Terms of the Engagement

Every engagement contains more than its letter says, and Restatement (Second) of Contracts § 5 explains why by defining term twice. Under § 5(1), a term of a promise or agreement is that portion of the intention or assent manifested which relates to a particular matter.¹ Under § 5(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.²

Both definitions treat a term as a slice of the arrangement devoted to one subject, such as the fee or the scope of the work. They differ in where they look for the slice. The first looks to what the parties manifested to each other; the second looks to the legal relations that follow from their promises, a set that can be larger than anything either side said.

That difference organizes the section. A client and a lawyer usually write down only a few subjects, typically what the lawyer will do and what the client will pay, and those are terms in the first sense. Questions the letter never reaches, such as how carefully the lawyer must work or what happens when the client loses confidence, are answered, if at all, by terms in the second sense. The letter therefore records one layer of the contract without exhausting it, because in ordinary usage a contract is the whole complex of promises, gap-fillers, and other elements, not the promise alone.³ The first subsection takes up the terms the parties state. The second takes up the terms the law supplies.

Terms the Parties State

A stated term exists only where the parties’ outward words or conduct addressed the matter. Section 5(1) speaks of assent manifested, and the word follows from how contract law measures assent: by the external meaning of a person’s words and conduct, asking how a reasonable person in the other party’s position would understand them. Express words and a signature are the usual manifestations, but a nod or any other gesture will do if the circumstances give it that meaning.⁴

The rule excludes private reservations. A client cannot inspect what a lawyer privately meant to include or leave out, and a rule that turned unspoken plans into terms would let either side rewrite the deal once a dispute began. The burden also falls on the better-placed party, because a lawyer who wants a limit or a charge can protect it by writing it down. The words of the contract are the primary, and often the only, evidence of what the parties intended, so precision and the absence of unintended vagueness mark good drafting.⁵

The professional rules press lawyers to put the fee on the table. Model Rule 1.5 lets a lawyer skip written notice of the fee, a choice most understandable when the fee is fixed and simple and the matter is small, but the lawyer must still clearly communicate the fee basis or rate. If the lawyer gives no written confirmation, the presumption should favor the client’s reasonable understanding when a fee dispute arises. At least nine states go further than the Model Rule and require a written fee agreement or other written notice above a minimal amount.⁶ The presumption applies the objective logic of the hypothetical: the lawyer controlled the drafting and bears the cost of leaving the term unrecorded.

One stated term belongs to the client in a special way, the objectives of the representation. As Professors Hazard and Hodes and attorney Peter Jarvis explain, the lawyer “shall abide” by the client’s desires with respect to objectives, because realizing them is the very reason the client-lawyer relationship was established.⁷ The Restatement of the Law Governing Lawyers adds that client and lawyer “may agree which of them will make specified decisions” and that the client may instruct the lawyer during the representation, so an engagement letter can record where that line falls. A lawyer need not carry out an instruction the lawyer reasonably believes contrary to professional rules or other law, and a client who persists in a wrongful instruction leaves the lawyer to withdraw.⁸

Settlement shows how the allocation works. Whether to accept an offer in a civil suit decides what the client walks away with and whether the dispute ends, so it belongs among the objectives, and a lawyer who accepts an offer the client has not approved has decided a question that was the client’s to decide. The client’s control has a backstop in the power to discharge, or threaten to discharge, the lawyer, while the lawyer ordinarily may withdraw over a fundamental disagreement.⁹

A stated term must also be definite enough to enforce. Courts ask two questions, whether both parties manifested an intention to be bound and whether the terms are sufficiently definite to be enforced, and a contract exists only if both answers are yes.¹⁰ The first question drives the objective test above. The second is practical, since a court cannot tell whether a contract was broken unless it knows with some certainty what the terms were. The Restatement frames the test the same way: terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.¹¹

Courts have traditionally pointed to four items that must be settled: the parties, the price, the subject matter (the return performance for the price), and the time of performance.¹² In an engagement the parties are seldom in doubt, the subject matter is the scope of the work, and the price is the fee.

The standard does not demand perfection. It tolerates some indefiniteness if the evidence shows that the parties meant to contract and some means exists to resolve the uncertainty, so that a breach can be identified and a remedy provided. UCC § 2-204(3) and Restatement (Second) § 33(2) both take that approach.¹³ What falls short is a promise that nothing resolves. In Varney v. Ditmars, an architectural draftsman sued his employer on a promise to pay “a fair share of my profits” in addition to a stated salary, and the court denied recovery of the profits because the amount was a matter of “pure conjecture.”¹⁴ A fee clause that promises a lawyer “a fair share” of a recovery has the same flaw, and a promise to settle the price later does not cure it, because a mere “agreement to agree” on price at some later time is not sufficient.¹⁵ A stated percentage of the recovery, by contrast, supplies a method of calculation.

Time of performance deserves a word of its own. A stated duration for an engagement can raise a statute of frauds question under the one-year provision, and courts then ask how real the possibility of performance within a year must be. Flagship contended that the possibility must be a reasonable one and not merely a theoretical one, and the court recalled that in Burkle it had rejected the argument that a contract falls outside the statute because all the members of a partnership may possibly die within a year.¹⁶ The lesson for drafters is modest: a stated term of years is worth drafting with that statute in mind.¹⁷

Scope is the stated term lawyers adjust on purpose most often. Narrowing the work by agreement tells the client what to expect and what to arrange elsewhere, and it fixes what the lawyer has promised. A stated term is a promise, and a promise whose breach the law remedies is a contract, so a lawyer who fails to honor an express commitment faces a claim on the agreement itself.¹⁸ The Restatement defines contract as “a promise or 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,” and as that language indicates, not every promise binds.¹⁹ A lawyer who writes, “I will send the demand letter within ten days,” has stated a term that names specific conduct and a deadline. A lawyer who writes, “The firm will advise whether a demand letter makes sense,” has promised only advice.

Terms the Law Supplies

The law adds terms to every engagement because no letter anticipates every question a representation will raise. Section 5(2) gives the idea its reach: a term of a contract is the portion of the legal relations resulting from the promises that relates to a particular matter, “whether or not the parties manifest an intention to create those relations.”²¹ The stated terms of the last subsection came from what the client and lawyer said. These terms come from what follows once they have promised.

Courts supply terms of two kinds. Terms that come from immutable rules are imposed on the parties without their consent. Terms that come from default rules, often called gap fillers, rest on a kind of consent, because parties who stay silent are treated as deferring to the law of contract.²² The practical difference lies in what the parties can do about them. A clause can displace a default term, but the parties cannot by agreement prevent a mandatory term from becoming part of their contract.²³

Silence about the fee shows a default term at work. When an otherwise complete employment agreement leaves out the salary, the law implies reasonable compensation,²⁴ and a lawyer and client who agreed to the work and its payment stand in the same position when no one named an amount: the law supplies a reasonable fee. A defendant may protest that a missing price is the missing essential element, that the clause is only an agreement to agree, and that nothing measures what is owed. One judge answered that the paper before him clearly stated a contract under all the rules of law.²⁵ The difference from the bonus clause in the last subsection is that here the engagement itself is complete, so the missing price is a gap in a deal the parties plainly made and not the whole of the promise. The certainty rule sets how much the parties must say before a court can enforce their deal, and the gap-filling rule governs what the court adds once they have said enough. A fee stated in the letter displaces the default, which is the best reason for a lawyer to state one.

The supplied term that matters most to a client’s remedies is the obligation to do the work competently. When a lawyer promises to handle a matter, the legal relations that result include that obligation whether or not the letter mentions it, and § 5(2) is what makes it a term of the contract and not only a rule of tort. A limitations statute makes the point from the other direction. It bars any action for damages against an attorney, “whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide legal services,” unless the action is filed within one year of the alleged act, omission, or neglect, or of the date it was or should have been discovered.²⁶ A statute drafted that way assumes that neglect in performing an engagement can sound in contract, which fits a client’s pleading malpractice as a breach of the engagement. See Lee v. Hanley (applying a limitations statute to claims against lawyers). The stated scope term says what the lawyer promised to do, and the supplied obligation of competence says how well. How far the parties may limit liability for breaching that obligation is taken up in the later section on limiting malpractice liability.

A second supplied term is the duty of good faith and fair dealing. Restatement § 205 provides that every contract imposes on each party a duty of good faith and fair dealing in its performance and enforcement, and the vast majority of states treat virtually all contracts as carrying it.²⁷ The duty is present even if the parties never bargained for it, and unlike a gap filler it cannot be excluded by agreement, which makes it a mandatory term.²⁸ Its content protects the exchange itself: neither party may do anything that destroys or injures the other’s right to receive the fruits of the contract.²⁹ A clause that let one side act in bad faith would let that side take back through performance what it gave up in the promise, and that is why the parties may not write the duty out.

Fiduciary duties add a further layer when the contract is one between lawyer and client. In Miller v. Sears, 636 P.2d 1183 (Alaska 1981), a client could rescind a contract for the sale of property because the attorney failed to establish that he had fully disclosed all material terms, and the attorney bore the burden of proving compliance with his fiduciary duties by clear and convincing evidence.³⁰ Requirements that stringent invite the question why the law demands so much, which the later section on business deals with clients takes up.

The supplied term with the most direct effect on money is the client’s power to discharge the lawyer. The client ordinarily keeps ultimate control of the relationship by discharging, or threatening to discharge, the lawyer,³¹ and may do so for good reasons, poor reasons, or the worst of reasons. A client who fires the lawyer without cause owes the reasonable value of what the lawyer has done, a recovery in quantum meruit, and the lawyer, subject to a few exceptions, cannot recover expectancy damages, which would put the lawyer where full performance would have. Lawyers similarly may not keep unrefundable retainers.³² If discharge cost the full fee, the right to discharge would mean little, because the client would pay for work never done.

The rule is peculiar to certain professions. A homeowner who cancels an architect’s fixed-fee design contract without cause can generally be held to expectancy damages, because licensed professionals outside law and health care recover them for breach, while health care professionals, like lawyers, are inhibited from seeking them.³³

The law supplies duration terms in other relationships as well. An employment contract with no written memorial, or one that says nothing about duration, is presumed at will: either side may end it at any time, for any reason or none, with or without notice.³⁴ The engagement resembles it in that either party can usually end the relationship, but the law protects different powers. The client’s discharge is protected as described above, while the lawyer’s own exit is governed by separate rules, under which the lawyer ordinarily may withdraw if there is a fundamental disagreement with the client.³⁵

Exam Analysis Steps

Because the engagement letter records only the first layer of the contract, a question about what a lawyer owes a client is best worked by asking what the parties said and then what the law adds.

Identify the particular matter the question turns on, such as the fee, the care owed, the lawyer’s honesty, or the end of the representation.
Check whether the parties manifested a term on that matter, since an express term controls unless the law refuses to let the parties vary it.
If the parties were silent, supply the term the law adds, such as a reasonable fee, an obligation of competence, a duty of good faith, or the client’s power to discharge at will.
If the parties did speak, decide whether the supplied term is a default the clause may displace or a mandatory or fiduciary term the clause cannot remove.
Apply the term to the facts, remembering that on a discharge without cause the lawyer’s recovery is the reasonable value of the work done.

The third and fourth steps do the real work. Most errors treat every supplied term as a default that a clause can erase, or treat every supplied term as mandatory and forget that a stated fee displaces the reasonable-fee gap filler.