In this lecture, we continue our discussion of the manifestation of mutual assent by considering Lucy versus Zehmer, a 1954 Virginia case in which the promissor appeared to assent to a contract, but later claimed this offer, that his offer, was merely a joke. In Lucy versus Zehmer, the defendant, Zehmer, drafted and executed a short written agreement on the back of a restaurant receipt to sell his farm for $50,000 to the plaintiff, Lucy. Zehmer subsequently refused to consummate the sale asserting that he didn't ever believe Lucy had $50,000 and that the offer that he had made was just in jest. Lucy sought specific enforcement of the sale agreement. The trial court found for Zehmer, but the instant court reversed. So, what's the central issue? Did Zehmer's action bind him contractually despite his claim subjective intent to joke? The court held that it did, concluding that the agreement ''constituted a binding contract of sale between the two parties'' whether it was, "the result of a serious offer by Lucy and a serious acceptance by the defendants, or was a serious offer by Lucy and an acceptance in secret jest by the defendants." To reach this conclusion, the court cited the rule that, "The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts." This is another example of the objective listener standard. In other words, the court applied the objective theory of manifestation of mutual assent that we discussed in the last lecture. The undisclosed intention of the promissor is immaterial if his outward actions would lead a reasonable person to conclude that he intends to form a contract. This case is arguably the poster child for a very formalized version of the objective theory. At a minimum, the case stands for the rule that courts should look at a parties outward expression rather than the internal intention of the party. In this case, there is actually the outward manifestation of two parties and the two sellers in the sense that both Zehmers, both of the spouses, manifested intent to contract and that even if one of those sellers was jesting, I think it's important that the other spouse also signed helps to add to the court's willingness to enforce the contract. And now, an opinion by one of America's most famous and aptly named judges, Judge Learned Hand, provides with an extreme statement of the objective theory of agreement. Hand said, "A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by 20 bishops that either party, when he used those words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake or something else of that sort." So, why should this be the rule? Even if some people attach idiosyncratic meaning to their words or actions, it may be more efficient to make those people change rather than to make the majority change. The idiosyncratic bargainers could probably adjust their behavior more easily and at a lower cost than the majority. Part of the efficiency, from the objective listener standard, is that it allows contract law to avoid jury questions and have disputes decided instead on the papers. Under a subjective theory, a defendant might cause almost any case to go to trial to decide whether both parties really intended to contract. One way to justify Zehmer's liability in this case is to focus on how inconsiderate the Zehmer's defense is with regard to other contract writers. If Zehmer wins, written contracts become less useful. A completely subjective theory of intent also creates a serious moral hazard problem. Parties who later wish to get out or modify regrettable bargains could claim idiosyncratic meanings after the fact. As Frank Easterbrook puts it, "If unilateral or secret intentions could bind, parties would become wary, and the written word would lose some of its power." This is a case where the future written contract sellers are likely rooting against Zehmer. So, after signing the agreement, imagine that Zehmer immediately tells Lucy that it was all a joke and he doesn't intend to sell his farm. Under this objective theory, is the contract binding? The answer is yes. An offeror may revoke an offer until it is accepted but not after it is accepted. If Zehmer's outward actions imply that the offer is serious, a contract is formed as soon as Lucy accepts it under the objective theory. And if it is too late for Zehmer or to revoke by revealing that he is secretly joking, then he can't retract the contract. In fact, in Lucy versus Zehmer, Zehmer argued that he didn't tell Lucy that the whole thing was a joke immediately after the contract was signed and he realized that Lucy was serious, but that wasn't enough to avoid Zehmer's liability. But is this really a good rule? Malcolm Sharpe, who emphasizes the freedom from contract, argues that in light of the cost individual freedom, the objective tests should be employed only where the defendant has induced actual unjustified reliance by the plaintiff. If Zehmer told Lucy that he was joking before Lucy left the bar, then what difference does it make to Lucy? Lucy hasn't yet relied on the promise, so is no worse off than he would have been had Zehmer told them it was a joke immediately before signing or, and refusing to sign. Sharpe's reliance approach is not perfect however. Whether the promisee relied on the promise, can itself be a matter of dispute that may require jury adjudication of whether there was actual unjustified reliance? There would be fewer summary judgments and directed verdicts if there was a reliance requirement. So let's recap. For two parties to establish a valid contract, there must be a manifestation of mutual assent by both parties. Under the objective theory, whether assent is manifested is determined by the actions of the parties, and so a party may be bound despite a hidden, contrary intent. The reasonable listener standard determines whether someone has manifested assent.
