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LAW 122 (617)
Chapter 7

LAW 122 - Chapter 7 Notes.docx

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Law and Business
LAW 122
Theresa Miedema

Chapter 7 – Nature & Creation of Contracts Contract – an agreement that contains legally enforceable rights and obligations Meeting of Minds – a shared decision to enter into a legal transaction on a particular basis Exchange of Value – occurs when the parties each give up something What is the difference between a contract and a promise; trick question; no formal difference - Simple promise; not legally enforceable - Contractual promise; legally enforceable STEPS / ELEMENTS OF A CONTRACT: (how to enter into a contract) INTENTION TO CREATE LEGAL RELATIONS The parties must have intended to create a legally enforceable agreement • Reasonable Person Test – A reasonable person would have believed that the parties intended to enter into a contract (test is OBJECTIVE, not subjective) o EX: You + cousin; let’s go to Vegas; no intent You + business partner; let’s sell our company; yes there is intent • Judge is concerned with what a reasonable person would have thought, not what the parties actually believed • Test APPLIED AT TIME OF PURPORTED CONTRACT • A signed contract usually implies intent; whether the signee read the contract or not • 2 Reasons for Reasonable Person Test: o A subjective test would be difficult to apply because someone could easily lie at trial o Law of contracts aims to protect reasonable intentions • Commercial context: presume intent (rebuttable) Assumption that this involves business • Social and family context: presume no intent (rebuttable) • REBUTTABLE – TO PROVE OTHERWISE (disprove) • COMFORT LETTER – a letter from a high decision maker making a personal guarantee to follow through on something; this is a separate contract that holds the writer to the terms; CREATES A MORAL OBLIGATION BUT NOT A LEGAL OBLIGATION Case: You be the Judge 7.1; Fobasco Ltd. V Cogan (p.165) Cogan bought 8 seasons’ tickets, sold them to Fobasco Ltd.; Fobasco gives tickets to customers, Cogan wants tickets back. Social; social context; agreement between two friends. Presumption is that there was no intent; unless Fobasco can rebut this; not rebuttable. Lack of written contract here is significant because if it was in writing this would display intent and it would be enforceable and easily evidentiary in a court of law; lack of intent could be easily rebutted by Fobasco Ltd. If there is a contact; should Cogan have to supply tickets forever? Having a contract that lasts for an infinite period of time is irrational. Cogan can opt-out; notice should be given, possible buy-out of contract in exchange. (What constitutes sufficient notice or $ amount?). OFFER • An offer is an indication of a willingness to enter into a contract on certain terms OFFEROR • A person who offers to enter into a contract OFFEREE • A person who receives an offer THE NATURE OF AN OFFER Second component of a contract • Parties must enter into mutual agreement through process of offer and acceptance • Creates risk because AN CONTRACT COMES INTO EXISTENCE AS SOON AS AN OFFER IS ACCEPTED o When an offer is accepted: both parties become obligated to fulfill the promises contained in the agreement o Once a contract comes into existence, neither party, acting alone, can alter its contents or bring it to an end • Not every proposal can be entertained as an offer; Courts believe this to be impractical • Judges have developed guidelines for deciding which types of statements qualify as offers and have placed limits on how long offers will last INVITATION TO TREAT Invitation to treat is not an offer; but an indication of a willingness to receive an offer; AN INVITATION FOR OTHERS TO MAKE OFFERS Courts classify SOME STATEMENTS not as offers but as INVITATIONS TO TREAT. • A person who RESPONDS TO AN INVITATION TO TREAT  OFFEROR • A person who INITIALLY PRESENTED THE INVITATION  OFFEREE Distinction between an offer and an invitation to treat depends on OBJECTIVE TEST • A COURT WILL EVALUATE SITUATION AND APPLY REASONABLE PERSON TEST; how a reasonable person would interpret a particular statement; would a reasonable person believe that the person making the statement was prepared to enter into a contract as soon as an acceptance was received? 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 can take any form • Can be written, verbal, or implicit (barber shop, sit in chair) LIFE OF AN OFFER • Does not last forever • Upon acceptance it is a CONTRACT IF AN OFFER IS NOT ACCEPTED, IT MAY CEASE TO EXIST IN THE FOLLOWING WAYS: • Revocation • Lapse of Time • Death or Insanity • Rejection • Counter-Offer Revocation • Occurs if the party WHO MADE THE OFFER withdraws it • The offeror is master of the offer; entitled to revoke at any time • Revocation not effective unless it is communicated to the offeree • RISK MANAGEMENT; need for caution as offers can be revoked at any time • FIRM OFFER; occurs when the offeror promises to hold an offer open for acceptance for a certain period - Not that firm at all; offeror can still revoke it at any time HOWEVER; a firm offer cannot be revoked if it is placed UNDER SEAL or if offeree PAID FOR THE RIGHT TO ACCEPT OFFER WITHIN A CERTAIN TIME PERIOD - Firm offers not contained in a contract and therefore NOT ENFORCEABLE BY LAW - OPTION; a contract in which the offeror is paid in exchange for a binding promise to hold an offer open for acceptance for a specific period • TENDERS; in an offer to undertake a project on particular terms
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