Contract law runs through Content Area B of the Business and Finance exam: the outline lists "knowledge of contract law," "components of valid contract," "statute of frauds," "how to write offer" and "how to review contracts" under Preparing Bids/Proposals and Managing Contracts. Three AIA documents are also on the reference list (A201 General Conditions, A401 Contractor-Subcontractor Agreement, A701 Instructions to Bidders), so some questions are answered from those books.
This page covers the general contract principles and Florida statutes. It does not reproduce AIA text; for those questions you will look up the section in your own copy.
Elements of a valid contract
| Element | What it means | Example of a problem |
|---|---|---|
| Offer | A definite proposal that can be accepted | "I might do it for around $20,000" is too vague |
| Acceptance | Unconditional agreement to the offer's terms | Changing the price is not acceptance |
| Consideration | Each side gives something of value or takes on an obligation | A promise of a free deck with nothing in return |
| Capacity | Parties are legally able to contract (adults, of sound mind, authorized agents) | A minor signs a remodeling contract |
| Lawful purpose | The subject is legal | A contract to build without a required permit |
Notarization, recording, witnesses and deposits are not general requirements for a valid contract. A writing is required only for certain kinds of contracts (see the statute of frauds below) or where another statute calls for one.
Offer and acceptance in practice
- Counteroffer. A reply that changes the terms is a rejection plus a new offer. If a homeowner offers $18,000 and the contractor answers "I'll do it for $21,000," the $18,000 offer is gone. The contractor cannot later accept it unless the homeowner makes it again.
- Revocation. An offer can generally be withdrawn any time before it is accepted, unless the offeror promised to hold it open for consideration (an option).
- Mailbox rule. Under the common-law rule, an acceptance sent by an authorized method is generally effective when sent, while a revocation is effective when received.
- Reliance on sub quotes. When a general contractor relies on a subcontractor's bid to price its own bid and wins the job, courts may hold the sub to its price under the doctrine of promissory estoppel, even without a signed subcontract.
The statute of frauds
Some agreements cannot be enforced unless there is a signed writing. Florida's general statute of frauds is F.S. 725.01. Among other things, it covers:
- a promise to answer for the debt or default of another person (a guarantee)
- a contract for the sale of land or an interest in land
- a lease of land for longer than 1 year
- any agreement not to be performed within 1 year from the making of it
The writing must be signed by the party to be charged (the one you are trying to hold to the deal) or that party's authorized agent.
For sales of goods, the Uniform Commercial Code version in F.S. 672.201 applies: a contract for the sale of goods for $500 or more generally is not enforceable without a signed record. That matters for material purchases. The UCC is on the B&F outline under Purchase Materials/Supplies.
Example
A contractor's owner tells a lumber yard, "If my nephew's company doesn't pay your invoice, I'll pay it." The nephew's company defaults. Without a signed writing, the lumber yard generally cannot enforce that oral guarantee, because it is a promise to answer for the debt of another under 725.01.
Florida statutes that affect construction contracts
| Statute | Rule |
|---|---|
| F.S. 489.128 | A contract entered into by an unlicensed contractor is unenforceable in law or equity by that contractor, who also has no lien or bond claim |
| F.S. 713.015 | A direct contract for improvements to a residential dwelling of up to 4 units, over $2,500, must include the statutory lien law notice |
| F.S. 489.126 | Rules on deposits over 10% of the contract price on residential jobs (applying for permits, starting work) |
See contractor license discipline and construction lien law for details.
Change orders
A change order is a written amendment, signed after the contract is formed, that changes the work, the contract sum, the contract time, or a combination. Good practice and most standard forms require:
- a written document describing the change
- an agreed adjustment to price and time (or a method for determining it)
- signatures by the parties with authority under the contract
Oral directions from someone without authority to change the contract are a common source of unpaid work. On the exam, if a question asks who must sign a change order under A201, look up the definition in Article 7 of your copy.
Delays
| Type | Typical result |
|---|---|
| Excusable, non-compensable (for example, unusually severe weather) | More time, no extra money |
| Excusable, compensable (for example, owner-caused delay) | More time and money |
| Non-excusable (contractor-caused) | No time extension; contractor may owe damages |
Whether a given delay qualifies depends on the contract. Time extensions usually require timely written notice and documentation.
Liquidated damages
Liquidated damages are a fixed amount, agreed in advance, that the contractor pays for each day of unexcused delay past the contract completion date. They are used when the owner's actual losses from delay would be hard to prove. To be enforceable, the amount must be a reasonable estimate of probable damages at the time of contracting, not a penalty.
Worked example
A contract provides liquidated damages of $750 per calendar day. Substantial completion is reached 25 days after the contract date. The contractor was granted a 6-day extension for documented weather.
Chargeable days = 25 − 6 = 19 Liquidated damages = 19 × $750 = $14,250
Always subtract approved extensions first, and check whether the contract counts calendar days or working days.
Damages vocabulary
- Compensatory (actual) damages: put the injured party where it would have been if the contract had been performed.
- Consequential damages: indirect losses (for example, lost rents) that flow from the breach. Contracts often waive them.
- Liquidated damages: agreed in advance, as above.
- Rescission: the contract is undone and parties are restored to their pre-contract positions.
Practice contract questions
Our Florida Business and Finance Exam Prep includes original contract law questions and AIA lookup drills with explanations, and 90 days of practice across the full exam. Related: bonds and insurance, bid math and the B&F exam overview.
Practice questions
Which set lists the elements generally required to form a valid, enforceable contract?
- AOffer, acceptance, notarization, and recording in the public records
- BOffer and acceptance (mutual assent), consideration, parties with legal capacity, and a lawful purpose
- CA written document, a witness, a deposit, and a signature by both parties
- DConsideration, a performance bond, a lawful purpose, and a fixed completion date
Show answer
Answer: B. A valid contract needs mutual assent (shown by offer and acceptance), consideration, capacity of the parties, and a legal object. Notarization, recording, witnesses, deposits and bonds are not general elements of contract formation; a writing is needed only for contracts covered by the statute of frauds.
Source: Cornell LII Wex: mutual assent; consideration; capacity
A homeowner offers a contractor $18,000 to re-roof a house. The contractor replies, "I'll do it for $21,000." The homeowner refuses, and the contractor then says, "Fine, I accept your $18,000 offer." Under common-law contract rules, what is the status of the original $18,000 offer?
- AIt was terminated by the counteroffer and can no longer be accepted unless the homeowner renews it
- BIt remains open for a reasonable time, so the contractor's later acceptance creates a contract
- CIt became an option contract the moment the contractor responded
- DIt is binding because the contractor eventually agreed to the offered price
Show answer
Answer: A. A counteroffer acts as a rejection of the original offer plus a new offer, so the original offer is terminated. The contractor's later 'acceptance' is at most a new offer the homeowner may accept or refuse. An option contract requires a promise to hold the offer open, usually supported by consideration.
Source: Cornell LII Wex: counteroffer
In contract law, 'consideration' is best described as:
- AThe courtesy period a party has to review a contract before signing
- BA deposit that must be paid before work starts
- CThe owner's evaluation of competing bids
- DThe bargained-for exchange of promises or obligations that binds each party
Show answer
Answer: D. Consideration is the mutual exchange of promises or obligations; each party must take on some binding obligation. A purely gratuitous promise lacks consideration. A deposit can be consideration but is not required.
Source: Cornell LII Wex: consideration
A contract term that sets a pre-agreed daily amount the contractor owes for finishing late, used because the owner's actual delay losses would be hard to prove, is called:
- AConsequential damages
- BLiquidated damages
- CPunitive damages
- DRetainage
Show answer
Answer: B. Liquidated damages are a fixed sum or formula agreed in advance for a breach where actual damages are hard to prove. Consequential damages are indirect losses that have to be proven. Retainage is a portion of payments withheld, not a damages measure.
Source: Cornell LII Wex: liquidated damages
Under Florida's statute of frauds (s. 725.01, F.S.), which agreement must be in writing and signed by the party to be charged in order to be enforced?
- AA 3-week bathroom remodel for $9,000
- BA month-to-month equipment rental
- CA verbal agreement to perform a $400 repair next week
- DAn agreement that cannot be performed within 1 year from when it is made
Show answer
Answer: D. Section 725.01 bars actions on agreements 'not to be performed within the space of 1 year from the making thereof' unless there is a signed writing. Short service jobs are not on the list (although other statutes, such as 713.015 and 489.1425, require certain clauses in written residential contracts).
Source: F.S. 725.01
A contract has liquidated damages of $500 per calendar day. The Architect certifies Substantial Completion 18 days after the contractual Substantial Completion date, and the contractor received a 4-day time extension for abnormal weather. Under AIA A201-2017, 'day' means calendar day. How much in liquidated damages may be assessed?
- A$7,000
- B$9,000
- C$2,000
- D$11,000
Show answer
Answer: A. Chargeable delay = 18 - 4 = 14 days, and 14 x $500 = $7,000. A201 §8.1.4 defines 'day' as a calendar day, and §8.3.1 allows time extensions for adverse weather documented under §15.1.6.2. $9,000 ignores the extension.
Source: AIA A201-2017 §8.1.4, §8.3.1
These are from our bank of 466 original questions. Get the full Florida Business & Finance prep.
Sources
- F.S. 725.01 Promise to pay another's debt, etc. (statute of frauds) (2025)
- F.S. 672.201 Formal requirements; statute of frauds (UCC sale of goods) (2025)
- F.S. 489.128 Contracts entered into by unlicensed contractors unenforceable (2025)
- F.S. 713.015 Mandatory provisions for direct contracts (2026)
- B&F CBT Reference List 2026 (DBPR)