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Chapter 7

LAW 122 Chapter Notes - Chapter 7: Contract

Law and Business
Course Code
LAW 122
Kernaghan Webb

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Chapter 7: The Nature and Creation of Contracts
Most ppl are unaware of the vast number of contracts they enter into every day. E.g. Buying a
book from a friend.
oContract: is an agreement that creates rights and obligations that can be enforced in law.
You were able to enter into that agreement b/c you both experienced a meeting of the
oMeeting of the Minds: is a mutual agreement to enter into a legal transaction on a particular
oExchange of Values: occurs when the parties each give up something. You both give up
something as part of the deal, you = money & your friend = the book.
A contractual relationship can continue even after there has been an exchange of value.
Indeed, one reason for entering a contract may be to reserve some rights and obligations
for the future.
For e.g. If you purchased a book from a bookseller who offers asatisfaction or
money back guarantee”, you would enjoy the right to a refund.
Contracts requires a number of distinct steps or elements:
i.The parties must have an intention to create legal relations.
ii.They must reach a mutual agreement through the process of offering and
iii.They must enter into a bargain by giving consideration.
Source of ObligationsPrivityCompensatory
Damages Risk Management
TortsImposed by LawEnforceable regardless
of any agreement b/t
the parties
Place the plaintiff as if the
tort did not occur
May take a person by
May require more
than a person is able
to give
sVoluntarily created by
the partiesEnforceable only by or
against a party to the
Place the plaintiff as if
contract perform
Always possible to
know the obligations
in advance
Always possible to
limit the obligations to
promises that can be
For more info, refer to Chpt 3 Notes pg 1
A contract will not arise w/o an intention to create legal relations.
oIntention to Create Legal Relations: arises if a reasonable person would believe that the
parties intended to create legally enforceable agreement.
The court is concerned with what a reasonable person would have thought, not
necessarily with what the parties themselves actually thought. There are two
reasons for this:
i.A test of subjective intentions would be difficult to apply b/c a person could
easily lie at trail.
ii.An important goal of the law is to protect reasonable expectation.
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Chapter 7: The Nature and Creation of Contracts
The courts usually presume that an intention to create legal relations exists in a commercial
context, but not between friends or family members. However, the presumption can be rebutted,
or disapproved.
E.g. a business person may be able to convince a judge that while a commercial
agreement was contained in a formal document, it was not really intended to be legally
E.g. a son may be able to persuade a judge that while his mothers promise to pay his
tuition at business school was given within a family setting it really was intended to
create contractual obligations.
The Nature of an Offer
The parties must have more than an intention to create legal relations. They must also enter
into a mutual agreement thru the process of offer and acceptance.
oOffer: is an indication of a willingness to enter into a contract on certain terms.
oOfferor: is the party who is offering to enter into the contract
oOfferee: is a party who is entitled to accept or reject an offer to enter into a contract.
Great care must be taken in making offers b/c a contract comes into existences as soon as the
offer is accepted. And once a contract comes into existences, neither party acting alone can alter
its contents or bring it to an end.
Consider the dangers of making an offer.E.g. suppose sent a message to your class website offer
to sell your cars, 10 ppl simultaneously show up at your door wanting to buy your vehicle, are
you contractually obligated to honour 10 contracts even tho you have only two cars to sell?.
Therefore, judges have developed guidelines for deciding which type of statements
quality as offers.
Invitation to Treat
The courts classify some statements not as an offer but rather an invitation to treat.
oInvitation to Treat: is an indication of a willingness to receive an offer. In other words, it is an
invitation for others to make offers.
The distinction b/t an offer and an invitation to treat depends on an objective test. A court will
ask how a reasonable person would interpret a particular statement in the circumstances.
Therefore, if your ad is classified as an invitation to treat, each response is an offer,
which you are free to accept or reject.
Communication of an Offer
A statement is not an offer unless it is communicated and received as an offer. As long as a
proposition is communicated and received as an offer, it usually does not have to take any
particular form (e.g. written document, made verbally, or conduct alone).
The Life of an Offer
An offer does not last forever. If it is accepted, it gives way to a contract. And if it is not accepted,
it may cease to exist in a variety of ways.
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