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Chapter 5: Elements of Contracts, eCommerce and

Technology
Chapter Commentary
The focus of this introductory chapter on contract law is to have students understand the
pervasiveness of contracts in everyday life and the importance of understanding the
difference between an agreement and promise, which have no legal consequences and a
contract which does. This is the WHY of this chapter. Students may ask, “Why do I
need to know about contract law?” The answer is simple, initially – because people enter
into contracts all the time, and no matter the value of the contract they all follow the same
basic rules.

It is important to look at examples as stated in the chapter opener “HELP”. This should
drive home the various situations that can occur within a business that a student might not
think about. By looking at the difference between an Invitation to Treat and an Offer,
students should begin to realize how contract law is the basis for all commercial
transactions in society, and how we have incorporated well established rules of contract
formation into everyday actions.

Another important area for a businessperson that should be discussed in detail with your
students is the effect the form of a contact may have on contract formation. Oral, written,
partially written and increasingly electronic contracts, have their own rules on when and
how a contract comes into being.

Interesting discussions will no doubt take place when examining electronic

contracts. These would be contracts that most students would have entered into without
realizing the wealth of rules and history behind them. Emphasizing the actual rights and
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obligations that arise when buying something online may prompt students to realize just
how common contract law is in today’s society.

Another WHY of this chapter a student may ask is “Why do we need to know about
contract law? It should be emphasized that of all the legal relationships in society today,
the one formed between individuals using contracts is the most common.

Throughout this chapter, students should begin to strengthen their understanding of the
rights and obligations that face both parties as they enter into contracts, regardless of the
value of the contract.

Discussion Forum Topics

Increasingly discussion forums are being incorporated into courses to foster discussion
between students that expand or augment that which has already taken place in class.
The following suggested discussion board topics for this chapter, along with a suggested
establishing paragraph, are just one way that discussion forums can be used to facilitate
online participation and reinforce concepts covered in both the chapter and the classroom.

Suggested Discussion Board Structure by Instructor:

You are required to make at least two thought-provoking postings each week to
help facilitate the discussion. We hope this will ensure a lively discussion.

Please remember this is not a writing assignment but a conversation, please be

respectful of the opinions of others.

For some ground rules on online discussion forums at the post-secondary level, we refer
you to the following website:
http://teaching.colostate.edu/tips/tip.cfm?tipid=128

1. We get married a few times in our lives, have a couple of hundred close friends, a
couple of thousand friends and acquaintances but enter into hundreds of
thousands of contracts over our lifetime. As such the contracts are the
fundamental basis for our relationships with other individuals in society.

Discuss the truth of this statement.

2. Contract Law is often said to be the most private of law, and one that the court is
the least likely to interfere with. Tort law, on the other hand, is often seen as the
other side of Criminal Law, and frequently prompts judicial activism.

Is this a fair distinction? Why do you think it has developed in this manner?

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 NB: This question mirrors one asked in Chapter 3 (Torts), and can be used to
demonstrate a fuller understanding of the concepts introduced in that chapter also.

3. Comment on the following case: Has a contract been formed? Discuss how
contract law would determine who has made an offer and acceptance in this case.

The Defendant offered to sell to the Plaintiffs 2,600 shares for $2.00 per share.
Plaintiffs responded by letter accepting the defendant's offer and stating that upon
verification of the company's financial position and liabilities a price of $4.00 per
share would be paid. Was there a binding contract or was the Plaintiffs'
acceptance conditional and therefore ineffective.

4. Cyber Monday, the Monday after Black Friday in the US, is reportedly the
biggest online shopping day of the year.
Do you think that an online contract should have special rules on formation to
differentiate it from a normal retail contract? What problems do you see with
online contracts that would require these rules?

5. Go to the following website: https://www.ic.gc.ca/eic/site/cmc-

cmc.nsf/vwapj/Sales_Template.pdf/$file/Sales_Template.pdf

Review the proposed Disclosure of Information for an online seller. It is fair to

require this without a similar obligation on the buyer. Discuss why or why not.

6. From this Chapter , I want you to discuss the following questions:

a. What is the most important thing you learned and;

b. What is the most challenging concept you learned in this
section.

Flipped Classroom

The Flipped classroom is an opportunity for students to prepare for class and for the
instructor’s to expand the students’ learning through various activities and discussions.
By reading the textbook, watching a YouTube or completing a short assignment prior to
their class, the discussions and activities in the classroom become more robust and
command an interesting learning experience.

Please note that not all pre-class activities are required. The authors have prepared a
sample of items that can be provided to the student during a four-day, one hour course.
Instructors may choose the items they feel are appropriate for their classroom time
allocation and their expectations on out-of-classroom time.

In anticipation of Chapter 5 – Day 1, students should:

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Preparation:
 Read Section 5.1 and 5.2 in your textbook.
 Review the Did You Know in Section 5.1. Be prepared to answer: what type of
contracts do you enter into in your daily lives?
 Review the six page contract for coaching found in Section 5.2. Did you realize that such
contracts exist? Have you ever entered into a contract for extra-curricular activities?

In class:
 Discuss with your students the types of day-to-day ‘contracts’ we enter into.
 Review the coaching contract mentioned above with your students.
 An interesting video on YouTube about the difference between a contract and an
agreement (US company) but will provide the students with an idea of the
difference found at https://www.youtube.com/watch?v=oZWtZyef4r8
 Discuss in groups, Activity #3 at the end of the chapter.

In anticipation of Chapter 5 – Day 2, students should:

Preparation:
 Read Section 5.3
 Think of five different companies that a homeowner may enter into a contract
with – why would a contract be required? Think of five different companies a
business would enter into a contract with – why would a contract be required?
What are the different considerations a business owner might have versus a
homeowner?

In class:
 Have students discuss their answers about homeowner and business owner found
above.
 In groups, have the students look at UECA and outline the highlights of the act
and what sections stand out for businesses involved in e-commernce.

In anticipation of Chapter 5 – Day 3, students should:

Preparation:
 Read Sections 5.4, 5.5 and 5.6.
 Be prepared to provide a scenario for An Invitation to Treat.
 Be prepared to discuss the four requirements of Offer, Acceptance, Consideration and
Intention. Give examples.
 Be prepared to explain some complications that might happen after ‘the basics’ occur.

In class:
 Have students provide their scenarios for An Invitation to Treat.

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  Students, individually or in groups, should be able to provide the definition and examples
of the requirements for a contract.
 Students, in groups, will prepare a scenario or case study where there is a complication
that occurs during or after the ‘basics’ of the contract.

In anticipation of Chapter 5 – Day 4, students should:

Preparation:
 Read Section 5.7, 5.8 and 5.9
 Develop a scenario where an option agreement would be used. Be prepared to
discuss in class.
 Find a case where the concept of an ‘implied term’ was given by a judge.
 Review the Electronic Commerce Act. Is there anything you find in the act you
didn’t know? Anything you think should be added. What kinds of e-commerce
do you get involved in?
 Review and prepare your answer for Case #1 and #2 at the end of the textbook
chapter.
 Complete the Chapter crossword that was provided to you by your instructor.
In class:
 Have students present and discuss their scenarios for option agreements
 Have students provide the case where an implied term was given by a judge.
 Discuss the Electronic Commerce Act with the students. Ask what about their
involvement in e-commerce. Did they know the implications?
 Review students’ answers for Case #1 and #2 at the end of the textbook chapter.
 Review the answers for the Chapter crossword with the students.

HELP

As a businessperson, you may experience any of these scenarios below:

 Help! You have hired a contractor and she destroyed your office.

Students can be requested to identify the key issue in this fact situation. A discussion can
be started around standards of performance that do not meet those set out in the contract
and what the remedy may be.

 Help! You sold an expensive product and you didn’t get paid.

Asking students what they would do in these circumstances can precede a discussion on
the ability to enforce the terms of a contract and the appropriate forum, which would
provide an opportunity for review of the court system in Chapter 1.

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  Help! You bought a computer and it doesn’t work.

Students can be asked to identify where they would expect to find a description of what
can be expected of the computer. Following that, they can be referred to the relevant
sections in Chapter 5.

 Help! Your local art gallery promised to sell you a painting but they sold it to
someone else instead.

A rhetorical question, such as ‘when is an offer not an offer’, could be used to introduce
a discussion on what has happened in this fact situation before referring the students to
the relevant sections in the Chapter.

 Help! You exchanged information about your company’s services through e-mail
with a potential client and they are now insisting that you have entered a contract
with them.

A general conversation on the development of e-commerce as part of our daily lives

could be used to introduce this fact situation to the students followed by a request for
them to review section LO 5.8 before resuming the discussion.

 Help! You clicked on the “I agree” button on the terms and conditions of a website
without actually reading what you were agreeing to.

Almost every student will be able to relate to this fact situation and the subsequent
uncertainty of what exactly has been agreed to. Students could be asked to explore why
this action is so common and why the consumer does not review the terms and conditions.
Students should be asked to read sections 5.7 and 5.8 and to return with suggestions on
how this situation could be better managed to reduce risk and buyer’s remorse.

For Review

Questions

1. Explain the difference between an offer and an invitation to treat. (LO 5.1, 5.2, 5.4, 5.5)

An invitation to treat, such as an advertisement, is an indication that a party is

seeking another party with whom to do business. It does not have the certainty of
terms of the proposed contract that an actual offer does. In an offer the responding
party has to know to the 3 “P’s”, - Parties, Product, and Price, - that will form the
basis of the contract.

2. Explain the term counteroffer. (LO 5.5)

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 The counteroffer is a response to an offer that does not end the bargaining but rather
continues it. When made, the counteroffer rejects the original offer and replaces it
with a new offer. This then requires the responding party – who was the party who
made the original offer – to respond either with an agreement, a rejection or a
counteroffer of their own.

3. Name the four ways an offer can be terminated. (LO 5.1, 5.2)

Withdrawal or revocation of the offer by the person who made it;

Lapse of the offer after a specified or reasonable period of time;
The decline of the offer by the person to whom the offer was directed;
A counteroffer from the person to whom the offer was directed;
Acceptance

4. Explain the four basic requirements needed to create a contract. (LO 5.1, 5.2, 5.4, 5.5, 5.6,
5.7)

An offer is a promise to enter into a contract, under complete and specific terms, once
there is a communicated acceptance.
Acceptance is the final step in the contract formation process. An acceptance must
be made and communicated while the offer is open. The acceptance must be
complete and accept all the terms of the offer. If it does, an agreement is formed. If
changes are made, conditions added, or the acceptance is not in any way a complete
“yes,” then there is no agreement
Consideration is simply the obligation that each side in a contract agrees to perform.
As with most concepts in contracts, the rules of consideration are relatively
straightforward, although the application of them may be difficult. In order to have
an enforceable contract, something of value must go from the offeror to the offeree
and, in addition, something of value must go from the offeree to the offeror
Intention is the last key requirement in forming a contract. Both parties must have the
intention that the agreement will be enforceable through the court system if
necessary. Typically, in a commercial or business situation, if the parties go to the
trouble to negotiate and reach an agreement, the law assumes that the necessary
intention was present

5. Explain the concept of Consideration. (LO 5.2, 5.7)

The essence of any contract is the benefit received by both parties. This is what is
known as consideration. Consideration does not have to be equal, but must have
some exchange of value, either concrete such as a product for money, or recognized
by society, as in paying money to watch a movie, and therefore receiving
entertainment, for it to be valid.

6. What is a “Gratuitous Promise”? (LO 5.2, 5.7)

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 A Gratuitous Promise is a one-sided exchange. A party performs a favour or gives a
gift with not expectation of receiving a benefit in return. As such, there can be no
legal action enforcing the promise or the gift.

7. What is the difference between a “Clickwrap” and “Browse-wrap” Agreement? (LO 5.1,
5.3, 5.5, 5.8)

Browse-wrap agreements are the small hyperlinks at the bottom of a page that direct
users to a “Terms of Service” page. The customer does not necessarily have to
follow the hyperlink to be bound by the terms, although doing so and then continuing
to use the website would be a clear consent to the terms to a court’s satisfaction. By
contrast, a Clickwrap agreement requires the user to review the terms of an
agreement, which they must accept by clicking on a button signalling their agreement
with the terms, before proceeding. These terms are usually set out in a series of pop-
up windows. Because the website has put these terms right in front of a user, and
required positive action from them to continue, it is easy to see why they are regarded
by the courts as more enforceable than a Browse-wrap Agreement.

8. How does Intention determine the enforceability of an agreement? (LO 5.2, 5.5, 5.6)

People enter into agreements all the time and intention determines whether they are
to be recognized as a binding agreements or contracts. If the agreement arises out of
a social or domestic situation, then the law presumes that there is no intention for this
to be a contract, if it arises from a commercial situation then the law presumes that
there was an intention for this agreement to be a contract. If there is a mixture of
both types of situations, than the law tries to determine which type of intention should
be dominant and apply that rule.

9. What is a “Functional Equivalency Clause” in e-contracts? (LO 5.1, 5.2, 5.8)

A functional equivalency clause is a clause in an e-contract that simply means that

contracts in electronic form are recognized as being equally valid as contracts that
are either in written or oral form.

10. Explain the difference between express and implied terms in a contract. (LO 5.2, 5.3,
5.4)

While both are equally enforceable, an express term is one that is directly agreed to
in the contract while an implied term is one that is presumed from the circumstances.
Those circumstances can be determined from past dealings between the parties,
industry standards, or the law. For example, when conducting retail business in
Canada, it is an implied term that the prices listed for a product are in Canadian
currency. Any deviation from this must be an expressed term.

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Activities

1. Browse newspapers, magazines or websites and other periodicals for a recent contract
law case. Explain the background of the case, the issues of the case and provide the
outcome. (LO 5.1, 5.3)

Answers will vary depending on the case chosen. The students should focus on how
the issue arose and what preventative measure could have been taken or enforced to
minimize the occurrence of any problems identified.

2. Count up the number of contracts you have entered into over the past five days. What
was common between them? What were the differences? (LO 5.1, 5.2, 5.3)

Answer will vary but students should be directed to consider which contracts they
actually negotiated and which ones – probably the majority – they simply had to
agree to.

3. Discuss how contacts can be used to reduce risk. (LO 5.3)

By anticipating where contract formation problems are likely to occur and taking a
preventative approach contracts can reduce risk at the initial stages. They can also
establish cost effective and practical remedies for dealing with problems as they
arise. This reduces the need for disputes and litigation.

4. Why is Intention an important element of Contract Law? (LO 5.2, 5.6)

Intention is what fundamentally determines whether an agreement is an enforceable

one or is simply a promise. Students must be aware of the difference between the two
so that they know when they have the right to insist upon performance.

5. Online, find an example of a “Clickwrap” Agreement and a “Browse-wrap” Agreement.

Is there any common difference between websites that use the one type of an agreement
over the other? (LO 5.1, 5.8)

Clickwrap agreements tend to be used for software download licences and usually
require a specific action for agreement, while browse-wrap are more inclusive as
they bind the user to the terms of the website simply by using the website.

6. Why is Contract Law not usually concerned with the Consideration received by both
sides being equal in value? (LO 5.2, 5.7)

Because the determination of the value of a contract to a party tends to be subjective

to that party, and the parties are in the best position to determine that value, the
courts are reluctant to interfere with that determination and place an objective value
on a contract except in special circumstances such as “quantum meruit”.

7. How would a party determine that quantum meruit has been met in the price charged for
a service? (LO 5.7)

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 This is a good opportunity to reinforce the ideas of caveat emptor and show students
that the act of shopping around for the best price for a service has an actual legal
value as well as an economic value.

8. There are four types of transactions that require a contract be in writing. Why is that
necessary for these types of transactions? (LO 5.1, 5.3, 5.8)

Contracts that need to be in writing include:

 Contracts relating to land, including sales and leases of land
 Contracts where the promises made are not required to be performed within a year of the
execution of the contract
 Contract of Guarantee, where a party agrees to be responsible for the debt or obligations
of another (in certain future circumstances)
 In some provinces, contracts for the sale of goods, above a small, stipulated, monetary
amount.

Because these contracts are often defined by a description, as in land transactions, or

are slated to last for an extensive periods, they need to be in writing to keep the
consideration and terms of performance straight. The last two examples need to be in
writing as they are protecting the interest of parties to the transaction that may not
have full control over the transaction or performance.

9. What is an example of a standard form contract commonly encountered? Why is

necessary for businesses to have Standard Form Contracts? (LO 5.3, 5.8)

Answers will very but you might to direct students to such common contracts as Apple’s
ITunes agreement, or even their contract with the college. The need for such contracts
should focus on their use in allowing businesses to proactively lower their risk of problems in
contract formation arising because of the use of already established language and clauses in
the contract.

Cases for Discussion

Case #1

Arnold owned three building units (A, B and C) in a commercial development. As a

result of some financial difficulties, he e-mails to Bob as follows "I will sell you one of
my units for $150,000. Bob immediately e-mails back “I accept your offer".

(A) Was Arnold’s e-mail an offer? Why or why not? (LO 5.1, 5.4, 5.5)

Arnold’s e-mail was not specific enough as to which unit Bob would get in the
transaction for this to be an offer. It is missing the certainty of Product from the three
“P’s”.

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(B) Is an e-mail exchange such as this valid in forming a contract? (LO 5.1, 5.4, 5.5)

As long the parties are content to communicate in this manner, than e-mail is a valid
method informing a contract. Timing of when the offer or acceptance has been received
however could be an issue.

Case #2

A friend buys you a cup of coffee at Tim Horton’s during “Roll Up the Rim” time. You
roll up the rim and win the grand prize.
The three possible outcomes will be determined by Intention and Consideration.

(A) Is the prize yours to keep? (LO 5.1, 5.2, 5.5, 5.6)

As this seems to be a social agreement, and the coffee was offered as a gift, it is yours to
keep, including the possible prize. As this seems to be a social agreement, and the coffee
was offered as a gift, it is yours to keep, including the possible prize.

(B) Do you and your friend have to share the prize? (LO 5.1, 5.2, 5.5, 5.6)

If you and your friend regularly take turns buying the coffee for one another, then an
argument can be made that there was consideration exchanged and that that
consideration may include the sharing of any prize being won. Intention, or the
enforceability of this agreement, however would mean that your friend would have to
show that the mutual exchange and this agreement to share the prize were circumstances
that created a commercial intention over and above the social intention.

(C) Is the prize your friend’s to keep?

Only if your friend can make a case that they established clearly from the beginning of
the process that any prize being won was theirs to keep and that you agreed to this term
of the contract, will they be able to keep the prize. Essentially, the consideration being
exchanged was you receiving the coffee, and our friend receiving the chance to win to
win whatever prize was under the rim.

Case #3

Monica invited Brody to the college New Year dinner and dance. Brody accepted the
invitation and agreed to accompany Monica who purchased the tickets and arranged a
limo. Two days before the dance, Brody tells Monica that he is no longer interested in
going to the dance with her.

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(A) What contract formation issue could determine whether a contract has been
formed? (LO 5.1, 5.2, 5.5, 5.6, 5.7)

Intention would primarily be used to determine this issue.

(B) Would a court make a decision requiring Brody to go to the dance with Monica?
(LO 5.1, 5.2, 5.5, 5.6, 5.7)

As this was clearly a Social agreement, a date, it is not enforceable by the courts. Brody
would not have to go to the dance with Monica.

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