Contract Formalizes the Agreement Between Two Parties Essay

Excerpt from Essay :

contract formalizes the agreement between two parties regarding buying a certain item, entering into a certain service, or accepting a certain condition. Contracts cover a huge span of agreements including the sale of goods or real property, the terms of employment or of an independent contractor relationship, the settlement of a dispute, and ownership of intellectual property developed as part of a work for hire.

For a contract to be enforceable, it must constitute six factors:

Mutual consent -- both seller and buyer must be in full and comprehensive agreement of what the one is selling and the other is receiving

Offer and acceptance -- these must be clearly spelled out and comprehended by both parties

Mutual consideration -- the item / service must be one of value and turn out to be so, too.

Performance or delivery -- both must be intact. There must be, in other words, no "beach of contract"

Good faith -- Contract must be honest

No violation of public policy -- contract smut be legal in all aspects. A contract, for instance, involving selling of drugs would be considered illegal (Larson (a), 2003)

there are oral as well as written contracts although these are more difficult to prove in cases of law. However, oral contracts that can be proved or admitted by the other party are just as enforceable as written ones. Some statutes of Fraud law, however, only accept written contracts that are signed by both parties seeing only these to be valid (Larson (b), 2003)

Laws regarding rescission of contract

People can void their contract in the case of five instances:

1. An agreement obtained by force

2. Trickery

3. Mistake

4. Duress

5. Misrepresentation

Many of these situations are similar to one another. The common law is that when a person has entered into an agreement that has been not of his complete volition, namely that he has been deceived into entering it or has been misrepresented, he can move to rescind his contract. That which he gave to the other party, he returns and the other party, in return, returns his payment / contributions.

'Mistake' refers to an untrue representation of fact where the seller deliberately deceived client regarding one or more aspects of the deal for instance falsely promising or predicting some positive result that he knew would never occur.

Concealment of a fact is similar to misrepresentation where seller deliberately hides a certain fact from customer that he knows would induce client not to buy the merchandise. Nondisclosure also resembles misrepresentations but the difference between non-disclosure and concealment of the fact is that whilst non-disclosure implies failure to volunteer information, concealment is actively working to hide a fact.

Non-disclosure is a concept that applies to the fullest extent, meaning that the seller must provide client with each and every pertinent detail that buyer needs to know in order to decide whether or not to purchase the article. Some states go so far as to impose a duty on the guilty person who should have, but failed to, disclose significant information. In fact, most states hold that a party is guilty when he deliberately withholds a crucial piece of information that he believes may restrain client from agreeing with the sale.

There, instance of misrepresentation, too, refers to both conditions of both innocent and fraudulent misrepresentation where, in the one instance, the seller may honestly, but mistakenly, believe in his selling pitch. The other instance, however, (termed 'scieter' in legalese) veers onto duplicity where the seller deliberately tries to deceive client. In both cases client can void contract if he is dissatisfied with purchase. Damages are, however, different in both cases where in the case of the seller deliberately deceiving customer, seller also incurs additional burden of tort of deceit which may culminate in punitive charges.

The states vary in their address of rescission of contract. Some states allow rescission and awarding of damages for deceit, whilst others compel customer to choose between making recession or between suing for damages.

All of these cases fall under the category of 'mistake', in a manner of speaking, since the buyer was unaware of the fullest situation of what the purchase / service entailed. Had he or she possessed more complete data, or more accurate information, he may never have made the purchase. The purchase, in the first place therefore was a mistake since the customer believed himself to be gaining something other than what which he signed up for. In this case, the contract is invalid.

Steps for rescission

The two necessary actions for voiding or rescinding the contract are:

1. Timeliness -- that the client does so instantly within a certain given amount of time

2. Unequivocally -- client demonstrates that he has no hesitation in doing so.

Since the element of innocent misleading can be taken to lengths and can culminate in absurdities, the law is severe in allowing rescission only under certain conditions.

The customer has to prove the following:

1. That an untrue assertion of fact was made

2. That the fact asserted was substantial or that the assertion was fraudulent

3. That the complaining party entered the agreement because of his reliance on the assertion

4. That the reliance of the complaining party was reasonable

In tort damages, where the plaintiff seeks to recover damages for the deceit, the plaintiff would also have to prove that he has actually suffered economic and/or other injuries as consequence of the deceit.

The buyer also has to prove that the selling hook was material, in other words that the seller induced the buyer to buy with a hook that meant a lot to him such as when one claims that a certain car belonged to certain celebrity. The pitch may be material to one individual but not material to another; nonetheless, in this case it induced buyer to buy and the pitch is, therefore, considered material.

Of course, in all cases, buyer has to prove that there was reliance on the selling pitch, namely that he utterly believed seller's claim and trusted his guarantees. This is called 'actual reliance'.

"Justifiable reliance," on the other hand, refers to the case where the customer is one who is obviously naive, gullible, or a simpleton in the fact that he/she relied on an assertion that was patently false and misleading.

The problem with "justifiable reliance" however is the extent to which a buyer has to investigate the claims of the purchase. Classical contract laws required more intense investigation than that which is required today. Today, section 172 of the "Restatement" only points to acceptance of a glaringly false and suspicious sales deal as falling under the auspices of "justifiable reliance." More accountability, in other words, is made today on the person who persuades individual to buy rather than on seller. The same sort of reasoning is made in regards to negligence. A reasonable amount of negligence excuses party from committing himself to having to go through with deal. However, if party shows that he was overly and simplistically negligent, he has, according to section 157 of the "Restatement (Second) of Contracts," no case.

In the case of duress, buyer has to prove that he could not escape the duress and was compelled to enter into agreement.

Contemporary situations have introduced two new terms into the vaocaublry. These are "economic duress" or "business compulsion" where the seller may use some moeny-related theme in order to induce seller to enter into contract. For instance, seller may threaten that buyer will not receive item in timely manner unless he pays higher price for item. Given modern conditions of urgency and time constraint, buyer may feel compelled to enter into agreement.

Another common condition is where one offers a disproportional small amount of money in…

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