Week 3 Chapter 7 Pages 163-183; Chapter 8 Pages 187-196 Intro to Business Law

Pg.163-183

Contract: is an agreement that contains legally enforceable rights and obligations

Meeting of the minds: is shared decision to enter into a legal transaction on a particular basis
Exchange of value: occurs when the parties each give up something

Three requirements for a contract:

1. The parties must have an intention to create legal relations.
2. They must reach a mutual agreement through the process of offer and acceptance.
3. They must enter into a bargain by each giving consideration.
A contract cannot exist without an intention to create legal relations.
Intention to create legal relations: exists if a reasonable person would believe that the parties intend to
create a legal

The courts use two presumptions:

1. In commercial context, the parties are presumed to intend legal relations.
2. In family or social contexts, the parties are presumed to not intend legal relations.
Those presumptions, however, are rebuttable- they can be negated by the facts.

Comfort letter: is a document that provides an assurance that a debtor will honour a debt. The crucial
point is that a comfort letter creates a moral obligation, but not a legal obligation. It is valuable, in a
practical sense, because many business people fulfill their promises-even if they are not legally liable- in
order to protect their reputation

The Nature of an Offer

Offer: is an indication of a willingness to enter into a contract on certain terms.

Offeror: is a person who offers to enter into a contract
Offeree: is a person who receives an offer

Invitation to Treat: is an indication of a willingness to receive an offer. It is an invitation for others to

make offers. Consequently, a person who responds to an invitation is an offeror, and a person who
initially presents the invitation is an offeree.

The Life of an Offer

There are several possibilities:
1. Revocation-occurs if the party who made an offer withdraws it. The offeror is the “master of the
offer” and, consequently, is generally entitled to revoke it at any time. Revocation is not
effective unless it is reasonably communicated to the offeree. Until that happens, the offer
remains open and the offeree can create a contract through acceptance.
2. Lapse of time- when either a deadline set by the offeror, or a reasonable length of time, has
passed
3. Death or Insanity
4. Rejection- occurs when the offeree refuses an offer. An offer is terminated once it is rejected.
5. Counter-Offer- occurs when an offeree responds to an offer by indicating a willingness to enter
into a contract but on different terms. A counter-offer has the effect of rejecting an existing
offer and creating a new one.
Week 3 Chapter 7 Pages 163-183; Chapter 8 Pages 187-196 Intro to Business Law

Firm Offer: is an offer that the offeror has promised to hold open for a certain time
Option: is a contract in which the offeree provides something of value in exchange for the offeror’s
promise to hold an offer open for a specific period of time
Tender: is an offer to undertake a project on particular terms
There are special rules for the tendering context in Canada courts:
1. Contract A: which are process contracts; they govern the parties’ rights and obligations during
the selection process.
2. Contract B: which are construction contracts; there is only one Contract B, which is created
when the offeree accepts one of the tenders.

Battle of the forms: occurs when each party claims to have entered into a contract on the basis of its
own standard form document

Acceptance
An offer is turned into a contract when it is accepted. Acceptance can be achieved in two ways:
 Acceptance by promise
 Acceptance by performance
Bilateral contract: occurs when a promise is exchanged for a promise
Acceptance: occurs when an offeree agrees to enter into the contract proposed by the offeror.
Acceptance must be communicated to the offeror, it must be unequivocal, and it must correspond
precisely with the terms of the offer.
Acceptance can be given through words or conduct but not silence alone-

Acceptance at a Distance

General Rule: states that acceptance by instantaneous communication is effective when and where it is
received by the offeror
Instantaneous Communication: involves little or no delay between the time that one party sends a
message and the other party receives it
Postal Rule: states that an acceptance that is communicated in a non-instantaneous way is effective
where and when it is sent
Non-Instantaneous Communication: is a form of communication that involves a substantial delay
between the time that it leaves one person and reaches another
Electronic Contracts: see pages 178-180

Common Law
Situation Rule Effect
Instantaneous message General rule Acceptance when and
where received
Non-instantaneous Postal rule Acceptance when and
message where posted
Statute
Situation Rule
Designated system for Acceptance when
contract formation message enters
offeror’s system and
can be retrieved
Week 3 Chapter 7 Pages 163-183; Chapter 8 Pages 187-196 Intro to Business Law

No designated system Acceptance when

for contract formation offeror knows message
entered system and
can be retrieved
Unilateral Contracts: occurs when an act is exchanged for a promise

Pages 187-196
Gratuitous Promise: is a promise for which nothing of legal value is given in exchange
Consideration: exists when a party either gives (or promises to give) a benefit to someone else or suffers
(or promises to suffer) a detriment
Sufficient Consideration: may be almost anything of value
Adequate Consideration: has essentially the same value as the consideration for which it is exchanged
Forbearance to sue: is a promise to not pursue a lawsuit
Mutuality of Consideration: requires that each party provide consideration in return for the other
party’s consideration
Past Consideration: consists of something that a party did prior to the contemplation of a contract

Pre-Existing Obligation

Three types of Pre-Existing Obligations:

1. Pre-Existing Public Duty: A person who owes a pre-existing public duty cannot rely upon that
obligation as consideration for a new contract
2. Pre-Existing contractual obligation owed to a third party: a promise to perform a pre-existing
obligation that previously arose under a contract with a third party can be good consideration
for a new contract
3. Pre-Existing contractual obligation owed to the same party:
 Novation: If the parties want to revise the terms of their agreement , they may use the
process of novation to discharge their initial contract and enter into a new agreement
that includes a higher price
 Fresh Consideration: A promise to pay a higher price is enforceable as long as the other
party provides something new or different.; your promise also is enforceable if I gave
fresh consideration in exchange for it
 Seal: If you place your promise under seal, it is enforceable even without consideration.
 Business Before Law:
Situation Can a Pre-Existing Obligation Generally Provide
Consideration for a New Contract?
Pre-existing public duty No
Pre-existing contractual obligation owed to a Yes
third party
Pre-existing contractual obligation owed to the No
same party