Offer, Acceptance, and Consideration

The basics of contract formation are offer, acceptance, and consideration. These are the three components of what is called a “meeting of the minds”.

An offer is an expression by words or action to another person or entity of your willingness to do certain acts (such as “sell these apples to you”) on specific terms (such as “for $1 per pound”). Implicit in the idea of an offer is that you are willing to be bound by what you have promised to do if your offer is accepted.

Acceptance is the other person or entity’s expression of agreement with all the terms of your offer communicated in written or verbal form, or by action. In our example, your customer says, “Yes, I agree to buy your apples for $1 per pound.”

Consideration simply means “something of value given.” In our example, your customer puts some apples into a bag and goes to the cashier. The apples are weighed and your customer pays and leaves with his or her apples. Here, there is a simultaneous exchange of consideration: the apples (something of value), are given in exchange for money (something of value).

Promises such as future delivery have value as well, so an exchange of promises is valid consideration in most circumstances. Contracts can be written, oral, or course-of-conduct. Some types of contracts must be in writing (read about those contracts here and here).

Most retail and internet businesses operate on oral contracts like our “buying apples” example. But, as discussed below, more complex aspects of your business require detailed written contracts.

The California Uniform Commercial Code

 If you sell goods and products, then the California Uniform Commercial Code (“California UCC”) applies and “fills in” various contractual provisions that you and your business counterparts might not have specified. The California UCC, and indeed all versions of the UCC enacted in various states, consists of a series of numbered sections, each dealing with specific categories of commercial activity and how to deal with certain problems, such as non-conforming goods. To use an example that we discussed here, if there is no agreement otherwise between the parties, the California UCC will govern when the risk of loss passes from the seller to the buyer. In our “sale-of-apples” example, normally, the risk of loss passes to the buyer when he or she leaves the store with the apples.

Complex Written Business Contracts

 Because business is complex, it is best to have all of your essential agreements formally in writing with the help of an experienced corporate attorney like Michael J. Leonard, Esq., at San Diego Corporate Law. Essential agreements would include:

• Agreements with vendors and suppliers
• Employment agreements
• Financing contracts
• Investor agreements
• Product or intellectual property licenses
• Office or retail real estate leases
• Buy-Sell agreements

Contact San Diego Corporate Law

 Every business needs an experienced corporate attorneys to provide legal advice concerning business contracts. If you have contracts that need to be drafted or reviewed or if you need help understanding your options and what might be best for your unique circumstances, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. To schedule a consultation, email email or call at (858) 483-9200.

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