The Restatement (Second) of Contracts Reasonably Certain Terms Requirement: A Model of Neoclassical Contract Law and a Model of Confusion and Inconsistency

Posted: 19 Aug 2016

Date Written: July 1, 2013

Abstract

The Restatement (Second) of Contracts ("Second Restatement") states that the formation of a contract requires that a bargain's terms be "reasonably certain." It seeks to make this vague standard clearer with the following test: "The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy." The Second Restatement then provides comments and illustrations to help explain the test. This Article shows, however, that the test and its supporting comments and illustrations create more confusion than clarity.

The confusion stems from inconsistent signals as to whether indefiniteness is to be assessed as of the time of the bargain's formation or at the time of the lawsuit. These inconsistent signals cause further confusion about the answers to two more specific questions. First, if only the plaintiffs promise is too indefinite to enforce does this automatically mean no contract was formed, or is the defendant's sufficiently definite promise still enforceable as part of a contract as long as the plaintiffs promise is not relevant to the dispute that arises? Second, what is meant by an "appropriate" remedy, and, specifically, can a remedy be appropriate only if it protects a party's benefit of the bargain (the so-called expectation interest), or can a remedy be appropriate if the plaintiff seeks something less, such as damages to compensate for the plaintiff's reliance on the promise?

The answers to these questions will not only help answer the temporal question referenced above, but will reveal whether the entity that adopted and promulgated the Second Restatement, the American Law Institute ("ALI"), views the reasonably certain terms requirement as a legal formality ― a rule requiring a bargain to be in a certain form and that can have consequences contrary to the parties' intentions ― or as simply a restatement of other doctrines designed to enable a court to resolve the dispute before it (or perhaps a bit of both). In other words, although it is clear that the Second Restatement sought to relax the traditional certainty requirement, did the ALI intend to simply minimize it or did it intend to abolish it? The answers to these questions are important because they will affect how often bargains fail to be contracts. And if more bargains fail to be contracts because of indefiniteness, more promisees will have to proceed under an alternative theory of enforcement, primarily promissory estoppel, a theory under which it is usually more difficult for promisees to prevail.

Though the answers are far from clear, the better interpretation of the Second Restatement's reasonably certain terms requirement is that even though it remains a formation doctrine, whether the bargain's terms enable a court to determine the existence of a breach should be assessed as of the time of the lawsuit, thus, it is not a requirement that the plaintif's promise be sufficiently definite. However, only an award protecting the plaintif's expectation interest is an appropriate remedy even if the plaintiff is only seeking something less, such as reliance damages. The test, therefore, has aspects of a legal formality while at the same time having aspects of simply enabling the court to resolve the dispute that arises. In this respect, the Second Restatement is a model of neoclassical contract law, retaining some of classical contract law's focus on the moment of contract formation while at the same time encouraging courts to look at post-formation events to reach a just outcome in individual cases. But because a formation doctrine cannot logically look at such events, it is also a model of inconsistency.

Keywords: Contract Law, Promissory Estoppel, Expectation Interests, Contract Formation

JEL Classification: K14, K40

Suggested Citation

O'Gorman, Daniel, The Restatement (Second) of Contracts Reasonably Certain Terms Requirement: A Model of Neoclassical Contract Law and a Model of Confusion and Inconsistency (July 1, 2013). University of Hawaii Law Review, Vol. 36, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=2814912

Daniel O'Gorman (Contact Author)

Barry University School of Law ( email )

Orlando, FL
United States
321-206-5681 (Phone)

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