364 N.W2d 838 (MINN. APP. 1985)





Appellant Technology Finance Group, Inc. (Technology), a Nevada corporation with its principal place of business in Connecticut, and Respondent Dataserv Equipment, Inc. (Dataserv), a Minnesota corporation with its principal place of business in Minneapolis, are dealers in new and used computer equipment.


On or about August 29, 1979, Dataserv's Jack Skjonsby telephoned Technology's Ron Finerty in Connecticut and proposed to sell to Technology, for the price of $100,000, certain IBM computer "features" which Dataserv had previously purchased in Canada.


As a result of long distance telephone conversations between Skjonsby and Finerty, on August 30, 1979, Finerty sent Skjonsby a written offer to purchase the features and on September 6, 1979, Dataserv sent to Technology a proposed form of contract. Dataserv's proposed contract form included a nonstandard provision, appearing in the contract form as clause 8 and referred to by the parties as the "Indepth Clause." The clause provided that installation of the features would be done by Indepth, a third party. The contract also provided that "[this agreement is subject to acceptance by the seller . . . and shall only become effective on the date thereof," and "[the agreement is made subject to the terms and conditions included herein and Purchaser's acceptance is effective only to the extent that such terms and conditions are conditions herein. Any acceptance which contains conditions which are in addition to or inconsistent with the terms and conditions herein will be a counter offer and will not be binding unless agreed to in writing by the Seller. "


On October 1, Finerty wrote Skjonsby that three changes "need to be made" in the contract, one of which was the deletion of clause 8. The letter closed with: "Let me know and I will make the changes and sign." Two of the changes were thereafter resolved, but the resolution of clause 8 remained in controversy.


Later in October 1979, Dataserv offered to accept, in substitution for Indepth, any other third-party installation company Technology would designate. Technology never agreed to this.


On November 8, 1979, Dataserv by telephone offered to remove the L depth clause from the contract form. Technology responded that it was "too late," and that there was no deal.


On November 9, 1979, Finerty called Dataserv, and informed them the "the deal was not going to get done because they'd waited until too late a point in time." During this period of time, the market value of the feature was dropping rapidly and Dataserv was anxious to complete the deal. It is undisputed that the market for used computer equipment, including its features, is downwardly price volatile.


By telex dated November 12, 1979, Dataserv informed Technology that the features were ready for pickup and that the pickup and payment be no later than November 15, 1979.


On November 13, 1979, Finerty responded by telex stating:


[Since [Dataserv] had not responded in a positive fashion to Alanthus’ [Alanthus is the former name of Technology Finance Group] letter requesting contract changes . . . its offer to purchase [the features] was withdrawn on 11/9/79 via telephone conversation with Jack Skjonsby. Ten to fifteen days prior, I made Jack aware that this deal was dead if Dataserv did not agree to contract changes prior to the "Eleventh Hour”.


On June 19, 1980, the features were sold by Dataserv to another party 1 $26,000. It then sought a judgment against Technology for the difference between the sale price of the features and the contract price.


At trial the parties stipulated that as of November 8, 1979 Dataserv telephonically offered to take out the Indepth clause. The trial court found that this telephone call operated as an acceptance of Technology’s counteroffer of October 1, 1979, thereby establishing a contract between the parties embodying the terms of Dataserv's printed standard contract dated September 6, 1979, minus clause 8 thereof. The trial court found that as of November 15, 1979, Technology breached its contract to Dataserv's damage and awarded Dataserv $74,000 in damages, plus interest from the breach.


Technology claims that the trial court erred in finding that the parties entered into a contract. It contends that Dataserv's response to its counteroffer operated, as a matter of law, as a rejection, terminating Dataserv’s power to subsequently accept the counteroffer.


Under familiar principles of contract law, a party's rejection terminates its power of acceptance. Restatement (Second) of Contracts S 380 (Once rejected, an offer is terminated and cannot subsequently be accepted without ratification by the other party.


The critical issue is whether Dataserv rejected Technology's October 1 counteroffer. Dataserv responded to Technology's October 1 counteroffer by agreeing to delete two of the three objectionable clauses, but insisting that the third be included. By refusing to accept according to the terms of the proposal, Dataserv rejected Technology's counteroffer and thus no contract was formed. Moreover, Dataserv's offer to substitute other third party installation companies, which Technology rejected, operated as a termination of its power to accept Technology's counteroffer. Dataserv's so-called acceptance," when it offered to delete clause 8 on November 1979, was without any legal effect whatsoever, except to create a new offer which Technology immediately rejected.


[The trial court decision is reversed.]