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What business owners should understand about contract law - II

In a previous post, we began discussing how any business owner who wants to enjoy lasting success must resist the urge to sign on the dotted line without really reading the text of the contract. Indeed, the failure to make this standard practice can spell disaster for a business owner, as they aren't ever fully aware of their rights and obligations.

In recognition of this fact and in furtherance of our goal of empowering business owners, our blog began providing some information on the basics of contract law, including the elements that must be present in order for a contract to be considered legally binding. 

To recap,the four elements that must be present in order for any contract to be valid include:

  1. A "meeting of the minds"
  2. At least two parties capable of entering a contract
  3. Some manner of mutual obligation
  4. Lawful purpose

What does a "meeting of the minds" mean?

This is essentially the foundation of the contract, in that, both parties must comprehend the agreement and communicate to one another what their expectations are concerning performance.

By way of example, consider a simple scenario in which someone is selling something to an interested party. Here, there must be mutual assent between the seller and buyer as to 1) the item that is being sold and purchased, and 2) the purchase price.

How exactly is a contract formed?      

In general, the contract process kicks off with one party making some sort of offer. Here, the person to whom the offer is made can reject the offer, accept the offer or make a counteroffer (i.e., negotiate).

Once an offer or counteroffer is accepted by the party to whom it is made, a legally binding contract is formed in the eyes of the law.

What about coercion?

If one side does not enter the contract freely, there can be no meeting of the minds. Indeed, when a party is essentially coerced into accepting an agreement -- defined legally as duress -- no contract can be said to have formed.

How does Georgia define duress?

Georgia law defines duress as threats, imprisonment, or other acts that restrain the free will of a party and induce their consent. It's important to understand that simple pressure by a salesperson likely wouldn't be sufficient to rise to the level of duress.   

We will continue exploring this important legal topic, examining the remaining three elements of a binding contract.

Business owners should strongly consider speaking with an experienced legal professional if they have any questions or concerns regarding the review, drafting or enforcement of a contract.

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