us to close the deal on.

Option 1, basically states that for $61K, you buy insurance that will replace as many [damaged] wheels as needed to eliminate that problem. … Option 2 is the deal with you taking responsibility for any [damaged] wheels.

[In sum:]

Option 1 . . . As is, where is. Georgia-Pacific assumes responsibility for the replacement of all [damaged] wheels if found. Customer retains responsibility for transportation to final destination. Proposed Offer: $1,697,000. . . .

Option 2: . . . As is where is. Customer assumes responsibility for the replacement of all [damaged] wheels if found. Customer retains responsibility for transportation to final destination. Proposed Offer: 1,636,000.

While three days later, APB said that it was leaning toward Option 1, before it responded further, Georgia-Pacific’s broker emailed APB to say that Georgia-Pacific had accepted a higher offer and would not be selling the rail cars to APB. APB then sued for breach of contract, and Georgia-Pacific countered by moving to dismiss. In that motion, Georgia-Pacific argued that no contract between the parties had been formed, and the federal district court agreed. On appeal, however, the First Circuit said the following:

The fact that Georgia-Pacific confirmed its willingness to do what APB proposed while also offering an alternative option does not mean that a contract was not formed. If A offers to buy ten widgets from B for $20, and B replies that B will be glad to sell the ten widgets for $20, or throw in an extra ten for an extra $19 (thus selling a total of twenty widgets for $39), the law would generally view B’s response as an acceptance of A’s offer, plus an offer of a new, alternative deal that A can — but need not — accept.

Moving from the hypothetical to the facts before us, one could reasonably interpret Georgia-Pacific’s email as unequivocally saying, in essence: “We accept your offer to buy the cars, as is, at your offering price. At your election, we will also repair a [damaged] wheel problem for an additional $61,000.” Under such a reading, there would be a contract pursuant to the originally offered terms and an offer to modify the contract if APB so desired and agreed.

Accordingly, the First Circuit held that because APB might be able to prove that a contract between it and Georgia-Pacific was formed, it would be improper to throw out the lawsuit on a motion to dismiss. Thus, while APB is a long way from winning its suit, at least it is in the fight.

Ultimately, APB Realty highlights two key principles. First, the best way to avoid disputes is by using precise language, whether in a written contract, an email, or a verbal agreement. Second, unless you are entering into an option agreement, do not make the mistake of thinking that the other party is bound by an agreement, but you are not. Making such an assumption can lead you right to the courthouse.