Module 1: Contract Formation

Not every contract works the same way, and the labels matter:

• Bilateral vs. unilateral — most contracts are bilateral: both sides exchange promises. A unilateral contract is only accepted by actually performing the requested act, not by promising to — the classic example is a reward offer, accepted only by finding the lost item, not by saying you’ll try.
• Express vs. implied-in-fact — an express contract states its terms outright, in words. An implied-in-fact contract has no spoken terms, but the parties’ conduct and the circumstances show a real, mutually intended agreement all the same.
• Implied-in-law (quasi-contract) — not a real contract at all. It’s a legal fiction courts impose to prevent unjust enrichment even without any actual mutual assent — for example, a surgeon who treats an unconscious accident victim can recover the reasonable value of that care.
• Void vs. voidable vs. unenforceable — a void contract has no legal effect at all (a contract to commit a crime, for instance). A voidable contract is valid unless and until the disadvantaged party elects to avoid it (a minor’s contract, or one induced by fraud). An unenforceable contract is otherwise valid, but a defense like the Statute of Frauds blocks a court from enforcing it.

Example. Peter posts a sign: “$50 reward for my lost cat, Whiskers.” John finds and returns Whiskers — that’s a unilateral contract, accepted only by John’s actual act of returning the cat, not by John calling ahead to say he’ll look. Separately, Peter and a landscaper sign a written agreement to mow his lawn weekly for $40 — an ordinary bilateral, express contract, both sides having exchanged actual promises in words. And if Peter, unconscious after a fall, is treated by a doctor who happens to be passing by, the doctor can recover the reasonable value of that care under quasi-contract — even though unconscious Peter never agreed to anything at all.

Quasi-contract is really a remedy in disguise, not a contract at all — courts call it unjust enrichment, and the Restatement (Second) of Contracts § 86 captures the underlying idea: the law will sometimes act as if a promise existed, purely to prevent one party from keeping a benefit it would be unfair to retain without paying for it. This is why the passing-doctor example works even though nothing resembling an offer or acceptance ever happened — quasi-contract doesn’t need one.

Only parties with legal capacity can be bound by a contract. The main categories where capacity is in question:

• Minors — a minor’s contract is generally voidable at the minor’s own election, with some exceptions (like contracts for necessaries).
• Mental incapacity — a party who can’t understand the nature or consequences of the transaction due to a mental illness or defect can void the contract.
• Intoxication — only grounds to void the contract if the other party knew or had reason to know of the intoxication, and it was severe enough to prevent real understanding.

Example. Peter, age 15, buys a used bicycle from John for $200 and signs a written agreement. Because Peter is a minor, the contract is voidable at Peter’s own election — Peter can choose to disaffirm it and get his money back, even though John, an adult, cannot back out on his own. If Peter instead were an adult who’d just had several drinks at a party, the contract would only be voidable if John actually knew (or clearly should have known) how impaired Peter was — a stranger simply guessing isn’t enough on its own.

In every case, the consequence is the same: incapacity generally makes a contract voidable, not automatically void — the incapacitated party can choose to affirm it or disaffirm it.

“Meeting of the minds” is the classic name for mutual assent — the offer-and-acceptance requirement working together to show both parties actually agreed. Modern courts don’t look for literal shared subjective intent, though; they apply the objective theory of contracts, asking what a reasonable person would understand from each party’s outward words and conduct. What a party secretly meant, if it wasn’t communicated, generally doesn’t matter. The next two sections — Offer and Acceptance — are exactly how that objective mutual assent actually gets tested.

Example. Peter tells John, “I’ll sell you my car for $8,000,” secretly meaning his old, rarely-driven sedan sitting in the garage. John reasonably understands Peter to mean the newer car Peter has been driving to work every day all month — it’s the only car John has ever actually seen Peter with. A court applying the objective theory would likely hold Peter to selling the newer car, because that’s what a reasonable person in John’s position would have understood from Peter’s words and conduct — Peter’s private, uncommunicated intention doesn’t control.

The classic illustration of the objective theory taken to its limit is Lucy v. Zehmer (1954): Zehmer, after drinking with a friend, wrote up and signed an agreement to sell his farm for $50,000, later insisting the whole thing was a joke he never meant seriously. The court held it didn’t matter — Zehmer’s words and conduct (a signed, detailed writing, negotiated over nearly forty minutes) would lead any reasonable person to believe a genuine deal had been struck. A secret, uncommunicated intent not to be bound is simply not a defense once the outward conduct looks like a real agreement.

Consideration is the third essential ingredient alongside offer and acceptance — a bargained-for exchange of legal value between the parties. Each side has to actually give up something (a promise, an act, or a forbearance) in exchange for the other side’s promise, not just receive a gift.

Courts generally don’t weigh whether the exchange was a good deal — that’s the difference between adequacy of consideration (how fair the trade was, which courts almost never police) and sufficiency of consideration (whether something of legal value was exchanged at all, which courts do require). Hamer v. Sidway (1891) shows how far “legal value” reaches: an uncle promised his nephew $5,000 if the nephew gave up drinking, using tobacco, swearing, and gambling until age 21. The nephew’s forbearance from things he was otherwise legally entitled to do counted as real consideration — he gave up a genuine legal right, even though the uncle received no direct economic benefit from it at all.

Example. Peter promises to give John his old guitar as a birthday gift, with nothing expected in return — that’s not a contract at all, just an unenforceable gift promise, since John gives up nothing in exchange. Compare that to Peter promising John $500 if John repaints Peter’s fence — John’s promise (or performance) of the paint job is real consideration, bargained for in exchange for Peter’s $500, making this an enforceable contract.

An offer is a manifestation of willingness to enter a bargain, made so as to justify another person in understanding that their assent will conclude the deal. For an offer to be valid, three things generally need to be true:

• Intent to be bound — objectively, a reasonable person would read the statement as showing willingness to be bound, not just an invitation to negotiate. This is why most advertisements and price quotes are not offers.
• Definite, certain terms — a court needs to be able to tell what was actually promised, usually at least the subject matter and quantity.
• Communicated to the offeree — actually conveyed to the specific person meant to be able to accept it.

An offer can end before it’s accepted too: the offeror can revoke it (as long as the revocation reaches the offeree before acceptance), the offeree can reject it, it can lapse after a stated or reasonable time, or it can terminate automatically if either party dies or the subject matter is destroyed.

Example. John tells Peter, “I will sell you my laptop for $300 if you let me know by Friday.” This is a valid offer — it shows intent to be bound, states definite terms (the laptop, $300), and is communicated directly to Peter. Compare that to a flyer John posts reading “Laptops for sale, prices vary, call for details” — that’s not an offer, just an invitation for people to inquire; nobody could “accept” the flyer itself and force John to sell at a price he never actually named.

Acceptance is the offeree’s manifestation of assent to the offer’s terms, given in the manner the offer invites. At common law, acceptance must “mirror” the offer exactly — this is the mirror image rule. Add or change anything, and the reply technically becomes a counter-offer instead of an acceptance.

Timing matters enormously here, which is where the Mailbox Rule comes in: once dispatched, an acceptance is effective immediately — even before the offeror actually receives it. A revocation, by contrast, is only effective once received by the offeree. This asymmetry protects an offeree who has already relied on having accepted, while requiring an offeror to clearly communicate a change of mind before anyone acts on the old offer.

Example. John mails Peter a letter accepting Peter’s offer on Monday. On Tuesday, before receiving John’s letter, Peter mails his own letter trying to revoke the offer. Because John’s acceptance was effective the instant he mailed it (Monday), a contract already existed by the time Peter’s revocation went out — Peter’s attempt came too late, even though his letter might physically reach John before John’s letter reaches Peter. The moment of mailing the acceptance is what counts, not who checks their mailbox first.

Certain categories of contracts must be evidenced by a signed writing to be enforceable — the classic list includes contracts that can’t be performed within one year, contracts for an interest in land, and — importantly for a sales-focused module — contracts for the sale of goods priced at $500 or more under UCC § 2-201.

Failing to satisfy the Statute of Frauds doesn’t mean no agreement was reached — it means a court generally won’t enforce the oral promise if it’s challenged. Real exceptions exist, though: most notably, part performance (for example, payment plus delivery) can take a deal outside the writing requirement entirely, because the parties’ own conduct provides the reliable evidence the writing requirement exists to substitute for.

Example. Peter agrees, on a handshake, to buy John’s car for $700 — nothing in writing. Because the price is over $500, this deal falls under the Statute of Frauds, and if John simply refuses to hand over the car, Peter likely can’t force the sale without a signed writing. But if Peter had already paid the $700 and John had already handed Peter the keys, that part performance would probably take the deal outside the writing requirement — their own conduct becomes the proof a writing would otherwise have provided.

Modern commerce runs on mismatched paperwork — purchase orders, invoices, and acknowledgment forms that rarely say exactly the same thing. Under the strict mirror image rule, nearly every one of these mismatches would become an endless chain of counter-offers, which doesn’t reflect how merchants actually do business.

UCC § 2-207 fixes this: between merchants, a reply that adds new terms can still operate as an acceptance, forming a contract on the original terms. The added term becomes part of the deal too — unless it’s a material alteration, the original offer expressly limited acceptance to its own terms, or the offeror objects within a reasonable time. Courts widely treat things like mandatory arbitration or forum-selection clauses as material alterations, since they change how a dispute would actually be resolved.

Example. Peter’s company sends John’s company a purchase order for 1,000 steel bolts. John’s company ships the bolts and sends back an acknowledgment form that repeats the price and quantity but adds a line: “All disputes resolved by binding arbitration in Delaware.” Under the mirror image rule, that added line would make John’s reply a counter-offer, not an acceptance. But because Peter and John are both merchants, § 2-207 treats John’s form as a valid acceptance — a contract exists on the purchase order’s terms — while the arbitration clause, a material alteration, doesn’t automatically become part of the deal unless Peter separately agrees to it.

Even a contract with a valid offer, acceptance, and consideration can still fail to be enforced if the way it was formed was tainted. Five grounds do most of the real work:

• Duress — one party was coerced into agreeing through an improper threat (physical force, or an improper economic threat).
• Undue influence — unfair persuasion by a party in a position of trust or dominance over the other.
• Fraud — a material misrepresentation, known to be false, made to induce the agreement.
• Mistake — a shared, material misunderstanding about a basic fact of the deal (a mutual mistake); a mistake by only one party is much harder to use as a defense.
• Unconscionability — terms so one-sided, or a bargaining process so unfair, that enforcement would offend the court.

Williams v. Walker-Thomas Furniture Co. (1965) is the case most courses reach for on unconscionability: a furniture store’s installment contracts kept every prior purchase as collateral for every new one, so a single missed payment on a small new item could let the store repossess everything the customer had ever bought from it, no matter how much was already paid off. The court sent the case back to weigh both procedural unconscionability (how the term was foisted on a customer with little bargaining power or understanding) and substantive unconscionability (how one-sided the actual term was) — the two-part framework still used today.

Example. John, desperate to get his car fixed the night before an important trip, agrees to pay a mechanic triple the normal rate after the mechanic refuses to release the car otherwise — that’s economic duress. Separately, Peter sells John a painting, both genuinely believing it’s a worthless reproduction, when it’s actually a valuable original — that shared, basic misunderstanding is a mutual mistake that can let the deal be undone, very differently from the duress scenario even though both are defenses to formation.