Word for Word

The word “contract” tends to call up unpleasant images of lengthy formal documentation written in arcane language and requiring the signature of corporate officers to be effective. And while contracts can be all that, most contracts are simply the product of the wheeling and dealing that takes place in your office every day.

In this article we’ll review some basic legal principles and consider questions such as: When is a contract for the sale of goods formed? Can my customer really just cancel that order? What are the terms of the contract?

At the outset, it’s important to note that contracts for the sale of goods, including produce, are generally governed by Article 2 of the Uniform Commercial Code (UCC) as adopted by state law or applied by the U.S. Department of Agriculture (USDA) Perishable Agricultural Commodities Act (PACA) branch.

Conversely, contracts for the sale of services, such as transportation, are generally governed by common law. As a result, some of the legal principles governing contracts for service are different from those governing the sale of goods. Look for an article specific to transportation agreements in a future issue of Blueprints.

Fundamentals
A contract may be thought of as an exchange of promises that is enforceable by law. For example, you promise to supply me with peppers, I promise to pay for them; if either of us breaks our promise, the aggrieved party would have legal recourse against the breaching party.

So, as communications between buyer and seller progress from small talk, to inquiry, to putting out feelers, to negotiation, at what point does a legally enforceable contract arise? To answer this question, courts look to the common law principles of offer and acceptance.

The offer, which could be made by the buyer or seller, is said to grant the offeree the power of acceptance. In other words, once an offer has been made, the party receiving the offer can unilaterally accept the offer, resulting (typically) in a legally enforceable contract. When considering whether a particular communication qualifies as a legally effective offer, courts ask whether the putative offer created the reasonable expectation in the offeree that the offeror was willing to enter into a contract.

The specific language used by the parties is pivotal in this regard. Language such as “We would consider selling for $25 a case,” would almost certainly be interpreted by courts as an invitation to deal, rather than a legally effective offer. But language such as “I am looking for $25 a case” or “I’ll quote you $25 a case” is more ambiguous. Conversely, “I will sell for $25 a case,” clearly manifests an offer to sell unless somehow the surrounding circumstances or relationship between the parties suggested the statement was made in jest or in anger, or was otherwise not to be taken seriously.

Once a legally effective offer has been made, the offeree has the power to accept by any reasonable means that manifest the intent to accept. Section 2-206(1)(a) of the UCC provides—

Unless otherwise unambiguously indicated by the language or circumstances an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.