Making a Contract

Business Law Spring 2009 Week 2

Copyright 2009 Daniel E. OConnell

Learning Objectives

Understanding the definition of a contract and its elements Determining what is and is not an offer Understanding the proper form of acceptance of an offer

What is a contract? Examples

I promise to bring chocolates to the whole class. Is there a contract? I promise to give you 100 yuan if ride your bike to Tiananmen Square and back to ICB in less than 2 hours. Is there a contract? I give you 2 yuan for your Coca-Cola. Is there a contract? I promise to give you a new bicycle if you agree not to eat Chinese food for one year. Is there a contract?

Definition of a contract

A legally binding agreement that means there must be some kind of agreement between two parties However, not all agreements are contracts because not all agreements are legally enforceable legally enforceable means that a court will say that an agreement is a contract

Essentials of a Valid Contract

Offer Acceptance Intention to create legal relations Consideration

Definition of Offer

The person making the offer is the offeror The person who accepts the offer is the offeree An offer is a promise by the offeror to do a particular thing on particular terms if there is a proper acceptance of the offer by the offeree
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Simple Example 1

John says to Jim, I will sell you this book for 10. Jim says, I agree. We have an offer and an acceptance John is the offeror Jim is the offeree

Invitation to Treat

This is an invitation to others to make offers In other words, you are asking other people to make an offer to you

Invitation to Treat (cont.)

Some common examples of invitations to treat goods displayed in a shop window goods displayed on the shelf of a selfservice shop a public advertisement

Goods displayed in a shop window

If you see goods displayed in the window of a shop, this is not an offer to sell them to you It is an invitation for you to enter the shop and make an offer to buy them

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Self-service shops

Many shops (like supermarkets) display their goods on shelves and you choose what you want to buy and take those goods to the cash desk Again, displaying goods like this is an invitation to treat, it is not an offer You make the offer when you take the goods to the cash desk
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A public advertisement

Normally, a public advertisment is an invitation to treat and not an offer If you advertise your BMW for sale in your local newspaper at offers over 25,000, you are inviting people to make offers to you You are not making an offer
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A public advertisement (cont.)

However, sometimes an advert can be an offer In Carlill v. Carbolic Smoke Ball Co. (1893), the court decided this was an offer

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Unilateral Contracts

Most contracts consist of a promise by one party in exchange for a promise for another party (bilateral contracts) A unilateral contract occurs when one party promises to do something in exchange for some action by the other

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Acceptance

Once the offeree accepts the offer the contract is made After that, the offeror cannot withdraw the offer and the offeree cannot withdraw the acceptance

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Form of Communication

Communication of acceptance may occur in any reasonable way unless the offeror specifies the mode of acceptance

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Communication of Acceptance

Acceptance must be communicated to the offeror Silence cannot create an acceptance

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Felthouse v Bindley

An uncle wanted to buy a horse from his nephew He wrote to his nephew making an offer and saying that he would consider the horse his if he heard nothing from his nephew The nephew did not reply The horse was later sold to someone else The uncle tried to stop this, but the court said the nephews silence did not make an acceptance
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Acceptance by Post (Mail)

Acceptance is complete as soon as the letter is posted (so long as it has the correct address and stamps) and not when the offeror receives it In fact, the contract is completed even if the offeror never receives the letter This rule also applies to telegrams

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Other Forms of Acceptance

Acceptance by telephone, fax and telex must be received by the offeror

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Acceptance of an Offer for Unilateral Contract

Acceptance of an offer for unilateral contract is effective when the act is fully performed

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Rejection of Offers

An acceptance must be made on the exact terms of the offer If the offeree rejects the offer then the offer is dead The offeree cannot later try to accept the original offer A counter-offer (ie if the offeree tries to change the terms of the offer) also kills the original offer
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Examples: Rejection of Offer

I will sell you my Car for 1000 pounds Me NO !

offer Tom Rejection

Offer is dead, cannot be accepted anymore

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Examples: Rejection of Offer/Counter-Offer

Me I will sell you my Car for 1000 pounds I will buy it For 500 pounds offer Tom Rejection and Counter-offer

Offer is dead, cannot be accepted anymore. Tom has made a counter-offer (new offer). I can accept or reject it.

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Cancellation of Offers

The technical term for cancellation of an offer is revocation An offeror can revoke the offer at any time before it is accepted by the offeree The offeror must make sure that the offeree knows that the offer has been revoked
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Cancellation of Offers (cont.)

A promise to keep an offer open until a certain time needs to have another contract which has that promise

And the offeree must pay something for that

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Examples: Cancellation of Offer

Me

I will sell you my car For 1000 pounds Ill think About it Cancellation

Offer

Tom

I dont want to sell it anymore

Offer is cancelled before Tom accepts. The offer Is dead, it cannot be accepted
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Cancellation of Offers for Unilateral Contracts

Once the offeree has started to do perform the action, the offeror cannot revoke the contract Eg Carlill v. Carbolic Smoke Ball Company It would be unfair if the offeror could revoke the contract just before the offeree has completed the required action

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Lapse of Offers

It is not possible to accept an offer once the offer has ended. The offer is said to have lapsed Offers lapse

At the end of a specified period After a reasonable time

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Tenders

A tender is where someone wants to buy something (or wants some work done) and invites people to submit the terms on which they are willing to sell (or do the work) A tender is a form of invitation to treat The offer is made when a tender is submitted
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Certainty

Even if there is offer and acceptance, a contract will be created only if a reasonable person could state with certainty what has been agreed to There has to be a meeting of the minds

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Battle of the Forms

Describes a situation in which parties attempt to create a contract using their standard forms of contract The parties send each other a form which contains the standard terms on which they enter into a contract Often the forms will not agree

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Offer and Acceptance Over the Internet

For email, it seems that courts will more likely determine the acceptance is effective when received BUT, will be flexible based on the situation For e-commerce, goods displayed on a website are an invitation to treat The main issue surrounds the time at which an acceptance becomes effective
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Assignment

Read Ch.2, Making the Contract, pp. 3760

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