While any Georgia business owner knows the fundamental role that contracts play in the success of their enterprise, many business contract disputes in Georgia begin because of conflicting views of whether an agreement has been reached and when a binding contract has been created. Our Georgia business law attorneys recognize that business clients with a fundamental understanding of when a contract is formed combined with solid business law advice are in the best position to avoid potentially costly and disruptive contract disputes. We have provided a primer for understanding when a contract is legally formed in the context of real world contract disputes.
Georgia Contract Formation: Offer, Acceptance & Consideration Offer
The first phase in the development of a valid contract is the offer stage. An offer is a written or spoken declaration to be bound to specific terms upon acceptance by the other party to the proposed agreement. While this is a very basic and fundamental concept, this is the origin of many Georgia business disputes. Our Georgia contract attorneys review countless transactions where the contract dispute begins with a disagreement between the parties regarding whether or not a communication was actually intended as an offer. The company that made the alleged offer will contend they were just engaged in a discussion of options with no intention to commit to any specific terms. Essentially, the dispute involves whether there was a genuine offer or simply initial discussions. It is important that any Georgia business owner carefully analyze his or her intentions when communicating with the other party during the early stages of a business negotiation. If there is no intention that the communication, which may include suggested terms like price, quantity, means of delivery and other material terms, be taken as an offer than it must be communicated in a way that makes it clear that these are merely preliminary discussions with no intention by the party to be bound to the terms as provided. There are some factors a court may consider in evaluating whether a communication with material terms like these was intended as an offer including:
- Definiteness of the terms: If the material terms of the contract are clearly delineated in the communication including price, quantity, parties to the agreement, subject matter of the transaction and dates for performance, the court may interpret the communication as an offer. The point is that if the court has all of the information necessary to determine damages for a breach of contact, there is a higher probability the communication will be considered an offer.
- Intention to be bound: When a court is analyzing whether a communication constitutes an offer, the court will carefully scrutinize the communication to determine whether it contains an indication that the person who transmitted the communication was prepared to be bound to the terms if accepted by the recipient. If you are merely requesting a price estimate or initiating negotiations, it is important to make it clear that you are not yet prepared to move forward even if the recipient agrees to all of the terms in the communication. Material that is in the nature of advertising is usually not regarded as an offer.
- Seriousness of the Communication: The court will pay attention to the context of the communication to determine whether an offer was intended. Something as informal as terms scribbled on a napkin during a business lunch may be considered an offer. However, a statement made in jest that you would trade your successful Georgia business to anyone who could provide a decent martini will not be considered a real offer. The point is that the court may look past the actual words in the communication to the surrounding circumstances and terms to determine if an offer was intended.
If a company receives an offer, the recipient can bind the other party to the business contract by accepting the offer while it is open. Many offers come with time limits or are revoked prior to acceptance, which constitutes the basis of many Georgia business contract disputes. There may be little dispute that an offer was made and that acceptance of the offer was communicated to the party who made the offer. However, a contract dispute may develop over whether the offer was still open for acceptance. A common situation that can arise in a Georgia contract dispute involves a company mailing an acceptance to terms of an offer. Georgia law applies the “mailbox rule”, which makes acceptance of an offer effective upon depositing the acceptance in the mail. Sometimes a company may receive an offer and communicate “concerns” via telephone about the terms but ultimately accept the offer. If the acceptance is by mail in such as situation, the Georgia company that made the offer might assume that the offer is going to be rejected and seek a contract with a replacement company. This can result in entering into a contractual agreement with a new party and subsequently receiving the acceptance by mail from the initial party to whom an offer was extended. In such a situation, the business that extended the offer now may be in a position that it needs to breach the contract to one of the parties it made an offer. It is a good practice to indicate in an offer that it is not effective until the acceptance is received back or to confirm acceptance prior to entering into a contract with a replacement company. If a Georgia company receives an offer and responds by requesting other terms it may be considered a rejection of the original offer and extension of a counter-offer. When responding to an offer, it is important to make clear that general inquiries about the terms or alternative terms are not intended to communicate a rejection of the offer. If this distinction is not made the offer will be considered rejected and the alternative terms treated as a counter-offer. Acceptance of the contract may be communicated either by making a promise to perform or simply undertaking the requested task.
The final element in Georgia contract formation is the giving of consideration by all parties to the transaction. Consideration simply means providing something of value in exchange for a performance or a promise of performance. The presence of consideration distinguishes contracts from gifts. Consideration can be money, goods, a promise to do something there is no legal obligation to do, or a promise to not do something there is a legal right to do. Promises to exchange money, goods, or services are forms of consideration. While this provides a basic primer on Georgia contract formation issues, this is by necessity a very simplified discussion. As any Georgia business owner knows, Georgia business transactions are rarely this clean and simple. Negotiations and discussions often drag on for months and even years with numerous communications back and forth. A negotiations may involve dozens of offers and counter-offers. The point that a contract was formed will often be a controlling factor that drives Georgia contract litigation. It is common that there is substantial disagreement about the exact point an agreement was reached amid an avalanche of communications back and forth. Our experienced Georgia business litigation attorneys have handled hundreds of Georgia contract disputes involving very complex transactions following long periods of negotiation. The Georgia business litigation attorneys at our firm can untangle even the most complex business contract dispute so that we can effectively represent your business and financial interests.