PART 3 THE LAW OF CONTRACTS
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Chapter 6 – An
Introduction to the
Legal Relationship
Prepared by Douglas H. Peterson, University of
Alberta
Copyright © 2004 McGraw-Hill Ryerson Limited
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AN INTRODUCTION TO THE LEGAL
RELATIONSHIP
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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
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INTRODUCTION
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Contract – an agreement between two or
more persons that is enforceable at law.
Need all required elements
Otherwise freedom to contract with some
exceptions
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ELEMENTS OF A VALID CONTRACT
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Intention to create a legal relationship
Offer
Acceptance
Consideration
Capacity
legality
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ELEMENTS OF A VALID CONTRACT
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Must be free from
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Mistake
Misrepresentation
Undue influence, duress
Illegality
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INTENTION TO CREATE A LEGAL
RELATIONSHIP
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A meeting of the minds of contracting
parties
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A promise which is serious and enforceable by
law
Not all promises are contracts (not enforceable
by law)
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Promises between family members
Intention to create legal relations
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Objective test based on the “reasonable person”
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Did the parties intend to be legally bound?
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INTENTION TO CREATE A LEGAL
RELATIONSHIP
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Presumption of intention in commercial
dealings
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Strangers (arm’s length)
Presumption of no intention in social matters
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Family and close friends
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INTENTION TO CREATE A LEGAL
RELATIONSHIP
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Invitation to do business
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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
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LAW OF CONTRACT
INTENTION OF THE PARTIES
Copyright © 2004 by McGraw-Hill Ryerson Limited.
INTENTION
FORM
Invitation to
Receive Offer
Advertisement of
Goods, Invitation
to Tender, etc.
STATEMENT
To Create a
Legal
Relationship
Copyright © 2004 McGraw-Hill Ryerson Limited
Offer
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OFFER AND ACCEPTANCE
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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
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Offeror – one who makes the offer
Offeree – one who receives the offer
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Communication of an Offer
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Rule: Offer must be communicated by the
offeror to the offeree before acceptance can
take place
Offer must contain:
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All terms of the contract
A communication of willingness to be bound
Terms of offer must be clear
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Communication of an Offer
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Offer must:
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Be understood as such
Be communicated to offeree
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Undelivered letter is not an offer
Form:
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Any form is acceptable
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Written
Oral
Conduct, actions, gestures
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Acceptance of an Offer
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Acceptance must be communicated to
offeror
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In manner requested or implied in offer
Acceptance must be in a positive form
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Types of acceptance
Acceptance by promise
Acceptance by performance
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Performance of the act is acceptance
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ACCEPTANCE OF AN OFFER
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Modes of Acceptance
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If form of acceptance is specified then
acceptance must be in that form
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If form is not specified then
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Accept by fax, must send acceptance by fax
Acceptance in same form of offer is valid
Other reasonable forms of acceptance are valid
If preferred method of acceptance stated
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If other method used, only effective when received by
offeror
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Acceptance of an Offer
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Time of Acceptance
Postbox Rule
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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
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When acceptance is received
Fax, email
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ACCEPTANCE OF AN OFFER
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Acceptance must be unconditional
Counteroffer
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Vary terms = rejection = counter offer = no
acceptance
Counter offer = rejection and new offer
Must be renewed to accept
Original offer has ended
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ACCEPTANCE OF AN OFFER
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Silence is not acceptance
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Unless agreed as a form of acceptance between
parties
Cannot foist an offer on another party
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Unsolicited goods
Consumer protection laws
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ACCEPTANCE OF AN OFFER
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Unilateral Offers
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Performance of the requested act is acceptance
Cannot revoke under equity once performance
has begun in good faith
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LAW OF CONTRACT
FORMS OF ACCEPTANCE
Copyright © 2004 by McGraw-Hill Ryerson Limited.
NATURE OF
ACCEPTANCE
Act
RESPONSE
TYPE OF
CONTRACT
Performance
of Act
Unilateral
Contract
OFFER
Promise
Communication
of Acceptance
Copyright © 2004 McGraw-Hill Ryerson Limited
Bilateral
Contract
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LAPSE OF AN OFFER
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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
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Party dies, insane prior to acceptance
Rejection or counteroffer
No acceptance within stated time period
No acceptance with reasonable time period
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Based on urgency
Based on subject matter
Occurrence of a specified event
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REVOCATION OF AN OFFER
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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
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Form is not important, only that brought to
attention of offeree
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REVOCATION OF AN OFFER
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Option
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Contractual promise not to revoke
Enforceable at law
Keeps an offer open for a specified period of
time
Requires
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Consideration or:
Be under seal
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LAW OF CONTRACT
OFFER AND ACCEPTANCE
RESPONSE
Copyright © 2004 by McGraw-Hill Ryerson Limited.
OFFER
Unconditional
Statement of
Acceptance
Valid
Acceptance
Contract
Conditional
Statement of
Acceptance
Rejection of
Offer
Becomes
Counter
Offer
Rejection
Offer
Terminates
No Contract
Copyright © 2004 McGraw-Hill Ryerson Limited
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SUMMARY
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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
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SUMMARY
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Required Elements
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Intention to create legal relations
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Offer
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Meeting of the minds
Offer may lapse
Counteroffer is a rejection of offer
Offer may be revoked
Acceptance
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Of offer constitutes an agreement
Acceptance must be communicated
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