Contract Law Essentials: Resolving Breaches and Disputes in Business Agreements Case Study

Contract Law Essentials: Resolving Breaches and Disputes in Business Agreements

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Introduction: Contract Law Essentials

Contract law is considered to be a particular area where the law of the United States includes an agreement between the business, people, and group. The law of contract is a very crucial part as it binds both parties in a reaction. Breach of a contract refers to such a situation where one party which was involved in the binding contract, but cannot fulfill its commitment. A breach of contract can happen in two methods and they are oral and written both. At first, the parties who are involved in the contract try to solve the problem by themselves, and if they become unable to solve the problem then they go to court. As a punishment for this crime, the party who becomes unsuccessful to fulfill its commitment has to pay the damages that are liquidated. In this essay, a case scenario, a legally binding contract, and its solution will be discussed.

Case Study Context

Swanalara is facing a problem with the renovation work of her hotel. As per her description, she has appointed Merseylux Limited for her work and the project was for £12 million, although no formalized contract was signed between the two. The full payment was considered to be cleared in four sections and they will be equal pay. In exchange, Merseylux Limited has to do a refurbishment of the atrium, restaurant spaces, and all suites. According to the mail that you have sent to Merseylux Limited the work should be completed between September and December 2022. Everything goes according to the plan, until the time of December 2022, when the last payment is due. According to Merseylux, the work has been completed and he asked for the due payment. But Swanalara has found some problems in some fields such as a faulty alarm and some areas that need to be redecorated and also, she has addressed two blocked toilets. For the above-mentioned reasons Swanalara does not want to clear the payment, on the other hand, Merseylux wants his payment to be cleared and at the same time also not ready to complete the work immediately due to Christmas. The number of people in his team is going to be less as everyone will not work on Christmas.

In this Case study, Swanalara Hotels PLC emailed Merseylux Limited about the appointments and tasks the company wanted Merseylux Limited to perform. In the absence of a legally binding contract, the email sent from Swanalara Hotels PLC to Merseylux Limited, is the only form of contract that was officially signed and accepted by both parties. According to the official mail sent to Merseylux Limited, these were the following terms that were stated:

• The company should refurbish the atrium, restaurant spaces and all the suites in the hotel being constructed.
• The construction work should be started from September 2022 and completed within December 2022.
• The total cost of the works is £12 million which was agreed in our meeting. This will be paid in 4 equal installments with payment being released on the last Thursday of each month between September and December 2022.

The contractor of Merseylux had progressed their construction works to the satisfaction of Swanalara Hotels PLC just before the final payment was due in December 2022. At the final design meeting Merseylux confirmed that the construction works were fully completed and they demanded their final payment immediately from Swanalara Hotels.

Upon demanding the final payment after the construction work was completed, Swanalara responded by withholding payment in full until some items that were outstanding, like a faulty fire alarm system, two blocked toilets and some areas of redecoration were addressed. According to Merseylux, those problems are a minor issue which can be resolved in time and did not affect the terms of their payment contract. Due to a shortage of staff on Merseylux’s end, the pending construction works cannot be completed before February 2023. At the present both parties are in dispute over the outstanding payment and the pending construction works that need to be completed. Swanalara is refusing to pay the outstanding amount till the pending construction is completed. Both parties want to resolve the issue within the shortest time scale and lowest cost possible, but they are failing to resolve the issue.

Outline the components that must be present in order for a contract to be legally binding, using legal concepts

In general, a contract takes place only when a party offers something to the other one and that other person has to accept the offer. An act was involved regarding this contract and the act is the applicable law of contract in the year 1990 (Legislation.gov.uk, 2023.). The act states that it will make a provision that will be applicable to obligations that are contractual when a conflict of law will occur. There are five elements that are necessary to build a legally binding contract using legal principles and the five elements are discussed below.

An offer and acceptance: Offer and acceptance refer to the point that an offer made by one party should be accepted by the other one (FBA et al., 2020). There is sone some laws that should be followed in a contract to make it legal and the points are discussed below.

• The contract has to be included in an agreement that has reached a mutual point for both parties.
• The agreement has to intend to bind the agreement legally.
• A consideration that is valuable must be provided to make the contract legal.
• The acceptance has to be communicated with the seller and the buyer needs to receive the acceptance. The option that can be used while making a contract is Butler Machine Tool v Ex-cell-o Corporation (1979) (Rawlings, 1979). Acceptance is one of the most important processes to make the contract legal.
• The terms of the offer and the acceptance should be matched and if it is shown that there is a difference between these two, then a counteroffer will take place in such a situation.

Certainty of law: In contract certainty of law is a principle that makes sure that the contract of the parties has to ensure that the contract is certain or not. Moreover, if the contract is not certain, there is a possibility that the contract may be unenforceable.

The main principle of certainty in law is that the law makes sure the requirements of the contract are in terms of interpretation in both judicial and particular (Horodovenko et al., 2022). The legal definition of certainty law is that certainty refers to being free from any doubt and also refers to the particular state where both parties are absolutely sure about the terms and conditions. In the above-mentioned case, the certainty of both parties was not cleared as no particular contract was signed and that is the reason, they are facing problems.

Consideration: Consideration can be stated as the forbearance, performance, or promise made by a promise to fulfill their promise. Consideration is one of the most important elements of a legal contract and it can be said that without the process of consideration from both parties the contract will not get its enforceability. Moreover, a contract can be enforceable without consideration only when there is a substitute of consideration, and the substitutes are promissory estoppel or detrimental and modification of good faith. Merseylux is this case was not able to fulfill his commitment within time and the problem occurred as Swanalara was not ready to pay for the unfinished work.

Promissory estoppel: A contract without consideration can be enforceable if the promisor's nonperformance may be a reason for injustice.

Good faith modification: A contract that is modified is a particular kind of modification that can change the preference of both parties.

Awareness: Knowledge or awareness are used in an agreement in terms of reference such as a shareholder refers to the actual knowledge or awareness of that particular shareholder, as of the date of the agreement without giving any effort to input the knowledge or without any investigation in further process. The terms and condition inform about every possible situation and also states what are the steps that will be taken in the time. In this particular case the awareness between both the parties while conducting the agreement was not enough.

Capacity: This particular section of the law states that both the parties who are involved in the contract, have to be the owner of such capacity that is needed to complete a work completely, otherwise the contract will not be considered legal. Only the adults who have the power to fulfill the contract can be involved in the contract to make it legal. In this case Merseylux was not capable to do this work perfectly and on time.

Analyse using suitable legal standards whether Swanalara is in violation of its agreement with Merseylux

In this context of the case study, Swanalara proposed an express term in the official mail that the due payments would be released by the end of each month. However, they refused to follow through with their express term at the end of the stipulated time of the contract, even though Merseylux claimed they had completed their end of the agreement.

A contract consists of two terms, express terms and implied terms. Express terms are such terms that are explicitly stated in the document or in this case, the official mail. Express terms are to be stated clearly and are the basis of the main contract. They include the terms and conditions that are absolutely necessary for the work to be completed. It requires to be clearly interpreted by both the parties involved and should be formulated in a clear and concise manner that is easy to understand and does not have any underlying meanings (Smits, 2017).

An implied term on the other hand, refers to the terms that are not expressly stated and are implied within the meaning of the contract. These can refer to terms implied within fact, which are terms that are obvious to both the parties that they should adhere to them. Implied factors by law and statute include terms stated by the law that both parties will be in need to adhere to due to legal reasons. These terms are not stated separately in the contract as it is understood that both the parties understand the legal conditions. And then there are implied terms that are implied by custom usage (Austen-Baker, 2017).

A breach of contract happens when one or both of the parties fails to perform their obligations of the contract without any lawful excuse or they incapacitate themselves from performing the clause. Even if one of the parties performs defectively, they are considered to be breaching the contract. In this study, it can be seen that Swanalara is refusing to pay their part of the due payment, which is to be completed in the last half of December. This is in direct breach of the express terms of the contract which mentioned the payment to be paid by the last Thursday of every month. Swanalara withholding the payment due to terms which were not referred to in the express terms of the contract can be seen as a breach of contract (a4id.org, 2016).

However, Swanalara is refusing to pay the outstanding amount because they believe that Merseylux has not provided them standardized service and there are still a few things that need to be addressed in the construction work. According to Swanalara, Merseylux is supposed to fix the faulty fire alarm and complete the redecorations and the blocked toilets before they pay the remaining amount. In this case, it seems like Swanlara feels like there has been a breach of contract from Merseylux’s side as they did not provide a standardized service to them. This expectation of standardized service can be considered the implied term of the contract. It was implied rather than stated that the company should provide services which are up to the standard of the Swanlara, so they can maintain their position as the best hotel service provider. According to the “Sale of Goods Act 1979”, any contract made for the sale of goods, implies that it should be of a certain quality (legislation.gov.uk, 2023). So, it can be said that Merseylux has not provided quality service and is therefore in minor breach of contract.

Analysis of the scenario's details to draw logical conclusions about the most useful dispute resolution method(s) Swanalara Hotels PLC has access to in the context of the scenario as it is provided

As discussed in the paragraphs above, it can be concluded that a breach of contract has occurred. Both parties feel violated and feel that there has been a breach of contract on both sides and do not know how to resolve the dispute. Swanlara Hotels PLC is refusing to pay Merseylux within the stipulated time mentioned in the contract because they think that Merseylux has not provided a quality service and there are still things that need addressing. Swanlara is facing pressure as their hotels are already booked and their amenities need to be completed as quickly as possible and they wish to resolve the issue with the lowest economic ramifications. On the other hand, Merseylux is under a lot of financial pressure to pay their staff and carry on their normal functions. Their dispute has started to gain negative publicity on social media and it has gathered interest in the local press which both of the parties want to avoid. Their last resort is to seek help from a legal consultancy and for this they have consulted D A Evans PLC, which is a reputed consultancy firm for contract related issues. There are many approaches that can be taken to dissolve the breach of contract. There can be compensation for financial damages caused and also gain based remedies (Zatorski, 2023). Some of the resolutions that can be applied to this case are discussed in the following sections:

Damages

There are a lot of ways in which disputes between the two parties can be resolved. The most common method of resolution when a breach of contract has occurred is to calculate the damages that one party has incurred on the other and pay that to the party who has incurred the losses. These damages to be paid are subject to a lot of conditions (forbes.com, 2023). Firstly, the loss incurred on the injured party would be a result of the breach of contract and not due to the company’s own reasons. The company claiming for damages must show that the type of loss is giving entitlement to the compensation that is required. In relation to the case study, Swanlara Hotels PLC is refusing to pay the remaining due and it is causing financial distress for Merseylux in regards to paying their staff. In this context, both parties can come to a middle ground and decide to pay some of the outstanding amount to Merseylux, so they can at least pay their staff to do the rest of the pending construction work that was promised as Merseylux is facing shortages of staff for Christmas, the damages can help them look for extra handymen who can get the work done faster before the promised time February, 2023. If both the parties can settle on a new agreement that states some of the astounding amount to be paid to Merseylux, it will prevent the requirements of extra costs and have everything stated in the contract obliged.

Specific performances

Sometimes, compensatory damages is not the best way to solve the dispute between the two parties. Damages may be inadequate during some party negotiations for the injured party. Since in this case study, there are minor breaches of contracts on both sides to consider, the parties would benefit from a Specific performance being incurred. Specific performance compels both of the parties to perform something that will fulfill the terms of the agreement anyhow. However, specific performance can be only applied if it is deemed just and equitable to do so. In this case the fulfillment of the pending construction work will solve the issue of the pending payment from Swanlara Hotels PLC. So, any mediator or arbitrator can issue specific performance if it is just to do so.

ADR (Alternative Dispute Resolution)

If the above-mentioned solutions do not provide any agreement between the parties then ADR can be attempted. ADR methods can include mediation and arbitration where both parties can appoint a third-party mediator or panel of arbitrators that will hear your case. The mediator listens to both the parties' claims in a neutral manner and provides a ruling on what should be done by both the parties to resolve the issue (Agha, et al. 2021). ADR can help solve both the parties disputes without a lawsuit and would save a significant amount of money and time. In this case study, both the companies, Swanlara Hotels PLC and Merseylux can appoint an arbitrator and try to resolve their issue with cooperation from both parties. They can come to a resolution about the amount of money to be paid for the construction and Merseylux can resolve it by trying to finish the pending construction before the stipulated time given by them. In case of ADR, both the parties have to reach some kind of mutual resolution that feels workable to them with the help of a mediator or arbitrator.

Conclusion

In conclusion, it can be said that there are laws and regulations in place which can help whenever a contract is being drafted and consequent laws to protect the interests of the parties involved. In the United Kingdom, the English Contract Law is followed for drafting of legal contracts. In case of any disputes or breach of contract by the companies involved, they can take legal help to resolve the issues. This case study describes the various ways in which a conflict can be resolved and whatever tools that can be used to help the companies work in harmony together.

References

Journals

Agha, H.J., Rasul, Y.M., Shwani, S.K. and Zeroo, F., 2021. Comparison Of Alternative Dispute Resolution (Adr) In The Uk In Contrast With Australia And Its Advantages For Iraq, Kurdistan. Journal of Contemporary Issues in Business and Government Vol, 27(1).

Ali, M. and Geng, L.L., 2019. Alternative dispute resolution (Adr) in Pakistan: The role of lawyers in mediation procedure. International Journal of Research, 6(04), pp.421-430.

Austen-Baker, R., 2017. Implied terms in English contract law. Edward Elgar Publishing.

Cherry, M.A., 2017. The sharing economy and the edges of contract law: Comparing US and UK Approaches. Geo. Wash. L. Rev., 85, p.1804.

FBA, Q.H.B. and Cartwright, J., 2020. Anson's law of contract. Oxford university press.

Horodovenko, V., Shandula, A. and Dmytriyeva, M., 2022. Legal certainty in law enforcement through the prism of ECtHR decisions. Amazonia Investiga, 11(59), pp.43-53.

Rawlings, R., 1979. The Battle of Forms. The Modern Law Review, 42(6), pp.715-721.

Smits, J.M. ed., 2017. Contract law: a comparative introduction. Edward Elgar Publishing.

Zatorski, D., 2023. Gain-Based Remedies for Breach of Contract in General. In Gain-based Remedies for Breach of Contract: A Comparative Analysis of English and Polish Law (pp. 9-41). Cham: Springer International Publishing.