Business Law Case Scenarios: Big Time Toymaker
Big Time Toymaker
Case Scenario: Big Time Toymaker
Big Time Toymaker (BTT) develops, manufactures, and distributes board games and other toys to the United States, Mexico, and Canada. Chou is the inventor of a new strategy game he named Strat. BTT was interested in distributing Strat and entered into an agreement with Chou whereby BTT paid him $25,000 in exchange for exclusive negotiation rights for a 90-day period. The exclusive negotiation agreement stipulated that no distribution contract existed unless it was in writing. Just three days before the expiration of the 90-day period, the parties reached an oral distribution agreement at a meeting. Chou offered to draft the contract that would memorialize their agreement. …show more content…
Before Chou drafted the agreement, a BTT manager sent Chou an e-mail with the subject line “Strat Deal” that repeated the key terms of the distribution agreement including price, time frames, and obligations of both parties. Although the e-mail never used the word contract, it stated that all of the terms had been agreed upon. Chou believed that this e-mail was meant to replace the earlier notion that he should draft a contract, and one month passed. BTT then sent Chou a fax requesting that he send a draft for a distribution agreement contract. Despite the fact that Chou did so immediately after receiving the BTT fax, several more months passed without response from BTT. BTT had a change in management and informed Chou they were not interested in distributing Strat.
1) At what point, if ever, did the parties have a contract?
A contract is a promise that can be enforced by law. In order for a contract to be enforceable it must have the necessary elements to form a contract. The elements of a contract are an offer and acceptance, consideration, capacity, and legality. Three days before the 90-day expiration period was up, BTT and Chou reached an oral agreement. Immediately after the oral agreement, the BTT manager sent Chou and e-mail with the subject line “Strat Deal” in which he repeated the terms of the distribution agreement. The e-mail included price, time frames, and the obligations of both parties. Even though Chou made an agreement with BTT under the exclusive negotiation agreement in which it stated there would be no distribution contract unless it was in writing, the e-mail is considered “in writing” under the mailbox rule. All the elements of a contract were met in the e-mail, offer, acceptance, consideration, capacity, and legality. Even though Chou failed to follow up with a distribution contract in writing for both parties to sign, he did receive the terms in writing from the BTT manager. This validates that there was an actual contract between both …show more content…
parties.
2. What facts may weigh in favor of or against Chou in terms of the parties’ objective intent to contract?
Negotiating has become simpler and more convenient with the use of e-mails.
Contracts can be formed as long as the terms are still accepted by both parties, and it can be binding as well. A signature is not always required so it is important that if either one of the parties do not want the agreement to be binding, they must clearly state it in the e-mail that it is not a contract and it is merely a discussion of the terms. In this scenario, Chou could have argued that the contract was binding if it was not created during the duration of the initial contract, which clearly states no distribution contract existed unless it was in writing. Because Chou never drafted the contract in writing BTT can alter or reject the contract since it cannot be considered binding. The fact that Chou sent the draft immediately upon request has no relevance because the offer still needed to be approved on BTT’s side. So unless Chou has a prior e-mail or correspondence stating that both sides null the term where the contract had to be in writing to be binding there is nothing he can
do.
3. Does the fact that the parties were communicating by e-mail have any impact on your analysis in Questions 1 and 2 (above)?
The fact Chou and BTT were communicating by e-mail did have an impact that altered my analysis in questions one and two. There was proof that a conversation took place, but there was no proof of what Chou responded back to as far as the terms of agreement as to what is in the contract. Another problem is the time frame of 90-days ended, and they both allowed time to pass by, which could have possibly voided the original agreement. On either side no one agreed to a new time frame to have a contract in place with the same rules in appliance. This dispute has the possibility to fall favor of either party because both parties (BTT, and Chou) breeched the time and response portion of the contract and while e-mailing did not reinforce another dead line for the contract to be within a legal time frame, both parties allowed time to run close to the deadline (3 days before 90-day period) and another few months without response. At one point there was even a change in management. The contract itself does have the remedies needed for the contract to be legal, but the time frame may void this contract on the neglecting to uphold and failure to renew, on both sides.
4. What role does the statute of frauds play in this contract?
Under the Uniform Commercial Code, the statute of frauds requires written contracts for values over $500 (Melvin, 2011). The statute of frauds applies to this case because negotiations between the two companies exceeded the $500 threshold. The statute of frauds also applies to contracts that cannot achieve fulfillment within a year (Melvin, 2011). Because distribution contracts are generally lengthy, the statute would apply. Parties must sign the contract to meet these requirements. In some cases, courts have ruled that an e-mail is acceptable if the e-mail includes the party’s name, quantity, and pertinent language (Melvin, 2011). It is not clear if BTT’s key terms included quantity or if Chou responded to the e-mail stating he agreed to the terms of the contract and included his name.
If the distribution contract had been in writing and accepted by both parties, Chou’s case would be stronger. However, if the BTT e-mail did contain essential terms like name of parties, subject matter, and key contract terms, Chou could argue he has recourse under the Statute of Frauds because the language allowed him to “conclude that the parties intended to form a contract” (Melvin, 2011, p. 186). This situation would be much clearer if the BTT manager had not followed up with the e-mail. BTT, by later requesting Chou to provide a distribution agreement draft, clearly did not think they were already committed. Chou could have objected to writing a draft, arguing that the contract was already in place because of the e-mail. Without the e-mail, there is no question of a written contract and the statute of frauds would not have applied.
5. Could BTT avoid this contract under the doctrine of mistake? Explain. Would either party have any other defenses that would allow the contract to be avoided?
It is doubtful BTT could avoid this contract under the doctrine of mistake. According to Melvin, a mistake is defined in contract law as a belief that is not in accord with the facts. There are two types of mistakes mutual (both parties) or unilateral (one party). Neither BTT nor Chou had any erroneous beliefs about the terms of the contract. In BTT’s defense to have the contract avoided BTT’s previous manager attached a time limit to the exclusive negotiation agreement and once the time limit had expired the contract could be avoided via lapse of time. Because of the previous manager’s slow correspondence in following up with Chou this led negotiations go beyond the specified time limit of 90-days. Chou does not have a defense to avoid the contract because he had still attempted to do business beyond the specified time limit with BTT to reach an agreement. If Chou wanted to avoid the contract he should have done so on day 91 when the negotiation contract expired.
6. Assuming, arguendo, that this e-mail does constitute an agreement, what consideration supports this agreement?
Just for argument sake, if the other contract was already over or did not exist, Chou possibly could sue BTT for breach of contract because of few things. The first is that the two parties had a meeting discussing the terms that they both wanted. There would be several witnesses therefore eliminating any doubt that certain terms were discussed and accepted. Chou also had the email from BTT stating all their terms within had already been agreed on and the email clearly states that these are the terms that have been agreed on.
At the end of the scenario, BTT states that it is not interested in distributing Chou’s new strategy game, Strat. Assuming BTT and Chou have a contract, and BTT has breached the contract by not distributing the game, discuss what remedies might or might not apply.
I do believe that there was a contract and a breach in that contract by BTT. The question is should there be any remedies for the breach of contract. I believe that there are no compensatory damages (money damages) to be recovered by Chou suing BTT because they have already paid him $25,000 for the exclusive negotiation contract they agreed upon. BTT might want to sue Chou for the $25,000 they gave for the exclusive rights to distribute the game. Under the remedies category, consequential damages could not be awarded to either party because they had no idea how much money was going to be generated by the new strategy game for either party. Restitution could also not be awarded to either party because one party had to make some sort of performance related to the contract to receive restitution. I do not believe they agreed to any pre-determined damage amount, so liquidated damages would also not be obtained by either party.
References
Melvin, S. P. (2011). The legal environment of business: A managerial approach: Theory to Practice. New York, NY: McGraw-Hill/Irwin.
Case Scenario: Big Time Toymaker
Big Time Toymaker (BTT) develops, manufactures, and distributes board games and other toys to the United States, Mexico, and Canada. Chou is the inventor of a new strategy game he named Strat. BTT was interested in distributing Strat and entered into an agreement with Chou whereby BTT paid him $25,000 in exchange for exclusive negotiation rights for a 90-day period. The exclusive negotiation agreement stipulated that no distribution contract existed unless it was in writing. Just three days before the expiration of the 90-day period, the parties reached an oral distribution agreement at a meeting. Chou offered to draft the contract that would memorialize their agreement. …show more content…
Before Chou drafted the agreement, a BTT manager sent Chou an e-mail with the subject line “Strat Deal” that repeated the key terms of the distribution agreement including price, time frames, and obligations of both parties. Although the e-mail never used the word contract, it stated that all of the terms had been agreed upon. Chou believed that this e-mail was meant to replace the earlier notion that he should draft a contract, and one month passed. BTT then sent Chou a fax requesting that he send a draft for a distribution agreement contract. Despite the fact that Chou did so immediately after receiving the BTT fax, several more months passed without response from BTT. BTT had a change in management and informed Chou they were not interested in distributing Strat.
1) At what point, if ever, did the parties have a contract?
A contract is a promise that can be enforced by law. In order for a contract to be enforceable it must have the necessary elements to form a contract. The elements of a contract are an offer and acceptance, consideration, capacity, and legality. Three days before the 90-day expiration period was up, BTT and Chou reached an oral agreement. Immediately after the oral agreement, the BTT manager sent Chou and e-mail with the subject line “Strat Deal” in which he repeated the terms of the distribution agreement. The e-mail included price, time frames, and the obligations of both parties. Even though Chou made an agreement with BTT under the exclusive negotiation agreement in which it stated there would be no distribution contract unless it was in writing, the e-mail is considered “in writing” under the mailbox rule. All the elements of a contract were met in the e-mail, offer, acceptance, consideration, capacity, and legality. Even though Chou failed to follow up with a distribution contract in writing for both parties to sign, he did receive the terms in writing from the BTT manager. This validates that there was an actual contract between both …show more content…
parties.
2. What facts may weigh in favor of or against Chou in terms of the parties’ objective intent to contract?
Negotiating has become simpler and more convenient with the use of e-mails.
Contracts can be formed as long as the terms are still accepted by both parties, and it can be binding as well. A signature is not always required so it is important that if either one of the parties do not want the agreement to be binding, they must clearly state it in the e-mail that it is not a contract and it is merely a discussion of the terms. In this scenario, Chou could have argued that the contract was binding if it was not created during the duration of the initial contract, which clearly states no distribution contract existed unless it was in writing. Because Chou never drafted the contract in writing BTT can alter or reject the contract since it cannot be considered binding. The fact that Chou sent the draft immediately upon request has no relevance because the offer still needed to be approved on BTT’s side. So unless Chou has a prior e-mail or correspondence stating that both sides null the term where the contract had to be in writing to be binding there is nothing he can
do.
3. Does the fact that the parties were communicating by e-mail have any impact on your analysis in Questions 1 and 2 (above)?
The fact Chou and BTT were communicating by e-mail did have an impact that altered my analysis in questions one and two. There was proof that a conversation took place, but there was no proof of what Chou responded back to as far as the terms of agreement as to what is in the contract. Another problem is the time frame of 90-days ended, and they both allowed time to pass by, which could have possibly voided the original agreement. On either side no one agreed to a new time frame to have a contract in place with the same rules in appliance. This dispute has the possibility to fall favor of either party because both parties (BTT, and Chou) breeched the time and response portion of the contract and while e-mailing did not reinforce another dead line for the contract to be within a legal time frame, both parties allowed time to run close to the deadline (3 days before 90-day period) and another few months without response. At one point there was even a change in management. The contract itself does have the remedies needed for the contract to be legal, but the time frame may void this contract on the neglecting to uphold and failure to renew, on both sides.
4. What role does the statute of frauds play in this contract?
Under the Uniform Commercial Code, the statute of frauds requires written contracts for values over $500 (Melvin, 2011). The statute of frauds applies to this case because negotiations between the two companies exceeded the $500 threshold. The statute of frauds also applies to contracts that cannot achieve fulfillment within a year (Melvin, 2011). Because distribution contracts are generally lengthy, the statute would apply. Parties must sign the contract to meet these requirements. In some cases, courts have ruled that an e-mail is acceptable if the e-mail includes the party’s name, quantity, and pertinent language (Melvin, 2011). It is not clear if BTT’s key terms included quantity or if Chou responded to the e-mail stating he agreed to the terms of the contract and included his name.
If the distribution contract had been in writing and accepted by both parties, Chou’s case would be stronger. However, if the BTT e-mail did contain essential terms like name of parties, subject matter, and key contract terms, Chou could argue he has recourse under the Statute of Frauds because the language allowed him to “conclude that the parties intended to form a contract” (Melvin, 2011, p. 186). This situation would be much clearer if the BTT manager had not followed up with the e-mail. BTT, by later requesting Chou to provide a distribution agreement draft, clearly did not think they were already committed. Chou could have objected to writing a draft, arguing that the contract was already in place because of the e-mail. Without the e-mail, there is no question of a written contract and the statute of frauds would not have applied.
5. Could BTT avoid this contract under the doctrine of mistake? Explain. Would either party have any other defenses that would allow the contract to be avoided?
It is doubtful BTT could avoid this contract under the doctrine of mistake. According to Melvin, a mistake is defined in contract law as a belief that is not in accord with the facts. There are two types of mistakes mutual (both parties) or unilateral (one party). Neither BTT nor Chou had any erroneous beliefs about the terms of the contract. In BTT’s defense to have the contract avoided BTT’s previous manager attached a time limit to the exclusive negotiation agreement and once the time limit had expired the contract could be avoided via lapse of time. Because of the previous manager’s slow correspondence in following up with Chou this led negotiations go beyond the specified time limit of 90-days. Chou does not have a defense to avoid the contract because he had still attempted to do business beyond the specified time limit with BTT to reach an agreement. If Chou wanted to avoid the contract he should have done so on day 91 when the negotiation contract expired.
6. Assuming, arguendo, that this e-mail does constitute an agreement, what consideration supports this agreement?
Just for argument sake, if the other contract was already over or did not exist, Chou possibly could sue BTT for breach of contract because of few things. The first is that the two parties had a meeting discussing the terms that they both wanted. There would be several witnesses therefore eliminating any doubt that certain terms were discussed and accepted. Chou also had the email from BTT stating all their terms within had already been agreed on and the email clearly states that these are the terms that have been agreed on.
At the end of the scenario, BTT states that it is not interested in distributing Chou’s new strategy game, Strat. Assuming BTT and Chou have a contract, and BTT has breached the contract by not distributing the game, discuss what remedies might or might not apply.
I do believe that there was a contract and a breach in that contract by BTT. The question is should there be any remedies for the breach of contract. I believe that there are no compensatory damages (money damages) to be recovered by Chou suing BTT because they have already paid him $25,000 for the exclusive negotiation contract they agreed upon. BTT might want to sue Chou for the $25,000 they gave for the exclusive rights to distribute the game. Under the remedies category, consequential damages could not be awarded to either party because they had no idea how much money was going to be generated by the new strategy game for either party. Restitution could also not be awarded to either party because one party had to make some sort of performance related to the contract to receive restitution. I do not believe they agreed to any pre-determined damage amount, so liquidated damages would also not be obtained by either party.
References
Melvin, S. P. (2011). The legal environment of business: A managerial approach: Theory to Practice. New York, NY: McGraw-Hill/Irwin.