3.6. (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).