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Canada (161,758)
MGSC30H3 (57)
Jeff Rybak (14)
Chapter

Legal Environment - Lecture 007

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Department
Management (MGS)
Course
MGSC30H3
Professor
Jeff Rybak
Semester
Winter

Description
THE NATUREAND CREATION OF CONTRACTS 4 March 2014 (Chapter 7, p. 162-178) CONTRACT is an agreement that contains legally enforceable rights and obligations (IE: Buying a textbook). EETING OF THE MINDS is a shared decision to enter into a legal transaction on a particular basis (ability to enter into agreement and make a contXCHANGE OF VALUE occurs when the parties each give up something (IE: Cash for the textbook). **NOTE: Contractual relationship can continue even after there has been an exchange of value. Business people should know about the law. Although some contracts are performed without problems; they occur because parties failed to think carefully about the legal implications of their actions. People need the help of a judge only when something has gone terribly wrong, by knowing your rights and obligations you can avoid that situations. It is preferable to avoid the court system so resolving a dispute informally is more effective because legal proceedings tend to signal the end of a relationship. **NOTE: The long-term benefits of retaining a healthy commercial relationship are often more important than winning a particular dispute. Elements of a contract: • Parties must have an intention to create legal relations • Parties must reach a mutual agreement through the process of offer and acceptance • Parties must enter into a bargain by each giving consideration INTENTION TO CREATE LEGAL RELATIONS INTENTION TO CREATE L EGAL RELATIONS arises if a reasonable person would believe that the parties intended to create a legally enforceable agreement (objective – judge is concerned about what a reasonable person would have thought, not necessarily what the parties themselves actually thought). Reasons for reasonable persons test: • Test of subjective intentions would be difficult to apply because a person could easily lie at trial • The law of contracts aims to protect reasonable expectations (IE: Reasonable person ignores unrealistic and exaggerated proposals – sarcastic promise to pay $5000 for a correct response in class) • If agreement is “subject to formal contract” or “subject to further negotiation” a court will likely find that although parties could have created a contract, they did not yet do so • However, if parties go ahead and actually perform, a court may decide that a contract has come into existence (basis of action) • When borrowing money from a bank, if bank is afraid you cannot repay loan, bank may ask for a personal guarantee (guarantee is a separate contract that would allow bank to collect from director of company if company did not repay loan) • If director is not willing to be held responsible for company’s debt, they may persuade the bank to accept a comfort letter that contains an informal promise to help out if necessary (it creates a moral obligation but not a legal one – to protect reputation) OFFER THE N ATURE OF AN OFFER O FFER is an indication of a willingness to enter into a contract on certain FFEROR Ois a party who receives an offer to enter into a contraFFEREE is a party who receives an offer to enter into a contract. An offer creates a risk because a contract comes into existence as soon as an offer is accepted. At that point, both parties become obligated to fulfill the promises contained in the agreement. And once a contract comes into existence, neither party, acting alone, can alter its contents or bring it to an end. Courts recognize that it is impractical if every proposal is classified as an offer that can be transformed into a contract through acceptance; therefore, judges have developed guidelines for deciding which types of statements qualify as offers and limits on how long offers will last. INVITATION TOT REAT INVITATION TO TREAT is an indication of a willingness to receive an offer. It is an invitation for others to make offer (person who responds to invitation is an offeror and person who initially presented the invitation is the offeree). Difference between offer and invitation to treat depends on an objective test. Court looks at the circumstances and ask how a reasonable person would interpret a particular statement (IE: Person making contract as soon as acceptance was received or statement was simply prepared to receive and consider offers). C OMMUNICATION TO AN O FFER A statement is not an offer unless it is communicated and received as an offer (verbally – asking for milkshake, written – signing to buy a TV, or conduct – entering barbershop and sitting in chair). THE L IFE OF ANO FFER An offer does not last forever. If it is accepted, it gives way to a contract. If it is not accepted, it may cease to exist in a variety of ways: • Revocation occurs if the offeror withdraws an offer (offeror is the master of the offer and is entitled to revoke it at any time; it is not effective unless it is reasonably communicated to the offeree) o Firm Offer occurs when the offeror promises to hold an offer open for acceptance for a certain period (offeror can revoke it at any time)  A firm offer cannot be revoked if the offeror’s promise was placed under seal or option a contract in which the offeror is paid in exchange for a binding promise to hold an offer for acceptance for a specific period • It allows you and offeror to create a contract for the sale of land (some point in future) • It would immediately create an entirely separate contract requiring the offeror to wait while you decide o Tender is an offer to undertake a project on particular terms (IE: City wants a new library built, it calls for tenders so city issues invitation to treat and promise to award project to company that submits the best offer so each bidder would not
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