Concept
Contract, Promise, and Agreement
Manifestation of mutual assent and intent to be bound
Contract, Promise, and Agreement
The vocabulary of formation forms a chain, and each link depends on the one before it. A contract is built from promises, a promise is a particular kind of outward signal, and an agreement is the meeting of two such signals. Because the chain ends in a single question, it is worth stating at the outset: did the parties objectively manifest assent to an exchange? Offer, acceptance, conduct, and silence are all ways of answering that question, so the definitions below give every later rule its purpose.1
Contract and Promise
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.2 The definition does not treat every promise as a contract. It sorts promises by whether the legal system will respond when one is broken. Suppose an aunt promises to bake cookies for a nephew's birthday and then forgets. She has made a promise in the everyday sense, yet no court will award the nephew a remedy, so no contract exists. Contract law needs this sorting line because a modern economy depends on promises that can be enforced, and it cannot enforce every casual commitment between friends and relatives. The rules of formation exist to separate the two groups.3
The definition raises the question of what counts as a promise. 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.4 The key words are "manifestation" and "justify," and both look outward. A court cannot examine what a speaker privately felt, but it can examine what was said and done and ask whether the listener was entitled to take it as a commitment. A seller who says "I will deliver 100 widgets for $500" in terms that justify the buyer in understanding that a commitment has been made has made a promise. A seller who says only "I might be able to part with some widgets at around that price" has expressed a possibility. The listener would not be justified in understanding that a commitment had been made, so no promise exists.
A transaction can also be complete without containing any promise. A shopper who selects perfume and pays cash at the register has made a purchase, and the store has made a sale. If nothing more is said, neither side has undertaken any future performance, and there is nothing for the law to enforce as a contract.5 The point is that a contract requires a promise, which looks forward to something that will or will not happen, and an exchange of money for goods across the counter is finished the moment it happens.
Agreement and Bargain
Once a promise is defined, the next question is how two people arrive at a shared commitment. An agreement is a manifestation of mutual assent on the part of two or more persons, and a bargain is an agreement to exchange promises, to exchange a promise for a performance, or to exchange performances.8 The two definitions work in stages. The first question is whether assent exists, and the second is whether that assent is to an exchange. Keeping the stages apart prevents a common confusion, because a case may have plenty of assent and still lack a bargain.
Agreement is the broader of the two ideas, and the difference matters. Two neighbors who agree that one will give the other a piano as a gift have reached an agreement, but because nothing is being exchanged, they have not made a bargain.9 Likewise, a friend's accepted invitation to dinner is an agreement in the everyday sense, though neither guest nor host expects any legal obligation to follow. Every contract involves an agreement, but many agreements never become contracts.10 Under the traditional method, forming a contract requires a bargain in which there is both a manifestation of mutual assent to the exchange and consideration, meaning the price the promisor extracts for the promise.11 This chapter concerns the assent half of that requirement, and the consideration half is a separate inquiry.
Terms of an Agreement
Assent always has content, because people assent to something. A term is the portion of the assent manifested that relates to a particular matter, such as price, quantity, the thing sold, or the time of delivery. The terms are therefore the substance of what the parties agreed to, and the agreement can be no more specific than the terms on which assent was shown. Suppose two parties exchange enthusiastic words about a sale but never address price. They may have shown assent to doing business, but they have manifested no assent on the matter of price. The traditional method accordingly treats the definition of essential terms as something close to a third requirement, because a court cannot enforce a deal whose content the parties never fixed.14
Contract and Promise
The vocabulary of formation starts with the word "contract" and rests on the word "promise." 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.16 The definition makes the promise the raw material and the law's response the test. A promise becomes a contract when a court will do something about its breach, such as awarding damages to the person who was counting on it. The rules of formation that follow in this chapter exist to sort promises into those the legal system will back and those it will leave to social or moral pressure.
That sorting depends on what counts as a promise in the first place. 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.17 The definition has two parts, and each does separate work. The first part, a manifestation of intention, requires something outward: words or conduct that another person can perceive. The second part, the phrase "so made as to justify," supplies the measuring stick. The question is whether the listener was entitled to understand from what was said and done that a commitment had been made, which is a question about the signal and not about the speaker's private state of mind.
The reason for tying the definition to the listener's justified understanding follows from who bears the risk. A person who relies on another's assurance, by turning down a competing offer or buying materials, can act only on what the other person showed. If a promisor could escape by pointing to an undisclosed reservation, every assurance would be unreliable, and a promisee would have to discount every commitment accordingly. Anchoring the definition to observable words and conduct also makes proof workable, because a court can hear evidence about what was said but cannot examine what was silently intended. The law then needs only two labels for the people involved. The person manifesting the intention is the promisor, and the person to whom the manifestation is addressed is the promisee.18
Two statements that look alike on the surface show how the definition operates. Suppose a homeowner tells a painter, "I'll pay you $8,000 to paint my house by next week." The words state a specific act, a price, and a time, and they are addressed to the painter, who is justified in understanding that a commitment has been made. The homeowner is the promisor and the painter is the promisee, and the statement is a promise. Now suppose a farmer tells a neighbor, "I might sell the farm someday." The words express a possibility and set no terms. A neighbor who hears them is not justified in understanding that the farmer has committed to anything, so no promise exists and the question of a remedy never arises. The facts that changed the answer are the specificity of what was undertaken and the way the statement was framed, which show whether the listener could reasonably take it as a commitment.
Agreement and Bargain
Once a promise has been defined, the next question is how two people arrive at a shared commitment. An agreement is a manifestation of mutual assent on the part of two or more persons, and a bargain is an agreement to exchange promises, to exchange a promise for a performance, or to exchange performances.22 The two definitions work in stages. The first asks whether the parties manifested assent to each other at all, and the second asks whether what they assented to was an exchange. A dispute can satisfy the first stage and fail the second, so the stages should be kept apart.
The word "manifestation" in the first definition shapes everything that follows. Under the modern objective theory, an agreement is a series of external acts that give the objective appearance of assent, and it does not require a subjective meeting of the minds.23 The reason follows from the position of the two parties. Neither can inspect the other's private thoughts, and a court deciding the case years later cannot do so either. If agreement meant actual, shared inner consensus, every party could contest a deal by claiming that they privately understood it differently, and proving otherwise would be close to impossible. Defining agreement by what the parties showed each other lets the law treat them as bound without reconstructing what was in each head. That is why the outward signs carry the weight, and why a supplier and a buyer can form an agreement through conduct alone, as long as each side's conduct manifests assent.24
The second definition narrows the field to exchanges, and it comes in three forms. The first is an exchange of promises. Suppose a seller promises to deliver 100 widgets and a buyer promises to pay $500 on delivery. Each side has made a promise in return for the other's, so the agreement is a bargain. The second form is a promise exchanged for a performance. Imagine an owner who promises $100 to anyone who returns a lost dog, and a neighbor who finds the dog and brings it home. The owner's promise has been traded for the neighbor's act. The third form is an exchange of performances, such as handing over goods for cash at a counter with nothing left to be promised. In every form something is given because something else is sought in return, and that two-way pull is what makes the transaction a bargain.25
Change one fact and the bargain disappears while the agreement survives. Suppose two neighbors agree that one will give the other a piano. They have manifested mutual assent, so there is an agreement, but the giver seeks nothing in exchange, so the agreement is not a bargain.26 The same gap explains why an accepted invitation to dinner is an agreement in the everyday sense and yet creates no legal obligation. Agreement is the broader category: every contract rests on an agreement, but many agreements, including gifts and social arrangements, never become contracts.27 The traditional method of formation therefore asks for more than assent. It asks for a bargain, which pairs mutual assent with consideration, the price the promisor seeks for the promise. Consideration is a separate inquiry with its own rules, and this chapter concerns only the assent half of the requirement.
Because assent is judged from outward signs, it can take more than one form. A bank and a customer, for example, must mutually assent to the creation of a deposit account, and that assent may be given expressly or may be implied from their conduct.28 The sections that follow all return to the same target: whether the parties objectively manifested mutual assent to an exchange.
Terms of an Agreement
Assent always has content, because people assent to something in particular. The law names the unit of that content a term: a term of a promise or agreement is the portion of the intention or assent manifested that relates to a particular matter.32 Price is a term, quantity is a term, the identity of the thing sold is a term, and the date of delivery is a term, each being the part of the parties' assent that speaks to that one matter. The agreement as a whole is simply the set of terms on which the parties showed assent, so it can be no more specific than the terms they actually addressed.
The reason for carving assent into terms is that a court enforcing a deal must decide, matter by matter, what each side committed to. A dispute rarely concerns whether the parties dealt with each other at all. It usually concerns whether one of them promised a particular thing, such as a delivery by Friday or a price of $500. Naming the term as the unit lets the court ask that narrow question and answer it from what the parties said and did. It also marks the boundary of the inquiry. A matter the parties never addressed is not a term of their manifested assent, even if one side later wishes it had been. Suppose a seller and a buyer settle on the boat and on a $12,000 price, and neither mentions when the boat will be handed over. Price and subject matter are terms of their agreement, but the delivery date is not, because no assent was manifested on that matter.
That gap does not always defeat the deal, which is why the definition has a companion. A term of a contract is the portion of the legal relations resulting from the promise or set of promises that relates to a particular matter, whether or not the parties manifested an intention to create those relations.33 The two definitions differ in their source. A term of the agreement comes from what the parties manifested, and a term of the contract can also come from the law, which may supply a term on a matter the parties left silent. In the boat sale, a court may supply a delivery term within a reasonable time even though the parties never agreed to one. Courts have traditionally been cautious about filling gaps, so the question in each case is whether the assent that was manifested is complete enough to warrant enforcement.34
Supplied terms are usually default rules, meaning rules that apply only when the parties have said nothing and that the parties may vary by an express clause. The reason is that a court cannot reconstruct what these particular parties would have chosen. It can assume that parties pursuing their own interests would allocate a risk or responsibility to whichever of them could handle it at lower cost, and it shapes the default accordingly.35 A court's willingness to fill a gap has a limit, however. A manifestation of intention cannot be accepted so as to form a contract unless its terms are reasonably certain, which means they give a basis for determining whether a breach has occurred and for fashioning an appropriate remedy. Leaving a term open may also show that the parties did not mean their words as an offer or an acceptance at all.36 A missing delivery date can be filled, but a deal that never fixed the price or the thing sold leaves a court with nothing to measure a breach against.