Contracts 616, Assignment #4, Feugueng8460

MEMORANDUM OF LAW

To: Giant Company President

From: Chief Operating Officer (COO) of Giant
Re: Review of Contracts
Date: July 6, 2013

QUESTIONS PRESENTED

1. Is there a flaw in the consideration of the contract that would allow Giant to stop
honoring the contract and allow it to but from another vendor?

2. What could Little do, if anything, to cure any alleged flaw in the consideration?

3. How does the fact that Giant has honored the contract for two years affect the
argument?

STATEMENT OF FACTS

Giant has been operating at a loss. Giant believes it must cut costs. You have requested
me to review all of the company’s contracts to determine if there are any contracts that can be
terminated. I have reviewed all contracts and have found that Giant’s contract with Little Candy
Company (Little) has flaws.

Giant’s purchasing department has informed us that an identical candy coating can be
purchased at a lower cost from another vendor.

OVERVIEW OF CONTRACT WITH LITTLE

“Giant Candy Company (Giant) agrees to buy and Little Candy Company (Little) agrees
to sell all of the candy coating that Giant requires for a period of five years. The candy coating
shall be purchased at the current list price as determined by Little. Orders will be shipped ten
days from the placement of order. Applicable taxes extra. Contingencies beyond the control of
Little to be sufficient excuse for failure to comply with the contract.”

BRIEF ANSWERS

Several flaws exist in the abovementioned contract that could possibly make it void.
Giant has been ordering candy coating for two years, and all orders have been delivered on time;
However, Giant has placed 14 orders and Little has charged a different price for each order.

The following flaws could possibly allow us to terminate Giant’s contract with Little:
1. Unilateral decision by Little. An offeree’s acceptance of a bilateral contract binds the
offeree as well as the offeror. However, if the offer is for a unilateral contract, the offeree is
normally not bound (Gilbert Summaries).
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The contract specifies that Little can unilaterally determine prices, and our records
indicate Little has randomly charged different prices for each delivery (14) for the identical
Product. Unilateral decisions as pricing cannot be made in bilateral contracts. However, such a
decision was made by Little for over two years, which has created a flaw in the consideration.
.
Mutual Assent. A contract is formed by mutual assent of the parties (Gilbert). The
objective theory of contracts determines whether mutual assent is present in this contract with
Little. With regards to the pricing, it is apparent that mutual assent is not present. Under these
circumstances, Giant can stop honoring the contract with little and begin buying from another
vendor.

2. Little could try to prove that there is no flaw in the contract. Their pricing was based
on the fair market value for a period of two years. They could show that profit margins were the
same throughout the two years. Since they filled the orders on time, Little could defend their
actions based on the quality of materials supplied and timeliness orders as well as Giant’s
agreement to the terms. Little could renegotiate the contract with Giant which would be strictly
a bilateral contract with mutual assent on all terms, including pricing and performance, which are
the two major flaws in the contract.

Equitable Remedies of Promissory Estoppel and Detrimental Reliance: Equitable

Remedies of Promissory Estoppel serves as a “consideration substitute” in contract law that
renders certain promises otherwise lacking in consideration binding and enforceable. In such a
case, Giant’s reliance is treated as an independent and sufficient basis for enforcing the contract.

Detrimental reliance can be used to force Giant to continue its obligations under the
contract, using promissory estoppel. (Gilbert, Black Letter Series).

3. Since Giant has honored the contract for two years, Giant has shown a good fait effort
to comply with the terms of the contract. However, the fact that Giant has operated under the
terms specified by Little gives cause for Little to continue its practices. The clause in the
contract which gives Little excuses not to perform although, questionable, may also give Little
power to terminate the contract without any prior notice.

A says to B, “I will sell you my blue Mercedes for $45,000.” B responds “I accept”
Assume a valid offer and acceptance. Write about consideration as you would in an essay exam.
Begin with a definition of consideration, then determine whether or not these facts fall within
that definition and conclude.

CONSIDERATION

Consideration: A contract or promise is not enforceable unless supported by

consideration. Consideration consists of a benefit to the promisor and a detriment to the
promisee.
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A promise might have the elements of offer and acceptance; However, if the promise is
not supported by consideration, the promise is not binding. The promise must be supported by a
bargained for consideration that is legally sufficient. Each party to a contract must receive
something of value.

Consideration may be given for performance of an act or for not performing an act. For
example, a person may make a valid contract by paying someone not to erect a fence on their
property. According to Gilbert, some “authorities treat as consideration any factor that will make
a contract or promise enforceable”

Equity of Value and Adequacy:Although the consideration must be adequate in order to

make a contract enforceable, adequacy does not mean that the contract price exactly matches or
exceeds the fair market value of the property. However to be adequate, the agreed consideration
must only approximate the market value. Gross disparity may be used as a defense. Adequacy of
the consideration is measured as of the party’s entry into the contract and not at the time for
performance. To measure the adequacy of the consideration at any other time would deprive the
buyer of the benefit of his bargain.

Mutuality of Consideration: Bilateral agreement.

Both parties must be bound, or neither is bound. If B does not pay the bargained for price
for the car, he must surrender the car.. If A does not surrender the car to B, then A is not entitled
to the $25,000.00 The element of mutuality is to ensure that both parties are on the same page
and possess a mutual understanding of the terms and conditions of the contract. If B’s promise is
not consideration, then B cannot enforce A’s promise. A may not enforce B’s promise even
though A’s promised performance is consideration.

Legal purpose/objective: The objective of a contract is for legal purposes only. Anything
illegal is not binding. The object of the contract must be lawful.

Statute of Frauds: The statute of frauds requires all contracts valued in excess of $500 or
more be in writing, and signed by all parties involved in order to be valid.

Contractual Capacity: A valid contract must be made by persons who are competent to
contract. The parties must be legally capable of entering a contract, i.e. Age and mental capacity.

Conclusion:

If one can assume valid offer and acceptance means the contract is in writing and signed
by both parties then A and B have a valid contract.

Elements: Offer by A: Mercedes for $25,000 Acceptance by B: $25,000 for purchase of

Mercedes Contractual terms and agreements (assumed if valid offer and acceptance means
signed contract.

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Meeting of the minds or mutuality: Car is legally owned by A, both of legal age, both of
sound mind, equity in value, legal purpose.

Although offer and acceptance is verbally agreed upon, the contract is not valid or
enforceable unless signed by both parties.