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60 Cards in this Set
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§1. CONTRACT DEFINED |
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. |
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§ 2 Promise;
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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. |
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§ 2 Promisor; Promisee; Beneficiary |
(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. |
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§ 3 Agreement Defined; Bargain Defined |
An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. |
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b. Manifestation of intention. |
The phrase "manifestation of intention" adopts an external or objective standard for interpreting conduct; it means the external expression of intention as distinguished from undisclosed intention. A promisor manifests an intention if he believes or has reason to believe that the promisee will infer that intention from his words or conduct. Rules governing cases where the promisee could reasonably draw more than one inference as to the promisor's intention are stated in connection with the acceptance of offers (see §§ 19 and 20), and the scope of contractual obligations |
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e. Illusory promises; mere statements of intention. |
Words of promise which by their terms make performance entirely optional with the "promisor" whatever may happen, or whatever course of conduct in other respects he may pursue, do not constitute a promise. They may not even manifest any intention on the part of the promisor. Even if a present intention is manifested, the reservation of an option to change that intention means that there can be no promisee who is justified in an expectation of performance. |
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d. Offer. |
A bargain is ordinarily made by an offer by one party and an acceptance by the other party or parties, the offer specifying the two subjects of exchange to which the offeror is manifesting assent (see §§ 22 and 24). |
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e. Contract distinguished from bargain. |
A contract is not necessarily a bargain. Thus, a promise to make a gift, if made under seal, may be a contract (see § 95), but it is not a bargain. Other contracts which are not bargains are the subject of §§ 82-94. Such contracts do not require manifestations of mutual assent in the form of offer and acceptance. |
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§ 4 How a Promise May Be Made |
A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct. |
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a. Express and implied contracts. |
Contracts are often spoken of as express or implied. The distinction involves, however, no difference in legal effect, but lies merely in the mode of manifesting assent. Just as assent may be manifested by words or other conduct, sometimes including silence, so intention to make a promise may be manifested in language or by implication from other circumstances, including course of dealing or usage of trade or course of performance. |
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§ 5 Terms of Promise, Agreement, or Contract |
(1) A term of a promise or agreement is that portion of the intention or assent manifested which relates to a particular matter. (2) A term of a contract is that portion of the legal relations resulting from the promise or set of promises which relates to a particular matter, whether or not the parties manifest an intention to create those relations. |
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§ 7 Voidable Contracts |
A voidable contract is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance. |
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b. Grounds of avoidance. |
Typical instances of voidable contracts are those where one party was an infant, or where the contract was induced by fraud, mistake, or duress, or where breach of a warranty or other promise justifies the aggrieved party in putting an end to the contract. Usually the power to avoid is confined to one party to the contract, but where, for instance, both parties are infants, or where both parties enter into a contract under a mutual mistake, the contract may be voidable by either one of the parties. Avoidance is often referred to as "disaffirmance." |
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§ 8 Unenforceable Contracts |
An unenforceable contract is one for the breach of which neither the remedy of damages nor the remedy of specific performance is available, but which is recognized in some other way as creating a duty of performance, though there has been no ratification. |
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b. Types of unenforceable contracts. |
Some contracts are unenforceable because they arise out of illegal bargains which are neither wholly void nor voidable. Others are unenforceable because of laws relating primarily to remedies, such as the Statute of Frauds (see Chapter 5) or Statute of Limitations. |
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§ 9 Parties Required |
There must be at least two parties to a contract, a promisor and a promisee, but there may be any greater number. |
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b. Different capacities. |
One person may have different capacities, as for instance as trustee, as executor, as partner, and as individual. If he purports to make a promise in one capacity to himself in another capacity, there may be legal consequences. He cannot make a contract by his own undisclosed mental processes; a contract requires a manifestation of intention. Even if his intention is manifested by execution of a formal document or by other conduct, it may not be technically accurate to say that in one capacity he holds a claim against himself in another capacity, but that may be substantially the effect of his acts. Thus if a trust company holds a sum of money in trust, and in accordance with the terms of the trust deposits the money in its banking department, it is under substantially the same duties to the beneficiaries as if it held a claim against a third person in trust. |
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§ 12 Capacity to Contract |
(1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances. (2) A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is (a) under guardianship, or b) an infant, or (c) mentally ill or defective, or (d) intoxicated. |
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§ 17 Requirement of a Bargain |
The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. |
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c. "Meeting of the minds." |
The parties to most contracts give actual as well as apparent assent, but it is clear that a mental reservation of a party to a bargain does not impair the obligation he purports to undertake. The phrase used here, therefore, is "manifestation of mutual assent," as in the definition of "agreement" in § 3. |
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d. "Sufficient consideration." |
The element of exchange is embodied in the concept of consideration. In some cases a promise is not binding for want of consideration, despite the presence of an element of exchange. "Consideration" has sometimes been used to refer to the element of exchange, without regard to whether it is sufficient to make an informal promise legally binding; the consideration which satisfies the legal requirement has then been called "sufficient consideration." As the term "consideration" is used here, however, it refers to an element of exchange which is legally sufficient, and the word "sufficient" would therefore be redundant. The requirement of consideration is the subject of |
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§ 18 Manifestation of Mutual Assent |
Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. |
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b. Assent by promise or performance. |
Where a bargain has been fully performed on one side, there is commonly no need to determine the moment of making of the contract or whether the performing party made a promise before he performed. In the typical case such a dispute involves an exchange of promises before any performance takes place; there is an offer containing a promise and made binding by an acceptance containing a return promise. The beginning or tender of performance may operate as such a return promise under § 63. In less common cases, acceptance may be made by a performance under § 54, and the beginning of performance may have an intermediate effect of making the offer irrevocable under § 45. |
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c. Sham or jest. |
In some cases the setting makes it clear that there is no contract, as where a business transaction is simulated on a stage during a dramatic performance. In other cases, there may be doubt as to whether there is a joke, or one of the parties may take the joke seriously. If one party is deceived and has no reason to know of the joke the law takes the joker at his word. Even if the deceived party had reason to know of the joke, there may be a claim for fraud or unjust enrichment by virtue of the promise made. |
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§ 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. (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. |
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d. Error in expression. |
Subsection (1): no contract is formed if neither party is at fault or if both parties are equally at fault. Subsection (2) deals with cases where both parties are not equally at fault. If one party knows the other's meaning and manifests assent intending to insist on a different meaning, he may be guilty of misrepresentation. Whether or not there is such misrepresentation as would give the other party a power of avoidance, there is a contract under Subsection (2) (a), and the mere negligence of the other party is immaterial. Under Subsection (2) (b) a party may be bound by a merely negligent manifestation of assent, if the other party is not negligent. |
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§ 21 Intention to Be Legally Bound |
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. |
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§ 22 Mode of Assent: Offer and Acceptance |
(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. (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined. |
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§ 23 Necessity That Manifestations Have Reference to Each Other |
a. Mutuality of assent. Two manifestations of willingness to make a bargain, though having the same terms, do not constitute a bargain unless each is made with reference to the other. Ordinarily one party, by making an offer, assents in advance; the other, upon learning of the offer, assents by accepting it and thereby forms the contract. The offer may be communicated directly or through an agent; but information received by one party that another is willing to enter into a bargain is not necessarily an offer. The test is whether the offer is so made as to justify the accepting party in a belief that the offer is made to him. |
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§ 24 Offer Defined |
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. |
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a. Offer as promise. |
An offer may propose an executed sale or barter rather than a contract, or it may propose the exchange of a promise for a performance or an exchange of promises, or it may propose two or more such transactions in combination or in the alternative. In the normal case of an offer of an exchange of promises, or in the case of an offer of a promise for an act, the offer itself is a promise, revocable until accepted. There may also be an offer of a performance, to be exchanged either for a return promise (§ 55) or for a return performance; in such cases the offer is not necessarily a promise, but there are often warranties or other incidental promises. |
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b. Proposal of contingent gift. |
A proposal of a gift is not an offer within the present definition; there must be an element of exchange. Whether or not a proposal is a promise, it is not an offer unless it specifies a promise or performance by the offeree as the price or consideration to be given by him. It is not enough that there is a promise performable on a certain contingency. |
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§ 25 Option Contracts |
An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer. |
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a. "Option." |
A promise which constitutes an option contract may be contained in the offer itself, or it may be made separately in a collateral offer to keep the main offer open. Such promises are commonly called "options." But the word "option" is also often used for any continuing offer, even though revocable, and indeed is sometimes used to refer to any power to make a choice. To avoid ambiguity the phrase "option contract" is used in this Restatement. |
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§ 26 Preliminary Negotiations |
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. |
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b. Advertising. |
Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail. It is of course possible to make an offer by an advertisement directed to the general public (see § 29), but there must ordinarily be some language of commitment or some invitation to take action without further communication. |
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c. Quotation of price. |
A "quotation" of price is usually a statement of price per unit of quantity; it may omit the quantity to be sold, time and place of delivery, terms of payment, and other terms. It is sometimes associated with a price list or circular, but the word "quote" is commonly understood as inviting an offer rather than as making one, even when directed to a particular customer. But just as the word "offer" does not necessarily mean that an offer is intended, so the word "quote" may be used in an offer. In determining whether an offer is made relevant factors include the terms of any previous inquiry, the completeness of the terms of the suggested bargain, and the number of persons to whom a communication is addressed. |
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§ 27 Existence of Contract Where Written Memorial Is Contemplated |
a. Parties who plan to make a final written instrument as the expression of their contract necessarily discuss the proposed terms of the contract before they enter into it and often, before the final writing is made, agree upon all the terms which they plan to incorporate therein. This they may do orally or by exchange of several writings. It is possible thus to make a contract the terms of which include an obligation to execute subsequently a final writing which shall contain certain provisions. If parties have definitely agreed that they will do so, and that the final writing shall contain these provisions and no others, they have then concluded the contract. b. On the other hand, if either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist until other terms are assented to or until the whole has been reduced to another written form, the preliminary negotiations and agreements do not constitute a contract. d. Even though a binding contract is made before a contemplated written memorial is prepared and adopted, the subsequent written document may make a binding modification of the terms previously agreed to. |
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§ 30 Form of Acceptance Invited |
(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. |
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§ 33 Certainty |
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. |
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§ 35 The Offeree's Power of Acceptance |
(1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer. (2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36. |
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§ 36 Methods of Termination of the Power of Acceptance |
(1) An offeree's power of acceptance may be terminated by (a) rejection or counter-offer by the offeree, or (b) lapse of time, or (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree. (2) In addition, an offeree's power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer. |
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§ 37 Termination of Power of Acceptance Under Option Contract |
Notwithstanding §§ 38-49, the power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. |
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a. Option contracts. |
An option contract is a promise which meets the requisites of a contract and limits the promisor's power to revoke an offer. The power given the offeree by such an option differs from a power to specify particulars of performance after a contract is made, since the offeree under an option contract can choose not to undertake any contractual duties at all. But both types of choice may be given to the same offeree at the same time. |
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§ 38 Rejection |
(1) An offeree's power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement. |
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b. Contrary statement of offeror or offeree. |
The rule of this Section is designed to give effect to the intentions of the parties, and a manifestation of intention on the part of either that the offeree's power of acceptance is to continue is effective. Thus if the offeree states that he rejects the offer for the present but will reconsider it at a future time, there is no basis for a change of position by the offeror in reliance on a rejection, and under Subsection (2) there is no rejection. Similarly a statement in the offer that it will continue in effect despite a rejection is effective, and a similar statement after a rejection makes a new offer. |
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§ 39 Counter-Offers |
(1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. (2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. |
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a. Counter-offer as rejection. |
It is often said that a counter-offer is a rejection, and it does have the same effect in terminating the offeree's power of acceptance. But in other respects a counter-offer differs from a rejection. A counter-offer must be capable of being accepted; it carries negotiations on rather than breaking them off. The termination of the power of acceptance by a counter-offer merely carries out the usual understanding of bargainers that one proposal is dropped when another is taken under consideration; if alternative proposals are to be under consideration at the same time, warning is expected. |
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b. Qualified acceptance, inquiry or separate offer. |
A common type of counter-offer is the qualified or conditional acceptance, which purports to accept the original offer but makes acceptance expressly conditional on assent to additional or different terms. Such a counter-offer must be distinguished from an unqualified acceptance which is accompanied by a proposal for modification of the agreement or for a separate agreement. A mere inquiry regarding the possibility of different terms, a request for a better offer, or a comment upon the terms of the offer, is ordinarily not a counter-offer. Such responses to an offer may be too tentative or indefinite to be offers of any kind; or they may deal with new matters rather than a substitution for the original offer; or their language may manifest an intention to keep the original offer under consideration. |
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c. Contrary statement of offeror or offeree. |
An offeror may state in his offer that it shall continue for a stated time in any event and that in the meanwhile he will be glad to receive counter-offers. Likewise an offeree may state that he is holding the offer under advisement, but that if the offeror desires to close a bargain at once the offeree makes a specific counter-offer. Such an answer will not extend the time that the original offer remains open, but will not cut that time short. |
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§ 40 Time When Rejection or Counter-Offer Terminates the Power of Acceptance |
Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer. |
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§ 41 Lapse of Time |
(1) An offeree's power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. (2) What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made. (3) Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in § 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received. |
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b. Reasonable time. |
In the absence of a contrary indication, just as acceptance may be made in any manner and by any medium which is reasonable in the circumstances (§ 30), so it may be made at any time which is reasonable in the circumstances. The circumstances to be considered have a wide range: they include the nature of the proposed contract, the purposes of the parties, the course of dealing between them, and any relevant usages of trade. In general, the question is what time would be thought satisfactory to the offeror by a reasonable man in the position of the offeree; but circumstances not known to the offeree may be relevant to show that the time actually taken by the offeree was satisfactory to the offeror. |
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d. Direct negotiations. |
Where the parties bargain face to face or over the telephone, the time for acceptance does not ordinarily extend beyond the end of the conversation unless a contrary intention is indicated. A contrary intention may be indicated either by express words or by the circumstances. For example, the delivery of a written offer to the offeree, or an expectation that some action will be taken before acceptance, may indicate that a delayed acceptance is invited. |
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e. Offers made by mail or telegram. |
Where the parties are at a distance from each other, the normal understanding is that the time for acceptance is extended at least by the normal time for transmission of the offer and for the sending of the offeree's reply. Subsection (3) reflects the normal understanding that mail is promptly answered if a reply is mailed at any time on the day of receipt. But in the absence of a significant speculative element in the situation, a considerably longer time may be reasonable. The fact that an offer is made by telegram or mailgram may or may not indicate that the time for reply is shorter than it would be if the mail were used. |
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§ 42 Revocation by Communication From Offeror Received by Offeree |
An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. |
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b. Necessity that communication be received |
An offeror may reserve the power to revoke the offer without notice, and such a reservation will be given effect whether contained in the offer or in a later communication received by the offeree before a contract is created. But such a reservation is unusual; it deprives the offeree of a dependable basis for decision whether to accept and greatly impairs the usefulness of the offer. In the absence of such a reservation, the offeree is justified in relying on the offeror's manifested intention regardless of any undisclosed change in the offeror's state of mind. |
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c. Purported revocation after acceptance. |
Once the offeree has exercised his power to create a contract by accepting the offer, a purported revocation is ineffective as such. Where an acceptance by mail is effective on dispatch, for example, it is not deprived of effect by a revocation subsequently received by the offeree. But the revocation may have effect, depending on its terms, as a failure of condition discharging the offeree's duty of performance, as a breach by anticipatory repudiation, or as an offer to modify or rescind the contract. |
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d. What constitutes revocation. |
The word "revoke" is not essential to a revocation. Any clear manifestation of unwillingness to enter into the proposed bargain is sufficient. Thus a statement that property offered for sale has been otherwise disposed of is a revocation. But equivocal language may not be sufficient. |
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§ 43 Indirect Communication of Revocation |
An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. |
