Validity of the Contract, the Damages and Defenses for a Breach of Contract - Coursework Example

STUDENT NAME: STUDENT NUMBER: COURSE: TITLE: Case study Word count: 2116 Introduction In various countries, the need for the businesses to transact is recognized by law, thus, commercial transactions are encouraged because they are very significant to the economy as well as the society at large. Therefore, the parties that enter into agreements or contracts are protected by law to ensure that the signed content in the agreement is enforced and followed up to every word by the parties (LeRoy & Jentz, 2008). A contract is referred to as an agreement between two parties which either creates an obligation for doing or refraining from doing a certain thing. It is meant for establishing the terms of agreement where the parties have fixed their duties and rights. Both the commercial entities and consumers rely on contracts enforceability when they are conducting business relations (US Legal, Inc., 2010). For a contract to be valid, it must be enforceable by a court. It must have the following essential elements for its formation; agreement, consideration, contractual capacity and legal purpose. Agreement means that there must be an offer, an acceptance as well as a mutual contract or agreement. That is, both parties must enter into a contract at their free will. No one is forced or coerced to sign the contract and the parties must agree to the same terms. Consideration means that the two parties must have something of legally sufficient value that is being exchanged between them such as services or money. Contractual capacity advocates that both parties must be of sound mind. That is, neither of the party is a minor, both parties must be sober (they are not under influence of alcohol or drug when they are signing the contract) and neither of them is mentally deficient. The legal purpose ensures that what is offered and accepted does not oppose public policy or result to crime (Windfohr, Scott, & Burnett, 2008). However, if one of the essential elements is missing, then the contract is said to be void or voidable. That is, it is not true and cannot be enforced. A void contract means that there is no action can be taken since it is not binding. For a valid contract one party has the right to take the other to the court if there is a failure to fulfill the parties agreements as stated by the contract, that is, breach of contract. However, some of these issues can be resolved without litigation (Scott, 1994). This essay analyses the validity of the contract, the damages and defenses for a breach of contract based on our case study. Validity of the contract In order to determine the validity, we will consider the essential elements of contract formation; mutual agreement, contractual capacity, consideration, and legal purpose. Based on mutual agreement, both parties must have an understanding of the agreement and make sure that no mistake exists between the two. An agreement is made when a clear, definite and clearly communicated offer is made. The salesman made an offer that was clear and definite while Fred on the other hand, liked the idea and accepted it. This shows a mutual agreement (Burton, & Eisenberg, 2009). In perspective of the contractual capacity, the key to a valid contract is the ability of both parties to understand and know the terms of the contract (Macaulay, 2010). In this case, Fred and the salesman are adults, are mentally competent on basis of their positions and their responsibilities in their organizations, and no one was under influence of any drug or alcohol when they signed the contract. This indicates presence of a contractual capacity. Based on consideration, there must be an exchange of something of value such as a tangible object or cash for a contract to be valid. The salesman connected the cable and ensured that the service was running while the company will be paying for the services. This is an indication of an exchange of something of real value which shows the validity of the contract (Matthew, 1996). For a contract to be legal, the purpose and object for a contract must also be legal. Based on the statute of common law, an illegal purpose makes the contract void. A contract is said to be illegal if it is opposing interest or policy of the public or if it results to tort or crime (Windfohr, Scott, & Burnett, 2008). In this case, the TV service or the services provided by the other party are for the public interest which means that the contract is valid. In McMichael v. Price (1936) case, the plaintiff (Price) entered into a contract with the defendant (McMichael) in sand business. The plaintiff agreed to purchase as well as accepting all of the sand from the defendant for the plaintiff to sell. Defendant refused to sell the sand and the plaintiff sued the defendant for breaching the contract. The Supreme Court argued that the decision by the defendant to cancel the contract lacked mutual obligation because if the plaintiff wanted to be in the business of sand, the defendant bound him from buying. Thus, the court directed the defendant to compensate the damages incurred by the plaintiff because the defendant’s decision led to lack of mutual obligation as an essential element of a contract. Based on the above case, it is clear that for a contract to be valid, all the essential elements of its formation must be present (Ayres & Speidel, 2008). In addition, Fred an assistant manager assumes the duties of the manager when the manager is not present and a contract is part of normal running of the business. When this case is analyzed on the basis of mutual agreement, contractual capacity, consideration, and legal purpose as the essential elements of formation of a contract, Fred and the Salesman adhered to all the elements. This shows that the contract is valid and the the termination of this contract would lead to breach of contract. Thus, the salesman (plaintiff) can sue the business for a breach of contract. Resolution without litigation Breach of contract occurs when one of the parties fails to perform the obligations that are stated in a contract. However, there are several resources that exist for the accused party for breach of contract. There are various resolutions that can be enacted without litigation. First, the party that has been injured may decide to release the other party from the stated obligations in the contract. Secondly the injured party may rescind the contract. Finally, both parties may agree on novation. Resolution without litigation may be one of the effective way in this case because both parties are not willing not undergo extra expenses through the court (Ayres & Speidel, 2008). Thus, parties may use rescission as one of the remedies for solving this issue. The manager may argue that the salesperson and the assistant manager entered into a contract without enquiring for the approval from this company‘s senior management. Recession will mean that the parties will agree and will be put back in the same situation they were before entering into a contract (US Legal, Inc., 2010). Thus, the cables would be returned to the salesman. However, the company must pay for the already provided services. Resolution through litigation The injured party may sue the other party for money damages as a result of the cancellation of the contract. The salesperson may sue the company for loss of profits following the termination after installation of cable and use of services. Another alternate action would be for the injured party to sue the other party for unjuctive relief where the other party is prohibited in performing any transactions that are related to what the contract was entailing until the settle the agreement (Macaulay, 2010). Defense Undue influence The manager may consider undue influence as one of the defenses to the breach of contract. Undue influence results when one party is seen to exercise one control over the other party in order to overcome the freewill or the independent justice of the other party. It occurs where the dominant party takes advantage of weaker party by pressuring him to sign the contract. Thus, the dominant party (the plaintiff) uses unsavory tactics to secure the contract (US Legal, Inc., 2010). In this case, Fred’s company which is the defendant may base their argument on undue influence. Fred is an assistant manager in this company and it can be argued that he has never been involved as one of the key decision makers in such issues like signing a contract. This means that Fred was not well informed about on issues of contract and the financial situation of the business. It can be argued that the plaintiff took this opportunity to use Fred’s weakness in making big decisions for the company in order to sign the contract. This shows that the plaintiff may have exercised control over the defendant to overcome his freewill. Thus, the plaintiff used unsavory tactics to secure this contract. Based on this defense, the contract may be void (Blum, 2012). Fraud The defense may also be based on fraud. Fraud is encountered when one party deceives the other party intentionally as to the nature of contract and as a result, the deceived party is injured. Fraud makes the contract void especially when the defendant is able to demonstrate that the plaintiff induced him to enter the contract (US Legal, Inc., 2010). Based on fraud as a defense, the defendant may argue that the plaintiff took advantage of the manager’s holiday leave in order to use the assistant manager as an opportunity to sign a contract. Thus, the move by the plaintiff to enter into a contract with this company can be said to be pre-planned in order to coincide with the period that the manager was absent. The defendant can argue that this was planned since the plaintiff immediately came the next day after the manager left for the holiday. In addition, the offer was said to be special if the defendant was willing to sign the contract the same week. After signing, the connections were immediately done later in that week and when the manager returned, the service was running. Thus, it can be argued that the plaintiff intentionally planned for the signing of the contract and installation of the cables to take place exactly within the two weeks that the manager was on holiday in order to use the advantage of the defendant and induce him into a contract. This shows that the plaintiff may have intentionally deceived the defendant and induced him to enter into a contract. Thus, based on fraud as a defense, the contract may be void (Macaulay, 2010). Charges due to breach of contract Because the defendant (Fred’s organization) has breached a contract, the plaintiff is entitled to compensatory damages due to the losses incurred for cancellation of the contract. Because the contract is valid, the business cannot avoid the fees involved due to cancellation of the contract. In 525 Main Street Corp. V. Eagle Roofing Co. (1961) case, the court ruled that. Eagle Roofing Co. must pay the compensatory damages that 525 Main Street Corp. incurred when the workers of the Eagle Roofing Co. breached the contract by failing to complete the roofing as agreed. Thus, Eagle Roofing Co paid the damages for repairs incurred as a result of the breach of contract. Based on the above 525 Main Street Corp. V. Eagle Roofing Co. (1961) case, the damages were entitled to the Eagle Roofing Company but not the workers because they were working on the behalf of the company. In our case, Fred is an assistant manager who the company has employed in order to perform its operations on its behalf. Thus, based on the above case, the company has no right to charge Fred any fees incurred through cancellation of the contract. This can also be argued in matters of profits. If the business may have increased its profits due to Fred’s efforts, it does not mean that Fred would receive the increased profits. Conclusion Due to presence essential elements of contract formation which are: mutual agreement, contractual capacity, consideration, and legal purpose, the contract is valid. This means that the move by the business to terminate the contract is a breach of contract. The business is entitled to compensatory damages due to the losses incurred. However, the defendant may use undue influence and fraud as possible defenses for the breach of contract. Since Fred works on behalf of the business, the business is the plaintiff and it is required to pay the fees incurred in cancellation of the contract. This means that the manager has no right to recover any fee from Fred. References Ayres, I. & Speidel, R.E. (2008). Studies in Contract Law, Seventh Edition, Foundation Press: New York. Blum, B. (2012). Contracts: cases, discussion and problems (3rd edn.): Aspen. Burton, S.J. & Eisenberg, M.A. (2009). Contract Law: Selected Source Materials, 2009 Edition. West Publishing Co., St. Paul, MN Eagle Roofing Company V. 525 Main Street Corporation (1961), N.J. 251 Macaulay, S. (2010). Contract: law in action, (3rd edn.): Lexis Nexis Matthew C. M. (1996). Contract Formation, Michigan State University School of Law McMichael v. Price, (OK 1936)58 P.2d 549 LeRoy, M. A & Jentz, G. A. (2008). Fundamentals of Business Law: Summarized Cases, Cengage Learning. Scott J. B. (1994). Overview and Sources of Contract Law, The University of Montana School of Law US Legal, Inc. (2010). Contracts, accessed on 27 August, 2012, http://contracts.uslegal.com/ US Legal, Inc. (2010). Fraud, accessed on 27 August, 2012, http://contracts.uslegal.com/breach-of-contract-defenses/fraud US Legal, Inc. (2010). Undue influence, accessed on 27 August, 2012, http://contracts.uslegal.com/breach-of-contract-defenses/undue-influence Windfohr, R. F, Scott, A. & Burnett, A. (2008). Contract Law in the United States: An Overview, accessed on 27 August, 2012, http://www.jurisdoctor.adv.br/legis/contract.htm Appendix: Sample contract Read More