Copyright © 2004 McGraw-Hill Ryerson Limited 1 PART 3 THE LAW OF CONTRACTS  Chapter 6 – An Introduction to the Legal Relationship Prepared by Douglas H. Peterson, University of Alberta

Copyright © 2004 McGraw-Hill Ryerson Limited 2 AN INTRODUCTION TO THE LEGAL RELATIONSHIP The Elements of a Valid Contract The Intention to Create a Legal Relationship Offer and Acceptance Intention to Create a Legal Relationship Offer Acceptance Consideration – Chapter 7 Capacity to Contract – Chapter 8 Legality – Chapter 8

Copyright © 2004 McGraw-Hill Ryerson Limited 3 INTRODUCTION Contract – an agreement between two or more persons that is enforceable at law. Need all required elements Otherwise freedom to contract with some exceptions

Copyright © 2004 McGraw-Hill Ryerson Limited 4 ELEMENTS OF A VALID CONTRACT Intention to create a legal relationship Offer Acceptance Consideration Capacity legality

Copyright © 2004 McGraw-Hill Ryerson Limited 5 ELEMENTS OF A VALID CONTRACT Must be free from Mistake Misrepresentation Undue influence, duress Illegality

Copyright © 2004 McGraw-Hill Ryerson Limited 6 INTENTION TO CREATE A LEGAL RELATIONSHIP A meeting of the minds of contracting parties A promise which is serious and enforceable by law Not all promises are contracts (not enforceable by law) Promises between family members Intention to create legal relations Objective test based on the “reasonable person” Did the parties intend to be legally bound?

Copyright © 2004 McGraw-Hill Ryerson Limited 7 INTENTION TO CREATE A LEGAL RELATIONSHIP Presumption of intention in commercial dealings Strangers (arm’s length) Presumption of no intention in social matters Family and close friends

Copyright © 2004 McGraw-Hill Ryerson Limited 8 INTENTION TO CREATE A LEGAL RELATIONSHIP Invitation to do business Presumption of invitation to treat An invitation to the general public to engage in the bargaining process Advertisements, display of goods, or sales promotions are not binding offers Not offers but merely invitations for customers to offer to pay the price of the item

Copyright © 2004 McGraw-Hill Ryerson Limited 9 Copyright © 2004 by McGraw-Hill Ryerson Limited. LAW OF CONTRACT INTENTION OF THE PARTIES STATEMENT INTENTIONFORM To Create a Legal Relationship Advertisement of Goods, Invitation to Tender, etc. Offer Invitation to Receive Offer

Copyright © 2004 McGraw-Hill Ryerson Limited 10 OFFER AND ACCEPTANCE Nature of an Offer – a promise subject to a condition Promises are tentative until an offer is made and accepted Tentative promises made by one party, subject to a condition or containing a request to the other party Offeror – one who makes the offer Offeree – one who receives the offer

Copyright © 2004 McGraw-Hill Ryerson Limited 11 Communication of an Offer Rule: Offer must be communicated by the offeror to the offeree before acceptance can take place Offer must contain: All terms of the contract A communication of willingness to be bound Terms of offer must be clear

Copyright © 2004 McGraw-Hill Ryerson Limited 12 Communication of an Offer Offer must: Be understood as such Be communicated to offeree Undelivered letter is not an offer Form: Any form is acceptable Written Oral Conduct, actions, gestures

Copyright © 2004 McGraw-Hill Ryerson Limited 13 Acceptance of an Offer Acceptance must be communicated to offeror In manner requested or implied in offer Acceptance must be in a positive form Types of acceptance Acceptance by promise Acceptance by performance Performance of the act is acceptance

Copyright © 2004 McGraw-Hill Ryerson Limited 14 ACCEPTANCE OF AN OFFER Modes of Acceptance If form of acceptance is specified then acceptance must be in that form Accept by fax, must send acceptance by fax If form is not specified then Acceptance in same form of offer is valid Other reasonable forms of acceptance are valid If preferred method of acceptance stated If other method used, only effective when received by offeror

Copyright © 2004 McGraw-Hill Ryerson Limited 15 Acceptance of an Offer Time of Acceptance Postbox Rule When acceptance is mailed, it is effective when and where it is posted Rule applies only when response by mail is appropriate Rule only applies to acceptance, not revocation New methods of communication When acceptance is received Fax,

Copyright © 2004 McGraw-Hill Ryerson Limited 16 ACCEPTANCE OF AN OFFER Acceptance must be unconditional Counteroffer Vary terms = rejection = counter offer = no acceptance Counter offer = rejection and new offer Must be renewed to accept Original offer has ended

Copyright © 2004 McGraw-Hill Ryerson Limited 17 ACCEPTANCE OF AN OFFER Silence is not acceptance Unless agreed as a form of acceptance between parties Cannot foist an offer on another party Unsolicited goods Consumer protection laws

Copyright © 2004 McGraw-Hill Ryerson Limited 18 ACCEPTANCE OF AN OFFER Unilateral Offers Performance of the requested act is acceptance Cannot revoke under equity once performance has begun in good faith

Copyright © 2004 McGraw-Hill Ryerson Limited 19 Copyright © 2004 by McGraw-Hill Ryerson Limited. LAW OF CONTRACT FORMS OF ACCEPTANCE OFFER NATURE OF ACCEPTANCE RESPONSE TYPE OF CONTRACT Promise Act Performance of Act Communication of Acceptance Unilateral Contract Bilateral Contract

Copyright © 2004 McGraw-Hill Ryerson Limited 20 LAPSE OF AN OFFER Termination of an offer when the offeree fails to accept within a specified time or, if not time is specified, within a reasonable time Methods Party dies, insane prior to acceptance Rejection or counteroffer No acceptance within stated time period No acceptance with reasonable time period Based on urgency Based on subject matter Occurrence of a specified event

Copyright © 2004 McGraw-Hill Ryerson Limited 21 REVOCATION OF AN OFFER Revocation: Withdrawal of an offer General Rule: An offer can be revoked anytime before acceptance Requires an act on part of offeror to be effective Revocation must be communicated to offeree Form is not important, only that brought to attention of offeree

Copyright © 2004 McGraw-Hill Ryerson Limited 22 REVOCATION OF AN OFFER Option Contractual promise not to revoke Enforceable at law Keeps an offer open for a specified period of time Requires Consideration or: Be under seal

Copyright © 2004 McGraw-Hill Ryerson Limited 23 Conditional Statement of Acceptance Copyright © 2004 by McGraw-Hill Ryerson Limited. LAW OF CONTRACT OFFER AND ACCEPTANCE RESPONSE OFFER Unconditional Statement of Acceptance Valid Acceptance Rejection Offer Terminates Rejection of Offer No Contract Becomes Counter Offer Contract

Copyright © 2004 McGraw-Hill Ryerson Limited 24 SUMMARY Contract law is a series of principles and rules for formation of agreements Parties free to the rights and duties of the parties Contract is an agreement enforceable at law

Copyright © 2004 McGraw-Hill Ryerson Limited 25 SUMMARY Required Elements Intention to create legal relations Meeting of the minds Offer Offer may lapse Counteroffer is a rejection of offer Offer may be revoked Acceptance Of offer constitutes an agreement Acceptance must be communicated