CH5 Formation of a Contract
Def. contract: a promise, or a set of promises, that the law will enforce (legally binding
7 requirements for a contract
• An offer is a tentative promise by one party to another, subject to a
condition or a request.
• An offer must be explicit and specific.
• Offer is intended to be binding on both parties as soon as it is
• Standard Form Contract (SFC): an offer presented in a printed
document or notice, the terms of which cannot be changed by the offeree, but
must be accepted as-is or rejected. 如车票
----------The “Take it or leave it” contract: highly efficient, fast and easy
----------Little room for negotiation over terms of the contract: inequality of bargaining
*In retail context, advertisement and marketing material are not considered offers. They
are considered to be invitation for consumers to come to the store and make an offer.
• Case: Harvey v. Facey: Facey asks what Harvey’s lowest price is
for a price of land. It is $90. Then Harvey does not sell the land. Harvey just
answered to the question of price therefore not legally binding.
• Cross offer is different from acceptance, both parties made their
cross offer without the knowledge of other parties’ conduct.
• What if there is unusual or unexpected terms?
-----The offeror must point out any unusual or unexpected terms to the offeree, or these
terms will be struck from the contract by the court.
• Counter-offer: by making a counter-offer, the initial offer is
rejected and another new offer is proposed. • Lapse: courts will imply reasonable amount of time. Offeree has to
accept, reject or make a counter-offer within a specific of time or the initial offer
will go invalid. (to protect the offeror)
• Revocation: before offer is accepted, the offeror can cancel it
(before the acceptance of the offeree is communicated). We can say an offeror
can revoke the offer any time up to acceptance, exceptions: 1. an offeree has paid
money to keep an offer open
2. the offer was made under seal
2. acceptance: final unqualified consent to the terms of the offer, must be communicated
either by word or conduct
• In order to accept a contract, just a handshake or oral promise
makes the contract equally binding. (Positive nature: Acceptance must be made
in some positive form; an offeror cannot insist on silence as a mode of
acceptance, but with exception like: if you don’t say anything, subscription will
• Communication of acceptance: method of acceptance should be
reasonable in the circumstances and reasonable to the offer (responding by snail
mail on a time sensitive offer is unreasonable)
• Generally speaking, if it is a bilateral offer, an offeree must
communicate acceptance the offeror. But if it is a unilateral offer, the offeree
does not need to do so cause his conduct is the acceptance of the offer.
• Acceptance is incurred when the offeror heard. Once acceptance is
incurred, it is too late to revoke it.
• Notice of terms: general rule is that when you accept an offer, you
accept all terms in that offer. Once accept an offer, you are bound by it.
• If there is no adequate notice for the term/contract, it is invalid.
The person who is making the contract has to make reasonable step to let them
know the rules. The essential point here is whether REASONABLE STEPS have
• The role of circumstances: courts refer to the fact that sometimes a
deal may be rush-through, offerees may be urged when accepting a standard form
• Normal rule: offerors must take reasonable steps to give notice. • The ways in which an offer may come to an end:
1. the offer may lapse when the offeree fails to accept within the reasonable time period.
2. the offeror revokes the offer before the acceptance.
3. the offeror rejects the offer or makes a counter-offer
4. the offeree accepts the offer. The offer ends and is replaced by a contract between the
• Jurisdiction: the province, state, or country whose laws apply to a
• Unilateral contract: a contract in which the offer is accepted by
performing an act or series of acts required by the terms of the offer (acceptance
• Subsidiary promise: an implied promise that the offeror will not
revoke once the offeree begins performance in good faith and continues to
CH6 Formation of a Contract: Consideration, and Intention to Create Legal Relation
3. consideration: the price for which the promise of the other is bought; the price that
makes the promisor’s promise binding.
• An accepted offer will not be recognized as an enforceable contract
unless it has consideration.
• Gratuitous promise: a promise made without bargaining for or
accepting anything in return.
---Since gratuitous promise is a promise with the absence of consideration, the promise
does not become a contract and is not enforceable in law.
---Once a party has voluntarily made the gift, it is no longer her property and she has no
control over it, except in the rare case of undue influence.
• Adequacy of consideration: the consideration given in return for a
promise should have some value in the eyes of the law. (Paperclip v. Limousine is
unacceptable). BUT!!! The court does not inquire whether the promisor made a
good bargain. It is not the job of the court to make a fair bargain. HOWEVER!!!
If the consideration is grossly inadequate for the promise and if other evidence points to FRAUD, DURESS, or UNDUE INFLUENCE, … , exerted on the
promisor, the court may hold the contract is VOIDABLE. (Courts have become
increasingly concerned with protecting the interests of consumers form
• Motive contrasted with consideration: PAST CONSIDERATION:
a gratuitous benefit previously conferred upon a promisor = NO
CONSIDERATION (past consideration ≠ consideration)
• Existing legal duty: NO NEW CONSIDERATION, NO NEW
CONTRACT (test: is there anything new?)
• Gratuitous reduction of a debt: Foakes v. Beer: the creditor’s
promise to accept less than the total sum to which she was entitled was a
gratuitous promise and did not bind her.
Gratuitous reduction of a debt is not binding. Cause NO NEW CONSIDERATION for
promise to reduce debt = no new contract
But if the creditor accept at a lower price because he want to receive the principal +
interest IN ADVANCE, there will be a consideration binding the creditor.
• Equitable Estoppel: the court’s exercise of its equitable
jurisdiction to estop a promisor from claiming that she was not bound by her
gratuitous promise where reliance on that promise caused injury to the promise.
/ equitable doctrine that will enforce a gratuitous promise where there is
Equitable estoppel can be used as a defence but not a cause of action
Courts exercise equitable jurisdiction to prevent a party from denying his or her promise.
At present, equitable estoppel can only be used as a defence not a cause of action.
---If equitable estoppel has to work, there has to be:
(1) some form of legal relationship between the two parties;
(2) one party has promised the other to release the other party’s legal duty owed to them
(3) the party trying to get benefit of gratuitous promise has to establish detrimental
Equitable estoppel 成立条件：三条件全部满足 。Equitable estoppel 只能作为 defence
非 cause of action。Equitable estoppel is prepared as a defence for the promisor (1) some form of legal relationship between the two parties;
(2) one party has promised the other to release the other party’s legal duty owed to them;
(3) the other party in reliance on that promise alters his conduct in a way that would make
it a real hardship if the promisor could renege on his promise.
BUT!!! Injurious reliance is a cause of action prepared for the promisee
Injurious reliance: loss or harm suffered by a promise who, to his detriment, relied
reasonably on a gratuitous promise.
INJURIOUS RELIANCE & EQUITABLE ESTOPPEL are two sides of a same coin.
• The use of a SEAL
COVENANT: a serious promise
Covenantor: one who makes a covenant.
Document under seal: a covenant recorded in a document containing a wax seal,
showing that the covenantor adopted the document as his act and deed.
Deed: a document under seal, which today is usually a small, red, gummed wafer
Restrictive Covenant / Deed / Document under seal is a form of exception of
consideration. (Seals are solemn promises. No consideration required with seals)
4. certainty of terms: the agreement should be certain and explicit and specific enough
to be enforceable.
• Vague or incomplete agreements can be deemed 【VOID】 by
a court, therefore no contract was ever formed.
• Vague contract: using terminology that is not clear e.g. “fair
value”, “if satisfied”…
• Incomplete: leaving necessary information out of the contract, e.g.
the price of the contract
5. intention to create legal relations: even if there are offer, acceptance, consideration,
there is no contract in law unless both sides also intended to create a legally enforceable
agreement. • Reasonable Bystander Test: did the outward conduct of the
parties lack a serious intention to create legal obligations?
--- Or, if parties were serious enough to enter the contract. Would a reasonable person
absorbing the party conclude that I would be entering the agreement?
• Family context v. commercial / business context
There is no presumption to create legal agreement. Intention to create legal relationship is
not there in family law.
Commercial contract-there is presumption that company is creating a binding legal
CH7 Formation of a contract: capacity to contract and legality of object
·The burden of proving essential elements of a contract
·Once a plaintiff has shown that there was offer and acceptance and consideration for
the promise, the court will ordinarily presume an intention to create legal relations,
and in the absence of evidence to the contrary, the court will presume that two further
elements are present: (1) the defendant had the capacity to make a contract; (2) the
contract is legal.
·So now we have seven elements to form a legal contract: offer; acceptance;
consideration; certainty of terms; intention to make legal relations; capacity to contract;
and legality of contract.
6. capacity to contract: the capacity to enter into a legally binding contract
Legal capacity: competence to bind oneself legally
Repudiate: reject or declare an intention not to be bound by
Minor or infant: a person who has not attained the age of majority according to the law of
his or her province.
Age of majority: the age at which a person is recognized as an adult according to the law
of his or her province
Guardian: a person appointed to manage the affairs of a minor in the place of his or her
Necessaries: essential goods and services. Beneficial contracts of services: contracts of employment or apprenticeship found to be
for a minor’s benefit.
• General Rule: Contracts would be enforceable by the minor, but
not against the minor.
If minor breach the contract, other party cannot sue them. However if minor sue other
party, it is legal.
A MINOR can REPUDIATE a CONTRACT for NON-NECESSARIES at any time
with following exceptions.
• Exceptions: 1. A MINOR IS BOUND BY beneficial contracts of
2. A MINOR IS ALSO BOUND BY necessaries: e.g. food, clothing,
lodging, medical attention…
3. A minor is NOT LIABLE FOR NECESSARIES that he has ordered
but NOT YET RECEIVED.
• A minor can repudiate a contract no matter he is a buyer or a seller.
But the minor have to give the goods or money back to the other parties.
• A minor is under the exemption of both tort law and contract law.
The other party cannot have a chance to win unless the minor is out of the
protection of either law.
Minor如果能以 CONTRACT LAW 脱罪，即便触犯 TORT LAW，另一方也不能起
• When minors attained majority, they may become liable for
obligations. At that time, the contract becomes a VOIDABLE CONTRACT
**Voidable contract: a contract that may be rendered unenforceable at the option of one
of the parties. VOIDABLE CONTRACT has 2 types:
(1) the minor must repudiate a contract promptly upon coming of age or she will enter
into it after coming of age.
(2) the minor need to ratify the contract again after attaining majority.
**Void: never formed in law Other persons of diminished contractual capacity:
if these kind of people want to win a sue case, they need to prove that they were
incapable of a rational decision at the time of the agreement, and the other party was
aware of their condition.
7. legality of object
Legal: not offensive to the public good and not violating any law
• If the contract is proved to be illegal, it is void. If any one of the
seven is not satisfied, the contract goes void.
When a contract is not only void but also illegal, it is unenforceable.
Severed: removed from the contract
• *VOID v. VOIDABLE contracts
--- VOID contracts: never existed; failed formation = no contract (no contract ever
• Contracts VOID by statute:
1. agreements contrary to the purpose of legislation
2. promises to pay a betting debt
3. betting in canada
--- VOIDABLE contracts: exist, but can be made void at the option of one of the parties.
(e.g. A minor can avoid a contract if the contract automatically binding when the minor
enters age of 18.) • Contracts illegal by the common law and public policy
1. whenever a contract contemplates the commission of a tort, the contract is illegal;
2. even if a contract does not contemplate the commission of a crime or of any of the
recognized private wrongs, it may still be regarded as illegal because it is contrary to
PUBLIC POLICY. Immoral contracts, a perversion of justice… but insurance and
stock exchange transactions are excluded even if there are immoral elements in
• Restrictive Covenants