Chapter 7: The Nature and Creation of Contracts
Introduction to Contracts
• Contract = legally enforceable agreement.
• Usually does not have to be in writing.
• Elements of a contract:
o Intention to create legal relations.
o Mutual agreement through offer and acceptance.
o Exchange of value: each must give consideration.
• Differences between torts and contracts:
o Source of primary obligation
o Risk management
Intention to Create Legal Relations (pg 156)
• Parties must intend to create a legally enforceable agreement.
• Objective test of intention:
o What would a reasonable person believe?
• A reasonable person does not take unrealistic or exaggerated proposals seriously.
• Presumption in favour of contract where there is a commercial relationship.
• Presumptions may be rebutted or disproved.
• See Fobasco v. Cogan.
Nature of an Offer (pg 158)
• Offer = willingness to enter into a contract on certain terms.
• Offeror is the party who indicates willingness to enter into contract on defined terms.
• Offeree is the party who is entitled to accept or reject the offer.
• Offeror is the master of the offer (can set almost any terms desired).
• Offer must usually contain the essential terms of the contract.
Invitation to Treat (pg 158)
• Offers and risk management:
o Contract created as soon as offer is accepted.
o No particular form is necessary.
o Contract does not have to be in writing, unless it falls within one of the special
categories (e.g. sale of land).
o Mechanism required to reduce risk of liability.
• Invitation to treat = willingness to receive an offer: • Offers v. invitations to treat:
o Objective reasonable person test
o Statement placed in newspaper ad or catalogue presumed to be invitations.
Characteristics of an Offer
• Offer must be communicated.
• Communication may take many forms:
o Written document
o Oral statement
• Offer turned into contract by acceptance.
• Offer may be terminated before acceptance if:
o Lapse of time
o Death or insanity
o Counter offer
Revocation (pg 160)
• Revocation = withdraw by offeror
o Offeror generally free to revoke at any time.
o Revocation must be communicated to offeree.
• Firm offers
o Gratuitous promise to not revoke is unenforceable (Dickinson v. Dodds).
o It is enforceable and cannot be revoked if:
It is placed under seal; OR
Options: Offeror receives some value, usually money, in return for a
binding promise to keep the offer open for a specific period.
• Another exception – The Tender Process:
o Bidders prohibited from revoking offers.
Revocation: The Tender Process
• A tender is an offer to undertake a project on particular terms set by the initiating body
(usually a public body).
• This body usuall