Contracts Outline – Penn – Johnston – Fall 2006

This outline consists of 43 pages and was prepared for Professor Johnston’s fall 2006 contracts course at the University of Pennsylvania law school. Immediately upon ordering you will receive an email containing links that will allow you to download both the PDF and DOC versions of the outline as many times as you wish for 72 hours.

The Objective Theory of Assent to Contract
1. “Meeting of the minds” in contract formation
2. Subjective standard – If a party says and does things that ordinarily would be taken by a reasonable person to indicate an intent to enter into a binding agreement, the agreement will be enforceable unless that party also clearly and expressly disclaims any intent to be legally bound.
a) This test provides no guidance regarding the sort of conduct that normally indicates an intent to be bound.
b) The legal standard depends on the circumstances and context.
c) Courts sometimes have difficulty choosing whether to enforce promises according to the bargaining norms of the context or according to the atypical bargainer’s actual intent.
3. The issue of assent can cause problems if not taken seriously.
a) In Lucy v. Zehmer both parties signed a contract to sell a farm for $50,000 and gave all outward appearances of assent. The plaintiff relied on that contract and incurred expenses in preparation for the purchase of the land. The defendant could not later claim he was intoxicated and that the plaintiff knew he was insincere. The court held that the contract was enforceable.
b) In Leonard v. Pepsico, Inc., where Pepsi produced a humorous commercial suggesting that customers could purchase Harrier fighter jets with “Pepsi Points,” it was obvious that the offer was facetious and the company was not bound to honor the bargain.

Assent through an Agent
1. Contracts may be entered into by an agent acting on behalf of a principal.
2. In a partnership, each partner is an agent on behalf of the other partners.
3. An agency relationship allows things to get done in big organizations.
4. The law of the agency relationship is summarized in the Restatement (Second) of Agency:
a) Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
(1) Fiduciary relationship – agent has a legal obligation to act only on behalf of the principal
(a) There is an obligation of candor that requires full disclosure, not just honesty
5. Comment b to that section provides that:
a) The agency relation results if, but only if, there is an understanding between the parties which, as interpreted by the court, creates a fiduciary relation in which the fiduciary is subject to the directions of the one on whose account he acts. It is the element of continuous subjection to the will of principal which distinguishes the agent from other fiduciaries and the agency agreement from other agreements.