Business law week 4

Formation of Formation of a Valid a Valid

ContractContract

What type of agreements What type of agreements are valid contracts?are valid contracts?

Handshake?Handshake?

Sign on the dotted line? X Sign on the dotted line? X ……………..……………..

Is it an agreement the Courts Is it an agreement the Courts will enforce?will enforce?

Elements of a Valid Elements of a Valid ContractContract

1.1.OfferOffer

2.2.AcceptanceAcceptance

3.3.ConsiderationConsideration

4.4.Capacity to contractCapacity to contract

5.5.LegalityLegality

1. Intention to create a 1. Intention to create a legal relationshiplegal relationship

““The meeting of the minds”The meeting of the minds”

The promisor must intend to be The promisor must intend to be bound by the promise made.bound by the promise made.

Advertisements:Advertisements:Is an ad to sell for a specific price Is an ad to sell for a specific price

binding? Is this a kind of contract?binding? Is this a kind of contract? Textbook P 65Textbook P 65““Puffs” – the promises which are Puffs” – the promises which are

not recordednot recorded

Advertising: Advertising:

Advertisements are treated as Advertisements are treated as an ‘invitation to do business’an ‘invitation to do business’

The company is not entering The company is not entering into a contract with everybody into a contract with everybody in the world who reads the adin the world who reads the ad

Offer and Acceptance Offer and Acceptance of the Contractof the Contract

Every promise is subject to a Every promise is subject to a condition:condition:I will pay you $, and you will do X.I will pay you $, and you will do X.

Rule #1 –Rule #1 –

The offer must be communicated to The offer must be communicated to the other party in order to be the other party in order to be acceptedaccepted

Textbook p66 - Banner Textbook p66 - Banner ExampleExample

A company had a large corporate banner that was A company had a large corporate banner that was flown from a flag mast outside its downtown corporate flown from a flag mast outside its downtown corporate office. During a wind storm, the banner disappeared, and office. During a wind storm, the banner disappeared, and the company decided to place an advertisement in the the company decided to place an advertisement in the local newspaper offering a reward of $200 for its return. local newspaper offering a reward of $200 for its return. Before the advertisement appeared in the newspaper, an Before the advertisement appeared in the newspaper, an employee of another company located nearby found the employee of another company located nearby found the banner and returned it to the receptionist at the corporate banner and returned it to the receptionist at the corporate office. Later that day, the employee noticed the reward office. Later that day, the employee noticed the reward advertisement in the news and made a claim for the reward. advertisement in the news and made a claim for the reward. In this case, the offer of reward was not communicated to In this case, the offer of reward was not communicated to the employee until after he had performed what was the employee until after he had performed what was required under the terms of the offer of reward. The required under the terms of the offer of reward. The employee, therefore, cannot accept the offer because he employee, therefore, cannot accept the offer because he had returned the banner without the intention of creating a had returned the banner without the intention of creating a contract. This concept will be examined more closely with contract. This concept will be examined more closely with respect to another element of a contract, but for the respect to another element of a contract, but for the present, it may be taken as an example of the present, it may be taken as an example of the communication rule.communication rule.

Acceptance of the Acceptance of the OfferOffer

P 67 – The acceptance of the offer must be P 67 – The acceptance of the offer must be communicated to the offeror in the manner communicated to the offeror in the manner requested or implied by the offeror in the requested or implied by the offeror in the offeroffer

Words or acts that indicates the offer is Words or acts that indicates the offer is acceptedaccepted

Textbook p67Textbook p67

Acceptance methods:Acceptance methods:

FaxFax

Mail: Mail: Postal Acceptance RulePostal Acceptance Rule::

Offers that invite acceptance by mail, the Offers that invite acceptance by mail, the relevant date is the day the mail goes in the relevant date is the day the mail goes in the post boxpost box

Electronic ContractsElectronic Contracts

Clicking the box is the same as a signatureClicking the box is the same as a signature

Textbook p69Textbook p69

The Counter OfferThe Counter Offer

The only acceptance is one that clearly and The only acceptance is one that clearly and unconditionally accepts the offerunconditionally accepts the offer

Anything else is a ‘counter-offer’Anything else is a ‘counter-offer’

Examples: Offer to service car for $, reply with Examples: Offer to service car for $, reply with an offer to let them do the job for $X, there has an offer to let them do the job for $X, there has been no acceptance.been no acceptance.

Offer,Offer,

Reply with a new offer (“Counter-offer”)Reply with a new offer (“Counter-offer”)

Example: Textbook p70Example: Textbook p70

Silence in the Process of Silence in the Process of Offer and AcceptanceOffer and Acceptance

Silence cannot be considered acceptance of Silence cannot be considered acceptance of an offeran offer Unless a prior agreement has been Unless a prior agreement has been

established between the partiesestablished between the parties

Can you stand by and let someone do work, Can you stand by and let someone do work, and later say that you never accepted the and later say that you never accepted the offer of the work to be done?offer of the work to be done? No. Textbook p71No. Textbook p71

Example: Unsolicited Example: Unsolicited GoodsGoods

Members of the public shall not be required Members of the public shall not be required to pay for unsolicited goodsto pay for unsolicited goods

Forms of AcceptanceForms of Acceptance

Written: I accept your offerWritten: I accept your offer

Others may be acceptable by conventionOthers may be acceptable by convention

Lapse of an OfferLapse of an Offer

Until an offer is accepted, no legal rights or Until an offer is accepted, no legal rights or obligations ariseobligations arise

Death will cause an offer to lapseDeath will cause an offer to lapse

If the conditions are not accepted If the conditions are not accepted unconditionally the offer will lapseunconditionally the offer will lapse

Any change in terms by the acceptance will Any change in terms by the acceptance will cause the offer to lapse cause the offer to lapse

Revocation of an OfferRevocation of an Offer

Offeror (the one selling) can revoke an offer Offeror (the one selling) can revoke an offer (cancel it)(cancel it)

Must be communicated before the offer is Must be communicated before the offer is acceptedaccepted

Anytime before the offer is acceptedAnytime before the offer is accepted

RevocationRevocation

Are there situations where the offer should Are there situations where the offer should not be revocable?not be revocable?

Offer to sell land, oil and gas, that requires Offer to sell land, oil and gas, that requires investment before purchaseinvestment before purchase

CAUTION: Real estate, you make an offer to sell CAUTION: Real estate, you make an offer to sell the property, and the purchaser wants assurance the property, and the purchaser wants assurance you will go through with the sale and not stop you will go through with the sale and not stop halfway through the processhalfway through the process

If you want an irrevocable offer, ask for one!If you want an irrevocable offer, ask for one! This is a separate contract so get some This is a separate contract so get some

considerationconsideration


Example:Example:

Offer to sell property for $1MillionOffer to sell property for $1Million Buyer begins to sell their house Buyer begins to sell their house Don’t want to get stuck without a place to live Don’t want to get stuck without a place to live

when present house sells, if offer is revokedwhen present house sells, if offer is revoked Buyer insists on an irrevocable offer from the Buyer insists on an irrevocable offer from the

sellerseller


Can be communicated in any particular wayCan be communicated in any particular way

The revocation must come to the attention The revocation must come to the attention of the offeree before the offer is accepted. of the offeree before the offer is accepted.

ConsiderationConsideration

““Bargain theory of contract” – everybody Bargain theory of contract” – everybody should get something in return for a should get something in return for a promisepromise

This “Something” is called ”This “Something” is called ”considerationconsideration””

IE: payment of money, performance of a IE: payment of money, performance of a service, promise not to do something (sue)service, promise not to do something (sue)

Steel consideration example, p 76Steel consideration example, p 76