FORMING CONTRACTUAL RELATIONSHIPS
After studying this chapter, you should have an understanding of
• how negotiations lead to a contractual relationship
• how negotiations can be terminated
• the legal ingredients of a contract
• how contracts can be amended or changed
Understand how business negotiations can result in the formation of a contract or terminate without legal consequences (pages 114–116)
Understand the essential elements of a contract (pages 114–116)
Recognize when contracts can be amended and when they cannot (page 130)
A contract comprises four essential elements: an offer, an acceptance, consideration, and an intention to contract. Before a contract can be formed, one party must make an offer on a complete set of certain terms. An offer can be terminated in a number of ways, including by revocation, lapse, rejection, counteroffer, death, or insanity. Assuming that an offer is on the table, the other party must unconditionally accept all the terms of the offer for the offer to be considered accepted. Each party must give something (called consideration) in exchange for the promise or performance of the other. The parties must intend their bargain to be a contractual one. If any one of these elements is missing, the relationship is non-contractual by definition. There are occasions, however, when the law will enforce a promise that is not supported by consideration. In short, if the promise is under seal, meets the requirements of promissory estoppel, or is subject to a specialized statutory scheme, such as the partial payment of debt, it will be enforceable. As well, the New Brunswick Court of Appeal is willing to enforce gratuitous contractual variations provided there is no economic duress.
Aside from these exceptions, a gratuitous promise is not binding, no matter how seriously it was intended and no matter how much the other party may have relied on it. This legal reality is particularly important when varying a term in an existing contract. While the conditions for creating a legal agreement may seem stringent, they serve an important purpose. Contract law is about creating voluntary agreements and is therefore facilitative. In sum, it helps those in the marketplace to determine—in advance of litigation—the legal enforceability of commitments they have received and thereby lets them do business more effectively.
© 2014 Nelson Education Limited
Study Guide to accompany Canadian Business and the Law, 5th edition
Use this outline to prepare a complete set of notes for this chapter.
The Contract—page 114
Certainty of Offer _______________________________________________________
Invitation to Treat _______________________________________________________
Standard Form Contract __________________________________________________