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The Overview
When running a business, it is essential to have an understanding of contract law. Since so many business obligations are memorialized contractually, it is imperative that business contracts be valid and legally enforceable, especially if a dispute arises.

Creation of a Contract
A valid contract requires an offer, acceptance of that offer, and "consideration". An offer occurs when a party communicates definite and certain terms to an opposing party who reasonably expect that the offering party is willing to be bound by the offer on the terms proposed. An acceptance is a clear expression of the accepting party's agreement to the terms of the offer. Consideration is bargained-for exchange between the parties.

Contracts are premised upon the notion that each party to the contract will gain some benefit from the agreement, and will incur some obligation in exchange for that benefit. However, the law recognizes many different types of contracts: bilateral contracts (traditional contracts where there is a mutual exchange of promises among the parties); unilateral contracts (where the offer requests performance rather than a promise from the person accepting the offer, i.e. a "reward" offer); express contracts (where the agreement terms are set forth either in speech or though writing); or implied contracts (where the contract is formed by the behavior of the parties that show an intent to enter into an agreement).

Laws that Govern Contracts
Contracts are usually governed and enforced by the laws in the state where the agreement was made. Depending upon the subject matter of the agreement (i.e. sale of goods, property lease), a contract may be governed by The Common Law or The Uniform Commercial Code.

The Common Law is a tradition-based set of laws. Despite its traditional base, the Common Law continues to constantly evolve. The majority of contracts (i.e. employment agreements, leases, general business agreements) are controlled by a state's common law. The common law controls contracts that are not for the sale of goods.

The Uniform Commercial Code (UCC) applies to contracts for the sale of goods. The UCC provides the laws that govern commercial transactions.



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FAQ's
Q: What is an offer?
A: An offer is the first step to forming a contract. An offer is any action that creates a reasonable expectation that the offering party is willing to be bound by the proposed terms.

Q: When can you withdraw an offer?
A: As long as no consideration has been paid to hold an offer open, the offering party can withdraw or retract the offer at any time before acceptance.

Q: How is an offer accepted?
A: A party can accept an offer through a clear manifestation by the accepting party to be bound by to the offer. Generally, the acceptance must be communicated to the offering party in the manner proposed by that party.

Q: At what age can someone enter into a contract?
A: In most jurisdictions you must be the age of majority. However, an exception is made if a minor is entering into an agreement for necessities (i.e. food, shelter, clothing, etc.). A contract made by a person under the age of majority is voidable at the will of the minor, or their guardian, as long as the minor remains under the age of majority.

Q: Does a contract have to be in writing?
A: It depends on the subject-matter and length of duration of the contract. Many contracts do not have to be in writing. However, in California some contracts must be in writing pursuant to the Statute of Frauds. According to the Statute of Frauds, the following contracts must be in writing to be enforceable: (1) promises related to interests in land, (2) promises to pay the debt of another, (3) a promise that cannot be performed within a year, (4) contracts creating a joint tenancy, (5) a promise for the sale of goods of $500 or more, and (6) an agreement to arbitrate disputes.

Q: What is a breach of contract?
A: A breach of contract occurs when one party to the contract does not do what they are supposed to under the contract and does not have a legal excuse.

Q: How are damages calculated for a breach of a contract?
A: Damages depend on the breached agreement. If no monetary damages occur as a result of the breach, then the non-breaching party may only be able to claim nominal damages. Where monetary damages can be proven, the non-breaching party is generally entitled to compensatory damages. Compensatory damages, by definition, put the non-breaching party in the position that they would have been but for the breach.

Q: What is specific performance?
A: Specific performance is an equitable remedy requiring a person who has breached a contract to carry out their obligations under the contract. Generally specific performance is only available if the subject of the breached contract is rare and monetary damages would be inadequate compensation.
Resources
Findlaw Corporate Counsel Center, Business Contracts
Provides business contacts and forms by industry.

The UCC or Uniform Commercial Code
The legal code that sets out the rights and obligations of buyers and sellers engaging in commercial transactions. The UCC has been adopted by all states except Louisiana.

U.S. Department of Commerce
This is the department that administers International Trade Law and regulates U.S. exporting.

U.S. Small Business Administration
This Federal agency advises small businesses and provides guidance with respect to small business financing and development.