Restatement (Second) of Contracts Explained: An In-Depth Look
The Restatement (Second) of Contracts Defined
The Restatement, Second, of Contracts is a legal treatise published by the American Law Institute in 1979, containing general principles of contract law in the United States. It is one of several legal publications issued by the American Law Institute and one of several Restatements, with the Restatement, Third, of Contracts being the latest compilation of contract law principles. The American Law Institute is a private association of judges, lawyers, and legal scholars from the United States whose goal is to promote the clarification and simplification of the law and its better administration and administration. It is not a governmental entity. Instead, it is a private organization, with no more judicially persuasive authority than that of any other secondary source , "unless otherwise adopted by a court."
The Restatement, Second, of Contracts is relevant to every contract dispute in Texas and in the United States. The Restatement, Second, of Contracts is extremely well respected and frequently cited in cases across the country as authoritative and as persuasive, especially in the federal courts and in state courts when state law is either non-existent or unclear. That is because, even though the Restatement, Second, of Contracts is not fundamentally designed as a practice guide, the treatise is widely used by attorneys and judges as a credible source regarding contract law and how it should be applied, in part because the Restatement draws from the decisions of numerous courts around the United States to craft its principles.
Key Doctrines in the Restatement (Second) of Contracts
The Restatement (Second) of Contracts sets forth fundamental principles related to contract formation and its enforceability. The Restatement (Second) of Contracts rarely promulgates original legal propositions. Instead, it promulgates a synthesis of the group of overt acts, which courts and learned writers generally agree is sufficient to establish a contract. An offer is a manifestation of willingness (to enter into a bargain), which justifies another person in understanding that his assent to that bargain is invited and will conclude it. It is a proposal of definite terms which creates power of acceptance in the offeree, but which is subject to being accepted before it is terminated. Acceptance is a manifestation of assent (to the terms) made by the offeree in a manner invited or requested by the offeror. An acceptance must be made while an offer is open, and it must be made in the manner invited or suggested by the offer. Consideration means that (1) each party involved must give or receive a benefit, or suffer a detriment, which (2) must be a tangible value in the eye of the law. The returning of a benefit or a detriment (by the plaintiff in a breach of contract case) to (a defendant) is sufficient as consideration for the contract. Agreements to negotiate in the future are not enforceable due to lack of consideration because there is no present intent to contract. However, where parties agree to process for future bargaining, courts will enforce either the process, or the outcome. In order to impose liability for a breach of contract, there must be: (1) a contractual agreement; (2) a breach of the agreement; (3) an event which resulted in damage; and (4) a causal connection between the event which caused the damage and the breach of the agreement.
First vs. Second Restatment Differences
The first and second editions of the Restatement of Contracts do not differ greatly in their scope or purpose. The first edition was intended to provide a comprehensive view of the modern contract law development that had accumulated over the years in the United States, including the many variations among jurisdictions. The 1932 Restatement achieved this purpose by providing numerous references to the jurisdictional spread of doctrines and guidelines appropriate to be followed by courts, stating in concise form the predominant rule, and qualifying that statement with an indication of minority views and authority for them in the footnotes. On the other hand, the 1979 Restatement (Second) was designed to be a functional interpretation of contract law, without attempting to catalogue all the variations in the jurisdictions.
To achieve these differing purposes some drastic changes from the first restatement were made in the second restatement, such as the use of objective manifestation as the basis of contractual obligation, the abandonment of the doctrine of consideration,* and much more reliance on the Uniform Commercial Code. The organization of the material was also altered in the second restatement, in that the earlier restatement set forth fully developed doctrines as separate sections, whereas the second restatement tended to break up the material by topic and to consider doctrines together, even if they might be distinct under some other approaches.
The scope and wording of the definitions were also changed. A ‘promise’ was defined as a manifestation of intention that another will do something in the future. This changed the now-rejected ‘subjective intent’ approach to the objective manifestation theory. The earlier Restatement did not give any clear definition of the term ‘contract’, while the second Restatement defined it as a ‘promise or set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty.’
Effect on Contemporary American Contract Law
The Restatement (Second) of Contracts continues to have a significant impact on modern contract law. It has been cited as authoritative for contract law principles by the California Supreme Court, the New Jersey Supreme Court, the Massachusetts Supreme Judicial Court, and the Pennsylvania Supreme Court. Specifically, it has been cited by: the California Supreme Court for the principle that a term of an agreement may be inferred from the agreement itself (Plaintiffs’ Security Insurance Co. v. Superior Court (1982)); by the California Court of Appeal for the principles of unconscionability and the duty of good faith (A&M Produce Co. v. FMC Corp.); by the California Court of Appeal for the principle that assent may be established by conduct rather than language (Wetherbee v Gary); by the New Jersey Supreme Court for the principles of good faith and consideration (Tynan v New Jersey Sterilization Law Review Comm.); by the New Jersey Superior Court for the principles of material breach and economic duress (North Jersey Dist. Water Supply Comm’n v West Mil. & Vill. High Sch. Bd. of Educ.); for the principle of the absence of a binding contract (State v Wilson) in the Pennsylvania Supreme Court; for the principles of quasi-contracts (Weaver v American Power & Light Co. and Smith v Donegal Mutual Ins. Co.); and for the principle of unconscionability (Gentry v Superior Court). Further , the Restatement (Second) of Contracts has been cited as an authoritative source by the Utah Supreme Court (American Towers v, Channel 2), the New York Supreme Court (Breed v Insurance Co. of N. America), the New Mexico Supreme Court (Romero v Philip Morris, Inc.), and the Alaska Supreme Court (Bishop v J.C. Penney Co., Inc.); and as the general rule in three California Court of Appeal decisions (Borman v. Cretin, Mather v State Farm Life Insurance Co., and Sanchez v Valley Transit Co.).
Defects and Criticism of the Restatement (Second) of Contracts
Critiques and Limitations of the Restatement (Second) of Contracts
Despite its ambitious aims, the Restatement (Second) of Contracts is not without its critiques and limitations. Some legal scholars and practitioners argue that the Restatement has become too far removed from contemporary contract law and practice. Critics contend that certain sections are overly complex and difficult to apply to modern circumstances, making them less useful as guideposts for legal practitioners.
For example, some critics assert that the Restatement’s treatment of conditions precedent and subsequent is overly complicated, creating unnecessarily complex rules that may lead to confusion in application. The Restatement’s framing of conditions as "discretionary" or "constraining" has also been deemed problematic by some, as it can be counterproductive, detracting from the clarity provided regarding the desired legal outcome.
The Restatement has also faced various criticisms for its approach to issues of capacity, offer, acceptance, and consideration, with some practitioners asserting that these core principles are simply not as flexible or nuanced as the Restatement suggests. The Restatement has been further critiqued for not providing clear guidance on the formation of contracts through electronic means, a concept that was generally underdeveloped when the Restatement was first published.
Specific jurisdictions have also critiqued the restatement for its limited applicability to their specific state laws. Numerous states have enacted statutory provisions that differ from the Restatement (Second) of Contracts’ approach, and some legal practitioners criticize the Restatement for not adequately considering these variations.
It is also argued that the Restatement displays a lack of recognition of the growing influence of computers and the internet on modern contract law, as in the context of standard form contracts. Critics suggest that the Restatement provides limited insight into the use of such forms, which are now ubiquitous in modern contract practice.
Although it is true that the Restatement (Second) of Contracts has its criticisms and limitations, it must also be recognized as an influential and well-meaning attempt to map the field of contract law in a compact and comprehensive form. It remains a benchmark work of legal scholarship that continues to have a considerable impact on all corners of the American legal system, so while it is not the final word on contract law, it remains an essential resource for legal practitioners and scholars alike.
Future of Restatements in Contemporary Contract Law
Looking ahead, the question arises as to what role restatements will play in contract law. While the original Restatement (Second) of Contracts has not been updated in nearly 40 years, there have been some proposals to revisit this. For example, Michael H. Rubin published An Agenda for Updating the Restatement (Second) of Contracts almost two decades ago, just prior to the official launch of the ALI’s Principles of the Law of Software Contracts project . More recently, in 2012, a publication of the American Bar Association, Section of Business Law published Contract Drafting in an Era of Contract Design, which advocates for a revision of the Third Restatement of Contracts based on innovations in contract design. It remains to be seen whether and to what extent the ALI will pursue any such project of reconsideration of the Third Restatement of Contracts (or of the Second). In the meantime, with the proliferation of new forms of contracts that test the boundaries of contract law, just as the first two restatements endeavored to do, it is poised for expansion and growth in the near future.