Slides · Class 4

By the end of class, you can

Apply the objective theory of contracts to a 'secret jest' fact pattern (Lucy v. Zehmer style) and explain why outward manifestations control.
Apply R2d § 20's misunderstanding doctrine to a Raffles-style ambiguity and decide whether mutual assent fails on a material term.
Distinguish an offer from preliminary negotiations using the R2d § 24 factors on a short hypothetical.

Today

Floor. ~40 min: R2d § 17 + Lucy. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + Peerless + R2d § 18 + synthesis.

Can you contract without realizing it?

Three questions to open the objective theory:

Does it matter what you were thinking, or just what you said?
If you joke about selling your car for $10 and someone accepts, is that a contract?
When two people sign the same words, have they necessarily agreed?

Contracts are about agreement. But the law does not read minds. It reads outward manifestations: words, conduct, the things a reasonable person in the other party's position would understand.

R2d § 17: Requirement of a Bargain

(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

R2d § 18: Manifestation of Mutual Assent

Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.

R2d § 19: Conduct as Manifestation of Assent

(1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.

(2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.

(3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.

Acceptance: bilateral vs. unilateral

Mutual assent is offer + acceptance. Acceptance comes in two forms:

Bilateral contract. A promise is accepted by a return promise (or by conduct that manifests assent, such as beginning performance).
Unilateral contract. A promise is accepted only by complete performance. The classic reward: "I'll pay $100 to whoever returns my dog." You accept by returning the dog, not by promising to look.

Why does the law allow different forms? Because the offeror is master of the offer and can specify how assent must be shown.

Lucy v. Zehmer

196 Va. 493, 84 S.E.2d 516 (1954)
Supreme Court of Appeals of Virginia

Rule. The mental assent of the parties is not requisite for the formation of a contract; the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. A secret joking intent is no defense when a reasonable person would believe the words and conduct manifested a serious bargain.

R2d § 20: Effect of Misunderstanding

(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and

(a) neither party knows or has reason to know the meaning attached by the other; or

(b) each party knows or each party has reason to know the meaning attached by the other.

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or

(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

Raffles v. Wichelhaus

2 Hurl. & C. 906, 159 Eng. Rep. 375 (Ex. 1864)
Court of Exchequer

Rule. Where two parties attach materially different meanings to a critical term and neither has reason to know of the other's meaning, no contract is formed for want of mutual assent.

Lucy vs. Raffles: what makes them different?

Both cases turn on outward manifestations. Yet Lucy enforces and Raffles refuses. Why?

In Lucy, the parties said the same thing AND meant the same thing that an objective observer (the waitress) could identify: sell the Ferguson Farm for $50,000.
In Raffles, the parties said the same thing but meant different things: "the ship Peerless" pointed to two different ships, and the court had no principled basis to pick one over the other.

Lucy: a secret intent does not defeat assent. Raffles: when the objective manifestations themselves split with equal validity, there is nothing to enforce.

Offer life-cycle

Worked example: Problem 3.1, Can Machines Form Mutual Assent?

In 1951, Sadie Bernstein bought trip insurance from a vending machine in Newark Airport: 25 cents per $5,000 of coverage. She filled out the application, pressed SUBMIT, and the machine printed a 22-page policy. The first page limited coverage to "civilian scheduled airlines." Bernstein did not read the policy.

At the ticket counter she bought passage on Miami Airlines. A large sign listed Miami Airlines as a "non-scheduled airline." Bernstein did not notice the sign. The flight crashed; she died; her beneficiary sued to recover under the policy.

Should a court find mutual assent between Bernstein and Fidelity?

Stretch: Problem 3.2, Misunderstanding the Triangle

The Chilsons owned twenty acres divided into Butler North (17.3 acres), Butler South (4.3), and the Triangle (2.4). They listed Butler North plus the Triangle for sale. The written description, however, described Butler North plus Butler SOUTH. The buyers signed for the listed price intending to buy whatever the legal description specified. The Chilsons refused to close on the written description. Buyers sued for specific performance.

Was there a valid manifestation of mutual assent?

Stretch: practice problem

Stretch problems from the chapter.

Problem 3.1. Can Machines Form Mutual Assent?. See casebook Chapter 3.

Problem 3.2. Misunderstanding the Triangle. See casebook Chapter 3.

Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.

Class summary

Rules. R2d § 17, R2d § 18, R2d § 19.

Cases. Lucy v. Zehmer · Raffles v. Wichelhaus.

Open question. Today's rule tells us when outward manifestations bind. It does not tell us how to read manifestations sent to a CROWD instead of a counterparty. Class 5 carries Lucy and Raffles forward into advertising, where the audience is the public; Class 6 takes up Lefkowitz and Leonard v. Pepsico in earnest.

Next time

Next class: Bargains cont. + Offers setup

_Mutual Assent_ · Sep 10

Continue with the objective theory; preview Lefkowitz v. Great Minneapolis Surplus Store and Leonard v. Pepsico. Same Lucy test, scaled up: when is an advertisement an offer? Come ready to compare the fur-stole ad to the Harrier-jet commercial.

Class 4: Bargains