As taught to students in my Winter 2009 Introduction to Business Law course at the National College of Technology and Management

1. Formation of aFormation of a
Valid ContractValid Contract

2. What type of agreements areWhat type of agreements are
valid contracts?valid contracts?
Handshake?Handshake?
Sign on the dotted line? X ……………..Sign on the dotted line? X ……………..
Is it an agreement the Courts will enforce?Is it an agreement the Courts will enforce?

3. Elements of aValid ContractElements of aValid Contract
1.1. OfferOffer
2.2. AcceptanceAcceptance
3.3. ConsiderationConsideration
4.4.Capacity to contractCapacity to contract
5.5. LegalityLegality

4. 1. Intention to create a legal1. Intention to create a legal
relationshiprelationship
 ““The meeting of the minds”The meeting of the minds”
The promisor must intend to be bound by theThe promisor must intend to be bound by the
promise made.promise made.
Advertisements:Advertisements:
Is an ad to sell for a specific price binding? IsIs an ad to sell for a specific price binding? Is
this a kind of contract?this a kind of contract?
Textbook P 65Textbook P 65
““Puffs” – the promises which are not recordedPuffs” – the promises which are not recorded

5. Advertising:Advertising:
Advertisements are treated as anAdvertisements are treated as an
‘invitation to do business’‘invitation to do business’
The company is not entering into aThe company is not entering into a
contract with everybody in the world whocontract with everybody in the world who
reads the adreads the ad

6. Offer and AcceptanceOffer and Acceptance
of the Contractof the Contract
Every promise is subject to a condition:Every promise is subject to a 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 theThe offer must be communicated to the
other party in order to be acceptedother party in order to be accepted

7. Textbook p66 - Banner ExampleTextbook p66 - Banner Example
A company had a large corporate banner that was flown from aA company had a large corporate banner that was flown from a
flag mast outside its downtown corporate office. During a wind storm,flag mast outside its downtown corporate office. During a wind storm,
the banner disappeared, and the com- pany decided to place anthe banner disappeared, and the com- pany decided to place an
advertisement in the local newspaper offering a reward of $200 for itsadvertisement in the local newspaper offering a reward of $200 for its
return. Before the advertisement appeared in the newspaper, anreturn. Before the advertisement appeared in the newspaper, an
employee of another company located nearby found the banner andemployee of another company located nearby found the banner and
returned it to the receptionist at the corporate office. Later that day,returned it to the receptionist at the corporate office. Later that day,
the employee noticed the reward advertisement in the news and madethe employee noticed the reward advertisement in the news and made
a claim for the reward. In this case, the offer of reward was nota claim for the reward. In this case, the offer of reward was not
communicated to the employee until after he had performed what wascommunicated to the employee until after he had performed what was
required under the terms of the offer of reward.The employee,required under the terms of the offer of reward.The employee,
therefore, cannot accept the offer because he had returned the bannertherefore, cannot accept the offer because he had returned the banner
without the intention of creating a contract.This concept will bewithout the intention of creating a contract.This concept will be
examined more closely with respect to another element of a contract,examined more closely with respect to another element of a contract,
but for the present, it may be taken as an example of thebut for the present, it may be taken as an example of the
communication rule.communication rule.

8. Acceptance of the OfferAcceptance of the Offer
 P 67 –The acceptance of the offer must be communicatedP 67 –The acceptance of the offer must be communicated
to the offeror in the manner requested or implied by theto the offeror in the manner requested or implied by the
offeror in the offerofferor in the offer
 Words or acts that indicates the offer is acceptedWords or acts that indicates the offer is accepted

9. Textbook p67Textbook p67

10. Acceptance methods:Acceptance methods:
 FaxFax
 Mail:Mail: Postal Acceptance RulePostal Acceptance Rule::
 Offers that invite acceptance by mail, the relevant date isOffers that invite acceptance by mail, the relevant date is
the day the mail goes in the post boxthe day the mail goes in the post box

11. Electronic ContractsElectronic Contracts
 Clicking the box is the same as a signatureClicking the box is the same as a signature
 Textbook p69Textbook p69

12. The Counter OfferThe Counter Offer
 The only acceptance is one that clearly and unconditionallyThe only acceptance is one that clearly and unconditionally
accepts the offeraccepts the offer
 Anything else is a ‘counter-offer’Anything else is a ‘counter-offer’
 Examples: Offer to service car for $, reply with an offer to letExamples: Offer to service car for $, reply with an offer to let
them do the job for $X, there has been no acceptance.them do the job for $X, there has been no acceptance.
 Offer,Offer,
 Reply with a new offer (“Counter-offer”)Reply with a new offer (“Counter-offer”)
 Example:Textbook p70Example:Textbook p70

13. Silence in the Process of Offer andSilence in the Process of Offer and
AcceptanceAcceptance
 Silence cannot be considered acceptance of an offerSilence cannot be considered acceptance of an offer
 Unless a prior agreement has been established between theUnless a prior agreement has been established between the
partiesparties
 Can you stand by and let someone do work, and later sayCan you stand by and let someone do work, and later say
that you never accepted the offer of the work to be done?that you never accepted the offer of the work to be done?
 No. Textbook p71No. Textbook p71

14. Example: Unsolicited GoodsExample: Unsolicited Goods
 Members of the public shall not be required to pay forMembers of the public shall not be required to pay for
unsolicited goodsunsolicited goods

15. 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

16. Lapse of an OfferLapse of an Offer
 Until an offer is accepted, no legal rights or obligationsUntil an offer is accepted, no legal rights or obligations
arisearise
 Death will cause an offer to lapseDeath will cause an offer to lapse
 If the conditions are not accepted unconditionally the offerIf the conditions are not accepted unconditionally the offer
will lapsewill lapse
 Any change in terms by the acceptance will cause the offerAny change in terms by the acceptance will cause the offer
to lapseto lapse

17. Revocation of an OfferRevocation of an Offer
Offeror (the one selling) can revoke an offer (cancel it)Offeror (the one selling) can revoke an offer (cancel it)
Must be communicated before the offer is acceptedMust be communicated before the offer is accepted
Anytime before the offer is acceptedAnytime before the offer is accepted

18. RevocationRevocation
 Are there situations where the offer should not beAre there situations where the offer should not be
revocable?revocable?
 Offer to sell land, oil and gas, that requires investment beforeOffer to sell land, oil and gas, that requires investment before
purchasepurchase
 CAUTION: Real estate, you make an offer to sell the property,CAUTION: Real estate, you make an offer to sell the property,
and the purchaser wants assurance you will go through with theand the purchaser wants assurance you will go through with the
sale and not stop halfway through the processsale and not stop halfway 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 considerationThis is a separate contract so get some consideration

19. RevocationRevocation
 Example:Example:
 Offer to sell property for $1MillionOffer to sell property for $1Million
 Buyer begins to sell their houseBuyer begins to sell their house
 Don’t want to get stuck without a place to live when presentDon’t want to get stuck without a place to live when present
house sells, if offer is revokedhouse sells, if offer is revoked
 Buyer insists on an irrevocable offer from the sellerBuyer insists on an irrevocable offer from the seller

20. RevocationRevocation
 Can be communicated in any particular wayCan be communicated in any particular way
 The revocation must come to the attention of the offereeThe revocation must come to the attention of the offeree
before the offer is accepted.before the offer is accepted.

21. ConsiderationConsideration
 ““Bargain theory of contract” – everybody should getBargain theory of contract” – everybody should get
something in return for a promisesomething in return for a promise
 This “Something” is called ”This “Something” is called ”considerationconsideration””
 IE: payment of money, performance of a service, promiseIE: payment of money, performance of a service, promise
not to do something (sue)not to do something (sue)
 Steel consideration example, p 76Steel consideration example, p 76