Learning Outcomes
After reading this article, you will be able to identify and apply the requirements for mutual assent in contract formation. You will distinguish between offers and invitations to treat, recognize valid acceptance, and differentiate unilateral, bilateral, and implied-in-fact contracts. You will be equipped to answer MBE questions on these core principles.
MBE Syllabus
For MBE, you are required to understand the principles governing the formation of contracts through mutual assent. This includes the rules for offers, acceptance, and the classification of contracts by the manner of assent. You should be able to:
- Recognize the requirements for a valid offer and distinguish it from preliminary negotiations.
- Identify valid acceptance and the rules governing communication of acceptance.
- Distinguish between unilateral and bilateral contracts.
- Understand the concept and enforceability of implied-in-fact contracts.
- Apply the mailbox rule and rules for revocation, rejection, and lapse of offers.
- Analyze fact patterns for mutual assent and contract formation.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which of the following is required for a valid offer?
- A statement of intent to negotiate
- A demonstration of willingness to enter into a bargain, so made as to justify another in understanding that assent is invited and will conclude the bargain
- A signed written document
- An invitation to submit tenders
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If an offer is silent as to the method of acceptance, which of the following is generally true?
- Acceptance must be by return mail
- Acceptance may be by any reasonable means
- Acceptance is valid only if made in writing
- Acceptance must be by performance only
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In a unilateral contract, the offeror:
- Is bound as soon as the offeree promises to perform
- Is bound only when the offeree completes the requested performance
- Is never bound
- Must accept any form of acceptance
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An implied-in-fact contract arises when:
- The parties have a written agreement
- The parties' conduct demonstrates mutual assent, even if not expressed in words
- The law imposes a contract to prevent unjust enrichment
- The parties expressly state all terms
Introduction
A contract requires a meeting of the minds—mutual assent—between parties. This is achieved through an offer by one party and acceptance by another. The law distinguishes between different types of contracts based on how assent is manifested and how obligations arise. Understanding these distinctions is essential for MBE success.
Offer: The Starting Point
A valid contract begins with an offer. The offer must show a clear intention to be bound upon acceptance and must be communicated to the offeree. Not every statement or negotiation is an offer.
Key Term: Offer A demonstration of willingness to enter into a bargain, so made as to justify another in understanding that assent is invited and will conclude the bargain.
Requirements for a Valid Offer
- The offeror must intend to be bound if the offer is accepted.
- The terms must be reasonably certain (especially as to parties, subject matter, and quantity).
- The offer must be communicated to the offeree.
Statements of opinion, price quotes, and invitations to negotiate are not offers. Advertisements are generally not offers unless they are clear, definite, and leave nothing open for negotiation.
Acceptance: Manifesting Assent
Acceptance is the offeree's unqualified agreement to the terms of the offer. Acceptance must be communicated to the offeror, unless the offer dispenses with this requirement or acceptance is by conduct.
Key Term: Acceptance A demonstration of assent to the terms of the offer in a manner invited or required by the offer.
Methods of Acceptance
- If the offer specifies a method, that method must be used.
- If silent, acceptance may be by any reasonable means (including words, writing, or conduct).
- Silence is not acceptance unless the parties have a prior course of dealing or the offeree takes the benefit of offered services with a reasonable opportunity to reject them.
The Mailbox Rule
Acceptance by mail or similar means is effective upon dispatch, unless the offer provides otherwise or the offeree sends a rejection first.
Key Term: Mailbox Rule The principle that an acceptance is effective when sent, not when received, unless the offer states otherwise.
Termination of the Offer
An offer may be terminated before acceptance by:
- Revocation by the offeror (unless the offer is irrevocable)
- Rejection or counteroffer by the offeree
- Lapse of time
- Death or incapacity of either party
Revocation
An offeror may revoke an offer at any time before acceptance, unless the offer is supported by consideration (option contract) or is a firm offer under the UCC.
Key Term: Revocation The withdrawal of an offer by the offeror, effective when communicated to the offeree.
Types of Contracts: Unilateral, Bilateral, and Implied-in-Fact
Bilateral Contracts
A bilateral contract is formed by the exchange of mutual promises. Each party is both a promisor and a promisee.
Key Term: Bilateral Contract A contract in which both parties exchange promises to perform.
Unilateral Contracts
A unilateral contract arises when the offeror requests performance, not a promise, as acceptance. The offeror is bound only when the offeree completes the requested act.
Key Term: Unilateral Contract A contract in which the offeror requests acceptance by performance, and is bound only when the offeree fully performs.
Implied-in-Fact Contracts
An implied-in-fact contract is formed by the conduct of the parties, showing mutual assent even if not expressed in words.
Key Term: Implied-in-Fact Contract A contract formed by conduct indicating mutual agreement, rather than by explicit words.
Worked Example 1.1
A posts a sign: "Reward: $500 for returning my lost dog." B finds and returns the dog, knowing of the reward. Is A bound to pay B?
Answer: Yes. This is a unilateral contract. A's offer was for acceptance by performance. B accepted by returning the dog with knowledge of the offer, so A must pay.
Worked Example 1.2
C emails D: "I will sell you my car for $5,000. Let me know by Friday." D mails an acceptance on Thursday, but C revokes the offer by phone before receiving D's letter. Is there a contract?
Answer: Yes. Under the mailbox rule, D's acceptance was effective when sent. C's revocation was not effective until received, so the contract was formed.
Worked Example 1.3
E sits in a barber's chair and receives a haircut without discussing price. Is there a contract?
Answer: Yes. This is an implied-in-fact contract. E's conduct (sitting for a haircut) and the barber's conduct (providing the service) show mutual assent to pay a reasonable price.
Exam Warning
Be careful: A counteroffer is a rejection of the original offer and terminates the offeree's power of acceptance. Mere inquiries or requests for clarification do not terminate the offer.
Revision Tip
Always check whether the facts show an offer, acceptance, and consideration. If any element is missing, there is no contract.
Key Point Checklist
This article has covered the following key knowledge points:
- Mutual assent requires an offer and acceptance.
- A valid offer must show intent to be bound and have definite terms.
- Acceptance must be communicated, unless waived or by conduct.
- The mailbox rule makes acceptance effective upon dispatch.
- Offers can be terminated by revocation, rejection, lapse, or death.
- Bilateral contracts are formed by mutual promises; unilateral contracts by performance.
- Implied-in-fact contracts arise from conduct showing agreement.
Key Terms and Concepts
- Offer
- Acceptance
- Mailbox Rule
- Revocation
- Bilateral Contract
- Unilateral Contract
- Implied-in-Fact Contract
