Contracts As a Common Phenomenon in the Business Sector - Case Study Example

Contractual factors Introduction Contracts are a common phenomenon in the business sector. Contracts vary in their nature and scope depending on the transactions involved in it. As business people make contracts, they should consider the nature of the contract so as to avoid any legal issues that may arise from such contracts. This paper seeks to discuss a case study involving a businessman who intends to sell his lawnmowers. In trying to do so, John finds himself faced with several contracts-related issues. This paper will discuss the contractual position in which John finds himself in relation to the lawnmowers. The paper will further look at whether individuals who have an interest in purchasing the lawnmowers have any claim against John. Case study In the case study provided, it may look like the nature of the case does not entail any contractual issues that can be related to it. However, there are several contractual factors that John should have considered so that the process remained legal (Austen-Baker 2011, pp.224). One such factor is privacy of the contract. According to this factor, only parties to the contract can enforce the terms of the agreement. In the case provided, Hilary’s e-mail got deleted by John’s wife. However, John’s wife is not party to the contract and cannot in any way be considered liable for any mistakes in the contract. John cannot, therefore, be liable to any losses that accrued from the fact that his wife deleted Hilary’s e-mail. In dealing with the case, the deleting of the e-mail cannot be discussed as non-commitment from any of the parties. Contracts should have consideration. Promises get to be made by either parties and these promises should be observed. When John promises that he would sell the short-grass lawnmower at £105, he gets obliged to keep that promise. However, there is a difference between a promise and a favor when making a contract. In Hilary’s case, the fact that John offers to keep the deal open for Hilary until Saturday can be termed as a favor. This does not form part of the consideration. The main feature of a consideration is that it must have an economical value. John cannot be considered to have made a consideration when he offers to keep the deal open until Saturday. Formalities required by law have been reduced and currently only a few formalities get required. Formalities on signing of deals and putting contracts in writing have been abolished. This has made contracting easier as parties have less legal processes involved when making such contracts. This means that oral agreements are acceptable. However, contracting in this way can be disadvantageous as parties can misinterpret, misunderstand or misremember the terms of the contract (Howells & Schulze 2009, pp.125). In a case where the agreement gets made over the telephone, the terms of the agreements should be put in writing for clear future references. Oral agreements should be summarized in writing to protect the terms of the contract from misinterpretation. In the case provided, some of the agreements made got reached over the phone. It could have been advisable that John puts such an agreement in writing. The law further provides for cases when a contract must be put in writing. This includes a case where a contract contains a guarantee. In John’s case, the agreement did not contain any guarantee. Putting the terms of the agreements in writing was, therefore, not necessary. There are several advantages that come with putting the terms of an agreement in writing. One such advantage is that formal writing is less prone to manipulation and misinterpretation as it is the case with oral agreements. When parties put their agreement in writing, copies can be made and preserved by both parties. Both parties get obliged to follow these agreements. Another advantage is that written agreements have the option of including signatures which commit the parties to that agreement (Howells & Schulze 2009, pp.125). However, considering the nature of the agreements made in the case provided, oral agreement could have as well worked since the contracts did not involve a lot of complexities. Another aspect of contracting that John should have considered is the inclusion of exclusion clauses. Exclusion clauses have become a common phenomenon in business contracts. Such clause get used by parties in a contract to reduce liability in a case where the other party feels that terms to the contract have not been followed. Courts have determined that these clauses restrict the application of contracting laws. This is because it is hardly possible for one party to breach the terms of a contract without the other party requiring a remedy for such breaching. John should have ensured that he includes such clauses that would restrict his liabilities in a case where one of the potential buyers of the lawnmowers feel that terms to the agreement have been breached. One of the most outstanding aspects of contracting that can be seen from the provided case is breaching of the terms of an agreement. Although John agrees to sell three of the lawnmowers by Friday, he changes his mind on account of a lucrative offer made by Adrian. This can be termed as breaching. Breaching refers to a situation where one party fails to perform their obligation as per the terms of the contract. Breaching may involve partial performance of these obligations or total failure to perform them. Contracts require that both parties fully commit themselves to the terms of the contract. In the above case, Joan and Hilary failed to get the lawnmowers since John decided to sell three of them to Adrian at a higher price than both Joan and Hilary were willing to pay. However, there should be a consideration of whether John breached the terms of agreements made between him and the two parties. When assessing legal responsibility in a breach of contract, there are several steps that need to be followed (Halson 2013, pp.347). The first step involves determining if there is an enforceable contract. A party can only be held responsible of breach of contract only if the contract is enforceable by law. In order for a contract to be enforceable by law, there has to be an agreement, consideration and mutual obligation. All parties in the contract must clearly understand and agree to the terms of the contract. The contract should further be for a legal purpose for it to be enforceable. Possibility gets considered to ensure that the obligations stated in the contract are possible. In a situation where performance of obligations in a contract is not possible, such a contract cannot be enforceable by law. In the above case, Joan and Hilary had grounds to sue John for breach of contract. This is because the contract was enforceable by law. The obligations of the contract were possible and as such, John should have gone ahead to follow the terms of the agreements between him and these two parties. The second step involves determining whether there is an actionable breach, or one for which the breaching party can or should be sued. It is worth noting that not all breaches of a contract are enforceable. In order to determine whether the breach of the contract between John and her, Joan should have assessed whether there was substantial performance. Substantial performance refers to a situation where a party performs their duties according the guidelines of the contract but did so with minor flaws (Halson 2013, pp.348). In such a case, the party is not legally responsible for breach of contract. John failed completely to honor the agreement between him and Joan completely. The agreement could not be implemented in any way. It could not be termed, therefore, as a case of substantial performance. Joan had a reason to sue John breaching the terms of agreement between him and Joan. In order for a breach to be considered as actionable, it must be of a material term of the contract. The party should further assess if there are damages incurred from the breach of contract. In order for a breach to be actionable, there must be damages that have been made by the breach. These damages must be monetary damages (Dimatteo 2013, pp.58). The damages should have left the party at a financial loss and as such raising a need for the compensation of this loss. This monetary damage should be higher than the approximated cost of suing the party which has breached the contract. Hilary’s case was different to that of Joan. This is because John did not receive the e-mail that indicated Hilary’s acceptance to the terms of sales on offer. In this case, there was no actionable breach. Hilary could not sue or seek any legal compensation due to John’s failure to honor the terms of the agreement. Equally, there was no substantial performance since the agreement could not be implemented at all. The third step involves determining why the contract got breached. In a case where the breaching party has a legitimate excuse to breach the agreement, such party may not be legally responsible. There are several reasons as to why a party may breach a contract. One of the reasons is anticipatory breach (Dimatteo 2013, pp.59). This is where a party breaches a contract in anticipation that the other party will breach the contract too. In an anticipatory breach, the party that initially planned to breach the contract gets charged with the responsibility of the damages that result. This is the case unless the party has a legitimate reason for doing so. Under prevention of performance, when one party prevents the other from performing their obligations, the first party cannot complain of breach of contract. A party to a contract may also lack the capacity to perform the obligations of an agreement. Where fraud gets used, neither party can be held legally responsible of any breach of contract (Beale 2002, pp.239). In John’s case, the reason for the breaching of the agreement between him and the two initial parties was the introduction of a third party which tabled an improved deal than the previous two parties. This cannot be termed as a legitimate reason for breaching the terms of the agreements. John was, therefore, legally responsible of breach of contract. The final step involves assessing the damages of the breach of contract. When assessing the damages of a contract, a party should look at the terms of the contract to determine if there are remedies provided for such cases. All costs incurred during the suing process get recovered from the breaching party (Beale 2002, pp.230). Actual damages accrued from breach of contract can be assessed through the terms of agreement between the two parties or by a court of law. In the case provided, there was no formal writing of the terms of the agreements between these parties. As such, a law court would be the most suitable way to address the legal issue. The cost incurred during the suing process gets included so that the value of money quoted for compensation reflects the real damages cost by the breach of contract. If this value got not included, the monetary value that would be quoted for compensation would not reflect the actual cost of the damage since the breached party incurred some cost while pursuing the legal process. In a case where the cost of the legal process is £500 while the cost of the damages caused is £2000, the breached party may end up receiving £2500 in compensation. John should further be in a position to assess if any of the Adrian, Hilary or Joan has any claim against him. Joan was the first party to enquire on the availability of the lawnmowers. She followed all the necessary logistics to acquire the two garden-right lawnmowers. After agreeing to pay the £100 each required for each of the lawnmower, John fails to reply to her final letter. This, however, holds John responsible considering that he had agreed to sell the lawnmowers at the said price. By failing to reply to Joan’s letter, John displayed negligence on his part. As the party, which had proposed terms of the agreement, failure to reply the letter could be deemed as an acceptance to enter into the agreement. Hilary’s case was different from Joan’s case. Although Hilary sends an e-mail to John telling him that she had accepted the offer of £105 per lawnmower, John does not get to read the mail. The mail gets deleted by John’s wife before John reads it. Under such a case, John cannot be held liable of any breach of the agreement between him and Hilary. This is because the cause of the damage resulted from a non-party to the agreement in this case, John’s wife (Bar et al 2004, pp.433). None of the parties could be held responsible for any errors committed while formulating the agreement. However, the fact that Hilary called John on Friday to confirm if John had received the mail means Hilary made John aware of his acceptance of the offer before the date set as the deadline which was on Saturday. This got done after John had already made an agreement with Adrian. The fact that John made an agreement with Adrian prior before he got the confirmation message from Hilary does not mean that Hilary’s confirmation was not valid since it was within the deadline. John could still be, therefore, to some extent liable to breach of the agreement. Adrian’s case was equally different from the two previous cases. Adrian offered to buy the lawnmowers at a higher price than the price quoted by John. Adrian would have little if any claim on John since his offer gets accepted. The case may be different if John reconsiders his options and decides to sell the lawnmowers to the initial buyers ignoring the agreement he made with Adrian. This would create a situation where John is liable to breach of contract from three parties. The parties can, however, not be liable to each other since they are non-parties to each other’s case. This can lead to a situation where John gets required to compensate all the three parties. As a businessman, John’s intention is to get the best price for his machines. He should be aware, however, of the relevant contractual laws and regulations that may apply to him. Conclusion Contracts are inevitable in business. Contracts should be carried out in a way that can be seen to be considerate to both parties in the contract. Unless this gets followed, frictions between the two parties will in most cases arise. This friction can not only be time consuming but also costly to both parties. One party may feel that some of the agreements made during the contracting process have not been followed. As such, a party may stand to lose financially. Although this gets emphasized mostly in the corporate world where contracts are complex, it should be equally emphasized in small transactions so as to promote business ethics across the business sector. Ignoring small business on the issue of contracting may turn out to be expensive in the long run as these are the same businesses that grow into large companies. Integrity should be promoted across the whole sector. References List Austen-Baker, R. (2011). Implied Terms in English Contract Law. Cheltenham, Edward Elgar Pub. pp.222-226 Bar, C. V., Drobnig, U., & Alpa, G. (2004). The interaction of contract law and tort and property law in Europe: a comparative study. München, Sellier. pp.431-435 Beale, H. (2002). Contract law. Oxford [u.a.], Hart. pp.228-231 Chen-Wishart, M. (2012). Contract law. Oxford, Oxford University Press. pp.259-263 Dimatteo, L. A. (2013). Commercial contract law: transatlantic perspectives. pp.56-61 Halson, R. (2013). Contract law. Harlow, Pearson. pp.345-348 Howells, G. G., & Schulze, R. (2009). Modernising and harmonising consumer contract law. Muhich, Germany, Sellier European Law Publishers. pp.124-128 Read More