1. Is there a valid, binding offer when the promisor conditions the promise on his own future action or approval?

2. Is there a valid offer when the promisor conditions the offer on an action or approval by the promisee or a third party? 

3. What is the test to determine if an offer is binding?

The U.S. Department of the Treasury implemented the federal Home Affordable Mortgage Program (HAMP) to help homeowners avoid foreclosure amidst the sharp decline in the nation’s housing market in 2008. In 2009, Wells Fargo Bank issued Lori Wigod a four-month “trial” loan modification under a Trial Period Plan (TPP). After the trial period, if the borrower complied with all of the terms of the TPP agreement, including making all required payments and providing all required documentation, and if the borrower’s representations remained true and correct, the servicer, Wells Fargo, had to offer a permanent mortgage modification. Wigod alleged that she complied with these requirements and that Wells Fargo refused to grant a permanent modification. Wells Fargo contended that the TPP contained no valid offer. The trial court dismissed Wigod’s claim. Wigod appealed.

JUDICIAL OPINION

HAMILTON, J.…

Valid Offer

… [T]he “test for an offer is whether it induces a reasonable belief in the recipient that he can, by accepting, bind the sender.” Boomer v. AT&T Corp., 309 F.3d 404, 415 (7th Cir. 2002); see also Restatement (Second) of Contracts § 24 (1981) (“An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”).…

Under contract law principles, when “some further act of the purported offeror is necessary, the purported offeree has no power to create contractual relations, and there is as yet no operative offer.” 1 Joseph M. Perillo, Corbin on Contracts § 1.11, at 31 (rev. ed. 1993)…. Thus, “a person can prevent his submission from being treated as an offer by [using] suitable language conditioning the formation of a contract on some further step, such as approval by corporate headquarters.” Architectural Metal Systems, Inc. v. Consolidated Systems, Inc., 58 F.3d 1227, 1230 (7th Cir. 1995) (Illinois law). Wells Fargo contends that the TPP did just that by making a permanent modification expressly contingent on the bank taking some later action.

That is not a reasonable reading of the TPP. Certainly, when the promisor conditions a promise on his own future action or approval, there is no binding offer. But when the promise is conditioned on the performance of some act by the promisee or a third party, there can be a valid offer. See 1 Richard A. Lord, Williston on Contracts ξ 4:27 (4th ed. 2011) … (“a promisor’s sole discretion gives rise to no ………..