Contract Law in Florida

The first step to a contract is an offer. An offer is a written or spoken statement by one of his or her intention to be held to a commitment upon acceptance of the offer. Many business owners have become involved in legal disputes because, during negotiations, a customer believed an offer had been made when the businessperson believed the parties were only discussing possible options. You should carefully consider whether his or her statements or the statements of other parties constitute offers. There are a number of factors to look at to determine whether a statement constitutes an offer.

• Is the person making the offer serious? A business executive who jokingly suggests the sale of a successful business in exchange for a good bottle of scotch is not making an offer. On the other hand, a business executive who writes up an offer on a bar napkin may be perfectly serious. A court will look at the context in which the statement was made to determine whether it was a valid offer.
• Does the statement show a willingness of the party to be held to its contents? A person requesting a price quote or opening negotiations is not making an offer. An advertisement is usually viewed as an invitation to an offer rather than an offer itself.
• Does the statement contain definite terms? If the subject matter is identified, the parties are identified, the price is set, quantities are determined, and a time is set for performance, an offer very likely has been made. There should be enough information contained in the statement that, if needed, a court would be able to enforce the contract or determine the damages.

Acceptance

The second requirement for a valid contract is acceptance of the offer. In order for an acceptance of an offer to be effective, it must be made while the offer is still open. In some situations, the company making the offer gives a definite time frame: “My company will sell you this widget for $1,000, but you must decide whether to buy it within four days.” Other ways an offer may end include: the offer is withdrawn, the person who receives the offer rejects it, a reasonable amount of time passes after the offer is made, or the subject matter of the offer is destroyed prior to acceptance.

Unless an offer specifies otherwise, an offer can be accepted through the mail. An important rule known as the “mailbox rule” says that an acceptance is effective once it is put in the mailbox. If the offeror attempts to withdraw the offer after the acceptance is mailed but before it is received, the person accepting the offer can hold the offeror to the contract. For this reason, anyone making an offer should be aware that it might be accepted, by means of the mailbox rule, before the offeror knows of the acceptance. This can cause problems for the offeror if he or she assumed the offer was rejected and found another buyer. To avoid possible confusion, some businesses will specify in an offer that acceptance of the offer is only effective upon receipt of the acceptance.

If a person changes the conditions of an offer in responding to the offer, the offer is rejected and the changed conditions constitute a counter-offer: “I want to buy the widget, but I will pay only $500 for it.” In this scenario, the person who made the original offer can respond to the counter-offer by accepting or rejecting it, or proposing yet another offer.

There are two ways a person can accept an offer: by promising to do something, or by performing the desired act. In the first type, known as a bilateral contract, a customer accepts an offer to sell the widget by promising to pay $1,000 for it. In the second type, known as a unilateral contract, a business owner offers a contractor $1,000 to replace a floor and the contractor replaces the floor; the contractor accepted the offer by performing the act requested.

Consideration 

Consideration is a legal concept that describes something of value given in exchange for a performance or a promise of performance. The presence of consideration distinguishes contracts from gifts. Consideration can be 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. All parties in an agreement must give consideration in order to create a contract, but courts typically do not make a determination about the adequacy of the consideration unless there is evidence of some type of wrongdoing by the party benefiting most from the contract.

Defenses to Contract

Once it is determined that the basic elements of a contract exist, it must be determined whether there are any defenses that call into question the validity of the contract. There are some defenses that make the contract automatically unenforceable (void) and other defenses that give the parties the option not to enforce the contract (voidable).

Legality of the Contract 

Although two persons may exchange an offer, acceptance, and consideration, if the subject matter of the contract is against the law, a valid contract does not exist.

Capacity of the Parties to Contract

In order to be bound to a contract, the parties must be competent to enter into the legal arrangement. Underage persons, persons who are mentally ill, and intoxicated persons usually are not bound by the contracts they enter.

Agency 

A business may challenge the validity of a contract by claiming that the person who signed the contract for the company was not an agent of the company and therefore had no authority to act on the company’s behalf. Agency is a legal status — one party, the agent, has authority to conduct business for another party, the principal. Unless they have very small businesses, most business owners must rely on others to conduct business and enter into contracts for them. Thus, agency is a common aspect of doing business. Because principals are bound by contracts entered into by their agents, business operators should be familiar with the laws of agency.

An agent’s authority to enter into contracts on behalf of the business can be actual, implied, or apparent. Actual authority is authority that the principal has intentionally given to an agent who has accepted it. The clearest example of creating actual authority is when a business owner hires someone to negotiate purchases for the company. Implied authority may result from the agent’s relationship with the principal or the principal’s business, from custom, or by acquiescence. For example, a principal might not intentionally authorize an employee to make credit purchases for the business, but if the principal repeatedly pays off debts incurred by the employee, he or she may inadvertently create implied authority in that employee. Apparent authority results when the principal acts in a way that causes third parties reasonably to assume that the agent has authority. For example, if a business owner is aware that an employee is claiming authority to act on behalf of the business, the principal should clarify that the employee is not authorized to enter into a contract on behalf of the business, or the employee’s apparent authority may bind the business.

Mistake, Duress, and Fraud 

A mutual mistake — a mistake both parties make to a contract on an important issue — makes the contract unenforceable. However, a mistake by only one party does not necessarily make the contract void. A contract is not necessarily unenforceable because one party has made a mistake, miscalculation or wrong assumption.

Duress is the use of force or pressure by one party to make the other party agree to the contract. The force does not have to be physical — it may be emotional pressure. The use of duress makes the contract voidable by the party under duress.

Fraud is the intentional misrepresentation of an important issue of the contract. The presence of fraud in a contractual proceeding makes the contract voidable by the party upon whom the fraud was perpetrated.

Statute of Frauds 

Contracts, in many instances, do not have to be in writing to be legally binding. However, a rule known as the Statute of Frauds requires that some contracts must be written to be valid. Under Florida law, contracts involving an interest in land, contracts concerning the sale of goods worth more than $500, contracts that cannot be performed within one year, contracts to pay off someone else’s debts, leases for more than one year, marriage contracts, a personal representative’s promise to pay the debts of an estate, home improvement contracts, health care agreements, and credit agreements must be in writing to be enforceable.

Parol Evidence Rule

Although it is not a defense to a contract, the parol evidence rule may affect the contents of a contract and how a contract is enforced. The parol evidence rule applies once parties have come to a final, written contract. Once there is a final, written contract between the parties, this rule forbids the introduction in a court proceeding of any previous agreements between the parties on the subject matter of the contract. The parol evidence rule permits the judge or jury in a contract dispute to look only at the written contract and not at any previous discussions between the parties. The reasoning behind the parol evidence rule is that all factors that are important to the agreement and that have been decided by the parties should be stated in the final, written contract. The parol evidence rule does not, however, forbid the introduction of later agreements between the parties.

Contract Termination 

Once there is a valid contract between parties, it can end in several ways. A contract with a stated, limited time span simply expires at the end of the stated time. If a person is hired to work for two weeks, the contract concludes at the end of two weeks. In many instances in which there is a specific time frame stated in the contract, parties to the contract may have the option to extend the contract for a longer period of time.

Contracts also may be project specific. A contract may be made for the provision of goods for a project, and upon the completion of the project the contract for these goods or services ends. Parties to a contract may mutually agree to rescind the contract. In that case, the parties may agree on the duties and responsibilities of each party after the rescission.

A contract also may end because of a breach. A breach occurs when a party does not fulfill his or her responsibilities under the contract. A breach may be minor or major. A minor breach is one that affects small, minor details of the agreement and may not affect the outcome of the contract. However, a major breach is one that does affect the subject matter of the contract and may affect the outcome of the contract. This is also known as a material breach. When there has been a breach of a contract, the question of damages is raised.

Damages