What are the facts?
Plaintiff Petterson owned real property subject to a mortgage held by defendant Pattberg. In a letter, Pattberg offered to discount the mortgage balance by $780 if Petterson paid the remaining principal on or before a stated date, and the offer contemplated payment directly to Pattberg, who would then satisfy the mortgage. Petterson continued making installments he already owed and, before the deadline, went to Pattberg's residence with sufficient cash to pay off the balance, expressly announcing he was there to perform and tendering payment. Before Petterson could hand over the money, Pattberg stated that he had already sold and assigned the mortgage to a third party and refused to accept the funds, thereby attempting to revoke the offer. To protect his title, Petterson subsequently paid the assignee the full amount due without the $780 discount. He then sued Pattberg to recover the $780, asserting that Pattberg's promise became binding when Petterson tendered payment in accordance with the terms of the offer. The lower court ruled for Petterson; the Appellate Division affirmed; the New York Court of Appeals granted review.
What is the legal issue?
When an offer invites acceptance only by performance (a unilateral offer), may the offeror revoke the offer before the offeree completes the requested act, and does a refused tender constitute acceptance sufficient to form a contract obligating the offeror?
What rule applies?
Under the classical unilateral contract doctrine, an offer that invites acceptance solely by performance may be revoked at any time prior to the offeree's complete performance, absent an enforceable option supported by consideration or other binding irrevocability. Acceptance of such an offer requires actual completion of the requested act; a mere tender or statement of readiness, if refused by the offeror, does not consummate acceptance. Performance of a preexisting duty owed to the offeror does not furnish consideration for an option to keep the offer open.
What did the court hold?
No contract was formed. Pattberg effectively revoked his unilateral offer before Petterson completed performance; Petterson's refused tender did not constitute acceptance, and no consideration supported any option to keep the offer open. The Court of Appeals reversed and dismissed the complaint.
What is the reasoning?
The court characterized the letter as an offer for a unilateral contract: Pattberg promised to discount the mortgage in exchange for Petterson's full payment of the principal by a specified date, with acceptance to be accomplished only by performing the act of payment to Pattberg. Under the classical rule, the offeror retains the power to revoke at any time until the offeree completes the requested act. Because the offer did not invite a promise but only performance, no binding bilateral contract arose before performance, and there was no separate consideration to render the offer irrevocable as an option. On the facts, Petterson had not completed performance. Although he appeared with sufficient funds and declared his intent to pay, he had not actually paid the money to Pattberg before Pattberg spoke. The court treated Pattberg's statement that he had sold the mortgage as a communicated revocation effective before completion of the requested act. A refused tender does not, by itself, transform an unaccepted offer into a binding contract; the act of payment required delivery and acceptance of the money. Nor did Petterson's continued installment payments supply consideration for an option, because those payments were already legally owed—a classic preexisting duty—and were not what the offer demanded. Finally, any argument that Pattberg's refusal excused tender as futile could not overcome the structure of the unilateral offer, which vested acceptance only upon actual payment to the offeror; since the offer was revoked before that act occurred, no contract arose. The court acknowledged practical hardship but adhered to the formal approach, emphasizing that absent an option or completed performance, an offeree assumes the risk of revocation. A dissent argued that the offeror's prevention of performance and express refusal should count as waiver of tender or as creating an implied option upon attempted performance, but the majority declined to erode the classical rule.
Why is this case significant?
Petterson v. Pattberg is a canonical exposition of the classical unilateral contract rule and remains a teaching vehicle for three core concepts: acceptance by performance, revocation before acceptance, and the limits of tender when the offer invites only performance. Its perceived harshness spurred doctrinal evolution; the Restatement (Second) of Contracts § 45 now provides that the beginning of invited performance creates an option contract rendering the offer temporarily irrevocable. The case thus anchors exam analysis of unilateral offers and highlights the contrast between classical formalism and modern protection of reliance and partial performance.
Was the offer in Petterson v. Pattberg unilateral or bilateral, and why does that classification matter?
It was unilateral. The letter invited acceptance only by the act of full payment to the offeror by a certain date—not by a promise to pay. Classification matters because unilateral offers are accepted only upon completion of the requested performance; until then, the offeror may revoke unless an option or other mechanism makes the offer irrevocable.
Does a tender of payment that the offeror refuses count as acceptance?
Under the majority's classical approach, no. A refused tender does not complete the act of performance when the offer requires actual payment. Acceptance required the money to be paid and accepted by the offeror; because the offeror revoked before accepting the money, there was no contract. The dissent, however, would have treated the offeror's refusal as waiving tender or as preventing performance, making acceptance effective.
Could the offer have been irrevocable before performance was complete?
Yes, but only if supported by an option or another doctrine creating irrevocability (e.g., a signed option for consideration or statutory firm-offer rules where applicable). Here, there was no separate consideration paid to keep the offer open. Petterson's continued installment payments were a preexisting duty and thus not consideration for an option.
How does the modern Restatement (Second) of Contracts treat this situation?
Restatement (Second) § 45 provides that when an offer invites acceptance by performance, the beginning of performance creates an option contract, making the offer temporarily irrevocable and protecting the offeree's reliance. Under that modern view, once Petterson began the requested performance (arguably by tendering payment), the offer would have become irrevocable, and the offeror could not revoke to avoid the discount.
What if Petterson had actually handed over the money before the revocation words were spoken?
If Petterson had completed the act of payment—delivering the funds to the offeror with intent to accept—acceptance would have occurred before any revocation, forming a contract for the discounted payoff. The sequence is critical under the majority's rule: acceptance by completed performance must precede a communicated revocation.
Does the prevention or repudiation by the offeror excuse tender in unilateral contracts?
Generally, prevention or repudiation can excuse tender in many contexts. But under the Petterson majority's formal view, when the offer requires actual performance to accept, the offeror's repudiation, if communicated before completion, functions as a revocation rather than as a breach of an existing contract. Without completed performance or an option contract, there is no duty to perform and thus no breach. The dissent would treat the prevention as waiving tender and completing acceptance.