Contract Formation and the Mirror-Image Rule

QUESTION: I submitted an offer on behalf of my buyer client. The offer included the seller’s name as listed by the listing agent in her MLS listing. The listing agent returned the contract with a seller signature but with a different seller substituted on page 1 of the contract. My buyer has changed his mind about purchasing the property. He asked me whether there is actually an enforceable contract in light of the fact that a different seller was substituted, and he never agreed to that change. What guidance can you give me?

ANSWER: This question gives us an opportunity to revisit what is known as the mirror-image rule. That rule states that in order to form a contract on the offering party’s terms, the acceptance must be according to the exact terms of the offer and without substantial change. In other words, the acceptance must be the “mirror image” of the offer. If a substantial change is made is made in the response to a buyer’s offer, the response will not be considered an acceptance but will instead be considered a rejection and a counteroffer.

As we pointed out in a 2013 Q & A, there are limits to the application of the mirror-image rule. Not all changes to an offer are considered substantial enough to be considered a rejection. What about where a listing agent has incorrectly identified the seller’s name and an attempt is made to correct the error on the face of a received offer? According to an unpublished opinion issued by the Court of Appeals of North Carolina in December 2020, that type of change is substantial enough to constitute a rejection.

The decision in question is entitled Elite Guard, Inc. vs. Veterans Alternative, Inc. While unpublished decisions are not considered controlling legal authority, the case is nevertheless instructive. The contract at issue was a proposed lease that Elite Guard, Inc. (“Elite”) submitted to a prospective tenant (“Tenant”). Tenant signed that document and returned it to Elite. Before signing it, Hakim Isler (“Isler”), the sole owner Elite, substituted his name as the name of the landlord. Before moving into the property, Tenant realized that the improvements he had agreed to make in the lease would be expensive. He decided not to move in or pay rent. When Elite sued Tenant for breach of contract, Tenant defended the suit on the grounds that by changing the name of the landlord on the lease, Elite had not accepted the proposed lease but had instead made a counteroffer. The Court of Appeals agreed stating “the substitution of a party in an attempted acceptance constitutes a material variation between the acceptance and the offer and negates the element of mutual assent required to form a contract.” Listing agents faced with this situation should realize that until the buyer initials a new seller’s name to indicate an agreement to that change, there is likely no binding contract between the parties.

© Copyright 2021 - 2024. North Carolina Association of REALTORS®, Inc.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

Filed Under: Contract Law,