Chapter 6-Forming Contractual Relationships.docx

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University of Guelph
Marketing and Consumer Studies
MCS 3040
Joseph Radocchia

Chapter 6: Forming Contractual Relationships The Contract Basic elements of a contract - that it is: An agreement i.e. composed of an offer and acceptance Complete i.e. certain Deliberate i.e. intention to create legal relations is present Supported by mutual consideration An Agreement: - Before a contract can be in place, the parties must be in agreement - They must have reached a consensus as to their rights and obligations - The agreement takes the form of offer and acceptance Offer - Offer: a promise to perform specified acts on certain terms - It is a promise to enter into a contract, on specified terms, as soon as the offer is accepted o This happens in negotiations b/w Ann and Jason when Jason committed to provide tracking to Coasters in the concrete terms noted: price, terms of payment, delivery date, and other essential matters - At this point, negotiations take an important turn -> Ann is entitled to accept that offer, and upon doing so, Trackers is obligated to supply its product exactly as Jason proposed Certainty of Offer: - Only a complete offer can form the basis of a contract -> all the essential terms must be set out or the contract will fail for uncertainty - An offer does not have to meet the standard of perfect clarity and precision in how it is expressed - An offer can achieve the requisite standard of certainty even if it leaves certain matters to be decided in the future o Jason could have made the final price for the tracking contingent on the market price, as determined by a given formula (cost + 15%) o Price is not set out in the offer, but a workable way of determining price would have been established and a contract can be entered on that basis Invitation to Treat: - An offer is different from communication that merely expresses a wish to do business - Invitation to treat: an expression of willingness to do business (no legal consequences) - Whether a communication is an offer or an invitation to treat depends on the speakers intention, objectively assessed subjective intent is on ne legal relevance - Ex: When Ann provided Jason with plans for the roller coaster, she was not offering to buy tracking from Jason at that point, but merely indicating her interest in receiving an offer from him This was an invitation to treat - Expressions of interest have no legal repercussions b/c they essentially have no content - Vague commitments to buy or sell are invitations to treat, not offers, b/c they fail to specify the terms or scope of the proposed arrangement - Common law has devised rules to assist in clarifying whether a communication is an offer or an invitation to treat - Rule: Relates to advertising and display of goods for sale in a store 1 o Retail outlets prosper by attracting customers they do this by advertising their existence, describing the products and the prices they charge, especially when the prices have been reduced. o These advertisements are generally not classified as offers b/c if they were offers, the storeowners would be potentially liable for breach of contract if the store ran out of an advertised item that a customer wished to buy. o By classifying the advertisement as an invitation to treat the law ensures that it is the customer who makes the offer to purchase the advertised good o The owner can then simply refuse the offer if the product is no longer in supply o The law seeks to facilitate commercial activity by permitting business persons to advertise their products w/o risk of incurring unwanted contractual obligations - Rule: The display of a product in the store is not an offer by the store to sell o It is an indication that a product is available, and can be purchased it is an invitation to treat and by definition, is not capable of being accepted o This way, store keeps the option of refusing to complete the transaction at the cash - Some contracts are formed only after protracted discussions - Other contracts are formed without any negotiations o Ex: Purchase of photocopying paper from an office supply store o Customer takes the purchase to the cashier, thereby offering to purchase the item at its sticker price, and the cashier accepts the offer by receiving payment - Standard form contract: a take it or leave it contract, whereby the customer agrees to a standard set of terms that favours the other side - Such contracts often heavily favour the business that created them, and, b/c it is not subject to bargaining, are known as take it or leave it contracts o Ex: renting a car, borrowing money from a bank - When negotiations are complicated, it is important that the parties know when an offer has been made, since at that moment significant legal consequences arise - Fundamental rule a contract is formed only when a complete offer is unconditionally accepted by the other side - Key factor in deciding whether an offer has been made if the purported offer is sufficiently comprehensive that it can be accepted w/o further elaboration or clarification, it is an offer in law - Offeror: the person who makes an offer (Jason) - Offeree: the person to whom an offer is made (Ann) Termination of Offer - An offer can only be accepted if it is alive meaning that it is available to be accepted - If the offer has been legally terminated, no contract can come into existence - An offer can be terminated / taken off the table by the following events: A-E - A) Revocation: the withdrawal of an offer - The offeror can revoke his offer at any time before acceptance by notifying the offeree of its withdrawal - An offer that has been revoked does not exist anymore and therefore cannot be accepted - Ex: There were several days b/w the communication of Trackers offer and Anns acceptance of that offer during that time, Jason would have been legally entitled to revoke his offer by simply advising Ann of that fact Revocation in the Context of a Firm Offer: 2- The law permits offerors to revoke their offers despite a promise to leave the offer open for a set period of time (called a firm offer) - Such promise is enforceable only if the other party has purchased it or has given the offeror something in return for the commitment - Ex: If Jason had promised to leave his offer to sell tracking open for 30 days, but Ann did not provide something in return for this promise like the payment of a sum of money Ann would have no legal recourse if Jason were to break his word and revoke his offer - Option agreement: an agreement where, in exchange for payment, an offeror is obligated to keep an offer open for a specified time - Option agreement is one way to avoid application of the rule in Dickinson vs. Dodds that firm offers can be revoked prior to their deadlines - An option agreement is a separate contact that may or may not lead to the acceptances of the offer and a resulting agreement of purchase and sale - Its purpose is to give the offeree a guaranteed period of time within which to deliberate whether or accept the offer or not - If the offeror withdraws the offer before the option agreement permits, he has committed a breach of contact and the offeree can sue for damages - Option agreements are commonly found in real estate developments - An offer does not have to be directly revoked by the offeror the revocation can take place through a reliable third-party source (unusual and unreliable method) Revocation in the Context of a Tendering Contract: - A specialized set of rules governs the tendering process - When an owner wishes to secure competitive bids to build a large project, it typically calls for tender. 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