Chapter 7: the terms of a contract
I. The content of a contract
Terms: contractual terms can be expressed or implied.
o Express terms: a provision of a contract that states a promise explicitly
(Ex: price, quantity, warranties…)
o Judicial interpretation of express terms:
Vague or ambiguous language: any vague or ambiguous wording
or language from the drafter will be construed against that party in
favor of the other party.
• In case the language is too ambiguous to understand, the
contract will not be enforceable.
• Rules of construction: guiding principles for interpreting
or “constructing” the terms of a contract.
o These principles often conflict. (Ex: plain
meaning rule vs. parties’ intention) It’s impossible
to predict the judges’ decision.
• Implied term: a provision that is not expressly included in
a contract but that is necessary to give effect to the parties’
intention (a judges will put these terms in if he’s satisfied
that not all of the terms the parties intend to include are
actually included in the contract)
o Business efficacy: a judge is entitled to imply terms
necessary to make the contract workable.
o Customs in the trade of the transaction: relying
on trade custom to imply a term is rarely successful
since it must be proved that the custom is so
notorious that the contract must be assumed to
o Previous dealings between the parties: if parties
have contracted in the past, it may be possible to
imply that their current contract contains the same
o Statutory requirements: certain terms are a
mandatory part of every contract for the sale of
goods unless specifically excluded by the parties
(sales of goods act)
▯In general, it’s not easy to imply a term except in
routine transactions or unless the sale of goods
act applies, or both parties are clear in their
intentions to put the terms in.
o Contractual quantum meruit: awarding one party
a reasonable sum for the goods or services provided
under a contract. The Parol evidence rule: a rule that limits the outside evidence a party can
introduce concerning the contents of the contract.
o This rule forbids any evidence outside of a contract when the contract is
clearly written ▯parties should be careful with any oral contracts, as they
may not be enforced by the court.
o Reinforced by the entire contract clause
o However, there are still cases where outside evidence is important:
There was a fraud in the formation of the contract.
When the contract was actually intended to be partly oral and
If the promise is contained in a collateral agreement, which itself
happens to be oral
• Collateral agreement: an independent side contract which
has terms that conflict with the main contract.
When the language is too ambiguous.
II. Using contractual terms to manage risk.
Change circumstances: parties should put contractual terms that protect them in
unexpected events. (Ex: instead of having a fixed price, negotiate a price to be
based on current economic stand)
Conditional agreement: are essential when one party wants to incur contractual
obligations but only under certain circumstances (Ex: an offeree agrees to buy the
house only if he can get a mortgage from the bank)
o Given there is a contract between parties, the law provides two
mechanism/terms to bind a party from breaching the contract during the
time set aside for the condition’s fulfillment:
Condition subsequent: an event or circumstance that, when it
occurs, brings and existing contract to an end. (Ex: an employee’s
salary is guaranteed if he does a good job. If he does not, he is
Condition precedent: an event or circumstance that, until it
occurs, suspends the parties’ obligations to perform their
contractual obligations (Ex: the mortgage example. The house
owner must wait during a certain period of time f