Implied-Revocation Doctrine Revived by Texas Supreme Court

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Implied-Revocation Doctrine Revived by Texas Supreme Court

Angel v. Tauch, __ S.W.3d __ (Tex. Jan. 14, 2022) [19-0793]     

Facts: South State Bank held a $4.6 million judgment against Kyle Tauch, an individual. The Bank offered to settle the judgment debt for $2 million. Before Tauch accepted the offer, the Bank entered into an agreement assigning the entire judgment debt for collection. Upon learning of the assignment from other than the Bank, Tauch notified the Bank that the $2 million settlement offer was accepted. The parties disputed whether there was an enforceable settlement of the judgment debt by virtue of Tauch’s purported acceptance of the Bank’s offer. 

Issue: Under Texas law, was a settlement agreement formed between the Bank and Tauch when the Bank made an offer to settle the judgment debt for a lesser sum and when Tauch accepted that offer after he learned that the Bank had assigned the full judgment debt to a third-party for collection? 

Short Answer: No. 

Holdings: The Bank’s assignment of the judgment debt to a third-party for collection was “definite action inconsistent with” the Bank’s offer of settlement, and, under the doctrine of implied revocation, Tauch’s power of acceptance had terminated as of the time he attempted to accept the Bank’s offer.  

The doctrine of implied revocation is not limited to any particular category of transaction.  

And, that Tauch, the offeree, learned of the inconsistent conduct (i.e., the assignment of the debt) from channels other than from the Bank did not preclude the application of the implied revocation.  

Discussion: The implied-revocation doctrine was adopted (and last applied) by the Texas Supreme Court in Antwine v. Reed, 199 S.W.2d 482 (1947). In Antwine, the court held that a pending offer for the sale of land was revoked when the offeree learned that the offeror had engaged in “some act inconsistent” with the offer. See Antwine, 199 S.W.2d at 485.  

Following Antwine, the Angel court stated that there are two essential components for a valid implied revocation:  

(1) inconsistent action that provides a clear manifestation of unwillingness to enter into the proposed contract; and   

(2) communication, whether directly or indirectly, with the offeree.  

Angel, No. 19-0793, slip. op. at 25. (Tex. Jan. 14, 2022). 

Formal notice of revocation of an offer to contract is not always necessary. “[A]n indirect communication of revocatory action may be sufficient to terminate the power of acceptance[.]” Id. at 36. “A revocation implied by the offeror’s actions may be communicated either directly from the offeror to the offeree . . . or through other channels if the information about the offeror’s actions is objectively reliable.” Id. at 19.  

The court concluded as follows: 

In today’s world, the spread of information can be rapid-fire. The policy reasons for recognizing the validity of an indirectly communicated revocation are even more compelling now than 175 years ago when Dickinson [v. Dodds, 2 Ch. Div. 463 (1876)] stated the rule. Although the best—and usual—practice is for the offeror to communicate directly with the offeree, cabining the law in such an absolute way is not pragmatic, realistic, or consonant with modern realities and foundational contract law.  

Angel, No. 19-0793, slip. op. at 37-38. (Tex. Jan. 14, 2022). 

This case of Angel illustrates the importance of fundamental contract elements of offer and acceptance. Each are essential to a valid and binding contract. If an offer to contract is terminated or revoked, either directly or indirectly, by the offeror, then no power to accept exists in the offeree. The court in Angel essentially advises, if not encourages, negotiating parties to maintain a greater level of formality when presenting (or revoking) offered terms of agreement. Engaging in an equivocal course of conduct, such as through off-the-cuff emails, text messages, or even indirect communications that reach a party in negotiations, could prove to be fatal to a valid agreement, or could otherwise result in years-long litigation over whether or not a contract even exists, as was seen in Angel.