Guide Writing Business Plans And Proposals

Breach

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The case between Helena and Ringo is about an agreement in which one party is intending to withdraw from the contract before the agreed period. Helena wants to withdraw from the management due to frustration, which is caused by poor performance of her business at location leased to her by her brother Ringo. On the other hand, Ringo feels that he will lose his financial flow and business incase this happen. Because of the uncertainty, Ringo decides to sue Helena claiming $6000 that he might lose in case she terminates the contract. Therefore, this paper intends to advice Helena the likelihood of Ringo’s success in filing the case against her.

A contract is a promise or various promises that is lawfully binding.[1] It is formed when there is an offer, acceptance, and consideration. Once there is an agreement, each party is obligated to perform his or her part in relation to the terms of the contract.[2] Where a party has completely performed his responsibility as stated in the contract, he is no commitments but has the privileges to force the performance of the accord by the other party. Under a unilateral discharge, consideration needs to be provided so that to make the accord enforceable, unless the agreement is under seal. In this case, it is clear that there was an offer from Ringo, which Elena accepted, and therefore, it is up to each party to fulfill his or her responsibility under the contract. Elena should continue paying for the lease as per the reduced $2,000 but if she fails to abide with the agreement then she would have breached the contract. A breach of contract happens when one party fails to perform his or her obligation as per the contract. Success of Ringo in this case will depend mainly on the remedies provided to him under commercial law.

A breach that can be treated as thoughtful enough to grant the non-breaching party the choice of viewing the contract as discharged in either the following two ways: Firstly, one party may show by express words or by implications from her behavior before performance is due by saying that she does not propose to observe her responsibilities as stated in the contract.[3] Secondly, she may halt a term or the contract in a way that it results to a significant failure of consideration. However, this seems not to be what Elena has decided to do. The non-breaching party, which in this case is Ringo is has no responsibility to wait until the date for performance, but then again may instantly treat the deal as an end and sue Elena for damages. This was applied in the Hochster v De La Tour (1853) 2 E&B 678 case.[4]

Remedies

On the other hand, if the innocent party within a reasonable time fails to indicate that he accepts the repudiation of the other party for the contract to be discharged, it will then remain open for the advantage and risk of both the parties. Therefore, it is vital that Ringo accepts Elena’s repudiation before time elapse as it was in the Avery v Bowden (1855) 5 E&B 714 case.[5] If Ringo decides to continue with the agreement after the anticipatory breach by Elena, he is not pardoned from offering his duties as stated in the contract. Subsequently, Elena could not be liable if Ringo was consequently in violation of the deal. However, whether the violation results to repudiation will only rest on the genuine states of the case.

In a situation where there is a breach of contract, the innocent party is permitted to remedies. Particularly, they are permitted to damages as a right as witnessed in O’Connor v SP Bray Ltd (1936).[6] A contract may be discharged mainly through performance. It means that the contractual obligations must be performed in full and exactly. Therefore, some of the remedies that Ringo may have include damages and equitable remedies. Damages for breach of contract are seen as an alternative for performance. Subsequently, damages claim are meant to put the accuser in the place they would have been if the contract could have been fully performed. The loss by the aggrieved party must not be too distant from the violation and the grieved party must do what is sensible to decrease the damage suffered. Therefore, in any case Elena terminates the contract, she will be held culpable for breaching the contract, and therefore, must pay for the damages incurred by Ringo.

Additionally, in line with the common law remedies, parties may pursue the equitable remedies of specific performance. Even though this is not available as a substance of right, they are granted at the discretion of the court. Other than that, the injured party may also apply the equitable remedies. Equitable remedies are divided into two namely; specific performance and injunctions.

Termination is the ending of a contract before all the conditions of the contract have been successfully performed. Wrongful termination happens when there is inadequate justification for termination as stated under the general principles of the contract law or as stipulated on the contract. It may also occur when the termination is not authorized by the terms under the contract. Furthermore, wrongful termination may occur if one or more of the processes needed for a proper termination under the contract conditions are not properly followed.[7] On the other hand, wrongful termination is a rejection of the contract which in its nature is a material violation of the contract. It provides an opportunity for the innocent party to pursue damages caused. However, the non-breaching party must prove the existence of the loss.[8]

Wrongful Termination of a Contract

auditing, under the contractual termination, the agreement may have various categories of loss that can get recovered and the confines on recovery. The common law of termination that must prove that the violation is material or substantial, could increase the damage recovery cost because of a specific condition that might not come into play with a contractual termination. Common law termination states that once there a material or substantial breach, the grieved party should be permitted to recover enough to get where he would have been if the contract had been properly finalized.[9] This includes loss of profit as well as other damages.

The case between Albert and George is about a construction contract. Albert wanted to build a new home, therefore, he approached George who is a constructor so that to build his home. Due to education illiteracy, George tricked Albert to sign an expensive house design and with Albert’s consent, George went on to build the house as per the contract but Albert later found that the house had a serious problem. He further spent more money to repair what George had done but after spending an extra amount due to the substandard work done, George send his invoice for payment as was agreed in the contract. Therefore, this paper intends to determine whether Albert has any responsibilities to pay George, and if Albert have remedies as stated in contract law.

Under contract law both parties have to perform as per the contract terms. Therefore, it is George’s obligation to perform as per the agreement. He will have to pay George his due because George was able to perform his duty as was in the contract. For a contract to be created there must be an offer, intention, acceptance, and consideration. An offer is a statement that leads to an assurance to do something if the person to whom the proposal is directed does something in return.[10] According to this case, it is evident that Albert made an offer by requesting George to build the house for him. In return, George promised to build the house. This means that there was an offer. It also means that there was an intention by both parties. It is because Albert intended to have the house whereas George also had an intention to build the house.

On the other hand, acceptance is an unambiguous communication by the offeree accepting an offer. For an offer to be agreed to by a party and to establish a lawful acceptance, the communication or behavior must happen in rejoinder to the offer.[11] It is satisfactory if the party providing an offer was acting the way he did regardless whether it is the leading reason. In general, no specific form is needed for acceptance. In Empirenall Holdings Pty v Machon Paull Partners Pty Ltd, the Court held that whether a reasonable action regarding the conduct of the person given an offer, which includes his quietness, showing signs to the person giving the offer that his offer has been accepted.

Furthermore, consideration refers to the price requested by the promisor in exchange for what he has promised to do. In numerous considerations of the jurisdictions it is not a vital element of a contract. What is essential is that the parties have reached an abiding agreement. Nevertheless, under the common law, for the promise to be abiding, the person who makes a promise must give consideration for the promised they have made. Hence, free promised are not enforceable due to limited exceptions. In this Albert must pay $ 250,000 to George as consideration.[12]

Numerous commercial contracts hold express provisions for remedies. For example, in a business contract, the buyer may be entitled to request the seller to make new goods or replace the defective items. On the other hand, there may be presumption that expressed in the contract stating that all the terms required to control the contract relationship have been added by the parties in express written method in the contract. In so doing the term intends to shift any remedies and rights given by law that are not specified in the agreement.[13] The reason for the collective remedies clause is to make sure that the rights of the parties are particularly provided in the agreement as well to their rights as stated under the general law. Therefore, some of the remedies that Albert is entitled include damages, remoteness of loss, and measure of damages, among others.

Damages in a breach are the rights of the innocent party. An innocent party might claim the damages from the breaching party in a contract. The damages might be substantial or nominal. Substantial damages are given inform of monetary reward for the loss grieved due to the breach cause by the other party. For the innocent party to attain substantial damages he has to show that he underwent a loss due to the breach and amount he has lost.[14] Therefore, Albert has the right to claim for the damages he has faced due to the contract. For example, he can claim for the money he paid for rent in three months and the total amount he used in the process of repairing the house. This is evident in Bellgrove v Eldridge

The grieved party might only recover the damages for the loss they suffered if the loss is not too remote. The main reason for the damages is to put the grieved in the position he would have been if the deal would have been correctly performed. Under this doctrine the innocent party can only recover the following losses:

• All losses evident from the breach.
• The loss that was in the examination of the parties at the time when the agreement was completed as the probability outcome of the breach.

However, if the loss cannot be categorized under the above situations, then it will be too remove and may not be recovered.[16]

Measure of damages is a method for calculating the damages to which the grieved party is permitted. This clause covers the loss of expectation and bargain.[17] It is assessed by the methods, which are the difference in value or cost of cure.

There are four potential ways in which Harry can structure his business. These include partnerships, corporation, S Corporation and Limited Liability Company.

Harry can consider having the business owned by several people. This is called a Partnership business structure. It could either be general or limited. In the general case, the partners accomplish the business and ignore the obligation for the company’s obligations including debts. On the other hand, the limited case comprises both the general and limited partners. While the general partners possess the company, control it and assume the business’ debts and obligations, the limited partners only serve as investors where they do not govern the business and are not subject to legal responsibility.[18]

Generally, limited partnerships may not be the greatest option for Harry being that it is a new business because he may require a lot of filings and administrative complexities.[19] Nonetheless, it may work if he expects to have many passive investors. However, in case he requires active involvement of only two or more partners, then a general partnership structure would be easier to use.

Forming a partnership is both advantageous and disadvantageous. It is of advantage primarily because of its tax treatment. This business structure does not pay tax on income. However, it passes through the gains or losses to the specific associates. The partnership is obliged to file returns on taxes reporting the business’ income or loss to the IRS.[20] Besides that, all the individual partners are forced to report their income or loss shares on the Schedule K-1 of Form 1065.

Nonetheless, using the general partnership structure is disadvantageous because of personal liability. Similar to sole proprietorship business structure, the general partnerships have the partners individually answerable for the amounts overdue and obligations of the business. The partners can individually perform in place of the business, take loans and decide on what will move and bind every partner.[21] Establishing partnership structures are also costly as compared to sole proprietorship since they need more legal and accounting services.

Corporation is a business structure that is independent and is separate from its owners. As a result of this, it needs to comply with most tax requirements and more regulations. In case Harry decides to incorporate, he will enjoy some benefits. For instance, he will have the liability protection. Debts in corporations are not taken as the owners’ liability.[22] Thus, if Harry organizes his business as a corporation, he will not have his personal assets at risk. Besides, a corporation can also hold a portion of its gains without the owner having to pay tax for them. Another benefit for a corporation structure is the ability to raise money. This kind of business structure allows selling of stock to come up with the required funds.[23] In addition, the corporations also indefinitely carry on despite the loss of one of the shareholders, disability of a shareholder, or in case the shareholder sells out the company’s shares.

Aside from the pros, the corporation business structure also has some cons. One of them is the higher costs. This business structure is formed under the state laws with each having its own set of regulations. In this case, an attorney is required to provide guidance. Besides, since a corporation is required to adhere to the more complex rules and regulations compared to a sole proprietorship or partnerships business structure, it needs to have extra accounting and tax preparation services. The next disadvantage is that owners of this kind of business structure pay double in taxes on the earnings of their businesses. The types of businesses are not only subject to income tax on federal and state levels, but also the incomes that are dispersed to the stakeholders as payments are taxed on individual rates on their personal income tax returns.

As a small business owner, Harry can also consider structuring his business as an S Corporation. This structure is more attractive than the regular corporation. Its tax benefits are more appealing and also provide the owners of the business with liability protection. An S Corporation allows passing through of income and losses to the shareholders and they also get involved in the personal tax returns. Consequently, it allows payment of only one level of federal tax.[24] It also allows its owners who do not have inventory to employ the cash accounting method, which is known to be much simpler unlike the accrual one. Generally, when income is received, it is taxable and when expenses are paid, they are deductible. It is also a plus to this kind of structure that it can have up to a hundred shareholders, making it possible to hold more investors and, consequently, attract more capital.

Conversely, S corporation is of disadvantage because: (1) It is subject to most of the Corporation’s rules implying that it has higher costs of legal and tax services. Aside from that, they must file articles based on incorporation hold meetings, keep the necessary minutes and let the shareholders to vote on the corporate choices. (2) This structure allows the issue of only one class of stock. According to experts, this can hamper the ability of the company to raise capital. (3) Owners of stocks can only be estates, individuals, and some specific types of trusts.

Lastly, there is also an option of an LLC which is a hybrid entity that combines the features of corporations and partnerships. It is similar to an S corporation except that it offers owners more advantages compared to the S corporation. For instance, it has no limitation on the number of shareholders. Additionally, the LLC owners are permitted to fully participate in the business operation. Nonetheless, setting up this kind of structure forces the owner to file articles of the organization with the state secretary where the business is carried out.[25] Besides, the company also dissolves immediately a member retires, quits or dies.

References

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