The Importance of Contracts in Business - Essay Example

TOPIC: CONTRACT RISK AND OPPORTUNITIES (NAME) (COURSE NAME) (INSTITUTIONS NAME) 4th FEBRUARY 2009 Successful business contracts are based on clarity of purpose. This is because contracts are never completed free from interpretation. Significant numbers of verdicts are delivered on daily basis by courts in many countries of the world because every business undertaking comprises of more than one partner with different interests and with different ethics in conducting business. In this perspective, a contract between two business parties is vital as it guards the interests of the parties in any business dealing. The importance of contracts in business is undisputable because it allows business to count on money, services and supplies (Ferry, 2004 pp 23-78). Businesses can only thrive and grow only when there are commitments in order to avoid resource wastage when promises are not fulfilled. A contract is defined as a promise by one party to the other to undertake or to perform an agreed activity the breach of which the law gives the aggrieved party remedy or performance of which the law recognizes as a duty. Since business activities have now become global and more means of carrying out business have cropped up such as E-commerce, business risks have also increased rapidly. In this perspective, contracts have become inevitable in every business undertaking in order to safeguard the resources of the business partners. A contract is valid when several elements are present. (Dony, 2001 pp 78-107). These are, offer, acceptance, consideration, capacity, legality, possibility of performance. A contract comes into being when two parties with the correct intent mentally, under the correct circumstances, within the law boundaries and with some detriment to each one of them agree to do certain acts in exchange for the other’s acts. This kind of formation requires that the entire stated element above be present, the lack of one element or the presence of a problem such as illegality can invalidate the contract. From the simulation, there are several legal issues that are present. First there is a contract between Span and C-S. The parties to the contract have their responsibilities that they are supposed to execute. Span has the responsibility of delivering banking software systems that are of good quality and in good working conditions. The other legal issue in the simulation is that there is offer and acceptance. Span offered to supply the banking software system to C-S and C-S accepted to pay the price for the delivered software in addition to another promise of extending the contract after Span performs the initial contract worth $6 million within the agree terms in the contract, that is, within the given time period and delivering good quality work.. The certain and definite terms are present in the simulation which include parties to the contract (Span and C-S), subject matter of the contract (delivery of banking software systems), payment terms, delivery terms and performance terms which are other legal issues in the simulation. The legal principles that apply in the first issue is that all elements of a contract must be present in order to make the contract valid. From the simulation this principle has been adhered to. The second principle regarding the second legal issue in the simulation is that offer and acceptance are present. The offerer and the offeree are present and this is another principle concerning the above legal issue. The third legal principle regarding the third legal issue is that the certain and definite terms outlined above have been adhered to in the contract between Span and C-S. The above legal principles make the basis for which the contract between Span and C-S is valid and are therefore very important if any party has to sustain any legal proceedings against the other for partial performance or failure to perform their responsibilities. Business Memo. FROM: ATTORNEY OF SPAN SYSTEMS TO: THE MANAGER’S SPAN SYSTEMS AND C-S COMPANY RE: Legal Risk and Opportunities arising from the contract between the two Parties to the contract I would like to quickly go over some of the legal risks and opportunities presented in the business contract between Span and C-S bank in the supply of banking software systems to C-S bank by the Span Company. I would once again retaliate that this memo will go an extra mile in singling out the legal risks that may face any of the party to the contract and also the legal opportunities each party has concerning the contract incase the other party fails to perform the agreed responsibilities as per the terms and conditions of the contract. The legal risks and the legal opportunities in the simulation are based on the stand-off summary in the simulation. This include, C-S demand for immediate transfer of all unfinished code thus asserting recession of the contract, C-S claim that Span’s deliverable are of low quality and also behind the schedule, disproportionate growth in requirements since originally determined making it difficult to accommodate within the given budget and timelines, C-S’s approval and review time affected due change in project management structure. Here is a look at both the legal risks and legal opportunities on either party to the contract. Legal risks to C-S. 1. (Clause) “Breach of contract under substantial performance of the contract (Hlton, 2005 pp 89-101). Neither party may cancel the agreement entrée into between Span and C-S in whole or in part, subsequent to more than fifty percent of the consideration having been tendered to by the other.” C-S faces a legal risk because it can not rescind the contract because already Span has tendered more than fifty percent of consideration. In order to avoid those risks, minimize the liabilities, and benefit from the opportunities found in the simulation, the manager has to pay the price as consideration on his part for the software systems delivered by Span systems. The legal principle governing this legal risk is that under substantial performance of divisible contract such as the delivery of software systems by Span to C-S, the performing party is entitled to payment for what has been done by him under the contract. Thus Span is still entitled to payments for the delivered systems even if they are of low quality (Davis, 2003 pp 10-21). 2. (Clause) Breach of contract under Internal Escalation Procedure for Disputes. “Prior to the filing of any formal proceedings with respect to a dispute the party believing itself grieved shall call for progressive management involvement in the dispute negotiation by written notice to the other party. The legal risk is that C-S has unilaterally indicted the recession of the contract which is a clear violation of its contractual obligations of progressive management in dispute negotiation” (Felix, 2006 pp 45-67). Legal opportunity to C-S “Merely completing 50% or more of the project schedule does not constitute substantial performance of contract if the quality of deliverables has been deficient. Hence C-S is within its right to claim that the contract has not been substantially performed hence this legal opportunity.” (Jerry, 2001 pp 90-134). C-S does not have any legal opportunity in the second clause because it has gone against a condition of the contract. The legal principle that can be used by the manger to realize legal opportunity the argument that for performance to discharge of a contract must precise and exact. Span has not performed it s duties precisely and exactly as stated in the terms of the contract because Span has not only been late in delivery of the systems but also delivered low Quality goods (Neemy, 1998 pp 34-67). Legal Risks to Span 3. “Breach of contract under Intellectual Property Rights” “On payment of all sums due to Span Systems under this agreement, Span Systems hereby grant C-S an unrestricted royalty-free perpetual, irrevocable license to make, have made, use, prepare derivative works, perform, display, disclose and sublicense such work products.” This is a legal risk because C-S might accept to make the outstanding payment, get the IPR transferred and rescind the contract or it might just agree to forego the code and rescind the contract. Either way not an attractive proposition for Span. (Saleem, 2006 pp12-23). Legal opportunity to Span The legal opportunity to span is that C-S has “unilaterally indicted the recession of the contract which is a clear violation of its contractual obligations of progressive management in dispute negotiation”. The legal principle that the manager in Span can use to realize the legal opportunity is that the effect of refusing to accept a properly made offer of performance is that the contract is deemed to have been performed by the tender. If C-S refuses to accept the substantive performance of Span then it will be deemed that the contract has been performed (Henriy, 1995 pp 101-105). Other alternatives for resolving the dispute in the simulation are through negotiations which is the best method or alternative for dispute resolution because the costs associated with it are lower than the costs for pursuing legal proceedings (Kelley, 2007 pp 12-89). REFERENCES Davis, J. (20003). International Business law, New York: McGraw Hill Limited, pp 10-21 Dony, G. (2001). Elements of a valid Contract, New York: Sage Publishers, pp 78-107 Felix, T. (2006). Legal Issues in Contract Formation, New York: McGraw Hill Publishers Limited, pp 45-67 Ferry, H. (2004). The Law Of contract, Oxford: Oxford University Publishers, pp 23-78 Henriy, G. (1995). Business Disputes: How to Resolve business disputes, New York: Sage Publishers, pp 101-105 Hilton, Y. (2005). Leading Clauses in contracts agreement, New York: Sage Publishers, pp 89-101 Jerry, K. (2001). The Principle of substantive performance in contract agreements, Oxford: Oxford University Publishers, pp 90-134 Kelley, B. (2007). Contemporary Studies in Business contract Laws, New Delhi: Vista Publishers, pp 12-89 Neemy, N. (1998). Legal Risks and Legal Opportunities in Business related laws, Harvard: Harvard University Publishers, pp 34-67 Saleem, M. (2006). Settling Disputes in Business contracts, New York: Macmillan Publishers, pp 12-56 Read More