The US Contract Law - Research Proposal Example

Memo: US Contract Law Introduction: In the contract between Span and C-S, it was agreed that Span a software company would supply C-S with software and expertise in overhauling infrastructure and making working conditions at C-S IT enabled. Keeping this in mind, a contract for supply was signed, where ordinary requirement changes were agreed to. Problems have since cropped up given the changes in the system and user requirements, which according to Span are out of the ordinary, and should allow for changes due to contingencies. The two major problems are that of deadlines and of quality, both of which have taken a beating due to the conditions as hurriedly laid out in the contract. Case The following memo will make a study of the risk and opportunities that will characterize the deal and its future, from the perspective of this project manager. The three major issues which arise as a result of this mess-up are those of: 1. Breach of contract under substantial performance of contract 2. Breach of contract under internal escalation procedure of disputes 3. Breach of contract under communications and reporting The law Where the substantial performance rule is concerned, American courts have, over the years laid special emphasis on the element of good faith. Where there have been intentional deviations from the terms of the contract the “good faith” has been found to be lacking [Shell v Schmidt, 164 Cal. App.2d 350]. Again the modern law, which is also understood as being the less dogmatic approach to the problem lays the issues of quality and the escalation of procedures as a test of essentiality, i.e. where the contract has not been exactly performed according to its terms the question is asked whether the breach so fundamental as to go the root of the contract. When one party breaches a sales or lease contract, the UCC provides the injured party with a variety of pre-litigation and litigation remedies. These remedies are designed to place the injured party in as good a position as if the breaching party’s contractual obligations were fully performed [UCC 1-106(1), 2A-401(1)]. Again in accordance with the law of contracts, a seller or lessor is under a duty to deliver conforming goods. If the goods or tender of delivery fails in any respect to conform to the contract, the buyer or lessee may opt either (1) to reject the whole shipment, (2) to accept the whole shipment, or (3) to reject part and accept part of the shipment. This option is referred to as the perfect tender rule [UCC 2-601, 2A-509]. If a buyer accepts nonconforming goods, the buyer may seek remedies against the seller. There are broad tests for severance of a contract that the decision of contract discharge could be assigned on (Blum, 2007). A discharge relates to the process of bringing a valid and enforceable contract to an end. This would just mean that the contract needs to be legal in its standing for its termination to be termed as a discharge of the contract. A contract may be discharged or terminated by: 1. The performance of the contract 2. agreement between parties 3. a breach of the contract (actual or anticipated) 4. operation of the law 5. a frustrating event Risks The general rule is that a party will only be discharged from the obligations under a contract if complete performance has taken place. This means in turn that the performance needs to be exactly in line with the terms of the contract. Partial performance is insufficient and may result in a party being treated as having done nothing at all. in Cutter v Powell (1795) (KB), the plaintiff’s husband signed on as second mate on the defendant’s ship on a voyage from the West Indies to England (Blum, 2007). Minor flaws in the contract execution scheme are not usually held punishable by law u7nder the principle of de minimis (Shipton Anderson and Co v Weil Brothers and Co (1912) (KB)) the court held that a purchaser could not reject a consignment of wheat which was 55 pounds over the required 4950 tonnes.  In theory, a contract may stipulate that performance is to be completed in stages or segments. If so, performance of less than the entire contract whole may be insufficient to confer partial rights on the performing party (Cheeseman, 2010). According to the law, in cases where buyer gets a quantity of goods that is lesser than the one that he paid for, by way of quality or quantity, the buyer is entitled to reject the goods. If the buyer accepts the goods that are thus delivered, the idea is that there must be a payment paid back in keeping with the rates of the contract (Cheeseman, 2010). In cases where the seller is able to deliver the goods to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. Also, in keeping with the law of contracts, given the fact that in cases where delivery is to be made at a distant l0ocation, the buyer must, unless otherwise agreed, take on the risk of deterioration in the goods necessarily incident to the course of transit (Cheeseman, 2010). The two basic considerations to be kept in mind in this case would therefore be: 1. Whether or not the defects and the delays in contract execution by Span are essential going to the very roots of the contract; and 2. If these delays are in fact essential, then were they caused by the more than ordinary changes in the requirements of the contract? The first risk in this case would be that of contract rescission, which would happen in case C-S, chooses to stand by its stand of not accepting the implementation of the contract as it has been executed so far. In this scenario, C-S has the choice of treating the contract as being still in force and suing for damages for past and future breaches, or they might elect to treat the contract as being discharged. If they choose the first course, they would remain liable on the contract whereas in the second alternative the contract is terminated for the future which means that the hirer would be relieved of their obligation to pay the price. However, in such a scenario, they would not be precluded for suing for recovery of damages with respect to the breach that has led to the discharge of the contract. The second risk comes from the fact that in accordance of s2-306 [UCC] there is provision for rescinded contracts if the output, requirements undergo changes during the course of project implementation. S2-306 states that (LeRoy and Jentz, 2008): “A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded”. In the context of this case therefore, Span is well within its rights to argue that the problem of the contract were given birth due to the fact that ultimate reality of contract execution was markedly different from the initially expressed and contract related outline of effort expected. They could also attribute the loss of quality to this very problem. Opportunity: In the context of this case, the opportunity arises from the fact that only 40 per cent of the contract has been negotiated till date and a majority of it is yet to be implemented. This gives both the companies to reassess the situation and realign the contract in keeping with the demands of the project, by way of cost and time escalations. Alternative option The alternative option would in this case be that of international arbitration. These needs to be a part of the initial contract providing that dispute that may arise in the future, will usually be set out at the end of the contract and, as a matter if good practice should be preceded-or-followed by a choice of law clause (McIlwrath and Savage, 2010). Since the arbitration clause is only one of the many clauses in a given contract, it would seem reasonable to assume the fact that the law chosen by the parties to govern the contract will also be the ones to govern the arbitration clause.  References: McIlwrath, M., and Savage, J., (2010). International Arbitration and Mediation: A Practical Guide. Kluwer Law International. Pp21-30. Retrieved December 20, 2010 Cheeseman, H. R., (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues, Seventh Edition Blum, B. A., (2007). Contracts: examples & explanations. Aspen Publishers. Pp57-60. LeRoy, M. R., and Jentz, G., (2009). Fundamentals of Business Law: Excerpted Cases. Cengage Learning. < http://books.google.co.in/books?id=afP8TGYQfNsC&pg=PA695&lpg=PA695&dq=A+term+which+measures+the+quantity+by+the+output+of+the+seller+or+the+requirements+of+the+buyer+means+such+actual+output+or+requirements+as+may+occur+in+good+faith,+except+that+no+quantity+unreasonably+disproportionate+to+any+stated+estimate+or+in+the+absence+of+a+stated+estimate+to+any+normal+or+otherwise+comparable+prior+output+or+requirements+may+be+tendered+or+demanded&source=bl&ots=5Y6dF9vZai&sig=RhUq0iaYPiqmT_M0y6CZ_kcR5KU&hl=en&ei=4pAPTZCKFpOssAPax7iwAg&sa=X&oi=book_result&ct=result&resnum=2&ved=0CB8Q6AEwAQ#v=onepage&q=A%20term%20which%20measures%20the%20quantity%20by%20the%20output%20of%20the%20seller%20or%20the%20requirements%20of%20the%20buyer%20means%20such%20actual%20output%20or%20requirements%20as%20may%20occur%20in%20good%20faith%2C%20except%20that%20no%20quantity%20unreasonably%20disproportionate%20to%20any%20stated%20estimate%20or%20in%20the%20absence%20of%20a%20stated%20estimate%20to%20any%20normal%20or%20otherwise%20comparable%20prior%20output%20or%20requirements%20may%20be%20tendered%20or%20demanded&f=false> Read More