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MOLTON, ALLEN & WILLIAMS, INC. v. HILLS

April 25, 1978

MOLTON, ALLEN & WILLIAMS, INC., Plaintiff,
v.
CARLA A. HILLS et al., Defendants



The opinion of the court was delivered by: PRATT

 This action for breach of contract to sell FHA-insured mortgage options is before this Court on defendants' motion for summary judgment and plaintiff's motion for partial summary judgment. The question before us at this time is one of contract formation, i.e., did the parties enter into binding contracts before defendants' cancellation of the mortgage sale program. *fn1"

 A. Background. The facts may be briefly stated. On October 16, 1975, the Government National Mortgage Association (GNMA) announced the institution of a Project Mortgage Sale Program for the sale of Federal Housing Administration mortgages and options, through its agent the Federal National Mortgage Association (FNMA). On October 21, plaintiff submitted 32 fully executed option applications in proper form, and a tender of the appropriate fee. *fn2" The following afternoon, October 22, an official of FNMA executed the acceptance portions of the option applications. On October 23, an FNMA official by telephone informed plaintiff that the options had been granted; it was agreed that the executed forms would be mailed to plaintiff. Before those options were mailed, GNMA suspended the Project Mortgage Sale Program and informed plaintiff that it would not issue the options despite the understanding established and confirmed by the telephone conversation.

 Our analysis must focus on Chapter 10, Section 1003a(2) of the GNMA Sellers Guide for the Project Mortgage Sales Program (Guide), said chapter being referenced by the program announcement as providing terms and conditions for sales, which states as follows:

 
Acceptance by GNMA of a Project Mortgage Option Application shall be indicated by completing and executing the form of "Acceptance" provided thereby, and returning one executed copy to the applicant. Such acceptance shall constitute the issuance of a Project Mortgage Option on the terms provided thereby. (emphasis added)

 Defendants, conceding the execution of the application forms, argue that no contracts arose since there was no return of the executed copies to the applicant. Plaintiff argues that contracts were formed and alleges that defendants must answer for failure to honor the terms of their contractual obligations.

 B. Analysis.

 1. Nature of the application forms. At the outset, we consider the legal status of the papers involved in this controversy, particularly analyzing plaintiff's alternative argument that the published October 16 notice constituted an offer which was accepted by submission of the appropriate applications for the mortgage options.

 The notice directed interested parties to submit applications to appropriate FNMA regional offices and set forth specifications regarding the applications. To apply, an interested party was required to submit a simple application form and tender the appropriate fee; applications were processed on a first-come, first-served basis among qualified applicants. *fn3" It is plaintiff's position that the program announcement constituted a definite proposal by defendants to sell mortgage options, which required no further action on the part of GNMA and was therefore an offer which plaintiff accepted by submission of the instant applications.

 While we recognize that there may be circumstances in which a public announcement may constitute an offer, we are certain that this case presents no such circumstances. The program announcement was clear in "inviting offers" for mortgages and options. See Primary Metal & Mineral Corp. v. United States, 214 Ct. Cl. 90, 556 F.2d 507, 509 (1977) (absence of contract-like language in program announcement militates against a finding that announcement constitutes offer). More importantly, defendants by applicable regulations had retained the power to reject any application in their discretion; this discretionary authority constitutes a significant factor distinguishing cases relied upon by defendants. See R. E. Crummer & Co. v. Nuveen, 147 F.2d 3 (7th Cir. 1945); Mocatta & Goldsmid, Ltd. v. United States, Cong. Ref. No. 149-73 (Commissioner's Opinion filed March 31, 1976), rev'd sub nom. Primary Metal & Mineral Corp. v. United States, supra. The submission by plaintiff of the application forms was an offer by plaintiff, which defendants were free to accept or reject.

 2. Permissible forms of acceptance. We turn now to the crucial and more difficult question of determining whether defendants accepted that offer. Plaintiff insists that the oral communication of October 23 was a sufficient communication to establish contract formation. The argument relies heavily upon the custom and practice in the mortgage industry and upon the principal of constructive delivery.

 In analyzing the requirements for contract formation, we are unable to evaluate or endorse plaintiff's offer of evidence which would direct a result contrary to the clear language of the Guide. The appropriate form of acceptance is unambiguously noted:

 
Acceptance shall be indicated by completing and executing the form of "Acceptance" provided thereby, and returning one executed copy to the applicant. (emphasis added)

 It is an elementary principle of contract law that the terms of the contract are controlling and will not be varied by offers of parol evidence. See Northwestern Industrial Piping, Inc. v. United States, 199 Ct. Cl. 540, 467 F.2d 1308, 1314 (1972). Plaintiff's attempt to establish an ambiguity by emphasizing the word "indicated" is labored and unpersuasive. Similarly, the applicable terms provide for a specific form of delivery, i.e., "returning one executed copy to the applicant," and plaintiff's offer of principles of constructive ...


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