A retailer emails a supplier: "We'd like 500 units at $20 each." The supplier ships a different model. Whether there is a contract turns on five elements, one mnemonic, and whether the deal involves goods or services.
Contract law decides when a court will enforce a private promise. The five elements below are the gatekeepers, miss any one and the deal is not a contract.
An offer must have definite terms and be communicated to the offeree. Definite means a court can identify the parties, subject matter, quantity, and price. Under the UCC, missing terms can be filled with reasonable defaults, but quantity must be stated.
KEY: Advertisements are generally invitations to deal, not offers. Exception: specific, limited offers ("first 10 customers, $500 off") can be real offers because they pin down quantity and terms.
An offer terminates by revocation, rejection, counteroffer, lapse of time, death or incapacity of the offeror, or destruction of the subject matter.
TRAP: An offer is revocable any time before acceptance, even if the offeror promised to keep it open.
Common mistakes
- Applying the mirror image rule to a UCC contract. Under common law any change is a counteroffer; under UCC 2-207, additional terms between merchants may enter the contract. Trap: "no contract because acceptance did not match" on a goods transaction.
- Treating a "lifetime" contract as subject to the statute of frauds. The one-year test asks whether performance is possible within one year. A lifetime contract could end in one year by death, so it falls outside MYLEGS. Trap: "unenforceable for lack of a writing."
- Forgetting that promises to keep an offer open need consideration. "Irrevocable for 30 days" alone is not binding. You need consideration (option contract) or a merchant's signed writing (UCC 2-205, capped at 3 months). Trap: "the offer is irrevocable as stated."
Bottom line
- A valid contract requires five elements: offer, acceptance, consideration, capacity, and legality
- Mailbox rule: acceptance is effective when sent; revocations and rejections are effective when received
- Mirror image rule (common law) makes any change a counteroffer; UCC battle of the forms (2-207) lets additional terms between merchants enter the contract
- Pre-existing duty is not consideration; UCC modifications need no new consideration if made in good faith
Exam shortcut
When the question stem mentions goods or any product, switch to UCC: battle of the forms, no-consideration modifications, $500 threshold, firm offers under 2-205. For services, real property, or employment, stay in common law: mirror image, pre-existing duty, mailbox rule. Run MYLEGS as a checklist: if the contract fits, find the writing or find an exception.
The full lesson (about 2,220 words, 15 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.B1
Browse all free CPA REG lessons or jump into free CPA REG practice questions.