Formation of a Contract

• Author: Carolyn MacLean/Alex Colangelo
• Pages: 143-170

143

Elements of a Valid Contract ............. 144

Intention to Create a Legal

Relationship ........................ 144

Invitation to Treat .................... 147

Offer and Acceptance ................... 148

Nature of an Offer ................... 148

Communication of an Offer ............ 149

Acceptance of an Offer ............... 149

Rejection of an Offer ................. 153

Counteroffers ....................... 153

Revocation of an Offer ................ 154

Lack of Capacity ..................... 154

Lapse of Time ....................... 154

Rules for Determining Communication of

the Offer, Acceptance, Counteroffer,

Rejection, and Revocation ........... 157

Consideration .......................... 159

Gratuitous Promises .................. 159

Estoppel Based on Fact ................ 161

Promissory Estoppel .................. 161

Adequacy of Consideration ............ 162

Past Consideration ................... 163

Existing Legal Obligation ............... 164

Debtor – Creditor Relationships .......... 165

Quantum Meruit .................... 166

Chapter Summary ...................... 168

Key Terms ............................. 168

Review Questions ...................... 169

Exercises .............................. 169

Learning Outcomes

After completing this chapter, you should be able to:

• Explain the “reasonable person” test for determining

whether a party intended to be legally bound by their

promise.

• Describe the features of a valid offer, counteroffer,

and acceptance, and explain how the effective timing

of an offer and acceptance is determined.

• Understand how an offer can effectively be revoked

and how an offer can lapse.

• Define “consideration,” and describe the qualities

ofvalid consideration.

• Explain how consideration is treated in debtor –

creditor relationships, under circumstances where

aparty gratuitously promises to make a charitable

donation, and where the parties have notexplicitly

defined the quantum of payment for a service.

• Define “estoppel,” and explain how the doctrine

ofestoppel is relevant to contract law.

Formation

ofaContract

10

© [2023] Emond Montgomery Publications. All Rights Reserved.

144 PART II CONTRACT LAW

Elements of a Valid Contract

As discussed in Chapter 9, for an agreement to be a valid, a binding, and an enforceable

contract, certain elements must be present. If one of these elements is missing or

defective, the courts will not enforce the rights and duties created by that agreement.

The essential elements of a contract are:

• the intention to create a legal relationship;

• an offer and acceptance of the offer;

• an exchange of something of value, usually referred to as “consideration”; and

• legality.

Intention to Create a Legal Relationship

The parties to a contract must have intended from the beginning of their negotiations

that legal obligations would result from their agreement. This assumption is based on

the premise that the contract will be the result of a meeting of the parties’ minds, or

consensus ad idem, on the terms and conditions that will form the contract.

The first requirement of a contract is the intention of the promisor to be bound by

the promise they made. All agreements contain some kind of promise, either to do

something or to refrain from doing something. The majority ofcontracts involve

promises related to future conduct such that, at the time the contract is formed, all

parties have a promise to fulfill in the future. However, there are also contracts that

involve promises in which the conduct of one party has already been performed at the

date that the contract is formed. The former is referred to as a bilateral contract; the

latter is a unilateral contract. Although all contracts contain promises, not all prom-

ises become contracts. Some promises carry with them a moral obligation, but only a

valid contract carries with it a legal obligation.

Proving intention can be difficult because examining intention requires finding out

what was in the promisor’s mind at the time the promise was made. As a result, the

courts rely on a presumption of law that promisors intend to be bound by the

promises they make. Once this presumption has been made, the onus, or burden of

proof, shifts to the promisor to prove that the intention did not exist. To determine if

the onus has been met, the courts look to evidence such as the conduct of the parties

at the time the promise was made, the circumstances surrounding the making of the

promise, the statements made by the parties, and the relationship between the parties.

The test to be applied is: “Would areasonable person hearing the promise assume

that the promisor intended to bebound?”

bilateral contract

a contract in which, at

the time it is formed, both

parties have a promise

to fulfill in the future

unilateral contract

a contract in which, at the

time it is formed, one party

has provided consideration

and the other party has a

promise to fulfill in the future

presumption of law

an inference in favour of a

particular fact; a rule of law

whereby a finding of a basic

fact gives rise to the existence

of a presumed fact or state of

affairs unless the presumption

can be rebutted, or proven

false, by the party seeking

to deny the presumed fact

onus

the burden of

responsibility or proof

© [2023] Emond Montgomery Publications. All Rights Reserved.