PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

SHARP ELECTRONICS CORPORATION,
Plaintiff-Appellee,

v.
                                                                     No. 99-1555
DEUTSCHE FINANCIAL SERVICES
CORPORATION,
Defendant-Appellant.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-98-253-AMD)

Argued: April 6, 2000

Decided: June 20, 2000

Before NIEMEYER, Circuit Judge, Roger J. MINER,
Senior Circuit Judge of the United States Court of Appeals
for the Second Circuit, sitting by designation, and
Joseph R. GOODWIN, United States District Judge for the
Southern District of West Virginia, sitting by designation.

_________________________________________________________________

Vacated and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Senior Judge Miner and Judge Goodwin joined.

_________________________________________________________________

COUNSEL

ARGUED: Peter Neil Wang, FRIEDMAN, WANG & BLEIBERG,
P.C., New York, New York, for Appellant. Anthony Linn Meagher,
PIPER & MARBURY, L.L.P., Baltimore, Maryland, for Appellee.
ON BRIEF: Timothy F. McCormack, David E. Ralph, E. Benjamin
Alliker, GORDON, FEINBLATT, ROTHMAN, HOFFBERGER &
HOLLANDER, L.L.C., Baltimore, Maryland, for Appellant. Henry R.
Lord, Brett Ingerman, PIPER & MARBURY, L.L.P., Baltimore,
Maryland, for Appellee.

_________________________________________________________________

OPINION

NIEMEYER, Circuit Judge:

This appeal presents the question under Illinois law of whether a
finance company may unilaterally modify the terms of a standing
floorplan financing agreement before it agrees to finance a given
transaction. Because we hold that the floorplan financing agreement
in this case was a unilateral contract that did not bind the finance
company until it undertook to finance a specific transaction, we con-
clude that the finance company could, as a condition of continuing
under the arrangement, modify the terms under which it was willing
to continue to finance transactions. Accordingly, we vacate the dis-
trict court's judgment entered against the finance company after it
refused to finance a $1.3 million transaction except on terms that it
had unilaterally demanded and remand with instructions as specified
herein.

I

Deutsche Financial Services Corporation ("Deutsche Financial")
and Sharp Electronics Corporation ("Sharp") signed a financing
agreement, entitled "Floorplan Repurchase Agreement," which pro-
vided that if Deutsche Financial would agree from time to time to
finance certain transactions between Sharp and its wholesale custom-
ers, Sharp would reduce Deutsche Financial's risk by repurchasing
any financed merchandise that Deutsche Financial might find neces-
sary to repossess upon default. The agreement was unilateral in that
Sharp offered Deutsche Financial inducements -- specifically agree-
ments to reduce its risk -- to provide financing for ongoing transac-
tions between Sharp and its customers, in this case Montgomery

                    2
Ward & Co., Incorporated ("Montgomery Ward"), but Deutsche
Financial was not obligated to provide any financing. The agreement
simply invited Deutsche Financial to accept the inducements by pro-
viding the financing.

In particular the agreement provided: "To induce[Deutsche Finan-
cial] to finance the acquisition of Merchandise by any [customer of
Sharp]," Sharp agrees that

         (1) It will assure that the underlying transaction is current
         and authentic; that the merchandise is "free and clear
         of all liens"; and that the merchandise is saleable;

         (2) It will assign to Deutsche Financial "the vendor's priv-
         ilege and lien" on merchandise as granted under Loui-
         siana law;

         (3) It will "repurchase such Merchandise from[Deutsche
         Financial] upon demand" and for specified prices
         whenever Deutsche Financial will have a need to
         repossess the merchandise from customers in default.

And while the agreement invited Deutsche Financial to finance trans-
actions in response to Sharp's assurances, it specifically did not
require Deutsche Financial to finance any transaction, providing,
"This Agreement shall in no way bind [Deutsche Financial] to finance
any Merchandise for [Sharp's] retail dealers. From time to time
[Sharp] will inquire as to whether [Deutsche Financial] agree[s] to
finance Merchandise for certain dealers." Under the agreement,
Deutsche Financial would be invited to respond to applications or "re-
quests" made by both Sharp and Montgomery Ward. Only after
Deutsche Financial approved a specific request to finance a transac-
tion would it become obligated to complete performance under the
terms of the Floorplan Repurchase Agreement by paying the invoice
amount of the proposed transaction less agreed-upon finance charges.
This obligation to pay, however, was conditioned on (1) Sharp's ship-
ment of the merchandise to Montgomery Ward within 30 days of
Deutsche Financial's approval and (2) Deutsche Financial's receipt of
the invoice for the transaction within 10 days after delivery of the
merchandise.

                    3
Underlying Deutsche Financial's willingness to approve financing
under the Floorplan Repurchase Agreement for Montgomery Ward's
purchases from Sharp was Deutsche Financial's independently
defined role as administrator of a financial "facility" for Montgomery
Ward that provided Montgomery Ward with a $100 million line of
credit.

Until November 1996, the practice under the Floorplan Repurchase
Agreement between Deutsche Financial and Sharp with respect to
Montgomery Ward's purchases routinely took the following form:
Montgomery Ward would place a purchase order for merchandise
with Sharp; Sharp would call Deutsche Financial and request an
approval number for the financing of the merchandise; and Deutsche
Financial would, if it elected to finance the transaction and if Mont-
gomery Ward had not yet reached its credit limit with Deutsche
Financial, orally issue Sharp an approval number. In November 1996,
the arrangement changed slightly. Thereafter, Sharp would fax
Deutsche Financial its financing request, and Deutsche Financial
would fax its approval to Sharp. Sharp would then enter the approval
number into its computer system, ship the merchandise to Montgom-
ery Ward, and send the invoice to Deutsche Financial, which would
pay Sharp.

In early May 1997, in response to its deteriorating financial condi-
tion, Montgomery Ward met with its suppliers to discuss its condition
and its plans to restructure. As part of these plans, Montgomery Ward
announced its intention to transfer the administration of its line of
credit from Deutsche Financial to General Electric Capital Corpora-
tion, a shareholder of Montgomery Ward. Upon the accomplishment
of that transfer, Deutsche Financial would no longer be financing any
Montgomery Ward purchases, including those from Sharp. No repre-
sentative of Sharp attended this meeting, but Sharp's general manager
learned of it later. He also was aware that General Electric Capital
had been "getting more involved" with Montgomery Ward and that
it might "step in either as the lender or the administrator of the floor
plan program." Based on this knowledge, Sharp's general manager
recognized the possibility that Sharp "would be requested to do some-
thing different" with regard to the financing of its sales to Montgom-
ery Ward.

                    4
Sharp first received formal notice of a change in Montgomery
Ward's financing arrangements on May 22, 1997, when Montgomery
Ward faxed it a letter stating: "Effective May 23, 1997, the adminis-
trator on the inventory finance facility is being changed from
Deutsche Financial Services to GE Capital. Deutsche will not issue
approval numbers after May 23, 1997. . . . A copy of GE Capital's
boilerplate Inventory Repurchase Agreement will be faxed to you on
Friday, May 23, 1997." On May 23, 1997, Deutsche Financial also
faxed a letter to Sharp, which Sharp received at 2:17 p.m., announc-
ing the termination of its financing role and setting deadlines for
future transactions in light of that termination. Deutsche Financial's
fax, which was entirely consistent with Montgomery Ward's fax,
stated in pertinent part:

          Per Montgomery Ward's request, the financing program
          between [Deutsche Financial and] Montgomery Ward . . .
          will change administrators on May 23, 1997, 5:00 PM CST.
          [Deutsche Financial] will continue to review your requests
          for approval numbers until such time, and will continue to
          administer the Program for any invoices dated May 28, 1997
          and earlier. However, any requests for approvals after May
          23, 1997 should be processed through General Electric Cap-
          ital Corporation . . . who will act as the new administrator
          of the Program.

          As [Deutsche Financial] will not administer any invoices
          dated later than May 28, 1997, [Deutsche Financial] hereby
          notifies you that [Deutsche Financial] will revoke each
          approval number which [Deutsche Financial] has issued for
          inventory which you have not shipped to Montgomery Ward
          . . . on or before such date.

For purposes of this case, the important change announced by
Deutsche Financial in its May 23 fax was the shortened shipping
deadline requiring that merchandise be shipped to Montgomery Ward
by May 28, rather than within 30 days of financing approval.
Although both Montgomery Ward's May 22 fax and Deutsche Finan-
cial's May 23 fax were sent to Sharp's general manager, it was
Sharp's credit administrator who, on May 23, undertook ongoing cor-
respondence about specific transactions with his counterpart at

                    5
Deutsche Financial. Sharp's credit administrator states that on May 23
he remained unaware of the faxes from Montgomery Ward and Deut-
sche Financial announcing the termination of Deutsche Financial's
financing role.

Five minutes after Deutsche Financial sent its fax to Sharp's gen-
eral manager changing the terms under which it would continue to
finance transactions, Deutsche Financial faxed Sharp's credit admin-
istrator an approval to finance merchandise worth $56,683, for which
Sharp had submitted a request for financing approval four days ear-
lier. In this routine fax to Sharp, Deutsche Financial did not make ref-
erence to any of the changes transmitted earlier to Sharp's general
manager. Less than 30 minutes later, at 2:44 p.m., Sharp's credit
administrator submitted a new request to Deutsche Financial to
approve financing for almost $2.2 million worth of merchandise that
Montgomery Ward had ordered. Later that same day, at 4:05 p.m.,
Deutsche Financial returned a fax approving the financing of this $2.2
million transaction. Again, Deutsche Financial's approval did not
make reference to the changes in the financing arrangement.

Because Sharp's general manager had been on vacation on May 23,
1997, he did not see the two faxes, one from Montgomery Ward and
the other from Deutsche Financial, announcing changes in the financ-
ing relationship, until May 27. On that day, after reading Deutsche
Financial's May 23 fax, Sharp's general manager discussed the
changes in financing procedures with Sharp's credit administrator,
although the general manager later conceded he "wasn't focused" on
the statement in Deutsche Financial's letter notifying Sharp that
Deutsche Financial would "revoke each approval number which it has
issued for inventory which [Sharp has] not shipped to Montgomery
Ward . . . on or before [the May 28 deadline]."

On May 28, Sharp shipped Montgomery Ward $945,488 worth of
merchandise that had been approved for financing by Deutsche Finan-
cial on May 23. The remaining $1.3 million worth of merchandise
that had also been approved on May 23 was shipped on May 31, three
days after the deadline imposed by Deutsche Financial in its May 23
fax. When Sharp submitted invoices for these two shipments,
Deutsche Financial financed the merchandise shipped on May 28 but
refused to finance the shipment made on May 31. Because Montgom-

                    6
ery Ward later defaulted on its obligation to pay Sharp for the mer-
chandise and subsequently filed for bankruptcy, Sharp was not paid
for approximately $1.3 million worth of merchandise.

In January 1998, Sharp filed this diversity-jurisdiction action
against Deutsche Financial for breach of the Floorplan Repurchase
Agreement. It alleged that it had complied with the agreement and
that Deutsche Financial's attempted modification of the agreement on
May 23, 1997, was invalid. Sharp demanded more than $1.3 million
in damages, the value of the merchandise shipped on May 31, 1997,
plus interest and costs.

On Sharp's motion for summary judgment, the district court
entered judgment in favor of Sharp in the amount of $1,394,705.11,
which included approximately $97,000 of prejudgment interest. In
ruling in Sharp's favor, the court concluded that Deutsche Financial
had breached the Floorplan Repurchase Agreement with Sharp. The
district court, applying Illinois law because Deutsche Financial had
received and approved Sharp's request to finance the $2.2 million
transaction (which included the $1.3 million shipment) in that state,
ruled that the agreement between the parties had not been effectively
modified because a valid modification requires an offer, acceptance,
and consideration. The court found that in the circumstances before
it: (1) Deutsche Financial's attempted modification was not supported
by valid consideration because Deutsche Financial had preexisting
obligations, and (2) Sharp had not accepted Deutsche Financial's
offer by performance because Sharp's actions were consistent with
the preexisting agreement. In response to Deutsche Financial's argu-
ment that Sharp had failed to mitigate its damages by shipping the
merchandise to Montgomery Ward after the May 28 deadline with
full knowledge of the deadline, the court concluded that Deutsche
Financial had not notified Sharp in its May 23 fax of an unequivocal
intention to breach the existing arrangement.

This appeal followed.

II

In the broadest view, the Floorplan Repurchase Agreement in this
case was an agreement between the parties establishing the underly-

                    7
ing terms that would apply if and when Deutsche Financial agreed to
finance a transaction. Until Deutsche Financial"approved" a transac-
tion for financing, it had no obligation to finance any transaction.
Similarly, Sharp had no obligation to request Deutsche Financial's
financing, although it did have the obligations set forth in the Floor-
plan Repurchase Agreement if Deutsche Financial approved a
request. Thus, even if Sharp met all the criteria established for
approval of a transaction, it could not compel Deutsche Financial to
agree to finance any transaction; it could not even demand an expla-
nation if Deutsche Financial refused to approve a transaction.

Stated otherwise, the Floorplan Repurchase Agreement was a set
of terms offered by Sharp to "induce" -- the term used in the docu-
ment -- Deutsche Financial to agree to finance transactions by reduc-
ing Deutsche Financial's credit risk and shifting some of that risk to
Sharp through Sharp's agreement to repurchase repossessed inven-
tory, hence the agreement's title, Floorplan Repurchase Agreement.
Deutsche Financial's risk was also lessened by Sharp's assurances
that a current, bona fide transaction was being financed; that the mer-
chandise being financed was saleable; and that Sharp would assign
certain vendor's rights to Deutsche Financial.

In contractual terms, the Floorplan Repurchase Agreement was a
unilateral promise by Sharp that invited Deutsche Financial's accep-
tance by performance -- i.e., by financing transactions. Traditionally,
this type of arrangement is characterized as a unilateral contract, a
contract in which the promise is binding only on the promisor. See,
e.g., Central Nat'l Bank & Trust Co. v. Consumers Constr. Co., 282
N.E.2d 158, 162 (Ill. App. 1972) (recognizing that a unilateral con-
tract may be accepted by performance); E. Allan Farnsworth, Con-
tracts § 3.4, at 115 (2d ed. 1990) ("In forming a unilateral contract
only one party makes a promise: the offeror makes the promise con-
tained in the offer, and the offeree renders some performance as
acceptance"); 1 Samuel Williston, A Treatise on the Law of Contracts
§ 1:17, at 44-46 (Richard A. Lord ed., 4th ed. 1990). But, because this
"unilateral" classification has often produced confusion in the analysis
of hybrid situations, the Restatement (Second) of Contracts has aban-
doned rigid characterizations based on the term and has described the
traditional unilateral contract in other ways under various subjects.
See, e.g., Restatement (Second) of Contracts § 1 cmt. f (1981)

                    8
(Reporter's Note) (explaining that because "unilateral contract" tradi-
tionally referred to three different types of transactions, the term was
"productive of confusion"); id. § 25 (option contracts); id. § 30(1)
(offers inviting acceptance by performance); see also Lomas Mort-
gage U.S.A., Inc. v. W.E. O'Neil Constr. Co., 812 F. Supp. 841, 843
(N.D. Ill. 1993) (citing Illinois cases that rely on the Restatement
(Second) of Contracts and noting that Illinois courts "customarily"
follow them). The flexible approach recommended by the Second
Restatement, while more adaptable to various types of transactions,
does not abandon the traditional notion that under a unilateral con-
tract, as long as the promisor holds open his offer inviting acceptance
by performance, the promisee can bind the promisor by such perfor-
mance. See Restatement (Second) of Contracts§ 53(1) (acceptance by
performance); id. § 54(1) (when offer is accepted by performance, no
notification of acceptance required); see also 1 Williston § 1:17, at
45. While principles of "purely" unilateral contracts are most often
applied to offers of a reward or of a price for goods or services, id.
§ 1:17, at 44-45, they also apply to financing, such as credit-card
financing, where the finance company, through the provision of an
underlying unilateral agreement, makes an offer to finance its custom-
er's purchases of merchandise if the customer uses the card. Until the
customer uses the card, the finance company may cancel its financing
offer. But once a customer uses the card to make a purchase, the
finance company becomes obligated to finance that purchase. See
Garber v. Harris Trust & Sav. Bank, 432 N.E.2d 1309, 1311 (Ill.
App. 1982) (holding that issuance of a credit card is only an offer to
extend credit, which is accepted upon each purchase by credit-card
owner).

These well-established contract principles readily describe and
govern this case. Until Deutsche Financial accepted Sharp's offer by
beginning its performance, i.e., by agreeing to finance a transaction,
Sharp could have withdrawn from the arrangement or altered the
terms of its offer to Deutsche Financial. And this freedom from obli-
gation continued even after Sharp submitted a request for approval,
so long as Deutsche Financial had not given its approval. See, e.g.,
Andros v. Hansen Realty Co., 358 N.E.2d 664, 667 (Ill. App. 1976)
("a unilateral agreement can be cancelled at any time before perfor-
mance by the other party"). Similarly, at any time before its approval,
Deutsche Financial could have demanded different assurances or

                    9
terms as a condition to future financing. If Sharp refused, Deutsche
Financial could have correspondingly refused to finance any transac-
tion and withdrawn from the arrangement. See, e.g., Western Springs
Park Dist. v. Lawrence, 175 N.E. 579, 580 (Ill. 1931) (recognizing
that offer is not binding until acceptance). Until Deutsche Financial
approved a specific request, either party could cancel the arrangement
or condition its participation in future transactions.

When Deutsche Financial approved a transaction for financing,
however, it began its performance, thereby accepting Sharp's offer
and binding Sharp to the terms of the offer. Deutsche Financial simi-
larly bound itself to complete performance by agreeing to finance the
transaction under the terms of the underlying arrangement. The Floor-
plan Repurchase Agreement makes this explicit:

          Upon [Deutsche Financial's] approval to provide such
          financing, via telephone or other means, [Deutsche Finan-
          cial] will be obligated to pay [Sharp] an amount equal to the
          invoice price for such Merchandise, less the amount of
          [Deutsche Financial's] charges as agreed upon from time to
          time, if the Merchandise is shipped to the dealer within
          thirty (30) days from the date of [Deutsche Financial's]
          approval and [Deutsche Financial has] received[Sharp's]
          invoice for such Merchandise within ten (10) days from the
          date of delivery of the Merchandise to the dealer.

(Emphasis added). While Deutsche Financial, with its approval of
Sharp's request, became obligated to finance the transaction, its com-
pletion of performance -- its payment for the merchandise -- was
nevertheless required only if (1) Sharp shipped the merchandise to
Montgomery Ward within 30 days of its approval and (2) Deutsche
Financial received an invoice for the merchandise within 10 days after
delivery.

In the parlance of contract law, Deutsche Financial's obligation to
complete performance -- by financing the transaction after its
approval -- was subject to conditions. The Restatement defines a
condition as "an event, not certain to occur, which must occur . . .
before performance under a contract becomes due" and notes that
"[p]erformance of a duty subject to a condition cannot become due

                    10
unless the condition occurs." Restatement (Second) of Contracts
§§ 224, 225(1). As such, although Deutsche Financial's approval con-
stituted acceptance through performance, such approval was merely
partial performance, and Deutsche Financial's complete performance
was conditional on additional acts by Sharp. See Vuagniaux v. Korte,
652 N.E.2d 840, 842-43 (Ill. App. 1995) (discussing conditions
which, if not fulfilled, preclude contractual liability).

On May 23, 1997, before Deutsche Financial approved any trans-
action and therefore before it became obligated to do anything under
the Floorplan Repurchase Agreement, Deutsche Financial announced
that any future financing would be subject to new conditions -- perti-
nently, the requirement of shipment within 30 days became a require-
ment of shipment by May 28. Because this May 23 fax controlled
Deutsche Financial's future acceptance of Sharp's standing offer (rep-
resented by the Floorplan Repurchase Agreement) and because
Deutsche Financial purported to condition acceptance of the offer on
the condition that its changes be made, the May 23 fax must be
treated as a rejection of Sharp's standing offer and as a counteroffer
on new terms. See Hubble v. O'Connor, 684 N.E.2d 816, 821 (Ill.
App. 1997) ("An acceptance conditioned on the modification of terms
in an offer generally constitutes a rejection of the offer and becomes
a counter-offer that the original offeror must accept before a valid
contract is established"); Restatement (Second) of Contracts § 59 ("A
reply to an offer which purports to accept it but is conditional on the
offeror's assent to terms additional to or different from those offered
is not an acceptance but is a counter-offer"); id. § 36(1)(a) (indicating
that a counteroffer by the offeree may terminate the offeree's power
to accept the original offer); id. § 39 (defining a counteroffer as "an
offer made by an offeree to his offeror relating to the same matter as
the original offer and proposing a substituted bargain differing from
that proposed by the original offer").

The role of the Floorplan Repurchase Agreement as a standing
offer to enter into a number of financing contracts does not alter this
analysis. See Restatement (Second) of Contracts § 31 ("An offer may
propose . . . the formation of a number of contracts by successive
acceptances from time to time"). This is because individual contracts
formed on the underlying offer for multiple contracts are analyzed
individually as divisible contracts. See Restatement (Second) of Con-

                     11
tracts § 47 (indicating that a standing offer contemplating "a series of
independent contracts" may be revoked "so as to terminate the power
to create future contracts," even though other contracts have already
been entered into pursuant to the standing offer); see also Kling Bros.
Engineering Works v. Whiting Corp., 51 N.E.2d 1004, 1008 (Ill. App.
1943) ("an offer of . . . divisible character may be revoked not only
before any acceptance but also as to any portion of the offer still
unaccepted").

The nature of Deutsche Financial's counteroffer included in the
May 23 fax was clear. Deutsche Financial was terminating its under-
lying financing relationship with Montgomery Ward and would no
longer approve transactions for financing after May 23. Deutsche
Financial further indicated that it would not finance any transaction
with an invoice date or shipment date after May 28. In essence,
Deutsche Financial was offering to continue for a short time under the
underlying Floorplan Repurchase Agreement as long as its new con-
ditions applied, and it was inviting Sharp and Montgomery Ward to
submit new transactions for financing subject to those conditions. In
contract language, Deutsche Financial extended a counteroffer to
Sharp that could be accepted by Sharp's performance-- i.e., by
Sharp's further submission of financing requests.

The legal effect of Deutsche Financial's May 23 counteroffer was
rejection of Sharp's standing offer, which terminated Deutsche Finan-
cial's ability to bind Sharp on the original terms. See Restatement
(Second) of Contracts § 36; see also OnTap Premium Quality Waters,
Inc. v. Bank of N. Ill., 634 N.E.2d 425, 429 (Ill. App. 1994) ("It is
well established that an acceptance requiring any modification or
change of terms constitutes a rejection of an original offer"); Sementa
v. Tylman, 595 N.E.2d 688, 692 (Ill. App. 1992) ("A rejected offer
cannot be revived by a later acceptance"). Thus, the original terms of
the Floorplan Repurchase Agreement were terminated, and neither
party could unilaterally revive it.

Deutsche Financial's May 23 rejection of the standing offer in the
Floorplan Repurchase Agreement and its termination of its own
power of acceptance occurred upon Sharp's receipt of the counterof-
fer from Deutsche Financial, not when knowledge of the communica-
tion's contents could be imputed to the addressee or anyone else. See

                    12
Restatement (Second) of Contracts § 40 (counteroffer terminates the
power of acceptance when "received" by the original offeror); id. § 68
(receipt occurs when the "writing comes into the possession of the
person addressed, or some person authorized by him to receive it for
him, or when it is deposited in some place which he has authorized
as the place for this or similar communications to be deposited for
him"). Identifying receipt as the objective manifestation of when
rejection occurs is necessary for determining contracting liability. It
permits an offeror an objective mechanism to revoke an offer and,
similarly, permits an objective mechanism by which an offeree can
reject an offer. In these circumstances, receipt leads not to the forma-
tion of a contract, but to its demise, and therefore, knowledge of the
contents of a communication, which otherwise might be necessary for
a meeting of minds to form a contract, need not be imputed to the par-
ties for the revocation or rejection of an offer to become effective.

In sum, Deutsche Financial effectively rejected the standing Floor-
plan Repurchase Agreement -- which may essentially be understood
as a termination unless Sharp agreed to new conditions -- at 2:17
p.m. on May 23 when the fax was received by Sharp, addressed to its
general manager. This was the person with whom communications
between the companies regarding the terms of the Floorplan Repur-
chase Agreement had taken place; the general manager was also the
person to whom Montgomery Ward sent its fax a day earlier announc-
ing the termination of its relationship with Deutsche Financial. See
Restatement (Second) of Contracts § 68 & cmt. a (noting that receipt
of a communication does not require that it have been read or even
that it have reached the hands of the addressee). Thus, unless Sharp
thereafter acceded to the new conditions demanded by Deutsche
Financial -- or, stated otherwise, unless Sharp accepted Deutsche
Financial's counteroffer of May 23 -- the Floorplan Repurchase
Agreement came to an end on May 23 when Sharp received Deutsche
Financial's fax.

Sharp does not appear to take issue with this conclusion. It agrees
that Deutsche Financial's May 23 fax contained a counteroffer but
argues that it never agreed to the new conditions contained in the fax.
Sharp's core argument is that it cannot be deemed to have accepted
Deutsche Financial's counteroffer without an awareness of the fax's
contents. It contends that at the time it requested Deutsche Financial's

                    13
approval for ongoing financing later on May 23, it did not have effec-
tive notice of the modifications demanded by Deutsche Financial. In
support of this contention, Sharp gives three reasons why notice was
defective. First, Sharp contends that notice of the counteroffer was
inadequate because it was received less than one-half hour before
Sharp requested approval for the $2.2 million transaction. Second, it
points out that Deutsche Financial's fax was sent to Sharp's general
manager, whereas it was Sharp's credit administrator who processed
financing approvals. Finally, it notes that the general manager, to
whom the May 23 fax was sent, did not receive actual notice of it
until four days later, on May 27 when he returned from vacation.

Sharp may have identified a legitimate factual question about
whether it had effective notice of the contents of Deutsche Financial's
counteroffer so as to be able to accept it by performance that same
day. This factual issue, however, need not be resolved. Rather,
because of Sharp's actual knowledge of the counteroffer on May 27
and its performance thereafter in shipping $2.2 million worth of mer-
chandise to Montgomery Ward, this case may be decided as a matter
of law on an established principle of contract law.

When an offeree, who has performed partly, continues performance
requested by the offer after learning of the offer, it accepts the offer
by completing the requested performance, even if it did not know of
the offer when it first began to perform. See Restatement (Second) of
Contracts § 51 ("Unless the offeror manifests a contrary intention, an
offeree who learns of an offer after he has rendered part of the perfor-
mance requested by the offer may accept by completing the requested
performance"); see also Plumb v. Campbell, 18 N.E. 790, 792 (Ill.
1888) (party can be bound to unilateral contract"in [any] of three
ways: First, by . . . engaging within a reasonable time to perform the
contract on his part; second, by beginning such performance in a way
which would bind him to complete it; and, third, by actual perfor-
mance"); In re Marriage of Sherrick, 573 N.E.2d 335, 337 (Ill. App.
1991) ("Conduct, including an acceptance of benefits under a con-
tract, may be sufficient to constitute a ratification binding on the party
accepting the benefits as if the party had signed the contract"). This
principle embodied in § 51 of the Restatement resolves the case at
hand. Even if Sharp began the performance invited by Deutsche
Financial's counteroffer by requesting the $2.2 million of financing

                     14
without knowledge that the "old deal" had been terminated and that
new conditions had been demanded, its core actions continuing per-
formance in the manner invited by the offer -- i.e., the shipping of
merchandise -- occurred after it had actual knowledge of Deutsche
Financial's counteroffer. Sharp does not dispute that by May 27, its
general manager had actually read Deutsche Financial's fax and dis-
cussed it with Sharp's credit administrator. And at that point, Sharp
could have withdrawn from Deutsche Financial's proposed arrange-
ment and refused to ship any merchandise without risk. Sharp's gen-
eral manager had become aware that the old deal was done and that
Sharp could continue only under the counteroffer. But instead of indi-
cating its nonagreement with the counteroffer, Sharp began shipping
all of the merchandise covered by the approved $2.2 million transac-
tion, with full notice of Deutsche Financial's May 28 deadline. Some
merchandise was shipped on May 28 within the deadline, but $1.3
million worth of merchandise was shipped on May 31, after the May
28 deadline. In short, the record indisputably establishes that at the
time Sharp began shipping the $2.2 million worth of merchandise to
Montgomery Ward -- $1.3 million worth of which it seeks reim-
bursement in this suit -- it had actual notice of Deutsche Financial's
counteroffer. Nevertheless, it elected to continue its performance,
thereby accepting that counteroffer.

Accordingly, we hold that the financing that was approved after
Sharp received Deutsche Financial's May 23 fax is governed by the
terms of the May 23 fax and that Deutsche Financial therefore did not
breach the Floorplan Repurchase Agreement when it refused to
finance the $1.3 million worth of merchandise Sharp shipped after
May 28, contrary to the conditions offered on May 23 and accepted
by Sharp's continuing performance.

The equities of this situation also militate against any different con-
clusion. Sharp was aware that Deutsche Financial was withdrawing its
financial support from Montgomery Ward and that General Electric
Capital Corporation might replace it. Sharp also received actual notice
on May 27, if not before, that the transition from Deutsche Financial
to General Electric Capital would be effective May 28 and that
Deutsche Financial would not be financing any shipments made after
that date. Sharp thus plainly assumed the risk that Montgomery Ward
would not be able to pay for the merchandise that it had ordered and

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that Sharp shipped on May 31. The fact that Sharp consciously under-
took that risk is indicated by further unrelated transactions for the sale
of merchandise that Sharp entered into directly with Montgomery
Ward after May 28. It would challenge any notion of fairness to let
Sharp shed the risk it assumed of Montgomery Ward's poor credit
now that Montgomery Ward has filed a petition in bankruptcy.

Our determination that Deutsche Financial was not contractually
obligated to finance the $1.3 million worth of merchandise, which
formed the basis for Sharp's claim, leads to the legal conclusion that,
on Sharp's complaint and the undisputed facts of record, Deutsche
Financial is entitled to judgment as a matter of law. Accordingly, we
vacate the district court's judgment and remand with instructions to
enter judgment in favor of Deutsche Financial.

VACATED AND REMANDED WITH INSTRUCTIONS

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