BUSI2503
CHAPTER 4
UNDERSTANDING CONTRACTS
CONTRACT - agreement between two or more parties that is enforceable by law
● Contracts are found in everyday life, and has various means of communication
○ Always involves agreement, but not every agreement is a contract.
● To be constitutionally enforced, the contract must:
1. An intention to create a legal relationship
2. Offer and acceptance
a. Cannot be imposed unilaterally on another party without their
agreement
3. Consideration - a legal concept that means each party to a contract must
provide something of value to the other.
a. Offer to give something for free does not constitute a contract, and
can be withdrawn without recourse
4. Legality - must conform to the law of the land and not violate public policy
When entering into a contract, both parties are expected by the other contracting party, the
courts, the business community, and society at large to honour your commitment. Failure to
do so calls for breach of contract and has consequences
CONTRACTS IN THE BUSINESS CONTEXT
TYPES:
● Employment contracts
● Service contracts
○ Where business provides or receive services
● Leasing contracts
○ Ex. renting office space or equipment
● Contracts for the purchase and sale of goods
● Insurance contracts
Provincial statutes can govern certan situations, as contracts involving consumers and those
involving sale of goods
● They also govern personal security contracts
● Contracts involving employment of staff are subject to federal and provincial human
rights legistlation
A single business contract can have far reaching consequences for the entire enterprise.
● To prevent chaos, businesses must implement an honest contract that ensures the
other businesses can depend on them to fulfil their obligations and vise versa
● Businesses know if they fail to keep their portion of the contractual obligation:
○ They may be sued for breach of contract, can be time-consuming, and
stressful
○ May obtain a bad reputation in community
IMPORTANCE OF BUSINESS CONTRACTS
, 1. Contracts can clarify your business dealings
a. Informs on rights and obligations and eliminates confusion that benefits both
parties
2. Contracts can prevent unexpected and undesirable results
3. Provide for a dispute resolution process
a. Allows business and their legal team to consider possible dispute-respolving
solutions and mechanism s before they arise, and increases likelihood of
proper working relationship
4. Contracts law governs disputes
IMPORTANCE OF WRITTEN CONTRACTS
1. Written contracts provide the parties with a record of their rights and obligations
a. Documentary evidence of goods sold, services rendered, and business
expenses incurred may be necessary from an accounting and tax
perspective.
2. Written contracts provide proof of the parties’ agreement in the event of a dispute.
● Contracts that must be in writing include consumer transactions, sale or leasing of
land and contracts guaranteeing payment of debt
● In court preceedings, teh defendant will argue breach of contract by the plaintiff, but
where little evidence beyond the testimony of both parties, the judge decides whom
to believe… most likely the plaintiff loses…
RULES OF CONSTRUCTION
● Written contracts provide proof of the parties’ agreement in the event of a dispute.
1. Apply an objective test
a. When vague language is used, the judge will ask objective questions to help
come to the conclusion, or consult a dictionary, or be guided by earlier
decisions of other courts about the meaning the word.
i. Ex. contract states the produce to be “durable”... judge will ask “what
does a reasonable person think “durable” means?”
2. Interpret the contract against the drafter
a. The judge always prefers the interpretation offered by the party who didnt
draft the contract, bc the business proceedings may be made by an honest
interpretation of the rules
3. Determine the parties’ intentions
a. This can be problematic when parties take contrary positions regarding their
intention
STANDARD FORM CONTRACTS
● a contract that is drafted by one of the parties and imposed on the other with little or
no opportunity for negotiating changes. It is often the party that provides a service or
sells a product that dictates the terms of the contract.
1. Service agreement
2. Commercial leases
3. Equipment rental agreements
4. Advertising agreements
5. Insurance policies
CHAPTER 4
UNDERSTANDING CONTRACTS
CONTRACT - agreement between two or more parties that is enforceable by law
● Contracts are found in everyday life, and has various means of communication
○ Always involves agreement, but not every agreement is a contract.
● To be constitutionally enforced, the contract must:
1. An intention to create a legal relationship
2. Offer and acceptance
a. Cannot be imposed unilaterally on another party without their
agreement
3. Consideration - a legal concept that means each party to a contract must
provide something of value to the other.
a. Offer to give something for free does not constitute a contract, and
can be withdrawn without recourse
4. Legality - must conform to the law of the land and not violate public policy
When entering into a contract, both parties are expected by the other contracting party, the
courts, the business community, and society at large to honour your commitment. Failure to
do so calls for breach of contract and has consequences
CONTRACTS IN THE BUSINESS CONTEXT
TYPES:
● Employment contracts
● Service contracts
○ Where business provides or receive services
● Leasing contracts
○ Ex. renting office space or equipment
● Contracts for the purchase and sale of goods
● Insurance contracts
Provincial statutes can govern certan situations, as contracts involving consumers and those
involving sale of goods
● They also govern personal security contracts
● Contracts involving employment of staff are subject to federal and provincial human
rights legistlation
A single business contract can have far reaching consequences for the entire enterprise.
● To prevent chaos, businesses must implement an honest contract that ensures the
other businesses can depend on them to fulfil their obligations and vise versa
● Businesses know if they fail to keep their portion of the contractual obligation:
○ They may be sued for breach of contract, can be time-consuming, and
stressful
○ May obtain a bad reputation in community
IMPORTANCE OF BUSINESS CONTRACTS
, 1. Contracts can clarify your business dealings
a. Informs on rights and obligations and eliminates confusion that benefits both
parties
2. Contracts can prevent unexpected and undesirable results
3. Provide for a dispute resolution process
a. Allows business and their legal team to consider possible dispute-respolving
solutions and mechanism s before they arise, and increases likelihood of
proper working relationship
4. Contracts law governs disputes
IMPORTANCE OF WRITTEN CONTRACTS
1. Written contracts provide the parties with a record of their rights and obligations
a. Documentary evidence of goods sold, services rendered, and business
expenses incurred may be necessary from an accounting and tax
perspective.
2. Written contracts provide proof of the parties’ agreement in the event of a dispute.
● Contracts that must be in writing include consumer transactions, sale or leasing of
land and contracts guaranteeing payment of debt
● In court preceedings, teh defendant will argue breach of contract by the plaintiff, but
where little evidence beyond the testimony of both parties, the judge decides whom
to believe… most likely the plaintiff loses…
RULES OF CONSTRUCTION
● Written contracts provide proof of the parties’ agreement in the event of a dispute.
1. Apply an objective test
a. When vague language is used, the judge will ask objective questions to help
come to the conclusion, or consult a dictionary, or be guided by earlier
decisions of other courts about the meaning the word.
i. Ex. contract states the produce to be “durable”... judge will ask “what
does a reasonable person think “durable” means?”
2. Interpret the contract against the drafter
a. The judge always prefers the interpretation offered by the party who didnt
draft the contract, bc the business proceedings may be made by an honest
interpretation of the rules
3. Determine the parties’ intentions
a. This can be problematic when parties take contrary positions regarding their
intention
STANDARD FORM CONTRACTS
● a contract that is drafted by one of the parties and imposed on the other with little or
no opportunity for negotiating changes. It is often the party that provides a service or
sells a product that dictates the terms of the contract.
1. Service agreement
2. Commercial leases
3. Equipment rental agreements
4. Advertising agreements
5. Insurance policies
