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George Mason School of Law

This class explores the fundamental questions of contract formation, including parties involved, agreement terms, location, and timing. It also delves into the doctrine of consideration and the objective standard for promise enforcement. The case of Lucy v. Zehmer is analyzed to illustrate the importance of intention and capacity in contract law.

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George Mason School of Law

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  1. George Mason School of Law Contracts I IV. Offers F.H. Buckley fbuckley@gmu.edu

  2. Last classes • Contract law solves the trust problem of PD games and permits credible commitments

  3. Last classes • Contract law solves the trust problem of PD games and permits credible commitments • This results in a society which is wealthier, happier, freer and more open

  4. Last classes • Promising and contract law assume the existence of promissory conventions (Hume) • The libertarian (non-consequentialist) explanation of promising therefore appears to founder • So too natural law explanations

  5. Last classes • Promising and contract law are content-independent • Quasi-contract (restitution) as contract-dependent • Was there really a benefit?

  6. The Five W’s • Who • What • Where • When • Why

  7. Basic Questions of Formation • Who are the parties • What happens to non-parties? • What • Where • When • Why

  8. Basic Questions of Formation • Who are the parties • What did they agree to? • What are the terms and conditions • Where • When • Why

  9. Basic Questions of Formation • Who are the parties • What did they agree to? • Where was the contract formed? • Under which law • When • Why

  10. Basic Questions of Formation • Who are the parties • What did they agree to? • Where was the contract formed? • When was it formed? • Pre-contractual rights • Limitation periods • Why

  11. Basic Questions of Formation • Who are the parties • What did they agree to? • Where was the contract formed? • When was it formed? • Why did they enter into the contract The doctrine of consideration

  12. Who are the parties?Restatement § 2 • (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. • (2) The person manifesting the intention is the promisor. • (3) The person to whom the manifestation is addressed is the promisee. • (4) Where performance will benefit a person other than the promisee, that person is a beneficiary.

  13. Who are the parties?Restatement § 2 • (4) Where performance will benefit a person other than the promisee, that person is a beneficiary. • The old rule of privity of contract

  14. What counts as a contract? • The need for a “meeting of the minds” • Quinn J. in Williams v. Walker-Thomas at 53

  15. Non-promises • 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. • What does this exclude?

  16. Non-promises • (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. • “I may sell my car to you” • “I expect to see you at lunch tomorrow”

  17. Secret reservations • How about: “I will sell you my car tomorrow” (while privately resolving not to do so)

  18. The Objective Standard • Restatement § 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. • A remedy for “false promising”

  19. Lucy v. Zehmer at p. 13

  20. Lucy v. Zehmer at p. 13

  21. Lucy v. Zehmer Back on State 40 about a half mile from the junction with County 613 the traveler comes upon the FERGUSON PLACE; … The two sections are connected by a passageway—commonly called a colonnade, though quite innocent of columns. The wide-boarded floors, flat-head nails, massive locks, H and L hinges, and hand-carved mantels attest the antiquity of a house well worth the restoration it has not received.

  22. Why does the drinking matter?

  23. Why does the drinking matter? • Capacity: Restatement § 16 • (1) A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction

  24. Why does the drinking matter? • Restatement § 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

  25. Lucy v. Zehmer • What is the role of intention to create legal relations? • Restatement § 21: Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.

  26. Lucy v. Zehmer • What remedy is sought and why did that matter? • Recall Mansfield in Moses v. Macferlan

  27. Lucy v. Zehmer • Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday?

  28. Lucy v. Zehmer • Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday? • Has there been either any beneficial or detrimental reliance at that point?

  29. Lucy v. Zehmer • Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday? • Has there been either any beneficial or detrimental reliance at that point? • Does the Coase Theorem help?

  30. Lucy v. Zehmer • Suppose Lucy knew that Zehmer acted in jest? • Restatement §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.

  31. Leonard v. Pepsico at 18

  32. Leonard v. Pepsico at 17 • Was this really an offer to sell a jet for $700,000?

  33. Leonard v. Pepsico at 17 • “No objective person could reasonably have concluded that the commercial actually offered consumers a Harrier Jet.”

  34. Leonard v. Pepsico at 17

  35. Bargains: Rest. § 3 • Abargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

  36. Bargains: Rest. § 3 • A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. • Wholly executory contracts: promise for promise • Wholly executed contracts: performance for performance

  37. A wholly executed contract:Gleinicke Bridge, Berlin, 1986

  38. Formation as a Coordination Game • You have to meet someone here in the United States. You don’t know anything about him and he knows nothing of you. You don’t know where or when to meet. It could be anywhere in the US and it could be any day or any time.

  39. Formation as a Coordination Game • You have to meet someone here in the United States. You don’t know anything about him and he knows nothing of you. You don’t know where or when to meet. It could be anywhere in the US and it could be any day or any time. • What day?

  40. Formation as a Coordination Game • You have to meet someone here in the United States. You don’t know anything about him and he knows nothing of you. You don’t know where or when to meet. It could be anywhere in the US and it could be any day or any time. • What city?

  41. Formation as a Coordination Game • You have to meet someone here in the United States. You don’t know anything about him and he knows nothing of you. You don’t know where or when to meet. It could be anywhere in the US and it could be any day or any time. • Where in NYC?

  42. Formation as a Coordination Game • You have to meet someone here in the United States. You don’t know anything about him and he knows nothing of you. You don’t know where or when to meet. It could be anywhere in the US and it could be any day or any time. • What time?

  43. What side of the road to drive on?Coordination Games Player 2 Player 1

  44. Formation as a coordination game Player 2 Player 1

  45. Bargaining errors as an avoidable accident What we got here is a failure to communicate

  46. Two kinds of Promissory Accidents • Type I: Promisors are found to promise when they really didn’t intend to do so (false positive) • Lucy v Zehmer? • Type II: Promisors are not found to promise where they intended to do so (true negative) • Leonard v. Pepsico

  47. How to reduce promissory accidents? Offer and Acceptance • Restatement § 22(1). The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.

  48. Offers • Restatement § 24. An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

  49. Acceptance • Restatement § 50. Acceptance of an offer is the manifestation of assent to the terms thereof…

  50. How to reduce promissory accidents? • What if we could identify the party who could at least cost eliminate the accident?

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