Elements of a Contract

CONTRACT LAW

A contract is aimed to formalize an agreement between two or more parties, with regard to a specific subject. Contracts covers a wide range of matters, involving the sale of goods or real property, the terms of employment or of a self- contained contractor relationship, the dispute settlement, and ownership of intellectual property established as part of a work for hire.

In law, a contract is a legally binding deal between two or more parties which, if it consists the elements of a strong legal agreement, is enforceable by law or by binding arbitration.

Contract: the elements of a contract

Certain elements for a legally binding contract are :

• An offer: an expression of readiness to contract on a particular set of terms, made by theofferor with the objective that, if the offer is established, he or she will be bound by a contract.

• Acceptance: an expression of definite and unconditional agreement set out in the offer. It can be oral or in written format. The acceptance must precisely mirror the original offer made.

• A counter-offer is not similar to an acceptance. After a counter-offer is made, then the original offer can’t be accepted.

• A request for information is not a counter-offer. If any information or clarification is asked about the offer which doesn’t extinguish the offer; you can still accept it if you want.

• Consideration: each party to the contract must receive something significant.

So in simple, Consideration is the price paid for the other’s promise.

The four legal maxims that apply to consideration are:

o Consideration must move from the promisor;

o Consideration need not move to the promisee;

o Past consideration is not good consideration;

o The consideration given must be sufficient.

• Intention to create legal relations: If my relative offers me a drive to London, and I contribute for the petrol and then don’t, there is no binding contract that he can sue me under. If the agreement is an informal, social one, then my offer to pay for petrol wasn’t legally bound.

Arrangements of a social nature are assumed not to be legally binding, whilst commercial arrangements are considered as binding contracts.

Where is Contract Law used today?

Contract law penetrates our day-to-day lives, and often we are not conscious of its presence. Various situations of contract law comes into play when least expected such as :

• Public Transport – every ticket bought on a bus, train or on the underground forms a contract. This is a contract of services and most of terms will be implied rather than expressed. To display the whole list of terms on the back of a ticket would result in a piece of paper similar to an instruction sheet from Ikea rather than a ticket.

• Employment – every employee should have a contract of employment with their employer. The offer and acceptance of a new job is a given, as is the consideration (days work for a days pay). The purpose is not evident but the bond the contract creates leaves no room for discussion as to its formality in a legal sense.

• Any purchase of goods or services –the sale of goods or services is the most basic form of contract. While we may not recognize the value of law and its influence upon a basic purchase of e.g. a new car, the rules and regulations of sale, the various parts of laws, all bear upon the customers (and suppliers) rights and obligations.

It is understandable that this area of law may be the most widespread in

its impact , yet its notion remain comparatively uncomplicated. There are

composite issues and certain types of contract (acquisitions and mergers,

share holders agreements etc) which needspeculiar rules to administer

their application.

Most companies will have numerous contracts for the services it receives from other companies i.e. cleaning, catering, accountancy etc. There will be contracts of employment with every staff member, including contracts with each shareholder as to the money they have financed and the dividends received who in turn has contracts with the customers who maintain their services, or other companies by shared services within a larger agreement.

IMPORTANCE OF CONTRACT IN CONSTRUCTION INDUSTRY

The law of contract is of vital importance for the construction industry as the contract is the prime vehicle for those working on a project to be occupied, their obligations

regulated and redress compared if things go wrong. Knowing the significance of contract law in structuring commercial relations, it is surprising that those obtaining and providing work in the construction field often deal inadequately with the

development of their contracts.This leads not only to vagueness upon what was decided and when, but also to disputes about if a binding agreement was completed and whether legally enforceable obligations are formed to offer work or’ to pay for it. Such disputes can occur during the work as well as after it is completed.

Express contract obligations are those spelled out in the contract but the most important is the implied obligations which are implied in every contract. In the viewpoint of a construction project, the most significant of the implied duties is the obligation that each contracting parties unite with the party’s performance.

The implied obligations to synchronize and unite are reciprocal and is equally applied to all the contracting parties. This is explained as, when an owner owes an obligation to a contractor to access the site to conduct its work, a prime contractor has a related duty not to cause any hindrance or disturbance to the work of its own sub- contractor. All this illustrates that a contracting party owes an obligation of cooperation to the other party.

Along with the obligation of cooperation, the owner and the contractor have other implied obligations, like the warranty responsibilities. For instance, when the owner of a newly designed structure or the purchaser of construction related goods or services isdiscontented with the facilities, the owner conducts an action against the contractor based on breach of construction warranties. The nature of that action and the available solutions is based on the provisions of the contract.

CASE LAW

Carlill v. Carbolic Smoke Ball Co (1893) 1 QB 256 (CA)

This case involves the defendant company who produced and advertised smoke balls as a preventive step against influenza and the common cold. The advertisement listed that they would offer £100 to those who used the product but still contracted one of these illnesses. The defendant also stated that they placed £1,000 in a bank account to illustrate their sincerity. The petitioner took up the challenge and after endless use the flu narrowed down. Mrs. Carlill claimed the £100 but the defendant rejected to pay claiming that there was no contract.

This issue proceeded to the Court of Appeal. The defendants claimed that they did not intend to establish legal relations. At no phase did the petitioner tell them that she had acknowledged their offer. The Court of Appeal confirmed that there was a contract in between the parties. which amounted to a “unilateral contract” where one party gives money in return for the enactment of a stipulated act. It was not required for Mrs. Carlill to inform the defendant that she had accepted it.

There were arguments from the defendant that the advert was not clear to result to a contract. There is always a requisite that the specifics of the offer are accurate to avoid confusion. The Court adopted a literal meaning to the advert, stating that the petitioner who took the smoke balls constantly and contracted any of those illnesses would receive £100. The deposit of £1,000 was an explanation of the defendants meaning and readiness to depend upon their product. The Court had no reluctance in finding these particular circumstances that there was a contract which the petitioner was due £100.

While this case determines how the contract law protects the party who in good principles accepts the terms put forward by the offeror. This condition would be enforceable where the offeree undertakes a specific task, hence removing the demand for communicating acceptance and transferring an invitation into a formal offer. A contract can arise even when the aim was to make an informal offer, but in the absence of a distinctive statement, the conduct of the offeror may suggest the necessary legal intention.

CONSTRUCTION LAW

Construction Law deals with all legal matters associating to the construction process from land acquirement and project financing to post-construction claims settlement. These include affairs such as, building contracts, bonds and sureties, construction and builders’ claims, tendering, and construction claims, which influence all members in the construction industry, including architects, general contractors, subcontractors, suppliers, builders, owners, developers and engineers.

Construction law includes legal issues and disputes commencing from building and developments of all sizes and complexity from basic, residential work (private projects), to large, complicated projects such as: government or commercial and industrial projects, including skyscrapers, light-rail transit systems, hospitals, business office complexes, nursing homes, schools, shopping malls, bridge and highway construction, sports and entertainment facilities and development communities

Dispute Resolution

Knowing the intricacies and vagaries of the construction process and many business relationships involved in construction projects, it is predictable that problems will arise and that disputes will come out of those problems. Our objective is to solve client problems and to guide them through their disputes .Therefore, our attorneys are skilled and experienced in all types of dispute resolution, including: negotiation, mediation, arbitration, alternative dispute resolution procedures, administrative dispute resolution procedures, court actions, trials and appeals.

The Importance of Construction Law and Litigation

Recent issues in the housing industry and economy has lead to a number of cancelled and neglected construction projects. Hence, the need for construction lawyers is greater today.

Construction projects includes a multitude of variety of contracts and many different people. Because of this the construction law is not as cut and dry as other types of law.

Each construction law firm concentrates in various fields, but addresses legal issues such as:

Construction delays – delay is a very serious matter as money becomes a problem for contractors. Even if the contractor or the person who organized the project no longer has money to complete a project, he or she still owes a great deal of amount to investors. Many projects have been neglected because of this issue.

Cost overruns and modify orders – this is when an individual financing in a construction project considers that he or she was lied to when the deal was first sold and a solid monetary number was stated.

Contracts – there are numerous contracts involved in any construction project. such as contracts between investors, contractors, employees, etc.

Defective work claims – when money starts to finish off, contractors cut the corners by completing the work on the project in a very low cost and poor manner.

Failures such as roofing defects, water intrusion, structural life safety issues

Liens

Insurance coverage disputes

Mold and mildew claims

Documents concerning to the project involving loan documentation

Most construction projects have so many elements that it is difficult to continue without an educated construction lawyer.

CASE LAW

Amec Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC)

Amec were the contractors for the Thelwall Viaduct and problems arose with the viaduct. The S.S consulted the problems to an engineer for an initial decision without advising Amec. Later S.S, advised Amec of the decision and instructed that unless Amec accepted the decision, the issue would be suggested to an arbitrator. Amec challenged the arbitrator’s appointment and found that he had jurisdiction. But Amec futilely challenged that situation

His Honour Judge Jackson considered the fundamental arbitration and adjudication cases constitutes a dispute. The court found :

That it is not necessary to refer ta an expert for initial decisions as the experts would have decided without receiving submissions from Amec.

That Amec completely knew about the situation and it was evident that Amec would not accept the liability.

The necessity to respond by 5pm deadline at the notification day was more of a formality. The parties were already in a conflict. Amec did not have any intention to agree. No injustice was done. The Secretary of the State had to respond quickly as both parties were conscious because the statutory time limit was coming up.

TORT

The law of tort is found in the common law. Tort can be well- defined as a civil wrong independent of contract.The practical importance of the law of tort are related with the adjustment of losses, wherever faults occur, the law regulates who must accept the final financial loss.The most common cause for tort is a claim of negligence

The tort of interference with contractual relations has its base in the tort of activating breach of contract. It is also named as the tort of interference with economic relations. Both the tort of interference with contract connections and the tort of interference with prospective contract or business relations consists of  basically the same manner in one case the interference takes place when a contract is already in presence, in the other, when a contract would, with certainty, have been accomplished but for the behaviour of the offender.

The act of activating the breach must be a planned one. If the actor had no understanding of the presence of the contract or his actions were not intended to activate a breach, he cannot be held responsible though an actual breach results from his lawful and proper acts. It is not enough that the actor planned to perform the acts which caused the result — he or she must have envisioned to cause the result itself. The claim only be affirmed against a stranger to the contractual relationship, if the person criticized of was a party to the contract, the claim should be brought as a breach of contract claim.

SIGNIFICANCE IN CONSTRUCTION INDUSTRY

Tort of negligence is significant in the construction industry in two different situations:

Firstly, when there is no contract between those parties who has suffered the loss and who caused the loss . This is considered in relation to claims by an employer against a sub- contractor, claims by a contractor against the contract administrator and claims by an individual who obtains a defective building against the architect accountable for the failures.

Secondly, negligence becomes important when the parties are linked by a contract, but the petitioner has an advantage in structuring the claim in tort . Practically the main difference between contract and tort is the time difference that must be brought for each type of the claim.

An action in tort must be initiated either within 6 years from the date which the petitioner suffers the damage or within 3 years if any damages are discovered.

CASE LAW

Murphy v Brentwood District Council 1991 AC 398

In Murphy v Brentwood District Council, two houses were built over filled ground on concrete raft foundations .The Council permitted the design with the advice of independent consultant engineers . The claimants purchased the house from the developers in 1970. In 1981 severe cracks occurred in the internal walls, wet stains on the lawns, and gas pipe and soil pipe fissured. In 1986 , the claimant sold the house to a purchaser for £30,000, who knew about the structural defects but continued to stay there without carrying out any remedial treatments. The cost of the house free from the defects would be £65, 000. The claimant claimed damages of £35, 000 if they had carried out it would have been £45, 000 .

Eventhough the Judge had found that the design of the concrete raft had been imperfect and not suitable for the site, the Council had been entitled to depend upon the talent of the consulting engineers. He also found that the damage had occurred due to the defective design and the future settlement of the raft would happen and the main gas pipe might fissure. The Judge also established that the leakage of sewage into the foundations from the fissured soil pipe was more than enough to cause danger to the health and safety of the occupants of the house. The Judge followed Anns and found for the claimant. The House of Lords upturned the decision of Anns and found that the claim was of economic loss and hence the claimant could not succeed.

This law states that, if X is dependent on Y’s property (which can be a structure or a profit-making piece of machinery), and Z damages it, then the law will not interfere to present X with a solution for financial losses.

CONCLUSION

Construction projects are complicated and multifaceted. Similarly, the law controlling the construction is complicated and multifaceted. For realistic purposes, the law relevant to construction projects falls into three main categories : contract, tort and statutory/regulatory. Contract law may seem apparently logical, at least on the surface. Tort law may not seem logical in function, but it has an universal influence on any construction project. Statutory or regulatory law generally applies to construction simply because some governing body has said it should, whether the function is logical or not.

Knowing now, how the contract law permeates every segment of our lives, from employment, to conveyancing or even to social activities , contracts are formed all around us. While the majority are short spanned and the terms are simple and unremarkable, breaches of such arrangements may be imposed with all the force of the law as with the more serious contract forms. Through contracts, private parties make laws that administer their commercial relationships.

The public view of contracts is often ambiguous . Matters concerning credit are extensive at present and the contracts that includes the borrowing of cash against property (hire purchase) or a general agreement (credit card) are being breached every day. There are rules and regulations for both parties. This is the essence of a legal contract.