Contract formation and enforceability in Big Time Toymaker distribution dispute

¶ … Big Time Toymaker and Chou over an agreement to distribute a new strategy game. Some of the areas covered are whether or not a contract existed between the two parties, objective intent, and how e-mail comes in to play with enforceability. Also we see if the statute of frauds applies to this scenario and the defenses that either party has in the case. Lastly, we look at the different remedies that can be sought out to reimburse the party harmed by the breaching of the contract.

Case Scenario: Big Time Toymaker

In the Theory to Practice scenario between Chou and Big Time Toymaker (BTT), the parties were trying to come to an agreement to distribute the new strategy game invented by Chou called Strat. Between meetings, emails and oral agreements, the parties tried to draft a contract for BTT to distribute the game. In the end it didn't work out and BTT passed on the opportunity. This paper will go over the scenario and see which party would is more at fault for the deal not working out.

Existence of a Contract

Between BTT and Chou it is questionable whether there was a valid contract or not. They had an agreement made right before the 90-day deadline that was set in the original negotiation agreement, which stated that "no distribution contract existed unless it was in writing" (Melvin, 2011). The manager of BTT sent an e-mail to Chou stating the terms of the distribution agreement and requested that Chou replied back to him with a draft for contract. Melvin (2011) stated that to have an enforceable contract there needs to be mutual assent between the parties (Melvin, 2011, p. 130). Mutual asset contains an offer and acceptance from both parties, which was clearly made known through the e-mails. Now the question is if the e-mail is sufficient enough to consider the agreement to be "in writing."

Objective Intent

In terms of the parties' objective intent, Chou would be in favor with the oral agreement and also the email that he immediately sent to BTT after their request for a distribution agreement contract. BTT had paid Chou $25,000 for exclusive negotiation rights so obviously BTT was serious about making an agreement on a distribution contract. According to Melvin (2011), "the law requires only that the parties' acts or words lead the other party to reasonable believe (objective standard) that an agreement has been reached (Melvin, 2011. p.130). The fact that would weigh against Chou is that there is no technical written agreement that was signed by either party. There was only an oral agreement but it was not drafted before the 90-day period that was given in the original agreement. For this reason, the new manager of BTT was not obligated to distribute since there was no valid contract.

Communication through Email

The fact that the two parties were communicating by e-mail does have an impact on my analysis. In today's world communications and business transactions are done in large part with e-mail. According to section 7 of the Uniform Electronic Transaction Act (UETA), "any law that requires a writing will be satisfied by an electronic record. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation," ("Uniform law commission:," 2011, para. 6). Both BTT and Chou communicated their intent and also they both agreed through e-mail.

Doctrine of Mistake and other Defenses

A mistake according to Melvin (2011) and defined in contract law is "a belief that is not in accord with the facts," (Melvin, 2011, p. 140). That being stated, BTT would not be able to avoid the contract under the doctrine of mistake. The e-mail that was sent by BTT stated the terms of the "Strat deal" and was agreed by both parties with no mention of a mistake anywhere. If any mistake, it would be considered a mutual mistake, with both parties having an erroneous belief, (Melvin, 2011). The only defense that BTT would have is that there was no "written" contract. It would be up to the courts to determine if the e-mail would be considered written and if there was a signature at the end of the e-mail. Another defense could be that the 90-day period had expired and there was no draft sent by Chou until after that period.

Considerations Supporting the Agreement

For arguments sake, if the e-mail did constitute an agreement, there are a couple considerations that support the agreement. One of the considerations would be mutual assent. More specifically, the $25,000 that BTT paid Chou for the exclusive negotiation rights for the 90-day period. Another consideration was the email that BTT sent to Chou which stated the terms and conditions. The email repeated the key terms of the distribution agreement that was discussed and agreed upon from the meeting between the two parties.

Remedies

If there existed an enforceable contract between BTT and Chou there would be a couple different remedies that would apply to the situation. Chou could request compensatory damages for the out-of-pocket costs and also the potential profits that Chou lost because of BTT not acting in good faith (Melvin, 2011). Chou could also seek specific performance which is "a remedy whereby a court orders the breaching party to render the promised performance by ordering the party to take a specific action," (Melvin, 2011, p. 172). Another remedy would be for BTT to delegate the distribution of the game. If a problem was to arise with the third party distributing the game, BTT would still be held liable for the failed action (Melvin, 2011). Another remedy that Chou should seek, if the decision is to not have BTT distribute his game would be injunctive relief. This would mean that BTT cannot create and/or distribute a game that is similar or make money off a game that is similar to Strat (Melvin, 2011).

Conclusion

In reviewing all of the facts, stipulations and information from the text, it is abundant that there are actions that can be taken in this scenario. This is to say that the two parties had a valid contract that was enforceable by law. The court would have to decide if the e-mails were deemed valid under the UCC statute of frauds. If so, Chou has several remedies that could benefit him in this case. Ultimately, in this scenario it is up to the courts to decide if the contract even existed and what defenses each party has against the other.