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Unformatted text preview: C HAPTER 5 A N I NTRODUCTION TO C ONTRACTS Objectives After studying this chapter, you should have an understanding of: • the concept of a contract • the key factors in the contractual relationship • contract law in the context of business relationships Learning Outcomes • Understand when negotiations result in a contract (page 99) • Understand the meaning of a contract (page 102) • Recognize that the court considers all parties to have equal bargaining power (page 104) • Understand contracts in the context of overall business decisions (page 105) Chapter Summary Contracts are the legal cornerstone of commercial operations. Businesses have the option to enter into any binding agreement they choose. Contract law allows parties to create their own rights and responsibilities. The assumption is that all parties who negotiate have equal bargaining power. As a result, the court does not determine whether or not the parties have reached a fair contract, but the court will determine whether or not the parties have actually made a contract based on their negotiations. In short, the court will determine if the parties have made a bargain, not whether they have made a fair bargain. If one party does not fulfill his promises made in the contract, he will be responsible for damages suffered by the injured party. When faced with a breach of contract, the injured party should consider the context of the commercial relationship with the breaching party as an important factor in its decision to pursue a legal remedy. Likewise, the party who breaches the contract may have done so for business reasons that go beyond the inevitable damage claim that they will have to pay. Study Outline Use this outline to prepare a complete set of notes for this chapter. Introduction to Contract – page 99 _______________________________________________________________________ _______________________________________________________________________ Contract elements_________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ © 2008 BY N ELSON , A DIVISION OF T HOMSON N ELSON L TD . PART 2: CONTRACTS Resolving contract disputes_________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Creating the Contract – page 102 _______________________________________________________________________ _______________________________________________________________________ Communication__________________________________________________________ Objective standard test to decide if a contract was made_______________________ _______________________________________________________________________ Privity of contract______________________________________________________...
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