Opinion
November 20, 1957.
March 17, 1958.
Contracts — Place of contracting — Telephone acceptance — Acceptance by agent — Conflict of laws — Restatement, Conflict of Laws — Restatement Contracts.
1. An acceptance by telephone of an offer takes place where the words of acceptance are spoken rather than where the acceptance is heard. [62, 63]
2. Restatement, Contracts. § 65, cited but not followed. [62]
3. Restatement, Conflict of Laws, § 326 comment c, cited. [62]
4. When a principal authorizes an agent to accept an offer made by a third party the place of contracting is where the agent accepts the offer. [61]
5. Restatement, Conflicts of Law, § 330, cited. [611
Contracts — Formal validity — Statute of Frauds.
6. The formal validity of a contract is determined by the law of the state in which the contract was made. [60]
7. The provisions of the Statute of Frauds relate to the formal validity of a contract. [61]
Argued November 20, 1957. Before JONES, C. J., BELL, CHIDSEY, MUSMANNO, JONES and COHEN, JJ.
Appeal, No. 303, Jan. T., 1957, from judgment of Court of Common Pleas No. 7 of Philadelphia County, March T., 1954, No. 8686, in case of Walter Linn et al. v. Employers Reinsurance Corporation. Judgment reversed.
Assumpsit, with counterclaim. Before KUN, P. J.
Compulsory nonsuits entered against plaintiffs and defendant; motions to remove nonsuits and plaintiffs' motion for a new trial dismissed, and final judgment entered. Plaintiffs appealed.
C. Russell Phillips, with him George Francis Blewett and Montgomery, McCracken, Walker Rhoads, for appellants.
George E. Beechwood, with him Miles Warner and Beechwood, Lovitt Murphy, for appellee.
Plaintiff insurance brokers brought this action in law to require the defendant insurance company to account and pay to them commissions on insurance premiums received since 1953 from a New Jersey company. At the close of plaintiffs' evidence, the trial judge entered a nonsuit which the court en banc refused to remove, and this appeal followed.
From the undisputed evidence it appears that in 1926 the plaintiffs were engaged in the insurance brokerage business in Philadelphia. In that year plaintiffs offered to place with the defendant contracts for the reinsurance of certain risks undertaken by the Selected Risks Insurance Company of New Jersey for a consideration of five per cent of all premiums collected by the defendant on such policies. Plaintiff Linn went to New York City to negotiate an agreement with one William Ehmann, an agent of the defendant. Ehmann stated that he would first have to obtain authority to accept the offer from the defendant's home office in Kansas City. He promised that he would communicate with the plaintiff "as soon as he could get word from Kansas City." Linn then returned to Philadelphia, and subsequently received a telephone call from Ehmann accepting the offer.
Plaintiffs conducted their business as a Pennsylvania corporation in which they were the sole shareholders. In 1938 they dissolved their corporation and continued as partners in the business in which capacity they brought this action.
The defendant entered into the required treaty with the New Jersey company which, as modified and renewed, continues in effect. From 1926 until 1953 the defendant paid the plaintiffs the agreed upon commissions. But in 1953, the defendant notified the plaintiffs that it did not consider itself obligated further under the contract and that it would discontinue accounting to the plaintiffs for the premiums received from the New Jersey company.
On this evidence the trial judge found that the contract was made in New York, and applying the New York Statute of Frauds, held that the agreement was unenforcible thereunder because it was not to be performed within one year from the date it was entered into. Wherefore, the court concluded that the defendant was under no duty to account.
"Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise, or undertaking, (1) by its terms is not to be performed within one year from the making thereof. . . ." McKinney's Consolidated Laws of New York, Annotated Laws of 1909, Ch. 45, Art. 3, New York Personal Property Law, § 31(1).
We recognize that the formal validity of a contract is determined by the law of the state in which the contract was made. Bernstein v. Lipper Mfg. Co., 307 Pa. 36, 43, 160 A. 770 (1932); Callaway v. Prettyman, 218 Pa. 293, 67 A. 418 (1907). Since the provisions of the Statute of Frauds relate to formal validity, it is to the statute of the place of contracting that we must refer. It is therefore necessary for us to determine in which state the contract was made.
The rules embodied in the Pennsylvania Statute of Frauds are matters of substance not procedure, and apply only to contracts made in Pennsylvania. Bernstein v. Lipper Mfg. Co., 307 Pa. 36, 160 A. 770 (1932); Goodrich, Conflict of Laws § 88 (3rd ed. 1949); Lorenzen, The Statute of Frauds and the Conflict of Laws, 32 Yale L.J. 311 (1923).
When a principal authorizes an agent to accept an offer made by a third party, as the defendant authorized Ehmann in the present case, the place of contracting is where the agent accepts the offer. Rodman v. Thalheimer, 75 Pa. 232, 238 (1874); Restatement, Conflict of Laws § 330 (1934); 2 Beale, Conflict of Laws §§ 325.1, 328.1 (1935). In the case of acceptance by mail or telegraph, the act of acceptance is held to be effective where the acceptance was posted, Ward Lumber Co. v. American Lumber Mfg. Co., 247 Pa. 267, 93 A. 470 (1915), or received by the telegraph company for transmission. Field v. Descalzi, 276 Pa. 230, 120 A. 113 (1923). See I Williston, Contracts §§ 81, 82, 97 (3rd ed. Jaeger 1957).
This Court has not heretofore been required to determine the place where an acceptance spoken over the telephone is effective.
Professor Williston and the Restatement of Contracts take the position that a contract made over the telephone is no different from a contract made where the parties orally address one another in each other's presence. In the latter case the offeror does not have the risk of hearing an acceptance addressed to him, and a contract is formed only if the acceptance is heard. Consequently, the place of contracting is where the acceptance is heard and not where the acceptance is spoken. 1 Williston, op. cit. supra, § 82A; Restatement, Contracts, § 65 (1932). While we agree that this analysis represents a sound theoretical view, the reported cases which consider this issue are uniform in holding that by analogy to the situations in which acceptance is mailed or telegraphed, an acceptance by telephone is effective, and a contract is created at the place where the acceptor speaks. See Trinity Universal Ins. Co. v. Mills, 293 Ky. 463, 169 S.W. 2nd 311, 314 (1943); United States v. Bushwick Mills, 165 F.2d 198, 202 (2nd cir. 1947); Cardon v. Hampton, 21 Ala. App. 438, 109 So. 176, 177 (1926); Bank of Yolo v. Sperry Flour Co., 141 Cal. 314, 74 P. 855 (1903); Ward Mfg. Co. v. Miley, 131 Cal.App.2d 603, 281 P.2d 343, 348 (1955); Pearson v. Electric Service Co., 166 Kan. 300, 201 P.2d 643, 644 (1949); Dudley A. Tyng Co. v. Converse, 180 Mich. 195, 146 N.W. 629, 630-631 (1914); Traders Oil Mill Co. v. Arnold Bros. Gin Co., 225 S.W. 2nd 1011 (Tex.Civ.App. 1949). See also 2 Beale, op. cit. supra, § 326.2; Restatement, Conflict of Laws, supra, § 326, comment c. In fact, where the federal courts are charged with the duty of applying Pennsylvania law they have reached this conclusion. See Rothenberg v. Rothstein Sons, 181 F.2d 345, 346 (3rd cir. 1950); Macias v. Klein, 106 F. Supp. 107, 109 n. 5 (D.C. W.D. Pa. 1952).
We believe that in this day of multistate commercial transactions it is particularly desirable that the determination of the place of contracting be the same regardless of the state in which suit is brought. The absence of uniformity makes the rights and liabilities of parties to a contract dependent upon the choice of the state in which suit is instituted and thus encourages "forum-shopping." For this reason we chose to follow the established pattern of decisions and hold that acceptance by telephone of an offer takes place where the words are spoken.
Applying this principle to the facts before us, we conclude that the state where the contract was made is the state from which Ehmann telephoned the defendant's acceptance to Linn. However, contrary to the trial court's determination, there is no evidence in the record to indicate from which state Ehmann spoke. It is likely that he telephoned from his New York office, but it is also possible that he called from Kansas City or even Philadelphia; we cannot substitute speculation for evidence. The record of this case, therefore, must be remitted to the court below for determination of this question.
Judgment reversed and record remanded for further proceedings in accordance with this opinion. Costs to abide the event.