Story Case

George Hanson conducted a poultry farm in a small suburban town near the city of Chicago. For many years he had been accustomed to deal with the Franklin Street Produce Company. He would ship chickens to them, which they would sell, and send him the market price therefor at the end of the month. It was never customary for the Produce Company to send notice to Hanson accepting each consignment.

On one occasion Hanson sent in a large consignment of fowls. The Produce Company received them and had them placed in their storage plant. Several days later Hanson was in the city, and in a discussion between himself and the manager of the Produce Company, a disagreement arose as to the price which should be paid for that consignment. Thereupon Hanson demanded the return of his chickens. The Produce Company refused to return them. Suit was brought by Hanson. He claimed that there was no contract in the case as stated, because he was never notified by the company that they had accepted the consignment of chickens.

Under the foregoing circumstances what should the court decide?

Ruling Court Case. Lungstrass Vs. German Insurance Company, Volume 48 Missouri Reports, Page 201; Volume 8 American Reports, Page 100

The plaintiff in this action had been appointed agent of the German Insurance Company for the town of Sedalia. While acting as agent for it, he decided to insure his own property in the defendant company. He made out and sent forward an application for insurance on his property. When his policy was returned, he found that he had been charged with a premium of 2½ per cent. He was not satisfied with the rate and he sent it back for a reduction. It was reduced to 2 per cent and returned. The plaintiff received the policy, as reduced, on the 6th of November.

He immediately made an entry in his account with the company, recognizing the change of rate and accepting the policy as changed.

Early in the morning of the 7th, the plaintiff's goods were burned, and on the following day he telegraphed the company of his loss, asking for an immediate settlement. The company refused and this action was brought on the policy.

In defense of the action the defendant contended that the plaintiff had never accepted the policy, because he had sent no notice to the company of his intention to accept. On the part of the plaintiff it was contended, that because of the relationship between him and the company, it was unnecessary to send notice of an intention to accept. He contended that his act of entering the same on the books of the company, concerning which he made monthly reports, constituted an acceptance.

The opinion of the court was delivered by Mr. Justice Bliss:

"It is true that no contract can rise from a proposition or offer on one side until it is accepted on the other. And it is also true that this acceptance must be evidenced by some act that binds the party accepting. A man's mental resolution, that can be changed, is not sufficient. The usual mode of accepting a proposition made by correspondence is by notice of acceptance, and though it was formerly held that it did not ripen into a contract until receipt of the notice, yet the doctrine now is held that the contract is complete when the acceptance is forwarded, without reference to the time of its reception.

But notice is not the only evidence of acceptance. Any appropriate act which accepts the terms as they were intended to be accepted, so as to bind the acceptor, just as clearly evidences the concurrence of the parties - the bringing their minds together - as a formal letter of acceptance.

Because of the relationship, and the customary course of dealing between the parties, it was held that notice of acceptance was not necessary; and that the act of the plaintiff in entering his policy on the accounts of the company kept by him was a sufficient act of acceptance".

Accordingly, it was held that the plaintiff might recover.

Ruling Law. Story Case Answer

In a given case there may be mutual assent between the parties to a transaction. But no contract will result from that mutual assent unless in some way the assent of one is made known to the other. Therefore, it is generally necessary that a person, to whom an offer is made or communicated, should accept and manifest this acceptance by some active and affirmative act or word. Mere mental resolution, not communicated to the person making the offer, is not sufficient generally to make of their mutual assent a binding contract.

But under certain circumstances, as in those where a certain relation exists between the parties, or where a long course of conduct has been carried on between them, this active acceptance may not be necessary.

In the Story Case, had the shipment been the first one made by Hanson to the Produce Company, probably no contract would have resulted by the mere receipt of the shipment. But, because of the fact that notice of acceptance had been dispensed with in previous transactions of exactly the same nature, a court would hold that the mere shipment and receipt thereof of the Produce Company would make a contract.