To contract, the minds must meet.

Along with consideration and acceptance, a fundamental principle of contract law is “a meeting of the minds”.

You intuitively know what a meeting of the minds is.  It is when the parties have a binding mutual understanding as to the essential terms and conditions of a proposed contract.  Without a meeting of the minds, a contract cannot be formed.

Keep in mind this is about essential terms of the contract.  In other words, a contract must be definite and certain regarding the terms and requirements; it must identify the subject of the contract (e.g. buying a specific tractor) and articulate the essential commitments and agreements about the subject.

Let’s take the example of buying a tractor.  What would the essential elements be?  In other words, what is the consideration?  Price is the obvious element we would need to agreed upon.  Perhaps delivery to your farm is essential; you would not otherwise enter into the contract.  If a certain model of tractor is the only one who can perform a specific function you need, delivery of that model is essential.  Does the color of the tractor matter or whether the radio is on the right or left of the console?  Most likely, not at all because you are concerned only that the tractor can perform the functions as required.

What is most important to keep in mind is that all parties to a contract should have the same, mutual understanding of all the terms in a contract.  The meeting of the minds is another good reason to have a written contract rather than an oral contract — you can review all the terms prior to signing the contract and you can always review of the written contract to refresh your memory  If you don’t understand what a term means, ask.  If you will not agree to a contract without specific requirements, include them in the contract and state that such terms are essential.

The above is a quick overview of the meeting of the minds and there are nuances in the law.   Curious about the nuances?   Or are you a beginning farmer and have further questions about contracts?  You are welcome to contact us — we’re here to help!

The consequences of breaking your contractual promise

While this blog admittedly has a bias for written contracts, as such contracts (ideally) detail the obligations of each party to the contract, it is important to realize the consequences of not undertaking the obligations in the contract.

Contracts are legally enforceable promises.  For example, you promise to cut the hay by August 1 and the landowner promises to pay you for your work.  If you cut the hay on September 1, you are in breach of the contract and the landowner can institute legal proceedings against you for the breach (that is, breaking your promise).

A breach of contract may carry significant consequences.  A court of law may order you to pay damages to the other party due to the breach.  This means a court of law may require you to keep your promise, regardless of the financial consequences to you and/or your operation.

There are other potential consequences outside a court of law.  The other party may withhold payment until your promise is kept.  Legal recourse may be threatened and/or initiated, with the likely result of high stress, attorney fees, and uncertainty of the outcome.  Longer-term consequences may include the other party no longer contracting with you and encouraging others to not contract with you as well.

Keep in mind that as you add more and more obligations to your contract, there are more and more ways for a potential breach of contract to occur.  You want to ensure that you are capable and willing to meet all your contract obligations.  This means reviewing any proposed contract with a fine-tooth comb and, if you do not understand the contract, contacting an attorney licensed in your state.

Want some more tips on contract drafting and review?  This is a wonderful publication.  Have more questions or concerns?  Contact us as we are here to help.

Offer + Acceptance + Consideration = Contract

I have been reading a number of articles on contracts entered into by farmers for their produce, crops, and/or livestock at the same time I was writing last Thursday’s post about leasing land.  It got me to thinking that perhaps a blog post about the elements required to form a contract was in order.

First, what are the elements of a contract?  A contract requires:

  1. Offer;
  2. Acceptance; and
  3. Consideration.

An offer is an intention to be contractually bound upon the acceptance of another party.  In other words, Person A offers certain terms to Person B as an offer.  Person B can then accept the offer.  Consideration is when Person A makes a promise, Person B makes a promise in return.  The promise must be something of value and can take the form of money, action, abstaining from action, services, and other valuable consideration.

Lets use some examples to illustrate offer, acceptance, and consideration.

Example 1:

Person A approaches Person B and states, “I’d like to rent your 300 acres to plant corn and I will pay 40% of the input costs and receive 40% of the profits.”  Person B agrees to Person A’s terms.

In Example 1, the Person A makes the offer and Person B accepts the offer.  Person A’s consideration is that she will pay 40% of the input costs and 60% of the profits to Person B.  Person B’s consideration is agreeing to Person A renting his land and paying 60% of the input costs.

Example 2:

Person A approaches Person B and states, “I will not grow crops on my land for ten years if I receive $100 per acre per year.”  Person B agrees to Person A’s terms.

In Example 2, Person A makes the offer and Person B accepts the offer.  Person A’s consideration is that he will abstain from using his land for ten years to grow crops.  Person B’s consideration is that she will pay $100 per acre per year for Person A not to grow crops.

Example 3:

Person A approaches Person B and suggests renting 80 acres for cow/calf grazing from May 1, 2013 to October 31, 2013.  Person B replies that she is willing to rent 50 acres from May 1, 2013 to September 30, 2013.  Person A agrees to Person B’s proposal.

Here, Person A makes an offer to Person B.  Person B, however, rejects Person A’s offer and instead, issues a counter-offer.  Person A then accepts Person B’s counter-offer.  The consideration by Person A is the payment of rent.  The consideration by Person B is permitting the use of her land.

Example 4:

Person A contracts with Person B to custom harvest hay for $2,000.  When Person B has partially completed the custom harvest, she approaches Person A and says she will only complete the custom harvest for an additional $2,000, for a total price of $4,000.

Here, Person A is obligated only to pay $2,000, the price originally agreed because a contract existed (as there was offer, acceptance, and consideration) and thus, Person B was under a contractual obligation to perform the custom harvesting for $2,000.  In other words, Person B had a pre-existing obligation to perform the work in exchange for $2,000.

Example 5:

Lets change the facts of Example 3 a little bit.  Person A contracts with Person B to custom harvest hay on a quarter section for $2,000.  When Person B has partially completed the custom harvest, Person A approaches Person A and suggests that Person B custom harvest hay on a second quarter section.  Person B responds that to do so will require an additional $2,000.  Person A agrees to pay the additional $2,000.

Unlike Example 3, Person A and Person B entered into a new, second contract.  The offer from Person A is to custom hay the second quarter section.  Person B counter-offers that to do will require $2,000.  Person A accepts.  The consideration from Person A is $2,000 and the consideration from Person B is completing the custom hay work.

Offer, acceptance, and consideration are bedrock elements of contract law but the specifics of contract law varies by state.  Thursday we will discuss implications of the Uniform Commercial Code and the statute of frauds for contracts.  If you are from Nebraska or South Dakota, feel free to contact us if you have questions.  If you are from a different state, contact a licensed attorney should you have questions.