The Formation and Performance of the Sales and Lease Contracts - Term Paper Example

Outline Abstract Introduction Contracts Types of contracts Literature review Overview Sales contract Formation Performance Lease contract Contents of a lease contract Performance Conclusion Recommendation Further reading Works cited Abstract Businesses have thrived from time immemorial and the interaction of business people have become a reality. In the contemporary society there have been increased business activities and business premises. For there to be harmony in the business world, there has to binding agreement between the parties involved to avoid exploitation of any of them. The paper seeks to address the issues concerning the formation and performance of the sales and lease contracts. It seeks to unveil the steps involved in entering into a contract, people who can enter into a contract and the remedies available if any of the parties fails to meet the requirements of the contract. Formation and Performance of Sales and Lease Contracts A business entity is a legal entity designed for goods and services provision to businesses, government entities and other businesses mainly predominant in the capitalist economies. The majority of the businesses are privately owned with the primary formation objective of making profits. Business entrepreneurs have as the main objective receipt and generation of financial return in exchange for work and acceptance of risk. There are other business entities not formed with the profit making objective like the cooperatives, state corporations and none profit making businesses (Heintz & Parry 7). Contracts For there to be less conflicts in the business world, there has to be generally accepted terms of engagement. A contract is a legally binding agreement between legal persons for an exchange of services and goods that are of value. A valid contract is an emergence of a made offer that has been accepted. Using a contract in business transactions binds the engaging parties to abide by the terms as non performance of the responsibilities as per the requirements of the contract may lead to a lawsuit and payment of damages. The following are the requirements of a contract Agreement(Offer and acceptance) Consideration and estoppel Capacity to contract Legality of purpose Legal form Consent to contract Vitiating factors like undue influence, misrepresentation, duress and misstates When the contractor makes an offer and the contracted accepts the offer, then the parties are legally bound by the terms of the contract (English, Simon & Solomon 212). When the parties involved are ad idem (meeting of the minds), then none of them can ignore the contractual obligations bestowed on him. A business can enter into a legally binding contract when buying or providing goods or services, leases or real estate, selling of the business premise, hiring a contractor, entering into partnerships and joint ventures, franchising, non complete agreements and confidentiality agreements. Types of Contracts There are various types of contracts. These include: Oral contracts: it is a spoken agreement that is equally binding as the written contract. They are normally subject to misinterpretation and are usually difficult to prove in court Written contracts: are generally produced on paper or electronically and are usually easier to uphold compared to oral contracts. They are easier to prove in the court of law. The contracts are usually detailed therefore easier contracting parties to recognize potential contention points in the language used (Gray 198). In writing of the contract the contracting parties should ensure that the agreement has the following items: date of contract; names of the contracting parties; details of services offered and accepted; payment details; deadlines for the services due; damages for breach of the contract; termination conditions; expiration date of the contract; signatures; and renewal terms if applicable. Literature Review As mentioned earlier, there is variety of business transactions and especially in the contemporary business world. For all these to be effected successfully, there are a range of contracts that one can engage in like the sales contracts and lease contracts. There are others like hire purchase contract law and the property law. Sales Contract A contract of sale is a legal binding agreement on exchange of goods, property and services between the seller or the vendor and the buyer for agreed sum of money or money equivalent paid or promise to pay. A sales contract is a specific type of a legal binding contract. Sales contract is nowadays governed by statutory law. The sales contract is the law relating to the transfer of property ownership from one legal entity to the other for a consideration. This is codified in article 2 of UCC, uniform commercial code, adopted in whole or partially by the United States of America. The sale of goods or items that are immoveable at the time of sale is a transaction designed for the benefit of both the seller and the buyer. Sometimes sales transactions are very complex thus may not proceed on smoothly without properly laid down procedures. It is common for problems to arise on most of the phases of a sales transaction rendering one of the parties to suffer a loss. In recognition of this pitfalls and hindrances in the smooth flow of a business transaction, courts and the legislature create laws to govern the sale of goods and services. Formation A sale of goods contract can be formed in any manner that shows agreement and consent between the buyer and the seller. The contract may be oral, written or implied through the conduct of the parties acknowledging the existence of a contract (jrank.org 2). To form the contract, one of the parties has to make an offer and consideration or something of value has to be exchanged. The offer may be revoked before the other party accepts the offer and gives consideration which may not cause harm or loss to the offeror. However an offer may be revoked within duration of ninety days if there is assurance that it will remain open, is made by a merchant and in writing confirmed through the merchant’s signature. When a party customizes the material facts of an offer before accepting it, it yields a counter offer. This works towards eliminating the first offer and no basis for contractual obligations unless the initial offeror accepts the counteroffer and consideration exchanged. In contracts involving merchants, there may be additional different terms by the offeree unless: offer expressly and directly limits acceptance to the original terms of the offer; the inclusion of the new terms will materially alter the original offer; and the offeror expresses objection within a reasonable time. Unless otherwise stated, the following apply in the sale of goods contract: The formation of a legally binding contract can be through interaction of electronic agents of the parties involved even though there was no individual; person aware of or reviewed the electronic agent’s actions or terms and agreements that resulted. A legally binding agreement may arise through interaction of an electronic agent and an agent acting on own or on behalf of another individual. A contract arises if the person acts despite the condition that he is free to refuse. Such actions may cause an electronic device or agent to complete transaction. The actions may also include indication of acceptance of offer without regard to other expressions or actions by the individual. Performance The goods forming the subject of a contract may either be existing goods, goods to be manufactured, goods to be acquired by the seller, or owned or possessed by the seller. It should be noted that any sale of goods beyond a certain value depending on the country’s regulations should be under written agreement. If not so the contract is void and unenforceable before the law. Changing the terms of contract leads to emergence of another contract and unless agreed upon, the affected party should seek judicial redress. An unconscionable sales contract can be repealed in whole or part through a court order. It is termed so if a person in a powerful bargaining position dictates terms of the contract grossly unfair to the other party. This will be through the courts examination of the circumstances under which the contract was entered into. Performance of the contractual obligations is the fulfillment of the promise committed by the parties. Sometimes performance of the contract may be impracticable. Such is when the goods are completely destroyed before the risk is transferred to the buyer and destruction of the goods is not by the fault of any of the parties. In such a case the seller is exempted from discharging his contractual obligations. If the goods are partially damaged, then he may opt to inspect the goods and either void the contract or accept the goods with price reduction. The parties may fail to meet their contractual obligations on the basis of frustration of purpose or insolvency. When one of the parties feels insecure about the discharging of contractual obligations by the other party, he/she should seek affirmative action and if not provided to a satisfactory level, then he/she may withhold performance. Lease Contract Leasing is the ways and means in which a business or legal entity obtains the authority to use fixed assets but pays a series of contractual, periodic, tax deductible payments. The lessee is the legal entity receiving the services of the assets under the lease contract whereas lessor is the owner of the fixed asset. The relationship that exists between the lessor and the lessee is tenancy which may be either fixed or indefinite (Williston, 458). Whereas the consideration for a sale of goods contract is the price of the goods, the consideration for a lease contract is the rent (Tuller 260). A gross lease exists when the tenant pays a flat rate and the owner pays all the property charges incurred by the ownership. The owner has the right to do what he desires with his/her property including passing of possession of the property to the tenant. If the owner and the tenant have entered into a contract transferring the possession of the property to the tenant, then any interference by the owner in the quiet environment of the property may render the tenant to seek judicial interventions. When the tenant and the owner enters into a contract meant for more than year, then it has to be through writing otherwise it will be void and null. The term of the lease may be definite, indefinite or periodic. When it is definite, then it ends automatically with the expiration of the contacts period. Other lease contracts are held by the conditions such that it ceases to exist by occurrence of an event like the death of an individual. Periodic tenancy may be monthly or yearly and automatically renewed. There is also a tenancy at will that exists as long as the contracting parties wish to and termination by any of the parties attracts no penalty. Usually the lease may be extended on a holding over basis converting it periodic tenancy on a monthly basis. Contents of a Lease Contract A lease contract must: Identify the parties Identify the property or the real estate Identify the rent Have the tenant’s and owner’s signatures Have a legal purpose Ensure that the parties involved have contractual capabilities Express ad idem Include consideration Generally a lease should have the following essential characteristics: definite term, rent and confer exclusive possession. Performance Usually a lease contract will impose an obligation on each of the contracting parties that the other party’s expectation of receiving services will not be impaired. When one of the parties feels insecure in the discharging of the contractual obligations by the other party, then he is obliged to seek adequate assurance through writing of due performance. It is until the insecure party receives assurance that he is obligated to conform to the terms of the contract. If the insecurity is commercially reasonable the insecure party may repeal the terms of the contracts for which he/she has not received the agreed return. A lease contract repudiation may occur if adequate assurance of due performance under the circumstances of the specific case has not been provided to the insecure party in reasonable time duration not exceeding thirty days after the other party has tabled his demands. However in relation to the merchants, the reasonableness of the insecurity should be to the standards of commercial business. Conclusion In understanding the law of sale of goods and lease, the businessmen will be able to engage more into business practices. When entering into any contract, the engaging parties should pay attention to every detail of the document before accenting to the terms. He/she should pay special detail to small fonts and the wording of the sentences. Any loophole in the document may be used by the other party in court defense. Also there should be no use of trickeries or undue influence in signing the document. All the involved parties should have the contractual capabilities when entering into contracts. Recommendation For one to engage in ethical business practices, one has to understand what is required of him/her. It is my recommendation that businesses observe ethical practices in business engagements. Observing ethical practices will not only remove the legal action against the individual but will also create confidence in the other parties for future engagements. This opens up his business world as more and more will have the confidence in the business of performance of the contractual obligations. Further reading I would recommend the reader to not only concentrate in the above categories of business law but also indulge into reading the law of insurance, Hire purchase law and the general law of contract. The following are the resources available for further reading http://www.allbusiness.com/legal/contracts-agreements-sales/495-1.html. http://www.ourfamilyplace.com/homebuyer/contract.html. http://www.unhabitat.org/pmss/listItemDetails.aspx?publicationID=2444. http://legal-forms.philsite.net/lease-contract.htm. Works cited English R. J. , Simon D. A. , Solomon L. D., Business contracts: forms and tax analysis (2nd edition, illustrated),New York, J. Wiley publishers, 1994. p. 212 Gray D. A., Start and Run a Profitable Consulting Business (2nd edition, revised), London, Kogan Page Publishers, 2004. p. 198. Heintz J. A., Parry R. W., College Accounting, Chapters 1-9, Stamford, Cengage Learning, 2007. p. 7 jrank.org, Sales Law - Contract Formation, Viewed 20th June 2010 from http://law.jrank.org/pages/9986/Sales-Law-Contract-Formation.html, 2010. Par.2-4. Tuller L. W., Finance for Non-Financial Managers: And Small Business Owners (2nd edition, illustrated), Adams Media, 2007. p. 260. Williston S., The law of contracts (Volume 5), New York, Baker, Voorhis & co., 1922. p. 458. Read More