Law Chapter 7-9 Notes.docx

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Management and Organizational Studies
Management and Organizational Studies 2275A/B
Philip King

Law Chapter 7-9 Notes Chapter 7: The Terms of a Contract The Content of a Contract The terms of a contract refer to the promises made by offer and acceptance Contracts can be used to mange exposure to liability Terms can be express or implies Express Terms - A provision of the contract that states the promise explicitly - Ex. Price, quantity warranties - Essential terms should be express so each party knows their obligations - Parties should be careful not to make assumptions when negotiating a contract Judicial Interpretation of Express Terms (vague or ambiguous language) - If the vague language does not make the existence for the contract doubtful the judge will assign it reasonable meaning - If the contract has been drafted by one of the parties any ambiguity will be interpreted against that party - The drafter bears the risk of unclear language - If language is so ambiguous the contract cannot be understood it will fail for uncertainty - Rules of Construction guiding principles for interpreting or constructing the terms of a contract - Rules of construction are often conflicting and make it difficult to predict how the court will interpret - Courts are required to enforce the contract as written (asks how a reasonable person would interpret the document) - BUT courts are also supposed to give effect to partied intentions - These two rules conflict of the parties intentions are inadequately reflected in the written contract - When parties fail to address an important aspect of their contractual relationship the law may help to fill in the blanks through implied terms Implied Terms not expressly included but necessary to give effect to the parties intention - When an event arises that is not addressed in the express terms - Imply a term in order to give effect to the parties intention - If judge feels that not all the terms that all the parties intended to include were included - Plaintiff usually argues to include an implied term but the defendant asserts that no such term was intended - Plaintiff will lose unless can demonstrate that term existed on the balance of probabilities Grounds for Implying Terms 1. Business Efficacy - Judge entitled to imply terms necessary to make the contract workable - If a company has not expressly committed itself to making systematic efforts; business efficacy would make this obligation implicit - Courts are increasingly willing to imply the term of good faith in commercial contracts 2. Customs in the Trade of the Transaction - Relying on trade customers to imply a terms is rarely successful - Must be proves that the custom is so notorious that the contract in question must be presumed to contain such an implied term 3. Previous Dealings between the Parties - May be possible to imply terms that have been used in past contracts 4. Statutory Requirements - Source of terms implied by statue found in provincial sale of goods legislation (uniform across the country) - Certain terms are a mandatory part of every contract for the sale of goods unless specifically excluded by the parties Terms are not easily implied except in routine transactions or if the sale of goods act applies Must be clear that both parties would have included the term in question had they addressed the matter Courts will not usually imply terms when parties have agreed that their contract is complete at written Entire Contract Clause a term in a contract in which the parties agree that their contract is complete as written Contractual Quantum Merit awarding one party a reasonable sum for the goods or services provided under a contract Using Contractual Terms to Manage Risk Changed Circumstances Circumstances that prevent party from performing obligations or make them much more expensive Terms are settled at acceptance- if disaster strikes the obligations are enforceable unless there is a clause to the contrary Doctrine of frustration can occasionally relieve them from obligations (limited and cannot be counted on) Important to evaluate risks and be wary of making inflexible commitment A term that accounts for risk could: - Have a formula tying the price of goods to the market value - Set the price according to cost of materials, plus a percentage for profit - Allow parties to reopen negotiations if specific events occur or to terminate the contract altogether May include clause to protect interests Must build in flexibility while avoiding creating a vague document Customer may refuse to accept price variation clauses May risk adverse chance, negotiate higher price or lose order Conditional Agreements Essential when one party wants to incur contractual obligations but only under certain circumstances Important that contract is binding during time set aside for condition to occur Condition Subsequent event or circumstance that brings an existing contract to an end Condition Precedent an event or circumstance that suspends the parties obligation to perform their contractual obligation Provide an establish reason to escape the obligation to perform Limitation of Liability Clause Party fails to meet its contractual obligations its liable for breach of contract Responsible for any reasonably for seeable damages Limitation of Liability Clause a term of a contract that limits liability for breach to something less than would otherwise be recoverable Exemption Clause (Exclusion Clause) A term that identifies events causing loss for which there is no liability Liquidated Damages Clause Sets out in advance what one party must pay to another in the event of a breach Parties decide before the breach has happened Provided that clause is a genuine pre- estimate of the damages it is enforceable Not enforceable if it sets an exorbitant amount Disregarded if it is a penalty clause or a clause meant to scare or terrorize Chapter 8: Non- Enforcement of Contracts The Importance of Enforcing Contracts Law focuses on enforcing agreementsprovisions for exceptional circumstances Balance between these goals
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