Chapter 6 + 7 (Keller)

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Management and Organizational Studies
Management and Organizational Studies 2275A/B
Cristin Keller

Chapter 6 + 7 Definition of Contract • A contract is a voluntary exchange of promises, creating obligations which, if defaulted on, can be enforced and remedied by the courts. – Exchange of promise = you have to get something in return – If both sides don’t get something out of it IS NOT CONTRACT LAW, it is a GIT – If contract is defaulted on then they can take action to court – If someone promises something without a contract, they cannot legally enforce it in court and therefore cannot sue for breach • Generally the parties have “freedom of contract” – they can enter into the contract they wish, with few restrictions Notes: - Contract will be a civil action (balance of probabilities) o Plaintiff will have to show that they and the defendant did in fact have a contract o Plaintiff then has to show that the contract was breached Elements of a Contract • Consensus • Consideration • Capacity • Legality • Intention To be noted… • Contract to be in writing (only sometimes) – Can have a verbal contract • Most contracts are verbal Important Terms and Definitions • Formal and Simple Contracts – Standard contract (insurance industry) or simple = contract that is put together in simple terms • Express and Implied Contracts – Express= Written or verbal but the terms are clearly stated – Implied = parties may or may not have turned their minds to the conduct but because of a pre-existing relationship we will apply those contract terms • Valid, Void, and Voidable Contracts – • Unenforceable and Illegal Contracts • Bilateral and Unilateral Contracts Consensus (first element of contract) • A meeting of the minds of contracting parties – Both parties intend to be legally bound by contract • Share an understanding of the bargain struck • Be willing to commit themselves to terms • Terms must be unambiguous • Failure to read a contract is no excuse • Comprised of Offer and Acceptance – Every contract is started off with this Offer (what one person gives to another person) • Offer must contain: – All of the terms of the contract • What is not included in offer cannot be later added – A communication of willingness to be bound – Terms of offer must be clear • Terms can be implied (terms that accompany the deal that aren’t expressed verbally or orally) • An interim agreement may often be binding – Contains all essential terms • An offer may contain a condition or “subject to” (subject to clauses are also called condition precedent) – If not satisfied the parties are not bound to proceed with the contract Notes: - Offer doesn’t happen until you formally offer something (when does negotiation become an offer?) - Contract doesn’t occur until acceptance stage Invitation to Treat • Not an offer to sell • An invitation to the general public to engage in the bargaining process – Advertisements or sales promotions are not binding offers – Articles displayed for sale are not offers but merely invitations for customers to offer to pay the price of the item - Ex. If someone doesn’t have everything in their flyer this is not a contract as it was an invitation to treat Offer by Conduct (interactions leading someone to believe you want to engage in a contract) • An offer by conduct is capable of being accepted • Types of offers: – Taking goods to the cash desk in a store – Hailing a cab – Gesture at an auction Communication of an Offer • An offer must be communicated • Disclaimers of responsibility (Exemption clauses) if strict, must be brought to the attention of the person granting it – • Only the person or group to whom an offer is made can accept it The End of an Offer • Offer ends at a specified time or – For example: a certain date (Friday at midnight – Friday at 12:01 does not count as offer expires) – After a reasonable time if not specified • If not time is specified the court will have to assess what is reasonable given the nature of the offer • At the death or insanity of the offeror • When it is revoked (withdrawn) before acceptance and the revocation is communicated to the offeree – HAS TO BE COMMUNICATED – HAS TO BE REVOKED BEFORE ACCEPTANCE (or a breach of contract occurs) – Even if deadline is given, you can revoke the offer as long as you have not accepted and you have communicated\ – Revocation is not effective until the other person learns of the revocation • When the offer is rejected • A counteroffer is put forward – A counteroffer forms a rejection – Counteroffer by the offerree counts as a rejection – If someone declines your offer and then counteroffers and you decline it. They can not go back to the original offer (unless you accept it) and cannot sue you for breach of contract • Offeror and offeree switch roles when counteroffer is made • Offerror = persona making deal and offeree = person accepting it • If the subject matter is illegal – Can’t take them to court as valid offer did not exist (subject matter was illegal) • If the subject matter is destroyed – Ex. I offer to sell you my car and little did I know that the car was in an accident. I have nothing to give you and so offer is gone Offers That Cannot Be Revoked • Acquiring an option to purchase – You are putting forth an offer and exchange for someone giving up there right to revoke that, they are getting something extra – In order to get someone to give up a legal right, they needed to be given something extra • Ex. I can’t give you answer for your job offer for six months, can I give you something in return so you cannot revoke that offer? • Tenders (tendering process) – One company will be asking for offers, (bids from other company’s to satisfy company’s demands) - Toilet paper example • Bidders will want to find out what others are bidding so they can lower their bid • City won’t let you revoke and resubmit if you bid horribly (sucks to suck) • Tender process HAS TO give you (as a bidder) an incentive as you are giving up a legal right – Implied term that all bids are to be treated fairly and equally – “The lowest or any tender will not necessarily be accepted” • Unilateral contract is being performed Acceptance (2 half of consensus = offer and acceptance) • Must be unconditional – Accept offer exactly as it is or it is a counteroffer • Must not specify any new terms (or it is a counteroffer) • Court will interpret any ambiguities in the offer to give effect to the intentions of the parties • Will not overcome the defect of an incomplete or defective offer – Cannot accept an invalid offer (IF THERE IS A FLAW YOU CANNOT ACCEPT) Communication of Acceptance • Unilateral contract accepted by performance • Usually by communication to the offeror • Effective at time acceptance is communicated • Sometimes by conduct – Find lost puppy example: you find the dog then you have a contract • If you take the benefit of the offer, you are deemed to have accepted it, by conduct. – If you take a car for a test drive and don’t come back then you have accepted it and you have a contract – Don’t have to say you have accepted it but you take the benefit of the offer • Silence is not acceptance (unless part of on-going business relationship) – Shouldn’t have to say you don’t want something (unless there is an ongoing business relationship) • Ex. Walmart and supplier, that renews itself. Silence can be acceptance of it continuing • Law used to enforce the contract – The contract is formed (determines when and where the contract is formed) • When; and • Where the offeror learns of the acceptance • If accepted and the offeror hears about it in Ontario then the Ontario rules apply – Can put in contract which rules will apply (what country) The Post Box Rule (only applies to acceptance) - If acceptance by snail mail is reasonable then the acceptance is effective where and when the letter is posted • Rule applies only when response by mail is appropriate (doesn’t apply to faxes, emails or texts) – If you don’t like it, state it in contract • New methods of communication make the expansion of the post box rule unnecessary Consideration • Bargaining – trading promises for promises – “In consideration for title to your widget, I will pay you a ducet” • Consideration: the price one is willing to pay for a promise • All parties must derive some benefit from the deal • If there is not consideration on both sides you have a git • Exchange of promises or commitments • IF THERE IS NO CONSIDERATION ON BOTH SIDES THEN YOU DON’T HAVE A CONTRACT******* • Considerations don’t have to be fair or equal Adequacy of Consideration • Need not be fair, but – Unfair consideration may indicate undue influence, insanity or fraud – More willingness to assist consumers – Consumer protection statutes
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