Contract Creation and Management

Contract Creation and Management

Span Systems is one of the leading and most prestigious banking software companies located in California. Span Systems develops custom e-banking software. The company is valued at $85 million. Kevin Grant is the Director with Harold Smith being the Transaction Attorney. Span Systems was approached by Citizen-Schwarz AG (C-S) to develop a Java-based transaction processing software program. C-S is a German bank located in Stuttgart and has revenues in excess of $20 billion. Leon Ther is the Outsourcing Director for C-S. Span Systems and C-S signed a one year contract in which Span Systems is to develop a Java-based transaction processing software program for $6 million. C-S has stated to Span Systems that there is a bigger e-CRM order hinging on the performance of the Java-based transaction processing software and Span Systems is hopeful to receive this larger project in the future.

Eight months into the Java-based transaction software project, Leon Ther becomes furious with Span SystemsпїЅ deliverables being behind schedule along with the quality of the deliverables being unacceptable. Leon Ther asked Kevin Grant to transfer all unfinished code to C-S to find another company to complete the job. Leon Ther also asserted a rescission of the signed contract. Span Systems has heard rumors that Leon Ther has approached another software company to complete the work Span Systems was under contract to finish.

At this point, both companies are livid and seek changes to the contract. Leon Ther wants to rescind the contract and find another company to complete the task or start fresh with the code Span Systems has completed thus far. Span Systems wants to work with C-S to compromise in order for both parties to continue to work together.

There were five original contract provisions signed by both parties. The five provisions were: Intellectual Property Rights, Requirements Change, and Performance, Internal Escalation procedure for disputes and Communications and Reporting. When the objectives were not being met, both parties realized the five original contract provisions were not sufficient to cover all unforeseen requirements.

Basic Concepts of Contract Law

Basic concepts of contract law are merely a promise between two or more parties. The promise made is an enforceable agreement, which will allow or should allow each party to meet his or her needs (Reed et al., 2004). According to Reed, Shedd, Morehead and Corley (2004) who state that the enforcement of contracts is crucial in a property-oriented system of operation. пїЅA contract need not be formal, written document, and those who make a contract do not have to use the word contract or recognize that they made a legally enforceable promise.пїЅ Nonetheless for a contract to be valid there must be basic elements included such as an offer, acceptance, consideration, capacity of parties to contract and lawful purpose (Reed et al., 2004).

To begin with, the most important issue to understand about contract law is how a valid contract is created. Many contract agreements are void because of the lack of essential elements. Therefore, a valid contract has to have five fundamental elements which include an offer, acceptance, consideration, capacity of parties and a legal purpose. In terms of an offer, at least one party must make a promise that is attached to a specific demand. Furthermore, to make a contract valid there must be an acceptance of the offer by the parties being made the offer (Reed et al., 2004). пїЅThe language of the offer determines whether acceptance should be a promise resulting in a bilateral contract or an act resulting in a unilateral contractпїЅ (Reed et al. 2004). Moreover, a binding contract will be based on a matching offer, therefore, if the acceptance of the offer changes the terms, than this is considered a counter offer. In addition, to form a binding contract there must be an incentive on the part of the person making the promise or the contract not binding (Reed et al. 2004). Contracts will be legally binding unless each party has the capacity to be bound by the contract promises. Finally, the purpose of a valid contract must be legal and not violate accepted standards of behavior (Reed et al. 2004). Therefore, before entering into an agreement or promise to do or not do something, one should have a thorough understanding of how a contract is formed.

In the simulation between C-S and Span Systems, the companies had a valid contract. In terms of contract C-S offered Span Systems a contract to deliver the $6 million transaction software to market within one year. Span Systems accepted the legal offer with a promise to deliver the software on time. As for consideration, Span Systems sought to gain a larger contract with C-S, for the e-CRM