Offer. Acceptance. Consideration.

Add them up and what have you got? A contract.

Believe it or not, the law of contracts reflects common sense and practicality. Just by day-to-day living experience, everyone has a good sense of what a contract is: You agree that you are going to do something, and you are in trouble if you don’t do it.

Here is a quick look at some aspects of contract law.

Offer
An offer is exactly what it appears to be: A statement or action by a person who indicates his or her willingness to sell or do something on certain terms.

 

Courts have long recognized that “the offeror is the master of his offer.” This means that the person making the offer can dictate the time and manner in which it may be accepted, and is also free to withdraw it, or change the terms of the offer, at any time before it is accepted.

Acceptance
An acceptance is any statement or action by the offeree manifesting his or her intent to accept the offer. This can take virtually any form. Whether an offer has been accepted is determined on an objective, rather than subjective, basis. A favorite case from law school was Lucy v. Zimmer, in which the defendant attempted to get out of the contract by explaining that he had been drinking all night and was “high as the Georgia pines” when he accepted the contract. Regardless of his subject mental state, the defendant had objectively accepted the offer and was held bound to it.

 

An offer also can be accepted by a performance. For example, if you leave a voice message for your neighbor’s son that you will pay him $20 to cut your grass, he can accept that offer by coming over and cutting the grass. He need not call you back and say: “I accept.”

Consideration
Consideration means that there is an exchange of value between the offeror and the offeree to support the contract. In other words, each side gets something from the other. A promise for a promise is sufficient consideration to support a contract. For example, you promise to sell your car, and the buyer promises to pay $1,000. Your promise in exchange for the buyer’s promise is sufficient consideration and you will have to sell the car, even if you later change your mind.

Statute of Frauds
Contrary to popular belief, most verbal contracts are perfectly enforceable. The problem with verbal contracts, however, is proving that they actually exist and their terms. Some contracts do have to be in writing. The Statute of Frauds, which is generally the same in most states, requires that the following contracts be in writing: a promise to pay for the debt of another person (a guarantee), sale of real estate, lease of real estate for more than one year, an agreement that is not to be performed within one year; and a contract for a sale of goods over $500.

The Uniform Commercial Code

Because of the need to establish consistent laws to allow businesses in different states to engage in commerce with one another, all states have adopted, with some variations, the Uniform Commercial Code (UCC). In general, the UCC allows the parties to contract on whatever terms they deem fit, but, in the event the parties do not specifically provide for a particular term, the UCC provides many terms governing the sale. For example, if the parties do not agree on a place of delivery, the UCC provides that the place of delivery is at the seller’s place of business.

 

The UCC also imposes certain implied warranties into a sale-of-goods transaction, which, even though not agreed upon by the parties, will apply to their contract unless they are specifically excluded or modified. Any business engaged in selling goods should be generally familiar with Article II of the UCC, because this statutory law imposes certain terms which, if not properly excluded, are binding.

 

For more information on the UCC in Kansas, visit www.kssos.org/business/business_ucc.html. For Missouri, visit http://sos.mo.gov/ucc/.

Battle of the Forms
It is quite common in business for sellers and buyers to use preprinted forms, such as purchase orders and acknowledgements. Quite often, the preprinted terms of these forms contradict each other. The “boiler plate” language in these forms can become important in the event of a dispute, so businesses should make sure that their employees pay attention to the terms of buying and selling forms.

Remedies for Breach of Contract 

Generally, either a buyer or seller is entitled to the damages they have suffered as a result of a breach of contract by the other parties. A party is generally entitled to receive as damages the “benefit of the bargain” they struck. For example, if you agree to sell your car for $1,000, and the car is worth $5,000, the buyer may recover $4,000 in damages if you breach the contract. Generally speaking, the idea of damages is to put the non-breaching party in the position she or he would have been in had the contract been performed.

 

There are other sorts of damages, such as lost profits and consequential damages, which may or may not be recoverable, depending on the terms of the parties’ agreement, including the preprinted “boilerplate” language in their forms.

 

In certain instances, a buyer can seek specific performance of a contract. Specific performance means that a court will order the seller to perform the contract. Specific performance only is available where the subject matter of the contract is particularly unique, such as a particular house or work of art.

 

Small business owners should protect their own interests by having at least general knowledge of contract law and the Uniform Commercial Code.

Jeffrey J. Simon is an attorney with Husch & Eppenberger, LLC. He is a member of the General Business Litigation, Intellectual Property & Technology and Franchise Law practice groups. He can be reached at (816) 329-4711.