Chapter 7 The Nature and Creation of Contracts

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25 Apr 2012
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Chapter 7: The Nature and Creation of Contracts
Contract: is an agreement that creates rights and obligations that can be enforced in law
Meeting of the minds: is a share decision to enter into a legal transaction on a particular basis
Exchange of Value: occurs when the parties each give up something
Contracts require distinct elements:
1) The parties must have an intention to create legal relations
2) They must reach a mutual agreement through the process of offer and acceptance
3) They must enter into a bargain by each giving consideration
Intention to Create Legal Relations
Intention to create legal relations: arises if a reasonable person would believe that the parties intended
to create a legally enforceable agreement.
-Courts ask whether reasonable person would have believed that the parties intended to enter into a
contract. Test is objective; judge considers what the reasonable person would’ve thought not the parties.
-The test is NOT subjective intentions because people can lie in trial and the law of contracts aim is to
protect reasonable expectations.
Offer
The Nature of an Offer
Offer: is an indication of a willingness to enter into a contract on certain terms
Offeror: is a party who offers to enter into a contract
Offeree: is a party who receives an offer to enter into a contract
-offers create a risk because a contract comes into existence as soon as an offer is accepted. Both
parties become obligated to fulfill the promised contained in the agreement.
Invitation to Treat
-courts classify some statements not as offers but as invitations
Invitation to treat: is an indication of a willingness to receive an offer
-It is an invitation for others to make offers. A person who responds to the invitation is an Offeror and
the person who initially presented the invitation is the Offeree. (Example, my ad is classified as an
invitation to treat; each response is an offer, which I am free to accept or reject)
Communication of an Offer
-A statement is not an offer unless it is communicated and received as an offer.
The Life of an Offer
-Offers do not last forever. It is accepted, it gives way to a contract.
If NOT accepted, it may cease to exist by:
Revocation: occurs if the party who made an offer withdraws it. The Offeror is the master of the
offer and is generally entitled to revoke it at any time.
Two Special Situations with Revocation:
1) Firm Offers: occurs when the Offeror promises to hold an offer open for acceptance for a
certain period. Despite the general rule, a firm offer cannot be revoked if the offer’s promise
was placed under seal or if the offeree paid for the right to accept within a certain period.
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