Introduction
A contract is an agreement between two or more persons, which becomes binding on them once they consent to its terms and conditions. The companies are regulated by rules and terms of engagement, which are spelt out in the agreement. Penalties for failing to adhere to the rules are also clearly defined in the contract agreement.
Each company wishes to benefit from any given contract and will, therefore, endeavor to ensure that the other company in the contract does not derail its activities. This calls for strict rules and tough penalties for delinquent parties as outlined in most contracts.
Background of the Study
The Mirage Resort (MGM) is an exquisite hotel in Las Vegas, USA. Dubai World, on the other hand, is a global construction company in Dubai specializing in the areas of transport and logistics, urban development, investment and financial services.
On 21st August 2007, MGM entered into a contract with Dubai World (DW) to build a gaming center for the hotel.
Purpose of the Study
This study aims at analyzing in details the components of a contract. It shall study obligations for each party, remedy for failing to honor the obligations, division of responsibilities between the parties and methods of solving conflicts whenever they arise.
Methodology
This study gathers information from secondary documented sources. These are available in print and electronically on the internet.
Literature Review
Parts of a Contract
Duties
Parties to a contract have specific responsibilities and obligations that they must meet in order to achieve the contract goals. These vary depending on the nature of the contract, but strict measures are outlined to deal with parties that fail to perform their duties (Gido, 2006).
Rights
While each party has duties to carry out, they also have rights that defend them from malicious intentions of other parties so that each side enjoys equity in the share of the benefits of the contract (Gido, 2006)
Dates
A contract should have the dates of commencement of the contract and its ending. The start date of a contract is usually known, but the termination date is determined by factors like the death of a party and breach of duty by either party among others. Clear guidelines to indicate the end of a contract are necessary in order to avoid ambiguity and conflict among members (Plimpton, 2007).
Payments
Periods, mode and rate of payment are clearly indicated in the contract. Interests, fines and rates of units are all included so that parties are able to control and determine the amount they get (Gido, 2006).
Confidentiality
Details of the contract should be kept within the parties alone. Third parties should not be included in the agreement. In case of conflict, appropriate ways of arbitration should be sought to avoid speculation by third parties (Plimpton, 2007).
MGM and DW
Organization
Within five days of signing the agreement as written, members will have to establish a limited liability company. This is the company referred to in the agreement. This company shall be formed in accordance with provisions of the companies act in Nevada and those in the agreement (Kohn et al, 2007).
Upon formation, the company shall immediately enforce the legal requirements as outlined in the agreement forming the company. These shall affect all rights and obligations of the member companies that are relevant to the formation certificate (Kohn et al, 2007).
The two companies agree to contribute specific amounts of money to the company formed. MGM will contribute to the project while DW will contribute to the initial capital, according to the terms set in the agreement (Kohn et al, 2007).
Name
The two companies agree that the resultant company shall be called City Center Holdings, LLC. In this regard, all business transactions by the company shall be conducted under this name henceforth. In case of the need to use a different name, such will be agreed upon by the board of directors representing both companies (Stutz, 2007).
Place of Business
The place and location of business are yet to be selected and approved. This shall be done by the managing members who will agree on the appropriate location. In case of disagreement, voting will be done in order to reach an acceptable consensus. Change of this location will have to be agreed upon by the board of members through open deliberations (Kohl et al, 2007).
Business of the Company
The company will deal in the business of acquiring and owning assets of the project. Besides, it will design, develop, construct, finance, own and manage all operations of the project. In addition, the company may, in accordance with the laws of the state of Delaware on limited companies, engage in related business activities by initiation of accidental occurrence.
The related activities may include owning and operating subsidiaries in accordance with the rules in the agreement. These subsidiaries may be wholly owned by one or more individuals. The capacity for engagement in such venture is not limited as stated here. Deliberations on more ventures are open for discussion by the board members whenever a need arises (Stutz, 2007).
Purposes Limited
The company shall not take part in any other business activities unless as stated in the agreement. Members shall not carry out such activities in the name of the business or serve as representatives of other members in such activities. Such actions shall be dealt in accordance with the legal specifications as outlined in the agreement (Stutz, 2007).
Individual Obligations
Members are bound to use the company assets for the company’s needs and benefits alone. Company assets will not be used to settle individual members’ obligations such as debts or pledges. Exceptions can only occur when such use is set forth in further Additional Agreement.
This means that the company shall have considered the case and given authorization for such use. When this happens, regulations outlined by the company additional agreement shall bind the benefitting individual (Stutz, 2007).
Statutory Compliance
The company shall exist and be subject to the laws of the state of Delaware. The agreement, therefore, shall be enforced in line with the laws and all necessary adjustments and amendments shall observe the laws of the state.
This shall, however, exclude conflicts that shall emerge on matters of law. In such cases, both contexts as applicable in the UAE and the state of Delaware shall be incorporated in case solving (Kohn et al, 2007).
Title to Property
All property accrued to the company shall be owned by the company. The property may be real, personal, tangible or intangible. There is no person who shall have the right to claim any such property for personal use (Kohn et al, 2007).
Duration
The company shall begin to exist from the date it is formed according to the agreement. It shall exist indefinitely until it shall be dissolved and liquidated in accordance with the provisions of the agreement (Kohn et al, 2007).
Conduct of the Business
The company shall exist and operate as a holding company. It will conduct its business operations and own property by a single purpose limited liability that is wholly owned (Kohn et al, 2007).
Members
Identification
MGM and DW shall be the rightful members of the company. Persons not belonging to the two companies shall not become members of the company. Exclusions are made for transfers if persons are outlined in the agreement. Such transfers must be done openly, with both relevant members of the two parties informed in good time and appropriate procedures (Stutz, 2007).
Services of members
Members of the company shall be required to dedicate the necessary time and effort in order to meet the requirements of the company and those of the members. The members are not obligated to devote full time to the company operations beyond the required time. They are free to engage in other business activities and ventures in as long as they do not contradict the requirements of the company.
In such ventures, members engage as private persons and shall not use the name of the company nor represent the company. Members can also partake in ventures that are competitive to the company business. In such cases, the business or members of the company shall not demand of the member any dues from the venture (Stutz, 2007).
Reimbursement and Fees
Members shall not be compensated or reimbursed expenditure on the management or running of the company. If a member uses his own money to settle administrative expenses, such shall be considered charity. Exception exists when such expenditure is authorized expressly or by additional agreements. In such a case, the member shall be refunded the amount spent or as otherwise agreed (Kohn et al, 2007).
Transaction with Affiliates
Upon the approval of the board of members, the company may engage a member, employee or affiliate member in the business operations. Unless stated in the additional agreement, the member engaged under these conditions shall not receive any favorable treatment unlike that of unrelated employees. Engagement in this case, therefore, is at the member or affiliate’s cost (Kohn et al, 2007).
Indemnification
Members, employees, agents or affiliates of members of the company shall not be liable for compensation or damages to the company and members of the company in case of loss or injury while on duty. Such an act, however, has to be ascertained to have occurred in good faith and while carrying out operations of the company.
The manner of occurrence must be shown to be within the scope and authority of the company and proven that due care was taken to avoid the occurrence.
The Instances of gross negligence and voluntary will to hurt disqualifies the act from the omission of indemnification. As a result, the person guilty of the commission or omission is liable for damages to the company or the individual hurt (Kohn et al, 2007).
In case of viable case for indemnification, the indemnified party shall not be held accountable for any loss or damage incurred by the company or any member. The company shall defend the party from actionable cases arising from the actions of the indemnified person.
Such action should not, however, include fraud, malicious intentions and gross negligence on the part of the indemnified person. Whatever decisions the company takes, to indemnify or not to, it should reflect the best and good faith intended by the company (Kohn et al, 2007).
The indemnified act shall be compensated by insurance or proceeds thereof. In the event that the act cannot be paid by insurance, compensation must be made through the company assets in manners appropriate. No individual member shall be obligated to settle the cost, unless as voluntarily and expressly agreed or by any such additional agreement. The indemnified person is by no means bound to settle the costs (Stutz, 2007).
Capital Contributions
Issuance of Units
The hundred members shall each receive a unit upon formation of the company. If any member shall find appropriate to make additional contributions, there is freedom to do so and the necessary documentation should be done.
The clause on units is open for frequent revision to reflect units issued to members at any one particular time. The units represent the ownership and voting capabilities of each member. The more the units a member owns, the more the rights. This, however, does not necessarily apply to distribution of profits (Stutz, 2007).
Initial Capital Contributions by Members
Each member should contribute initial capital as required by the agreement. MGM shall, in the close of the project, contribute all assets of the project to the company.
In order to legitimate the transfer of title for MGM to the company, MGM shall have to surrender a bill of prove for the sale, assignment intangible products such as leases, contracts and intellectual property. It shall also transfer tax forms that will have to be up to date (Stutz, 2007).
For MGM to become obligated to make the initial capital contributions, DW shall have to comply with its obligations as stated. The company shall have to have been formed, DW shall have obtained authorization to run the company according to legal procedures, DW should prove not to be a default member, the period for waiting for the surrender should have expired and no legal action should have been commenced on the details of the agreements. This means that the agreement must be lawful for the surrender to be legitimate (Stutz, 2007).
Upon MGM meeting these requirements, DW shall become liable to make its initial capital contributions as agreed in the agreement. DW must verify and be fully satisfied that no major changes were made to the project from the original expectations. MGM must have met and fulfilled its requirements as outlined in the agreement. The company too must have been formed in accordance with the agreement and DW received survey results of all assets of the project (Stutz, 2007).
When all the requirements will be met, the county officials need to approve the project and verify the premises that will be legally owned.
Failure to Make Capital Contributions
When one company fails to honor its obligations and does not meet its initial capital contribution, the other company may issue the delinquent company with a notice and take legal measures to obtain the contributions. The expenses incurred during such an undertaking are settled by the delinquent member.
The amount sought in this case is the total original contribution by the delinquent member, plus interest accumulated. Interest is calculated from the day the contribution was due to the time they are actually availed. Besides, the delinquent member is obligated to pay the other a 10% of total unpaid capital as inconvenience fees (Kohn et al, 2007).
Capital Accounts
Each member shall have a capital account. This account shall be maintained for as long as the business shall exist. The account shall be increased in proportion to the amount as increased by the member’s contributions. Any amount of money that a member shall incur as loss or liability to the company shall be decreased from the account (Kohn et al, 2007).
Return of Capital
Unless stated otherwise in the agreement, no member shall withdraw company capital for personal use. Members shall not be paid interest on capital contributions they may make toward the company.
Covenants
Financing
The company is allowed to employ unlimited legal efforts to seek its funding. The terms for seeking such funding shall be outlined by the board of directors (Kohn et al, 2007).
Licensing
Each member shall, upon formation of the company, employ reasonable commercial resources to obtain the various licenses as required by the business by relevant authorities. Each member shall be obligated to cooperate with authorities in pursuing illegal gaming practices. In the event that a member or member of the company obstruct efforts to get the right documents for gaming, then MGM shall be empowered, at the expiry of a ten day notice to DW, purchase to own all rights of ownership from DW (Stutz, 2007).
Confidentiality
Each member and their affiliates agreed not to disclose company information to the general public without prior approval by other members. Secrets of trade shall be kept from non-members and only disclosed carefully to members and affiliated parties. Such information can, however, be disclosed freely when it is already in the public domain.
This way, it helps the members to give accurate information that is not distorted by speculations. It can also be disclosed when needed by a supplier or client, or when the information is needed by legal bodies for actionable reasons (Kohn et al, 2007).
Intellectual Property
Trademarks, service marks, logos, trade names and copyrights shall be legally owned by the company. Re-use of the items by another company or individual shall be treated as illegal and will require legal action. DW and its affiliates shall not have the rights to use the company’s signs elsewhere for activities besides those of the company, except as may be expressly implied in additional agreements (Stutz, 2007).
Warranties
It should be agreed by both members that MGM is a corporation of Nevada. This gives it powers to exist as a valid entity within the state’s laws and has the power to execute the terms of the agreement. All benefits accrued to MGM are owned directly by MGM MIRAGE. MGM approves the terms of the agreement and agrees to be bound by them by signing the document (Stutz, 2007).
It is also vital that members should not hold criminal records with regard to their businesses. DW should agree to the terms of the agreement being subject to rules and regulations of the state of Nevada.
The knowledge and acknowledgement of the agreement means the same for the company owners Abdul Wahid Al Ulama and Kar Tung Quek. Members should also acknowledge that DW is a government decree of Dubai, solely owned by the government of Dubai and existing legally and in good will of the laws of Dubai. DW too has given its consent to the agreement and agreed to be bound by its requirements (Stutz, 2007).
The Entire Agreement
The agreement is superior to individual members and needs. It is a complete and inclusive statement of a contractual agreement binding the two parties by its specified terms and conditions. Each of the two parties has agreed to be bound by the terms of the agreements and accept liability for failure to observe the terms (Kohn et al, 2007).
Conclusion
This study analyses the components of a contract by a construction firm in the United Arab Emirates. It outlines the major parts of a contract, the terms of agreements that bind the two parties of the contract and remedies for failure to honor the terms.
In the case above, the two parties, DW and MGM are treated as legal entities, whose actions can be actionable before a court of law. The interests of the contracting parties take precedence over those of individual members and efforts of the members are in line to achieving the goals as outlined in the agreement.
Recommendations
The study on contracts is a wide one that requires deep and critical analysis than the one allowed in this study. Because of limited time and space, a lot about contracts has to be left out as even the included sub-headings are in summary. I would, therefore, recommend that another study be formulated, which will gather sufficient information on the process of contracting so that the study findings can be more useful to interested parties.
Reference List
Gido, J. & Clements, J. (2006). Successful Project Management. KY: Thompson South-Western.
Kohn, A. E., Macomber, J. D. & Creo, B. (2009). City Center (B): Economics and Delivery. Harvard Business Review, 2. pp 435-37.
Plimpton, L. (2007). Business Contracts: Turn any Business Contract to your Advantage, Entrepreneur Legal Guides. Irvine: Entrepreneur Press.
Stutz, H. (2007). MGM Buys Parcels for New Center. Las Vegas Review Journal, 3(1) 23.