Skip to main content

​
I. Intent to Contract (Objective vs. Subjective Intent)

​
A. Lucy v. Zehmer (Leading Case on Objective Theory)

Facts:
  • Lucy and Zehmer were long-time friends; Lucy had previously attempted to buy Zehmer’s farm (offered $20,000 7-8 years prior)
  • At a bar/restaurant, Lucy offered to buy Zehmer’s farm for $50,000
  • While drinking, they drafted a contract on a restaurant receipt, both signed it
  • Identified an escrow company in the writing
  • Zehmer whispered to his wife that it was “just a joke” - but Lucy had no knowledge of this
  • Zehmer’s wife also signed as co-owner
  • Lucy obtained $50,000 from his brother-in-law, went to escrow company with check
  • Zehmer refused to perform, claiming it was a joke
Issue: Whether the court applies subjective intent (what Zehmer secretly thought) or objective manifestation (what a reasonable person would understand from the circumstances) Holding: Court ordered specific performance - Zehmer must sell the farm Rule - OBJECTIVE THEORY OF CONTRACTS:
  • “In the field of contract, as generally elsewhere, we must look to the outward expression of a person as manifesting his intention, rather than his secret and unexpressed intention.”
  • “The law imposes on a person an intention corresponding to a reasonable meaning of his words and acts.”
  • Court examines what a reasonable person in Lucy’s position would have understood from Zehmer’s conduct
Key Evidence Supporting Contract:
  1. Extended 40-minute discussion (not brief/casual)
  2. Written and signed document by both parties (and wife)
  3. Included specific terms: price ($50,000), identification of escrow company
  4. Zehmer whispered to wife (showing intent to conceal the “joke” - testified to this themselves)
  5. Lucy acted in reliance: obtained $50,000, went to escrow
  6. Prior dealing: Lucy had attempted to purchase before
  7. Intoxication defense rejected: Zehmer drove Lucy home (Lucy wouldn’t ask intoxicated person to drive); detailed memory of events; court noted “high as a Georgia pine” claim inconsistent with detailed testimony
Intoxication Standard:
  • Party must be so intoxicated as to be “unable to comprehend the nature and consequence of the instrument executed”
  • Zehmer did not meet this standard
Important Distinctions:
  • “I bet you wouldn’t sell your farm for $50,000” = invitation to offer (NOT an offer)
  • Response: “Yes, I would too” = potential offer (when responding to invitation, language may be interpreted as offer even if not perfectly phrased)
Facts:
  • Husband agreed to pay wife 30 British pounds monthly for support
  • Wife stayed in England due to arthritis; husband returned to Ceylon after leave
  • They later separated; wife sued for payments under agreement
Issue: Are agreements between husband and wife living together amicably intended to be legally binding contracts? Holding: No contract - agreements between spouses living amicably do not create legal obligations Rule - THREE-FACTOR TEST for Domestic Agreements: Parties presumed to intend to exclude legal consequences when:
  1. Parties are husband and wife
  2. Living together amicably (no separation, no divorce decree)
  3. Agreement relates to wife’s support
Policy Rationale:
  • Prevents floodgates of litigation
  • Social agreements between spouses not intended to create legal consequences
  • Parties intend only “social consequences” (being upset, angry) not legal remedies
Important Note: This is a narrow exception based on policy - even though elements of agreement exist, court refuses enforcement

​
II. Intent to Be Bound - Preliminary Agreements & Memorialization

​
A. Texaco v. Pennzoil (Memorandum of Agreement Subject to Formal Writing)

Facts:
  • Pennzoil made public tender offer for Getty Oil controlling shares
  • Pennzoil entered into Memorandum of Agreement with two major Getty shareholders
  • Memo stated: “subject to approval of Getty’s board of directors”
  • Getty board initially rejected, then made counteroffers
  • Eventually Getty board accepted Pennzoil’s offer
  • Both parties issued press releases announcing agreement
  • Pennzoil’s lawyers began drafting formal agreement
  • Wall Street Journal reported the Getty-Pennzoil agreement
  • Getty continued soliciting other bids while drafting formal agreement
  • Texaco made higher offer; Getty accepted Texaco’s bid
  • Pennzoil sued for tortious interference with contract
Issue:
  1. Whether parties can be bound by agreement even when they contemplate reducing it to formal writing
  2. Whether third party (Texaco) had requisite knowledge for tortious interference
Holding: Enforceable contract existed between Pennzoil and Getty despite no final signed agreement Rule - FOUR CRITERIA for Determining if Formal Writing is Required: 1. Express Reservation
  • Look for language like “subject to,” “contingent upon,” “pending”
  • Here: “subject to approval of Board of Directors”
  • Express reservation alone may not prevent contract formation
2. Partial Performance
  • KEY PRINCIPLE: “Even if there is express reservation, subsequent conduct of the parties may bind them to the original agreement”
  • Actions after memorandum may constitute ratification
  • Examine: Did parties act consistently with enforceable contract?
  • Example: Issuing press releases, drafting formal documents, public announcements
3. Anything Left to Negotiate
  • Are substantial/essential terms still to be determined?
  • “Agree to agree” on material terms = NO contract
  • If parties specifically say “we must agree on price later” = no reasonable price gap-filler
  • Distinguish: leaving term blank (gap-fillers apply) vs. expressly reserving to negotiate later
4. Agreement Usually Written
  • Look to industry custom and practice
  • Are these types of transactions customarily reduced to writing?
  • Examples: car purchases from dealers, releases, real estate
New York Law Applied:
  • “If parties do not intend to be bound to an agreement until it is reduced to writing and signed by both parties, then there is no contract until that event occurs”
  • BUT: “If there is no understanding that a signed writing is necessary before the parties will be bound, and the parties have agreed upon all substantial terms, then an informal agreement can be binding, even though the parties contemplate evidencing the agreement in a formal document later”
Tortious Interference Standard:
  • Defendant must have known contract existed
  • Not required to know all terms
  • Knowledge exists if facts surrounding contract are known, even if legal significance not understood
  • May be proven through circumstantial evidence

​
B. TRT Transportation v. Yildirim (Oral Settlement Agreement)

Facts:
  • TRT sued for trademark infringement (Chicago Trolley)
  • Parties reached oral agreement at settlement conference before a judge
  • Terms: defendant barred from using “Chicago Trolley Rentals” or confusingly similar marks
  • TRT’s counsel suggested agreement might be refined in written settlement later
  • Judge sought confirmation that injunction terms were binding and enforceable
  • Both sides confirmed on the record the understanding was binding
  • Later disagreed when drafting written settlement
Issue: Was oral agreement at settlement conference sufficiently definite and enforceable? Holding: Yes - oral agreement was binding and enforceable Key Distinction - Settlement Conference vs. Mediation:
  • Settlement conference: Before a judge; statements can be used; binding on record
  • Mediation: Confidential; statements cannot be used if settlement fails
Rule:
  • Agreement admitted in open court can be enforceable
  • “Contracts otherwise unenforceable may be enforceable if admitted in court or during formal proceedings (depositions) or in response to discovery”

​
III. Offers vs. Invitations to Offer

​
A. Problem: Attorney’s Million Dollar Challenge (Based on Kolozic v. Mason, 2014)

Facts:
  • Criminal defense lawyer on TV interview
  • Made off-the-cuff remark: “If someone could prove this could be done in 28 minutes, I’ll pay them a million dollars”
  • Law student made the trip in under 28 minutes, demanded payment
  • Lawyer refused; student sued
Issue: Is off-the-cuff remark during TV interview an enforceable offer? Holding: No contract - statement was hyperbole, not a genuine offer Rule - Off-the-Cuff Remarks:
  • Apply reasonable person standard
  • “Off-the-cuff remarks are merely hyperbole”
  • “A million dollars” in American culture is a figure of speech (like “I’ll eat my hat”)
  • No reasonable person would think lawyer incurred million-dollar liability from TV remark
Reasons Not an Offer:
  1. Unlimited potential offerees - risk of unlimited number of people accepting
  2. Context matters - lawyer on CNN defending client (puffery/advocacy)
  3. Exaggerated amount - million dollars = common figure of speech
  4. Hyperbole - comparable to “I’ll eat my hat”
Distinguished from Lucy v. Zehmer:
  • Lucy: 40-minute discussion, written document, signatures, prior dealings, specific context
  • Kolozic: Brief TV comment, no extended discussion, advocacy context
IMPORTANT RULE:
  • If there is no offer, there can NEVER be an acceptance
  • Always identify offer FIRST before looking for acceptance
Unilateral Offer Rules:
  • Offer calls for performance (not promise)
  • No notice of acceptance required - performance alone accepts
  • Must have knowledge of offer before performing to accept
  • Example: Reward for lost dog - if you find and return dog without knowledge of reward, cannot accept

​
IV. Agreement vs. Contract - Enforceability

​
A. Rose & Frank Co. v. JR Crompton (1923) - Agreement Expressly Made Unenforceable

Facts:
  • Written agreement between B and S regulating commercial relations
  • Contained clause: “This agreement is not entered into, nor is the memorandum written as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts… but it is only a definite expression and record of the purpose and intention of the parties concerned to which they honorably pledge themselves”
  • B placed orders; S accepted orders
  • Relationship broke down; S stopped shipping
  • Some goods had already been shipped and accepted before breakdown
Issues:
  1. Can B sue for S’s refusal to ship goods S had accepted (but not yet shipped)?
  2. Can S sue for B’s refusal to pay for goods already shipped and accepted?
Holdings:
  1. No contract for unshipped goods - parties expressly agreed this was not enforceable
  2. Yes, contract for shipped/received goods - new contract formed by conduct
Rule - Distinction:
  • Original written agreement = unenforceable agreement (parties expressly excluded legal consequences)
  • BUT: Shipping goods = OFFER; Receiving/accepting goods = ACCEPTANCE
  • “As to goods delivered and accepted, there is an obligation to pay the contract price, because the delivery of the goods can be viewed as an offer to sell for a specific price which the buyer accepted”
KEY PRINCIPLE:
  • Subsequent conduct of parties can create new contract despite original unenforceable agreement
  • Court looks to original agreement for contract price but shipping/receiving creates the binding obligation
  • Agreement becomes contract when it is enforceable
Definition Clarification:
  • Agreement: Manifestation of mutual assent sufficiently definite (Restatement 2nd)
  • Contract: Agreement that is enforceable in court
  • All contracts are agreements, but not all agreements are contracts

​
Problem: Date Stands Up Date (Based on NY Small Claims 1978)

Facts:
  • Khalil invited Nola to see play
  • He would pick her up at specified date/time
  • He drove 80 miles round trip San Francisco to San Jose
  • She wasn’t home
  • He sued for $150 (ticket cost + travel expenses)
Holding: No contract - social agreement with no intent for legal consequences Rule:
  • “Parties presumably intended only social consequences”
  • Social dates/agreements between couples = not enforceable contracts
  • Apply Balfour principle to social settings
Important Exception:
  • Promissory estoppel may apply in social contexts when:
    • Promise made
    • Detrimental reliance (substantial)
    • Unfair to not enforce
  • Example: Woman and child moved states based on promise; promisee died; she recovered
If “Binding Obligation” Agreed:
  • IF parties expressly agree this is “binding obligation” = different result
  • Manifestation that this is enforceable contract overcomes presumption
  • Example: Professional escort services - binding agreement even though “date”
  • Compare: Service calls (plumber, garage door) with set fees
Consideration for “Binding” Social Agreement:
  • Mutual promises = consideration
  • But rarely enforced as practical matter

​
VI. Warranties and Promises in Professional Services

​
Hawkins v. McGee (1929) - “The Hairy Hand Case”

Facts:
  • George Hawkins (plaintiff/son) had scarred hand
  • Dr. McGee performed experimental skin graft surgery
  • Doctor’s statements:
    1. “3 or 4 days, not over 4 days, then boy can go home”
    2. “I will guarantee to make the hand 100% perfect hand” or “100% good hand”
  • Surgery made hand worse (grew hair - hence “hairy hand”)
  • Doctor had no prior experience with this type of surgery
  • Sued for negligence and breach of contract
  • Jury awarded $3,000 for breach of contract
  • Court reduced unless plaintiff agreed to remit down to $500
Issues:
  1. Was statement about hospital stay a promise or opinion?
  2. Was guarantee statement an enforceable warranty?
Holdings:
  1. Hospital stay statement = opinion/prediction, not actionable
  2. Guarantee statement = enforceable warranty
Rules: Promises vs. Opinions:
  • “Expressions of opinion or predictions as to probable duration of treatment” = NOT contractual promises
  • Fact that estimates exceeded = no contractual liability
Warranties in Professional Services:
  • “I will guarantee to make the hand 100% perfect” = enforceable warranty
  • Analogous to warranty that machine will perform specific function
  • Measure of damages: Difference between value as warranted vs. actual condition
Malpractice Insurance Note:
  • Insurance denied coverage because:
    • Malpractice insurance covers tort claims
    • This was breach of contract claim
    • Doctor had to pay personally
PRACTICE POINT - Lawyers:
  • Never guarantee outcomes
  • Include in retainer: “There is no guarantee even if lawyer made such statement; you shall not rely on such statement”
  • Initial every paragraph of retainer (like criminal “Tahl form”)
  • Always say: “It’s against the law for me to make predictions; I’ll do my best”
  • Even when you know likely outcome, phrase as high probability, not guarantee

​
VII. Key Definitions & Terms

Offer: Intent to be bound by certain definite terms communicated to offeree Invitation to Offer: Preliminary discussion/solicitation (e.g., “I bet you wouldn’t sell for $X”) Objective Theory: Look to outward manifestation, not secret/unexpressed intent Express Reservation: Language conditioning agreement (e.g., “subject to,” “contingent upon”) Partial Performance: Actions taken pursuant to agreement that may create binding obligations Ratification: Subsequent conduct affirming/adopting prior agreement Gap-Filler: UCC provisions supplying missing terms (e.g., reasonable price) Agree to Agree: Agreement to negotiate essential terms later = NO contract Hyperbole/Puffery: Exaggerated statements not intended as binding offers Agreement: Manifestation of mutual assent sufficiently definite Contract: Agreement that is enforceable in court

​
VIII. Exam Tips & Analysis Approach

Always Analyze in This Order:
  1. Is there an OFFER? (If no, cannot have acceptance)
  2. Then look for acceptance
  3. Then consideration
  4. Then defenses
Offer Analysis:
  • Intent to be bound?
  • Definite terms?
  • Communicated to offeree?
  • Or is it invitation to offer, preliminary negotiation, or puffery?
Intent to Contract:
  • Apply objective reasonable person standard
  • What would reasonable person in offeree’s position understand?
  • Look at totality of circumstances
  • Context matters (social vs. business, TV interview vs. extended negotiation)
Memorandum/Preliminary Agreements:
  • Check for express reservation language
  • Examine partial performance
  • Identify material terms left to negotiate
  • Consider industry custom (usually written?)
Writing Requirements:
  • If parties intend writing as condition precedent = no contract without it
  • If writing is mere memorialization = agreement may be binding despite no final writing
  • Conduct can bind parties despite express reservation
YOUR CONCLUSION DOESN’T MATTER:
  • Focus on ANALYSIS
  • Show both sides
  • Apply rules to facts
  • Thorough analysis with “wrong” conclusion = full credit
Understand, Don’t Memorize:
  • Understanding allows you to remember rules permanently
  • Memorization alone will lead to failure
  • If you understand element is missing, you’ll recognize wrong answer even if you forgot exact rule

​
IX. Policy Considerations

Balfour Domestic Agreements:
  • Floodgates concern - prevent millions of lawsuits over trivial domestic promises
  • Preservation of family/social relationships
  • Parties don’t contemplate legal remedies in social contexts
Objective Theory (Lucy v. Zehmer):
  • Protects reasonable expectations
  • Promotes certainty in commercial transactions
  • Can’t avoid obligations based on secret intentions
  • Encourages parties to clearly communicate if joking/not serious
Professional Guarantees (Hawkins):
  • Allows parties to allocate risk
  • Professionals shouldn’t make guarantees unless willing to be bound
  • Distinguishes opinions/predictions from warranties
  • Protects consumers who rely on professional representations

​
X. Practice Points for Lawyers

Consultation Protocols:
  1. Get consultation sheet signed before seeing anyone
  2. Sheet must state:
    • Consulting only
    • NOT your lawyer yet
    • Must hire lawyer immediately
    • Include statute of limitations warnings (6 months for government, etc.)
  3. If they don’t sign consultation sheet, refuse to see them
Non-Engagement Communications:
  1. Send certified mail, return receipt requested
  2. Advise of statute of limitations
  3. Advise to hire lawyer immediately
  4. Keep for at least 10 years
  5. If phone only: Get email, send follow-up in writing
Malpractice Insurance:
  1. Verify law firm has malpractice insurance before working there
  2. If no insurance - leave immediately
  3. You can be liable even for one appearance in case
  4. Even “special appearance” can create liability
Client Relations:
  1. Never sign releases for clients without signed release from client
  2. Always get client signature on verifications/declarations
  3. No electronic signatures for client without express written authorization
  4. Client must verify under penalty of perjury personally
Discovery Violations:
  • If client lies under oath in deposition/discovery
  • Withdraw from case immediately
  • Court can strike pleadings for discovery violations
  • Lawyer cannot sign discovery responses for client