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Chapter 6

MGMT 3100 Chapter Notes - Chapter 6: Contract, Dont

Course Code
MGMT 3100
Peter Mac Donald

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Chapter 6: Formation of A Contract – Offer & Acceptance
Role of contract law
-Voluntary legal relationships
-Not legal obligations that are forced
-Parties choose to make contracts and only then become legally obligated to comply
-Empowers parties to create legal obligations that wouldn’t otherwise exist
-Sometimes inequality of bargaining power or expertise results in unfair contracts
Nature of a contract
-Begin with a promise
-Contract law sets rules for how ordinary promises become legally binding promises
Contract: a set of promises that the law will enforce
4 basic requirements to form a legally enforceable contract:
The Nature of An Offer
Contract doesn’t come into existence until offer has been made by one party and accepted by the other party
Offer: a description of a promise or set of promises one party, offeror, is willing to make, subject to the willingness of
the other party, the offeree, to agree to the same promises
-When offeree accepts offer, offer is transformed into a contract
-Promise no longer tentative; both offeror and offeree bound to carry out their promises
Advertisements sometimes can be considered as offers
-Ex. an offer of reward for info or return of a lost object etc.
The Communication of an Offer
Form of offer is not important as long as it is heard and understood
-Usually offerors communicate orally or in writing
-Offer can also be expressed by conduct without words
oEx. taxi driver opening the door of cab, bidder raising finger at an auction
Offeree cannot accept offer until they are aware of it
We cannot be required to pay people who do work for us without our knowledge
-Entitled first to receive offer to do work which would then be accepted or rejected
-We are not contractually obliged to pay because we were not aware
Suppose goods provided to person without his request but in circumstances where has opportunity to reject them
-If accepts goods, he is presumed to have accepted the offer and pay price
-Rule triggered unconciousable selling practices that tempt consumers to bind themselves to pay for goods they
did not request
oMany provinces have passed legislation to reverse this rule
Written Offers
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Offers don’t have to be in writing but usually are
Standard for contract: an offer prepared in advance by the offeror, including terms favorable to the offeror that cannot
be changed by the offeree, but must be accepted as is, or rejected in their entirety, also known as contract of adhesion
-There is no real element of bargaining
-Ex. airplane tickets
Required notice of terms
-Suppose offeree doesn’t know that offer contains certain term or certain terms not included in the document
oEx. basesball game ticket has clause on back that states management reserve s right to remove ticket
holder at any time without reason
-If offeree satisfies court that they did not know terms, court will ask what steps business took to bring the
term to attention of consumer
-If steps insufficient, offeree not bound by terms and will have the same remedy as if the term had not been in
-If steps by business were sufficient enough to bring term to attention of customer, offeree is bound by terms
whether they knew the terms or not
-If ticket or other document given to customer at time of purchase contains a short and clear reference to other
terms appearing on the reverse side or posted on a sign or website, it Is likely that “reasonably sufficient notice”
of those terms had been given
-Best way of proving that customer has knowledge of terms, is by written document signed by the party to be
bound and before or at the time of the contract, a written notice specifying certain terms and making it clear
Unusual or unexpected terms
-Unexpected or onerous terms need to be brought directly to the attention of the offeree
-Greater effort must be made to give notice of a surprising, shocking, or unusually unfair term
-Again, if offeree signs a document, stronger presumption arises that they have accepted all the terms it contains
Lapse & Revocation of An Offer
Lapse: the termination of an offer when the offeree fails to accept it within a specified time, or if no time is specified,
then within a reasonable time
An offer may lapse in any of the following ways:
-When the offeree fails to accept within a time specified in the offer
-When the offeree fails to accept within a reasonable time, if the offer has not specified any time limit
-When either of the parties dies or becomes insane prior to acceptance
Supreme Court has decided that subject matter of contract is helpful clue for deciding whether a reasonable length of
time has elapsed in an offer to buy or sell
-Other circumstance include manner in which offer is made and whether its wording indicated urgency
Offeror may be able to revoke or withdraw an offer at any time before acceptance, when it has promised to hold the
offer open for a specified time
-Offeror must provide notice of revocation to make it effective
-Direct communication of the revocation leaves no doubt about offeree’s knowledge of it
-Legal position of parties less certain if offeree merely hears rumors that offer has revoked
-Court will consider offer revoked if it would be unreasonable for offeree to suppose offeror still intended to
stand by its offer
Offeree may obligate offeror to keep its offer open for specified time in a couple of ways:
-Offeror itself may specify that it is irrevocable
-Subsequent contract called an option may be made to keep the offer open
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