Free Contracts In General Essay Sample
Issues in Global Business Contracts
A contract can be defined as an agreement between two parties, whether formal or informal, resulting in the creation of obligations that are legally enforceable and demandable. To be valid, a contract must meet all the essential elements, namely, mutual assent, consideration, capacity and legality. Mutual assent is another term for consent, which in detail means that there was a valid offer and a valid acceptance. Consideration is the price or a thing of value given or to be given by the one party of the contract to another in exchange for the services to be given. Capacity refers to the ability of a person to enter into a contract, which usually means being of age or having soundness of mind. Lastly, legality is the requirement that the purpose of the contract must be lawful and does not violate any law (LII 2015).
A contract requires a meeting of the minds; hence, the parties must be in complete agreement with all and every term of the contract. The process employed in achieving this state starts with an offer by one party, which must then be accepted in its entirety by the other. If the other party varies the terms of the agreement, a meeting of the mind does not take place unless the original offeror agrees to it. An offer to be valid must reflect the intention of the offeror to be bound and must be definite (Beatty and Samuelson 2008, p. 257).
An invitation to offer, advertisements, auctions or price quotes are generally not valid offers because the intent to be bound is not present. In the old case of Lucy v Zehmer, 196 Va. 493; 84 S.E.2d 516 (1954), the parties were drinking around Christmas at a bar. One party dared the other to sell his farm to him – a property he had always wanted to buy. The other party accepted the dare and wrote at the back of a restaurant guest check the words “I do hereby agree to sell to W.O. Lucy the Ferguson Farm for $55,000 complete” (cited Tepper 2011, p. 54). When the plaintiff pointed out that the defendant’s wife had not sign, the latter tore the check and wrote in a fresh one where it was stated that the spouses agree to sell the farm. The wife signed it. However, when the plaintiff tried to reinforce the agreement, the defendant refused to honor it saying he was only joking and was only drunk. The Court held that the defendant had executed so many intentional actions that indicated he understood the implications of his action. The significance of this case to intent as a requisite for the validity of an offer is that intent is not necessarily what a party has actually in mind at the time an agreement is entered into, but what the entirety of a party’s actions reasonably represents his intention to be.
Aside from intent to be bound, the offer must also be definite and certain. This means that the terms are detailed and specific although definitiveness and certainty is often a question of fact left to b determined by the judge or jury. Basically, however, the following details must be reflected in the offer: the names of the parties, the price, the subject matter of the contract, and the date or performance of the contract (Tepper 2011, p. 55). For example, when one offers a job to another and says ‘I would like you to work for me as a sales clerk in my shop from January 2 to May 30, 36 hours a week at the salary rate of $8 per hour.’ If the party offered the job agrees a contract is executed. However, if the offeror says instead ‘I would like you to work for me as a sales clerk in my shop from January 2 to May 30, 36 hours a week, but let’s just discuss the salary at another time,’ a valid offer is not made and no contract results even if the offeree accepts the offer because of the uncertainty of an important term of the contract (Beatty and Samuelson 2008, p. 261).
The case of Baer v Chase, 392 F.3d 609, is a perfect illustration of definiteness and certainty as requisites for a valid offer. David Chase is a television producer and among his works is The Sopranos. While he was still considering producing this television series met with Robert Baer, a prosecutor who was interested in writing for television through a mutual friend. During their meeting Baer broached the idea about New Jersey mobs as good subjects for television drama and proceeded to narrate to Chase real events involving mobs in New Jersey. There was no agreement made during this meeting, but in three subsequent instances, twice over the telephone and the last one during a personal meeting, Chase purportedly offered payment to Baer if the latter helps him and Baer responded with a counteroffer that if the series goes well Chase should pay him, but if not then he need not pay him. The Court ruled that compensation or the price of a contract is an essential term of the contract and since the agreement did not specify or the manner with which the compensation is to be calculated then there was an invalid offer.
The Offer of Richard Franklin
Since Richard Franklin operates in the same state as Gloria, there will be no big problems that could possibly arise because the contract between them will be governed by the same law, which is the probably the Uniform Commercial Code, which governs the sale of goods in the US, or if the UCC is not applicable, the common law. Even without specifying the governing law or the forum for future litigation or arbitration, the state courts will automatically apply the laws of the state or the most applicable law. However, to ensure that her liability for any obligations is limited to the investment she made to her business, she should consider incorporating or become a limited liability company. The advantage of incorporating and being an LLC is that is that the business entity becomes separate from its owners, so that its liabilities are confined to the firm and does not extend to the owners. Since she personally works for the business, however, the LLC is the most appropriate business structure for her (Emerson 2009, pp. 308-309).
The offer of Richard, however, is not valid although there was intent to be bound as evident from the requirement of assent from Gloria at a definite time. Nonetheless, the offer is uncertain and, thus, lacking in definiteness. Franklin did not specify the time of the delivery of the first 6,000,000 widgets at the price of $6.37, the second batch of 6,000,000 widgets at $5.41 each, and the last batch of 6,000,000 widgets at $5.01 each.
A contract between Gloria and Jun Chin is more problematic than that of Gloria and Richard because of the potential conflict of laws. Gloria is in the US while Jun operates his business in China. The US is a common law country, which means that its laws are deeply rooted in English legal principles or stare decisis that have developed through the centuries in English courts. China, on the other hand, is a civil law country which means that its laws passed by its legislature are coded. Its laws have influences of Soviet and continental European law systems (The World Factbook 2015). From these facts alone, it is most likely that a conflict of law exists. There may be differences in the ways these jurisdictions interpret contracts. In order for Gloria to secure her business and minimize potential conflicts, she must have a contract drafted that should incorporate the choice of law for both governing law and forum selection clauses. Without specifying these aspects, the risk of competing court jurisdictions could render resolution of issues arising from contractual obligations problematic (Schaffer et al p. 72). The parties should, thus, incorporate the specific law that should govern the contract, for example New York law, and the specific forum that the parties could bring their case to in the event of disputes.
This is definitely not a valid offer because of the lack of definiteness of some terms. For example, what does 100% mean in specific figures? It is not clear if she is referring to the 12,000,000 widgets per year that Gloria usually sells or 12,000,000 widgets in addition to the 8,000,000 that she needs to immediately come up for a new buyer and the 13,000,000 widgets that she needs to produce in the next 24 months.
Similarly, contracting with Bonilla may potentially expose Gloria to risks. Mateo Bonilla is from Brazil, which is a civil law country (The World Factbook 2015). A potential conflict of laws may arise in the future and, therefore, the parties should incorporate clauses that specify the choice of law and the forum for future litigation. In the absence of specific choice of law, US courts follow the Restatement (Second) of the Conflict of Laws, which provides that in the event of conflicts of law, the courts shall choose the law that has the most significant relation to the contract taking into account the place of the execution of the contract, the place of negotiation, the place of performance, the location of the subject matter, and the place of business of the parties. Similarly, if Gloria and Mateo specify a choice of law, it must not be any law but a law that has some connection to the contract or to them; otherwise, it will not be a valid choice (Schaffer et al 2014, p. 76). In M/S Bremen v Zapata Off-Shore Co, 407 US 1 (1972), the Supreme Court reversed the decision of the Court of Appeals that allowed a party to bring a case in Tampa, Florida where the rig of the ship was damaged by the typhoon although the parties incorporated a forum clause that specified London. The Court held that “absent some compelling and countervailing reason it should be honored by the parties and enforced by the courts” (cited Schaffer et al 2014, p. 73). Accordingly, such clauses can only be set aside by the courts if they contravene public policy and if the forum selected is inconvenient.
Bonilla’s proposal is almost valid offer, except that ‘annually’ is the very definition of indefiniteness. For a date to be definite there must be a beginning and there must be an end. Assuming that there is intent to be bound as like the other offerors, his proposal is more certain and definite than the other two: the parties are known, the price is certain at $3.83 per widget, the subject, which is the delivery of 10,000,000 widgets.
Baer v Chase, 392 F.3d 609.
Beatty, J. and Samuelson, S. (2008). Business Law and the Legal Environment, Standard Edition. Cengage Learning.
Emerson, R (2009). Business Law. Barron’s Educational Series.
LII (2015). Contract. Legal Information Institute, Cornell University Law School. Retrieved rom https://www.law.cornell.edu/wex/contract.
Lucy v Zehmer, 196 Va. 493; 84 S.E.2d 516 (1954).
M/S Bremen v Zapata Off-Shore Co, 407 US 1 (1972).
Schaffer, R., Agusti, F. and Dhooge, L. (2014). International Business Law and Its Environment. Cengage Learning.
Tepper, P. (2011). The Law of Contracts and the Uniform Commercial Code. Cengage Learning.
The World Factbook (2015). Field Listing: Legal System. Central Intelligence Agency. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/fields/2100.html.