Law
1.) The parties have a contract the moment that Chou and Big Time Toymaker (BTT) entered the exclusive negotiation agreement. A contract is considered perfected the moment the parties reached an agreement which signifies their consent, the object of the contract and the consideration or price. It bears to stress that the first element to test whether a contract has been perfected is that there must be intention on the parties to be legally bound. The second element to test the perfection of a contract is when the parties have reached a reasonable agreement without the need for any further requirement. When these elements are present, it is deemed that a contract has been concluded (Jansen & Zimmermann, 2011, p. 633).
In this given case, when Chou agreed to grant exclusive negotiation rights for a 90-day period to BTT to distribute the new strategy game named “Strat” and after receiving $25,000 from BTT, such agreement is considered perfected. Such agreement allowed BTT to become the sole distributor of Strat by virtue of such agreement with Chou. Although the exclusive negotiation agreement stated that there can be no distribution contract between the parties unless it was reduced into writing, the parties reached an oral distribution agreement before the lapse of the 90-day period. To make a contract binding between the parties, it is not necessary for it to be concluded or evidenced in writing. It may not be subjected to a requirement as it its form, provided that such contract can may be proved by any other means (Jansen & Zimmermann, 2011, p. 633). Therefore, the contract between Chou and BTT has been perfected the moment there was meeting of the minds between the parties.
2.) Applying the objective theory of contracts in terms of the parties, it requires the test for intent. The objective measure of a party’s intention refers to that which a reasonable person in the position of the other party will conclude with regard to meaning of the objective manifestations of intent of each party (Emanuel, 2006, p.8) In the case of Chou, when he entered to an exclusive negotiation agreement with Big Time Toymaker (BTT) to be the exclusive distributor of his new strategy game invention called “Strat”, he was already bound to comply with his obligation since BTT paid him the amount of $25,000 for the exclusive negotiation rights of the game for a 90-day period. Hence, this is manifestation that Chou had the intention to be bound by the contract. Such fact was further bolstered three days before the lapse of the 90-day period when BTT and Chou reached an oral distribution agreement during their meeting. In the said meeting, Chou even offered that he will be the one to draft the contract that will observe the terms of their agreement. Thus, this is a manifestation that Chou had the intention to be bound by his agreement with BTT.
In the case of BTT, its manager sent Chou an e-mail which reiterated the key terms of their distribution agreement which also reflected the price, schedule, time frames, and the duties and obligations of the two parties. There is also a clear intention on the part of BTT to be bound by their contract. Thus, under the doctrine of estoppel, BTT cannot later on claim that there was not perfected contract between the parties, after deciding months after the contract was entered that the company is no longer interested to distribute Strat.
3.) In this give case, an email is considered as an enforceable contract between BTT and Chou since all of the terms that had been previously agreed upon between the parties were contained in the email (Miller, 2012). In the case of Chou, he believed that the e-mail that was sent to him by the BTT manager was intended to replace the earlier agreement where he was assigned to draft the terms of their contract. However, despite repeated demands made to BTT and its failure to respond after several months, BTT suddenly informed Chou that management changed its mind and decided that it is no longer interested to distribute Chou’s new game invention “Strat”. Therefore, BTT and Chou are bound by the terms of their agreement. Failure of the parties to comply with their obligations as stated in the agreement shall be considered as breach of contract, which will entitle the non-breaching party to claim for damages.
4.) Under the statute of frauds, sales contracts for goods priced at $500 or more a required to be in writing. However, the Uniform Commercial Code (UCC) has greatly relaxed the requirements for sufficiency of writing to comply with the requirements of the Statutes of Fraud. In fact, a writing or memorandum will be sufficient as long as it indicates that the parties intended to form a contract. All other terms of the contract can be proved by oral testimony (Miller & Gentz, 2009, p.298). In the case of the email sent by the BTT manager to Chou, it can be inferred that the email that was sent was intended to replace the earlier agreement of the parties which contained the terms of the exclusive distribution agreement that includes the price, schedule and time frames, and obligations of the parties.
5.) Under the doctrine of mistake, BTT avoid this contract based on the premise that there as a misunderstanding between the parties, which in effect avoid the contract. The doctrine of common mistake or also otherwise called as “mistake in equity” refers to a serious common mistake in contract formation that falls short of totally undermining the contract and may give rise to the right to rescind the contract by the adversely affected party. In the given case, BTT can interpose as a defense that the company only intended to be bound by the 90-day period that was previously agreed upon by the parties. Furthermore, it can allege that the company did not make a formal offer to Chou, and there was no formal acceptance on the part of Chou, which negates any form of agreement. The facts will also show that there was no agreed price between the parties. The three elements of a valid contract are: consent, object and consideration. Lack of any of the formal requirements of the contract shall render the agreement void ab initio. Since there was no consideration in the agreement between BTT and Chou, there is no contract to speak of. BTT can allege that there was a misunderstanding between the parties and that the contract can be voided under the principle of doctrine of mistake.
6.) Assuming that the e-mail constitutes an enforceable contract or agreement entered by the parties, the consideration that supports such agreement is the $25,000 that was received by Chou and paid by BTT, in exchange for exclusive negotiation rights of Strat. Assuming that the parties have agreed to pursue the contract, the consideration amounting to $25,000 shall be considered as a down payment for the entire contract price, which is yet to be determined by the parties. The initial agreement for the exclusive negotiation rights of Strat for 90 days shall be considered as a continuing offer on the part of Chou.
References:
Emanuel, S. (2006). Contracts. New York: Aspen Publishers.
Jansen, N., & Zimmermann, R. (2011), “Contract Formation and Mistake in European Contract
Law: A Genetic Comparison of Transnational Model Rules”, Oxford Journal of Legal
Studies, 31, 4, pp. 625-662.
Miller, R. & Gentz, G. (2009). Cengage Advantage Books: Fundamentals of Business Law:
Excerpted Cases, 2nd ed. Mason, OH: Cengage Learning.
Miller, R. (2012). Business Law Today, Standard: Text & Summarized Cases. 10th ed. Mason,
OH: Cengage.
