Prepared by Douglas Peterson, Prepared by Douglas Peterson, University of AlbertaUniversity of Alberta 7-7-11

Part 3 – The Law of ContractPart 3 – The Law of Contract

Chapter 7Chapter 7

An Introduction to the An Introduction to the Legal RelationshipLegal Relationship

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-22

OverviewOverview

Historical developmentHistorical development Elements of a valid contractElements of a valid contract

IntentionIntention OfferOffer

NatureNature Communication of an offerCommunication of an offer

AcceptanceAcceptance Lapse of an offerLapse of an offer Revocation of an offerRevocation of an offer

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-33

IntroductionIntroduction

ContractContract An agreement made between two or more persons that An agreement made between two or more persons that

is enforceable at lawis enforceable at law Freedom of contract, the general ability of the parties to Freedom of contract, the general ability of the parties to

create specific rights and dutiescreate specific rights and duties

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-44

Historical DevelopmentHistorical Development

Merchant law Merchant law Ecclesiastic lawEcclesiastic law Manor courtsManor courts 1717thth century development of the bargain theory of century development of the bargain theory of

contractcontract

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-55

Elements of a Valid ContractElements of a Valid Contract

1.1. An intention to create a legal relationshipAn intention to create a legal relationship

2.2. Offer Offer

3.3. AcceptanceAcceptance

4.4. ConsiderationConsideration

5.5. Capacity to contractCapacity to contract

6.6. LegalityLegality

Requirements must be met for a contract to be Requirements must be met for a contract to be enforceableenforceable

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-66

Elements of a Valid ContractElements of a Valid Contract

Requirement of writingRequirement of writing For certain contractsFor certain contracts

Free of vitiating elementsFree of vitiating elements MistakeMistake MisrepresentationMisrepresentation Undue influenceUndue influence duressduress

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-77

IntentionIntention

ContractContract Meeting of the minds (consensual agreement)Meeting of the minds (consensual agreement) Consensus to subject and object of the contractConsensus to subject and object of the contract Essential element is a promiseEssential element is a promise

Party intended to be bound by promise madeParty intended to be bound by promise made Intention is a presumption at lawIntention is a presumption at law

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-88

PresumptionsPresumptions

Presumptions in contract lawPresumptions in contract law Strangers intend to be bound by their promisesStrangers intend to be bound by their promises Family members and close friends do not intend to be Family members and close friends do not intend to be

bound in contractsbound in contracts Both are presumptions can be rebuttedBoth are presumptions can be rebutted

Invitation to do BusinessInvitation to do Business Advertisements are not offersAdvertisements are not offers Invite offers that seller may accept or rejectInvite offers that seller may accept or reject

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-99

OfferOffer

Nature of an OfferNature of an Offer A tentative promise subject to a conditionA tentative promise subject to a condition

Communication of an OfferCommunication of an Offer An offer must be communicated to the other party to be An offer must be communicated to the other party to be

acceptedaccepted Cannot accept an offer you do not know ofCannot accept an offer you do not know of Crossed offers – in the mail do not constitute a contractCrossed offers – in the mail do not constitute a contract Only person to whom offer is made may accept it.Only person to whom offer is made may accept it.

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1010

AcceptanceAcceptance

AcceptanceAcceptance A statement or act given in response to and in A statement or act given in response to and in

accordance with an offeraccordance with an offer Acceptance must be communicated in the manner Acceptance must be communicated in the manner

requested or implied by the offeror in the offerrequested or implied by the offeror in the offer By words or conductBy words or conduct

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1111

Acceptance (Specific Rules)Acceptance (Specific Rules)

RulesRules Offeror is master of their offer and can dictate form of Offeror is master of their offer and can dictate form of

acceptanceacceptance If acceptance is to be by oral meansIf acceptance is to be by oral means

Acceptance complete by either phone or direct speaking Acceptance complete by either phone or direct speaking to offerorto offeror

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1212

Postal RulePostal Rule

Acceptance by postAcceptance by post Acceptance takes place when the letter, properly Acceptance takes place when the letter, properly

addressed and postage paid, is placed in the postboxaddressed and postage paid, is placed in the postbox Acceptance effective where placed in the postboxAcceptance effective where placed in the postbox Governing law, unless otherwise stated, is the law of the Governing law, unless otherwise stated, is the law of the

place where the letter is postedplace where the letter is posted Postal acceptance allowed even if not specifically stated Postal acceptance allowed even if not specifically stated

if it is the normal or usual mode of acceptanceif it is the normal or usual mode of acceptance

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1313

Other Modes of AcceptanceOther Modes of Acceptance

All other modesAll other modes Acceptance not complete until offeror made aware of Acceptance not complete until offeror made aware of

acceptanceacceptance Until it reaches offerorUntil it reaches offeror Acceptance complete when and where receivedAcceptance complete when and where received

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1414

Nature of acceptanceNature of acceptance

Must be clear and unconditionalMust be clear and unconditional Counteroffer is a rejection of an offer and a new offerCounteroffer is a rejection of an offer and a new offer Silence is not acceptance unless pre-existing agreement Silence is not acceptance unless pre-existing agreement

to this effect existsto this effect exists Exception: party assented to the contractException: party assented to the contract Consumer protection reinforces common law rule of Consumer protection reinforces common law rule of

silence is not acceptancesilence is not acceptance

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1515

Nature of Acceptance Nature of Acceptance

RulesRules If a method of acceptance is stated, offeree must If a method of acceptance is stated, offeree must

comply with requirementscomply with requirements If only preference for a particular method of acceptance If only preference for a particular method of acceptance

is stated then:is stated then: If a method other than the method mentioned in the offer If a method other than the method mentioned in the offer

is selected, the acceptance would only be effective when it is selected, the acceptance would only be effective when it was received by the offerorwas received by the offeror

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1616

Nature of AcceptanceNature of Acceptance

Unilateral OffersUnilateral Offers An offer made to the world at largeAn offer made to the world at large The performance of the act is acceptanceThe performance of the act is acceptance Offeror cannot revoke offer so long as offeree is in the Offeror cannot revoke offer so long as offeree is in the

course of performing their partcourse of performing their part

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1717

Lapse of an OfferLapse of an Offer

LapseLapse The termination of an unaccepted offer by the passage The termination of an unaccepted offer by the passage

of time, a counteroffer, or the death of a partyof time, a counteroffer, or the death of a party Rejection of an offer: offer cannot be accepted later Rejection of an offer: offer cannot be accepted later

unless the original offer is revivedunless the original offer is revived

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1818

Lapse of an OfferLapse of an Offer

Passage of timePassage of time Offer lapses after:Offer lapses after:

Stated time in the offer expiresStated time in the offer expires If not stated period of time, after a reasonable period of If not stated period of time, after a reasonable period of

timetime Reasonable period depends on subject matter and Reasonable period depends on subject matter and

circumstances of the transactioncircumstances of the transaction

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-1919

Revocation of an OfferRevocation of an Offer

RevocationRevocation The termination of an offer by notice communicated to The termination of an offer by notice communicated to

the offeree before acceptancethe offeree before acceptance Offers can be revoked anytime before acceptance Offers can be revoked anytime before acceptance

unless there is an optionunless there is an option Revocation must be communicated to the offereeRevocation must be communicated to the offeree Revocation can be communicated in any form as long as Revocation can be communicated in any form as long as

it is communicatedit is communicated

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-2020

Revocation of an OfferRevocation of an Offer

OptionOption A separate promise to keep an offer open for a period of A separate promise to keep an offer open for a period of

timetime Requires consideration or signed under sealRequires consideration or signed under seal

Indirect RevocationIndirect Revocation Revocation can be communicated through someone Revocation can be communicated through someone

else (indirect)else (indirect) Must prove offeree had notice of revocation indirectly from Must prove offeree had notice of revocation indirectly from

a reliable sourcea reliable source

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-2121

SummarySummary

ContractsContracts Promises enforced by the courtsPromises enforced by the courts

RequirementsRequirements Intention to create legal relationshipIntention to create legal relationship

Presumptions certain people intend to contract and certain Presumptions certain people intend to contract and certain people do not intend to contractpeople do not intend to contract

OfferOffer Must be communicated to offeree and only one who offer Must be communicated to offeree and only one who offer

is communicated to can acceptis communicated to can accept

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-2222

SummarySummary

AcceptanceAcceptance Must be communicated in manner requested by offerorMust be communicated in manner requested by offeror Postal rule – acceptance is valid when and where placed Postal rule – acceptance is valid when and where placed

in post boxin post box Other forms – when and where acceptance received by Other forms – when and where acceptance received by

offerorofferor Counteroffers – rejection and new offerCounteroffers – rejection and new offer

© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 7-7-2323

SummarySummary

LapseLapse Passage of time, counteroffer, or death of partyPassage of time, counteroffer, or death of party

RevocationRevocation Anytime before acceptance unless an option is givenAnytime before acceptance unless an option is given