Contracts are binding for those who enter into them or intend to be bound by them. They are therefore agreements considered binding in law and are made by two or more voluntarily and create legal obligations upon those who enter into them. In this regard therefore contracts can be made under either the UCC or the common law contract procedure. This situation is so because of the anticipated legal obligations and ramifications in case of a dispute arising between the parties to a contract. That means the two types of contracts attract different kinds of solutions in case of breach. The UCC contracts are intended to make transactions easy and convenient. The success and efficiency of any business depends on the type of entity and ability to maximize profits (Poole, 2014).
Is the Contract under UCC or Common Law?
For any business structure, there has to be less risks to an individual and at the same time increasing efficiency on the service provided. Acme fireworks have to consider the risks its employees are exposed to providing the fireworks display and therefore must ensure that its employees are properly protected. Considering the company is a sole proprietorship, it may not be in a better position to engage in provision of services involving big contracts. A limited company will be appropriate. This is necessary because of the dangers the employees face from the explosive materials to be used in satisfying the contract terms. There is also the need for highly professional and skilled workforce that cannot be available to a sole proprietor
The contracts under common law are made different from those under UCC and cover totally different types of contracts. The governing structure of the two types of contracts differs in that the UCC tends to cover contracts that deal in tangibles .The common law deals with contracts on securities, real estate, employment, assets that are not tangible, services etc. In this contract, therefore, the display of fireworks will require a contract made under the UCC. The UCC has also been made flexible to adapt to different states scenarios.
This contract squarely falls under common law considering it intends to provide a service. The owner should also engage services of other professionals in fulfilling his contractual obligations. The uniform commercial law is a baby of the common law and was only meant to make commercial transactions and with emphasis to moveable’s easier. Acme is providing a service of display of fireworks. The fireworks were not being purchased and therefore common law would apply to the transaction
Differences between UCC and Common Law Contracts
There are also other significant differences like how their acceptance is effected. There is a significant difference in that acceptance has to be similar to the offer to constitute a valid contract for an acceptance. This means any slight change will make the contract void. It therefore follows that changes to the contract should be very slight that they cannot affect the terms of the contract for it to be legally binding. The UCC however is more flexible in that only material changes can make a contract void. UCC has more room for slight alterations as long as it does not change the contract. The uniform commercial law deals mostly with quantity of goods rather than the goods itself. The common law has no room for flexibility and therefore requires strict observation of the contract as made by (Kelleher, Smith, Currie and Hancock, 2005).
A contract under the common law once made cannot be altered unless another contract or additional consideration is made. The contract for fireworks display is subject to changes depending on the unforeseeable circumstances. Changing of the contract will be okay under the uniform commercial law. This flexibility was made possible to the uniform commercial law to make it easy to do business between individual within and state and other neighboring states. A discharge is also possible if the contract is considered hard to implement to either party. The common law contracts are strict on their implementation and slight failure has legal and financial ramifications (Wittington and Delaney, 2005).
A major client who intends to make an offer for fireworks display has approached Acme. Acme can do as the contract provides. This was done following an inquiry made by a customer to Acme if they can fulfill the requirements of the offer. The company, following the huge order should change to a limited liability company to shield owners from potential losses that may result from litigation.
However, whereas price has been agreed, all components of a valid contract must be present to constitute a legal contract under common law. Under the common law to constitute a valid contract, there must be an offer. This element is seen to be present when the customers made and inquiry to buy fireworks for display. The offer should be lawful. In return, the owners of Acme accepted the offer. Acceptance comes in when the retailers agree that they have the ability to provide the said display of fireworks as requested by the customer and commensurate to the offer.
One other important factor is the intention to create legal relations. The customer has the intention when he makes an offer to Acme and follows it up with the intention to receive the services from Acme for the provision of fireworks display
The prices discussed per unit constitute consideration for the services to be rendered. For a valid contract, acceptance is also a very key factor. Without an acceptance, the contract will not exist. Acme therefore made a commitment to fulfill the said orders as requested therefore constituting an acceptance of the offer.
It is very important also that the parties have the capacity to enter into legal contract. Capacity refers to the legal competence of each party to enter into a contract. In this case, both parties to the contract have the capacity to enter a contract. One other important element of a contract is the lawful object. The provision of fireworks display should be lawful otherwise, the contract will not be enforceable. The provision of fireworks display is however lawful and therefore the fireworks display agreement is legal (Torres, 2003).
The owner having operated a sole proprietorship for a long time has been subjecting himself to unimaginable risks as regards his employees and the existence of the business. The owner has operated the business for a long time and managed to employ fifteen employees. The risk the proprietor has invited to himself is enormous and may cause so financial injury to him and the proprietorship. Considering the scale of the work and the dangers involved in blasting fireworks, it is in order that the owner transforms his proprietorship to a limited liability company.
A limited company will easily take care of injuries or risks occasioned to employees in their performance of their duties. The owner will also be as different entity from the company and therefore not personally liable to losses occasioned. The company can also sue and be sued as a different entity. It shall also have perpetual succession. It shall not cease operations because the owner does not want so. A company will also attract more capital by issuing shares and therefore it would be easy to satisfy the contract. A limited liability company means the owner will still enjoy his status but be safe from losses or liability occasioned to the company. A limited company has the advantage of spreading risks therefore occasioning less injury to a single entity
If an employee was to be injured in a sole proprietorship, the individual owner will take full responsibility if liable in negligence. Responsibility will involve paying for compensation with personal wealth and money. When a person is injured by stray fireworks during display, the law provides that the individual injured may make recovery of damages for injuries sustained. However the person or the company responsible must be negligent. That therefore means liability goes to an individual in sole proprietorship and a company in a limited liability entity (Miller and Hollowel, 2011).
Where a spectator at a fireworks show gone wrong is affected or the user of a malfunctioning firework, victims may be able to recover damages for their injuries. Depending on the circumstances of the firework injury, a number of legal theories may apply.
An agency relationship may come up where the employer decides to outsource services and on the other hand engage employees on different kinds of arrangements to offer their services. Acme currently has 15 employees on its payroll, which is insufficient for the kind of obligations it intends to undertake. For more complex works like blasting and display of fireworks, Acme can engage an independent contractor for a limited time.
An independent contractor is better placed because of the specialty of its members in particular area. The contractor is therefore only available for the particular task alone. Contractors are usually given a specific mandate purely as an arrangement between Acme and the contractor. This kind of arrangement excludes the customer. The need for contractor also reduces the cost to a company in laying down the necessary logistics and therefore saves on as much expenses as possible.
There are employees who are placed under probation for a particular time. Whereas the law does not suspend the rights of an employee under probation, the company will have the opportunity to assess the competence to hire or not to hire the employee on probation. Acme having received such a big contract, the company will need to hire more employees to make sure its operations are smooth. The employees on probation will be assessed on their suitability and competence before being hired. Whereas probation may seem convenient to an employer, it may be expensive in the long run. Employees on probation are likely to sue the company if they are not employed on full time basis as permanent employees. The rights of employees on probation are not suspended and the law provides for equal rights to all employees (Carper, McKinsey and west, 2008).
Employees can also be on a part time or full time engagement to the company. Part time means they are only available when certain requirements of their services are needed. Such arrangements are captured in the contracts. Acme might need to increase or reduce employees depending on the need. Fulltime employees are deemed permanent are on full time employment to the company. It is considerably cheaper to use part time employees because they are available for a certain task only.
Part time employees are also flexible and are only available when needed. However, part time employees lack the commitment and dedication to their work unlike the full time employees who are in regular and certain income. It is also a fact that since the part time workers works for part time, their knowledge is limited in their fields because they work for lesser time. These employees are less motivated and this may greatly affect the overall performance of Acme with regard to sales and other core mandates. Whereas it is easy to train an employee, it is not wise to make huge investments in an employee the company may not hire on fulltime basis.
Full time employees are more dedicated to their work because of certainty in income. It is also easy and convenient to provide further trainings to full time employees to maximize on their performance. Most full time employees are employed in permanent basis with full benefits including insurance and personal retirements benefits provided.
Acme also may need student trainees or other trainees who intend to gain practical knowledge in their fields of specialty. Trainees are absorbed based on available company policies to equip learners with first hand practical knowledge, however, they are not employees to the company and therefore the company is not obliged to pay wages. Student trainees are highly knowledgeable but can be said to be raw. This means they have little knowledge on practices and therefore need more supervision and guidance, which is time consuming.
Several casual laborers’ pay is in form of wages. These casuals offer noncore services and therefore may not be available to the company on permanent basis. Casual laborers are always paid after the services are rendered. The advantage with casual laborers is the fact that their services are cheap and affordable. However, they are unskilled and therefore need higher supervision. Casual laborers are timely available and the company can chose to employ as many as it can for certain tasks.
Employees can also be employed for piecework payments. Piecework payments are where a company contracts services of an individual with certain skills to perform certain specific task after which they get paid. These kinds of employees provide specific services that border on specialization. However, they are expensive because of their specialized skills needed to perform the task.
Due to the nature of work undertaken by Acme, and the higher instance of accidents likely to befall a company of this nature, Acme owes a duty of care to all its employees and consumers of its products. Their duty goes as far as the innocent bystanders who may be injured in the course of displaying fireworks. It therefore implores upon all employees to be cautious and professional in their duties. To render its services efficiently, Acme needs to have permanent employees who will be loyal to the company and have a sense of responsibility for their actions. The employees will also need to be trained from time to time on safety and proper handling and storage of fireworks.
Considering that Acme fireworks have been a sole proprietorship, for it to effectively compete and make more profits, it should be registered as a limited liability company. The current contract for fireworks display requires huge capital outlay that requires spreading of risks. The company needs to make more sales and employ more workers both skilled and unskilled laborers. Whereas the owner has been lucky not to have suffered significant losses from his sole proprietorship, it’s in order to make the changes for future safety of the company
Acme is currently a sole proprietorship but such business entity undertaking large contracts is untenable. There is need for acme to adjust to the right form of business capable of undertaking huge contracts. An operation under a limited liability company will be able to raise more cash capable of handling big contracts and therefore maximize on profits available for such organizations.
A limited liability company will also be able to handle workman’s requirements as to injuries and other incidentals that may arise in the course of implementing contracts. The limited liability company will also be a free entity from its owners with power to sue and be sued without causing much injury to the owner. Acme’s only way to raise more cash is by registering such a company to be able to raise more equity.
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Kelleher, T. J., & Smith, Currie & Hancock. (2005). Smith, Currie & Hancock LLP’s common sense construction law: A practical guide for the construction professional. Hoboken, N.J: J. Wiley.
Whittington, R., & Delaney, P. R. (2009). Wiley CPA exam review 2009. Hoboken, NJ: John Wiley & Sons, Inc.
Miller, R. L. R., & Hollowell, W. E. (2011). Business law: Text & exercises. Mason, Ohio: South-Western Cengage Learning.
Torres, J. P. (2003). Obligations and contracts: (with introduction to law); [extra-contractual obligations, law on merchants, introductory to business law, law on damages; glossary of legal terms]. Manila: Rex Book Store.
Carper, D. L., McKinsey, J. A., & West, B. W. (2008). Understanding the law. Mason, Ohio: Thomson/West.