The Texas Supreme Court has ruled that the implied revocation doctrine adopted by the Court in a 1947 case remains the law of Texas and applies to all contracts, not just those involving the sale of real estate. In Angel and South State Bank, N.A. v. Tauch (No. 19-0793), a unanimous court reversed the Houston Court of Appeals [14th], which held in a split decision that the doctrine did not apply because an assignment agreement between Angel and the Bank was not “effective” prior to Tauch’s acceptance of the Bank’s settlement offer.

The case arose from the efforts of the Bank to collect a $4.6 million judgment debt from Tauch. The Bank and Tauch engaged in settlement discussions in which Tauch offered to settle the debt for $1 million. The Bank rejected the offer and made a counteroffer raising the settlement amount to $2 million, to which Tauch did not immediately respond. The Bank’s counteroffer further advised Tauch that the Bank was actively pursuing other collection options while negotiating with Tauch. In the event, the Bank entered into an agreement with Angel (who likewise had a judgment debt against Tauch, but who had already identified Tauch’s various accounts and obtained a restraining order preventing Tauch from transferring money from them) assigning the Bank’s debt to Angel in return for the first $3 million Angel collected. When Angel’s attorney advised Tauch’s attorney of the assignment agreement and transmitted a copy, Tauch notified the Bank that he accepted the $2 million settlement offer. When the Bank said “too late,” Tauch took the position that he had a valid settlement agreement with the Bank and refused to pay Angel. Angel sued Tauch seeking a declaration that Tauch’s power to accept the Bank’s settlement offer terminated when he learned about the assignment. Tauch filed a counterclaim alleging tortious interference with contract and seeking a declaration that he had a valid settlement agreement with the Bank. Tauch also filed a third-party claim against the Bank for breach of contract. The Bank counterclaimed seeking a declaration that the settlement agreement was invalid. The trial court granted summary judgment on behalf of Angel and the Bank. In a 2-1 vote, the court of appeals reversed the trial court.

Writing for the Court, Justice Devine agreed with the dissenting opinion that the test for implied revocation of the Bank’s settlement offer was satisfied in this case. Noting that SCOTX had not decided an implied revocation case since Antwine v. Reed, 199 S.W.2d 482 (Tex. 1947) and that questions had arisen regarding the status and scope of this single precedent, Justice Devine reaffirmed that Antwine remains good law and applies to all contracts, not just to real estate transactions. The Antwine court approved the Restatement [Second] of Contracts rule for express or implied revocation of a contract offer, which holds that an offeree’s power of acceptance terminates when the offeror’s revocation is communicated either directly to the offeree or indirectly if the offeree obtains “reliable information” that the offeror has taken “definite action inconsistent with an intention to enter into the proposed contract.” Whether such information is “reliable” depends on “whether a reasonable person acting in good faith would believe” it. In Antwine the offeror instructed its real estate broker to take property off the market before the putative offeree accepted the offer by depositing the earnest money. When the broker informed the offeree that the property was no longer on the market, the offeree deposited the earnest money and claimed that he had a valid contract for the sale of the property. SCOTX disagreed, holding that the broker’s direct communication to the offeree constituted an act inconsistent with the offeror’s intent to sell the property to the offeree and terminated the offer.

Justice Devine reasoned that the same rationale applies in an indirect communication case in which the offeree receives reliable information about the offeror’s inconsistent action from another source. Citing the origins of the rule in English common law, he pointed out that the purpose of the implied revocation doctrine is to prevent a contract from becoming binding when it is apparent that there is no longer a meeting of the minds between offeror and offeree. Here the court of appeals mistakenly hinged the revocation of the offer on the effective date of the assignment agreement between the Bank and Angel because: (1) “inconsistent action need not rise to the level of a binding contract with a third party to manifest revocatory intent,” and (2) “the existence of such a contract, even executory in nature, suffices.” The “dispositive issue” concerns whether the offeror’s conduct indicates a “continued willingness” to follow through with the proposed agreement, not the offeror’s inability to do so. Indeed, revocatory intent (determined objectively) may be implied in any number of ways, whether the offeror has done a deal with a third party or not.

Here the Bank’s intent was clearly and unequivocally manifested when it executed the assignment agreement with Angel, especially where the Bank had advised Tauch to act quickly on its offer because it was pursuing other collection alternatives. Further, the assignment agreement contained a non-recourse clause protecting the Bank, indicating an unequivocal intent not to proceed with the settlement offer. And Tauch received a copy of the agreement itself before accepting the offer. Justice Devine thus concluded that “[A]s a matter of law, a reasonable person would understand the Banks’ action in contracting with a third party to collect on the judgment to be a withdrawal of the settlement offer.” Justice Devine likewise had no difficulty finding that the communication of the assignment agreement, though not made by the offeror itself but by a third party, was as a matter of law reliable information that indicated the offeror’s intent.

In reaffirming Antwine and extending its holding to all contracts and to indirect communications of the offeror’s intent, this case puts Texas squarely in the national mainstream of contract law and signals SCOTX’s continuing insistence on the sanctity of basic contract principles.

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