Offer, Acceptance, Consideration, Capacity and Lawful Purpose

The fastest way to solve a formation question is to follow the event sequence. Find the last definite offer, ask whether it was still open, compare the response with its terms and then test consideration, capacity, lawful purpose and required form.

Contract formation at a glance

No single word such as “offer,” “accepted” or “deposit” decides formation by itself. Read the entire exchange and the parties' objective conduct.

Official source map

The New York Department of State 77-hour curriculum identifies competent parties, mutual agreement, lawful objective, consideration and writing as essentials of a valid real estate contract.

New York courts and statutes supply the working rules:

• Stonehill Capital Management v Bank of the West: objective words and conduct, viewed as a whole, determine mutual assent to material terms.
• Kowalchuk v Stroup: a clear acceptance creates the contract, mutual promises can supply consideration and an offer is generally revocable before acceptance.
• Solartech Renewables v Vitti: a qualified acceptance is a rejection and counteroffer.
• Guzman v Ramos: mutual promises to exchange property for the purchase price can support a real estate sales contract.
• General Obligations Law sections 3-101 and 5-1105: age-18 capacity and New York's limited rule for certain signed promises based on past consideration.
• General Obligations Law section 5-703: signed-writing requirements for specified interests in real property.

These rules are current through August 27, 2026. The exact language of the proposed agreement remains decisive.

Offer: a present and definite proposal

An offer communicates a present willingness to enter a bargain on sufficiently definite terms, so that the offeree understands that assent will conclude the deal.

For a real estate sale, material terms commonly include:

• identity of buyer and seller
• identification of the property
• purchase price or a workable way to determine it
• the essential exchange and material conditions
• enough certainty to identify the promised performance

Not every detail must be perfectly stated before any agreement can exist. The question is whether the material terms are sufficiently definite and the parties objectively intend to be bound.

Offer versus invitation to negotiate

“I might sell for around $700,000” ordinarily invites discussion. “I offer to sell 10 Oak Street to you for $700,000 on the attached terms, open until Friday at 5 p.m.” looks much more like an offer.

Advertising a property at a list price usually invites offers. A listing is an employment agreement between owner and broker, not ordinarily a standing sale contract with every person who sees the advertisement.

The asking price is not an automatic promise that the first buyer offering that amount owns the property.

Preliminary agreement and intent to sign later

Parties often plan to reduce negotiations to a formal contract. The legal result depends on objective intent:

• If they intend not to be bound until the formal document is signed, earlier discussions are not the final contract.
• If they agree on material terms and objectively intend immediate obligation, a later formal writing may memorialize an agreement already made, subject to the Statute of Frauds.

New York practice commonly involves attorney-prepared residential sale contracts, but custom does not replace analysis of the actual documents and expressed intent.

What ends an offer?

An offer can end through:

• rejection by the offeree
• a counteroffer
• effective revocation before acceptance
• expiration of the stated time
• lapse after a reasonable time when no deadline is stated
• death or incapacity in circumstances where the law terminates the power of acceptance
• failure of a condition stated in the offer

Once an offer ends, the offeree generally cannot revive it by saying “I accept.” The original offeror must renew it or accept a new proposal.

Revocation before acceptance

An offer is generally revocable before acceptance. A private decision to revoke is not enough when the offeree has not learned of it through an effective communication or legally recognized source.

The timing matters:

1. Seller makes an offer.
2. Seller effectively revokes it before buyer accepts.
3. Buyer's later “acceptance” creates no contract.

Reverse steps two and three, and a contract may already exist before the attempted revocation.

Option and firm written offer

An option is a separate agreement that can protect the offeree's power to accept during a stated period. Consideration commonly supports that promise to keep the offer open.

New York General Obligations Law section 5-1109 also provides that a signed written offer stating that it is irrevocable for a stated period or until a fixed time is not revocable during that time merely because the assurance of irrevocability lacks consideration.

Avoid confusing the option with the later purchase contract. The option holder has a contractual choice to buy on the option terms, not present ownership of the property.

Acceptance must match the offer

Acceptance must be clear, unambiguous and unequivocal and must comply with the offer's material terms.

If buyer responds, “I accept the $700,000 price if the seller also includes the adjoining parcel,” the response is conditional. It rejects the original offer and proposes a counteroffer.

Mirror-image method

Compare the response against the offer one material term at a time:

A request for information is not always a counteroffer. “Would you consider including the refrigerator?” may be an inquiry if the offeree otherwise accepts without making inclusion a condition. Wording and context matter.

Counteroffer rejects the original offer

Solartech Renewables v Vitti explains that a qualified acceptance is a rejection and counteroffer. Rejection by counteroffer extinguishes the original offer, so a later attempt to accept the original terms is ineffective unless the original offeror revives them.

Silence is not ordinary acceptance

An offeree ordinarily does not accept merely by remaining silent. Exceptions can arise from prior dealings, accepted benefits or an agreement that permits a specified mode of assent.

Avoid assuming a seller accepted an offer merely because the seller did not respond before its deadline.

Acceptance by conduct

Words are not the only objective evidence. Conduct can manifest assent when it clearly recognizes the agreement and the parties intend that conduct to bind them.

Stonehill Capital Management emphasizes the totality of expressed words and deeds. A court does not give disproportionate weight to one isolated phrase when the full course of conduct shows the parties' objective.

Real-property writing rules still apply. Conduct showing assent does not automatically satisfy every Statute of Frauds requirement.

Mutual assent and the meeting of the minds

“Meeting of the minds” means objective agreement, not proof that the parties had identical private thoughts.

Courts examine:

• the language used
• the sequence of communications
• conduct after the exchange
• the commercial setting
• whether material terms were left open
• whether the parties reserved the right not to be bound until signing

Ambiguity is not always failed formation

Parties can form a contract and later disagree about what a term means. If the term can be interpreted through ordinary contract rules, the dispute concerns meaning rather than existence.

Hogan v Bullock involved a real estate contract in which the parties disputed the meaning of “access.” The appellate court treated the matter as interpretation rather than a failure to form the contract.

The distinction is:

• no agreement on a material term: possible formation failure
• agreement expressed in ambiguous language: possible interpretation issue

Consideration: the bargained-for exchange

Consideration is the promise, performance or forbearance bargained for in exchange for another promise.

In a bilateral real estate sales contract:

• seller promises to convey the property on the contract terms
• buyer promises to pay the purchase price and perform the buyer's duties

Those mutual promises can provide consideration.

A deposit is not the only consideration

Guzman v Ramos held that mutual promises to exchange the property for the purchase price supported the sales contract. The validity of consideration did not depend on treating the down payment itself as the only exchange.

An earnest-money deposit can show commitment, fund an agreed remedy or become part of the price. It is important, but a basic exam question should not assume that “no deposit” automatically means “no consideration.”

Read the contract. Failure to deliver a required deposit can still be a default, a failure of a condition or evidence about intent.

Consideration can be a promise, act or forbearance

Examples include:

• a promise to convey in exchange for a promise to pay
• performing agreed repairs in exchange for a modification
• refraining from exercising a legal right in exchange for settlement
• granting an option in exchange for the option price

The act or restraint must be bargained for. A gift already completed without any requested exchange is not ordinary consideration for a later promise.

Past consideration

Past consideration generally does not support a new promise because the earlier act was not induced by the later promise.

New York has a statutory exception. Under General Obligations Law section 5-1105, a signed written promise may remain valid despite past consideration when the writing expresses that consideration, it is proven and it would have been valid except for timing.

Do not turn the exception into a rule that any thank-you promise is enforceable. The statute's writing and proof requirements matter.

Adequacy versus existence

Courts ordinarily care that legal consideration exists, not that each side made an economically equal exchange. A low price can coexist with consideration.

Gross unfairness can be evidence in fraud, undue influence, incapacity or unconscionability analysis, but mere inequality in value does not automatically prove a lack of consideration.

Capacity: who can bind whom?

Capacity asks whether a party has legal ability to contract. Authority asks whether a person can bind someone else. Keep them separate.

Age

New York General Obligations Law section 3-101 prevents a person who has attained age 18 from disaffirming a current contract on the ground of infancy.

A contract made by a person under 18 is generally voidable by the minor, subject to exceptions. It is not automatically void, and the adult party does not receive the minor's avoidance right.

Mental capacity

The question is not whether the bargain was wise. A capacity challenge can depend on whether the person understood the nature and consequences of the transaction, the circumstances known to the other party and any controlling guardianship order.

A salesperson should document observed facts, alert the supervising broker and involve counsel. The salesperson should not diagnose the party or decide enforceability.

Intoxication

Intoxication does not automatically erase a contract. The level of impairment, ability to understand the transaction and the other party's knowledge can matter.

Do not add “intoxicated” as shorthand for “incapable.” Read the facts describing understanding and conduct.

Entities and representatives

A corporation, limited liability company, estate, trust or principal acts through authorized people.

Ask:

• Is the entity correctly identified?
• Does the signer hold actual or apparent authority?
• Does a governing document, resolution, court appointment or power of attorney limit authority?
• Is written authority required for this real-property act?

A competent human signer does not bind an entity merely by writing the entity's name. Authority must connect the person to the principal.

Lawful purpose

A court will not enforce a bargain that requires illegal conduct when the governing statute or public policy calls for nonenforcement.

Real estate examples can involve agreements to:

• conceal a material fact in violation of law
• discriminate against a protected class
• pay an unlicensed person for brokerage activity when the licensing statute bars recovery
• falsify a price, document or financing representation
• evade rent, zoning, tax or lending law

Not every violation voids the entire agreement

New York strongly respects freedom of contract. In 159 MP Corp. v Redbridge Bedford, the Court of Appeals explained that a court weighs the policy favoring enforcement against the stronger public policy asserted for invalidation.

The result can depend on:

• whether a statute expressly states the consequence
• whether the unlawful term is central or incidental
• whether the lawful portion can be severed
• the purpose of the violated rule
• the public harm from enforcement

Do not automatically label a whole contract void because one clause raises a regulatory question.

Required writing is a separate checkpoint

Offer, acceptance and consideration can exist in an oral exchange. That does not mean the exchange is enforceable as a real-property contract.

General Obligations Law section 5-703 generally requires a signed writing for a contract to sell real property or an interest in it. The writing, subscribed by the party to be charged or the party's lawfully authorized agent, must express the consideration and essential agreement.

The next article covers:

• what writings can be combined
• electronic signatures
• part performance
• authority of an agent
• leases and other interests covered by the statute

For this article, remember the sequence: find formation first, then test required form.

Six worked formation scenarios

Scenario 1: exact acceptance

Seller offers to sell a stated parcel for $600,000 with a June 30 closing. Buyer accepts those terms before the deadline in the required manner.

Best answer: Offer and acceptance match. Continue to consideration, capacity, lawful purpose, intent and writing.

Scenario 2: changed price

Seller offers at $600,000. Buyer responds, “I accept at $575,000.”

Best answer: Counteroffer, not acceptance. The seller becomes the offeree of the new proposal.

Scenario 3: seller tries to withdraw

Buyer effectively accepts a revocable offer before seller's revocation is communicated.

Best answer: The attempted revocation is too late if acceptance already created the contract.

Scenario 4: no cash deposit

Buyer and seller sign a sales contract containing mutual promises to exchange the property and purchase price. No cash deposit is due at signing.

Best answer: Mutual promises can supply consideration. Do not invalidate the agreement merely because no signing deposit was required.

Scenario 5: prior favor

An owner promises orally to pay a neighbor because the neighbor repaired a fence last year without requesting payment.

Best answer: The prior act is ordinarily past consideration and was not bargained for in exchange for the later promise. Check section 5-1105 only if its signed-writing requirements are present.

Scenario 6: agent lacks authority

A salesperson signs the seller's name to a sales contract without authority.

Best answer: The seller is not bound merely because the salesperson negotiated the deal. Agency authority and the real-property writing rule must be satisfied.

Common misconceptions

“The listing price is an offer to everyone”

No. A property advertisement ordinarily invites buyers to submit offers.

“Any response before the deadline is acceptance”

No. A materially conditional response is a counteroffer.

“The seller can revoke after acceptance”

No. Once effective acceptance forms a contract, the issue becomes contractual performance or a termination right, not revocation of an open offer.

“No earnest money means no consideration”

No. The buyer's and seller's mutual promises can be consideration.

“Past consideration always works because the service had value”

No. Value supplied before the promise was not ordinarily bargained for in exchange for it. New York's statutory exception has specific conditions.

“A bad bargain proves incapacity”

No. Capacity concerns legal understanding and ability, not whether the price later looks unwise.

“Any illegal clause automatically destroys the contract”

No. The statute, public policy, severability and centrality of the term control the result.

“Mutual assent means identical private intent”

No. Courts evaluate objective words and conduct.

A seven-step exam method

1. Write the last definite offer in one sentence.
2. Check whether it remained open.
3. Compare the response term by term.
4. Identify the bargained-for exchange.
5. Test each party's capacity and each representative's authority.
6. Ask whether the objective is lawful.
7. Apply the required writing and signature rule.

If one answer choice skips from negotiation to “valid contract,” look for a missing step. If the facts contain a changed price or new condition, test counteroffer before anything else.

Frequently asked questions

What are the elements of a valid New York real estate contract?

The core elements are offer, acceptance, consideration, objective mutual assent, intent to be bound, competent parties and lawful purpose, plus any writing and signature required for the property interest.

Does a counteroffer cancel the original offer?

A qualified acceptance is a rejection and counteroffer. The original offer is extinguished unless the original offeror renews it.

Can a seller revoke an offer before the deadline?

An ordinary offer is generally revocable before acceptance unless an option, section 5-1109 written assurance or another rule makes it irrevocable. Revocation must become effective before acceptance.

Is earnest money required to form a real estate contract?

Not as the only possible consideration. Mutual promises to convey the property and pay the price can provide consideration, although the contract may separately require a deposit.

Can a minor sign a New York real estate contract?

A person under 18 may sign, but the agreement is generally voidable by the minor subject to exceptions. Actual transactions require attorney review of capacity, approval and disaffirmance rules.

Can acceptance be shown by conduct?

Yes, when objective conduct clearly manifests assent and the parties intend it to bind them. A real-property agreement must still satisfy any required writing and signature rule.

Is an agreement enforceable if the purpose is illegal?

Not when the applicable statute or overriding public policy requires nonenforcement. The result may affect a clause or the whole agreement depending on the law and facts.

Does a mortgage contingency mean no contract exists yet?

Usually it is a condition within a formed contract, not a bar to formation. The clause can create a right to cancel or excuse performance if its conditions and procedures are satisfied.

The salesperson's role during formation

A salesperson can present offers accurately, communicate responses promptly and use approved forms under broker supervision. The salesperson should not:

• say an ambiguous exchange is legally binding
• decide that a party lacks mental capacity
• sign for a principal without authority
• conceal a counteroffer or material term
• draft novel clauses that require legal judgment
• advise a client to breach, rescind or ignore counsel

When formation is disputed, preserve the full communication record and involve the supervising broker and attorneys.

What to study next

Continue in the Contracts, Sales and Leases study hub. Review Valid, Void, Voidable, Executed and Executory Contracts when the question asks for classification rather than formation.

Next, learn the New York Statute of Frauds, Part Performance and E-Signatures. Then study breach, remedies, assignment and novation to understand what happens after a valid agreement forms.

Sources and verification notes

This article was checked against official sources on August 27, 2026. Contract formation depends on the complete communication record, the parties' objective conduct, authority and the precise writing.

1. New York State Department of State, Real Estate Salesperson 77-Hour Curriculum. Subject 4 treatment of contract types, essential elements, purchase offers, binders and options.
2. Stonehill Capital Management, LLC v Bank of the West, 2016 NY Slip Op 08481. Court of Appeals analysis of objective mutual assent and material terms.
3. Kowalchuk v Stroup, 2009 NY Slip Op 01014. Offer, acceptance, revocation, mutual promises and intent to be bound.
4. Solartech Renewables, LLC v Vitti, 2017 NY Slip Op 08574. Qualified acceptance, rejection and counteroffer.
5. Guzman v Ramos, 2021 NY Slip Op 00547. Mutual promises as consideration in a real estate sale contract.
6. Hogan v Bullock, 2024 NY Slip Op 06405. Real-property contract formation and interpretation of material language.
7. New York General Obligations Law section 3-101. Current capacity rule for a person who has attained age 18.
8. New York General Obligations Law section 5-1105. Limited rule for a signed promise expressing proven past consideration.
9. New York General Obligations Law section 5-1109. Signed written assurance that an offer will remain irrevocable for a stated period.
10. New York General Obligations Law section 5-703. Signed-writing rule for specified real-property transactions.
11. 159 MP Corp. v Redbridge Bedford, LLC, 2019 NY Slip Op 03526. Court of Appeals discussion of freedom of contract and countervailing public policy.

This article provides general educational guidance. It does not reproduce live examination content or provide legal advice.