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Section 1 Introduction to Contract Law

Section 2 Responsibilities of the Parties

Section 3 Liabilities of the Parties 

 

Description:  This unit identifies the Liabilities and Responsibilities of the Parties to a Contract.

Author:  Gates MacBain Associate


Section 1 Introduction to Contract Law




Aims and Objectives

At the end of this section you should be able to:
  • List the factors required for an enforceable contract to exist


Before we look at the Liabilities and Responsibilities of Parties to a Contract we need to ensure that we understand what a contract is and how it comes into being. You should, therefore, look at the unit entitled ‘Law of Contract and Tort’ which can be accessed by clicking on the link below. You should work through the section ‘Contract Law’.  You should also go to the ‘Forms of Contract’ unit and work through the ‘Reason for a Contract’ and ‘Contract Law’ sections. Once you have done that you should return to this unit.   


Requirements of a Contract 

You should now understand how a contract comes into being and the general aspects relating to contracts. You should now also be aware of how contracts can be used within the construction industry.  

From that you will understand that for an enforceable contract to exist certain factors must apply, these are: 
  • Intention – all parties must have intended to enter a binding contract.
  • There is an offer and an acceptance - both parties must have accepted the agreement.
  • Consideration - There must be benefit to both parties - one party has a building built, the other receives money for building it. This means that one party has said they will build the building if the other party pays them a certain amount of money.
  • Certainty – it must be definite and both parties know exactly what is required with regard to quality, functionality or time.
  • Capacity - Both parties must be able to enter into the contact - they must be over 18 and of sound mind.
  • Legal -The contract must be legal and be possible to fulfil.  



Publications

  • Owen, S, (1998) Law for the Construction Industry 2nd Ed, Harlow: Pearson Longman, Chapter 3



Constructionsite Units



Self-Assessment Task

  • State the factors which are required in order for a contract to come into being and be enforceable.




Section 2  Responsibilities of the Parties




Aims and Objectives

At the end of this section you should be able to:
  • Explain the responsibilities of the parties of a contract.


The contract should clearly describe the rights and responsibilities of the parties. It should describe the activities, time-frames for their implementation. It should also state if the assignment of any responsibilities are permitted and what those are. 

There is a requirement that the parties carry out their obligations to the best of their abilities and that they have the required skills to do so, in fact that is a term of a contract. There are two types of terms: 
  • Express
  • Implied
Express   These are clear and detailed and state exactly what is required; they are binding on the parties.  There are two types:

  • Conditions – these are essential parts of a contract – breach can result in repudiation or rescission  and damages
  • Warranties – these are minor terms which only give way to damages

Implied   

Implied are deemed to be part of the contract by law. These may be implied by:
  • Custom – established practice unless the contract expressly excludes it
  • Statue – Acts which protect the parties ie Sale of Goods Act 1979, unfair Contracts Terms Act 1977
  • The Courts – can insert terms if parties omitted to state them.
It is also implied that if you contract to put in the services for a building that you have the requisites skills and qualifications in order for you do so proficiently and legally. 

Additional information on the terms of a contract can be found at the website shown below.  


Construction Contracts 

The JCT Standard Form of Contract specifically lays down the obligations of the parties which are specific to aspects of the work. A list of the types of contract and their use can be found at the website below though you will need to consult the contracts themselves to determine the areas that it covers. You should obtain a contract document and read through the obligations, these can be found in Section 2 of each of the contracts. 

The JCT 2005 suite consists of a number of different types of contract for main and sub-contracts relating to various types of work, together with other documents. The list of these can be found by visiting the JCT Contracts link below.  



Websites



Publications

  • JCT Standard Building Contract (2005), London, Sweet & Maxwell, Section 2



Self-Assessment Task

  • Using one of the JCT contracts and list and briefly outline the clauses that refer to the Contractors Obligations.





Section 3 Liabilities of the Parties




Aims and Objectives

At the end of this section you should be able to:
  • Explain the events that can lead to the non-fulfilment of a contract and the remedies that are available if a party does not carry out their liabilities.


Once a contract has been entered into it is the obligation of each party to ensure they deliver on what they agreed.  If they fail to do that they may be liable for any damages that the other party suffers due to them not fulfilling the contract. 

This will mean that they need to complete their contractual obligations with regard to performance for the discharge of the contract.  If a party fails to complete the contract there are a number of options open to the other party and these will depend on the reason and circumstance that the this party failed to deliver performance. As a general rule: Where a contract has been substantially performed then payment for any work done will be payable with a deduction for the work which wasn’t done. Consequently if a contractor was able to complete the service installations for 9 houses when the contract specified 10 then 90% of the contract fee would be payable.  


Frustration 

In certain instances a contract may be frustrated. This is the Legal termination of a contract due to unforeseen circumstances. This can prevent the objectives of the contract being achieved; render its performance illegal; or make it practically impossible to execute. It could be caused by reasons such as an accident, change in the law, fire, third-party interference. Frustration of a contract excuses non-performance and automatically discharges the contract except where the terms of contract override this implied legal provision. However, frustration is not acceptable as an excuse where the circumstance was foreseeable. 

If we return to our case above where a contractor only installed the services for 9 out of the 10 houses, if one of the houses had been destroyed by fire before services could be installed then the contract is frustrated. More details on this can be obtained from the website below.  


Breach of Contract 

If one of the parties to a contract fails to deliver that which they had agreed to deliver in the contract then they are in breach of the contract. As mentioned previously this can relate to time and quality although in construction industry it is common for defective work to be completed, this would not in fact be a breach providing any faulty work was rectified within a specified time.  It would be a breach if the contractor refused to rectify the faults or it was not done within the time that the contract required the work to have been complete. If there is a breach of a contract and a party fails to meet their responsibilities it is open for the other party to seek redress: This can be done in a number of ways.  


Remedies for Breach

A number of remedies are available for breaches of contract where the injured party takes the matter to the courts, (the Plaintiff) and looks for a remedy from the other part (the Defendant) these remedies are: 


  • Compensatory Damages - money to reimburse the plaintiff  for costs and compensate for any loss. 
  • Consequential and Incidental Damages – this is money for losses caused by the breach that were foreseeable. Foreseeable damages means that each side reasonably knew that, at the time of the contract, there would be potential losses if there was a breach. 
  • Liquidated damages (also referred to as liquidated and ascertained damages) are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance).
  • Specific Performance – is a court order requiring performance exactly as specified in the contract. 
  • Punitive Damages - Damages awarded to a plaintiff that are meant to punish the defendant for anti-social actions rather than reimburse the plaintiff for loss.
  • Rescission - the contract is cancelled and both sides are excused from further performance and any money advanced is returned. 
  • Reformation - the terms of the contract are changed to reflect what the parties actually intended. 

Wherever possible the parties should endeavour to negotiate a settlement for a breach rather than take the matter through the courts. Other alternatives for dispute resolution include mediation and arbitration, which are generally more cost effective than resorting to court action.  

More details relating to Breach and the remedies are available from the website listed below.  



Websites



Publications

  • Owen, S, (1998) Law for the Construction Industry 2nd Ed, Harlow: Pearson Longman, Chapter 3



Self-Assessment Task

  • Explain the options that are open to a client where a contractor fails to meet the obligations under a contract.






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