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Chapter 5

3. Chapter 5 - Formation of a Contract - Offer and Acceptance.pdf

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Valerie Irie

BU231 Lecture 3 Wednesday, May 22, 2013 Chapter 5 - Formation of a Contract - Offer and Acceptance Role of Contract Law  Contract: set of promises that the law will enforce  contract law manages contacts  Contracts are voluntary legal relationships; not legal obligations forced upon everyone like tort  Inequality of bargaining power/expertise between parties may lead to unfair contracts  Four basic requirements to form a legally enforceable contract (7 according to lecture) 1) Offer 2) Acceptance 3) Consideration 4) Intention to Create Legal Relations 5) Capacity 6) Legality 7) Certainty of Terms Nature of an Offer  Offer: description of a promise one party is willing to make, subject to the agreement of other party  Offeror: person making the offer  Offeree: the person to whom the offer is made  Contract does not come into existence until an offer has been made by one party & accepted by the other  offer transforms into a contract. Promise is no longer tentative, but they’re bound.  A mere invitation to do business is not an offer to make a contract  ex: advertisements o Business isn’t expected to sell goods to everyone who reads its advertisement. Supply is limited. o Advertisements can be offers depending on wording selling a fixed # of items at a fixed price to those who accept first, or offer of a reward for into and for the return of a lost object, etc. Communication of an Offer  Form of offer is not important as long as it’s heard and understood  Usually orally or in writing, but can also be without words  ex: bidder raising finger at auction  Offeree cannot accept an offer until she is aware of it  crossed offers when party A and B make similar offers without being aware of the other party’s offer. This is not a contract.  We are not required to pay people who work for us without our knowledge. We must receive an offer to do the work, and then accept/reject.  In BC, a consumer has no legal obligation in respect of unsolicited goods/services unless the consumer expressly acknowledges to the supplier in writing his intention to accept the goods. If this does not happen, the suppler does not have a cause of action for any loss, use, misuse, damage, etc. in respect of the goods/services or the value obtained by the use of the goods/services  In Ontario, a consumer who receives a credit card from a credit card issuer without applying for it shall be deemed to have entered into a credit agreement with the issuer, on first using the card Written Offers Standard Form Contracts: Risks and Benefits  Standard form contract: an offer presented in a printed document or notice, the terms of which cannot be changed by the offeree, but must be accepted as is or rejected  Someone receiving any written contracts is neither asked nor expected to read, approve, or change the terms. There is no real element of bargaining. You accept the offer as is, or not at all.  Offeror may disregard interests of the offerees, the general public, and give itself every advantage BU231 Lecture 3 Wednesday, May 22, 2013  Often, the standard form can be presented as an evil. The form is for efficiency and standardizing in modern business, and can be the result of experience and thorough drafting.  Take it or leave it offer  no room for negotiation over the terms of the contract  Inequality of bargaining power, but highly efficient, fast & easy  3 means of protection from bargaining inequality: 1) If business falls within an area regulated by a government board, such contracts are subject to board approval. With effective boards, public is protected& unreasonable terms are excluded 2) Some segments of the public are offered special protection. Consumer protection legislation provides disclosure requirements and post-acceptance cancellation options 3) In the vast range of unregulated activity, the public only receives as much protection as the courts can find in the general law of contract Required Notice of Terms  Courts presume that an unqualified acceptance of an offer is an acceptance of every term of that offer. If customer convinces court that she did not know of a specific term, court asks what steps mgmt. took to bring the term to attention. If the steps were insufficient, the customer is not bound by the term.  if steps were sufficient, customer is bound by the term whether she knew or not  If a ticket/document contains a short, clear reference to other terms appearing on the back side or posted nearby, it’s likely that a reasonably sufficient notice of those terms has been given  Printed ticket containing “subject to the conditions as exhibited on premises” is enough. However, a noticeable sign by itself may not be enough.  People who rely on a contract to exempt themselves from a common law liability must prove that contract strictly. 3 ways to prove the terms of contract and the intention to create legal terms: 1) written document signed by the party to be bound 2) hand out before or during the time of contract a written notice specifying certain terms 3) prominent public notice which is plain for him to see when he makes the contract Unusual or Unexpected Terms  must be brought directly to the attention of the offeree  greater effort must be made to give notice of a surprising or unfair term  however, if a document is signed, a stronger presumption arises that she has accepted all terms  avoiding the consequences becomes more difficult  the prospects of persuading court to disregard onerous terms in written/signed documents improve if there is a misrepresentation or an unconscionable result Lapse and Revocation of an Offer Lapse  lapse: termination of offer when the offeree fails to accept within specified time; or if no time is specified, then within a reasonable time; or if either party dies/becomes insane prior to acceptance  farm lands are not subject to frequent/sudden changes in price, and thus, a reasonable time for the acceptance of an offer would be longer than that with respect to such commodities as shares of stock upon an established trading market, or perishable goods  Consider the manner in which an offer is made; does the working indicate urgency?  When making an offer to buy property, the person offering to buy specifies the time restriction so that the vendor has little time to approach other possible purchasers and bid up the price Revocation BU231 Lecture 3 Wednesday, May 22, 2013  Notice of revocation: offeror may revoke/withdraw an offer at any time before acceptance, even if it has promised to hold the offer open for a specified time. Notice must be given, and effective.  Valid as long as revoked before acceptance  Court considers offer revoked if it’s unreasonable for the offeree to suppose that the offeror still intended to stand by its offer  Making same offer to another party before the first party accepts/rejects, or before revoking from first party can lead to damage to goodwill, and maybe breach when unable to fulfill both contracts Options  Option: a contract to keep an offer open for a specified time in return for a sum of money  Another way to bind an offeror to keep offer open is if the offer specifies that it’s irrevocable  Offeror must not make offers to other parties that would prevent offeror from fulfilling its offer  Exercise an option: accept the offer contained in an option Rejection and Counter-Offer by the Offeree  Until an offer by one side is accepted without alteration, modification, or condition by the other, there’s no contract  no legal obligation to each other  If you receive an offer, and change some terms, you rejected that offer and made a counter-offer  If the offeror in turn rejects the counter offer, the original offer does not revive UNLESS there is a re- offer  however, when an offeree just inquires about the terms, it doesn’t mean it’s a rejection Elements of Acceptance Positive and Unconditional  Must be a positive act, whether in words or in conduct  conduct must refer unequivocally to the offer made (ex: handshake means the offer has been accepted)  However, one’s conduct may happen to comply with means of acceptance set out in an offer  this does not amount to an acceptance. You don’t avoid normal conduct to avoid accepting the offer.  Offerer cannot insist on silence as a mode of acceptance, unless parties have habitually used this method to communicate acceptance in previous transactions, or have agreed in advance that silence is sufficient  Negative option billing: practice of adding services and sending bills without request, and relying upon the cu
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