BUSINESS LAW

Business Law

Business Law

Introduction

For businesses to thrive, they must be able to rely on commitments. Sometimes, business is successfully concluded merely on a handshake (“my word is my deed”), such that neither party feels the need to verify that the commitment will be enforced by the law should the other party fail to keep his or her word. However, if the commitment is a large one, if the parties are strangers, or even if they are just cautious, either or both of them may want to verify that the agreement will be enforced by a court should something go wrong. Parties need to be free to contract according to their own best interest, but they also need to be free from being obligated unless they specifically intend to be obligated and they understand those obligations. Contract law systems attempt to balance these ethical and practical considerations.

Common Law of Contracts:: Offer,, Acceptance,, and Consideration

Traditionally, in common law—the law derived from centuries of cases decided by English courts and used in 49 of the United States—an enforceable contract requires proof of just three things in addition to the intent to be bound: offer, acceptance, and consideration. An offer must be sufficiently precise and complete such that the other party's merely saying “yes” to that contract means that a contract will be formed. However, if some of the necessary information or terms are missing, then the statement is not an offer. For example, “Would you like to buy six widgets at $12.00 per widget?” constitutes an offer for the sale of six widgets and indicates that if a buyer agrees, then the seller intends to be bound to the resulting contract. In contrast, the statement “Widgets for sale, $12.00 per widget” is not an offer because merely saying “Yes” would not complete a contract—neither party would know how many widgets were being sold. Instead, this kind of statement is called an “invitation to negotiate.” As with most advertisements, the purported seller is simply trying to interest potential buyers; he is not making a formal offer for sale.

An acceptance, in concept, is similarly simple. It signifies the other party's intent to be bound by the terms of the contract: “Yes, I'll buy six widgets for a total of $72.00.” However, if the buyer were to say, “Will you accept $8.00 each for six widgets?” then no contract would be formed because the buyer has not accepted the original offer. Instead, he has implicitly rejected it and made a new offer, a counteroffer, instead.

The third concept required by common law is consideration, which refers to the thing that each party receives in exchange for his or her agreement to perform the obligation or obligations indicated in the contract. This requirement of mutual consideration means that there is some indicia that each party bargained for what he or she is receiving under the contract. Bargained-for consideration is merely another way of verifying that the parties intend to be bound by the terms of their ...