Nature of contract and requirements

7/29/2019 Nature of contract and requirements

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CHAPTER

PowerPoint Presentation Prepared By

Susan McManus, Mount Royal College

CHAPTER

PowerPoint Presentation Prepared By

Susan McManus, Mount Royal College

2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

3

The Formation

of a Valid Contract


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Essentials of Canadian Business Law, 1st Canadian Edition Slide 3-1 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

LEARNING OBJECTIVES

Examine the role of contracts in business Understand the elements of a valid contract

Determine how contracts are formed

Outline the rules relating to the creation of a valid

contract

CH 3


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Elements of a Valid Contract

Contract an agreement enforceable at law A valid contract consists of six elements:

1. Intention to create a legal relationship

2. Offer

3. Acceptance4. Consideration

5. Capacity to contract

6. Legality

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Intention To Create A Legal Relationship

Presumption at law: parties in any commercialtransaction make promises with the intention to

become legally obligated to fulfill them

Intention is not presumed by family members, and

if contested the court will review the statementsfrom a reasonable person point of view

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Intention ofthe Parties

Figure 3-1


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Intention To Create A Legal Relationship (Contd)

Advertisements and goods on display are notnormally enforceable promises as advertisers

usually only attempt to describe or present their

goods

Courts will review all facts and did in fact find therewas a valid contract in Carlill v. Carbolic Smoke Ball

Co. @ page 65

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7/30Essentials of Canadian Business Law, 1st Canadian Edition Slide 3-6 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Intention To Create A Legal Relationship (Contd)

Invitation to do business Invites the public (offeror) to

make offers, which the seller

(offeree) can accept or reject

Advertisements and displays ofgoods, even with prices

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Offer andAcceptance

Figure 3-2



Offer and Acceptance

Offer and Acceptance: Offeror makes a tentative promise subject to a

condition, which is not binding until accepted

Offeree receives the offer and may accept, reject

or counter-offer

Communication of an Offer

1. Must be communicated to the offeree

2. Only the specific offeree may accept

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Forms ofAcceptance

Figure 3-3



Offer and Acceptance (Contd)

Acceptance of an Offer1. Acceptance must be communicated to the offeror

in the manner requested or implied in the offer,

and will be complete when the offeror is made

awareMail acceptance occurs when placed in the postbox

All other modes of communication acceptance

occurs when the offeror is aware, usually receipt of

acceptance

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Acceptance of an Offer2. Acceptance must be unconditional

Any change is a counter-offer

3. Silence cannot be considered acceptance unless

there is a pre-existing agreement Consumer legislation protects against this type of

stipulation

What could happen if silence could be deemedacceptance of an offer?

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Acceptance of an Offer

4. Unilateral agreements

Acceptance is by performance of an act

What examples are there of unilateral contracts?

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Lapse of an Offer Death, insanity or bankruptcy of either party before

acceptance

Rejection

Counter-offer: any changes to the offer by theofferee

No acceptance within a reasonable time

(dependent upon facts or within a set time-limit)

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Revocation of an Offer Offeror may actively revoke (withdraw) the offer

any time before acceptance

Agreement by the offeror to keep the offer open for a

specified time is gratuitous and not bindingAn option (by payment or under seal) is used to

ensure the offer will not be revoked

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Revocation of an Offer Offeree must be aware of the revocation before

acceptance

Receive revocation notice, including a letter of

revocation Indirect notice

From a reliable source

Offeror must prove the offeree would know of the

revocation

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Consideration

Essential element of contract: Both parties must receive something in return

No consideration - promise is gratuitous, and not

legally binding (a gift)

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Consideration (Contd)

Seal gives a contract consideration when affixed at the

time of signing

Forms may include gummed wafer to corporate seals

Tenders offers made in response to a call for tenders,

usually required to be irrevocable under seal

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Adequacy Must be of value, but courts will not look into

fairness of the price

Must be present or future promise

Past consideration: promise based on somethingalready received - gratuitous promise and not

binding

Promise based on entitlement by law or contract -

gratuitous promise

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Adequacy Goods or services received or provided with no set

price may have the court determine a reasonable

price

How could parties deliver goods or provideservices without settling on a price or otherconsideration?

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Debtor-CreditorAgreement to take less is gratuitous promise

Binding if:

Written & sealed

Payment before the due date Third party pays

Legislation binds creditors

to lesser amounts

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The Debtor-Credit Relationship

Debtor

Creditor Relationship &Consideration

Consolidation schemes have consideration, as the

promise by all creditors to take less is the

exchange of promises Equitable or Promissory Estoppel

Defence by the debtor against a claim to enforce the

contract

Promisee must prove reliance on the truth of thegratuitous promise to his or her detriment

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Capacity to Contract

Law offers protection for classes of persons1. Minors: under age set out in legislation (18 or19 years)

Not liable under most contracts

Necessaries: liable for a reasonable price Non-necessaries

If not fully performed, may repudiate

Long term and continuing nature must be repudiated

upon reaching majority

Not of continuing nature must be ratified

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Capacity to Contract (Contd)

2. Drunken and Mentally ImpairedPersons

Necessaries: bound if reasonable price

Non-necessaries: may be avoided as soon as the

contract is brought to the persons attention Incapable of knowing his or her actions when entering

the contract

Other party knew of the condition

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Capacity to Contract (Contd)

3. Corporations Created by statute and may have limitations on ability to

contract by legislation or incorporating documents

4. Labour Unions

Created by statute and have specific abilities to contract

5. Bankrupt Persons

Created under statute and have limitations to enter contracts

(necessaries only and must reveal bankrupt status)

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Legality

Contracts that offend public policy are unenforceable (void and

have no rights enforced)

are prohibited by statute may also be illegal, as

well as unenforceable, and subject to fines andpenalties

What types of contracts are unenforceable, illegal

or both?

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Legality

Contracts in restraint of tradeVoid & unenforceable if

Undue and unreasonable restraints

contrary to the Competition Act

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Contracts in Restraint of Trade

Restrictive Agreements

1. Sale of a Business: restriction ofcompetition is used to give value to goodwill

Courts may sever parts of the agreement, but will

NOT rewrite the terms Restrictions must be reasonable as to

Geographical and time restraints

Public interest not adversely affected

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Contracts in Restraint of Trade (Contd)

Restrictive Covenants

2. Employment: not to compete

protection of business practices and business

secrets

generally void unless serious harm to employer

reasonable restraintsnot limiting employees

opportunities or their use of skill and knowledge

Restrictions during employment are usually valid as

employee should devote energy to employment

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f C C S G

SUMMARY

Six essential elements to form anenforceable contract

1.Intent ion: presumed unless otherwise

demonstrated

2. & 3. Valid offer with complete acceptance4.Considerat ion: exchange of promises

5.Capacity: protection of specific classes minors,

drunken persons, and persons with mental

impairment6.Legal i ty: must not offend statutes or public policy,

which includes contracts in restraint of trade

CH 3

Documents

Nature of contract and requirements