Figures: tax year 2026
A contract creates legally enforceable obligations through agreement, ordinarily supported by a bargained exchange. Offer, acceptance, consideration, capacity, and legality summarize the elements of a contract, subject to recognized substitutes and defenses.
The analysis separates three questions:
- Formation asks whether the parties manifested agreement through an effective offer and acceptance, supported by consideration or a recognized substitute.
- Enforceability asks whether capacity, legality, assent defenses, or a required writing prevents enforcement of that agreement.
- Admissibility asks whether particular evidence may establish the agreement's terms, especially when the parties adopted a final written record.
To identify whether a valid contract exists, the analysis begins with governing law and observable agreement. An oral agreement can satisfy formation requirements while remaining unenforceable against a particular party because a required writing is missing.
The Uniform Commercial Code (UCC) Sales Article governs transactions in goods, subject to applicable state enactments. Common law generally governs services and real estate; investment securities fall outside the Sales Article and have separate governing rules.
Common mistakes
- Merchant status controls all sales. A nonmerchant's movable-goods sale still uses the Sales Article; merchant status controls particular special rules.
- Deadline guarantees irrevocability. A forty-five-day expiration date does not protect an offer without an applicable option, firm-offer, or reliance basis.
- Changed wording defeats every acceptance. A request accompanying unconditional assent differs from a condition demanding agreement to new terms.
Bottom line
- Formation analysis connects objective offer and acceptance with consideration, capacity, legality, and applicable enforceability defenses.
- The Sales Article governs goods sales by merchants and nonmerchants; services and real estate generally follow common law.
- Written or oral, express or implied-in-fact, bilateral or unilateral, and executed or executory describe separate contract characteristics.
- Acceptance timing follows the invited method and applicable rule; options, receipt requirements, and prior rejections can change ordinary mailbox treatment.
Exam shortcut
Identify the transaction first: a private bicycle sale signals goods law; a service fee signals common law. Mark merchant status only when the particular rule requires it. Put dispatch and receipt on separate timeline entries. Circle “effective upon receipt,” “option,” or a rejection sent first before applying mailbox reasoning. Underline the response's operative language: “only if” signals conditional assent; unconditional agreement followed by a request can preserve acceptance.
The full lesson (about 9,536 words, 64 min read) adds 8 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.B1
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