Ch.4 Contracts - Bus 393

what are the four elements of a contract

what are the four elements of a contract

• intention

• offer and acceptance

• legality

• consideration

what is a breach of a contract

violating the terms and conditions + failure to fulfil them

why would businesses be afraid of breaching a contract

• bad rep in the market

• can be dragged in a lawsuit (sued)

why must you have contracts in the business world

• diminish ambiguity

• establish terms and conditions

• prevent undesirable + unexpected results

• governs disputes

why do many prefer written contracts over verbal

• always good to have proof

• serves as a record of your rights + obligations

which contracts must be in writing?

• consumer transactions

• sale or leasing land

• guarantee payment of debt

who is the burden of proof on in the cases of breach of contract + what happens in the case of equally truthful or equally untruthful

• plaintiff must go the extra mile to prove the defendant is at fault b/c they are the ones who brought the case forward

• if both are truthful —» plaintiff loses

• if both are lying —» plaintiff loses

what are the rules of construction + explain each

1. apply objective test: when there’s a vague term —» what would a reasonable person think this means

2. contra proferentem rule: interpret the contract against the drafter —» basically asking the non-drafter to provide the interpretation of the contract to ensure both parties’ wellbeing was considered when the contract was made

3. determine the parties’ intentions: enforcing the contract in terms of the intentions of the parties —» this can be hard when both parties’ intentions contradict each other

what are standard form contracts?

there are usually contracts that are drafted by one party and imposed on the other with lil to no room for negotiation

what type of agreements are standard form contracts used for?

• selling products/service

• service agreements

• equipment rental

• advertisements

• insurance policies

why are standard form c’s considered efficient

• save time

• lowers costs

• is a good template/draft to refer to

• helps predict what the potential outcome may be + know the risks

• produces standard results in court

what is an implied term

terms that judges insert into the contract to decrease ambiguity + put more emphasis on their intentions

often done when parties fail to convey their contractual intentions

what are some situations in which we’ll see implied terms

• standard terms within an industry

• obligations of good faith

• business effectiveness

• obvious ommission

how can parties get the courts to insert a term

• the term conveys the intentions of the party

• it is reasonable and does not contradict a term thats already included

what is privity of contract?

only those that are involved in the contract can reap the benefits in the same way that you cannot sue the third-party that is involved

what are some terms that must be included in contracts

• quantity

  • how much will the buyer be receiving

• quality

• pricing

• payment

  • due before, during, and after delivery

• deadline

• liquidated damages

• automatic renewal

• cancellation

• condition precedent & subsequent

• deposit

• disclaimer of limitation of liability

• exclusion

• force majeure

• governing law

• venue

• indemnity

what are liquidated damages

• clause that states the amount of money that must be paid when a breach of contract occurs

• courts will enforce the greatest damages from the breach is less than this set amount

what is capital punishment

putting down a ridiculous amount of money as liquidated damages to scare the other party from breaching

automatic renewal

• the renewal of a contract without written notice of doing so

• this is usually for phone service, photocopier rental, website hosting

• may include terms that reqiure one party to give the other party notice of an inetntion to terminate the agreement

cancellation term

• the rights + obligations in the event that one party wants to terminate the contract

• this is usually included in contracts for things like:

  • exhibition space in trade shows

  • advertising in future editions of magazines

  • multi-yr contracts for cell phone service

condition precedent

• something must happen before a party is required to perform their obligations under the contract

• during the waiting period, he contract exists as an enforcable agreement & parties do have obligations under it

condition subsequent

a condition that comes after the agreement, if it is not fulfilled then the contract will end

• KPMG says that you will get a job as a CPA in their firm as long as you get your designation by Sept 2025; if you don’t fulfill this requirement, the contract ends & you will not be working for them anymore

disclaimer (of limitation of liability)

basically this is to limit the liability that may on the parties and caps the damages’ amount as to completely bar it

• if you rent a hall, they may add that if someone slips on their venue, they’re not going to be liable

• by signing it, you’re agreeing not to sue them

exclusion

excuses people from their contractual obligation under special circumstances

• in terms of insurance, if you will be insured except for when you caused the injury to yourself on purpose

force majeure

• this is to protect in the case of natural disaster or unanticipated event

• usually smth that is beyond the contract of the parties and prevents them from carrying out the terms of the contract

• the effect of this is to terminate the contract

governing law

this is for parties that are operating in different countries so you must choose which country will govern your contract

venue

this will determine which country will the parties settle their disputs

what are the benefits of arbitration?

• confidentiality

• relative flexibility

• speed of process

• industry-specific expertise

indemnity

• basically saying that it will take on the loss or damages and pay for them, if they did the harm

  • i hire a contractor and they say that if they damage the neighbour’s property, they will pay the costs