Contract management and contract law - Essay Example

?Contract management and contract law Executive Summary Law is an essential part of any business. A business without proper legal framework seems to be null and void. A legally acceptable business is the one which is conducted keeping in mind the prevalent law of the country to which the business belongs. Law should be enforced in a business as it deals with lot of risk factors. Also business involves a lot of stakeholders related to the operations of the business namely the manufacturer, dealer, customer, shareholder and the employees. These stakeholders should get the perception that they are attached to a lawful business which offers them a sense of security. Thus in the following parts of the report, we will be discussing about the several measures to be taken when a company faces legal issues. The four questions and their respective answers give us a clear idea about the purchase and supply operations and the laws related to those operations. Contents Introduction 4 Answer 1 4 Answer 2 8 Answer 3 10 Answer 4 12 Conclusion 14 Works cited 15 Introduction In a capitalist world, the law of contract essentially forms a major portion of the society we live in. It is the realm of deliberate agreement and collaboration, to be more specific, contract deals with the activities like exchange and bargain. The purpose of the act of Contracts is to create possibilities, or to assist this action. It helps two or more parties in the function of arranging for the future plans by shielding the anticipations that take place from the process of bargaining. In the process of forming a contract the parties require a lawful structure which will provide them with a conventional, consistent, steady foundation for the concealed categorization of their affairs. Agreements between two or more parties turn into a contract with the intervention of law. A legal contract comprises of five essential elements without which the contract is referred to as invalid. In the following sections we will discuss the various scenarios related to the benefit of the procuring party as well as we will discuss about the Sale of Goods Act, INCOTERMS and the transfer of risk to the supplier from the viewpoint of the UK Contract Act. Answer 1 The procurement process in my organization must make sure that the five vital tenets of contract are met while entering into a contract with other parties. The five tenets of contract are- 1. Offer- Offer and acceptance are the essential elements of a contract. Before going in depth of the definition of offer and acceptance, let us first recognize the parties involved in the framework of offer and acceptance. The structure of offer and acceptance involves an offeror who puts forth the offer and an offeree, to whom the offer has been made by the offeror. Thus now we can look at the definition of the offer and acceptance framework, which states that an offer is a statement or proposal by an offeror to an offeree with an intention to make lawful relations. An offer cannot be considered simply as an incitement to negotiate or bargain. To make the communication effectual and complete, the offer must be received and accepted by the offeree. In a buying and selling contract, to make an offer legitimate, the following aspects must be clearly defined: Who is the offeror? Who is the offeree? What is the consideration? What is the area under discussion of the offer? How many central themes does the offer entail (quantity)? Any communication would be considered as an offer if it signifies the expression on which the person making the offer is ready to create a contract (like setting the price of a product intended to be sold), and provides a clear hint that the offeror wishes to abide by the terms if those are acknowledged by the offeree. Offer can also be made to the general public, for example a marketer offering discount to the people visiting his shop. This kind of offer is generally known as unilateral offer where the offer is addressed to a large number of people and their actions indicate their acceptance of the offer. On the other hand a bilateral offer is addressed towards a specific party and the contract is not complete until and unless the offeree communicates his/her acceptance of the offer. 2. Acceptance- The act of acceptance of the offer implies unrestricted consent to all the conditions of the offer made. Acceptance might be through oral communication or through writing, however in certain situations an offeree might agree to accept an offer by performing the acts mentioned in the contract, like distributing the goods as has been instructed in the offer. In legal terms, conduct of the offeree is also interpreted as the indication of acceptance of the offer if it appears to be rational to deduce that the offeree performed with the intent of accepting the proposed offer. Unilateral offers made are generally accepted by the means of the conduct of the offeree. An acceptance must essentially be- Unconditional As per the method of acceptance stated by the offeree Communicated except for the unilateral offers and unless some special instructions lay by the offeree in the contract. 3. Capacity- The parties who enter into a contract must have the ability to do so. Capacity here means capability of the related parties to enter into a valid contract. An agreement becomes a lawful contract if it is entered into by the parties that are fit for the same. It has been seen that every person is competent to contract who- Is of the age of majority Is of sound mind Is not disqualified from contracting by any law to which he is a subject A minor is a person who is under 18 years of age group. The place of a minor with respect to an agreement may be discussed as below- An agreement involving a minor is invalid and inoperative from the initial stage. He/she can be a beneficiary or a promisee. His/her agreement can’t be authorized by him/her on becoming a major If he/she has acknowledged any benefit under a null and invalid agreement then he/she cannot be solicited to pay compensation for it He/she can always appeal minority There can be no precise action of the agreements made or entered into by him/her as they are void from the starting He/she cannot go into a contract of joint venture He/she cannot be deemed insolvent He/she is legally responsible for “necessaries” provided or essential services delivered to him/her or to any one whom he/she is lawfully bound to support He/she can act as an agent His/her guardian/ parent are not legally responsible for the contract entered into by the minor One of the indispensable conditions of the capability of parties to enter into a contract is that they should have a sound state of mind. A person is considered to be of sound mind for the principle of going into a contract during the time of the formation of the contract, then, he is regarded as incapable of understanding it and of forming a balanced decision as to its consequence upon his welfare. Thus a person of unsound mind, a minor, an idiot and a drunkard cannot be considered to be fit for entering into a contract since they won’t be in a state of mind to understand the terms of the contract. 4. Consideration- Consideration is one of the vital facets to sustain a contract, with the inclusion of some exemption, an agreement formed without a consideration is known as nudum pactum (nude pact) and is invalid. It is a procedural word used for defining “quid pro quo” which means anything in return. When a person or party to an agreement assures to perform something, he/she must get a reward, price or compensation in return. This reward or price is defined as ‘consideration’. In other words consideration is the value for which the assurance of the other person or party is acquired, and the assurance therefore offered for value is obligatory. For instance when ‘X’ agrees to vend his house to ‘Y’ for some agreed value, the house is the consideration for ‘Y’ and the price is the consideration for ‘X’. A costly consideration in the terms of law may comprise of either in some profit, interest, right, or benefit ensuing to the other party, or some leniency, damage, loss or blame given, undertaken or suffered by the other party. However to this explanation it should be included that the advantage accruing or the loss persistent was in exchange for a promise received or given. ‘Consideration’ must effect in an advantage to the promisor, and a disadvantage or loss to the promisee, or a disadvantage to both. Intention- The necessity of the intention to enter into a legal relationship is considered to be an essential element of a contract. The contract act signifies and governs the relationship between the parties involved in an agreement and the court of law cannot interpret the relationship between the parties without acknowledging the intentions of the parties. Thus when two parties enter into a contract, it means that both the parties wish to link legal outcomes to their agreement. The significance of intention is most apparent in the social and domestic agreements (MacMillan and Stone 2012) Answer 2 When our organization entered into a contract with the supplier, the supplier provided the clear description of the goods to be supplied. After evaluating the stated description, our organization agreed to purchase the products due to its specific features which would serve the intended purpose of the firm’s business. Now when the goods have already been purchased, our organization discovers that the product specifications are not met with and the goods are subject to frequent breakdowns. Therefore in this particular scenario we can opt for the Sale of Goods Act 1979 as per the legal framework of UK. The act strengthens the actual Sale of Goods Act 1893 and the succeeding legislation that codifies and consolidates the law in turn. Ever since 1979, there used to be several minor constitutional alteration and modification to the Act of1979. The Act is applicable to those contracts which involves the possessions in “goods” that have been agreed to be transferred or have already been transferred in exchange of a financial consideration. In other words, the Act is applicable where the ownership or property in personal possession is sold. Sections 2 to 15B of the Act deals with the formation of a contract and specifically consist of oblique terms in every contract for sale. The Section 3(2) states that if the product has been sold to a minor or to someone who is mentally incapable of entering into a contract, then the minor would be legally responsible to pay the reasonable consideration if the products are necessities. In case of breach of terms by the supplier or seller, action for damages caused can be claimed by the buyer. The Sale of Goods Act provides the buyers various lawful rights when they purchase goods from the seller. As per the Act the customer can ask for a refund, replacement or repair of the product until and unless- They have accidentally spoilt the product They are responsible for a fault in the product or they have mishandled it They have attempted to fix the product themselves which caused further damage of the product They have deliberately bought the faulty product They have decided that they no longer wish to have the product However the Act is applicable when- The product does not go with the description The product does not deliver a agreeable quality The product does not serve the primary purpose The law further states that a buyer can approach the seller with a claim regarding a product they had purchased for up to 6 years from the selling date. The buyer also has the right to reject a product if it is found to be faulty. Faulty might mean a product that does not match the description or is not of acceptable quality or is not suitable for the function it was meant to serve (Office of fair Trading 2012). The Act states that in case the customer successfully proves the fault of the product, the seller is liable to make full or partial refund or a replacement. Thus in this case, as the product does not match the description, therefore our organization can sue the seller for damage or inconvenience caused and can ask for full or partial refund and even for a replacement. Answer 3 While importing from the suppliers, it is necessary for our organization to keep track of the latest INCOTERMS in order to avoid confusions and unnecessary troubles related to the global trade framework. Language proves to be one of the most complicated and vital factor of foreign trade. In case of any sophisticated and complex business, little changes in words could have a huge impact on all the facets of the business agreement. The terms and words generally possess different meanings in different corners of the world. Therefore for the business terms, the International Chamber of Commerce formed INCOTERMS in the year 1936. The INCOTERMS intend to produce a bridge between various members of the trade by performing as a standardized language which can be used by them. Each INCOTERM implies a kind of agreement for the procurement and shipping of goods globally. There are eleven varieties of terms and each of the term assists the users in dealing with various situations concerning the passage of goods. For instance, the word FCA is frequently applied in case of shipments relating to Ro/Ro or container transportation. It also deals with the credentials necessary for doing global business, stating which parties are liable for which credentials. Taking decision about the paperwork necessary for moving a consignment is a significant task, as necessities differ so much among nations. 2 items, though, are customary: the packing list and the commercial invoice. These terms were formed mainly for the person related to the domain of global business. The external parties often find them complicated to comprehend. Apparently general words like "delivery" and "responsibility" have diverse meanings in international business than they have in other circumstances. INCOTERMS can therefore have a straight fiscal impact on a firm's trade. What is vital is not the ellipsis, but the company outcomes. Further to the 11 guidelines, the INCOTERMS 2010 comprises of descriptive notes to assist users select the fitting rule for every deal, the new categorization to aid in opting for the suitable rules for transportation class predicted, guidelines for applying the electronic measures, information protection rules on the approval of the exit of a shipment, and tips on relating INCOTERM 2010 for the purpose of domestic trade (LAZAR 2011). The obligations of the party involved in purchasing or importing from a foreign country involves- EXW the purchaser must prepare the export approval and loading at the supplier’s premises and it will be at the cost of the purchaser FCA and FOB the purchaser must arrange for insurance and freight The purchaser must be liable for import duty clearance for all generally applied INCOTERMS namely FCA, CIF, FOB, CFR, DDU, CIP etc. The purchaser must offload the imported goods from the carrying means of transportation at his/her own risk and cost. (EXW implies Ex Works, FCA implies Free Carrier, CIF implies cost, insurance and freight, CIP implies carriage and insurance paid to, FOB implies Free on Board, CFR implies cost and freight, DDU implies delivery duty unpaid, CIP implies carriage and insurance paid to) (International Chamber of Commerce n.d.) Answer 4 The provisions that should essentially be included by our organization in their terms of contract that would essentially transfer the risk to the suppliers, have been discussed as follows- Passage of Title As per INCOTERMS, CIF refers to the cost, insurance and freight and when this term is applied in relation to a contract happened according to the sale of goods act, then it indicates the price cited including the cost of the products, the freight cost, and the cost of insurance to the place of delivery. The seller’s duty is considered to be complete with his performance i.e. the delivery of the goods to the purchaser, or to the transportation vehicle specifically. As the performance of the supplier is implied to be complete with the delivery of goods and tender of the consignment documents to the purchaser, the rationale for passage of title seems to be significant at that point. The sale of goods act states that if the contract had been made on the terms that would require the supplier to deliver the products to the purchaser, or at a specific destination, or to pay the cost of carriage or freight, the possessions doesn’t pass until and unless the product have been transported to the purchaser or reached the location that was initially agreed upon (Maryland Law Review 2012). Price Variation The price variation clause of a contract as per schedule 2, paragraph 1, clearly states that conditions might be regarded as unfair if it contains the effect of or object: In relation to the price of product to be set at the time of delivery or facilitating the supplier of the product to boost the price devoid of, in both scenarios, provides the consumer the subsequent right to revoke or terminate the contract in case the finally set price is excessively high with respect to the price agreed upon during the formation and conclusion of the contract (Office of Fair Trading 2008). Force Majeure A force majeure phrase is a contractual expression by the application of which a party or both the parties involved in a contract is free to annul the contract or is exempted from the acting of the contract, entirely or in components, or is allowed to defer acting as per the contract or look for an addition to the agreed upon time due to the occurrence of specific incidents or events ahead of their control. In general several events have been identified and can be mentioned with the addition of the words “or any other causes beyond our control”. Thus from a purchaser’s perspective, Force majeure always facilitates a provision for termination or deferring the contract when such uncertain events take place (Dickinson 2011). Intellectual Property Intellectual property is a unique or exclusive creation by someone. It comprises of patents, copyright, trademarks and designs and includes: An invention such as creation of a new product The appearance or design of a product The logo or brand A piece of writing such as website, content or writing in a brochure Some artistic work such as illustrations or photography Recording films or music Developing a software Thus when our organizations own an intellectual property it should be clearly defined in the terms with the suppliers so that they do not take advantage or copy something from our organization (GOV.UK 2013). Conclusion From the entire discussion we can conclude that knowing the contract law in details is very significant for the operations of a firm. Furthermore, making the related stakeholders like the employees, shareholders, suppliers, and the customers aware about the prevalent law is equally important since declaring the law in advance prevents the occurrence of any legal trouble related to the business of the firm. At the same time, knowing the law of the foreign countries with whom the firm is dealing is recommended for the smooth functioning of the business of the organization. Works cited Macmillan, Catharine and Richard Stone. Elements of the law of contract. UK: University of London. 2012. Pdf. Office of fair Trading. Sale of Goods Act Explained.2012. Pdf. GOV.UK. How to protect your intellectual property. 2013. Web. Dickinson John. CONTRACT LAW UPDATE. St John's Chambers. 2011. Pdf. Office of Fair Trading. Unfair contract terms guidance. UK: Crown Copyright.2008. Pdf. Maryland Law Review. C. I. F. Contracts - Passage of Title - Risk of Loss - Obrecht V. Crawford et al. Vol 3. Issue 3. 2012. Pdf. International Chamber of Commerce. The Incoterms® rules. n.d. Web. LAZAR Anca. The INCOTERMS rules and their importance. Volume 1, Issue 1. Juridical Tribune. 2011. Pdf. Read More