Chapter 7: The Nature and Creation of Contracts

What is a contract?

A legally enforceable agreement.

What distinguishes a simple promise from a contractual promise?

A simple promise is not legally enforceable, while a contractual promise is.

What are the primary duties in torts and contracts?

In torts, the primary duty is to not harm another; in contracts, it is to fulfill promises.

Compensatory Damages for Torts

Look backward to put the plaintiff as if it had not occurred

Compensatory Damages for Contract

Look forward to placing the plaintiff as if the contract had been performed

What are the essential elements of a contract?

Intention to create legal relations, meeting of the minds (offer and acceptance), exchange of value (consideration), capacity, and legality.

What does 'intention to create legal relations' mean?

Parties must intend to create legal relations, assessed by what a reasonable person would believe.

What is meant by 'meeting of the minds'?

A shared decision by parties to enter into a legal transaction, requiring mutual agreement on terms.

Requirement Communication

- Offer must be communicated

e.g. offer contained in an undelivered letter is ineffective

- The offer must be communicated as an offer

§e.g. offer received as a typing assignment ineffective

- Communication may take many forms

-Written document

-Oral statement

Conduct

What is an invitation to treat?

A willingness to receive offers, where the person responding becomes the offeror and person making invitation becomes offeree.

Offer may be terminated before acceptance through:

-Revocation

-Lapse of time

-Death or insanity

-Rejection

- Counter offer

Revocation

Withdrawal by offeror

-Offeror normally free to revoke at any time

-Revocation must be communicated to offeree

What is the difference between a firm offer and an option?

A firm offer is unenforceable unless under seal, while an option is a contractual promise to not revoke, enforceable with consideration.

What constitutes acceptance in contract law?

-Acceptance by promise

-Acceptance by performance

What is acceptance by promise?

•Acceptance may occur in a number of ways

-Words

- Words may be written or spoken

-Conduct

-Conduct may signify acceptance (e.g. handshake)

-Silence

- Silence alone cannot be acceptance

- Silence plus prior agreement may be acceptance

How does acceptance at a distance differ from face-to-face acceptance?

Acceptance at a distance raises issues of when it is effective—when sent or received.

What are the rules for instantaneous communication?

Communication is effective when received, where received and only if received.

Non-instantaneous

substantial delay

-Postal letters, courier packages, maybe email, maybe fax

Postal rules

-Communication effective when and where sent

-Communication effective even if not received

What is a unilateral contract?

Offeror promises to pay a reward to anyone who performs a particular act

Acceptance and Risk Management

•Not always clear whether court will find instantaneous or non-instantaneous

•Risk management Offerors can include acceptable modes of acceptance in offers

What happens if an offer lapses?

The offer terminates after a set time, reasonable time if no date is set, or due to death or insanity.

What is acceptance by performance?

A unilateral contract where an act is exchanged for a promise, creating obligations exist only side only when contract created.

What is the effect of a rejection on an offer?

terminates the offer, and the offeree cannot subsequently revive it.

What is the 'battle of the forms'?

A situation where each party uses their own standard form with different terms, potentially leading to no contract.

What is the significance of silence in acceptance?

Silence alone cannot be acceptance unless there is a prior agreement.

What are the limitations on postal rules for acceptance?

Postal rules apply only to acceptance and can be eliminated by the offeror.

What is the risk management aspect of acceptance?

Offerors can specify acceptable modes of acceptance to manage risks in communication.