Chapter 7

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Department
Marketing and Consumer Studies
Course
MCS 3040
Professor
Joseph Radocchia
Semester
Winter

Description
Chapter 7: The Terms of a Contract Midterm Notes The Content of a Contract • The terms of a contract simply refer to promises made by one party to another by virtue of offer and acceptance • From a risk management perspective, a contract is a business tool that can be used to manage a business's exposure to liability Terms • Contractual terms can be express or implied Express Terms • Express Term:Aprovision of a contract that states or makes explicit one party's promise to another ◦ Example: In the Coaster-Trackers contract, a number of terms are expressed such as the price, quantity, and warranties associated to the tracking • It is important that the essential terms of a contract be express so that each party knows its obligations and the obligations of the other side • Parties negotiating a contract should be very careful not to make assumptions about any aspect of the transaction, as only terms, not assumptions, have legal weight Judicial Interpretation of Express Terms Vague orAmbiguous Language • Even when a term is express, there may be problems interpreting what it means because the language is vague or ambiguous • Assuming that the existence of the contract is not in doubt, the court assigns as reasonable a meaning as possible to vague or ambiguous terms • If contract has been drafted by one of the parties, any ambiguity in language will be construed against that party in favour of the other • The drafter should bear the risk of unclear language • Acourt would conclude that “best quality” refers to the highest quality available, which, in turn, is a matter that expert evidence would establish • Acourt would not set the contract aside for uncertainty because some meaning can be assigned to the phrase 'best quality” • It can be difficult to predict how a court will interpret any given contract because rules of construction • Rules of Construction: Guiding principles for interpreting or “constructing” the terms of a contract ◦ Example: On the one hand, courts are required to enforce the contract as it is written and to rely primarily on the plain, ordinary meaning of the words that the parties have chosen. The court simply asks how a reasonable person would regard the term in question and can refer to dictionaries, legal reference materials, and cases that have considered such terms in the past. On the other hand, courts are to give effect to the parties intentions. Both of these rules make sense standing alone, but they do not provide a solution to the situation in which the parties intentions may be inadequately reflected in the written contract itself. (READ pg 149 for better understanding) • When parties fail to address an important aspect of their contractual relationship, the law my help to “fill in the blanks” through implied terms Implied Terms • When an event arises that is not addressed in the contract through express terms, courts may be asked to imply a term in order to give effect to the parties' intentions • Ajudge will do so if he is satisfied that not all of the terms that the parties intended to include in the contract were in fact included • Aclassic scenario includes, the plaintiff argues to include an implied term but the defendant asserts that no such term was intended • Since the plaintiff carries the burden of proof, she will lose unless she can demonstrate that the term exists based on the balance of probabilities (i.e. she needs to prove that it is more likely than not that the parties intended such a term to be included) • Implied Term: Aprovision that is not expressly included in a contract but that is necessary to give effect to the parties intention Business Efficacy • Through the doctrine of business efficacy, a judge is entitled to imply terms necessary to make the contract workable • Example: If Trackers promised to use a certain grade of tracking, “providing it is available”, a court will almost certainly imply a promise by Trackers to put reasonable effort into trying to find that grade of tracking. Though Trackers has not expressly committed itself to make systematic efforts in this regard, business efficacy makes the obligation implicit • Aterm that courts are increasingly willing to imply as part of commercial contracts is that of good faith, owing, in large part Case: Gateway Realty Ltd. v. Arton Holdings ltd • Businesspeople might assume that the only obligations they owe the other party are those recited in the contract between them • Particularly in the situation where one party is in a position to adversely affect the interest of the other • Problem: Gateway owned a shopping mall in which Zellers was the anchor tenant. The least permitted Zellers to occupy the premises, leave them vacant, or assign them to a third party without any obligation to secure the consent of the landlord.After being approached byArton, a competitor of Gateway, Zellers agreed to locate in Arton's mall.As part of this arrangement,Arton agreed to take an assignment of Zeller's lease with Gateway. As a result, a large part of Gateway's mall had been assigned to its competitor. Pursuant to a subsequent contract between Gateway andArton, the companies agreed to use their best efforts to get a tenant for the space formerly occupied by Zellers. Arton, however, rejected all prospective tenants. Gateway then sued, alleging thatArton was in breach of contract for declining prospective tenants. From Gateway's perspective,Arton was simply trying to undermine the economic viability of the mall by letting a large portion of it remain unoccupied. • Resolution: The court found thatArton breached the express obligation to use its “best efforts” to find a tenant, as well as an implied term to act in good faith. ▪ The law requires that parties to a contract exercise their rights under that agreement honestly, fairly, and in good faith. ▪ This standard is breached when a party acts in a bad faith manner in the performance of its rights and obligations under the contracted ▪ “Good faith” conduct is the guide to the manner in which the parties should pursue their mutual contractual objectives ▪ “Bad faith” is when one party, acts in relation to the contract in a manner where the result would be substantially nullify the bargained objective or benefit contracted for by the other, or to cause significant harm to the other Customs in the Trade of the Transaction • Relying on trade customs to imply a term is rarely successful, since it must be proved that the custom is so notorious that the contract in question must be presumed to contain such an implied term Case: Glenko Enterprises Ltd. v. Ernie Keller Contractors Ltd • Unpaid accounts are an unfortunate reality of the business world • Even when the customer admits that the account is owed, disputes can arise on the rate of interest pay – able if the contract does not expressly address this matter • Problem: It is most germane to note that the subcontractor, Glenko Enterprises Ltd., worked on a project but was not paid by the project contractor (Ernie Keller Contractors Ltd). The contractor admitted that it owed $123 862 but insisted that since no interest had been stipulated in the contract, no interest on the overdue account should be payable. The plaintiff stated that interest was owed at the rate of 1.5 percent per month or 18 percent per annum on accounts over 30 days for three reasons: ▪ There was an implied agreement that such interest was payable based on the term being contained in the invoices sent to the contractor ▪ The contractor did not object to the term regarding interest and, on the contrary, continued to deal with the subcontractor ▪ It is a common trade practice to be charged and to pay interest on overdue accounts. The contractor itself included such an interest provision in its own invoices • Resolution: Even though this matter is not extensively discussed at trial, the judge ruled that the contractor was aware of and followed an industry practice of charging interest on overdue accounts. This was largely because the contractor had itself included provision for interest in its own invoices. The plaintiffs were therefore entitled to the interest as claimed, Previous Dealings between Parties • If parties have contracted in the past, it may be possible to imply their current contract contains the same terms • Arisk management perspective would suggest, however, that the parties clarify the basis of their contractual relationship each time they do business with each other Statutory Requirements • An important source of terms implied by statue is found in provincial sale-of-goods legislation • This legislation provides that certain terms are a mandatory part of every contract for the sale of goods unless specifically excluded by the parties • Specialized rules governing the sale of goods and the extent to which consumer transactions can exclude their application • Section 29 (2). Where the seller delivers to the buyer a quantity of goods larger than the seller contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or may reject the whole, and if the buyer accepts the whole of the goods so delivered, the buyer shall pay for them at the contract rate • It must be clear that both parties would have included the term in question, had they addressed the matter • Courts ordinarily will not imply terms when the parties have agreed that their contract is complete as written • The clearest way parties can signal this intention is through an entire contract clause • Entire Contract Clause: Aterm in a contract in which the parties agree that their contract is complete as written BusinessApplication of the Law: ARequest for Goods or Services; Implying a Promise to Pay • When someone requests the supply of goods or services, the law- be it through common law or by applicable legislation such as the Sale of Goods Act – will imply a promise to pay a reasonable price for those goods or services • The law draws this conclusion because, in a business situation, it is the intention of the parties that goods or services are not to be provided for free, but rather are to be purchased • Implying such a term reflects what can only be the reasonable expectation of the parties • If the goods or services have already been provided but there has been no agreement on price, a term must be implied to r
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