PastPaperHero | Formation of contracts - Mutual assent (including offer and acceptance, and unilateral, bilateral, and implied-in-fact contracts)

Learning Outcomes

This article explains mutual assent in contract formation, including:

Identifying the elements of a valid offer, distinguishing offers from invitations to negotiate or preliminary communications, and spotting UCC versus common-law definiteness issues
Recognizing valid acceptance, including who may accept, required communication, and permissible methods and timing of acceptance under common law and UCC Article 2
Applying the mailbox rule and contrasting it with rules governing revocation, rejection, counteroffers, lapse, death or incapacity, and other termination of the power of acceptance
Distinguishing bilateral from unilateral contracts, determining what words or conduct create each type, and analyzing when beginning performance renders a unilateral offer temporarily irrevocable
Identifying implied-in-fact contracts from parties’ conduct, differentiating them from restitutionary quasi-contract, and predicting which remedy an MBE fact pattern is likely to support
Evaluating fact patterns for ambiguous offers or acceptances, including advertisements, price quotations, reward situations, and silence, and determining whether a contract has actually been formed
Practicing exam-style issue spotting and rule application on mutual assent questions, efficiently organizing IRAC-style answers, and avoiding common MBE traps involving timing and termination of offers

MBE Syllabus

For the MBE, you are required to understand mutual assent in contract formation, with a focus on the following syllabus points:

Offer: objective theory, definiteness, communication, and the power of acceptance
Acceptance: required assent, mirror image rule, UCC battle of the forms, and acceptance by shipment of goods
Methods and timing of acceptance, including the mailbox rule and its exceptions
Termination of the power of acceptance: revocation, indirect revocation, rejection, counteroffer, lapse, and death or incapacity
Irrevocable offers: option contracts, UCC firm offers, reliance, and beginning performance in unilateral contracts
Classification of contracts: unilateral, bilateral, and implied-in-fact

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.

Which of the following is required for a valid offer?
1. A statement of intent to negotiate
2. 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
3. A signed written document
4. An invitation to submit tenders
If an offer is silent as to the method of acceptance, which of the following is generally true?
1. Acceptance must be by return mail
2. Acceptance may be by any reasonable means
3. Acceptance is valid only if made in writing
4. Acceptance must be by performance only
In a unilateral contract, the offeror:
1. Is bound as soon as the offeree promises to perform
2. Is bound only when the offeree completes the requested performance
3. Is never bound
4. Must accept any form of acceptance
An implied-in-fact contract arises when:
1. The parties have a written agreement
2. The parties' conduct demonstrates mutual assent, even if not expressed in words
3. The law imposes a contract to prevent unjust enrichment
4. The parties expressly state all terms

Introduction

Contract formation on the MBE almost always turns on mutual assent and consideration. Mutual assent is the “agreement” piece: one party makes an offer and the other accepts it.

Key Term: Mutual Assent
The objective agreement of the parties, manifested through offer and acceptance, sufficient to create a contract.

Mutual assent is evaluated under the objective theory of contracts: what matters is how a reasonable person would interpret the words and conduct of the parties, not what they secretly intended.

Key Term: Objective Theory of Contracts
The principle that a party’s legal intent is determined by how a reasonable person in the other party’s position would interpret that party’s words and conduct.

Offer: The Starting Point

A valid contract begins with an offer. The offer must create in the offeree a reasonable understanding that they can form a contract simply by saying “yes” (or by performing, if the offer calls for performance).

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.

Key Term: Power of Acceptance
The legal power given to the offeree by an offer, enabling the offeree to form a contract by accepting in the manner invited or required.

Requirements for a Valid Offer

Under common law (services, land, etc.), an offer must:

Show objective intent to be bound if accepted
Contain reasonably certain terms (typically parties, subject matter, price, and quantity)
Be communicated to the offeree and directed to that offeree

Under UCC Article 2 (goods), the law is more flexible:

The only indispensable term is quantity (except in requirements/output contracts, where a formula substitutes for a fixed number)
Price, time, and place can be supplied by gap fillers if the parties intended to make a contract

Common law shorthand for essential terms is often remembered as “Q-TIPS” (Quantity, Time, Identity of parties, Price, Subject matter).

Statements that are not offers include:

Expressions of opinion (“I think this truck is worth about $10,000”)
Vague statements of intention (“I might sell this car for around $5,000”)
Invitations to negotiate (“Are you interested in buying my house?”)
Most advertisements (“TVs from $200”)—they are invitations for offers, unless they are specific as to quantity, price, and who can accept (e.g., “First 5 customers only”).

Price quotations and catalogs are usually treated like advertisements: they invite offers, rather than being offers themselves, unless they are unusually definite as to quantity and other terms.

Common law vs UCC definiteness

At common law, missing price or parties usually means no offer.
Under the UCC, an offer can exist even if price or delivery terms are absent. Courts will supply a reasonable price and reasonable time/place of delivery, as long as quantity is set (or measurable).

Requirements and output contracts are valid under UCC Article 2 even without a fixed number:

Buyer agrees to buy “all the widgets I need this year” from Seller (requirements contract)
Seller agrees to sell “all the widgets I produce this year” to Buyer (output contract)

Good faith limits extreme variations in quantity in these contracts.

Acceptance: Manifesting Assent

Once a valid offer is made, the offeree can accept. Acceptance is an unqualified assent to the terms of the offer, made in a manner invited or required by the offer.

Key Term: Acceptance
A demonstration of assent to the terms of the offer in a manner invited or required by the offer.

Who can accept and with what knowledge

Only the offeree (or an authorized agent) can accept. The offeree must know of the offer when “accepting.” For reward-type offers, a person who performs without knowing of the reward cannot claim it, because there was no assent to the offer.

Methods of Acceptance

The offeror controls the offer and can dictate how acceptance must occur:

If the offer specifies a method, that method (or sometimes an equivalent method) must be used.
If the offer is silent, acceptance may be by any reasonable means under the circumstances (mail, email, phone, conduct, etc.).

Silence is not acceptance, unless:

The offeree takes the benefit of offered services with a reasonable opportunity to reject and reason to know they were offered with expectation of payment; or
Prior dealings or trade usage make it reasonable to treat silence as assent; or
The offeree tells the offeror, “If you do not hear from me, treat that as acceptance.”

Acceptance can be:

Express: “I accept your offer to sell me your car for $5,000.”
By performance: Starting or completing the requested act.
By shipment (UCC): Shipping conforming goods in response to a buyer’s order is an acceptance.

Shipment of Nonconforming Goods

Under UCC Article 2:

Shipment of nonconforming goods without explanation is both an acceptance and a breach.
If the seller clearly indicates the shipment is an accommodation (e.g., “We are out of red jerseys; these blue jerseys are offered as an accommodation”), the shipment is a counteroffer, not an acceptance. The buyer may accept or reject, and there is no breach if the buyer rejects.

The Mirror Image Rule and UCC “Battle of the Forms”

At common law, the mirror image rule applies:

Key Term: Mirror Image Rule
The common law rule that an acceptance must match the terms of the offer exactly; any change or addition is a rejection and counteroffer.

If the offeree adds or changes a material term (e.g., “I accept, provided you include arbitration”), this is a counteroffer, not an acceptance.

Key Term: Counteroffer
A response to an offer that adds new terms or changes the terms of the original offer, thereby rejecting the original offer and creating a new offer.

Under the UCC, however, a “definite and seasonable expression of acceptance” that adds or changes terms is usually still an acceptance, and the extra terms may become part of the contract between merchants (with exceptions for material changes, express limits, or timely objection). This is the so‑called “battle of the forms” (UCC §2‑207), which you should recognize conceptually on the MBE, even if detailed application is less common.

The Mailbox Rule

Key Term: Mailbox Rule
The principle that an acceptance sent by a reasonable means is effective when dispatched, not when received, unless the offer states otherwise.

Default rule (for non-option contracts):

Acceptance by mail or similar medium is effective when sent, if properly addressed and stamped.
Revocations, rejections, and counteroffers are effective upon receipt, not dispatch.

Key exceptions:

If the offer states acceptance is effective only on receipt, that controls.
For option contracts, acceptance is effective when received, not when sent.
If the offeree sends a rejection first and then an acceptance, whichever arrives first controls.
If the offeree sends an acceptance first and then a rejection, the acceptance is effective on sending, unless the offeror detrimentally relies on the rejection that arrives first.

Termination of the Offer

The offeree’s power of acceptance does not last forever. It can be terminated by:

Revocation by the offeror
Rejection or counteroffer by the offeree
Lapse of time
Death or incapacity of either party
Destruction of the subject matter or supervening illegality

Once the power of acceptance is terminated, a subsequent purported “acceptance” is really a new offer.

Revocation

Key Term: Revocation
The withdrawal of an offer by the offeror, effective when communicated to the offeree.

An offeror may revoke any time before acceptance, even if the offer states it will remain open for a set period, unless the offer is irrevocable.

Revocation may be:

Direct: Offeror clearly tells the offeree that the offer is withdrawn.
Indirect: Offeree learns from a reliable third party that the offeror has taken action inconsistent with an intent to contract (e.g., has sold the subject matter to someone else).

Irrevocable Offers

On the MBE, four main doctrines make offers temporarily irrevocable:

Option Contracts (common law)
UCC Firm Offers
Detrimental reliance (promissory estoppel)
Beginning performance in a unilateral contract

Key Term: Option Contract
A separate contract in which the offeree gives consideration in exchange for the offeror’s promise to keep an offer open for a specified time.

At common law, an option requires consideration (even nominal) and makes the offer irrevocable for the option period.

Key Term: Firm Offer
Under UCC §2‑205, a signed, written offer by a merchant to buy or sell goods that gives assurance it will be held open, and is irrevocable for the time stated, or if no time is stated, for a reasonable time, not exceeding three months.

Key points for UCC firm offers:

Offeror must be a merchant.
Offer must be in a signed writing that gives assurance it will remain open.
No consideration is required.
Irrevocability cannot exceed three months, even if the writing states a longer period (though the original offer can continue and be revocable after that).

Reliance can also make an offer irrevocable where:

The offeror should reasonably expect the offeree to rely on the offer;
The offeree does reasonably rely (e.g., a subcontractor’s bid used by a general contractor in compiling a larger bid); and
Injustice can be avoided only by enforcing the offer as irrevocable.

In unilateral contracts, once the offeree begins the requested performance, modern courts treat the offer as irrevocable for a reasonable time to allow completion, even though the contract is not formed until performance is complete.

Rejection, Counteroffer, and Lapse

A rejection by the offeree terminates the offer. A counteroffer is a rejection plus a new offer.

A mere inquiry (“Would you consider lowering the price?”) does not terminate the original offer.
A conditional acceptance (“I accept provided you arbitrate all disputes”) is usually a counteroffer at common law.

Lapse of time occurs:

At the time stated in the offer, or
If no time is stated, after a reasonable time under the circumstances (often very short in volatile markets, longer in others).

Death or incapacity of either party terminates the offer, even if the offeree is unaware. Once a contract is formed, death usually does not discharge the obligations (except for contracts involving personal services).

Types of Contracts: Unilateral, Bilateral, and Implied-in-Fact

Bilateral Contracts

A bilateral contract is formed by an exchange of promises. Either party’s promise can be enforced once the contract forms.

Key Term: Bilateral Contract
A contract in which both parties exchange promises to perform.

Most offers are interpreted as inviting bilateral acceptance unless they clearly require performance only.

Unilateral Contracts

A unilateral contract arises when the offeror requests performance, not a promise, as the mode of acceptance. The offeree accepts only by completing the requested performance.

Key Term: Unilateral Contract
A contract in which the offeror requests acceptance by performance and is bound only when the offeree fully performs.

Modern approach:

If the offer clearly calls for acceptance only by performance (“$500 to anyone who returns my dog”), it is unilateral.
When the offeree begins performance, the offer becomes irrevocable for a reasonable time, but the offeror is not bound (and no contract exists) until performance is completed.

If the offer is ambiguous (“I will pay you $500 to paint my house”), the offeree can accept either by promising to perform (creating a bilateral contract) or by beginning performance (also treated as a bilateral acceptance in most jurisdictions).

Implied-in-Fact Contracts

Key Term: Implied-in-Fact Contract
A contract formed by conduct indicating mutual agreement, rather than by explicit words.

Assent here is inferred from the parties’ actions and the surrounding circumstances. Typical examples:

Receiving professional services in circumstances where payment is expected (medical treatment, haircuts, car repairs)
Regular course of dealing between parties that reflects a pattern of agreement

Contrast this with quasi-contract (implied-in-law), which is not based on assent at all but on preventing unjust enrichment; that doctrine belongs more to restitution than to mutual assent.

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 by a reasonable method (mail). C’s revocation was not effective until received, so the contract was formed before the revocation took effect.

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.

Worked Example 1.4

A store advertises in a newspaper: “Brand‑new laptops, $400 each, while supplies last.” B rushes in and demands a laptop at$ 400, but the store refuses to sell. Is the advertisement an offer?

Answer:
No. This is a general advertisement, which is usually treated as an invitation for offers, not as an offer. It is not clear who may accept, and nothing indicates the store intended to be bound to every reader who shows up.

Worked Example 1.5

A contractor receives a written, signed offer from a steel supplier (a merchant): “We will sell you up to 100 tons of steel at $700 per ton. This offer will remain open for 60 days.” Ten days later, before the contractor accepts, the supplier tries to revoke. Is the revocation effective?

Answer:
No. This is a UCC firm offer: a merchant’s signed writing giving assurance that the offer will be held open. It is irrevocable for the stated period (60 days), which is less than three months, even though the contractor gave no consideration.

Worked Example 1.6

Landlord sends Tenant an offer: “I will rent you my apartment for $1,500 per month for one year. Please accept by signing and returning the attached lease.” Tenant begins moving furniture into the apartment without signing or returning the lease. Has Tenant accepted?

Answer:
Probably not. The offer specifically invited acceptance by signing and returning the lease, indicating that this method was required. Tenant’s conduct is not the mode of acceptance invited. Landlord may treat Tenant’s conduct as a counteroffer to rent on those terms, but the original offer has not been accepted in the manner specified.

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 (“Could you do $4,500 instead?”) do not terminate the offer if they do not clearly propose different terms.

Also watch for the mirror image rule at common law: any change in terms in an apparent acceptance usually creates a counteroffer, not a contract.

Revision Tip

Always check systematically for offer, acceptance, and consideration. Then ask:

Has the power of acceptance been terminated?

Is there any doctrine making the offer irrevocable (option, firm offer, reliance, unilateral performance)?

Is the timing governed by the mailbox rule or an exception?

If any element of mutual assent is missing, there is no contract, though restitution may still be available in appropriate cases.

Key Point Checklist

This article has covered the following key knowledge points:

Mutual assent is evaluated objectively and requires an offer plus acceptance
A valid offer must show intent to be bound and have reasonably definite terms; UCC and common law differ on required definiteness
The offer creates a power of acceptance in the offeree; only the offeree with knowledge of the offer can accept
Acceptance must be communicated in the manner invited or required by the offer; silence is rarely acceptance
The mailbox rule generally makes acceptance effective upon dispatch, subject to important exceptions
Offers can be terminated by revocation (direct or indirect), rejection, counteroffer, lapse, death, incapacity, destruction of subject matter, or supervening illegality
Certain offers are irrevocable: option contracts, UCC firm offers, offers reasonably relied upon, and unilateral offers once performance begins
At common law, the mirror image rule governs; under the UCC, additional terms in an acceptance may still form a contract
Bilateral contracts are formed by mutual promises; unilateral contracts by performance, with special rules when performance begins
Implied-in-fact contracts arise from conduct showing agreement, and should be distinguished from restitutionary quasi-contract

Key Terms and Concepts

Mutual Assent
Objective Theory of Contracts
Offer
Power of Acceptance
Acceptance
Mailbox Rule
Revocation
Option Contract
Firm Offer
Counteroffer
Mirror Image Rule
Bilateral Contract
Unilateral Contract
Implied-in-Fact Contract

Formation of contracts - Mutual assent (including offer and ...