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A Valid Offer! The U.S. Department of the Treasury implemented the federal Home Affordable Mortgage Program (HAMP) to help homeowners avoid foreclosure amidst the sharp decline in the

A Valid Offer!

 

The U.S. Department of the Treasury implemented the federal Home Affordable Mortgage Program (HAMP) to help homeowners avoid foreclosure amidst the sharp decline in the nation's housing market in 2008. In 2009, Wells Fargo Bank issued Lori Wigod a four-month "trial" loan modification under a Trial Period Plan (TPP). After the trial period, if the borrower complied with all of the terms of the TPP agreement, including making all required payments and providing all required documentation, and if the borrower's representations remained true and correct, the servicer, Wells Fargo, had to offer a permanent mortgage modification. Wigod alleged that she complied with these requirements and that Wells Fargo refused to grant a permanent modification. Wells Fargo contended that the TPP contained no valid offer. The trial court dismissed Wigod's claim. Wigod appealed.

 

JUDICIAL OPINION

 

HAMILTON, J....

 

Valid Offer

 

... [T]he "test for an offer is whether it induces a reasonable belief in the recipient that he can, by accepting, bind the sender." Boomer v. AT&T Corp., 309 F.3d 404, 415 (7th Cir. 2002); see also Restatement (Second) of Contracts § 24 (1981) ("An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.")....

 

Under contract law principles, when "some further act of the purported offeror is necessary, the purported offeree has no power to create contractual relations, and there is as yet no operative offer." 1 Joseph M. Perillo, Corbin on Contracts § 1.11, at 31 (rev. ed. 1993).... Thus, "a person can prevent his submission from being treated as an offer by [using] suitable language conditioning the formation of a contract on some further step, such as approval by corporate headquarters." Architectural Metal Systems, Inc. v. Consolidated Systems, Inc., 58 F.3d 1227, 1230 (7th Cir. 1995) (Illinois law). Wells Fargo contends that the TPP did just that by making a permanent modification expressly contingent on the bank taking some later action.

 

That is not a reasonable reading of the TPP. Certainly, when the promisor conditions a promise on his own future action or approval, there is no binding offer. But when the promise is conditioned on the performance of some act by the promisee or a third party, there can be a valid offer. See 1 Richard A. Lord, Williston on Contracts ξ 4:27 (4th ed. 2011) ... ("a promisor's sole discretion gives rise to no obligation.... However, the mere fact that an offer or agreement is subject to events not within the promisor's control ... will not render the agreement illusory."); compare McCarty, 411 N.E.2d at 942 ("An offer is an act on the part of one person giving another person the legal power of creating the obligation called a contract."), with Village of South Elgin v. Waste Management of Illinois, Inc., 810 N.E.2d 658, 672 (2004) ("A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.").

 

Here the TPP spelled out two conditions precedent to Wells Fargo's obligation to offer a permanent modification: Wigod had to comply with the requirements of the trial plan, and her financial information had to remain true and accurate. But these were conditions to be satisfied by the promisee (Wigod) rather than conditions requiring further manifestation of assent by the promisor (Wells Fargo). These conditions were therefore consistent with treating the TPP as an offer for permanent modification....

 

In more abstract terms, then, when Wells Fargo executed the TPP, its terms included a unilateral offer to modify Wigod's loan conditioned on her compliance with the stated terms of the bargain. "The test for an offer is whether it induces a reasonable belief in the [offeree] that he can, by accepting, bind the [offeror]." Architectural Metal Systems, 58 F.3d at 1229, citing McCarty, 411 N.E.2d at 943; see also 1 Williston on Contracts § 4.10 (offer existed if the purported offeree "reasonably [could] have supposed that by acting in accordance with it a contract could be concluded"). Here a reasonable person in Wigod's position would read the TPP as a definite offer to provide a permanent modification that she could accept so long as she satisfied the conditions....

 

Once Wells Fargo signed the TPP Agreement and returned it to Wigod, an objectively reasonable person would construe it as an offer to provide a permanent modification agreement if she fulfilled its conditions.

 

[The Court of Appeals determined that Wigod had stated a breach of contract claim.]

 

Reversed and remanded.

 

What is the test to determine if an offer is binding?

Aug 12 2021 View more View Less

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