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Chapter 7

LAW 122- Chapter 7- The Nature and Creation of Contracts.docx

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Law and Business
LAW 122
Theresa Miedema

LAW122- Chapter 7- The Nature and Creation of Contracts  Contract- agreement that creates rights and obligations that can be enforced in law  Meeting of the minds- shared decision to enter into a legal transaction on a particular basis o Contract requires a “meeting of the minds”  Consensus ad idem o Parties must mutually agree to terms  One party proposes terms through an offer  Other party agree to terms through an acceptance  Exchange of value- occurs when the parties each give up something  Promises and contracts o Simple promise is not legally enforceable o Contractual promise is legally enforceable  Distinct steps or elements o Intention to create legal relations o Reach a mutual agreement through the process f offer and acceptance o Enter bargain by each giving considerations Comparing torts and contracts (Page 156)  Review chapter 3 concept summary 3.2 (Page 36) Intention to create legal relations (Page 156)  Intention to create legal relations- arises if a reasonable person would believe what the person would believe that the parties intended to create a leally enforceable agreement  Test is objective rather than subjective o What would a reasonable person would have thought o Subjective intentions would be harder to apply—person could easily lie at trial o Law of contracts aims to protect reasonable expectations  Presumptions can be rebutted or disproved o Commercial context: presume intent o Social and family context: presume no intent Offer (Page158) The nature of an offer  Offer- indication of a willingness o enter into a contract on certain terms  Offeror- party who offers to enter into a contract o Master of the offer—can set almost any terms desired  Offeree- party who receives an offer to enter into a contract  Creates risk—contract comes into existence as soon as an offer is accepted o Both parties become obligated to fulfill the promises contained in the agreement o Neither party can alter its contents or bring it to an end Invitation on treat  Invitation to treat- indication of a willingness to receive an offer o Person who responds to invitation= offeror o Person who initially presented the invitation= offeree  Offers and risk management o Contract created as soon as offer is accepted o Mechanism required to reduce risk of liability  Distinction between offer and invitation to treat depends on objective test o Reasonable person test o Statement placed in an newspaper advertisement or a catalogue  Free to accept or reject offer Communication of an offer  Statement is not an offer unless it is communicated and received as an offer o eg offer contained in undelivered letter ineffective  Communication may take many forms o Written document o Oral statement o Conduct The life of an offer  Does not last forever  Offer turned into contract by acceptance  Offer may be terminated before acceptance 1 LAW122- Chapter 7- The Nature and Creation of Contracts o Revocation- occurs if the offeror withdraws an offer  Entitled to revoke at any time  Reasonable communicated to the offeree  Firms offer- occurs when the offeror promises to hold an offer open for acceptance for a certain period  Gratuitous promise to not revoke: unenforceable  Option- contract in which the offeror is pain in exchange for a binding promise to hold an offer open for acceptance for a specific period  Contractual promise to not revoke: enforceable  Tenders- offer to undertake a project on a particular terms  Parties’ concerns in tendering process o Potential for waste or procedural injustice  City worried about withdrawn bids  Bidders worried about fair selection process  Factual process o City calls for tenders (offers) o Builders submit tenders o City selects winning tender  Facts (usually) support two sets of contracts o Contract a: contract to select winning tender o Contract b: contract to build library  Contract a: contract to select winning tender o City call for tenders = offer o Builders’ submission of tenders = acceptances  Contract a obligations o Parties required to honour terms of contest o City required to fairly select best bid o Builders prohibited from revoking offers  Contract b: contract to build library o Builders’ submission of tenders = offers o City’s selection of winning bid = acceptance  Contract b obligations o Builder must build library as promised in offer o City must pay as promised in acceptance o Lapse of time  Offeror is entitled to limit the lifespan of an offer  Stating that acceptance must occur by a specific date  No time period—offer open only for reasonable period o Subject matter of proposed contract o Nature of the agreement o Volatility of the market
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