The tasks outlined in this assignment are based on business law. The objective of exemplifying the knowledge an application of business law have been attempted in the following sections of the assignment in relation to liabilities and responsibilities of a contract starting from the definition of a contract and moving on to the respective topics specified in the assignment.
The related resulting data also have been collected from various sources like magazines,
books and Internet and have been presented accordingly. Based on the relevant data, an exploratory analysis has been conducted in order to address and explain responsibilities, liabilities and other nuances of a party to a contract.
Introduction to Contract
Before we look at the Liabilities and Responsibilities of Parties to a Contract we need to ensure that we understand what a contract is and how it comes into being. A contract is defined as an agreement, which legally binds the parties (BPP Professional Education, 2004). However there are many types of contract between two businesses such as unilateral, bilateral, specialty, simple and standard form contract (Doti Chee, 2009). Firstly unilateral contract is a legal agreement in which only one of the two parties makes legally enforceable promises. In this contract between two companies at a certain time only one party will do their duties only when a particular situation come out the other party will do their duty (BPP Professional Education, 2004). Furthermore the rule of unilateral contract is that it holds that offers can be revoked at any time prior to completion of the requested performance. The promise is enforceable only upon completion of the requested performance (Doti Chee, 2009).
One of the most famous case studies in unilateral contract is Carlill v. Carbolic Smoke Ball Co. 1892 (Referred to Appendix A) (Lawnix, accessed 2009). In this case there is a unilateral contract which was stated by Smoke Ball Co. The contract is if any person who used D’s smoke ball three times per day as directed and contracted influenza, colds, or any other disease they will receive 100 pounds by Smoke Ball Co. However, for Carlill, she purchased a ball and used it as directed and Carlill contracted influenza, it shows that she accepted the offer by performing the conditions. So the contract between both parties was valid. Furthermore it is a unilateral contract so that the rule of unilateral is applied in which when Carllil contracted influenza which means she performed the conditions of the contract and met all requirements o the contract. So after that it Smoke Ball Co.’s turn to perform their actions, which is give Carllil 100, pounds. As for the rule the promise is enforceable only upon completion of requested performance. The performance of Carllil is the requested performance so at that time, the company is bounded by the contract and they had to pay Carllil the money. The case if Carllil vs Smoke ball Co. can alsobe considered as executed consideration. It is a performed or executed act in return for a promise (BPP Professional Education, 2004).
The second type is bilateral contract, it is the contract in which both parties take responsible at the same time and both of them take promises (BPP Professional Education, 2004). It arises where let say company A promises to sell a computer to company B in return B promises to pay the purchasing price. It means that both parties will take their actions at the same time and as the rule of bilateral contract both of them are bounded by it. It means that company A will have to deliver the right product which is computer to company B at the given time and in return company B has to pay the purchase price for company A. This contract is usually seen in trading and commercial transaction. It would be breach of contract if either withdrew without the consent of the other. It also considered as executory consideration which is a promise given for a promise not a performed act (BPP Professional Education, 2004).
On the other hand, specialty contract is express contract made under seal. They are not merely written but delivered over by the party bound. The specialty contract is usually in buying bonds, deeds, etc. The solemnity and deliberation with which a deed or a bond is presumed to be entered to, attack to it an important and character which do not belong to a simple contract. In the case of specialty, its rule is no consideration is necessary to give it validity, even in the court of equity (BPP Professional Education, 2004).
The forth type of business contract is simple contract. Simple contract is any binding contract other than a contract under seal. It can be both express and implied or partly written or partly oral. It consists of a promise to do or refrain from doing something, in exchange for doing something given or promise in return. The parties must intent the agreement to be binding on each other. Furthermore, the rule of simple contract requires that there be some good cause, consideration or motive, before they can be enforced in the courts (BPP Professional Education, 2004).
The last type is standard form contract. It is a pre-prepared contract where all the terms have already set. In standard form contract each of the party will have different duties such as a recipient, they have little or no prior negotiation. On the other hand the provider of the contract has their own standard terms and conditions. The standard form contract can usually be found in a contract between employees and the company (BPP Professional Education, 2004). On the other hand in contrast to specialty contract, the rule of simple contract stated that as a general rule, the common law treats standard form contracts any other contract. It must contain the essential elements of a contract (Doti Chee, 2009).
However in every contract there are seven keys elements which a contract must contain in order to be valid and enforceable by the law which are agreement, consideration, intention to create legal relations, legal capacity to contract, form of a contract, consent and legality of object (BPP Professional Education, 2004). Firstly the agreement which is determined by the rules of offer and acceptance. It must contain the offer which is a defined promise to be bound on specific term and acceptance which is unqualified agreement to the terms of the offer (BPP Professional Education, 2004). As shown in the figure below is the formation of a simple contract.
Requirements of a Contract
- Intention – all parties must have intended to enter a binding contract.
- There is an offer and an acceptance – both parties must have accepted the agreement.
- Consideration – There must be benefit to both parties – one party has a building built, the other receives money for building it. This means that one party has said they will build the building if the other party pays them a certain amount of money.
- Certainty – it must be definite and both parties know exactly what is required with regard to quality, functionality or time.
- Capacity – Both parties must be able to enter into the contact – they must be over 18 and of sound mind.
- Legal -The contract must be legal and be possible to fulfill. 
Identification of Main Parties to Contract
The parties to a contract are the persons or organizations who are offering or accepting a transfer of rights. Generally, only the parties who are named in a contract may sue or be sued to enforce it. Thus, Party A may not sue to enforce a contract between Party B and Party C. There are two main exceptions to this principle.
The first exception is where a party to a contract has transferred his rights or obligations to a person or organization not originally part of the deal. This is known as “assignment.” A party to a contract can generally assign his rights or obligations without the permission of other parties; the other parties may object only where: (1) the contract forbids such an assignment; (2) the assignment would cause the duties of the parties to change in a significant way; (3) the risk of return performance (i.e., being paid back) is materially reduced; or (4) the value of performance is significantly reduced. In most cases, an assignee steps into the shoes of a party, and can sue and be sued as if he had originally been a party to the contract. Generally, however, a party’s duties, as opposed to his rights, cannot be assigned without the agreement of other parties. Such an agreement creates a novation, and the delegate becomes a party for all intents and purposes.
The second exception is where an agreement provides benefits to a person or organization that does not sign or otherwise indicate agreement to the terms of the contract. Such a third party beneficiary can sue to enforce the contract if he was intended to have enforceable rights. An example would be if Party A promised, in return for a payment of $200 by Party B, to give his car to Party C. Party C, who has no obligations under this agreement, would be a third party beneficiary. A person or organization that derives benefit from a contract, but was not intended to have enforceable rights (such as a property owner whose property value is enhanced by the construction of a road or railway), is an incidental beneficiary, and has no right to sue to enforce the terms of the agreement.
Responsibilities of the Party
The contract should clearly describe the rights and responsibilities of the parties. It should describe the activities, time frames for their implementation. It should also state if the assignment of any responsibilities are permitted and what those are.
There is a requirement that the parties carry out their obligations to the best of their abilities and that they have the required skills to do so, in fact that is a term of a contract. There are two types of terms:
Express These are clear and detailed and state exactly what is required; they are binding on the parties. There are two types:
- Conditions – these are essential parts of a contract – breach can result in repudiation or rescission and damages
- Warranties – these are minor terms which only give way to damages
Implied are deemed to be part of the contract by law. These may be implied by:
- Custom – established practice unless the contract expressly excludes it
- Statue – Acts which protect the parties ie Sale of Goods Act 1979, unfair Contracts Terms Act 1977
- The Courts – can insert terms if parties omitted to state them.
It is also implied that if you contract to put in the services for a building that you have the requisites skills and qualifications in order for you do so proficiently and legally.
The JCT Standard Form of Contract specifically lays down the obligations of the parties which are specific to aspects of the work. A list of the types of contract and their use can be found at the website below though you will need to consult the contracts themselves to determine the areas that it covers. You should obtain a contract document and read through the obligations, these can be found in Section 2 of each of the contracts.
Liabilities of the Parties
Once a contract has been entered into, it is the obligation of each party to ensure they deliver on what they agreed. If they fail to do that they may be liable for any damages that the other party suffers due to them not fulfilling the contract.
This will mean that they need to complete their contractual obligations with regard to performance for the discharge of the contract. If a party fails to complete the contract there are a number of options open to the other party and these will depend on the reason and circumstance that the this party failed to deliver performance. As a general rule: Where a contract has been substantially performed then payment for any work done will be payable with a deduction for the work which wasn’t done. Consequently if a contractor was able to complete the service installations for 9 houses when the contract specified 10 then 90% of the contract fee would be payable.
In certain instances a contract may be frustrated. This is the Legal termination of a contract due to unforeseen circumstances. This can prevent the objectives of the contract being achieved; render its performance illegal; or make it practically impossible to execute. It could be caused by reasons such as an accident, change in the law, fire, third-party interference. Frustration of a contract excuses non-performance and automatically discharges the contract except where the terms of contract override this implied legal provision. However, frustration is not acceptable as an excuse where the circumstance was foreseeable.
If we return to our case above where a contractor only installed the services for 9 out of the 10 houses, if one of the houses had been destroyed by fire before services could be installed then the contract is frustrated. More details on this can be obtained from the website below.
Breach of Contract
If one of the parties to a contract fails to deliver that which they had agreed to deliver in the contract then they are in breach of the contract. As mentioned previously this can relate to time and quality although in construction industry it is common for defective work to be completed, this would not in fact be a breach providing any faulty work was rectified within a specified time. It would be a breach if the contractor refused to rectify the faults or it was not done within the time that the contract required the work to have been complete. If there is a breach of a contract and a party fails to meet their responsibilities it is open for the other party to seek redress: This can be done in a number of ways.
Remedies for Breach
A number of remedies are available for breaches of contract where the injured party takes the matter to the courts, (the Plaintiff) and looks for a remedy from the other part (the Defendant) these remedies are:
- Compensatory Damages – money to reimburse the plaintiff for costs and compensate for any loss.
- Consequential and Incidental Damages – this is money for losses caused by the breach that were foreseeable. Foreseeable damages means that each side reasonably knew that, at the time of the contract, there would be potential losses if there was a breach.
- Liquidated damages (also referred to as liquidated and ascertained damages) are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance).
- Specific Performance – is a court order requiring performance exactly as specified in the contract.
- Punitive Damages – Damages awarded to a plaintiff that are meant to punish the defendant for anti-social actions rather than reimburse the plaintiff for loss.
- Rescission – the contract is cancelled and both sides are excused from further performance and any money advanced is returned.
- Reformation – the terms of the contract are changed to reflect what the parties actually intended.
Wherever possible the parties should endeavour to negotiate a settlement for a breach rather than take the matter through the courts. Other alternatives for dispute resolution include mediation and arbitration, which are generally more cost effective than resorting to court action.
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