Start Here: 5 Things You MUST Know
An offer needs 3 things: Intent + Definite Terms + Communication
The Mailbox Rule: acceptance effective when SENT, revocation effective when RECEIVED
A counteroffer kills the original offer AND creates a new one
Minor's contracts are voidable. Court-adjudged insane = void
Unlicensed insurers cannot avoid their own contracts — policies are enforceable against them
1. The Offer
Offer
A promise that requires some action by the intended recipient to make an agreement. It is the first step in forming a contract.
Three Requirements of a Valid Offer
Intent to Contract
Courts use the objective test: Would a reasonable person believe this was a serious offer? Secret intentions do not matter.
Definite Terms
Terms must be reasonably certain so a court can determine what was agreed and provide a remedy if breached.
Communication
The offer must be communicated to the offeree. You cannot accept an offer you do not know about.
NOT Offers
Jokes, opinions, statements in anger or excitement, preliminary negotiations, and advertisements (generally). Ads are invitations to negotiate, not offers — the store invites you to come make an offer.
Exception: An ad CAN be an offer if it is very specific and leaves nothing to negotiate. Example: "First person at our store Saturday 9am gets this fur coat for $1."
Five Ways an Offer Ends (LORCE)
Lapse of Time
Offer expires when the deadline passes, or after a "reasonable time" if no deadline is set.
Operation of Law
Automatic termination: subject matter destroyed, a party dies or becomes insane, or a new law makes the contract illegal.
Rejection by Offeree
Once the offeree says "no," the offer is dead. Cannot come back later to accept.
Counteroffers
A counteroffer simultaneously REJECTS the original AND creates a new offer.
Revocation by Offeror
The offeror can take back the offer at any time BEFORE acceptance. Exception: option contracts.
Option Contract
An agreement to keep an offer open for a stated period, supported by consideration (the offeree pays something). Once you have an option contract, the offeror CANNOT revoke during the option period.
Real-World Scenario: Option Contract
The Setup: A property owner wants to buy the vacant lot next door for $200,000 to expand parking.
What Happens: She pays $5,000 for a 90-day option — the lot owner promises to keep the offer open. On day 45, someone else offers $250,000.
The Result: Too bad for the lot owner. The option contract is binding — the $200,000 offer CANNOT be revoked during the 90 days. The $5,000 consideration makes this enforceable.
2. Acceptance
Acceptance
The second step of an agreement. Occurs when the offeree agrees to the proposal or does what the offeror proposed.
Three Requirements of Valid Acceptance
By the Offeree
Only the person the offer was made to can accept. No one else.
Unconditional
Must be a clear "yes" matching the offer exactly (mirror image rule). Adding conditions = counteroffer.
Communicated
Must be communicated by appropriate word or act. Silence is NOT acceptance.
The Mailbox Rule (Heavily Tested)
ACCEPTANCE
Effective when SENT (dropped in the mailbox)
REVOCATION
Effective when RECEIVED (not when sent)
Real-World Scenario: Mailbox Rule
The Setup: Daniel mails a signed purchase contract to Patricia for real estate. Patricia receives it Jan 15, signs it, and mails it back.
What Happens: Later that same day (Jan 15), Patricia calls Daniel to say she changed her mind. Daniel receives the signed contract Jan 17.
The Result: Too late for Patricia. Her acceptance became effective the moment she mailed it on Jan 15. The phone call came after acceptance was already effective. Binding contract.
UCC Exception: Battle of the Forms (UCC 2-207)
Under common law, acceptance must mirror the offer exactly. Under UCC 2-207 (for sales of goods), an acceptance with additional or different terms can STILL be valid. Between merchants, extra terms become part of the contract unless they materially alter it, the offer limits acceptance, or the offeror objects promptly.
Real-World Scenario: Battle of the Forms
The Setup: An insurer orders 500 office chairs. Purchase order says "Payment in 30 days."
What Happens: Supplier's confirmation says "Payment in 15 days" and adds "All disputes subject to arbitration in Chicago."
The Result: Under common law = counteroffer (no contract yet). Under UCC 2-207 = valid acceptance, contract exists. The arbitration clause likely materially alters the deal and would NOT automatically become part of it.
Silence is NOT Acceptance
An offeror CANNOT force someone into a contract by saying "If I don't hear from you, I assume you accept." The offeree's silence does not create a contract.
Forbearance
Giving up (or promising to give up) a legal right. Can serve as consideration or as a form of acceptance in some contracts.
3. Capacity to Contract
Capacity to contract is a legal qualification that determines one's ability to enter an enforceable contract. A competent party has the minimal mental ability to understand problems and make decisions.
Minors
Voidable
Insane
Void or Voidable
Intoxicated
Voidable
Corporations
Ultra vires
A. Minors' Contracts
Minor's contracts are voidable (not void) — the minor can choose to honor OR disaffirm the contract.
- Disaffirmance: Minor can cancel at any time during minority or within a reasonable time after reaching majority age
- Ratification: After reaching majority, the former minor can confirm the contract, making it fully binding
- Necessaries exception: Even if a minor disaffirms, they must pay the reasonable value of necessaries received (food, clothing, shelter, medical care)
Parents' Liability for Minor's Contracts
Parents are generally NOT liable UNLESS:
- A parent cosigned the contract
- The child acted on the parent's behalf or at parent's direction
- The parent neglected or refused to pay for necessaries
B. Insane Persons' Contracts
Court-Adjudged Insane = VOID
If a court has declared the person insane, any contract they enter is void (never a contract). Exception: necessaries.
Claims Insanity (No Court Ruling) = VOIDABLE
If the person claims insanity but has NOT been adjudged by a court, the contract is voidable under certain conditions.
C. Intoxicated Persons' Contracts
An intoxicated person can avoid a contract if they did not know a contract was being formed OR did not understand the legal consequences. The intoxication must be severe — mere impairment of judgment is NOT enough.
Real-World Scenario: Intoxication
The Setup: Dave goes to a bar and gets extremely drunk. A car salesman gets him to sign a purchase agreement for a $50,000 car.
What Happens: Next morning, Dave has no memory of signing anything.
The Result: Dave can likely avoid the contract — he was so intoxicated he did not understand what was happening. But if he had only a couple of drinks and was just "feeling good," the contract stands.
D. Corporations
Corporations have capacity to contract, but it is limited by their charter (articles of incorporation) and state laws. Acting beyond the charter is ultra vires (beyond its powers), which may affect enforceability.
E. Insurance Contracts — Special Capacity Rules
Insurer's Capacity
Must be licensed. But policies sold by unlicensed insurers are still enforceable against the insurer. The insurer cannot use its own failure to get licensed as a defense.
Producer's Capacity
Must be licensed and authorized to bind coverage. Authority can be actual (explicitly granted), implied (reasonably necessary), or apparent (insurer's actions created belief).
Insured's Capacity
Same rules as other contracts. Most states allow minors above a certain age (often 14-15) to enter insurance contracts that cannot be disaffirmed.
Quick Reference: Key Numbers
4
Elements of a contract
3
Offer requirements
3
Acceptance requirements
5
Ways offer terminates
4
Incompetent party types
Cheat Sheet
Print this page for quick referenceOffer (3 Elements)
- Intent (objective test) + Definite Terms + Communication
- Ads = NOT offers (unless ultra-specific)
- Terminates by: LORCE
Acceptance (3 Elements)
- By offeree + Unconditional + Communicated
- Mailbox rule: effective when SENT
- Silence is NEVER acceptance
Capacity Rules
- Minors = voidable (necessaries owed at reasonable value)
- Court-adjudged insane = VOID
- Claims insane (no ruling) = VOIDABLE
- Intoxicated = voidable if truly incapacitated
Insurance Special Rules
- Unlicensed insurer CANNOT avoid its contracts
- Producer authority: actual, implied, or apparent
- Minors age 14-15+ can buy insurance (cannot disaffirm)
Exam Trap Alerts
1. The Mailbox Rule Asymmetry
Acceptance = effective when SENT. Revocation = effective when RECEIVED. This asymmetry is a favorite exam question. If acceptance is mailed before revocation is received, the contract is formed.
2. Counteroffers Kill the Original
A counteroffer = REJECTION of the original + creation of a NEW offer. Once you counteroffer, you CANNOT go back and accept the original. The original is dead.
3. Advertisements Are NOT Offers
General ads are invitations to negotiate. Only ultra-specific ads ("first person, this item, this price") qualify as offers.
4. Silence is NOT Acceptance
An offeror CANNOT impose a duty to respond. "If I don't hear from you, deal's on" does NOT create a contract.
5. Unlicensed Insurer Rule
An unlicensed insurer CANNOT avoid its contracts. Policies are enforceable against the insurer. The insurer suffers the consequences, not the policyholder.
6. Insanity — Court-Adjudged vs. Claimed
Court-adjudged insane = VOID. Claims insanity without court ruling = VOIDABLE. The distinction matters hugely on the exam.
7. Minors and Necessaries
Minors CAN disaffirm non-necessaries. But they owe reasonable value (not contract price) for necessaries received. Parents are NOT automatically liable.
8. Common Law vs. UCC Acceptance
Common law = mirror image rule (acceptance must match exactly). UCC 2-207 = acceptance with different terms can still be valid for goods. Know which applies.
Quick Reference Summary
Offer
Intent + Definite Terms + Communication. Dies by LORCE.
Acceptance
By offeree + Unconditional + Communicated. Mailbox: effective when sent.
Option Contract
Keeps offer open for stated period. Requires consideration. Cannot revoke.
Minors
Voidable. Necessaries at reasonable value. Parents not auto-liable.
Insanity
Court-adjudged = void. Claimed only = voidable.
Unlicensed Insurer
Cannot avoid own contracts. Policies enforceable against them.