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Chapter 7-9

Management and Organizational Studies 2275A/B Chapter Notes - Chapter 7-9: Specific Performance, Contract Clause, Collet

Management and Organizational Studies
Course Code
MOS 2275A/B
Philip King

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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
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
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

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Grounds for Implying Terms
1. Business Efficacy
- Judge entitled to imply terms necessary to make the contract
- If a company has not expressly committed itself to making
systematic efforts; business efficacy would make this obligation
- 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
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

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- Set the price according to cost of materials, plus a percentage for
- 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
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
Parties decide before the breach has happened
Provided that clause is a genuine pre- estimate of the damages it is
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
Balance between these goals
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