Canadian Contract Law/Formation of the Bargain

Offer and Invitation to Treat

An offer is a promise which, if accepted, will bind the person who offers and the person who accepts. All of the essential terms of a contract should be in an offer, so that the person to whom the offer is made should only have to say "yes", and the contract will become enforceable.

In most contracts, the offer is made to a specific person, and that person only will be able to accept. However, this is not always so. A unilateral contract is a promise to the whole world: the offeror promises to do something in return to whomever does the thing requested. An example of a unilateral contract is a reward poster: The offeror promises to pay $25 to whomever finds his lost dog. The offer is not made to any person in particular; it is made to whomever finds his dog. An offer is deemed accepted at the moment of performance of the contract-- as soon as someone finds and returns the dog, he is entitled to $25. In fact, he need not have known about the reward poster to be entitled to the $25; in this way, the unilateral contract is in some ways an exception to the principle that a contract is the "meeting of minds".

A tricky question about unilateral contracts often arises out of their expiry. For example, many old paperbacks have coupons in them; "send in $7.95 and we shall send you the rest of this series". This is a unilateral contract: whomever sends the $7.95 should receive the other books. However, if the paperback was printed in, say 1956, one could not fill out the coupon today along with $7.95 and hope to receive the rest of the series. Why?

There are several principles for interpreting contracts. One is called the "business efficiency" principle. Where a term in a contract is missing (for instance, the expiry date of a unilateral contract), the business efficiency principle requires judges to ask what would the parties to the contract necessarily have agreed to at the time the contract was made for this contract to make business sense. Taking the example above, it would have made no business sense in 1956 for the offer contained in the paperback coupon to have remained valid for several decades: they knew then that the books would eventually go out of print and the value of the currency would drop due to inflation. However, if in 1956, they believed that this series of books would still be in print in 2004, and that inflation would remain at zero for the next fifty years, then the coupon would probably still be valid today, even if hindsight showed this offer to be foolish.

Courts have made a distinction between a unilateral contract and "mere puffery". "Mere puffery" is often found in advertising. "This is the best product ever!" and "You won't be disappointed" are examples of mere puffery. Such descriptions of the product are not considered as part of the offer, i.e., if you are disappointed, you cannot complain that the offeror did not live up to the contract. On the other hand, if an advertiser says, "if you're not satisfied, we'll give you your money back!" then that would be considered as part of a valid contract. This is called a warranty, which will be discussed below.

Acceptance

A contract is made at the moment of acceptance. What the parties thought they agreed to after the acceptance is not relevant. What matters is what the parties thought they agreed to at the moment it was accepted.

As a contract is a "meeting of the minds", it is crucial for a contract to be formed that the offeree accepts the same thing that the offeror offered. If the offer is "I will sell you this bicycle for $50" and the acceptance is "I accept your offer to sell me your bicycle for $80", then there is no acceptance, because the offer and the acceptance were for different terms.

An acceptance on different terms than the offer may be regarded as a counter-offer. If in the above example, the first person says "O.K., $80 it is," then a contract is made. Both parties are bound to an exchange of the bicycle for $80.

Consideration

Consideration is something of value in the eyes of the law moving from the promisee that will invoke the agreement. It is usually in the for ofa benefit to the promisor or a detriment to the promisee. In general, consideration is essential to all contracts, with the exception of contracts under seal. Moreover, the courts will often go to great length to find consideration.