Contract Law in the United States: An Overview

Alan Scott Rau Robert F. Windfohr & Anne Burnett Windfohr Professor of Law The University of Texas at Austin School of Law

I. Introduction The world of Contracts, in a capitalist society, is the world we all live in: This is the domain of voluntary agreement and cooperation---and particularly of bargain and exchange. Unlike the world of torts---which impinges on our lives only in the occasional disaster or odd catastrophe--this form of economic activity is a major preoccupation for most of us, and comes to absorb the greater part of our active lives. The function of the law of Contracts is to make possible, or at least to facilitate, this activity---it is to help private parties in planning for the future by protecting the expectations that arise from the making of bargains. Consider, for example, a simple agreement in which a seller promises to deliver corn to a buyer in six months, and in which the buyer promises to pay $10,000 for the corn on delivery. If when the time comes the seller should fail to deliver the corn, the buyer will have to buy substitute corn in replacement; if the price of corn has risen, the buyer needs a legal remedy---since his expectation was precisely that the agreement would provide protection against just such a rise in the market. The seller, of course, has a comparable interest in being protected against a falling market. Once such a simple deal is recognized, the parties might wish to engage in more sophisticated forms of planning for the future: They might, for example, extend the delivery period to five years; they might make the agreement cover many different installment deliveries under a long-term relationship; they might leave the quantity of corn flexible---for example, making it vary in terms of what the buyer might "require" in feeding his livestock; they might also leave open the price---making it vary according to some formula based on published market quotations. In all of this the parties need a legal framework that will give them a predictable, reliable, stable basis for their private ordering of their affairs. Private, consensual, agreement has always been with us, of course. But in England and in the United States, it was only in the middle of the 19th century that the courts first began to elaborate, in a systematic way, the doctrines of Contract law that are familiar to us now; and it was only in the middle of the 19th century that commentators first began to produce "treatises" setting out these doctrines for practicing lawyers and law students. The great English cases of

this period in which the rules of Contract law were first fixed---cases such as Hadley v. Baxendale [decided in 1854, and dealing with the measurement of damages for breach of contract], Raffles v. Wichelhaus [decided in 1864, and dealing with misunderstandings and the "meeting of the minds"], Dickinson v. Dodds [decided in 1876, and dealing with revocation of offers], and Foakes v. Beer [decided in 1884, and dealing with promises to perform "pre-existing legal duties"]---all these are still familiar by name, and are still read by virtually all American law students to this day. The fact that Anglo-American contract law is largely a creation of the 19th century has some important implications that continue to affect us. Contract law "reached its zenith in the nineteenth century as the legal underpinning of a dynamic and expanding free enterprise economy"; as the free market developed and grew, contract doctrine became the legal reflection of that market, and came to take on many of its characteristics: "The individualism of our rules of contract law, of which freedom of contract is the most powerful symbol, is closely tied up with the ethics of free enterprise capitalism and the ideals of justice of a mobile society of small enterprisers, individual merchants, and independent craftsmen." And many of the "rules" of contract doctrine, as we will see, dovetail neatly with the assumptions of liberal economics and with the 19th century's laissez faire, free-enterprise economic philosophy. Now I hardly mean to suggest that Contract law has remained unchanged since that time--where social conditions and expectations change, it will be natural to find the law changing along with them. Our notions of how the economy should be regulated---and in general of what individuals in society owe to one another---have profoundly changed since what has been called "the golden age of the law of contract" in the 19th century. Legal regulation of private conduct in the public interest, and restrictions on what was once thought to be "freedom of contract," have intensified. But when this has occurred, more often than not it has taken the form of legislation that has simply removed whole areas from the domain of "contract": For example, insurance contracts, labor agreements, consumer credit transactions, are all highly regulated areas that are no longer "contract" at all---but separate and distinct fields of law. It remains largely true, then, that the law of Contract "concerns and provides legal support for the residue of economic behavior left unregulated," the free market.

II. Sources of Contract Law Contract law is essentially "common law"---that is to say, it is found in the body of many thousands of judicial decisions that have been handed down over the last century by courts faced with similar disputes. At least in theory, what courts have done in these past cases will tend to determine the outcome of later ones. Even if courts do not actually see themselves as bound to follow earlier precedent, they are likely, at the very least, to look to earlier cases as a source of law, from which they can reason inductively to determine the general principles that should govern. Nevertheless it is the nature of a common-law system that it is continually evolving: The law changes unevenly over time, and from one jurisdiction to another, but decisions of courts are often little more than signposts that identify the direction in which future movement can be expected.

By comparison with civil-law jurisdictions, "doctrine" and treatises have played a much smaller role in the development of the law in the United States. What comes closest in the United States, perhaps, is the various "Restatements" of the law. The "Restatements" in different fields--Contracts, Torts, Property, Agency, and so forth---are a curious mixture of summaries of past cases, predictions of future ones, and prescriptive pronouncements by the drafters as to what the most satisfactory result ought to be. They are promulgated by the American Law Institute, a prestigious organization composed of professors, judges, and practicing attorneys, and have been extremely influential, often relied on by courts.

To say that contract law is "common law" is also to say that statutes have played a very limited role. It is critical, however, that the student be familiar with the Uniform Commercial Code. Drafted during the 1940's and 1950's, and promulgated by the American Law Institute and the National Conference of Commissioners on Uniform State Laws, the Code contains a number of separate "articles" dealing with a wide variety of commercial subjects---such as Bank Deposits and Collections, Negotiable Instruments and Letters of Credit, and Security Interests. For our purpose, however, the most important article is Article 2, which governs transactions in the Sale of Goods. Article 2 of the Uniform Commercial Code (the "UCC") has been enacted---with minor substantive variations---in every state of the United States with the exception of Louisiana (whose legal system, of course, is heavily influenced by the civil-law model). But while the Code may thus be more or less "uniform," it is not really a "code" in the civil-law sense. It does not even purport to address entire subjects that make up "the law of contracts," many of which I will be talking about today. Article 1-103 of the Code makes it explicit that "unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant . . . shall supplement its provisions": Therefore, where no provision of the Code---even when liberally construed---applies to a particular case, it will still be necessary to resort to the general body of contract law principles. And even where the Code does apply, it can only be understood in light of, and against the backdrop of, the pre-existing case law as it has developed over the last century. Nevertheless, the UCC has been one important source of the law of Contracts. Article 2 of the Code only expressly governs transactions for the sale of goods. However, in many other contexts---for example, contracts involving real estate, construction, franchising relationships, and employment---courts will frequently look to the provisions of the Code and will try to reason from their underlying principles "by analogy," finding the policies embodied in Code provisions to be applicable in these other areas as well. This process is particularly important since the Code not only contains rules applying specifically to transactions in goods (such as rules relating to shipment terms, inspection and the risk of loss), but also provisions susceptible of much wider application (such as its imposition of a duty of "good faith" and its prohibition of "unconscionability"). In addition to the UCC, mention should be made of the United Nations Convention on Contracts for the International Sale of Goods (the CISG, or the "Vienna Convention"), which became effective in the United States in 1988. The CISG is intended to be a uniform text governing

international sales transactions: It will apply---instead of the UCC---to contracts for the sale of goods between parties whose places of business are in different countries, at least if both such nations have ratified the Convention. Finally, to say that contract law has traditionally been "common law" is also to say that it has traditionally been thought to be the domain of the individual states rather than of the federal (that is, the national) government. The UCC has been enacted individually by the legislatures of the various states, and there has been no attempt to ensure uniformity across the country through federal legislation. A revision of Article 2 of the Code is currently in progress, and is certain to be eventually accepted, in largely the same form, by all the 49 state legislatures that have enacted the current version. Nevertheless it will be many years---at least a decade---before we can expect this process to be completed.

III. What Kinds of Promises Should Be Enforced? Now "no legal system devised by man has ever been reckless enough to make all promises enforceable." One major task of Contract law, therefore, is to separate the sheep from the goats---to distinguish between those promises that we think it undesirable---or simply not worth the trouble---to enforce, from those that we think ought to have the support of the legal system behind them. 1. The Doctrine of Consideration A unique feature of Anglo-American Contract law consists of its traditional answer to this question---the doctrine of "consideration." Itself a product of a long and complicated historical development, the core idea of "consideration" is this: Promises worthy of enforcement ought to be part of an bargain, where something is offered by one party as an inducement to obtain something that he desires from the other party in exchange. Thus, assume that the parties have agreed to sell a plot of land for $10,000. The seller's conveyance of the land is "consideration" for the buyer's promise to pay $10,000; the buyer's promise, thus "supported by consideration," is enforceable. (There would also be "consideration" for the buyers promise if the seller had merely promised to convey the land in the future). By the same token, the buyer's payment of $10,000 is "consideration" for the seller's promise to convey the land, making the sellers promise enforceable. (There would also be "consideration" for the sellers promise if the buyer had merely promised to pay the money in the future. The typical commercial deal, of course, consists of a mutual exchange of promises, both of which will be performed at some point in the future---an "executory" contract). This identification of enforcement with "bargain" underlines the notion that (in the words of the "Restatement of Contracts") "bargains are widely believed to be beneficial to the community in the provision of opportunities for freedom of individual action and exercise of judgment and as a means by which productive energy and product are apportioned in the economy." In addition--and quite consistent in this respect with all the assumptions of liberal free-market economics--

-the classical doctrine of consideration rejected any notion that the price fixed by the contracting parties had to be "adequate": Only the market itself, as evidenced by what a willing seller paid a willing buyer, could be the measurement of value. Thus, in the example given above, a court would enforce the contract to convey the land and would refuse to consider whether the promised $10,000 was a "fair" or an "adequate" price to pay for it. However, even though courts will not inquire into the "adequacy" of the consideration, the reality of the arrangement must be that there is true exchange going on. At least in theory, the parties are not free to manufacture a sham bargain in order to oblige a court to enforce what is in reality---in substance---little more than a gift. "A mere pretense of bargain does not suffice." Suppose, for example, that, the owner of the land was a father, who wishes to make a binding promise to his son to convey the land to him. Being advised that a gratuitous promise is not binding, he writes to his son offering to sell him the land for $1 or other piece of "nominal" consideration. The sons promise to pay the $1 is not consideration. Virtually any agreement that calls for some sort of performance on each side is likely to be regarded as "supported by consideration," so the requirement is not difficult to meet. The promise of a lessor to lease commercial premises may still be supported by consideration, even though the lessee has the right to terminate the lease "on 10 days notice"---since "at the very least the lessee bound itself to pay rent for 10 days." A very common form of business transaction allows a buyer to return goods if they fail to meet with his "approval"---even though they may not be defective and may be wholly as guaranteed by the seller; the "buyers willingness to receive and test the goods is the consideration for the sellers engagement to deliver and sell." Occasional exceptions might be found in cases where the promise of one party is so dependent on own future willingness to perform, that in fact he has made no real commitment at all---his promise may in fact be merely "illusory." Such, for example, might be a case where the buyer has promised to take any of the sellers goods that he may "want to purchase"---conditioned entirely on his own "will, wish, or want." But even here, it would be easy enough for a court to interpret such an arrangement as nevertheless limiting the buyers future freedom of action, by obliging him to take all of his business "requirements" from the seller---and thus preventing him from using other, competing suppliers who might be able to undercut the contract price. So the requirement of consideration should not be a problem in most commercial transactions. Nevertheless, the doctrine still occasionally causes some problems---and this is true even in commercial settings, where "logic" has sometimes seemed to dictate that even some promises made in the course of commercial dealings are not binding because they lack consideration. For example, an offer to enter into a commercial deal could traditionally be "revoked at any time by the offeror---even though the offeror had expressly made his offer irrevocable; the "explanation" was that he had not, after all, received any consideration for his promise to hold the offer open. And a promise to pay more for goods or services than one had originally agreed to pay---even where the increase was voluntary and justified by changed circumstances---was traditionally not binding; the "explanation" was that the promisor had received no new consideration but was only receiving what he was already entitled to. Such results are not

necessary implications of the bargain requirement, and they represent a highly formalistic, wooden view of the law. Such holdings are, happily, less common today than they were in the past: Where the promise is freely agreed to, there should no longer be any problem in holding an offeror to his promise of irrevocability, or in enforcing a one-sided modification of a preexisting agreement.

2. Promises to Make Gifts The principal significance of the doctrine of consideration is, as we have seen, that it makes unenforceable promises to make future gifts. When a promise to make a gift is broken, some courts explained, the promisee is after all "no worse off than he was. He gave nothing for it," and so "has lost nothing by it." And in addition, gift promises are often "lightly made, dictated by generosity, courtesy, or impulse, often by ruinous prodigality." Lacking a mechanism to make gift promises routinely enforceable, Anglo-American law has been spared the necessity of developing---as the civil law has had to do---complex rules for the undoing of gifts after the fact, on such grounds as the donees later ingratitude or the donors inability to make proper provisions for his heirs. In early English law---and continuing into this century---it was possible to make promises---even gift promises---binding through a written, signed document "under seal": A document was "sealed" when wax, softened by heat, was attached to the instrument and some personal insignia---often a signet ring---was used to make an impression on it. Use of the seal would make a promise binding by virtue of the formality alone; the ceremony was calculated to have a "cautionary" effect on the promisor---ensuring that the nature and the importance of what he was about to do were present to his mind. But changing social conditions eventually made the seal an anachronism. "In the United States, the history of the seal has been one of erosion of the formality until it can be met by a printed form." Over the centuries, it came to be recognized that a "seal" could take the form of an impression directly onto the paper of the document, or of a red gummed wafer affixed to it. From there it was an easy step to give effect to the mere printed word, "seal." With the decay of the seal as a meaningful formality, pressure built up to eliminate the legal effects of a device which no longer served any function of preventing a promisor from entering into hasty or inconsiderate action. Today, in most states, statutes have eliminated any distinction between sealed and unsealed documents; even where the seal persists in theory, decisions are few, and there is apparently "no recent instance in which any court in the United States has enforced a gratuitous promise under seal." In contracts for the sale of goods, the Uniform Commercial Code has "wiped out" the seal completely. With the decline of the seal, there does not appear to be any ready means to assure the enforceability of gift promises---at least where neither party has as yet acted on the promise. However, it is sometimes possible to reach such a result by looking outside the strict borders of "Contract law." and by having recourse to the rules of the law of "Property." Obviously, if a gift has been executed---if, say, a piece of jewelry has been handed over to a donee, creating a completed gift---then the transaction cannot be undone; the donee now has a present property

interest in the jewelry, and the law of "Contracts" has nothing to say about this. There are some modern decisions holding that present ownership of property can be transferred merely by the formality of a signed unsealed writing. Alternatively, the traditional institution of a "trust" allows a donor to declare himself the trustee of donated property, and bind himself to hold it for the benefit of the "real" owner, the donee (or "beneficiary"). There is at least a theoretical distinction between such present transfers of "property" interests (even where the donee is to enjoy the fruits only at a later time), and a mere promise to make a future transfer---but human behavior rarely fits neatly into such doctrinal categories, and the line is often difficult to draw with confidence.

3. Reliance as an Alternative Basis of Enforcement It is often possible to characterize a transaction as a "bargain" even when it takes place on the periphery of the marketplace---or indeed, outside the marketplace completely. If we truly believe, with the liberal economists, that society will ultimately be better off if people are left free to pursue their own interests in their own way, then it follows that certain idiosyncratic uses of wealth have to be tolerated. For example, in one famous case, an uncle promised his nephew (then aged 15) that if he would refrain from smoking, drinking and gambling until he reached the age of 21, the uncle would give him $5000. The nephew apparently complied---and when he reached the age of 21, the court held that he was entitled to the promised sum. Now it might indeed be possible---if somewhat artificial---to find a "bargain," and thus "consideration," in this story. The uncle here apparently wanted to obtain something---his nephews virtuous conduct---that he valued for his own reasons, and he was willing to pay $5000 in order to induce his nephew to act in the desired way. But an important aspect of the story should not be overlooked---that the nephew did actually change his position because of the uncles promise: That is, the nephew has "relied" on the uncles promise to give him $5000, by altering his behavior---perhaps with some difficulty, certainly with no joy---over a period of many years, and by giving up his freedom to act differently. In many cases like this, the fact that a promisee has relied on a promise to his detriment would often tend to influence a court in the direction of enforcement. This was often hard to do consistently with well-established doctrine---and so in the past, the promisees change of position would often have a covert influence on the result. A court might wish to respond to the equities of the situation---by giving some relief even in the absence of true "consideration"---but might be reluctant to admit openly that it was doing so. During the first half of this century, however, there was an increasing tendency to honestly recognize that reliance on a gratuitous promise was being made the basis of enforcement. The "Restatement of Contracts" first made this explicit by providing, in its famous section 90, that "a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee . . . is binding if injustice can be avoided only by enforcement of the promise." This principle has been baptized "promissory estoppel"---the idea being that since his promise has caused the promisee to change his position, the promisor should be precluded (estopped") from denying lack of

consideration. Promissory estoppel has now become a well-established and well-understood alternative basis for the enforcement of promises. As we will see, its use has been extended beyond cases of gift and family promises, into even commercial settings. For example, after an employee had worked for a company for 37 years, the employer promised that if she chose to retire---which she could do at any time she wished---she would receive a pension of a certain amount for the rest of her life. The employee later chose to retire, and the employer, after paying the pension for a few years, stopped doing so. In the meantime, the employee had become ill and was no longer able to obtain employment. The court enforced the employers promise. The employers promise had not required the employee to work for any particular period of time before being entitled to retirement benefits---so she had not given any "consideration" in exchange for the promise. Nevertheless "her retirement, and the abandonment by her of her opportunity to continue in gainful employment, made in reliance on the employers promise," made that promise enforceable.

IV. The Nature of the "Rules" of Contract Much of the remainder of this discussion will be concerned with the "rules" of Contract law--"rules" for the formation of contracts, for the interpretation of agreements, and for defenses to or discharge of contractual liability. But the main purpose of Contract law, after all, is to promote and protect private exchanges and the private ordering and structuring of transactions: And since this is true, it follows that all or almost all of the so-called "rules" of Contract law can be altered or varied by the parties themselves. Very little about Contract law is mandatory or imposed by law: Most of these rules are just "presumptions" to "fill the gaps" left by the parties in what they have explicitly agreed to, and which will apply in the absence of some stipulation by the parties to the contrary. (So these are often called "default" rules---that is, background rules that apply for lack of or in default of any other agreement). A set of "default" rules is aimed at duplicating what the parties probably intended---and what they would have expressly incorporated into the contract had they taken the time and trouble to negotiate on the subject; it thereby saves them the time and trouble of doing so. If the parties to a contract had the time and the foresight to negotiate and express every element that could conceivably matter to their relationship---and had imagined any possible contingency, and any possible question that might arise---there would be little need for any "rules" of Contract at all. The UCC is rich with these implied terms: They tell us, for example, that a merchant seller is deemed to guarantee the title to, or the quality of, the goods he sells, and they also tell us how and when the goods are to be delivered, and how and when the price is to be paid, and who bears the risk of loss or damage to the goods. And at the same time, the Code makes it clear that in accordance with "the principle of freedom of contract," its provisions may with rare exceptions be "varied by agreement": The parties may choose to "opt out" of these rules. It is true that some obligations---such as the continuing obligation on the parties to act in "good faith"---cannot in theory by disclaimed, but even there "the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable."

V. The Process of Contract Formation 1. The Mechanism of "Offer" and "Acceptance" When private parties are contemplating an exchange of goods or services that will be of benefit to them, there is probably a wide range of possible solutions---say, a wide range of possible prices---that would be minimally acceptable to each of them. So, as in an Oriental bazaar, they are likely to spend a certain amount of time devoted to the tedious process of haggling. At some stage of the process, each party reaches the conclusion that any advantages from additional bargaining are too small to justify further struggle: At that point, they are ready to make a deal. The "rules" of contract formation are aimed at (1) distinguishing this moment of agreement--the culmination of the process---from all the bargaining activity that has gone before, and (2) protecting the agreement arrived at from any effort by either party to change his mind---and to start the bargaining process up again, either with the same adversary or with someone else. The formation of an enforceable contract has traditionally relied on a familiar, two-step model with which everyone living in a capitalist society is instinctively, intuitively familiar. Under this model, contracts are formed by an "offer" by one party---the "offeror"---which is "accepted" by the other---the "offeree"; the offer can be "revoked" until it has been accepted, but once accepted, the deal has been sealed. The acceptance, usually in the form of a return promise, not only concludes the process of contract formation but also serves as "consideration" going to the promisor. 2. Offers An offer is a proposal to enter into a transaction: To be characterized as an "offer," a proposal must authorize the offeree to believe that he is being given the power to conclude the deal by signifying his own acceptance. This definition requires us to formulate a strategy as to how we should interpret what people say. The problem of interpreting what is alleged to be an "offer" is really the same problem as that of interpreting any term in a contract, or interpreting any manifestation of a partys intention. For example, what if the speaker later claims that he in no way intended to make an offer---but that he was in fact joking? We may believe him now when he says this. But such a claim cannot be decisive---he cannot be allowed to avoid liability if at the time, the listener took him seriously and believed that an offer was being made. So a true "meeting of the minds"---in the sense of a subjective, internal agreement between the two parties---is not at all necessary to the formation of a contract: The so-called "objective theory" of contracts proposes that "a contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties"; "the standard by which his conduct is judged is not internal, but external." The question is whether a reasonable person in the position of the offeree would believe that he is being given the power to conclude the deal by accepting; if he does---if he has no reason to believe the contrary---then the speaker should be bound. Whatever his internal state of mind, the speaker carelessly misled the listener into believing that an offer was being made.

So, in the offer and acceptance mechanism, some communications should reasonably be taken as proposals to enter into a deal, but others should be interpreted instead as mere invitations to begin the process of bargaining and negotiation---perhaps, for example, the seller wants to drum up interest on the part of potential buyers, to see what his property is worth on the market without committing himself in advance. The key principle of interpretation is that a court is free to look at all the relevant circumstances surrounding the transaction. And one important guide to the reasonableness of interpretation is what the common usage and understanding would be in the particular trade: A usage of trade that has "such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed," will be the "framework of common understanding" that will "furnish the background and give particular meaning to the language used." Multiple or mass mailings, circulars, and advertisements are not usually interpreted as "offers": The apparent reason is that if large numbers of readers or recipients were to try to "accept," the result would be that the sender would be bound to large numbers of people---they would all have a contract right against the "offeror"---even though he might not have enough stock to supply them all. Since this presumably could not have been the senders intention, the conclusion is that no recipient has the power of acceptance. Shoppers are presumed to understand that by the time they get ready to buy, the advertised goods may or may not be available. (It might of course be possible for a court to read into any mass mailing or advertisement the possible limitation that it is open only to those who respond while the seller still has goods available---in other words, to construe it as including a term of "subject to prior sale," or "first come, first served." If a mass mailing or advertisement actually says this, it would make more sense to characterize it as an offer, since the fear of multiple liability is not present. But courts have not adopted this as a general principle of interpretation). A seller writes, "I am eager to sell my car but will not take less than $10,000 for it: Please let me know whether you are interested." Is this an "offer," that will become a binding contract if the addressee says, "I accept"? Or is it merely an invitation to make an offer that the owner can then take under advisement? The answer will depend on a factual inquiry into the surrounding circumstances, and thus the reasonableness of the addressees understanding. For example, if the two parties have been bargaining for the last month, trading proposals and counterproposals in an effort to find a mutually acceptable price, then the sellers statement that he "will not take less" than a certain price may indeed be treated as an offer. If on the other hand there has been no prior bargaining, then perhaps the sellers letter would be seen as merely the first step in an auction---indicating the minimum selling price, rather than the price he is now prepared to accept as final. To be treated as an offer that creates a power of acceptance, a communication has to be sufficiently well defined to constitute a contract. Does this mean that all the terms of the ultimate contract must be spelled out in the offer? There is an increasing willingness on the part of American courts to find that an offer has been made, and a contract concluded, even where are "gaps" in the parties communications----that is, even though they could not, or did not, agree on a number of terms. This is true even though the omitted terms may be "essential to a determination of their rights and duties." For example, if the parties have intended to make a contract, the fact that the offer did not specify the price of the goods will not prevent a court from giving effect to their intention by supplying a "reasonable price." Where a seller has

offered to sell a certain quantity of goods but has not specified the assortment of the goods--for example, how many of each size or of each color---a court will presume that the buyer is being given the option to make his own specifications as to assortment, at least if he acts "in good faith and within limits set by commercial reasonableness."

3. Termination of Offers A contract is formed when the offeree exercises his "power of acceptance." But until that time, there is as yet no bargain; until that time, then, the "power of acceptance" granted by the offeror may be terminated. Termination of the offer may occur in a number of ways: a. Lapse of Time The offeror may in his offer have specified a time limit---"this offer is effective only until a certain date." Even if he does not specify such a limit, the offer will be open only for a "reasonable time." After that time, the offeror is entitled to think that the offeree is not interested---and can thus consider that he is now free to deal with someone else. What is a "reasonable time" will, once again, depend on all the circumstances surrounding the transaction: "In general, the question is what time would be thought satisfactory to the offeror by a reasonable man in the position of the offeree." Where the property being sold is subject to rapid fluctuation in value, the time for acceptance will necessarily be brief---"not only because the offeror does not ordinarily intend to assume an extended risk without compensation but also because he does not intend to give the offeree an extended opportunity for speculation at [his] expense." b. Revocation by the Offeror Even before the expiration of a "reasonable time," the offeree can lose his power of acceptance when the offeror "revokes" his offer: Revocation occurs when the offeror lets the offeree know that the deal is off, and that he wishes to free himself from any outstanding offers and return to the market. It is clear that the offeror cannot escape contract liability merely by changing his mind in private, or by selling the property to someone else: An offer can only effectively be "revoked when the offerors change of mind is communicated to the offeree. Again, remember the "objective theory" of contracts mentioned above: Until he actually learns of the revocation, the offeree is entitled to believe that the offer is still open, and that he has the power to conclude a deal by communicating his acceptance to the offeror. The general view of Anglo-American law is that offers are generally "revocable" by the offeror at any time before the offeree has made an effective acceptance. This is of course true when the offer itself specifies that it may be withdrawn at any time; it is also true when the offer is silent on the subject of revocability. Indeed it has traditionally been held that until acceptance takes place, an offer may be freely revoked even though the offer by its terms purports to be irrevocable until some stated time. This was thought to be a consequence of the doctrine of

consideration: Without some consideration going to the offeror, his promise not to revoke could not be binding. One way to make offers irrevocable has always been for the offeree to "purchase" an option. If, for example, the offeror has promised to leave his offer open for some specified period in exchange for $1000, an offeree who has paid or promised the $1000 will have acquired the right to buy the land later: He may choose to accept the offer even though the offeror may in the meantime have changed his mind. This is a classic "option contract," an additional, subsidiary contract binding in its own right. The presence of consideration has made the promise of irrevocability binding, and until the promised period is over, the offeree may effectively accept even if the offeror attempts to revoke. In many cases, though, the seller of property is perfectly willing to make a so-called "firm offer"--that is, a commitment to hold his offer open for a limited period---even if he has not sold an "option" or as yet gone through any process of bargaining at all. He may wish to do this simply because he may think that his chances of ultimately selling the property are increased if the buyer has a limited time to appraise the property, make investigations, conduct testing, line up financing, and so forth, all without being exposed to the danger of having the rug pulled out from under him by a revocation. A prospective buyer may be unwilling to take these costly steps unless the owner commits himself to an option under which the buyer, while not obligated to buy, has a limited period of safety before making up his mind. Recognizing that such an arrangement is "an appropriate preliminary step in the conclusion of a socially useful transaction," some courts will now hold that a promise by a seller to hold his seller open for a short period of time is enforceable even in the absence of real consideration. This will particularly be true if the seller has made this promise in a signed writing---which at least gives some assurance that the promise was made, not lightly but only with some care and after some reflection. The UCC now also eliminates the requirement of consideration for "firm offers": Under the Code, if an offer to hold an offer open is made in a signed writing, it is not revocable for lack of consideration during the time stated or for a reasonable time not to exceed three months; this is true whether the offeror is a buyer or a seller, as long as he has the status of a "merchant." Finally, as we have seen earlier, there may be alternative reasons to enforce promises in addition to the presence of "bargained-for consideration"; it is now generally understood that reliance and change of position by a promisee can provide a sufficient basis for enforcement even in the absence of consideration. In recent years this principle has been broadened out from the setting of gifts and family arrangements, and extended into the realm of commercial transactions. So, for example, if an offeree who has been assured that an offer will remain open has acted in reliance on that assurance, here too the offeror may be "estopped" from trying to revoke.

The classic case involves the process of bidding on construction contracts, although it is by no means limited to that context. A General Contractor wishes to bid on a major construction job. He is, however, not able to do the entire job himself, and so before he can submit a bid, he must

in turn solicit bids from Subcontractors for particular portions of the work---for example, the paving, the plumbing, or the electrical work. A Subcontractor hoping to get the job submits a low bid, and the General Contractor uses the Subcontractors bid in calculating the amount of his own bid to the Owner of the project. The General Contractor is later awarded the main contract; however, before he can actually "accept" the Subcontractors bid, the Subcontractor--claiming that he has made a mistake and accidentally bid too low---attempts to revoke. Under the traditional law of offer and acceptance, the Subcontractor was free to revoke----the General Contractor had not yet "accepted," and until he does so, the Subcontractors bid could not be binding. But this of course would be very unfair to the General Contractor, who in "locking himself in" to his own bid acted in reliance on the Subcontractors figures. So courts now tend to hold that an "option contract" has been created by the General Contractors reliance. There is only an actual contract of sale when the General Contractor communicates his acceptance to the General Contractor---but the General Contractor is given an opportunity to do this if he wishes, and can ignore any attempted revocation. Such cases are striking for a number of reasons. First of all, note that in this case the Subcontractor did not actually make an express promise not to revoke his bid: The courts holding was that in this type of situation, the Subcontractor "had reason . . . to expect [the General Contractor] to rely on its bid"--- the nature of the bidding process made such reliance inevitable. Therefore, it followed that a promise not to revoke would be "reasonably inferable in fact." If the Subcontractor wanted to make it plain that his offer was revocable, the burden was on him to make it clear that this was the case. In addition, note that the effect of finding an "option" here is always one-sided: The party who has relied---the General Contractor---is protected and able to enforce the Subcontractors bid, but until he has actually "accepted" the bid, he is not obligated to do so: He can try to find another subcontractor who may be willing to do the work even more cheaply. c. Rejection by the Offeree Another means by which an offer may be terminated is if it is rejected by the offeree. Assume that a seller has offered to sell a car for $10,000. If an offeree clearly indicates his rejection--"no, I will never buy at that price"---then his power of acceptance has been lost; the offer is "dead," and the offeree may not later change his mind and try to accept it. A similar case is where the buyer responds that "I want the car but that price is too high; I will only pay $9000 for it." This is likely to be construed as a "counter offer"---that is, a substitute offer from the buyer. The seller is entitled to think that the negotiations are over. If he meets someone else who is willing to pay $10,000 immediately, the seller should be free to accept it--he cant be expected to risk losing that profitable deal in order to contact the offeree again. So, if the offeree later tries to "accept" the $10,000 offer, it is too late; the counter-offer, like the rejection, brings all negotiations to an end and destroys the effectiveness of the offer, Different responses may be construed somewhat differently. The buyer, for example, may respond, "I don't know---wont you take $9000?" "A mere inquiry regarding the possibility of different terms, a request for a better offer, or a comment upon the terms of the offer, is ordinarily not a counter-offer." If the court is willing to interpret the buyers response as a

"mere inquiry," it follows that (a) the seller cannot "accept" the $9000 price and bind the buyer; the buyer, after all,. has not made a (counter-)offer of his own that gives any power of acceptance to the seller, but (b) the buyer may later choose to accept the original $10,000 offer, since that offer has not terminated. The traditional common-law view was that an acceptance had to be the "mirror image" of the offer, mirroring exactly the terms of the offer. If the offerees response varied in any way---if for example it found the price acceptable but added additional or different terms relating to delivery, security, warranties, or a dispute resolution mechanism---it would still be treated as a counter offer and thus a rejection. This is generally sensible, since all the terms of a transaction are probably interconnected; any change in terms may add to the costs or increase the risks of the offeror, and the offeror is entitled to assume that he is not bound until his conditions---and only his conditions---have been accepted in their entirety by the offeree. However, the traditional "mirror image" rule does not work as well where the offerees additional terms are minor or immaterial; nor does it make much sense where a contract is formed by an exchange of standard pre-printed form that are in practice rarely read. The UCC has attempted to devise a special solution for the exchange of forms, and I will deal with this a little later. It frequently happens that because of the operation of these rules, the writings of the parties--the "offer" and the response---do not technically form a contract, but nevertheless the parties go ahead and act. Say, for example, that the buyer makes an offer, and the sellers response, because it contains deviant terms, is not construed as an acceptance but as a counter-offer. Nevertheless the seller proceeds to ship the goods, and the buyer accepts and uses them; only later does a dispute arise over the quality of the goods or over some other terms (for example, does a dispute have to be submitted to arbitration?) The common-law analysis here is that when the buyer accepted and used the goods, he indicated his agreement to the seller's counter-offer; since he has accepted the sellers counter-offer, the sellers terms govern. As we will see, the UCC has created a special rule here for contracts for the sale of goods, but the result would still remain valid for other-common-law cases not governed by the Code. If an offer takes the form of an irrevocable option, then a rejection or a counter-offer will not terminate the power of acceptance. One possible explanation for this rule is that it is a presumption of the probable intent of the parties. (It seems unlikely that an offeree who has managed to obtain an option would give away this right for nothing; by making a counter-offer he is probably still "just negotiating.") However, if the offeror relies on an explicit indication by the offeree that he is not interested---if the offeror has, for example, made an alternative deal with a third party---the offerees power to accept the offer, even within the original option period, will have ended.

4. Methods of Acceptance The most common method by which an offeree will accept an offer is by making a return promise: A seller's offer to sell goods can be accepted by the buyer's return promise to take and pay for the goods. The contract that is formed here is called "bilateral," because there is an enforceable promise on each side, by each party.

An acceptance by promise is of course usually verbal, but it doesn't necessarily have to be: Any behavior that communicates to the offeror a willingness to form a contract may be adequate. For example, services may be rendered, or goods may be shipped, to an offeree, and the offeree may take the benefit of them---in circumstances when he knows that they are not gifts, but that payment is expected, and it would be easy and not burdensome simply to reject them. Such behavior will naturally give rise to the implication of a promise to pay the offered price. (I have already mentioned an example of this principle when discussing the shipment of goods following a seller's "counter-offer"). Or again, the parties may have engaged in a prior course of dealing where, over many past transactions, the offeree would follow the practice of notifying the offeror if he did not intend to accept the offer: In such cases, the offeror may be justified in taking the offeree's silence to be an acceptance. It has traditionally been assumed that there exist other kinds of contracts, in which the offeror does not wish to be bound by a return promise from the offeree: He may feel that a return promise from the offeree is worthless, or the circumstances may make it unreasonable for him to expect a firm commitment from the offeree; in this kind of contract, the offeror does not intend to bind himself in advance of the offeree's actual performance. "I have had enough of your promises in the past and want no promise from you, but if you will put my sugar-house machinery in good repair I will pay you $1000 for the job." The offeree, therefore, can only "accept" such offers by "performance"; since there is a promise on only one side here, these are often referred to as "unilateral" contracts. At one time formalistic and rigid "logic" suggested that since "acceptance" of offers for unilateral contracts could only take place if performance was complete, the offeror could revoke his offer at any time before complete performance---even if the offeree had in the meantime changed his position by beginning work, such as by starting to put the machinery in good repair! But the obvious unfairness to the offeree from such a result has led to a different rule: It is now clear that where the offeree "begins the invited performance," the offeror may no longer revoke. An "option contract" is created; the offeree is not bound to complete performance--since this is a "unilateral" contract---but the offeror is bound to pay once the offeree completes performance in accordance with the offer. The offeror is "the master of his offer": He can stipulate for any means or method of acceptance that he wishes, and no contract is formed unless the offeree complies with that stipulation. But in most cases, of course, the offeror doesn't particularly care about the method of acceptance--and is likely to be completely indifferent as to whether acceptance takes the form of words of promise, or of acts of performance. Therefore the current tendency is to presume that an offer "invites acceptance in any manner and by any medium reasonable in the circumstances"--unless the offer "unambiguously" indicates otherwise. The offeree may "choose" to accept "either by promising to perform what the offer requests or by rendering the performance"; if a buyer orders goods, for example, the seller may "accept" either by a prompt shipment or by a prompt promise to ship. Given this presumption, the case of a true "unilateral" contract is becoming increasingly rare---limited in practice to somewhat unusual settings like offers of rewards or of prizes in a contest, made to a large number of people but to be accepted by only one. In the usual case where the offeror is content to allow the offeree to accept either by promise or

by performance, it is still necessary that both parties be protected. If the offeree makes a return promise, then of course both parties are bound. If the offeree purports to accept by the beginning of performance, the offeror may no longer revoke---and in addition, it is presumed that such an acceptance "operates as a promise to render complete performance." Unless an option contract was clearly contemplated by the offeror, then, the offeree is expected to be bound as well as the offeror.

5. Contracts by Correspondence: A common problem in the formative period of Contract law was posed by agreements that were not concluded face-to-face, but at a distance, through the post: What if communications from the offeror and the offeree were to cross in the mail, or what if one of the parties were to change his mind before the arrival of a letter? Despite technological revolutions that have seen the development of electronic means of virtually instantaneous communication, such problems continue to recur today. Again, the starting point is that most offers are assumed to be revocable by the offeror. When can the offeree who wishes to accept be confident that the deal has been concluded; at what point can he assume that he is free of any risk of revocation? The traditional Anglo-American answer is the so-called "mailbox rule": An acceptance is effective when it is mailed or otherwise "put out of the offeree's possession." The apparent policy here is that the offeree needs a dependable basis for understanding whether or not he has a deal, and a dependable basis on which to arrange his behavior. For example, a seller may have received three offers to purchase his property, and the deadline for deciding among them is imminent. In the very act of accepting one of these offers, he is necessarily passing up alternative possibilities; he may be losing the possibility of dealing with the other buyers if this deal falls through. An offeree who has mailed an acceptance---but who has received no notice that the offeror may have changed his mind---will have immediately formed certain expectations about having a deal; these expectations may cause him to rely in all sorts of other ways, such as preparing to perform. The "mailbox rule" has the further advantage of allowing and indeed encouraging the offeree to proceed with such preparations immediately, rather than incurring the "dead time" of having to wait and see whether his acceptance has reached the offeror before revocation. It also follows from the "mailbox rule" that where an acceptance is seriously delayed in the mail--or indeed, if it is lost and never received by the offeror at all---the offeror is nevertheless bound to a contract. Of course, the offeror---as the "master of his offer"---is always free to vary the mailbox rule by stipulating that an acceptance must actually be received by a certain time. Where receiving notice of acceptance is essential to enable the offeror to perform his own obligations, a court will be more likely to interpret an offer as containing a requirement of receipt. Some concrete examples follow. Assume the following sequence of events:

(1) Offer Mailed and Received (2) Revocation Mailed by Offeror (3) Acceptance Mailed by Offeree (4) Revocation Received by Offeree (5) Acceptance Received by Offeror: A contract will have been formed here: The offeror's revocation is only effective when the offeree learns of it, but the offeree's acceptance is effective earlier, when it was mailed. It is interesting that in some civil-law jurisdictions, the same policies are advanced by very different means. Under German law, for example, an acceptance is only effective when it is received. But since offers are presumed to be irrevocable, the offeree is equally protected against the offeror's changes of mind and is equally given an immediate and dependable basis for his actions. The rationale of the mailbox rule does not apply as strongly to cases where the offer was originally irrevocable, since in such cases the offeree was never exposed to the risk of revocation in the first place; in the United States, also---although there is little support in the decided cases for such a result---the Restatement of Contracts provides that the mailbox rule does not apply to option contracts. Here is another possible sequence of events: (1) Offer Mailed and Received (2) Acceptance Mailed by Offeree (3) Offeree Changes His Mind, and Sends Telegram of Rejection (4) Telegram of Rejection Received by Offeror (5) Acceptance Received by Offeror A contract should also be formed here, at least to the extent of binding the offeree. It cannot be assumed that the offeror intended to allow the offeree to speculate at his expense. If the offeree is not bound, he would be able to mail a letter of acceptance and then---assuming it takes three or four days for the letter to arrive--wait and see what happens to the market, which may be fluctuating rapidly. Suppose the offeree is a buyer, and that the offer was to sell him goods for $100. If the market price for the goods remains at $100 or goes higher, the buyer can simply let his letter take its course---since he has put the acceptance in the "mailbox," he is protected against revocation; however, if the market price declines below $100---so that he can buy more cheaply somewhere else---he would wish to send an overtaking rejection.

However, it does not follow from this that the offeror too must be bound to a contract. Since the offeror has received the rejection first---and may have no reason at all to suspect that an acceptance has been mailed---he may have assumed that he was free to deal with someone else, and may indeed have done so. If he has reasonably relied in this way on the offeree's rejection, the offeror should be protected against liability---even though the offeree might change his mind once again and attempt to invoke the mailbox rule in order to enforce a contract. The real question, in short, is not the abstract question----"does a contract exist?"--but the more concrete question whether "this particular plaintiff can get what he is suing for from this particular defendant in these circumstances?"

The American Bar Association has developed a "Model Electronic Data Interchange Trading Partner Agreement" dealing with the increasingly common use of "e-mail" for the transmission of contract documents between businesses that deal regularly with each other. Section 2.1 of this Model Agreement provides that "no document shall give rise to any obligation, until accessible to the receiving party at such party's Receipt Computer." On the face of it, this looks like a reversal by contract of the mailbox rule. It seems obvious, though, that in new technologies like this which are "substantially instantaneous," the question posed by the mailbox rule---whether a revocation can be effective during the period it takes for an acceptance to be communicated---is not likely to arise. In such cases the governing principles should be the same as they are when the parties are actually in each other's physical presence.

6. "Battle of the Forms" in Contracts for the Sale of Goods While the law of contracts in England and the United States is largely a creation of the 19th century, the pressures of the modern world have placed considerable tension on what is increasingly seeming to be an archaic structure. In no area, perhaps, has this been clearer than in the case of the standard-form contract. The use of printed forms provides obvious benefits to businesses in the form of increased efficiency: They simplify decision-making, since only a limited number of blanks need to be filled in to describe any specific transaction and it is unnecessary to consider or address other terms; they permit a business to seek to establish favorable, standardized terms on which they will buy or sell goods; they limit the discretion of lower-level personnel; and they enable large, bureaucratic businesses to systematically keep track of their transactions through the use of multiple copies of each form. So a buyer---say, an automobile manufacturer---may wish to buy a standard component from one of several suppliers. A purchasing agent for the buyer may telephone or write several sellers to ascertain prices and product availability. Based on this information, the buyer selects a seller, and sends a purchase order on its own standard, pre-printed, form. The front of the form may set forth the component, the number of units, the price, the delivery date, and possibly other specially negotiated terms as well. The back may be titled "Conditions"---and may be printed on

gray paper in only slightly darker gray small print. These "Conditions" contain the buyer's standard purchase terms, carefully crafted long in advance by the buyer's attorney to maximize the buyer's legal position in the event a problem arises. When the seller receives this purchase order, the seller's clerical staff will check the terms on the front and, if they're acceptable, an "acknowledgment" may be sent to the buyer on the seller's own standard form. The front will contain blanks that will reflect the information about the order taken from the buyer's purchase order form; the back contains printed "Conditions" crafted by the seller's attorney to maximize the seller's legal position in the event a problem arises. Typically, purchasing and sales agents are instructed to use their own forms exclusively and not to sign or acknowledge the existence of the other party's forms. But of course, the probability that all the standardized terms will be identical is precisely zero. This is the famous "battle of the forms." Now at common law, as I have said, the "mirror image" rule would preclude the finding of a contract on these facts. Yet despite the failure of the forms to coincide, there is little doubt that the parties thought that they had reached a binding agreement: With agreement on the main, "dickered" (i.e., negotiated) terms, the "proposed deal . . . in commercial understanding has in fact been closed." The law cannot be blind to the reality that business people rarely read the standard language on purchase forms and acknowledgments---it would in fact be inefficient to expect them to do so---and yet they may be relying on the existence of a contract despite the clashing language in these forms. Where one party is trying to back out before performance, this is most likely due to afterthoughts caused by changes in the market, rather than to any disagreement over terms. And in most cases, the goods will be shipped, and accepted, and used, before any dispute at all arises. So in the first instance, the law should reflect the understanding of the parties that they had entered into an enforceable agreement. The second, and more difficult, question, is what are the terms of this enforceable agreement? Since the forms are by hypothesis unread, is there a danger that one of the parties will be subject to unfair surprise, by being bound to a term to which it did not consent? It is useless to ask "just what terms the parties intended" to govern their transaction, since there was apparently no such intent. The parties were content to leave their rights uncertain; greater uncertainty could only have come with negotiations, the costs of which clearly would have exceeded the cost of leaving things open to the possibility---a remote possibility---of later dispute. The Uniform Commercial Code devised a response to this problem that has been much criticized. It is indeed not without its flaws, yet it is both a comprehensive and an elegant solution: Under article 2-207 of the Code, if the second form is a "definite and seasonable expression of acceptance," it will be treated as an acceptance of the offer contained in the first form. The term "definite and seasonable expression of acceptance" is presumably intended to restrict the reach of this section to cases fitting squarely within its rationale--- "proposed deals which in commercial understanding have in fact been closed." Discrepancies on the face of the forms relating, for example, to such subjects as price or quantity, cannot of course allow a contract to be concluded. But a second form may be an "acceptance" even though its terms are different---and even though they are different in "material" ways. If the second form is not to be an acceptance, the offeree must expressly say so---

must expressly make his acceptance "conditional on [the offeror's] assent to the additional or different terms." If the second form is an "acceptance," it is of course an acceptance of the terms proposed by the offeror. The different or additional terms it contains are treated as proposals to add to the contract. Different or additional terms that are "material"---that is, that are surprising, unusual, or particularly burdensome---simply disappear, and are eliminated. (An example would be a seller's clause that disclaims the standard implied warranty that accompanies sales of goods). Similarly, any different or additional terms to which the offeror may object are also eliminated. If both parties have the status of "merchants," then different or additional terms that are not material, and not objected to, become part of the contract. If the second form is not an acceptance---perhaps because it expressly says so---then of course, no contract has been formed by the exchange of writings alone. If, however, the parties engage in conduct that recognizes the existence of a contract---perhaps by shipping and accepting the goods---then a contract will of course be recognized. In that situation priority is given to neither form; the terms of the contract will consist of (a) those terms on which the two forms happen to agree, plus (b) any supplementary, "gapfilling" default rules supplied elsewhere in the Code. As I said, this is a comprehensive solution for all "battle of the forms" situations, and it is also rather neat and elegant. However, it will immediately be seen that the Code solution gives an immense advantage to the person sending the first form---or "firing the first shot," as the clich has it. His terms are presumed to prevail, since his "offer" has been "accepted." And since these forms are by definition unread and unattended to, it may well be doubted whether this is justifiable. (Before the Code was enacted, the common law's approach was to say that the party who put forward the last terms and conditions---not objected to by the other party---would prevail; that is, a "last shot" principle). However, here we see the force of my earlier point that these rules---like almost all legal rules---are merely background rules and presumptions. It is always open to the parties to vary them. For example, the Code invites the party sending the second form simply to add standard ("boilerplate") language, to the effect that there is no acceptance at all unless his terms (that is, the second party's terms) are assented to (e.g., acceptance is "expressly conditional on assent to the additional or different terms contained herein"). Resort to this language is indeed widespread---and it results in no contract being formed unless the parties actually begin to act and conduct themselves as if there is one. The solution adopted by the CISG (the "Vienna Convention" on Contracts for the International Sale of Goods) is quite different from that of the UCC---but the Convention scheme, in many ways a compromise between common-law and civil-law notions, can hardly be considered any sort of improvement over the Code. On the contrary. Article 19 of the Convention makes an exception only for terms that do not "materially alter" the offer: If the second form contains only such minor variants, a contract is nevertheless considered to have been concluded, and the minor variants are incorporated into the deal unless the first party objects. But if the second form contains variations that are material, then no deal has been concluded at all. By "material," again, we usually mean something like surprising, and unusual, and burdensome---but the Convention makes it clear that anything at all that can possibly matter (including the quality of goods, the place and time of delivery, and the "settlement of disputes"

[including arbitration] will be considered "material." Also, if the offeror objects even to the immaterial terms in the second form, the result is that no contract has been formed. In both of those cases (i.e., the addition of material terms, and the objection to any terms by the offeror) the Uniform Commercial Code in the United States would find that a contract had been formed. What are we to make of this scheme of the Convention? On the one hand, the Convention's solution does prevent the second party from being bound against his will to any material or important terms. (That the party sending the second form might be found against his will to such terms would---at least theoretically---be possible under the Uniform Commercial Code, but, as I mentioned, this result is easily avoidable: The second party merely has to add standard, "boilerplate" language to his answer, making it explicit that his assent is conditional on agreement to his own terms). On the other hand, the Convention result may be thought undesirable, because it seems to infinitely increase the number of cases where no contract will be found at all, even though the parties may have thought that they had struck a deal. (But again, where the second party routinely adds a standard-form disclaimer to his response, the same solution of "no contract" would also be reached in the United States under the Code. The importance of the precise content of "the law" is , here and elsewhere, minimized by the ability and the incentive of private parties to "contract around" the rule in their own drafting and planning.) The Convention seems to make no provision at all for the situation where no contract has been formed in a "battle of the forms," but where the parties begin to act as if there were, by shipping and using the goods. Is the implication that the seller, merely by shipping the goods, has necessarily accepted and acceded to the buyer's form? Or that the buyer, by accepting and using the goods, has necessarily "accepted" and acceded to the seller's form? This is apparently the case, since the Convention seems to adopt an "offer-acceptance" paradigm requiring a court to pinpoint the exact moment that a contract is formed: Under the Convention, "a contract is concluded at the moment when an acceptance of an offer becomes effective";in addition, "conduct * * * indicating assent to an offer" ---presumably including the shipping or accepting of goods---may constitute an acceptance. This would be a most unfortunate result, and strikes an American lawyer as particularly retrograde---since it reproduces a common-law result long in effect prior to the enactment of the Uniform Commercial Code. Such a rule would unwisely privilege one particular form---the "last" one sent---and would seem to artificially impose on the parties a structure that does not correspond in any way to their expectations. Therefore, under both the American Code rule, and under the Convention rule, the parties continue to have an incentive to engage in "strategic behavior"---not to negotiate terms openly, but to bombard the other party with forms hoping to be able to fire "the first shot" (under the Code) or the "last shot" (under the Convention). But "when the parties to the contract send their forms blindly, and after no, or only cursory, examination of the bargained terms file the forms they receive, it makes little sense to give one an advantage over the other with respect to unbargained terms simply because he filed the first [or the last!] form." A truly satisfactory solution for this common problem seems to have escaped the drafters of codes and conventions. And yet one would think that this is one of the most fundamental of contract-law questions, one to which every business client would expect an answer. One can expect that the search for an answer will continue.

In this respect I should mention, finally, the approach taken by the proposed and pending revision to the Uniform Commercial Code. The current proposed draft involves an approach that is both more simple and more focused than any of the existing alternatives. Under this revision, the parties may "manifest assent" to an agreement represented by a standard form either expressly, or by conduct. Now, as an initial matter, consider the case where one party has agreed in this way to a standard-form contract prepared by the other: Assume, for example, that the buyer orally orders goods; the seller ships the goods accompanied by a standard form disclaiming any warranties of quality; the buyer receives the standard form, and without objection accepts and uses the goods. In such a case, the party agreeing to the form is bound to all the terms of that form---except, however, for terms that the party who prepared the form knew or had reason to know would cause the other party to reject the contract if they were brought to his attention. Such terms are not included in the contract. So the recipient of a form has a "duty to read" even a standard-form contract---except for terms that one party tries unfairly to "sneak into" a contract, taking advantage of his knowledge that the other party will not read it. Now for the true "battle of the forms" problem: What if both parties have prepared standard forms, and in some instances these forms are conflicting---the terms in one form "add to or vary" terms of the other? In such a case, a will only be bound to such terms that "he had notice of, from trade usage, prior course of dealing [that is, from prior transactions between the parties] or course of performance [that is, the behavior of one party in performing the contract that is accepted or acquiesced in by the other without objection]." The "contract in fact" will then consist only of (1) the terms on which the parties have expressly agreed in their standard forms, (2) any supplementary terms incorporated as "gap fillers" or default rules under the Code, and (3) the terms of which the parties had knowledge or reason to know, such as by trade usage. The choice of any rule should be made with an eye to its functional effects---that is, its practical effects on the conduct of the parties---and this proposal would seem to have some desirable effects: It provides an incentive for those who wish to incorporate terms important to them, to insure that the other party is aware of those terms and agrees to them: As Richard Speidel, the Reporter for the Code revisions has noted, such changes "place a premium on negotiation and informed consent, rather than upon strategic behavior." And by doing so, the proposed revision also eliminates the risk of unfair surprise---a risk under current conditions for a party who cannot be expected to sit down and read all the lengthy terms of a form before proceeding to fill a routine order. At the same time, under this revision, identifying one particular form as the "offer," and the other as the "acceptance"---and thus the whole traditional law of offer and acceptance built upon this model---is increasingly becoming an irrelevant exercise.

The "battle of the forms" I have been discussing arises when a written offer is sent by one party, and where the other responds with a second form containing different terms. A different, but analogous, problem sometimes arises when the offeree responds, not in writing, but with actual performance. For example, a buyer may order goods of a certain quality and the seller---without promising anything---sends a different, and inferior, grade of goods. At common law (and

presumably under the CISG) the seller's shipment would be treated as a counter-offer: And if the buyer accepts and uses these inferior goods, he is deemed to have assented to the seller's counter-offer--thereby agreeing to a contract for these inferior goods! The UCC, on the other hand, treats this case in a way very similar to the way in which it deals with the battle of the forms: Under the Code, the seller's shipment operates as an acceptance, and it is an acceptance--and not a counter-offer---even though it is a deviant shipment of different goods. Here too the seller may, if he wishes, expressly indicate that he is making a counter offer---he may "notify the buyer that the shipment is offered only as an accommodation." But if he does not say so expressly, he is presumed to have accepted the buyer's offer. And since his shipment does not conform to the offer, it is simultaneously both an acceptance and a breach, leaving him open for liability for breach of contract.

7. Open Terms The model of the commercial transaction that informed the early development of Contract law was the discrete arrangement---a one-time sale with a very limited time horizon. The parties were treated as isolated atoms---that come into momentary contact with each other and then bound off again into space. Contract law undoubtedly evolved with this model in mind---the "offer and acceptance" mechanism seems to reflect it very well. This model does now, however, correspond very well to our current reality. The more typical transaction will occur in the context of a long-term relationship, in which, for example, one party agrees to serve as the exclusive outlet, or the exclusive source of supply, of goods produced or needed by the other. The traditional model thus imposes considerable tensions on our ways of thinking about the law of contracts. We are all aware that we are unable to predict the future with any great precision. To deal with this uncertainty, business people will require flexibility--they will expect the law to provide a framework that will provide them the assurances they need, but which will at the same time allow them to adjust the terms of their deal over time, as circumstances change and as the future reveals itself. The work of the attorney, in cooperation with the client, is often to devise mechanisms to combine the necessary contractual security with the possibility of adjustment. When the future needs of a buyer, or the future capacity of a seller, are uncertain, a "requirements" or "output" agreement might be structured to leave this quantity term open. Earlier American cases expressed some doubt about the enforceability of these kinds of arrangements, but it is now well-established that they are both useful and binding----the primary focus of the law has instead been on monitoring and policing these transactions, to ensure that neither party is abusing its position. A buyer who commits himself to take all of his requirements from the seller undertakes, at the very least, to deal exclusively with that supplier, and to give up any right to satisfy his needs by buying elsewhere. But courts will infer that he has assumed other obligations as well: The buyer is required "to conduct his business in good faith and according to commercial standards of fair dealing in the trade" so that his "requirements will approximate a reasonably foreseeable figure." He has no right to order quantities "unreasonably disproportionate" to any "normal or otherwise comparable" "requirements"---for example, he may not, if the market price rises dramatically above the

contract price, rapidly expand his orders to exploit the opportunity to resell the seller's goods. On the other hand, the buyer may choose not to buy at all, but only if he can point to a "business reason" for doing so "independent of the terms of the contract"---such as a drop in the demand for his own products,. The buyer may be liable, however, if he ceases to buy simply because he has made a reassessment of the advantages and disadvantages of the contract---this would be a violation of his duty to act in "good faith." This standard of "good faith" and "commercial reasonableness" is typical of the vagueness and open-ended nature of much modern American Contract law: It can make decisions hard to predict in advance. But since it is so fact-intensive, it does give to the courts the tools they need to reach a sensible result in the particular case at hand. Here is a challenge for the lawyer who operates in a common-law system---the premise of which is that actual content will be infused into broad "standards" of law over time, on a case-by-case basis, through individualized adjudication. Another common problem is uncertainty about the appropriate contract price. Here, among the available contractual mechanisms, indexation clauses are a familiar example. Sometimes, however, the parties may think it necessary or desirable simply to leave the price term completely open. At an earlier time courts would frequently hold that such an "agreement to agree" was simply a contradiction in terms, and could not possibly give rise to contractual liability. Modern cases can still be found in which such holdings persist, particularly in settings other than the sale of goods: "Courts cannot write a contract which the parties have not made." In contracts for the sale of goods, however---where the market is likely to provide an objective basis for computation---the rule appears to be otherwise. The UCC provides that the parties may conclude a contract of sale even though the price has not been settled: If they leave the price "to be agreed later" and cannot later agree, or if they simply say nothing about price, then the contract price will be "a reasonable price at the time for delivery." The only requirement here is that the parties have intended at the time to conclude a contract of sale: It is possible, of course, that they did not intend to be bound unless and until the price has been fixed or agreed; in such a case there should be no contract. In applying this standard it is often very difficult, of course, to distinguish between "an agreement with an open price term," on the one hand, and "mere preliminary negotiations" on the other; this is, once again, "a question to be determined by the trier of fact." By contrast with the Uniform Commercial Code, the provisions in the CISG that deal with the open-price contract have aptly been termed "a mess." Article 14 of the Convention requires an offer to be "sufficiently definite," and mandates that such definiteness is met only if the proposal "expressly or implicitly fixes or makes provision for determining" the price. Article 55, on the other hand, later states that "where a contract has been validly concluded," but does not expressly or implicitly fix or make a provision for fixing the price, the parties are considered "to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned." It is very difficult to know what to make of all this. Some commentators simply believe that the requirement of a price term under article 14 can be satisfied by the gap-filling provisions of article 55. Other commentators reconcile the two by saying that article 14 is merely concerned with the definition of an offer: It functions simply as a means of distinguishing between an offer-

--which can have legal consequences---and a mere proposal, or invitation, to make an offer--which does not. On this analysis, the parties need not be prevented at a later time from agreeing, together, to bind themselves to an arrangement that leaves the price for later determination. And finally, still other commentators believe that article 14 and article 55 simply contradict each other: This, it has been suggested, is a result of profound differences between the various states with different legal traditions involved in the drafting of the Convention--differences, for example, between common-law and many other industrialized states who wanted "a flexible rule for the determination of price," and developing countries who found the contract price "an essential element that absolutely must be determined" in advance. Article 14 had already been approved when Article 55 was discussed, but a majority could not be found to modify it later.

9. Preliminary Negotiations The "offer and acceptance" model no longer represents very accurately---if indeed it ever did--the nature of modern contracting behavior. Large and complex agreements are often "hammered out" over a considerable period of time, through a process of face-to-face negotiation. During the negotiation of such deals it is rarely possible to identify a discrete "offer" or "counter-offer" to be accepted; there is instead a gradual process in which agreements are reached piecemeal, through the exchange of "drafts" to which neither party is as yet fully committed. Each exchange of drafts leaves fewer and fewer issues in disagreement, to the point that only small technical points remain for the parties lawyers to discuss separately. When this negotiation process finally reaches a successful conclusion, the contractual commitment will typically be set out in a lengthy set of documents, signed by the parties in multiple copies and exchanged more or less simultaneously at a "closing." Sometimes, however, this process will not yet have produced a single, complete, and detailed document to which both parties are clearly committed. When the negotiations abort before this document is produced, a number of different legal problems may arise: a. Intention to be Bound This is a pattern common in modern commercial life: The parties to a substantial transaction may be in the midst of negotiation---they may be feeling their way along towards final agreement, and becoming increasingly optimistic that such an agreement will eventually be reached. During this negotiation process, many issues will be agreed to on a piecemeal basis--and perhaps even some of the principal "stumbling blocks" to a deal will have been resolved. The remaining issues may be considered too small and unimportant, or too easily settled, to be a cause of serious concern. And so, perhaps, in a burst of enthusiasm and euphoria, the bargainers may reach across the table and shake hands---"We have a deal." They may even sign a "letter of intent," or "agreement in principle," setting out the outlines of the deal. Such an agreement may specify that it is "subject to execution of a definitive agreement"---following such matters as completion of certain legally required formalities, appraisal of the assets, clearing of title, or approval by the parties attorneys to take care of any possible question or contingency---as the phrase goes, to "dot all the is and cross all the ts." For one reason or

another the deal later collapses, and one party claims that the preliminary agreement is itself legally binding---independent of the final definitive contract. Are the parties bound, or are they free until the final writing is signed? The answer will depend on an assessment by the court, or a jury, of the intention of the parties. It is possible that the parties intended to contract informally, and that the later final, definitive agreement consisted merely of "technical requirements of little consequence," meant to serve only as a housekeeping device, to memorialize their agreement or to make sure that minor legal details were in order. If the parties do intend to contract orally or informally, the mere fact that they intended to commit their agreement to a formal writing at a later time does not prevent a court from saying that a contract has already been entered into. On the other hand, it is possible that the final written agreement was intended to be the final culmination of the negotiations, so that the parties did not consider themselves bound at all until the very last minute. In making that determination, courts will be influenced by such factors as (1) the extent to which all essential terms of the alleged contract had been agreed on, (2) whether the parties had begun to act or perform under the alleged contract, and (3) whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected. "Agreements in principle," "letters of intent," and "memoranda of understanding" are frequently necessary in the relatively early stages of commercial transactions, but the intended use of these documents may vary considerably---and whether they constitute a binding commitment or a mere stage in the bargaining process is often unclear. Obviously, the more likely it is that a court in later litigation will "fill" what appears to be a "gap" in the parties' "agreement," the greater care transactional attorneys must take: They must take steps in advance to make it clearly understood, both by the other party and by a court that may later hear a dispute, that preliminary agreement on particular aspects or issues in a negotiation is just that---"preliminary" and "tentative"; they must take pains to clearly demarcate in practice the precise moment when an agreement is intended to ripen into a binding obligation from which the client may no longer withdraw b. "Pre-Contractual" Liability In the cases I have just been talking about, if an "intention to contract" is found---and if there is some "reasonably certain basis" for giving a contractual remedy---then the promisee will be entitled to all the usual remedies provided by Contract law. On the other hand, if no such "intention" is found, there is no contractual liability at all. Traditionally this has been thought to mean that both parties remain "as free as the breeze"--- able to walk away, without consequences, for any reason whatever. This result would mean that if one of the parties has changed his position in any way---if, say, he has begun to act in the hope and confidence that a deal would eventually be struck---he is simply out of luck. In a number of cases, however, courts are beginning to impose liability for conduct in the bargaining process, and to provide remedies for harm suffered during that process even before we can say that any "contract" at all has been entered into. In one celebrated case, for example, the owner of a small-town bakery engaged in lengthy discussions with a supermarket chain over the possibility of opening a grocery store as one of

the companys franchisees. The company urged and encouraged the baker to take all sorts of steps to prepare himself for opening such a store, and to gain the necessary experience---it insisted that he raise a certain amount of money, sell his existing bakery, buy a small grocery store in another town, and incur some personal moving and rental expenses. All of this was presented as a precondition to entering into a franchise agreement---but not much was ever said by either party about the specific terms of the prop