Idaho Business Law do I Have a Contract? Part 1 - The Basics

By Lane V. Erickson, Idaho Business Attorney

If you are a business owner or are associated in any way with the business world, then sooner or later you are going to come face-to-face in dealing with contracts. Maybe it’s a supplier who is providing materials to you that you use in manufacturing products for your business. Or maybe it’s the salesmen that you have working for you under a commission type of payment. Or, alternatively, it could be clients or customers that you enter into deals with for the purchase of products from your business. Whatever the situation is, if it involves a contract, then you should understand at least the basics of how contracts work.

Over the next few weeks, we will be providing additional details about what a contract is and how it works. For purposes of today’s article, we are simply going to summarize the basics that go into the creation of a contract.

By legal definition a contract is a binding agreement between two or more competent persons or parties concerning some specific thing, item or act. How’s that for a confusing definition. Again, over the next few weeks we will provide information about what all of this means as far as it applies to you as a business owner.

For example, if you are the owner of an LLC or a corporation, the contracting party may actually be your corporation rather than you individually. Because we are focused on businesses in this article, we will assume that it is your business who is entering into the contract.

Keep in mind, that this article acts as only a summary of helping you understand whether you have a contract or not. Articles that will follow will also provide information about this topic. However, if you do have questions, we encourage you to contact us. We would be happy to sit down with you and review your situation to help you determine whether you have a contract or not.

The first thing that you need to understand in determining whether a contract exists is whether there was an offer and an acceptance. According to the legal dictionary, an offer is a manifestation of a willingness to enter into a bargain, so made as to justify another person and understanding that his assent to the bargain is invited and will conclude it. In other words, it is a proposal to either do or to not do some specific thing.

An acceptance is the receiving party consenting to the specific terms that were made in the offer. In other words, an acceptance of an offer is the expression of agreement to the offered terms.

For example, let’s say that you manufacture mirrors. A salesman comes to your business and says that his company can provide the paint needed for the backing of the mirror at a certain price. You believe that is a great price and will help lower the cost of your creating mirrors. The salesman gives you a written contract it says that they can provide you with 1,000 cans of paint at a certain price. You sign that document and date it agreeing to pay the amount listed. That is an offer and an acceptance.

Likewise, let’s say that your friend comes to your house with his mountain bike. He says he wants to buy a new mountain bike, but he has to sell his old one first. You tell him you will buy his old mountain bike for $500. Your friend says yes. In this example there is an offer and an acceptance.

Now let’s say that a girl scout comes to your door and offers to sell you a box of Girl Scout cookies for $5. However, you say I’ll give you $4 for that box of cookies. The girl scout turns and walks away. In this example, there is an offer from the Girlscout, and then there is a counteroffer from you, but there is no acceptance.

In addition to an offer and acceptance a basic contract also needs consideration. Consideration is simply an item or thing of value that is exchanged from one party to the other party. There must be an exchange of value that goes from both parties to the other party in order for a contract to be valid. Otherwise, all you have is a gift.

To illustrate with the examples listed above, the salesman who came to your business said that he can provide the paint that you need for the backing of the mirrors you manufacture and the price is the offer. It is also the consideration that the salesman will be providing to you. The consideration you give back is the money you pay to actually purchase the paint. So in this example there is an exchange of paint for money.

However, if the salesman knocked on your door and told you he had a thousand cans of extra paint he couldn’t do anything with and asked you if you wanted it. Now we are in a situation where we’re not sure if a contract actually exists. The salesman was not clear as to whether he was selling the paint or whether he was offering to just give it to you. If you just gives it to you, without asking for some exchange to be given back to him, then it’s a gift. However, if he was telling you these things because he was leading up to letting you know that the paint was half off, then even though you’re getting a great deal, you’re still exchanging money for the paint. Because consideration would exist that means that a contract also exists.

Another thing that must exist for a contract to be created are clear terms. In other words, both parties have to understand exactly what the terms of the contract are. If there is a misunderstanding of what the terms are, then no contract may exist.

Continuing with the salesman example above, if the salesman said he had 1,000 cans of paint, he will sell to you, and the paint is white but you thought it was silver, That we likely don’t have a contract at all. What are the ways that clear terms can be made is when they are in writing. Because they are in writing, it’s difficult for either party to say they misunderstood or didn’t agree with each other about what the term actually was.

Again, this is just the beginning of a series of Articles talking about whether or not an enforceable contract exists. In the coming weeks we will be providing more detail and examples to help you understand what a contract is and whether you have one. However, in the meantime if you do have questions, please feel free to call us. We would be happy to schedule a free 30-minute consultation where we can answer your specific questions about your circumstances and help you understand whether a contract exists.

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.