A homeowner offers to pay $5,000 for remodeling a bathroom. The contractor later emails that he cannot complete for less than $5,500. The homeowner replies that she cannot pay $5,500, but if the contractor changes his mind he can begin before the end of the week. The contractor begins work the next day. Was a contract formed at the price of $5,000?

• A. Yes, a contract was formed at the price of $5,000.
• B. No, because the contractor rejected the offer by stating the price increase.
• C. Yes, because the homeowner's offer to pay $5,000 remained open and was accepted by the contractor's commencement.
• D. No, because there was no acceptance of the higher price.

Answer: (A)

The key idea is acceptance by performance in a unilateral contract. The homeowner’s offer to pay 5,000 invites the contractor to perform. The contractor’s reply that he cannot do it for 5,000 but would require 5,500 is effectively a counteroffer, not an acceptance of the original price. The homeowner then says she cannot pay 5,500, but if the contractor changes his mind he can begin before the end of the week—this keeps the original price alive and makes performance within the week an acceptance of that offer.

When the contractor starts work the next day, he is performing in response to that offer. In a unilateral contract, acceptance occurs through performance, and once performance has begun within the allowed time, the offeror is bound to the terms stated in the offer. Therefore, a contract is formed at the price of 5,000.