Contracts are defined as the compulsory agreement defined under the legal obligations between two or more parties (Miller & Jentz, 2009). In business terms, contracts are binding legal agreements between two or more business entities. All commercial entities enter into contracts in their everyday activities.
We will write a custom Assessment on Contract formation and management specifically for you
301 certified writers online
By simple definition terms, uncomplicated activities such as the sale of products, hiring of employees and purchasing of supplies are all contracts (Chen-Wishart, 2012). Parties are obligated by the terms of a contract as soon as they are made. In other words, parties involved in the formation of the contract are legally bound by the terms agreed upon on the contract.
However, a party can only be liable to the contract if it was a party to it. In other words, only parties that entered or involved in the formation of the agreement are held liable in case there is a breach to the contract (Chen-Wishart, 2012).
In essence, in any contractual agreement, the parties involved in the formation are held liable or are bound by the contract. In addition, in contracts, both parties must be seen to be benefitting. Moreover, the liabilities to the contractual agreement are strict (Miller & Jentz, 2009).
In other words, for a party to be held liable, it must be proven beyond reasonable doubt that the contractual agreement was breached. Finally, damages incurred for the breach must compensate for the foreseeable losses, which naturally come from the breach (Hermalin & Katz, 2003).
The case will be analyzing the sales contract between two companies. According to article 2 of the Uniform Commercial Code (UCC), selling of goods is a contractual agreement between the parties involved in the transaction (Eggleston, 2005). Further, the article defines the good as tangible products that can be moved. The goods also include personal property but not real estate, stocks and bonds.
In this case, the company wants to purchase delivery tracks. The company approached several companies dealing in tracks and the assemblage of motor vehicles. Finally, the company settled on CMC motors.
CMC motors agreed to supply the company with required delivery tracks but only after all the terms and conditions of sales have been met. The company agreed to the sales’ terms and conditions of CMC motors and the transaction for the purchase of the delivery tracks began.
Offer and acceptance in the formation of a contract
For an agreement to be considered a legally binding contract, it must be valid and enforceable (Mukerji, 2008). Therefore, the process of making an agreement valid and enforceable between the parties should be procedural and systematic. A contract is said to be valid when it meets all the binding legal requirements.
The same description is also attributed to an enforceable contract. However, under the circumstances that there exist some other contradictive legal rules, then the valid contract is unenforceable (Mukerji, 2008).
Valid contracts are formed through the process of an offer and acceptance. An offer is the most significant initial step in the formation of contracts. Offers are made when one party provides another party the power to bind on the contractual agreement.
The party that the offer is provided (offeree) agrees to the offer through acceptance (Scott & Schwartz, 2003). Not all offers qualify to be legally binding. For an offer to be accepted there must be objective indication of intent to the contract, specificity or definiteness on the offer and the tender must be communicated to the other party (offeree).
The intent to a contract means that the offering party (offerer) must indicate the willingness to enter into the contract upon acceptance by the offeree. In other words, the offerer must objectively indicate the willingness to meet the needs and obligations of the contract upon acceptance by the offeree (Brousseau, 2009).
Definiteness of terms means that the party offering in the contract must be specific on actions to be undertaken and the benefits from the offer. In other words, all the essential terms and conditions must be indicated in the offer (Eggleston, 2005).
Get your first paper with 15% OFF
The communication of an offer means that the offeree or the other party to the contract must understand the terms and conditions of the contract. The offering party must provide clear information on the offer as well as terms and conditions of the offer. The offeree must understand the terms and conditions of the offer.
On other hand, the offer must be accepted for it to form a contractual agreement (Brousseau, 2009). Acceptance of an offer means that the other party has agreed to the terms and conditions of the offer.
Accepting the terms and conditions of the offer requires that the offeree indicate the intent of acceptance to the proposed offer, terms and conditions are understood and accepted and the approval must be communicated to the offering party.
In the case of the organization, given the fact that the transactions for the purchase of the delivery vans mean that the contract has undergone all the stages in the offer and acceptance. CMC motors have already offered the type of tracks available, their conditions as well as terms and conditions of their sale. In other words, the CMC motors have met all the requirements of an offer.
The company has evaluated the vehicles, reviewed the terms, conditions of the offer and has communicated to the CMC in writing that the offer has been accepted. In other words, the contract is valid since the organization has accepted the offer.
Since the contractual agreement has been formed, the transaction for the purchase of the delivery tracks has been initiated. The parties to the contract, CMC motors and the company, have the obligation to abide by rules and regulations of the contract.
As indicated, the contract the company enters with the other party is the purchase of delivery tracks. In the contract, the organization agrees to buy the delivery track from the other company and the conditions of the sales agreement was that the track would be delivered to the organization upon completion of the total payment (Mukerji, 2008).
The contractual parties have the obligation to conform to the regulations of the contract as specified in article 2 of Uniform Commercial Code (UCC).
Since the two entities have entered into the contract, the parties have propriety rights as specified in the terms and conditions of the contract. Under this contract, the company has the little propriety rights. The company is obligated to abide the conditions and not disclose any technical knowhow that gave the CMC advantage over other motor vehicle and assemblage companies.
However, the technical knowledge is an asset to the CMC motors and has right over it. Therefore, CMC motors have the propriety right of technical knowhow on the assemblage of the delivery tracks. The company has no obligation to disclose such advantages to the other party outside the contract.
Conditions and warranties in the contract
The parties entering in a contract are bound by the contents of the contract (Shavell, 2006). In other words, the terms of contract are divided into conditions as well as warranties. To begin with, the warranties are terms that exclusively deal with the inconsequential segments of the contract (Chen-Wishart, 2012).
In addition, in the event that the warranties of the agreement are violated, the offended member of the agreement has the right of claim for the harms caused by the breach of contract.
On the other hand, conditions are contents of the agreement that relate to the vital features of the contract and goes to the root of explaining the aspects of the agreement. The violation of the conditions of a contract provides the injured party in the agreement the right to claim the harms caused as well as shun the treaty (Rogerson, 2004).
The contravening of warranty terms of a contract lapses the cover involuntarily as from the time of the violation. Essentially, warranties are pledges by the offering parties to abide by the facts relating to the details of the contract. Further, the exact compliance nature of warranties requires precise acquiescence with the term otherwise, the contract is terminated irrespective of the connection to the damages caused (Rogerson, 2004).
Conversely, conditions of a contract impose continuous commitment of the parties to the terms of the contract. In addition, conditions allow the offering party to evade liabilities incurred in the event that the other party fails to comply or breaches the terms of the contract (Scott & Schwartz, 2003).
For instance, in the contract between the company and CMC motors, the conditions require that the company complete all the payment for all the vans to be delivered failure to which the agreement is violated. On the other hand, for the contract to be valid, the CMC motors must comply with the warranties requirements. The contractual agreement requires strict compliance to terms and conditions (Scott & Schwartz, 2003).
Additionally, in the event of that any of the parties breach the terms in the contract, the violating party is held accountable beginning the date of contravention. Actually, the violation of warranties annuls the claims.
In the sales contract between the company and the CMC motors, conditions are the terms that required the company to fulfill. For instance, the conditions for sale required that the company complete the payment for the full delivery of the vans. In addition, the sales have to be completed within six months. The down payment for the goods must be three quarters of the total cost of the products.
The reason why these are condition in the contract is that they have to be met by the buyer, in this case the company. On the other hand, warrantees have to be met by the seller, which are the CMC motors. For instance, the vans must be in good working condition for a period of not less than twelve months. In case of any default within the period, CMC motors will incur the cost of repair, replacement and damages.
The mechanisms in contract for resolution of disputes
The method undertaken in resolving disputes arising from the negotiation and performance of terms of the contract is critical in addressing such issues. According to the Uniform Commercial Code (UCC) and the common laws of contracts, parties in the contractual agreement will be given a period of one month from the date of the dispute to discuss the concerns (Schwartz, 2010).
However, in the case of the company and the CMC motors, the parties are allowed to resolve their disputes within three months. Failure to reach an agreement will lead to the exploration of dispute resolution forums agreed by both the parties for mediation. The mediator will be selected by the arbitrators’ association for dispute resolution or a mediator agreed by both the parties to the dispute.
The resolution process will be shall be set in agreed document and the negotiations will be conducted without bias of either parties. The parties in the dispute shall be liable for the costs incurred during the process.
The mediator in the dispute will follow the guidelines imitating the aspects of a competitive economy to reach the solution of disputes arising from the performance of terms (Shavell, 2006). There will be an appellate body recognized by authority to hear appeals from the party that is dissatisfied with the decisions of the arbitrator.
Management practices that supported or hindered implementation of the contract
The company ensured compliance with the contractual agreement with the CMC motors. In fact, the conditions of the contract were followed to the later. The financial management practices ensured that the terms of sales are met within the specified period. In addition, the legal practices guaranteed compliance with the governing contract laws as well as terms in the contract.
Finally, the dispute resolution mechanism specified in the contract ensured that the contracting parties settle their differences without the arbitrations. All the management practices of the company supported the implementation of the contract.
Brousseau, E 2009, “Did the common law biased: the economics of contract may it change?” Law and Economics Journal, vol.79 no.6, pp.83-85.
Chen-Wishart, M 2012, Contract law, Oxford University Press, Oxford, UK.
Eggleston, K 2005, “The design and interpretation of contracts: why complexity matters, Law and Economics Journal, vol.91 no.4, pp.127-133.
Hermalin, BE & Katz, ML 2003, “Judicial modification of contracts between sophisticated parties: a more complete view of incomplete contracts and their breach,” Journal of Law and Economics, vol.9 no.3, pp.230-237.
Miller, RL & Jentz, GA 2009, Fundamentals of business law, Cengage Learning, Stamford, Connecticut.
Mukerji, S 2008, “Ambiguity aversion and incompleteness of contractual form,” Yale Law Journal, vol.88 no.16, pp.1207-1218.
Rogerson, WP 2004, “Efficient reliance and damage measures for breach of contract,” Journal of Law and Economics, vol.15 no.4, pp.39-43.
Schwartz, A 2010, “The myth that promises prefer supracompensatory remedies: an analysis of contracting for damage measures,” Yale Law Journal, vol.369 no.24, pp.383-387.
Scott, RE & Schwartz, A 2003, “Contract theory and the limits of contract law,” Yale Law Journal, vol.1 no.1, pp.308-318.
Shavell, S. 2006, “Damage measures for breach of contract,” Journal of Economic Law, vol.11 no.3, pp.466-469.