Contracts Outline

Contracts I –

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The Objective Theory of Contracts

Pages 1-11

Contracts – A promise that the law will enforce.

The law will not enforce gratuitous promises, illegal promises, promises under duress or those made without capacity.

A contract needs an offer and an acceptance.

The UCC does not need an offer and an acceptance. If both parties are acting as if there is a contract, then there is a contract.

Elements List:

1. A manifestation

2. of willingness to enter into a bargain

3. so made as to justify another

4. in understanding that

1. his assent to that bargain is invited and

2. will conclude it.

Lucy v. Zehmer

Supreme Court of Virginia (1954)

Appellant: Zehmer

Appellee: Lucy

Timeline/Facts:

Zehmer owned the Ferguson Farm, ~461 acres of land.

Lucy approached Zehmer several times about purchase of the land and was rejected.

Lucy approached Zehmer for the contract in question on December 20, 1952 at Zehmer’s place of business.

Lucy and Zehmer had both had “drinks.”

A contract was written: “We hereby agree to sell to W.O. Lucy the Ferguson Farm complete for $50,000.00, title satisfactory to buyers.” It was signed by Zehmer and his wife.

Lucy offered a $5.00 payment after signing the contract, which was rejected by Zehmer.

Zehmer refused to accept the payment, and assured Lucy that he had no intention of selling the farm, and that the contract had been in jest.

“Lucy left the premises insisting that he had purchased the farm.”

Lucy raised the $50,000.00 with his brother, had an attorney examine the title, who reported that it was clear on Dec. 31.

On Jan 2, Lucy contacted Zehmer with this information and asked for a closing date.

Zehmer replied on Jan 13 “that he had never agreed or intended to sell.”

Zehmer claims that he was bluffing to get Lucy to admit that he did not have the $50,000.00.

Lucy sues Zehmer for breach of contract, asking for specific performance.

Issues:

Is the mental assent of the parties requisite for the formation of a contract?

Does a valid contract exist?

Statutes & Precedent:

“If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.”

Analysis:

The contract signed by Zehmer was a binding contract of sale between the parties because his mental state or intention (i.e. “it was all in jest”) was undisclosed at the time of signing, while his words and acts were that of a serious offer. The outward expression of his intentions was that of a legitimate sale, and it was unknown to Lucy at the time of the sale that Zehmer felt otherwise (“all in jest”).

“…The law, therefore, judges of an agreement between two persons exclusively from those expressions of their intentions which are communicated between them…” Clark on Contracts, 4 ed. Section 3, p. 4.

A valid contract exists because a reasonable person would be led to believe that Zehmer was legitimate in his intent to sell the land based on his outward expression.

Holding:

The mental assent of parties is not requisite for the formation of a contract.

A valid contract does exist. The complainants are entitled to have specific performance of the contracts sued on. The decree appealed from is therefore reversed and the cause is remanded for the entry of a proper decree requiring the defendants to perform the contract in accordance with the prayer of the bill.

Other:

1. What facts and circumstances led the court to conclude that Lucy and Zehmer had a contract?

1. Lucy believed there was a contract

2. Zehmer was behaving as if the contract was legitimate

3. There was a signed document by Mr. & Mrs. Zehmer

4. There were title provisions, a 40 minute discussion, changes to the wording of the contract

5. Lucy took the contract with no request that he give it back

2. What facts and circumstances could be used to agree that they did not have a contract?

1. Potential alcohol use

2. Mental assent of Zehmer (“It was in jest.”

3. Price was very low

3. At what point in the discussion were Lucy & Zehmer bound to a contract?

1. After Zehmer and his wife both signed the contract

What to take from Lucy v. Zehmer:

The law does not look into the subjective, secret heart of the parties but instead uses what we call an “objective test,” a reasonable person standard. We ask whether a reasonable and disinterested person watching and listening to the parties would conclude that it was.

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The Objective Theory of Contracts

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Embry v. Hargadine

Court of Appeals of Missouri (1907)

Appellant: Embry (Employee)

Appellee: Hargadine (Employer)

Timeline/Facts:

Embry is an employee of Hargadine, under written contract set to expire 12/15/1903, with a salary of $2,000/year. He worked a sample department, attending to the traveling salesmen that sold the sampled product.

December 15th, 1903 – Original written contract expires.

December 23rd, 1903 – Embry claims that his contract was renewed on this date by the president of Hargadine (McKittrick) for another year.

January 1st, 1904 – Date by which Embry says he needs to have another contract or a different job secured.

February 15th, 1904 – Embry is notified that his services are no longer needed.

March 1, 1904 – Embry is discharged.

Embry says that he had addressed the issue of his contract renewal with McKittrick several times before his contract expired, and expressed the urgency with which he needed to know if he would be renewed.

McKittrick put him off several times, and on December 23rd told Embry “Go ahead, you’re all right. Get your men out, and don’t let that worry you.”11

Hargadine contends that they never re-employed Embry after the expiration of the first contract.

Issue:

Did what was said by McKittrick constitute a contract of re-employment on the previous terms irrespective of his intention?

Analysis:

The jury in lower court was asked to conclude on two issues:

1. Whether or not a conversation happened in a particular manner

2. Whether or not a contract was intended by both people

The Court of Appeals says that this was erroneous of the lower court – the jury should only have been instructed to decide whether or not what was said constituted a contract of re-employment. The Court of Appeals maintains that the lower court erred in making the formation of a contract depend on a finding that both parties intended to make one. It was only necessary the Embry, as a reasonable man, had a right to and did so understand.

The reasonable man question: Would a reasonable man believe that the contract had been renewed? Embry could not have known McKittrick’s hidden intent, and could only rely on McKittrick’s outward display. It is not literally or universally true that both parties must agree on the same thing in the same sense – a valid contract still occurred.

Holding:

Contract is valid, court erred in finding that both parties needed t