Understanding Contract Law when Negotiating Business Deals

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Negotiating deals in the business world requires a fundamental understanding of contract law. For starters, in the United States, unless you have a specific arrangement to the contrary, no deal is closed until the parties reach an agreement on all the points under negotiation. As long as some point is under discussion, the deal remains open and subject to adjustment by either party.

Even if an agreement on various pieces of the deal seems to be in place, the deal isn't final until both parties reach an agreement on all points. Backing off a previously agreed-to point doesn't happen often, but it does happen, even to experienced negotiators.

To have an enforceable contract, you need agreement on four elements:

  • Description of the product or service to be delivered

  • Cost of the product or service

  • Term of the agreement

  • Names of the parties responsible for delivering elements of the agreement

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Here are some specifics of U.S. contract law that apply to most negotiations:

  • Offers and counteroffers: When a party makes an offer and you make a counteroffer, you legally rejected the initial offer and put a new offer on the table. The other party may allow you to accept a previous offer but is not bound to do so. After you put a counteroffer on the table, you have no legal right to demand that an old offer stay on the table.

  • Written versus oral contracts: Contrary to popular belief, oral agreements are generally enforceable. The law requires a few types of contracts to be in writing, including those relating to employment and the sale of land and contracts extending for more than a year; but generally, oral contracts are valid but tough to prove if you get into a dispute unless you have something other than your own memory to establish the agreed-to terms.

  • Pre-contract legal protection: If one or both parties begin to carry out the terms of an agreement before a fully enforceable contract is signed, the courts usually support acts performed in good faith. That is, the party who performed a service or provided goods typically receives the fair market value for that service or product even if a contract is not signed.

Check out Contract Law For Dummies by Scott J. Burnham (Wiley) for much more on this topic.


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