The Agreement Process
I. Intent to Contract
a. Objective Theory of the Law of Contracts
i. Contracts should be viewed from the objective perspective
b. Presumptions (evidentiary substitutes)
1. Cannot be overcome.
2. There are not very many of these.
1. Can be overcome.
2. Most presumptions are like this.
i. Agreement between two or more parties that law will enforce.
ii. Not all agreements are contracts.
d. Note: You must suffer damage to sustain a breach of contract.
e. Note: Specific performance usually applies to things like real estate transactions where the thing being contracted upon is unique, meaning that damages cannot be assessed.
i. Lucy v. Zehmer- Lucy offered Zehmer money for his farm. Zehmer wrote a memorandum, discussed it with his wife and Lucy, edited it, then signed it with his wife. Zehmer claimed that he and his wife signed the contract in jest and did not intend to be bound. The court held that the contract was a binding agreement, regardless of intended jesting. This followed the reasoning that a person’s actions are more important than unexpressed intention. Actions should infer their reasonable meanings.
ii. Balfour v. Balfour- The husband promised to send his wife a monthly allowance at a set amount when he had to go overseas. They developed differences and agreed to life apart. The wife sued for continued payment of the allowance as alimony. The court found that the husband should not have to pay because the agreement was not a contract. It reasoned that simple agreements such as allowances were “outside the realm of contracts” because they were never intended to “be attended by legal consequences.” The case deals with the presumption (which is an evidentiary substitute) that husbands and wives do not make such agreements intending legal obligations.
iii. Sanchez v. Life Care Centers of America- Sanchez was issued a handbook of employment guidelines during her employment which contained a disclaimer saying that she was terminable at will. She was later taken off of the work schedule when she could not come in one day (essentially ending her employment). The court held that the disclaimer was not physically conspicuous and had ambiguous meanings which would not be clear to a normal employee. The court thus remanded the case to the trial court for determination of whether the employee handbook modified the employment relationship from one terminable at will to one terminable only for cause.
iv. K.D. v. Educational Testing Service- K.D. took the LSAT two times and had very different scores each time. K.D. and other test-takers had signed a bulletin before taking the test, saying that the service reserved the right to cancel scores of doubtful authenticity. The service offered K.D. the opportunity to take the test again for free and prove that his score was valid but would notify the schools he had reported to if he did not comply (or if it was obvious that he had cheated). K.D. sued for injunctive relief, claiming that the bulletin was a contract of adhesion (because the service had all of the power and he had no option but to sign). The court held that the contract was not void because the terms were “eminently fair and reasonable under the circumstances” given that the service had a reputation to maintain and had offered to allow to retake the LSAT for free. Importantly, contracts of adhesion are not inherently void, but are held to a high standard to determine that the terms are fair to the party that has no option but to sign
v. Mcc-Marble Ceramic Center v. Ceramica Nuova D’Agostino- Plaintiff, while in Italy, signed a contract that had terms on the back written in Italian. Plaintiff neither spoke nor read Italian and attempted to invalidate the contract for that reason. The court held that the contract was valid, reasoning that people who sign contracts should be bound by them, and cannot use lack of understanding as an excuse. As a matter of public policy, this gives incentive not to sign contracts in a frivolous manner.
II. The Offer
a. Elements of promissory language
1. Can be ascertained by market value or other mechanism so it doesn’t always have to be specific at the time of the offer.
ii. Limitation of the quantity.
1. Quantity term is important to protect merchants from inadvertent unlimited exposure.
iii. Quality, as in description of product.
1. The fact that something could be described more specifically does not mean the quality term is invalid.
iv. Tendering the money- is a promise.
b. Prophetic language ≠ Promissory language (in general)
c. Note: Negative promissory language is okay.
d. Note: Once an offer to sell is made the power lies in the hands of the buyer, who can choose to accept. However, advertisements force the buyer to make the offer, leaving ultimate acceptance power in the hands of the seller.
e. Offers distinguished from advertisements
i. Leonard v. Pepsico- Pepsico had a promotional campaign that advertised “Pepsi Stuff” in return for “Pepsi Points” that consumers would obtain through purchase of Pepsico products or through direct sale from Peps
ttancourt v. Gilroy Theatre- Bettancourt agreed to sell a piece of land under agreement that Gilroy would use it, “to erect a First class Theatre.” Bettancourt received the money and Gilroy received the land but Gilroy did not build the theater and instead sold it to a third party. The court held that Gilroy was in breach of contract, as the term “First class Theatre” was sufficiently definite and certain to enable Gilroy to know what it had undertaken to do, because Bettancourt had no actual stake in the theatre. The important thing is what the quality term means to the contracting parties, not what it would seem to mean from our point of view.
III. Intent to Memorialize and Indefiniteness
i. Texaco v. Pennzoil- Pennzoil contracted with representatives of Getty Oil to purchase the company, one of whom was Gordon Getty. A “memorandum of agreement” was drafted and signed by the president of Pennzoil and Gordon Getty and then presented to the board of directors of Getty Oil. After offers and counter-offers Pennzoil and Getty Oil made a verbal agreement, including approval by the board of Getty. Both companies issued press releases about the transaction and on the same day lawyers for the companies were working on the formal “transaction agreement.” Getty Oil’s investment banker continued to contact other companies in search of a higher price. The Getty board voted to withdraw its previous counter-proposal to Pennzoil and voted to accept an offer by Texaco. How one goes about determining where on the timeline of agreement the parties intended to be bound was the central issue in the case. The court held that Pennzoil and Getty Oil had a binding oral agreement, regardless of the fact that a formalized agreement was intended to follow. They reasoned that
1. The conditional language of the first memorandum only referred to the transaction, not making the offer conditional.
2. The term “agreement in principle” used in the press release did no establish an intent not to be bound.
3. Lack of partial performance did not show intent not to be bound because of the short time period.
4. Although a transaction this large would normally be accompanied by a written contract, the expectation of such was satisfied by the original memorandum of agreement and the fact that a transaction agreement was in progress to memorialize the agreement.
5. The terms of the agreement, though sparse, satisfied a contract.