Restatements (Second) of Contracts

Question 1

§1

Answer 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.

Question 2

§2

Answer 2

Promise; Promisor; Promisee; Beneficiary
(1) 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.
(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.

Question 3

§3

Answer 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.

Question 4

§4

Answer 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.

Question 5

§17

Answer 5

Requirement of a Bargain

(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82- 94.

Question 6

§18

Answer 6

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.

Question 7

§19

Answer 7

Conduct as Manifestation of Assent

(1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
(2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
(3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.

Question 8

§22

Answer 8

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.

Question 9

§24

Answer 9

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.

Question 10

§26

Answer 10

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.

Question 11

§29

Answer 11

To Whom an Offer is Addressed

(1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance.
(2) An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance.

Question 12

§33

Answer 12

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.

Question 13

§25

Answer 13

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.

Question 14

§35

Answer 14

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.

Question 15

§36

Answer 15

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.

Question 16

§37

Answer 16

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.

Question 17

§42

Answer 17

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.

Question 18

§43

Answer 18

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.

Question 19

§61

Answer 19

Acceptance Which Requests Change of Terms
An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms.

Question 20

§63

Answer 20

Time When Acceptance Takes Effect
Unless the offer provides otherwise,
(a) an acceptance made in a manner and by a medium invited by an offer is
operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but
(b) an acceptance under an option contract is not operative until received by the offeror.

Question 21

§64

Answer 21

Acceptance by Telephone or Teletype
Acceptance given by telephone or other medium of substantially instantaneous two- way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.

Question 22

§65

Answer 22

Reasonableness of Medium of Acceptance
Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.

Question 23

§66

Answer 23

Acceptance Must be Properly Dispatched
An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.

Question 24

§54

Answer 24

Acceptance by Performance; Necessity of Notification to Offeror

(1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.
(2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless
(a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or
(b) the offeror learns of the performance within a reasonable time, or (c) the offer indicates that notification of acceptance is not required.

Question 25

§30

Answer 25

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.

Question 26

§32

Answer 26

Invitation of Promise or Performance
In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.

Question 27

§45

Answer 27

Option Contract Created by Part Performance or Tender

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

Question 28

§62

Answer 28

Effect of Performance by Offeree Where Offer Invites Either Performance or Promise

(1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
(2) Such an acceptance operates as a promise to render complete performance.

Question 29

§69

Answer 29

Acceptance by Silence or Exercise of Dominion

(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
(b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.

Question 30

§90

Answer 30

Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Question 31

§87

Answer 31

Option Contract
1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported
consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or
forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

Question 32

§200

Answer 32

Interpretation of Promise or Agreement

Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning.

Question 33

§201

Answer 33

Whose Meaning Prevails
(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or
agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning
attached by the other, and the other had reason to know the meaning attached by the first party.
(3) Except as stated in this Section, neither party is bound by the meaning
attached by the other, even though the result may be a failure of mutual assent.

Question 34

§202

Answer 34

Rules in Aid of Interpretation
(1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.
(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is
interpreted in accordance with that meaning;
(b) technical terms and words of art are given their technical meaning
when used in a transaction within their technical field.
(4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

Question 35

§34

Answer 35

Certainty and Choice of Terms; Effect of Performance or Reliance

(1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance.
(2) Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed.
(3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.

Question 36

§204

Answer 36

Supplying an Omitted Essential Term
When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Question 37

§211

Answer 37

Standardized Agreements

(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Question 38

§209

Answer 38

Integrated Agreements

(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
(2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.

Question 39

§210

Answer 39

Completely and Partially Integrated Agreements
(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. (2) A partially integrated agreement is an integrated agreement other than a
completely integrated agreement.
(3) Whether an agreement is completely or partially integrated is to be
determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

Question 40

§213

Answer 40

Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)

(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
(3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

Question 41

§214

Answer 41

Evidence of Prior Contemporaneous Agreements and Negotiations
Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish
(a) that the writing is or is not an integrated agreement;
(b) that the integrated agreement, if any, is completely or partially integrated;
(c) the meaning of the writing, whether or not integrated;
(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
(e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

Question 42

§216

Answer 42

Consistent Additional Terms

(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing.

Question 43

§227

Answer 43

Standards of Preference with Regard to Conditions
(1) In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk.
(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether
(a) a duty is imposed on an obligee that an event occur, or
(b) the event is made a condition of the obligor’s duty, or
(c) the event is made a condition of the obligor’s duty and a duty is imposed on the obligee that the event occur,
the first interpretation is preferred if the event is within the obligee’s control.
(3) In case of doubt, an interpretation under which an event is a condition of an obligor’s duty is preferred over an interpretation under which the non- occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.

Question 44

§84

Answer 44

Promise to Perform a Duty in Spite of Non-Occurrence of a Condition

(1) Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an antecedent contract in spite of the non-occurrence of the condition is binding, whether the promise is made before or after the time for the condition to occur, unless
(a) occurrence of the condition was a material part of the agreed exchange for the performance of the duty and the promisee was under no duty that it occur; or
(b) uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor.
(2) If such a promise is made before the time for the occurrence of the condition has expired and the condition is within the control of the promisee or a beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if
(a) the notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor; and
(b) reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary; and
(c) the promise is not binding apart from the rule stated in Subsection (1).

Question 45

§229

Answer 45

Excuse of a Condition to Avoid Forfeiture
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.