The Relationship between Parties in Commercial Contracts - Essay Example

Commercial Law Commercial Law The relationship between parties in commercial contacts is governed by commercial laws of contracts. In a contract, there should be mutual obligations between the parties coming into an agreement. All the parties must keep the terms of agreements. These include sellers and buyers of goods, rights and services. This agreement is enacted by the law. Before making a contract, the features for the contract must be considered, for example, a minimum of two parties and lawful offers which are replied by an acceptance. The two parties must willingly express an interest to enter into legal obligations. Whenever there is a bridge in the contract, the law provides a remedy for the damages or monetary compensation. Principles Governing Formation of a Contract Section 14 of the Sales of Good Act 1979 of the UK governs the formation of commercial contracts involving the buying and selling of goods. The act deals with implied terms and presumptions which reflect commercial expectations in the formed contract. It also outlines few compulsory legal rules to be followed in the formation of commercial contracts. Section 14 of the Act specifies the terms of satisfactory quality of goods and the fitness for purpose of goods under sale. According to the section the seller is obligated to offer goods that are fit for the purpose for which they are being sold especially so if the buyer will reasonably depend on the seller’s expertise. Offer and Acceptance According to Austen-Baker (a 125) an offer is made by one party called the offeror. Through the offer, they express their willingness to be bound to the other party. This can be expressed by the offeror through direct conduct, writing or orally. This is accepted by the other party called the offeree. It is only until the offeree communicates an acceptance to the offeror that the contract can become valid. This can be by action, writing or orally. Offers made orally give room for negotiations from the offeree. Alterations can be made or counter offers suitable to the offeree can be given after which a solid binding agreement is made. Atiyah (155) explains that the acceptance must indicate an agreement by the offeree to the terms used in the offer. This means there is already concurrence of wills between the two or more parties. It is better if the acceptance is put into a written form as future evidence against any breaches. This is because existence of agreement in the minds alone cannot be used by courts as evidence incase of breach of contract. The contract will be considered valid when writing, registration and signing has been completed by both parties. The contract is called an implied contract where the acceptance is not expressed in writing. For example, if the buyer goes to obtain goods from an offeror, for example, a manufacture without sending a written acceptance. This means the buyer has already agreed to the conditions of the contact. This is called implied in fact type of contract. Therefore any unjust dealings after this will constitute a breach of contract. For example, if the manufactures stops supplying goods or the buyer fails to pay the price stated in the contract (Austen-Baker a 128). Considerations to be made should also be stated in the contract. The party making the offer must clearly state the valuable thing they desire and also what the other party will get by offering it. This is mainly for purposes of bargains and also to induce the promises of the two parties (Atiyah 166). Clarity of terms used According to Austen-Baker (b 216), there should be clarity of all terms used in making the contract. This is because they for the basis of contractual obligations. The two parties must clearly understand these terms. Under the law, there can be no contact if there is uncertainty or incompletion in the contract terms. The use of unclear, vague or uncertain words is bound to make an agreement void. This is because it could lead to misinterpretation. No party is bound to a contract induced by misinterpretation of unclearly stated terms. Conditions of the contact should be well stated. Conditions are the terms that form the base of the contact. A breach of this will allow the other affected party to discharge. Capacity, performance and the intention to create a legal relationship Both parties must have the required contractual capacity. They should also be competent in regard to the type of contract. Both parties must over 18 years and of sound mind. No contacts can be made with persons below 18 years or lunatics. All the parties should be qualified through the law to enter into the agreement. For example, if one party wants to be selling government vehicles to the other, the contract is void. This is because the seller is not the owner of the vehicle nor authorized to do so. Contractors should proof the possibility of performance. Each one of them should proof their capability to deliver what they promise to offer. This is required for smooth operation of the contract (Austen-Baker 225) For commercial contracts, the two parties must show an intention to create a legal relationship. They must evidence an agreement of their minds so that any breaches will be subject to jurisdiction in law courts. This is best done by signing a document indicating this agreement. This will proof their intentions to be bound to the contact and of forming a legal relationship. The expression of the intention to form a legal relationship will always be used by a court and the parties to consider the contract as valid. Exclusion or Limiting of Liabilities Conditions under which exclusion or limiting of liability due to breaches is applied are provided in the Exclusion Clause. During the breech of contacts, the exclusion clause acts as a defense to the particular action. The exclusion clause must be incorporated before concluding the contract. When the contract has been concluded, any statements made after that will not be binding or enforceable. The exclusion clause should be incorporated either by course of dealing, by notice or by signing a contractual document. The exclusion clause should be drafted in precise and clear terms. The clause can be held by a court as inapplicable if it has any form of ambiguity. Consequences for all breach of contract should be stated. Exclusion of liability for negligence should be provided. For example, one of the parties may be exempted from the consequences of their negligence. This is applies when terms used in the contract exempts them from such consequences. Alternatively, the negligence can be covered by the wide meaning of he words used in the cause. Whenever there is a breach of contact, exclusion for liability should be done with care. In some cases, an exclusion clause is less likely to be taken by a court to apply to a breach of contract. This applies when the breach is serious or if the consequences of the breach are severe. Exclusion of liability can also apply where there is fraudulent misinterpretation of the exclusion clause. However, this can only be done by the insured’s agent using very clear terms. Law Relating To Vitiating Factors Incase of vitiation factors such as illegality, misinterpretation, mistake, cohesion or undue influence, the contract will be set aside. The contractors in this case are allowed to escape from the contract. For example incase of misinterpretation. This is where one partner induces the other into the contract by using a false statement of fact. This will result to remedy of damages or rescission. The right to rescission allows one party to unravel the contract as a result of misinterpretation they consider innocent. Under misinterpretation, one party can gain advantage by breaching the contract. In this case, the other party is allowed escape (McKendrick 265) According to Hans (775), all the parties must be fully aware that they are entering into an agreement or else it will result into the ‘fraud in the factum’ type of misinterpretation. If this is not so, the contract will be termed as being void because there would have been no meeting in the minds of the two parties. The offeror must offer the right information to the offeree. This will allow them to decide if they will join the contract after considering all the information presented. Using false or partial information may induce the offeree to enter into the contact, for example false statements by a seller regarding quality of goods. This will render the contract void because contract should be voluntary no cohesive. Cohesive methods, for example, physical threat and force should not be used to make another person join into a contract. Every party is also entitled to escape the contact if they were caused to act under undue influence. Undue influence is where the one party uses dominance to cause the other person to enter into an agreement. Though the influence is moral in nature, it is unethical. Legal considerations should be made in all contracts. Every act of the contract should comply with the country’s legal law. Illegal acts cannot constitute a valid contact, for example, if person A contacts person B as a distributor of illegally imported goods. If B learns of this later on, they have a right to escape the contract (McKendrick 266). An acquisition of knowledge and understanding of laws and principles governing commercial contracts is very important for both contracting parties. This should be done before making solid binding agreements. Though contracts are agreements between two or more parties, the legislative control to prevent unfairness is very important. For example the 1977 Unfair Contract Terms Act. Where required truth and trust is used, contracts can be the best ways of making business deals. Works Cited Atiyah Patrick (2000). An Introduction to the Law of Contract (6th ed). New York. Clarendon Austen-Baker Richard (2004a). "A Relational Law of Contract?" Journal of Contract Law 20 (1) pp 125-144. Austen-Baker Richard (2009b). "Comprehensive Contract Theory: A Four Norm Model of Contract Relations" Journal of Contract Law 25 (1) pp 216-243. Hans Wehberg (1959). "Pacta Sunt Servanda."The American Journal of International Law. (4) pp 775 McKendrick Ewan (2005). Contract Law - Text, Cases and Materials. Oxford. Oxford University Press. Read More