Business Law_Making the Contract(1)

7/29/2019 Business Law_Making the Contract(1)

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Making a Contract

Business Law

Spring 2009Week 2

Copyright 2009 Daniel E. OConnell


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Learning Objectives

Understanding the definition of acontract and its elements

Determining what is and is not an offer Understanding the proper form of

acceptance of an offer


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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 biketo 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 acontract?


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Definition of a contract

A legally binding agreement

that means there must be some kind of agreementbetween two parties

However, not all agreements are contracts becausenot all agreements are legally enforceable

legally enforceable means that a court will saythat an agreement is a contract


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Essentials of a Valid Contract

Offer

Acceptance

Intention to create legal relations

Consideration


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Definition of Offer

The person making the offer is theofferor

The person who accepts the offer is theofferee

An offer is a promise by the offeror to

do a particular thing on particular termsif there is a proper acceptance ofthe offer by the offeree


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Simple Example 1

John says to Jim, I will sell you thisbook for 10.

Jim says, I agree. We have an offer and an acceptance

John is the offeror

Jim is the offeree


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Invitation to Treat

This is an invitation to others to makeoffers

In other words, you are asking otherpeople to make an offer to you


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Invitation to Treat (cont.)

Some common examples of invitations totreat

goods displayed in a shop window goods displayed on the shelf of a self-

service shop

a public advertisement


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Goods displayed in a shop window

If you see goods displayed in thewindow 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) displaytheir goods on shelves and you choose

what you want to buy and take thosegoods to the cash desk

Again, displaying goods like this is an

invitation to treat, it is not an offerYou make the offer when you take the

goods to the cash desk


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A public advertisement

Normally, a public advertisment is aninvitation to treat and not an offer

If you advertise your BMW for sale inyour local newspaper at offers over25,000, you are inviting people to

make offers to youYou are not making an offer


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A public advertisement (cont.)

However, sometimes an advert can bean offer

In Carlill v. Carbolic Smoke Ball Co.(1893), the court decided this was anoffer


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Unilateral Contracts

Most contracts consist of a promise by oneparty in exchange for a promise foranother party (bilateral contracts)

Aunilateral contract occurs when oneparty promises to do something inexchange for some action by the other


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Acceptance

Once the offeree accepts the offer thecontract is made

After that, the offeror cannot withdraw

the offer and the offeree cannotwithdraw the acceptance


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Form of Communication

Communication of acceptance may occurin any reasonable way unless the offerorspecifies the mode of acceptance


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Communication of Acceptance

Acceptance must be communicated tothe offeror

Silence cannot create an acceptance


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Felthouse v Bindley

An uncle wanted to buy a horse from hisnephew

He wrote to his nephew making an offer andsaying 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 saidthe nephews silence did not make anacceptance


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Acceptance by Post (Mail)

Acceptance is complete as soon as theletter is posted (so long as it has thecorrect address and stamps) and not

when the offeror receives it

In fact, the contract is completed evenif 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 telexmust be received by the offeror


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Acceptance of an Offer for

Unilateral Contract

Acceptance of an offer for unilateralcontract is effective when the act is fullyperformed


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Rejection of Offers

An acceptance must be made on theexact 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 tochange the terms of the offer) also killsthe original offer


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Examples: Rejection of Offer

Me Tom

offerI will sell you myCar for 1000 pounds

RejectionNO !

Offer is dead, cannot be accepted

anymore


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Examples: Rejection of

Offer/Counter-Offer

MeTom

offerI will sell you my

Car for 1000 pounds

Rejection and

Counter-offer

I will buy it

For 500 pounds

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 ofan offer is revocation

An offeror can revoke the offer at anytime before it is accepted by the offeree

The offeror must make sure that the

offeree knows that the offer has beenrevoked


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Cancellation of Offers (cont.)

A promise to keep an offer open until acertain time needs to have anothercontract which has that promise

And the offeree must pay something forthat


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Examples: Cancellation of Offer

Me TomI will sell you my car

For 1000 pounds

Offer

Ill think

About it

Cancellation 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 performthe action, the offeror cannot revoke thecontract

Eg Carlill v. Carbolic Smoke Ball Company It would be unfair if the offeror could revoke

the contract just before the offeree hascompleted the required action


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Lapse of Offers

It is not possible to accept an offeronce 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 tobuy something (or wants some workdone) 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 issubmitted


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Certainty

Even if there is offer and acceptance, acontract will be created only if areasonable 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 partiesattempt to create a contract using theirstandard forms of contract

The parties send each other a formwhich contains the standard terms onwhich 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 morelikely determine the acceptance iseffective when received

BUT, will be flexible based on the situation

For e-commerce, goods displayed on awebsite are an invitation to treat

The main issue surrounds the time atwhich an acceptance becomes effective


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Assignment

Read Ch.2, Making the Contract, pp. 37-60

Business Law_Making the Contract(1)

Documents

Transcript of Business Law_Making the Contract(1)