How does offer and acceptance work in business contracts?

On Behalf of Dunlap Fiore, LLC |

Essentially, a business contract is an agreement that can be legally enforced between two or more entities; a contract may specify actions that must or must not be taken by either entity or all entities involved, if there are more than two. An entity in this context could refer to either a person, company or a corporation.

Typically, contracts are enforceable according to the laws of the state in which the contract was drafted. To that end, there are two types of state law, which are often referred to as common law and the state’s version of the Uniform Commercial Code. Determining which type of state law is applicable to a specific contract depends on the nature of the contract.

The common law is a tradition-based, but highly robust and ever-changing set of laws that govern the bulk of all contracts. This includes contracts such as leases, employment contracts and general business agreements. The common law does not govern contracts that apply to the sale of goods, hence the need for the Uniform Commercial Code, which refers to a standardized set of guidelines that cover any commercial transaction.

In order for the law to recognize a contract as valid, three conditions must be met. First, an offer must be made. An offer allows an entity that has accepted the offer to expect that the entity making the offer be held to the terms of the offer. The terms of the offer must be clear.

The second condition for a valid contract is that the offer must be accepted indicating that the entity accepting the offer is willing to be held to the terms of the offer. Finally, the agreement must have been sufficiently considered by the accepting party. In this type of case, consideration refers to the negotiated exchange between the parties to which the contract applies. Once all three conditions of offer, acceptance and consideration are met, the business contract is valid and enforceable.

Source: FindLaw, “Contracts and the Law,” accessed Jan. 19, 2015