Big Time Toymaker Scenario

Big Time Toymaker ScenarioLAW/421

Big Time Toymaker Scenario

In chapter six of The Legal Environment of Business: A Managerial Approach: Theory to Practice, Melvin presents the case scenario of Big Time Toymaker (BTT) and Chou the game inventor. In the scenario, Chou invents a strategy game titled Strat. The scenario follows the events as BTT and Chou negotiate the potential distribution of Strat, ending with BTT declining to distribute the game. The legal issues presented are as follows: At what point, if ever, did the parties have a contract?

BTT and Chou must exhibit mutual assent to determine when a contract was reached. The contract is determined to be valid if shown that an offer was made (by BTT), and there was acceptance by Chou. Initially, BTT and Chou entered a 90-day agreement for exclusive negotiation rights to Strat in exchange for $25,000. Once payment is accepted, Chou’s right to solicit distribution from an outside party is restricted. This shows mutual assent as the promisee, Chou, gave up a legal right and the promisor, BTT, made its promised based on a mutual exchange. Additionally, Chou and BTT reached an oral agreement for distribution on day 87 of the 90-day exclusive negotiation agreement with an understanding that Chou would generate a written contract to memorialize the agreement. Prior to generating the contract, Chou received an email from a BTT manager titled “Strat Deal.” This email served the purpose of memorializing the agreement because it detailed the terms that Chou and BTT reached. This caused Chou to reasonably believe that the email constituted the agreement in writing, regardless of the use of the word “contract” in the communication. What facts may weigh in favor of or against Chou in terms of the parties’ objective intent to contract? Several actions on the part of BTT weigh in favour of Chou in terms of the parties’ objective to contract. The exclusive negotiation agreement shows the intent of BTT to reach a written agreement with Chou to distribute Strat. Chou’s acceptance of the $25,000 as payment shows his intent to reach an agreement with BTT. Second, BTT sent an email detailing the terms of the oral agreement reached by both parties on day 87 of the exclusive negotiation agreement. This email constitutes acceptance of the terms by BTT and again shows that BTT had an objective to contract. Finally, the fax sent by BTT displays an objective to contract a third time, reaffirming that a reasonable person would believe that BTT’s objective was to contract with Chou.

Chou’s response to the fax in the form of a written agreement shows his objective to contract with BTT. Does the fact that the parties were communicating by e-mail have any impact on your analysis in Questions 1 and 2 (above)? Although email is not an ideal venue of communication for a legal agreement, the language used in the communication by BTT is sufficient to reasonably conclude that the email constituted the written agreement between both parties. What role does the statute of frauds play in this contract? According to Melvin, under the Uniform Commercial Code, the statute of frauds does not “require that the contract writing be in a prescribed format” if it contains a signature, quantity, and the circumstance indicates a contract. Signatures used in email communication and the detailing of terms by BTT would serve to satisfy the requirements of the statute of frauds. 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? Melvin states that “the courts are much less willing to allow a mistaken party to cancel a contract for a unilateral mistake than in the case of a mutual mistake. In fact, the general rule is that a unilateral mistake is not a valid reason to avoid a contract”. Assuming the email is accepted by the courts as a written agreement between Chou and BTT, an attempt by BTT to avoid this contract under the doctrine of mistake would likely fail. Assuming, arguendo, that this e-mail does constitute an agreement, what consideration supports this agreement? In the case that the email is accepted by the courts as a written agreement, the considerations supporting this agreement are: Both parties exhibited an objective to contract in the initial agreement for exclusive negotiation rights where Chou received $25,000 in exchange for giving up his legal right to seek distribution by a third party.

A verbal agreement was reached on day 87 of the 90-day exclusive negotiation. This agreement included the terms and conditions of the distribution of Strat. BTT sent an email to Chou titled “Strat Deal” restating the terms and conditions of the agreement between BTT and Chou for distribution of the game. It is reasonable for Chou to believe the email constituted a written agreement between the two parties, which he did. 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. In the aforementioned scenario, the courts are likely to award remedies in the form of compensatory and consequential monetary damages. Compensatory damages are awarded to Chou for direct losses caused by BTT’s breach of contract and failure to perform as agreed. This failure to perform also results in consequential damages for indirect future losses to Chou.

ReferencesMelvin, S. P. (2011). The Legal Environment of Business: A Managerial Approach: Theory toPractice. . New York, NY: McGraw-Hill/Irwin.