Liabilities and Remedies of Parties in a Contract - Essay Example

 A contract is a legal instrument which signifies the meeting of the minds between parties to deliver goods or perform services. For a contract to be valid there must be an offer and acceptance, consideration and the intention to create legal relations and compliance with the formalities (McKendrick, 2009). The validity of a contract is affected by many factors including the legality of its subject and the reasonableness of the clauses included in the agreement. As counsel for Motor Parts, my task is to explain to my client the provisions of the contract, legal basis of the claims against it as well as the legal defenses available to it. Based on the fact of our hypothetical case, we can surmise that there are two contracts existing between the parties. The first contract is between Military Supply Ltd and the British Ministry of Defense while the second contract is between the Military Supply Ltd and Motor Parts plc. The contract between Military Supply Ltd and the British Ministry of Defense is for the purchase and delivery of 500 vehicles which will be used by the Ministry of Defense in its field operations. The second contract on the other hand is a contract of service between Military Supply Ltd and Motor Parts Ltd where the former hire the services of the latter to manufacture the 500 vehicles for the client of Military Supply Ltd which is the British Ministry of Defense. The relationships of the parties are defined and limited by the contracts that they entered into (Barrows, 2009). The obligations of the parties in this case vary according to their participation in the transaction. In the case of British Ministry of Defense, its obligation is towards Military Supply ltd. As buyer of the vehicles, the Ministry of Defense is obliged to deliver payments when the provisions and the objects specified under the contract are satisfied. On the part of Military Supply Ltd, its obligations are towards the Ministry of Defense as well as to Motor Parts. In the case of the Ministry, Military Supply Ltd is bound to deliver the 500 vehicles as per the specifications of the ministry in a timely manner. As provided for in the contract between the Ministry and Military Supply ltd, the former will pay the latter a bonus if the vehicles are delivered on time. When it comes to the contractual relationship between Military Supply ltd and Motor Parts, Military Supply ltd is also bound to deliver payments specified under the agreement to Motor Parts upon delivery of the vehicles. As for Motor Parts, it is bound to deliver the vehicles to Military Supply Inc according to specifications. As manufacturer, Motor Parts is liable for warrantee against product defects. Based on the contract entered into between the parties, Motor Parts need to follow certain specifications given by Military Supply ltd. Clause (6) under the contract between the parties specifically said that Motor Parts cannot make any alternations in the designs and materials specified unless there is a written authorization from the Military Supply ltd. Clause (3) of said contract also said that “these terms are to prevail over any other terms whatsoever.” On the other hand, Motor Parts also submitted it standard contract form to Military Supply when it submitted it quotation to the company. Under the standard contract form Motor Parts clause (d) states that “We reserve the right to alter materials when such alterations does not affect the durability or operation of the item to be supplied” and clause (g) states that “Motor Parts accepts no responsibility for defects on the equipment manufactured to customers’ specifications.” According to UCTA, as long as the clauses imposed by the parties are reasonable and are not grossly inequitable to any of the parties involved in the contract, the clauses are considered as valid. Based on the provisions of the UCTA, clauses which prohibits alterations on the materials without proper authorization from the other paper is legal. According to the Court in the case of Saphena Computing v. Allied Collection Agencies1, there is a need for standards of quality in the goods that are offered by way of contract for the parties to have bases for redressed. Although there is a clause in the contract which prohibits deviation from the specifications of the vehicle without any written authorization from Military Supply, Motor Parts changed some of the materials used in the vehicle. As a result, the vehicles were not a durable as it is originally designed to be. Moreover, Motor Parts did not follow the specifications of the vehicle when it comes to its color. As a result, Military Supply had to re-spray the vehicle causing delays and additional cost. Granting that the both parties signed the contract containing clause (6) and clause (d), Motor Parts can still be held liable for breach of contract since the materials that it used to manufacture the vehicles are of lower quality than that specified under the contract. Note that according to clause (d), Motor Parts reserved the right to change the materials as long as the changes in the materials used do not affect the quality of the product. The materials used by Motor Parts were of inferior quality which affected the durability of the vehicles. According to of the Supplies of Goods and Services Act 1982 section 11S, goods do not conform to the contract if such goods do not follow the express or implied terms of the contract (Barrows, 2009). In our case, the goods delivered are of different quality than what was agreed by the parties. As it is, Motor Parts is liable for breach of contract for failure to deliver good quality and durable vehicles. The fact that Military Supply accepted the delivery of the goods under protest does not absolve Motor Parts of any liability either. Note that when goods are accepted under protest, the buyer reserves the right to use the remedies afforded by law to recover damages from the erring party (Barrows, 2009). As it is, despite the fact that the vehicles have been accepted by Military Supply, Motor Parts is still liable for breach of contract and for possible compensation for damages. When it comes to Clause (g) which absolves Motor Parts of any liability for defects on the equipment manufactured according to client specifications, this clause cannot save Motor Parts from liabilities. Note that Motor Parts did not follow the specifications set by Military Supply. As it is, Motor Parts cannot escape responsibility based on this clause and it may be compelled by Military Supply to pay compensation for damages caused. The damages caused under this case may include the additional costs incurred by Military Supply in re-spraying the vehicles and lost income opportunities caused by the delay in the delivery of the vehicles. When it comes to clause (3) which states that other clauses in the agreement shall be considered as inferior to the clauses proposed by the Military Supply, such clause may be grossly inequitable to the other parties especially when the clauses which are supposed to be superior to the rest of the agreement are all in favor of one party alone. As decided by the court in the case of George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd2, where the exclusion clauses stipulated by the parties are not unconscionable and does not put some of the parties thereto at a gross disadvantage, such exclusionary clauses are deemed binding on the parties. Breach of contract is a ground for recovery of damages and other remedies provided my law. The fact that Military Supply accepted the vehicles does absolve Motor Parts of its liabilities for the breach. According to the court in the case of Suisse Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale3, where the party accepted the faulty goods and the contract comes to an end, the party at fault cannot rely on the exclusionary clause of the contract to absolve itself of any liabilities for the breach. The law provides a number of remedies for the parties in a contract in the event where there is a breach of the provisions of the contract. In our hypothetical case, there are a number of remedies that Military Supply can use to against Motor Parts. First, Military Supply can ask Motor Parts to repair or replace the defective vehicles and at the same time ask for compensation for damages. According to the Supplies of Goods and Services Act 1982 section 11N, the transferee of the goods may require the transferor to repair or replace the good when it is appropriate. However, if the repair or replacement of the goods is impossible, the transferee may ask the transferor for reduction of the purchase price or the recession of the contract according to Section 11P of the act. If the parties choose to rescind the contract, Motor Parts will have to return the money paid by Military supply subject to reductions covering the cost incurred by Motor Parts. However, in certain circumstances, recession of the contract may no longer be possible so in the event where recession is no longer an option for the parties, the only recourse would be either to reduce the price of the goods to require the party or parties at fault to repair or replace the goods as the case may be (McKendrick, 2009). In our case, since Military Supply has already accepted the delivery of the goods albeit under protests, there is already a partial fulfillment of the terms of the contract. As it is, its remedies against Motor Part can only be any of the following (a) compel Motor Parts to replace or repair the defective vehicles or (b) ask for reduction of price. If Military Supply chose to require replacement or repair of the vehicles, Motor Supply will pay for the cost of the repairs or replacement. According to the Supplies of Goods and Services Act 1982 section 11N of, all expenses in the relation to the repairs or replacement of defective goods shall be for the account of the party at fault. Can Military Supply compel Motor Parts to replace or repair the vehicles even if such request would result to great cost on the part of Motor Parts? According to the law, Military Supply cannot compel Motor Parts to replace or repair the vehicles if such request would prove to be more expensive as compared to other remedies, if such request is impossible to fulfill or if such request would be “disproportionate in comparison to an appropriate reduction in the purchase price” (Section 11N (3c). Section 11N (3c) can be used by Motor Parts as a defense against the remedies of repair or replacement. If Motor Parts can prove to the court that the other remedies available to Military Supply is more equitable for both of the parties, Motors Parts may not be compelled to replace or repair the defective vehicles (McKendrick, 2009). The key here is to convince the court that other remedies are more equitable for the parties. The breach of contract between Military Supply and Motor Parts give rise to certain remedies and defenses. Under the law, the buyer may be protected against hidden defects on the goods purchased while the seller is protected against unconscionable demands for repair and replacement of defective goods. Exclusionary clauses embodied in the contract of sale of goods and services may be held binding on the parties as long as these exclusionary clauses are not grossly inequitable to the parties involved. However, if the exclusionary clauses run afoul with the UCTA, such clauses cannot be held as legally binding upon the parties. Parties cannot rely on such illegal clauses to defend itself against suit for breach of contract. Bibliography Books 1. Burrows A, A Casebook on Contract (2nd edn Hart, Oxford 2009) 2. McKendrick E, Contract Law (8th edn Palgrave 2009) Laws 1. Supplies of Goods and Services Act 1982 2. Unfair Contract Terms Act 1977 Cases 1. Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1966] 1 Lloyd's Rep. 529 2. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd4 [1983] QB 284 3. Saphena Computing v. Allied Collection Agencies [1995] FSR 616 Read More