business law chapter 8: contract clauses. introduction to contract clauses a contract clause is...
TRANSCRIPT
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Business Law
Chapter 8:
Contract Clauses
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Introduction to Contract Clauses
• A contract clause is simply a statement contained in a contract. – Clause: A statement or sentence that is
part of a legal document such as a contract, a will or a legal pleading.
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Conditions
• A condition is a contract clause that modifies the basic agreement between the parties.
• It is perfectly legal –and very common—for a contract to contain conditions.
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• Conditions do not create rights; they limit them.
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Distinguishing Conditions from Promises
• A condition is different from a promise.
• A condition modifies, alters or even rescinds the agreement.
• A promise is the party’s pledge to be bound by the contractual agreement.
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Types of Conditions
• Conditions come in many different forms.
• It is not necessary to actually label a specific clause as a condition; it can be implied by the actions or the intentions of the parties.
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Implied Condition
• An implied condition is one that is presumed to exist from the conduct of the parties.
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Express Condition
• An express condition is one that is stated in the contract.
• When an express condition exists, courts will usually attempt to follow the stated intentions of the parties, unless this is impossible.
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Condition Precedent
• A condition precedent is a condition that must be met or performed before the agreement takes effect.
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Limitations on Conditions Precedent
• One party cannot prevent the other party from meeting the condition.
• Courts do not favor conditions precedent.
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Condition Subsequent
• Under a condition subsequent, the parties agree to be bound by the contract until a particular condition occurs.
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• Conditions subsequent always refer to future events.
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Contract Exclusions
• An exclusion is a particular item or subject that is not covered by the contract.
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Proving Contract Conditions
• When a contract contains a condition, it is up to the judge to determine the legal effect of the wording.
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Interpreting Contract Provisions
• Judges (or juries) interpret contract provisions.
• Judges have wide discretion in their interpretations.
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Rule Number 1: Reconcile Conflicts
• The first rule of construction is to find a way to reconcile them, unless that is clearly impossible.
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Rule Number 2. The Parties’ Intentions Are Controlling
• The court must interpret the contract in such a way as to effectuate the intention of the parties, at least as far as that can be determined.
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Rule Number 3.
• When there is a conflict between an express condition and an implied condition, the express condition wins.
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Rule Number 4.
• Words are to be given their normal, ordinary meaning.
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Strict Construction
• Strict construction of a law means taking it literally or “what is says, it means” so that the law should be applied to the narrowest possible set of situations.
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Rule Number 5. Was a Condition Intended?
• Before a contract will be considered to have a specific condition, the parties must manifest that intention by their choice of wording.
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Rule Number 6
• Oral testimony about written promises is usually not permitted.
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Parol Evidence Rule
• When a written contract purports to embody the entire agreement between the parties, no oral testimony will be permitted that seeks to modify or change the interpretation of the written contract provision.
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Exceptions to Parol Evidence Rule
• Oral testimony is permissible when the actual circumstances surrounding the making of the contract are in dispute.
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Specific Contract Provisions
• There are certain provisions that are frequently seen in drafting contracts.
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“Time is of the essence”
• When a contract contains a “time is of the essence” provision it means that the date set for the action contemplated in the contract is fixed.
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“Trade or business secrets”
• Employers wish to safeguard their secrets from their competitors.
• Trade/business secret clauses are conditions that forbid employees from revealing business secrets.
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Unfair Restraint of Trade
• Courts have consistently ruled that any contract that unfairly restrains trade is ultimately bad for the country and will not be enforced.
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“Noncompete”
• Noncompete clauses bar a former employee from working for a direct competitor, within a specified geographic region, for a specified time.
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“Arbitration”
• If the parties ever have a disagreement about the contract, they must first present their case to an arbitrator, rather than simply filing a lawsuit.