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Chapter 5

BU231 Chapter 5

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Keith Masterman

READING NOTES Chapter 5 – Formation of a Contract, Offer and Acceptance Focus on describing essential qualities of a contract, why it is enforceable in law, and how a contract is formed. Role of Contract Law • Contract law is the prime example of law in its facilitative role o But, there is often great inequality between parties in terms of bargaining power, expertise and intelligence… many unfair contracts can be made o Contracts are also subject to human frailties, sometimes leading to unintended or unjust results Nature of a Contract • Contracts begin with promises, but not all promises are contracts • Contract law is concerned with legally binding promises, “a promise or a set of promises which the law enforces” o Doesn’t sneak up on you, voluntary set of rules that parties promise to follow o If parties don’t follow them they may be forced to follow them by the courts o Breach of contract is the cause of action that’s used to force someone to pay up to their promises or pay the price Breach of contract involves 1,3,4,5 Contract Analysis 1. Is there a contract? 2. Can I back out of it? 3. What does the contract mean? Recission of contract involves 2 4. Who should give me what I bargained for? 5. Did I get what I bargained for? • Is there a contract? o Required elements are OACI:  (O)ffer – Offers and counter offers go back and forth until acceptance  (A)cceptance – One simple thing… “yes”  (C)onsideration –  (I)ntention The Nature of an Offer • A contract doesn’t come into existence until an offer has been made by one party,, and accepted by another • Offer is a tentative promise made by the offeror, subject to a condition or containing a request to the other party, the offeree • When the offeree accepts the offer by agreeing to the condition or request (ie. amount of money for a house) the offer is transformed into a contract o At this point the promise is no longer tentative, the offeror is bound to carry out their promise (move out of house) and the offeree is bound to carry out condition (pay for house) • Invitation to Treat o A mere invitation to do business is not an offer to make a contract  For example, newspaper ads to sell goods are generally mere invitations for the public to visit your store, business’ can’t be expected to sell goods to everyone who reads its advertisement, too difficult to predict demand  If the ad were taken to be an offer and too many people accepted it, the business would be liable for a breach of contract to all those who accepted and whom were not given the good  But, ads can be offers if there wording favours this interpretation • Eg. An advertisement to sell a fixed number of items at a fixed price to those who accept first might be seen as a valid offer  Example of Pepsi ad with Harrier Jet where they felt that it was simply an invitation to treat The Communication of an Offer • The form of an offer is not important as long as it is understood • Offer must contain enough particulars to form the basis of a contract o Eg. If you make an offer to sell a car of yours for ‘a lot of money’, you must specify which car you wish to sell as well as an asking price • It can be written, oral or by conduct o Eg. Taxi driver opening the door of her cab, bidder raising fingers at auction can be considered offers o Oral contracts are not illegal, but are difficult to prove in court • Acceptance must be unqualified o All counter-offers nullify the original contracts o Eg. In real estate, if you make any changes to offers and contracts, you nullify the agreement…  Remember Wayne Gretzky trying to buy a cottage and screwing around with the date of moving in and the placement of the people’s old stuff…. His acceptance contained an additional clause to the agreement, thus viewed as a counter-offer which allowed the sellers to back out and sell the cottage to different buyers • It’s important to note that an offeree cannot accept an offer until she is aware of it o Eg. If you return a lost article with no knowledge of the reward for it, you can’t go back and ask for the reward because you didn’t act in response to the offer, and thus didn’t accept it (but you’re still a good person) • Similarly, we cannot be required to pay people who do work for us without our knowledge o Entitled to receive an offer to do the work, which we may then accept or reject o Law was originally designed in the Consumer Protection Act to deal with unconscionable selling practices by people like Columbia House who try to bind you to goods you didn’t request  Eg. If you don’t want the CD’s we sent to you then mail them back (by courier for $5) within this much time, if you don’t say anything we’ll send you more for $$.. become bound!!! o Also the classic example of someone re-paving your driveway while you’re away on vacation and you get back with a bill on your door.  But, had you been there and watched them paving your driveway without having paid for it, you are obliged to go out and tell them to stop or else you ‘accept’ the offer and are bound An Offer Made by Tendering a Written Document to the Offeree • Standard Form Contracts: Risks and Benefits o Standard Form Contract  Offer presented in a printe
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