5.1 Contract Formation
Key Takeaways
- A contract requires mutual assent (offer and acceptance), consideration, capacity, and legality; formation is judged objectively by outward manifestations, not secret intent
- Under the mirror image rule, a common-law acceptance must match the offer exactly, while UCC 2-207 allows an acceptance with additional terms between merchants
- The mailbox rule makes an acceptance effective on dispatch; rejections, revocations, and counteroffers are effective only on receipt
- A merchant's signed, written firm offer to buy or sell goods is irrevocable without consideration for up to three months under UCC 2-205
- Quasi-contract is an equitable remedy for unjust enrichment, not a true contract, and recovery is limited to reasonable value (quantum meruit)
Contracts is one of the ten Knowledge Exam domains on the NALA Certified Paralegal (CP) exam (10 points under the Effective 2024 specifications), so formation doctrine appears frequently. The exam draws primarily on common-law principles and, for transactions in goods, Article 2 of the Uniform Commercial Code (UCC). A contract is a legally enforceable agreement, and formation requires four elements: mutual assent (offer and acceptance), consideration, capacity, and legality. This section covers the first two, plus the ways contracts are classified.
The Offer
An offer is a manifestation of willingness to enter into a bargain that justifies the offeree in understanding that his or her assent is invited and will conclude the deal. Courts apply the objective theory of contracts: intent is judged by outward words and conduct as a reasonable person in the offeree's position would understand them, not by a party's secret reservations. Even a statement made in jest can form a contract if a reasonable person would take it seriously.
A valid offer requires (1) present intent to be bound, (2) terms definite enough to identify the bargain, and (3) communication to the offeree. Definiteness means the offer supplies the essential terms: parties, subject matter, price, and quantity. Under the UCC, a contract for goods can stand even with open terms if the parties intended a contract and there is a reasonably certain basis for a remedy; the UCC supplies gap fillers for price (a reasonable price at the time of delivery), time, and place of delivery. A missing quantity term in a goods contract is generally fatal, except in requirements and output contracts.
What Is Not an Offer
Advertisements, catalogs, circulars, and most price quotes are invitations to deal, not offers, because the seller retains the right to decide whether to accept. Narrow exceptions exist where the ad is clear, definite, and explicit and leaves nothing open for negotiation, such as a reward poster or a 'first come, first served' advertisement. Auctions are 'with reserve' by default: the bidder makes the offer and the auctioneer may withdraw the goods before the hammer falls.
Termination of the Offer
| Method | Effect | Key rule |
|---|---|---|
| Revocation by offeror | Ends the power of acceptance | Effective on receipt; offers are freely revocable unless an exception applies |
| Rejection by offeree | Ends the power of acceptance | Effective when received by the offeror |
| Counteroffer | Terminates the original offer and creates a new one | A mere inquiry about terms is not a counteroffer |
| Lapse of time | Offer expires | At the stated time or after a reasonable time |
| Death or incapacity | Terminates the offer automatically | Applies even if the offeree is unaware; does not end an option contract |
| Destruction or illegality | Subject matter destroyed or becomes illegal | Offer terminates by operation of law |
Four doctrines make an offer irrevocable: (1) an option contract, in which the offeree pays consideration to hold the offer open; (2) the UCC firm offer rule (Section 2-205), under which a merchant's signed written offer assuring it will stay open is irrevocable for the stated period, or a reasonable time, up to three months, with no consideration required; (3) detrimental reliance by the offeree that the offeror could reasonably foresee; and (4) under the modern rule, the beginning of performance on a unilateral offer.
Acceptance
Acceptance is the offeree's manifestation of assent to the offer's terms in the manner invited or required. At common law, the mirror image rule requires the acceptance to match the offer exactly; any added or changed term operates as a rejection and a counteroffer. The UCC abandons this rule for goods: under Section 2-207 (the battle of the forms), a definite and seasonable expression of acceptance operates as an acceptance even if it states additional or different terms, unless it is expressly conditioned on the offeror's assent to those terms. Between merchants, additional terms become part of the contract unless the offer expressly limited acceptance to its own terms, the new terms materially alter it, or the offeror objects within a reasonable time.
The Mailbox Rule
Under the mailbox rule (the deposited acceptance rule), an acceptance is effective when properly dispatched — correctly addressed with postage paid — if mail is an authorized medium of response. Everything else (revocations, rejections, counteroffers) is effective only on receipt. Key exceptions: the offer may stipulate that acceptance is effective only on receipt; in option contracts, acceptance is effective on receipt; and if the offeree mails a rejection and then an acceptance, whichever arrives first controls. Only the offeree may accept. A bilateral offer may be accepted by a return promise or by beginning performance, while a unilateral offer is accepted only by complete performance.
Consideration
Consideration is a bargained-for exchange of legal value: each party must incur a legal detriment (doing or promising something it had no pre-existing duty to do, or refraining from something it had a legal right to do) or confer a legal benefit on the other. Courts do not weigh the adequacy of consideration — a peppercorn can support a conveyance if it was genuinely bargained for. The following are not consideration: past consideration (acts already performed before the promise), moral obligation, the pre-existing duty rule (promising to do what one is already legally bound to do), and illusory promises (words that commit the promisor to nothing). Important substitutes and exceptions: modifications of goods contracts under the UCC need no new consideration, only good faith; promissory estoppel (detrimental reliance) enforces a promise the promisor reasonably expected to induce reliance, that did induce reliance, and that can only be avoided by enforcement; and a written promise can revive a debt barred by the statute of limitations.
Classification of Contracts
| Type | Defining feature | Example |
|---|---|---|
| Bilateral | Promise exchanged for a promise | Vendor promises to deliver copiers; buyer promises to pay |
| Unilateral | Promise exchanged for performance | A $500 reward for the return of a lost file server |
| Express | Terms stated in words, oral or written | A signed engagement agreement |
| Implied in fact | Formed by the parties' conduct | A client hands documents to a process server, who serves them and bills |
| Implied in law (quasi-contract) | Not a contract; an equitable remedy | Emergency aid rendered to an unconscious accident victim |
A quasi-contract (implied-in-law contract) is a remedy courts impose to prevent unjust enrichment, even though no agreement exists. Its elements are (1) the plaintiff conferred a measurable benefit on the defendant, (2) the defendant knew of the benefit, and (3) retention of the benefit without payment would be unjust. Recovery is the reasonable value of the benefit (quantum meruit), not any contract price, and quasi-contract cannot be used to contradict an express contract covering the same subject.
Exam Traps and Paralegal Practice
Expect traps on: advertisements being treated as offers (they generally are not); the mailbox rule being applied to revocations (it applies only to acceptances); and the mirror image rule being applied to goods (UCC 2-207 displaces it). In practice, paralegals check engagement letters and vendor quotes for definiteness, calendar option and acceptance deadlines, and confirm whether a transaction involves goods (UCC) or services and real estate (common law) before deciding which formation rules apply.
A supplier mails a written offer to sell 200 reams of paper to a print shop. The shop mails a properly addressed acceptance on Tuesday. On Wednesday, before the letter arrives, the shop owner phones the supplier and says she has changed her mind. The acceptance letter arrives Thursday. What is the result under the common-law mailbox rule?
A retailer (a merchant) sends a signed purchase order to a wholesaler (also a merchant) for 500 cases of canned goods. The wholesaler promptly returns a signed acknowledgment that accepts the order but adds a term requiring arbitration of disputes. The retailer does not object. Which statement best describes the result under UCC 2-207?