Chapter 7.docx

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15 Apr 2012
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Chapter 7 The nature and creation of contracts
Contract is an agreement that creates rights & obligations that can be enforced in law
Meeting of the minds is a shared decision to enter into a legal transaction on a particular
basis
Exchange of value occurs when the parties each give up something
Ex. On pg 155
Every contract needs a # of distinct steps or elements, 3 r important
o The parties must have an intention to create legal relations
o They must reach a mutual agreement through the process of offer & acceptance
o They must enter into a bargain by each giving consideration
Comparing torts and contracts
Intention to create legal relations
Intention to create legal relations arises if a reasonable person would believe that the
parties intended to create a legally enforceable agreement
o To decide that issue a court asks whether a reasonable person would have
believed that the parties intended to enter into a contract
o Test is objective rather than subjective
o Judge is concerned with what a reasonable person would have thought not what
the parties themselves thought
o There r 2 reasons for that rule
First, test of subjective (personal) intentions would be difficult to apply
cuz a person could easily lie at trial
Second, the law of contracts goal is to protect reasonable expectations (ex.
On pg 157)
o Presence or absence of an intention to create legal relations is usually obvious (ex.
On pg 157)
Offer
The nature of an offer
Contract requires more than an intention to create legal relations
Offer is an indication of a willingness to enter into a contract on certain terms
Offeror is a party who offers to enter into a contract
Offeree is a party who receives an offer to enter into a contract
Offer creates a risk cuz a contract comes into existence as soon as an offer is accepted
o Both parties in the offer become obligated to fulfill the promises contained in the
agreement
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o Contract cannot be altered or ended by 1 party
Ex. On pg 158
Invitation to treat
Invitation to treat is an indication of a willingness to receive an offer
o It is an invitation for others to make offers
o A person who responds to the invitation is an offeror
o A person who presented the invitation is the offeree
Difference btwn an offer & an invitation to treat depends on an objective test (more on pg
158)
Communication of an offer
Statement is not an offer unless it is communicated & received as an offer (ex. On pg
159)
As long as a proposal is communicated & received as an offer, it usually does not have to
take any particular form, it may be contained in a written document (ex. On pg 159)
The life of an offer
Offer does not last forever, if it is accepted, it gives way to a contract & if it is not
accepted, it may stop to exist in a variety of ways
o Revocation occurs if the party who made an offer withdraws it
Revocation is not effective unless it is reasonably communicated to the
offeree
Until that occurs, offer remains open & the offeree can create a contract
through acceptance
Firm offer occurs when the offeror promises to hold an offer open for
acceptance for a certain period
Firm offer is not very firm at all, the offeror can cancel it at any
time, a firm offer is not contained in a contract & therefore is not
enforceable in law (Ethical Perspective 7.1 on pg 160)
A firm offer cannot be cancelled if the offeror’s promise was
placed under seal or if the offeree paid for the right to accept
within a certain period (ex. On pg 160)
Option is 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
Option would accomplish 2 things
o First, it would allow u & the offeror at some point in the
future to create a contract for the sale of land
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