Agreement and Bargain

The Restatement (Second) of Contracts supplies two definitions that organize this section. An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises, to exchange a promise for a performance, or to exchange performances.¹ The definitions nest. Every bargain is an agreement, because the parties must assent together, but an agreement is a bargain only when what they assent to is an exchange. Agreement asks whether the parties have joined in one shared commitment; bargain asks what each has committed to give the other.

The pair matters in engagements because a single promise runs in one direction only. A lawyer who promises to handle a matter has committed to something, and so has a client who promises to pay, but until the two commitments meet there is no mutual undertaking. When the lawyer's promise to represent and the client's promise to pay are given for one another, the engagement becomes a bargain in which each promise is the price of the other. A promise made in exchange for nothing is gratuitous, and the law does not ordinarily enforce it.² Exchange therefore supplies the first part of the answer to which promises the law enforces. The subsections below take the two definitions in turn: first how separate manifestations combine into shared assent, then the forms an exchange can take.

Agreement as Mutual Assent

An agreement requires assent from two or more persons, and each must show it. Assent is consent to a proposed arrangement, manifestation means that the consent appears in outward words or conduct, and mutual means that the persons consent to the same arrangement.³ One person can make a promise alone, but an agreement needs a second manifestation that answers the first, so that a lawyer's willingness to represent and a client's willingness to pay join into one shared undertaking. Until the answer comes, one person has spoken and no agreement has formed.

Courts measure assent from the outside. The test is whether a reasonable person in the other party's position would understand the words and conduct, under the circumstances, to reflect an intent to be bound. Express words of agreement and a signature are the most common signals, but a nod, a wink, or any other word, gesture, or action can manifest assent when the circumstances give it that meaning.⁴

In Lucy v. Zehmer, a buyer sued to enforce a written contract to buy the seller's property for $50,000, and the seller answered that the whole thing was a joke. The Supreme Court of Virginia held for the buyer. It doubted that the seller had been very drunk and thought he may have meant his offer as a dare, and it added that even if he truly meant the contract as a joke, the buyer never got the point. The buyer took the signed contract as a serious commitment and, by his account, acted on it the next day: he arranged with his brother to put up half the price, engaged an attorney to examine title, and wrote that he was ready to close.⁵ The case shows the objective standard at work, because a joke the other side never perceived cannot undo what the document and the parties' conduct manifested.

Subjective intention counts in one situation, a mutual misunderstanding. Under the Restatement's position, there is no mutual assent if the parties attach materially different meanings to their manifestations and neither knew nor had reason to know of the meaning the other intended.⁶

Assent ordinarily takes the form of an offer by one party followed by an acceptance by the other. Offer and acceptance are the usual mode and not the only one, since a manifestation of mutual assent can exist even when neither can be identified and the moment of formation cannot be fixed.⁷ An offer is a manifestation of willingness to enter into a bargain, made so as to justify the recipient in understanding that the recipient's assent is invited and will conclude it.⁸ The last clause deserves attention: the proposal must be one the recipient can close by saying yes. A proposal that meets that description gives the offeree a continuing power to complete the agreement by accepting.⁹ An engagement letter that states the scope of the work and the fee and asks the client to sign is the typical example. The lawyer proposes the terms, and the client's signature completes the assent on both sides.

Many statements at a first consultation fall short of that description. A manifestation of willingness to bargain is not an offer when the person addressed knows or has reason to know that the speaker does not intend to conclude a bargain until making a further manifestation of assent.¹⁰ The rule leaves a lawyer and a prospective client free to discuss fees and scope without either being bound by a passing remark.

A counteroffer follows a different course. An offeree's power of acceptance ends on rejection or counteroffer, which means a response that proposes different terms leaves the original offer dead.¹¹

A client who signs the lawyer's letter and returns it unchanged has given the yes the offer invited. A client who neither signs nor answers does not hold the offer open forever. It remains open for the time the letter allows or, if the letter names none, for a reasonable time, and then the power to accept lapses.¹²

The definition of agreement also marks its limit. Mutual assent describes a shared understanding about rights and duties and says nothing about whether the law will enforce it. Agreement is a broader term than contract, since it covers gifts and other transfers alongside enforceable bargains, so every contract is an agreement while many agreements never become contracts.¹³

Countless real agreements are made with no intent that anyone gain legally enforceable rights, and if the person receiving a proposal knows or should know that it is not meant to produce an enforceable bargain, no contract exists.¹⁴ An exam stem in which a lawyer and a client both say yes therefore raises two questions in order. The first is whether each side manifested assent to the same terms. The second, if the first is answered yes, is whether the arrangement is one the law enforces, and that turns on the exchange taken up next.

Bargain as Exchange

A bargain is an agreement, so everything above about mutual assent still applies, but the definition adds a requirement about content: what the parties assent to must be a trade. The three forms in the definition differ only in what each side hands over, since either side may give a promise to act later or an act itself.¹⁶ Sorting an engagement into one of the forms means asking what the lawyer gave, what the client gave in return, and whether each gave a promise or a performance.

The first form, a promise exchanged for a promise, describes the usual engagement letter.

Neither side needs to have acted, because each promise is the price of the other: the lawyer commits to the work because the client has committed to the fee, and the client commits to the fee because the lawyer has committed to the work. That reciprocal inducement, with each side willing to give what it has because it wants what the other has, is what makes the arrangement a bargain, and no haggling is needed to create it.¹⁷

The promises must carry weight, however. Uttering a promise does not by itself supply consideration; the promised performance does, and a promise in a two-sided agreement counts as consideration for the counter-promise only if the promised performance would count. If B tells A, “If you pay me the $50 you owe me, I promise to give you a DVD worth $10,” B's promise is unenforceable, because A would be doing only what A was already legally obligated to do.¹⁸ Because the words of a written engagement are the primary, and often the only, evidence of what the parties intended, a letter that records a bargain should state each side's undertaking precisely and without unintended vagueness.¹⁹

The second form pairs one side's promise with the other side's act. In Hamer v. Sidway, an uncle promised to pay his nephew $5,000 for staying abstemious until age 21, and the nephew, who had smoked and drunk occasionally, gave up those habits. The New York Court of Appeals held for the plaintiff. Surrendering one's freedom of action is sufficient consideration, so the nephew had in effect performed, even though his performance was a forbearance. The uncle received no tangible benefit, but courts do not as a general rule inquire into the adequacy of consideration, which is a matter for the parties' private judgment.²⁰ The nephew's forbearance was the act for which the uncle's promise was the price. Legal work takes the same shape whenever a client asks for a result and not for a commitment.

The difference between this form and the first lies in how the offer is accepted, by performing in one case and by promising in the other.²¹ Because the lawyer in the box never promised, the lawyer is not bound to do anything and is free to stop before finishing. Only the client may become bound.²² The timing of payment does not decide which form an engagement takes. A fee that falls due only when the matter ends still belongs to a promise-for-promise exchange if the lawyer has also promised to do the work. What decides the form is what the person offering the fee asked for in return, a commitment or a completed act.

The third form removes promises altogether, because both sides perform at once and nothing remains to be promised.

This exchange of performances explains why the Restatement defines an offer as a manifestation of willingness to enter into a bargain and not as a promise. The wording apparently reaches an executed sale or barter, where neither the offeror nor the offeree makes a promise.²³

The common element in all three forms is that each side's contribution is sought by the other as the price of its own. The law reads that from outward conduct and not from private motive: it is enough that one party manifests an intention to induce the other's response and to be induced by it, and that the other responds in accordance with the inducement. But the inducement must run both ways. A promise that happens to induce the other side's conduct, or conduct that happens to induce a promise, is not a bargain unless both elements are present.²⁴ The full law of consideration adds refinements beyond this chapter's needs; the core idea here is something sought and given in exchange.

An exam stem in which a lawyer offers help and says nothing about payment asks whether the arrangement is a bargain or a favor. A promise made in exchange for nothing is gratuitous and ordinarily unenforceable.²⁵ A proposal of a gift is accordingly not an offer, because an offer needs an element of exchange.²⁶ In Dougherty v. Salt, an aunt, Helena, promised something to her eight-year-old nephew, and the court held the promise an unenforceable gift. It is hard to see what a boy of eight could have done for his aunt, and the court indicated that even services or other benefits from him would not have made her later promise enforceable. Helena did not make the promise in order to get something from him in return.²⁷ A benefit received earlier does not turn a later promise into a bargain, because the law looks for a promise made to obtain something in exchange.

Adding a request changes the result. Had the lawyer said the review was free so long as the daughter mowed the lawn every week through the summer, the lawyer would be seeking the mowing as the price of the review, and the promise would be one half of an exchange. A contingency is not a price. A proposal is not an offer unless it specifies a promise or performance by the offeree as the price, and it is not enough that a promise is performable on a certain contingency. When A promises B $100 if B goes to college, and the circumstances give reason to know that A is promising a gratuity and is not asking B to go as the price, there is no offer.²⁸

Two reasons explain why the law draws the line at exchange. The first is that a bargain does the work of a formality. The consideration doctrine serves three functions: to warn people that they are about to form a contract, to provide proof when they have done so, and to guide them to do so effectively if that is what they want. Long ago the law served those functions with the requirement of a wax seal on a piece of paper.²⁹ The second reason concerns the donor. Because the promisor has received nothing and the promisee loses nothing by nonenforcement except the prospect of a gift, the promisor should be able to recant without legal liability. That protects the promisor from improvidence and, indirectly, the claims of the promisor's heirs and creditors. A contrary policy argument has force where charitable promises are concerned, since charities serve a crucial role and the public has an interest in sustaining them.³⁰

A bargain must also be real. When a promisor who wants to give something away adds a token price in the hope of making the promise binding, the question is whether the price was in fact sought and given in exchange. A Restatement illustration supplies the answer: A, wishing to bind himself to give his son B $1,000, offers to buy from B for $1,000 a book worth less than $1, and B accepts knowing the purchase is a pretense. There is no consideration for A's promise.³¹ The Restatement comment says the same of a mere pretence of bargain, as where the purported consideration is merely nominal.³² Courts are not uniform on the point. Some follow the Restatement and refuse to recognize consideration that is clearly nominal or false, while others have upheld promises supported by recited or nominal consideration, reasoning that courts do not inquire into adequacy.³³ Applied to engagements, a token fee written into a letter for help that was meant to be free does not turn the help into a bargain.

Free help that is not a bargain may still affect the lawyer's position toward the person helped, and those questions belong to the later section on relationships that arise without a contract. Here the absence of a bargain means only that the lawyer's free promise is not one half of an exchange.