Elements Necessary for the formation of a contract
- Offer
- Acceptance
- Consideration
- Intention to create legal relations
- Capacity
- Legality
- Certainy of terms
What is a Contract?
- A promise, or a set of promises that the law will enforce
- There must be mutual obligation – both parties must give something of value, both sides need consideration
Offer
- Must be intended to the accepted – tell the other person for the purpose of them accepting it
- It is a tentive promise made by one party, subject to a condition or containing a request to the other party
- Must be definite and certain (terms must be clear)
- Must be communicated to the intended recipient
It is intended to be binding on both parties as soon as it is accepted
Offer vs. Invitation to Treat
- invitation for people to create an offer
- Ex – advertisment, garage sale (where you can bargain the prices)
Standard Form Contracts
- Also called a “contract of adhesion” and is a take it or leave it offer
- No room for negotiation over terms of the contract (Ex – Terms and conditions)
Standard Form Contracts Advantage
highly efficient (fast/easy)
Standard Form Contracts Disadvantage
- inequality of bargaining power, no room for negotiation (ex - terms and conditions)
- Therefore, Contra Proferentum – reading the contract against the contra (the person who drafted it), if it is something that a reasonable person would not expect, they have an obligation to bring it to their attention, or else the courts will not accept it
Counter-offer
- Counter-offer is the rejection of the original offer and a new offer is formed that can be accepted or rejected by the counter-party
- Once someone makes a counter-offer, they have rejected the original offer and not it is open to the other side to accept, reject, or make their own counter offer
Acceptance
- Final unqualified consent to the terms of the offer
- Must accept everything and cannot offer a counter offer
-Must be communicated to the offeror with by word or by conduct (cannot silency accept something)
-Unilateral contracts can only be accepted by performance (ex – reward for finding a lost pet) - When the offer is received it is accepted – every moment up until that the offer can be rescinded
Timing of Acceptance – Revoking an Offer
- offerer can revoke the offer at any time prior to its acceptance
- Expectations
(a) Where an offeree has paid money to keep and offer open
(b) Where the offer was made under seal
Postal acceptance rule
once the contract is dropped in the mail box it is accepted
Lapse
where the offer stipulates a time by which the offer must be accepted and that time passes, then the offer is deemed revoked
Communication of Acceptance
Offeror must receive acceptance for it to form a contract
Jurisdiction of Contract - General rule
the place where a contract is formed is determined by when it is formed, and presumably the courts of the place where it is formed have jurisdiction over disputes
Consideration
- the value being transferred between the parties
- The price is paid for the contract
- Usually money but doesn’t always have to be (patent)
- Price can be performance
- Price can be the goods and services in trade
Gratuitous Promise
- No consideration = no contract
- It is not enforceable, cannot sue because there is no contract
Past Consideration
- Past consideration = no consideration
- After the contract is formed, and they say they will add something else, you cannot sue because the contract has already been formed
Debtor/Creditor Rule
- A new contract is not formed when a debtor promises to reduce their debt
- Mercantile Law Amendment Act
Mercantile Law Amendment Act
when a creditor accepts part performance (i.e a lesser some of money) in a settlement of a debt, and the debtor actually pays the reduced amount, the entire debt is extinguished
Consideration Alternative (Seals)
- A stamp to seal the document – sealed means it has taken thought
- A promise made under the seal of the promiser does not require consideration to make it binding
Intention to Create Legal Relations
Reasonable bystander test: did the outward conduct of the parties lack serious intention to create legal obligations?
Capacity
- Need the mental capacity to enter a contract
- Some parties lack the necessary legal capacity to enter contracts or holding diminished capacity
Minors (<18 years old)
- incapacitated to enter a contract
- Still bound by any contract for supply of necessary/ essential goods and services – quantum meruit, only; or beneficial contracts of service (employment/apprenticeship)
- Minor can always back out of any contract
When they reach the age of majority - voidable
ex - installments (phone bill)
- must back out immediately, so every is distinguished going forward
