Business Law: Contract Law and Business Structures
Contract Law, defines the rescission of a contract as the elimination of the added contract terms to its original form. The steps of rescinding involve both parties legally bond (through the contract) to the terms, agreeing on vacation of the contract. Rescinding a contract needs to be mutual for both parties. Bevans (2020) identifies a tender for a full performance must be presented in order for rescission of a contract. Orsinger, Nelson, Downing & Anderson (2015) that a party that rightfully rescinds a contract is entitled to recover damages that may have been incurred in any unfulfilled contractual obligation (50). A fully discharged contract can never have been rescinded as all the objectives have been achieved.
Discharge of contract in effect refers to a contract that is fully performed. It becomes the action of making a contract or an agreement null. A discharge of contract may be brought about by a variety of factors that include rescission, bankruptcy, lapse in time, reaching a satisfactory goal, performance of the terms specified under the contract etc. (US Legal, 2020). As such it becomes essential that both parties agree upon the terms or not.
Contractual obligation ends when one or both parties void the contractual terms of agreement. Orsinger, Nelson, Downing and Anderson (2015) identify that a voidable contract can be rescinded or enforced at the pleasure of the disadvantaged part. Additionally, a contract can be rescinded through the action of courts. If it is determined that it was procured through coercion, undue influences, fraud, misrepresentation or mistake the court can effect rescission (Mittlaender, 2019). In Osborn v. Texas Pac. Coal & Oil Co., 229 S.W. 359, 362 (Tex. Civ. App.–Fort Worth 1921, no writ) (Casetext), the Texas appellate court identified that fraud in the procurement of a contract cancels the contractual obligation. The Safeshred, Inc. v. Martinez, 365 S.W.3d 655, 660 (Tex. 2012) case saw the Texas Supreme Court reinforce that illusion in means to acquire contract or implying to illusory terms made the contract voidable.
War presents an impossibility of performance of the contract. War being an extreme circumstance creates the need for a legally recognized excuse on performance. War makes the actions of the agreement in many occasion impractical. As such it allows for the defense of commercially impractical together with death or incapacitation of a partner (Stimmel Law, 2020). Essentially contractual obligations are hard to achieve in the event of a war.
Contract cancellation is cancelling the contract as it fails to fulfill its objective legally due to the fact that it is increasingly ineffective. Rescission refers to going back to its original form to show that the contract cannot effectively fulfill its objective under both parties mutual understand (Yan, & Gao, 2019). Rescinding a contract involves going back to its original form. Bevans (2020) identifies that during rescinding, the contract is restored to its original form. In the case of Bendalin v. Delgado, 406 S.W.2d 897, 900 (Tex. 1966) in the Texas Supreme court, a contract was defined to be complete with the exception of naming a price. As such, the contract was cancelled for being ineffective in its achievement of objective. McCurley et al (2001) in the Self v. King, 28 Tex. 552, 1866 WL 4032, *2 (Tex. 1866) lack of specificity in performance objective resulted in the court declaring that the either party can terminate the terms of the contract at anytime. This is only if the contract calls for continuous implementation with no end time provided.
Unlike the discharge of the contract that can be brought about by a variety of factors, abandonment of contract specifically requires mutual consent for termination of the contract. Mutual consent is considered to be the most effective manner to discharge a contractual obligation. Mughal (2012) identifies that abandonment discharges the contract for purposes of additional performance requirements. At the same time, it does not kill it but keeps it suspended indefinitely for the purpose of creating an additional action and measuring how it may recover. As discussed earlier contract discharge may happen in the event that the agreement is made null by both or either parties through death, rescinding, bankruptcy etc.
In the case of Corp. v. Jackson, 155 Tex. 179, 185-86 284 S.W.2d 340, 345 (1955) (Calvert, J.) the lack of specifying the quantity in the terms of condition was not fatal to the execution of the contract. The court provided that such lack of specificity of output or provision of prerequisite performance may occur in good faith (Williamson, 1978). In the Restatement (Second) of the Law of Contracts § 205 (1981) (Summers n.d.) provides that every contact reached, requires each party to perform to each party a duty of food faith and fair dealing in its performance and enforcement. Orsinger, Nelson, and Anderson (2015) identify that good faith spans performance and enforcement of contractual terms with a faithful approach to the agreed common purpose and consistency. Items that violate the standard approach to production and fulfillment, remain unfair to the terms and are unreasonable will be essentially characterized negatively in view of the due process (Stone, & Devenney, 2017).
When the legally sufficient values bargained for are not presented to the promisor, the rescission claim becomes strong for consideration. For rescission to occur, the legally sufficient values that need to be established include a demanded full tender of performance, an unambiguous show by one or either party showing a decision to rescind from the contract (Bevans, 2020).
Death makes the performance of a duty unenforceable. On the other hand, Bevans (2020) identifies death as a legal excuse that allows for continuity of a contract or in the case of the disadvantaged party, a way out. In the case of McMillen v. Kelso, 4 Tex. 235 (1849) (Hemphill, C.J.), apportionment was allowed where the death occurred being categorized as an “act of God”. As such the court treats the matter of divisibility as an action of the court and not one of a jury (Cartwright, 2016). As such, various aspects of the contract as per terms of enforcement will be reviewed.
Similar to acts of war and its effects on a contract. In the event that subsequent illegality is reached that failure to perform obligation contracted in the agreement is excusable. Orsinger, Nelson, Downing and Anderson (2015) identify that a contract is not created unless the all requirements are met. As such, impossibility in achieving all requirements will be sighted to prevent the party from performance duties.
When one party under a contract fails to perform its functions under a contract, the action could be regarded as a breach of contract by the other party. In the case Greene v. Farmers Ins. Exchange, 446 S.W.3d 761, 765 (Tex. 2014) (Johnson, J.), breach of contract was regarded as an act to fail to perform a matter that was contractually promised by one party to another (Casetext, 2014). This allows the other party to take action. Remedies for breach of contract by the disadvantaged party would be to either sue for damages or overlook the matter and carry on. Additionally, in Aslan v. Sycamore Inv. Co., 909 F.2d 367 (9th Cir. 1990) the rejection of a contract should not necessarily be considered as breach of contract (OpenJurist, n.d.). In this case, the matter of bankruptcy compelled Aslan to breach a day before the actual date. Rejection was not necessarily viewed as an avoidance of power, but a way to guard the estate against rising contractual obligations (Cook, 2016). In the event of a breach a party would not want the other party to perform in the event of a breach.
Equity jurisdiction is the official power of the court to make a legal judgment with regards to justice. Legal jurisdiction is the need for the courts to make a legal judgment with regard to the law of the land. The two matters usually interact and have overtime been brought to one court. Bevans (2020) identifies that courts have equity power and can use this to order an injunction or the right for the other party to perform a specific performance as per the contract which is perfectly under its legal purview. Zerdin (2017) identifies that within the US there are specific aspects reduces mergers between equitable and legal remedies this include the aspect of classification into either category (12). The 7th amendment requires classification of relief sought and as such classification limits the decision of the court to either equity or legal relief sought.
Clean hands doctrine dictates that one who is seeking justice before the law, must himself under the agreement made performed lawfully. Bevans (2020) identifies that the plaintiff ought to show that he did not do anything wrong within the terms of the contract when they present the case that they were wronged. This theory prevents any one guilty of a wrongdoing from getting relief in front of the court (Anenson, 2017). It functions to counteract any favorable recovery for the party with unclean hands no matter how unfairly the person’s adversary has treated him or her. The principle invokes equity which in turn is based on certain shared ideals such as practice in good faith, fair play, protecting weaker parties and allows for the preservation of the integrity of the justice system (McBride, 2018). The golden rule that is followed under the doctrine creates an environment where the parties do not take advantage of their wrong acts and compels mercy.
Injunction in specific performance will see the court commanding to stop an action. The innocent party seeks remedy to actions of damage citing specific performance. They file action that remains necessary to procedural steps to notify other parties and court of damages. They order the court for an injunction. This is usually a specific action (Bevans, 2020).
The Federal rules of civil procedure of 1938 allows for the plaintiff to claim relief of alternative or different types pursuant to the wrong done and the law broken. The matter of equity and law were previously considered separate but merged within the US by the rule in 1938 (Bray, 2011, 10). The merger has been compelled to occur with respect to rights and obligation of both parties propagated by aspects of good faith, trust and fair play dictated by among other things the doctrine of clean hands. The plaintiff can seek other aspect money cannot satisfy.
Specific performance is a court order requiring a party to perform action specified within the contract. Upon breach of contract the plaintiff will ask the court to consider specific performance in a bid to seek remedy for damages. The remedy needs to be equitable to costs lost by breaching contract as such equitable remedy to the terms of the contract (Orsinger, Nelson, and Anderson 2015). The courts can rule on equity or legal jurisdiction in this regard to consider the amount of money damages or non monetary effects gained.
Punitive damages are rarely awarded to breach of contracts. Dodge (n.d) identifies that in a breach of contract the goal of the remedies is usually to compel the promisor to compensate the promisee rather than compulsion of the promisor to perform (McMichael, & Viscusi, 2019). The theory of efficient breach continually forms the basis on which most contractual breaches are awarded. Klass, Letsas and Saprai (2014) identify that the theory of efficient breach endorses opportunities damages because expectancy of damages gives parties a reason to perform when their performance will increase overall social wealth (Sharkey, 2019). Contractual breaches cannot thus be charged as penalties but as failures to meet the expected requirements within the contractual terms of agreement.
Monetary damages awards follow the financial equivalent that the non breaching party would have received. The courts assess the damages by showing that the damages follow a breach of contract (NYU Law). In Morrow v. First National Bank of Hot Springs (102) (AK 1977) when valuable coins were lost, the bank’s failure to notify customers on the safety of their deposit boxes was regarded a breach of contract. Bevans (2020) adds that damages are specific, or were foreseeable, mitigated by the plaintiff or were deemed not to exceed the total of the contract.
There are two major problems that arise within this theory. First, there is no greater shield to opportunistic breaches of contract. Secondly, efficient breach of contract has greater leeway that allows promisor to breach and pay expectations of damages (Dodge, n.d.). In the event that contractual obligations fail to be met by one of the parties, a liquidated damage clause allows for a specific amount of money to be paid as damages. They are not easy to enforce but remain to be a great way to limit risk. Fitzpatrick (n.d) identifies that they can only be enforced under two circumstances; when damages are difficult to be estimated and when the amount incurred is reasonable and not penalty. Liquidated clause allows both parties to weigh their performances by comparing it with the cost of the breach. The non-defaulting parties do not have to proof their actual damages in a contest of being awarded.
Also regarded in the no penalty clause. Liquidates must remain reasonable. This means that they must not exceed the requirements in the contract , i.e. the monetary damages must remain bound to action specific costs. Their terms anticipate harm, proof of loss. Where the term creates a larger liquidates damage than the contractual figures it becomes void of penalties (NYU Law). As such the provisions for liquidates damage highlight actual harm encountered, anticipated harm, inconvenience caused by the offending party.
Sole proprietorship differs from limited partnership in the sense of ownership and liabilities. A sole proprietorship is a business that is owned and operated through a singular entity or individual. They incur any liability such as taxes and other gained through business activities but they can still hire and maintain employees, contractors and even enter partnerships with other organizations (Moore, 2020).
In both sole proprietorship and limited partnerships, the owners of the business are personally liable to obligations and actions of their businesses- Unlimited liability (AccountingTools, 2018). Unlimited liability specifies that the owner of the organization can be held personally liable for the obligations and incurrences in their organization. This includes taxes, debts etc. It covers sole proprietorships, general partnerships and limited partnerships.
Limited partnerships are similar to sole proprietorships as they see the business and add a silent partner who equally liable to the various business obligations. They take home a portion of the profit as directed by the agreement and enjoy limited responsibilities (Utke ,2018). The Limited Liabilities Partnership agreement comes in handy to create a separation of owner from the business obligation and liabilities.
Unlike other businesses that usually have individual or group ownerships, corporations are separated from its owners (O’Kelley, & Thompson, 2017). They are owned by shareholders in whose stake is represented in the stock shares.
When a company is not generating enough cash flow to perform its day to day operations it is regarded as undercapitalized. Kenton (2020) identifies that the company becomes unable to pay creditors and becomes unable to access other forms of financing through debts and equity. Chances of bankruptcy are increased when a company loses its ability to cater to its debts. Undercapitalization can be remedied by selling of shares, issuing debts and obtaining a long term revolving credit (Mazzarol, & Reboud, 2020). This can only be reached if the company notices the matter and tends to it early enough.
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Bevans, N. (2020) Chapter 10: Discharge, Performance and Cancellation of a Contract. Business Law. ppt
Bevans, N. (2020) Chapter 11: Contract Remedies. Business Law. ppt
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