Transco Commercial Contracting - Essay Example

The formation of contracts is a process that is subject to continual change. This process has gradually acquired considerable intricacy and involves much higher stakes. Nevertheless, some features of this process have remained unchanged. For instance, the negotiators are interested in reaching an agreement and are keen to gain the maximum profit from it. These objectives are inherently contradictory; because a party that is interested in effecting an agreement might be required to behave in a manner that diminishes its profits.

It has been a long-standing practice to employ the device of the subject to contract in contractual negotiations. This expedient prevents the emergence of contractual liabilities, during contractual deliberations. Its use in correspondence that transpires before a contract is formed connotes the absence of contractual liability till a contract is formed.

The subsequent conduct of the parties to an agreement primarily determines the outcome of the condition subject to the contract. Consequently, if work commences in a contract that is negotiated subject to contract, and if a formal contract has not been concluded, then it cannot be construed that a contract may emerge that would be based on the terms agreed subject to contract. This implies that the court should not rule that a binding contract exists among the parties to the contract.

Thus, the term subject to contract merely indicates the intention of the parties to render the extant agreement binding. Furthermore, this term cannot be employed to indicate that no binding contract can be formed. In addition to the written words and negotiations, the conduct of the parties also determines the existence of a binding contract. As a result, any instruction to commence work, before arriving at a final agreement, should be dealt with great care.

In Regalian Properties plc v London Dockland Development Corpn [1995], it was held that an offer that had been accepted, subject to contract was not binding. In this case, the plaintiff was a property developer who made its offer via a letter entitled subject to contract. Due to difficulties envisaged in acquiring the land by the defendant and other reasons, the contract proved difficult to materialize.

The plaintiff claimed heavy damages, which the court rejected, as the work had been undertaken based on subject to contract, which implied the absence of a contract betwixt the plaintiff and the defendant. The plaintiff had incurred considerable expenditure, in the anticipation of procuring the contract. The court held that the plaintiff’s actions had been at its own risk, as there was no binding contract between the plaintiff and the defendant. Thus, subject to contract provides a stratagem for circumventing liability in such claims.  

In Confetti Records v Warner Music UK Ltd [2003], it was ruled by the court that the inclusion of a track from the album did not constitute an infringement of copyright. The inclusion of the term subject to a contract indicates that the party has no intention to confer a binding nature on the deal memo. However, the act of sending the track and invoice by the claimants was to be considered a valid offer. If the defendant had accepted the offer by his conduct, then the claimant was precluded from withdrawing the offer.

In this case, the defendants, being desirous of using the music compiled by the plaintiff, had transmitted a facsimile bearing the heading subject to contract. In this missive, the claimants had specified their terms. The claimants reciprocated by transmitting a facsimile containing the terms with their signature. However, before the formation of a contract, the defendant had recorded and manufactured the music. The claimants attempted to move the courts to restrain the use of this music. The court ruled that the appearance of the subject to contract on the facsimile deprived it of the status of a contract.