Contract Law

Lucy v. Zehmer

84 SE 2d 516 (Va. 1954)

Facts

Lucy had repeatedly expressed interest in buying Zehmer’s farm, known as the Ferguson Farm.
One evening, Lucy and Zehmer discussed the sale while drinking in Zehmer’s restaurant.
After extended discussion, Zehmer wrote on the back of a restaurant receipt:
“We hereby agree to sell to W.O. Lucy the Ferguson Farm complete for $50,000, title satisfactory to buyer.”
Zehmer’s wife also signed the document.
The parties discussed the terms for a considerable period and rewrote the document before signing it.
Lucy later arranged finance and obtained a lawyer to examine the title.
Zehmer then refused to sell.
He argued that the written agreement was merely a joke and that he never subjectively intended to transfer the farm.
He also argued that he had been drinking and that Lucy should have understood that the transaction was not serious.
Lucy sued for specific performance.

Whether a contract exists where one party secretly intends the transaction as a joke but outwardly behaves as though making a serious agreement.
Whether contractual intention is determined subjectively or objectively.

Contractual assent is judged by an objective test.
The court asks what a reasonable person in the position of the other party would understand from the words and conduct used.
A party’s secret or undisclosed intention is irrelevant where their outward conduct reasonably communicates a serious intention to contract.
A person cannot avoid a contract merely by later saying:
“I was joking”; or
“I did not inwardly intend to be bound.”
Intoxication avoids a contract only where it is so serious that the person cannot understand the nature and consequences of the transaction and the other party knows or should know this.

The court examined the whole transaction rather than relying only on Zehmer’s later explanation.
Several facts showed objective seriousness:
the discussion lasted for a significant period;
the parties discussed the sale price and the property;
Zehmer rewrote the agreement to make its terms clearer;
both Zehmer and his wife signed it;
the writing identified the property and price;
the phrase “title satisfactory to buyer” was a normal contractual term.
These actions were inconsistent with a casual joke.
Lucy was justified in treating the signed document as genuine.
Zehmer’s private statement to his wife that the arrangement was a joke was not communicated to Lucy.
Contract law protects reasonable reliance on outward expressions, not undisclosed mental reservations.
The court also rejected the intoxication argument.
Zehmer’s conduct showed that he understood what he was doing:
he negotiated;
discussed details;
drafted and redrafted the writing;
obtained his wife’s signature.
He was therefore not so intoxicated that he lacked contractual capacity.
Since a reasonable person would have understood Zehmer’s conduct as serious, his hidden intention could not defeat the agreement.

The Supreme Court of Virginia held that a valid contract had been formed.
Zehmer’s outward words and conduct objectively showed an intention to sell.
The court ordered specific performance of the sale.
Use this case for: contractual intention is judged objectively; a secret intention to joke does not defeat an apparently serious agreement.