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Contract Law

A contract is been formed when two (bilateral) or more parties (multilateral) agree upon certain specified terms in trading or other activities. As we are considering contracts between organizations the business law of contracts is being taken into account. The initial phase of a contract is formed when an offer is made by one party. Yet, for the contract to be enforceable the other party has to accept the offer.

a) Offer and Acceptance

In this context, the concept of offer and acceptance needs to be understood. The person making the offer (referred as the “offeror”) is bound by the terms he/she forwards as an intention and willingness towards abiding by the terms of the offer is been acknowledged. In the case of Harvey v Facey [1893] AC 552 Privy Council, the court decided upon whether there was an intention in order to constitute the telegram as an offer (http://e-lawresources.co.uk). Once an offer has been made the other party (known as the “offeree”) needs to accept the offer on terms agreed upon by both parties. Entorres v Miles Far East [1955] 2 QB 327 shows that an acceptance needs to be effectively communicated, and Sudbrook Trading Estate v. Eggleton [1983] AC AC 444 illustrates that an acceptance must be certain in order to validate a contract (http://e-lawresources.co.uk).

The contract between Firm X and Firm Y was constituted regarding the purchase and sale of automobiles. Firm X (“seller”) made an offer to Firm Y (“purchaser”) to provide them with 100 automobiles (manufactured by Firm X) within a contract year (12 months), at the total price of AED 50,000,000 (fifty million), for a period of five years. The offer also contained that the purchaser would have to purchase the aforementioned quantity as it would be the least amount that would necessarily need to be purchased. The offer was accepted by Firm Y as the contract would be enforced after the initial purchase of the specified amount (25 vehicles) of goods.

b) Subject matter of the contract and proprietary rights

Since the above mentioned contract is regarding the purchase and sales of a certain good, its subject matter refers to the goods for which the contracting parties have bargained for, and the provision of goods by one party in exchange of receiving a certain amount of money from the other party.

Accordingly, Firm X is bound to supply Firm Y with at least 100 automobiles annually in order to maintain the continuity of the contract. Failing which, the contract would terminate within the first contract year (Article 2, Section C). On the other hand Firm Y is bound to pay the due amount of money to Firm X upon the receipt of the goods – which would be considered as an acknowledgement of reception. Failure to provide Firm X with the amount agreed to be paid within a contract year would constitute to the termination of the contract (Article 2, Section F).

The proprietary rights in this context refers to the ownership of the goods that are being sold and purchased. Accordingly, under Article 4 (b) of the contract the ownership of the goods would remain in the seller until the purchaser acknowledges the receipt of the goods. Article 4 (d) states that “subsequent to the acknowledgement of receipt by Firm Y, the said quantity of goods would automatically become a property of Firm Y”. Moreover, if Firm Y has made a payment to Firm X with the intention of receiving a specific quantity of goods in the future (on a specific date) and has been acknowledged by Firm X by provision of a receipt, the proprietary rights of the said amount of goods would be possessed by Firm Y (Article 4 (h)).

c) Conditions and Warranties

The essence of a contract is known as terms or clauses. Hence, a contract possesses various terms in order to determine the manner in which the relevant parties should act and contribute. Mainly the terms of a sales and purchase contract consist of the quantity and quality of goods that are being supplied and the price that would be paid when purchasing the agreed amount of goods. Generally business contracts are in written form (although it isn’t a necessity) in order to establish definitive standards for its appropriate implementation.

According to Gillies (1988), the terms in a contract could be classified mainly as Conditions and Warranties. This classification helps in determining the importance of the terms in a contract, when considering it on an overall context.

A contractual term could be considered as a condition if the breach of such a term would amount to repudiation of the contract as well as entitle the innocent party to seek damages, if necessary (Gillies, 1988). On the other hand, a term could be recognized as a warranty if the breach of the said term would merely amount to the claim of damages and not to the relinquishing of the contract (Gillies, 1988). Hence, the legal consideration and penalty for the breach of a term would determine whether a contractual term is a condition or a warranty.

As stated above Section C of Article 2 states that “Firm X is bound to supply Firm Y with the agreed quantity of automobiles within a contract year and failure to meet the requirement would result in the termination of the contract”. This term could be considered as a condition as it directly refers to the repudiation of the contract.

Section B of Article 5 states that “failure to provide extra quantities (if purchased by Firm Y) to Firm Y by Firm X on the specified date, amounts to either refunding the total amount received or recompensing of 10% of the total amount received for the “extra goods” along with the purchased “extra goods” to Firm Y by Firm X. As the breach of this term does not necessitate for the termination of the contract and only enables the claim of damages, it could be referred to as a warranty.

d) Dispute Resolution

Article 15 of the contract illustrates the laws under which the contract is governed. Accordingly, the contract would be governed by the local laws of the country. In case the terms of the contract are not in conformity to the existing laws of the country, such terms and clauses would be amended accordingly.

In the event of disputes arising between contracting parties the main mode of dispute resolution would be arbitration. This is included in Section B of Article 16. A committee consisting of not more than 3 members from the “International Chamber of Commerce (ICC)” would be conducting the arbitration activities. If the dispute is beyond arbitration the disputing parties would need to seek legal assistance in resolving the dispute.

e) Contract Management practices and its outcome

When establishing effective contract management practices it is necessary to focus on the essential areas of the contract. When arriving at the contract it is vital in determining the governing body of the contract and the remedies and penalties that would be enforced in the instances of breach of contract.

The contract management practices of my organization (Firm X) established a clear framework and structure which would facilitate the smooth and unimpeded functioning of the business venture. This has been included in Article 1, 3, 15, 16, 18, and 20. A sub contract was formed between logistic companies in order to ensure the timely delivery of goods whilst maintaining its required quality. Monitoring and evaluation procedures were established with the agreement of both parties with the motive of ensuring that discrepancies do not occur before, during, and after transactions. Special departments were established to ensure effective communications between the two companies and the feedback from Firm X is been obtained on a constant basis.

The success of this process has been enumerated through the proliferation of business activities between the two parties within the initial three years of commencement. A need of seeking legal action has never arisen despite slight delays in payments of receiving of goods. On the contrary, more orders have been places by Firm Y and both parties are looking forward to renewing and expanding the contract to conduct an enhanced business venture.

References

Gillies P, (1988), Concise Contract Law, Sydney: The Federation Press, pg 105.

http://e-lawresources.co.uk, Entorres v Miles Far East [1955] 2 QB 327 Court of Appeal, http://e-lawresources.co.uk/Entorres-v-Miles-Far-East.php: [Accessed on September 18 2013].

http://e-lawresources.co.uk, Harvey v Facey [1893] AC 552 Privy Council, http://e-lawresources.co.uk/Harvey-v-Facey.php: [Accessed on September 18 2013].

http://e-lawresources.co.uk, Sudbrook Trading Estate v Eggleton [1983] AC AC 444 House of Lords, http://e-lawresources.co.uk/Sudbrook-Trading-Estate-v-Eggleton.php: [Accessed on September 18 2013].