Step 1) Juristic analyses and common mistakes of the contract
Managers occasionally enter into a contract on the basis of common assumption which they later discover was false. Events occur after the formation of the contract which were not within the contemplation of the parties when they into contract. Common mistake is often treated separately from frustration on the ground that latter is concerned with the discharge of a contract, whereas mistake relates to the formation of a contract. For managers very important to understand the basis of the contract because it is the court factor. We can see to the Figure1.2. There is systematization of common mistake of managers during negotiation period work with a contract.
Figure 1.2
3.6.1. The formation and scope of a contract:
- Agreement (The test for the existence of agreement is objective rather than subjective. The principle justification for the adoption of this test is the need to promote certainly. Where the offeree knows that the offeror is suffering from a mistake as to the term of his offer and where the offeree is at fault in failing to note that the offeror has made a mistake, the offeree will not be entitled to enforce the contract according to his version of its terms).
- Certainty and agreement mistakes (An agreement must be expressed with sufficient certainty before it will be enforced by the court. The principal causes of uncertainty are vagueness and incompleteness. In order to create a contract, the parties must express their agreement in form which is sufficiently certain for the court to enforce).
- Consideration and form (It is clear that no legal system treat all agreements as enforceable contract. In every legal system there exists rules which identity the types of agreement that are to be treated as enforceable contracts. Consideration must be sufficient but it need not be adequate and it must be something which law regards as being of value).
- Third party rights (the doctrine of privacy consists of two distinct rules. The first is they a third party cannot be subjected to a burden by a contract to which he is not party. The second was that a person who was not a party to a contract could not claim the benefit of it, even though the contract was entered into with the object of benefiting that third party (Rights of Third Parties Act 1999).
3.6.2. The content of a contract:
- Term of contract (Contract consist of a number of terms. However not everything that is said or written during the course of negotiations constitutes a term of the contract. A term must be distinguished from of opinion or `mere puff (which has no legal effect) and mere representation (which generates a claim for misrepresentation). Whether a statement is a term or mere representation depends on the intention with which the statement was made. Factor to which the court will have regard in deciding this issue include where the maker of the statement advised the other party to verify the truth of his statement, the importance of the statement and respective states of knowledge of the parties).
- The source of contractual terms (There two sources of contractual terms: express terms and implied terms. Express terms are agreed specifically by the contracting parties and implied terms are those terms which are not specifically agreed by the contracting parties, but which implied into the contract by the court. Express term may be agreed orally or in writing. When the contract is made orally, the judge has to decide exactly what was said by each of the parties).
- Despite of exceptions to the parole evidence rule, law does attach some importance to the sanctity of written documents and this can be seen in the general rule that a person is bond by a document which he sign, where he reads or not. Contracting parties may agree to incorporate a set of written terms into their contract. Notice must be given at or before the time of contracting in document which was intended to have contractual effect and reasonable steps must be taken to bring the terms to attention of the other party. Terms may also be incorporated into a contract by a course of dealing. The course of dealing must be both regular and consistent).
- The classification of contract term (Not all contract terms of equal significance; some are more important than other. Contract terms can be classified either as conditional, warranties or in nominate terms. A condition is an essential term of the contract which goes to the root of the contract. This is a promissory condition which must be distinguished from a contingent condition, which is some event upon which the condition of the contract hinges. A term may be classified as a promissory condition by statute, by judicial classification or by the classification of the parties. In the latter category the court must be satisfied that the parties intended to use the word `condition` in its technical sense).
- Exclusion clauses of contract (Exclusion clause may be seen either as defining the obligations of the parties or as a defense to a breach obligation. Exclusion clause must be validly incorporated into the contract. Incorporation may take place either by the party who is not relying on the exclusion clause signing the contract containing the exclusion clause, by giving reasonable notice of the exclusion clause to that party or by a course of dealing. The exclusion clause must cover the damage which has arisen).
3.6.3. Policing a contract:
- Misrepresentation (A misrepresentation may be defined as an unambiguous false statement of fact or law which is addressed to the party misled, which is material and which induces the contract. Mere puff, statement of opinion and statement of intention are not statement of fact).
- Mistake and frustration policing of the contract (Where both parties enter a contract under a common fundamental mistake which relates to an essential element of the subject-matter of the contract then the contract is void at law. A mistake may be to avoid a contract where both parties are mistaken as to the existence of the subject-matter of the contract. A mistake may be sufficiently fundamental to avoid a contract where both parties believe that the contract is capable of being performed when, in fact, it is not. The impossibility may be physical, legal or commercial. A contract is frustrated where, after the contract was concluded, events occur which make performance of the contract impossible, illegal or something radically different from that which was in the contemplation of the parties at time they entered into the contract. A contract is not frustrated where the parties have made express provision for the consequences of the alleged frustrating event in the contract, where the alleged frustrating event was a foreseeable one or where the frustration was “self-induced”).
- Illegality (The general rule the courts will not enforce a contract which is illegal or which is otherwise contrary to public policy. Where the illegality arises in the performance of a contract which was valid at the moment of formation, the contract can be enforced by the guilty party only when it was not the purpose of the statute broken or the common law rule violated that the contract should be invalidated. The contracts may be illegal if it contrary to public policy include contracts which are contrary to good moral, contracts which are prejudicial to family life, contracts to commit a crime or civil wrong, contracts which are prejudicial to the administration of justice, contracts prejudicial to public relation and contracts in unreasonable restraint of trade).
- Capacity (The general rule is that a minor is not bond by a contract which he enters into during his minority. At common law mental incapacity is not a ground for the setting aside of a contract, unless the incapacity is known to the other party to the contract).
- Duress, undue influence and inequality of bargaining power (The law of contract has always placed limits upon the exercise of economic power by contracting parties. A contract may be aside on the ground of duress. The duress may be to the person, to his goods or economic duress).
3.6.4. Performance, discharge and breach of the contract:
- Performance (Contracts are made to be performed. The vast majority of contracts are discharged by performance. Contracts maybe discharged by performance, agreement, operating of law or breach. A contract may be discharged by operating of law by the occurrence of a frustrating event).
- Breach of contract (A breach of contract is committed when a party without lawful excuse fails or refuses to perform what is due from him under the contract, performs defectively or incapacitates himself from performing).
- Damages (the aim of an award of damages is to compensate the claimant for the loss which he has suffered as a result of the defendant’s breach of contract. The aim is not punish the defendant. The aim of an award of damages is to put the claimant in the position which he would have been in had the contract been performed according to its terms. This may be measured either by the cost of cure measure or the diminution in value measure. A court will not award cost of cure damages where it would be unreasonable to do so).
- Remedy (A party who, in breach of contract, fails to perform an obligation which is entire cannot generally make any claim for payment from the innocent party. But the rule is subject to exceptions where the party in breach has substantially performed his obligations under the contract where the innocent party has accepted the part performance and where the court holds that the obligation is not entire but divisible).