Definition

The requirements for a valid contract are:

• offer, and an acceptance of that offer;
• consideration or a substitute;
• Legal capacity of the parties; and
• a legal object.

Offers

A communication is an offer for a bilateral contract if it sets forth a proposed exchange of promises in such a manner that the person to whom it is directed reasonably believes that he can enter into a binding contract by accepting those terms.

The person selling goods at auction is not bound by the highest bid unless he advertises the auction as "without reserve," in which case placing the goods at auction is making an offer to the highest bidder.

Acceptance

At common law, an offer can only be accepted by the offeree agreeing, before the offer is revoked, to all of its terms in the time and manner specified by the offeror (or in a reasonable time and in a reasonable manner, if the offeror did not specify the manner of acceptance).

The offeree must know of the offer in order to accept. Thus, when offers cross in the mail, there is no contract. 

Unless the offeror specifically states that his offer may be accepted by silence or the course of dealings between the parties indicates that the offer will be accepted if the offeree does nothing, silence will not operate as an acceptance.

Acceptance must be on the same terms as the offer.  Any changes, additions, or subtractions from the terms of the offer operate to make the attempted acceptance a "counteroffer" which, in legal terms, is a rejection of the offer and the making of a new offer by the offeree.

Under the UCC, a valid contract is formed if the offeree accepts the offer, even if he proposes different or additional terms.  Between merchants, the different or additional terms become part of the contract if they do not materially alter the offer and the offeror does not object.

Under the UCC, a seller can accept an offer either by a promise to sell the goods requested by the buyer or by shipping conforming goods in accordance with the offer.

Revocation of Offers

At common law, an offer is generally revocable even if the offer says it will remain open for a specified time. 

At common law, an offer is irrevocable for the time specified only if an option contract is formed, i.e., if the offeree has given consideration to the offeror in exchange for the offeror's agreement to keep the offer open.

Under the UCC, a "firm offer" cannot be revoked before the expiration date.  Such a "firm offer" can only be made by a merchant, must state in writing that the offer is irrevocable until a date certain, and cannot remain irrevocable for more than three months.

An offer for a unilateral contract is irrevocable by the offeror if the offeree has, with the knowledge of the offeror, started substantial performance.

An offer is revoked if the notice of revocation is communicated to the offeree in any manner before the offer is accepted.  The notice of revocation can be any communication which fairly indicates to the offeree that the offeror has withdrawn the offer.

In a real estate brokerage transaction where the owner makes an offer for a unilateral contract which the broker accepts by producing a buyer ready, willing and able to buy at the listing price, the offer is automatically revoked by the seller's acceptance of an offer to purchase the property from a buyer not produced by the broker.

An offer for a contract which would fall within the statute of frauds can be revoked orally.

If the offeror dies before the offer is accepted, it is revoked.  However, if the offer is accepted, then death does not terminate the obligations of the contract.

Rejection

If the offeree rejects an offer or makes a counter-offer, the original offer is terminated and cannot thereafter be accepted, even if the time for expiration of the offer has not yet occurred.

If the offeror has made an offer which he permits to be accepted in part, acceptance of part can be considered a rejection of the remainder.

An inquiry in response to an offer ("Would you consider a lesser price?") is not a rejection.

Counteroffers

Acceptance must be on the same terms as the offer.  Any changes, additions, or subtractions from the terms of the offer operate to make the attempted acceptance a "counteroffer" which, in legal terms, is a rejection of the offer and the making of a new offer by the offeree.

Suggestions or inquiries in a response by the offeree do not amount to a counteroffer.

If the acceptance simply spells out the details of the transaction, this does not make it a counteroffer.

When the contract is for the sale of goods, UCC (§2-207), provides that a response by the offeree that purports to be an acceptance operates as an acceptance even though it changes, adds to, or subtracts from the terms of the offer.  Cases, however, have held that a material change in the terms will prevent the formation of a contract under the Code provision.

Mistake, Fraud, and Duress

A contract can be avoided on the grounds of unilateral mistake if the mistake was so obvious that the offeree should have known of the mistake at the time he accepted the offer.

If each of the parties innocently has a different understanding of the meaning of the words of the agreement, then there is no contract because there is no “meeting of the minds.”

A party has the right to rescind a contract if it was entered into in reliance on an untrue material fact.

Indefiniteness and Absence of Terms

If the price term is missing in a UCC transaction, there is a contract at a reasonable price.

Capacity to Contract

A minor can disaffirm a contract, even one that has been completed, within a reasonable time of reaching the age of majority.

Implied-in-Fact Contracts; Quasi Contracts

If a person accepts services from someone in the business of providing those services, there is an implied-in-fact contract to pay for the reasonable value of those services.

If necessary services are rendered to a person at a time when he lacks the mental capacity to request such services, (e.g., he is unconscious at the time medical services are rendered), there is an implied-in-law contract to pay for them.

A quasi contract exists when there is no enforceable contractual relationship between the parties, but one party has conferred a benefit on the other not intended to be gratuitous.  The party conferring the benefit is entitled to collect the fair value of the services rendered.

A party does not have the right to sue in quantum meruit for a benefit conferred if there is an enforceable right to sue under a contract.