Contract
Agreement
The agreement is made between the Abu Dhabi Government (hereinafter ADG) and the Borat Construction Company (hereinafter BCC).
The BCC agrees to build the project within two years from the day of signing the agreement. The ADG agrees to pay ten billion (10,000,000,000) AED upon the completion of the project on or before August 2, 1992. The ADG agrees to process visa applications for 10,000 laborers required for the building. The ADG agrees to make a deposit of 10% on or before the date of signing the agreement.
The agreement was signed on August 1, 1990, at the offices of BCC, Khalidia St
Abu Dhabi, United Arab Emirates.
Six Elements of a Contract
The first and basic element of the contract is offer and acceptance, a positive response to an offer (Plimpton 126). According to the UAE Law of Civil Transactions, “a contract is formed by the meeting of an offer with an acceptance, with due observance of any special condition provided for in the law of its formation” (Article 130). The BCC offers the terms under which it can build the project. The setting of the prices, schedule, and conditions mean that the ADG accepts the offer.
The second component of a contract is an intention to create legal relations. According to the UAE Law of Civil Transactions, “a contract is not performed except through the agreement of the parties on the essential elements of the obligations and on all the other legitimate conditions that the parties consider them to be essential” (Article 141). The ADG and the BCC did not just agreed to the terms of the project building; both parties are by signing the contract agreed to act according to the set legal procedure of fulfilling their part of the contract. A binding contract of commercial nature presupposes legal relations between the parties to the agreement.
Consideration, being the third element of the contract, is a certain price one party pays to the other for the promise of fulfilling the offer (Kuney 59). In this case, the ADG agrees to pay the BCC 10 billion AED upon the completion of the project on August 2, 1992.
The fourth element of a contract is the legal capacity of the parties. Both parties to the contract are to be eligible to perform responsibilities they agreed to perform with the regard to the signatories’ capacities (Adams 226). In our case, the parties are present not by natural person, but by legal entities. In such a case, according to the UAE Law of Civil Transactions, “should the representative, within the powers of his representation conclude a contract in the principal’s name, the provisions of the contract and all ensuing rights and obligations shall accrue to the principal” (Article 153).
Another element of a contract is the consent of the agreement. The contract is based on the articulation of the will of both parties. The offeror can only assign the contract performance “with the prior consent of the other party” (Espenschied 57). According to the UAE Law of Civil Transactions, “the offer and acceptance are expressions of a will used for the formation of a contract” (Article 131). In the case of the ADG and the BCC, both parties acted consensually out of their best interest.
Finally, a contract can only be enforced when it is legal and non-void (Feldman and Nimmer 63). According to the UAE Civil Code, “a contract is valid is licit in its essence and characterization, issued by a qualified person, having an object that can be governed by the contract and an existing valid and licit cause, validly specified and not subject to the void condition” (Article 209). In our case, the object governed by the contract the construction of a project, and the valid cause is the terms under which both parties agreed to construct the project.
Violations After Signing a Contract
Each of the parties blames the other party for violating the contract. Arguments of the BCC are the following:
- The ADG has not processed enough visas for labors, which affected the amount of time required for the construction. The BCC claims, that if 10,000 visa applications were processed, the building of the project would have been finished by the agreed date.
- The ADG representative in charge verbally agreed to increase the project budget to 12 billion AED. However, the ADG has no intention to pay increased price. The BCC may claim that “expression of will may be verbal or in writing” (Article 132). However, expression of will does not constitute a contract by itself. Thus, a verbal agreement of the ADG representative cannot be considered valid.
Arguments of the ADG are the following:
- The ADG claims that the BCC violated the terms of the contract since they did not manage to complete the project with the budget they initially agreed to.
- The BCC was not able to finish the construction of the project by the agreed date.
Thus, although the BCC argues that the reason they were not capable of finishing the construction by the date agreed by both parties, the budget was not sufficient to pay wages even for 8,000 laborers. Therefore, even in case the ADG issued enough visas, the BCC still would not manage to finish the building with the budget they agreed to. There are two possible compromise remedies. Firstly, the parties to the contract can set the new date and try to finish the construction with fewer laborers. This will need some addition to the budget, however, in amount lesser than 2 billion AED, but the date of the project completion will be postponed.
The second remedy may be to hand over the project to the other construction company. Initially, it was the BCC fault since they did not estimate the budget of the project adequately. The BCC will be provided compensation for the work already performed. Thus, according to the UAE Law of Civil Transactions, the ADG can “after serving a formal notification to the debtor, demand the performance of the contract or its rescission” (Article 272 (1).
Application of the UAE Federal Law Articles
Article 139 (1) Where a time is fixed for acceptance, the offeror is bound to maintain his offer until the expiry of the time period.
The BCC can use the Article 139 (1) in case the ADG would try to withdraw the offer to the agreed date of construction completion (August 1, 1992). Thus, until that date the project could not be handed over to another construction company.
Article 176 – Duress is a wrongful coercion by which a person is induced to do something without his consent. Duress may be made by using violent or intimidation, physical or moral.
The ADG representative described his state as “shocked”, after the BCC told him, that construction could not be finished by the agreed date. The ADG can imply that their representative was morally intimidated by the sudden news from the BCC, and BCC took advantage of his shock, thus, committing duress.
Article 273 (1) In bilateral contracts if force majeure arises that makes the performance of the obligation impossible, the corresponding obligation shall be extinguished and the contract ipso facto rescinded.
The force majeure circumstances usually include natural and technological disasters or actions of the third parties that made the fulfillment of the contract impossible. Therefore, the BCC cannot claim the force majeure in this case, since there were not circumstances that were not accounted in the initial contract.
Works Cited
Adams, Kenneth A. A Manual Of Style For Contract Drafting. Chicago, IL: American Bar Association, 2004. Print.
Espenschied, Lenné Eidson. Contract Drafting. Chicago, IL: American Bar Association, 2010. Print.
Feldman, Robert A, and Raymond T Nimmer. Drafting Effective Contracts. Gaithersburg, PA: Aspen Law & Business, 1999. Print.
Kuney, George W. The Elements Of Contract Drafting. St. Paul, MN: Thomson West, 2006. Print.
Plimpton, Laura. Business Contracts. Irvine, CA: Entrepreneur Press, 2007. Print.
“UAE Law Of Civil Transactions.” UAE Federal Law no. 2 of 1987. Web.