Contracts Outline

CONTRACTS OUTLINE
 
Rules Governing Contracts
 
1.               Freedom of Contract – Contracts are voluntary
2.               Equity/Fairness
3.               Efficiency – limiting difficulties in conducting business
4.               Consistent
5.               Predictable
 
Hill v. Gateway: Efficiency / Freedom of Contract
Contract terms in box are more efficient than explanation of terms over phone / Commercial transactions / Don’t have to buy their computer
Illusory promise: terms are so indefinite as to preclude understanding
 
Brower v. Gateway: Equity
Procedural and substantive unconsiconability of contract terms
Arbitration clause did not stand because cost was prohibitive/unconscionable/unreasonable (plaintiff had to pay for arbitration costs/ travel costs/ etc.)
 
Is There an Agreement
 
Lucy v Zehmer
 
Issues
 
1.              Is there a contract when one party claims he was joking?
 
Court says Z not joking because
1.              Length of discussion
2.              Back and forth discussion between Lucy and Zehmer
3.              Zehmer did not object to any clauses/part of the contract
 
Holding: There was a serious business transaction
 
2.              Were the parties too drunk to enter into the contract?
 
Court says not drunk (or not too drunk to negate contract) because
1.              Zehmer was able to recall the conversation
2.              The contract was complete
3.              Zehmer drove home that night
4.              The lawyer admitted he wasn’t drunk
 
Holding: A contract is invalidated on the basis of intoxication only when a person is unable to comprehend the nature & consequences of the contract.
 
1.              What if Zehmer was in fact joking?
 
Court says that
1.              There is a contract if a reasonable person believes that it is a serious transaction
2.              Look to outward expression or manifestation
 
Holding: Zehmer did not indicate in any way to Lucy that he was joking. A reasonable person would assume that it was a valid contract.
 
Rule
 
The court will apply an objective approach to whether a contract was formed. This means that the court will look to outward manifestations, not mental intent not revealed.
 
(If Lucy subjectively knew that Zehmer was joking then the court would care and could possibly provide an out for Zehmer)
 
 
Objective Standard:
What would an objective and reasonable person believe and understand given the circumstantial evidence and outward manifestation of a party
 
When Is There an Offer
 
Restatement 24:
 
Leonard v. Pepsico
 
Facts
 
·            Plaintiff sued Pepsico for specific performance of an alleged offer of a Harrier Jet
·            Plaintiff saw a Pepsico commercial for new promotional campaign entitled “Pepsi Stuff”
·            At end of commerical a Harrier Jet is shown with 7,000,000 pepsi points
·            Plaintiff collected 15 original pepsi points and a check for $700,008.50 and set it in for the Harrier
·            Pepsico rejected and state that Harrier was a joke and no reasonable person could assume otherwise
·            Plaintiff sued
 
Relief Sought
 
Plaintiff is asking for specific performance of alleged contract for Harrier Jet
 
Issue
 
1.        Whether Pepsico commercial constituted an offer to participate in Pepsi Stuff points program with Harrier Jet as possible prize
 
2.        Would a reasonable person believe that an offer had been made of a Harrier Jet
 
3.        Is a jury necessary to determine reasonableness of commercial
 
Holding
 
4.        Pepsico commerical did not constitute an offer for a Harriet Jet
5.        A reasonable person could not believe that commercial represented an offer for a jet
6.        Inquiries into whether there was an offer to enter into a contract, requires a determination of how a reasonably objective person would have understood the contract (these are inquiries commonly performed by courts on a motion for summary judgement)
 
Conclusion
 
A reasonable viewer would understand such advertisements as mere puffery, not as statements of fact, and refrain from interpreting the promises of the commerical as being true
 
Is there an offer?
 
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