Management and Organizational Studies 2275A/B Study Guide - Parol Evidence Rule, Standard Form Contract, Liquidated Damages

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CHAPTER 7: THE TERMS OF A CONTRACT
CHAPTER 7
THE TERMS OF A CONTRACT
Objectives
After studying this chapter, you should have an understanding of:
the difference between implied and express terms
how judges determine and interpret the content of a contract
how a party can include terms to protect itself from liability
Learning Outcomes
Understand the difference between express and implied terms of a contract (page 148-
149)
Understand how courts interpret written contracts, especially where the parties’ intentions
are not clearly expressed or the contract contains ambiguous language
(page 150-153)
Recognize how parties enumerate conditions in contracts that allow them to escape from
their obligations if those conditions occur (page 150)
Understand how a stronger party may reduce or eliminate any obligation to pay a damage
claim by including exemption clauses in a contract (page 150)
Recognize that consumers are bound by electronic standard form contracts even where
they had no power to negotiate better terms (page 162-163)
Chapter Summary
The nature, scope and extent of the obligations of the parties to a contract are known as the
terms of the contract. The terms may be express, as when they have been specifically
mentioned and agreed upon by the parties, or they may be implied. Since the court has
considerable discretion to imply a term or not, parties are best advised to make their
agreement as clear and explicit as possible. How courts will resolve a contractual dispute
over terms is an open question, as is any matter that proceeds to litigation. An important
evidential rule that guides a judge is known as the parol evidence rule. It presents the
introduction of evidence that varies or adds to the terms of a written contract when the
contract is clear and intended to be the sole source of the parties’ obligations. Entire contract
clauses are used to propel a court to apply the parol evidence rule in any given case. An
important planning function of contract law lies in the fact that it permits parties to manage
the risk of future uncertainties. Additionally, it permits them to establish, in advance, the
extent of responsibility for breach through limitation clauses and exemption clauses.
Furthermore, parties can bargain for what will be payable in the event of breach. Such a term
will be enforceable, provided the amount is a genuine pre-estimate of damages and not a
penalty. Courts may refuse to apply a clause that disadvantages a consumer if the business in
question failed to take reasonable steps to ensure that the consumer was alerted to the clause
in question. Courts are less likely to assist the commercial or industrial customer, however,
on the basis that sophisticated business interests should be left to take care of themselves.
101
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PART 2: CONTRACTS
Study Outline
Use this outline to prepare a complete set of notes for this chapter.
Terms – page 148
______________________________________________________________________
______________________________________________________________________
Express terms __________________________________________________________
______________________________________________________________________
Judicial interpretation of express terms – page 148
______________________________________________________________________
______________________________________________________________________
How courts interpret contracts _____________________________________________
______________________________________________________________________
Rules of construction _________________________________________________
Enforce plain meaning of words______________________________________
Give effect to parties’ intention ______________________________________
Implied terms __________________________________________________________
______________________________________________________________________
Business efficacy ____________________________________________________
Customs in the trade of the transaction____________________________________
______________________________________________________________________
Previous dealings between the parties ____________________________________
______________________________________________________________________
Statutory requirements ________________________________________________
______________________________________________________________________
Sale of Goods Act _________________________________________________
______________________________________________________________________
Entire contract clause ____________________________________________________
______________________________________________________________________
Contractual quantum meruit ______________________________________________
______________________________________________________________________
The parol evidence rule- page 154_________________________________________
Evidence of electronic contracts_________________________________________
______________________________________________________________________
Using Contractual Terms to Manage Risk – page 156
______________________________________________________________________
______________________________________________________________________
Copyright © 2011 by Nelson Education Ltd.
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CHAPTER 7: THE TERMS OF A CONTRACT
Changed circumstances___________________________________________________
______________________________________________________________________
Conditional agreements __________________________________________________
______________________________________________________________________
Conditions subsequent ________________________________________________
Conditions precedent _________________________________________________
Limitation of liability clause_______________________________________________
______________________________________________________________________
Exemption clause _______________________________________________________
______________________________________________________________________
Liquidated damages clause________________________________________________
______________________________________________________________________
Electronic Standard Form Contracts – page 162
______________________________________________________________________
______________________________________________________________________
Shrink –wrap agreements _________________________________________________
______________________________________________________________________
Question of enforceability______________________________________________
______________________________________________________________________
Click-wrap agreements___________________________________________________
______________________________________________________________________
Question of enforceability______________________________________________
______________________________________________________________________
Browse-wrap agreements _________________________________________________
______________________________________________________________________
Question of enforceability______________________________________________
______________________________________________________________________
SELF-ASSESSMENT
Key Terms
Briefly define each term in the space provided.
Express term – page 148
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
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