The two parties involved never had a valid written contract. In the scenario, the parties negotiated for a period of 90 days and 3 days before the deadline set in the original negotiation contract they reached a verbal distribution agreement. In the original negotiation contract, it states that there would be no distribution contract unless it was in writing. When the BTT manager sent the e-mail to Chou, he mentioned the terms of a distribution agreement, but it does not make the email a contract due to the fact that neither party signed it. Only an oral agreement was reached. Without a legally binding draft and both parties signatures no contract exists. Though the contract was in process even the details had been identified, however; it fell through the cracks because of the management change at BTT.
Initially, BTT paid Chou $25,000 for exclusive negotiation rights to his board game for a 90-day period and held meetings where details were discussed and agreed upon. This lead Chou to believe they were serious about finalizing an agreement on a distribution contract. Chou received an e-mail with the details of the contract, however; nowhere on the e-mail did it note that it was in-fact a contract. Chou received a fax from BTT requesting a draft for a distribution agreement contract. Chou immediately responded and then did not hear back from BTT for several months.
New management at BTT took over and made the decision to inform Chou that they are no longer interested. Since the contract was not drafted within the original 90-day period, the new management was not obligated to distribute the board game, and therefore, had every right to turn Chou away instead of honoring the oral contract. However, the statute of frauds also constitutes the e-mail as a sign document. “Case 6.3 Stevens v. Public is a great example of the court awarding the contract since the e-mails contained the name at the end of each message that signaled the author’s intent to validate its contents,” (Melvin, 2011, p. 152).
The fact that both parties were communicating by email did not have an impact on my analysis of the situation. In the paperless world that has evolved, electronic communication is just as effective as paper communication. This e-mail shows an agreement by both parties on the key terms of the distribution agreement made in the meeting. Even though the e-mail never stated the word “contract,” this e-mail still shows an acknowledged contract of terms between BTT and Chou. Using the Mailbox rule, this e-mail had a name at the bottom of the page is considered a signature on an electronic document (Melvin, 2011, p. 137).
Under the Uniform Commercial Code (UCC), the statute of frauds applies to any contract for the sale of goods for $500 or more, and any lease transaction for goods amounting to $1,000 or more (Melvin, 2011, p. 151). Chou received the $25,000 under the negotiation agreement, which should be considered under the sale of goods of the Strat game. Under UCC laws, the statue of fraud applies when a contract cannot be fulfilled within one year’s time. Under these stipulations, the statute would apply.
However, there is one element required to meet this stipulation, and that is the signature of the party in the contract. The e-mail from BTT shows the acknowledged agreement between the two parties with a name at the bottom of the e-mail showing an electronic signature from the company. The issue of Chou being misled by the money, verbal agreement, and the e-mail could also be used in this scenario.
BTT cannot avoid this contract with the doctrine of mistake because there was no unilateral mistake in the scenario (Melvin, 2011, p. 141). A mistake is defined under contract law as “The belief that is not in accord with the facts.” They have not done anything to indicate there were any mistakes on the agreements with Chou. Chou may have a unilateral mistake because his 90-days were up in just three days. He managed to get an oral agreement with BTT in a timely manner. Before Chou could type up their agreement, a BTT manager sent him the e-mail that stating the agreed information, he made the mistake of thinking this was the contract from BTT.
Assuming arguendo that the e-mail constituted an agreement between BTT and Chou, both parties were in agreement to the terms of the distribution agreement even though it was only verbal. The verbal agreement was done within the 90-day period as specified by the negotiation agreement. Also, BTT gave a check for $25,000 for the exclusive negotiating rights shows that BTT intended to reach a contract with Chou. Both parties had been actively participating several months as if the agreement were in active status. Finally, BTT had also sent Chou a fax asking him to send them a draft of a contract for the distribution agreements.
BTT has stated they are no longer interested in distributing Chou’s new strategy game, Strat. By BTT making this decision, they are breach of contract with Chou. Chou could be entitled to sue BTT in an attempt to recover damages. Remedies at law would constitute compensatory damages against BTT. Some of the claims that might be legitimate to this case are: 1. Breach of contract- “There are some cases where the breach is not material, sometimes referred to as partial breach, where the nonbreaching party may not be relieved from performing. However, the nonbreaching party may still recover damages related to the breach from the breaching party” (Melvin, 2011, p.168 ). 2. Compensatory damages- “Cover a broad spectrum of losses for recovery of actual damages suffered by the nonbreaching party.
These damages are an attempt to put the nonbreaching party in the same position she would have been in if the other party had performed as agreed. This includes such sums as out-of-pocket damages and even potential profits that would have been earned if performance had occurred” (Melvin, 2011,p.171). 3. Injunctive relief- “A court order to refrain from performing a particular act is known as injunctive relief” (Melvin, 2011, p.173). 4. Promissory estoppel- “Theory allowing for the recovery of damages by the relying party if the promisee actually relied on the promise and the promisee’s reliance was reasonably foreseeable to the promisor” (Melvin, 2011, p.143). 5. Consequential damages- “Consequential damages compensate the nonbreaching party for foreseeable indirect losses not covered by compensatory damages. An aggrieved party is entitled to recover consequential damages if the damages are caused by unique and foreseeable circumstances beyond the contract itself.
In order to recover consequential damages, the damages must flow from the breach (i.e., the damages were a consequence of the breach)” (Melvin, 2011, p.171). 6. Restitution- “Restitution is a remedy designed to prevent unjust enrichment of one party in an agreement. In the event that one party is in the process of performing the contract and the other party commits a material breach, the nonbreaching party is entitled to rescind (cancel) the contract and receive fair market value for any services rendered” (Melvin, 2011, p.172). 7. Liquidated damages- “Liquidated damages are damages that the parties agree to ahead of time. In some cases it may be very difficult to determine actual damages, so parties may agree at the time of the contract that a breach would result in a fixed damage amount.
Liquidated damages provisions are commonly used in license agreements (such as a software-user’s license) whereby the parties agree” (Melvin, 2011, p.172). 8. specific performance- “Specific performance is a remedy whereby a court orders the breaching party to render the promised performance by ordering the party to take a specific action. This remedy is only available when the subject matter of the contract is sufficiently unique so that money damages are inadequate. 17 Therefore, specific performance is rarely available in a sale of goods case unless the goods are rare (such as a coin collection) or distinctive (such as a sculpture) where the buyer cannot reasonably be expected to locate the goods anywhere else (Melvin, 2011, p.172). 9. Reformation- “When the parties have imperfectly expressed their agreement and this imperfection results in a dispute, a court may change the contract by rewriting it to conform to the parties’ actual intentions. This contract modification is called reformation” (Melvin, 2011, p.173).
Technically a breach of contract only exists if BTT sent the e-mail within the 90 day period. If the e-mail was not sent within the 90 day period there is a possibility that the stipulations in the negotiation agreement will cause trouble for Chou’s case. However, BTT did eventually send the e-mail which I believe will hold up in court, and give Chou the remedies he needs and deserves. There are many rules that one must follow to make a contract a legal document. Whether a document is written or an oral agreement, these must be followed exact. People whether they are business owners or not, face issues with contract on a daily basis. This is why there are laws in place to protect them and punish them when fraud occurs.
Melvin, S. P. (2011). The Legal Environment of Business: A Managerial Approach: Theory to Practice. New York, NY: McGraw-Hill/Irwin
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