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Lecture 1

ADMS 2610 Lecture Notes - Lecture 1: Plasma Display, Parol Evidence Rule, Clay Tablet


Department
Administrative Studies
Course Code
ADMS 2610
Professor
Robert Levine
Lecture
1

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THE LAW OF CONTRACTS: PART 1
PREFACE:
What follows can be considered a summary of the highlights of the law of Contracts,
which is provided in addition to the readings in your text. It is meant to be read as your
primary working tool. However, since the audio lectures are more or less a dictation of the
written summaries, you may listen to the audio lectures as well or separately, so long as you
ensure that you have covered the materials in this written summary.
INTRODUCTION:
Attempting to understand the law of Contracts is not, by itself, an easy task. In fact, in
my live lectures, I normally devote more than two lectures to this subject, because Contract law
is the basis for commercial transactions throughout the world and it is important that you have a
good foundation in it. The approach I will take is to attempt to introduce you to the concepts
which together comprise the Law of Contracts.
FORMATION OF CONTRACTS:
In this section, I will deal with how a contract is formed, that is: the basic steps that the
law considers necessary to create a contract. However, before doing this, it is important that you
understand just what a contract is. While your text and many others begin first with the essential
elements of a contract, I prefer to approach this topic by having you understand that normally, a
contract is an agreement between by two or more people, called parties, comprised of
reciprocal or corresponding promises, each of which can be enforced at law. This agreement
requires that each party who makes a promise actually intends to honour his or her promise or to
ensure that it is performed or done. This intention is fundamental to the formation of a contract,
since a promise that is made without this intention will technically never become an
agreement. However, you must understand that the law presumes that the parties to such an
agreement actually intend it to have legally binding consequences, so that lack of intention is
usually used by one of the parties to a purported agreement to get out of it or to argue that no
agreement was ever made. The agreement also requires that each of the parties has what is
called Capacity (or the standing granted by law) to make the agreement in the first place. I shall
explain capacity at greater length later in this summary, however, please note that, like intention,
capacity is presumed and normally, lack of capacity is only argued to get out of a contract.
Because a contract is comprised of reciprocal promises common law holds that the parties to an
agreement fully understand the nature of the promises made, that is, the parties reach a
consensus ad idem or a meeting of the minds - each party must understand the promise that he
or she has made and the promise that the other party has made and be prepared to fulfill it.
Without such an understanding there can never be an agreement or a contract.
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2
FORMATION OF A CONTRACT: THE OPERATIVE PARTS OF A CONTRACT:
A: OFFER, CONSIDERATION AND ACCEPTANCE
For your purposes the operative parts of a contract or agreement are first something
called an “offer”, secondly something called “consideration and finally, “acceptance” of the
offer.
A(i) OFFER:
An offer is simply a promise that is made by one person to another or others that is
meant to have legally binding consequences once it is accepted by the party or parties to whom
it is made. The person who makes the offer is called the offeror and the person to whom the
offer is made is called the offeree.
A(i) CONSIDERATION:
By itself, however, common law requires that the promise or offer that is made be
supported by or must set out the price to be paid for the promise. The price is called the
consideration. I shall deal with the matter of consideration at greater length later in this
summary, but for now, you can consider that in normal situations, the offer or promise made
also sets out or contains the consideration or price for the promise/offer. Further, you can
also take it that it is important to understand that the consideration or price can be anything.
That is, consideration need not equal to the money value for which it is paid, rather common
law says it can be anything, so long as consideration exists. Thus, A can sell his Rembrandt
painting worth 1 million dollars to B for $200,000.00, or for $ 20.00 or for a paper clip. In
each case common law says that the $200,000.00 or the $20.00 or the paper clip is good and
sufficient consideration to form a contract.
Consider the following examples of an offer:
(a) I will sell you my car for $500.00. Alternatively, I promise to sell you my car
for $500.00. Alternatively, I offer to sell you my car for $500.00. The 500.00 is
the consideration that will be paid for the car if the offer is accepted and a contract
formed.
(b) A promises/offers to sell his boat to B for $1,000.00. Alternatively, A will sell
his boat to B for $1,000.00. Again, if B accepts A’s offer, there will be a
contract and the consideration to be paid by B will be $ 1,000.00.
It should be understood that the consideration or price need not be in money, instead it can be by
way of the performance of an obligation that has value. For example:
(a) A promises/offers to sell his car to B if B will paint A’s house. If A and B
agree, then the consideration or the price to be paid by B is the painting of the
house.
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3
(b) B promises/offers to paint A’s shed if A repairs B’s watch. Here the
consideration to be paid by A is the repair of B’s watch.
From the foregoing examples it stands to reason that first, the acceptance of an offer creates a
binding agreement or contract, and secondly, where there are reciprocal promises, each one
becomes a reciprocal obligation and consideration moves or flows both ways from the parties.
Consider again the following examples:
(a) A promises/offers to build a house for B for $100,000.00. Here, if B accepts
A’s offer/promise so as to create a contract, the reciprocal promises/obligations
are first, A’s promise to build a house for B, and secondly, B’s promise to pay A
$100,000.00. Another way of saying this is the consideration that is paid by or
flows from B to A is the $100.000.00 and the consideration that is paid by or
flows from A to B is the building of the house.
(b) Albert promises/offers to cut down Walter’s tree if Walter will mow Albert’s
lawn. In this case if Walter agrees so as to create a contract, the reciprocal
promises/obligations are first, Albert’s promise/obligation to cut down Walter’s
tree and, secondly, Walter’s promise/obligation to mow Albert’s lawn. Stated in
terms of consideration, the consideration that is paid by or flows from Walter to
Albert is the mowing of Albert’s lawn, while the consideration that is paid by or
that flows from Albert to Walter is the cutting down of Walter’s tree.
A(iii) ACCEPTANCE:
The general rule is that in order to form or create a contract, the offer must be accepted
by the offeree. In this regard, common law provides a number of simple common sense rules
relating to acceptance. These rules are:
(a) Because the effect of acceptance of an offer is to create a contract, acceptance
must be communicated by the offeree (the person to whom the offer is made) to the
offeror (the person who made the offer). Thus, the failure of the offeree to
communicate acceptance to the offeror results in no contract.
(b) Where no method of acceptance is stated in the offer, any manner of
acceptance will do. For example, A offers to sell his car to B for $500.00. In this case, if
B wishes to accept A’s offer, B can accept it orally by telling A he accepts; or he fax A a
memo or send him an e-mail saying “I accept”. B could even write “I accept” on the
side of a cow and drop the cow off to A. The important point here is that any manner of
acceptance will do to create a contract.
(c) Where the offer specifies or set out the manner or way in which it must be
accepted, then it can only be accepted in the manner specified. For example, A offers
to sell his car to B for $500.00, acceptance to be by facsimile transmission. Here is B
accepts by facsimile, then there is a contract. However, if B were to simply pick up the
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