Business Law Case Scenarios: Big Time Toymaker

Big Time Toymaker

Case Scenario: Big Time Toymaker
Big Time Toymaker (BTT) develops, manufactures, and distributes board games and other toys to the United States, Mexico, and Canada. Chou is the inventor of a new strategy game he named Strat. BTT was interested in distributing Strat and entered into an agreement with Chou whereby BTT paid him $25,000 in exchange for exclusive negotiation rights for a 90-day period. The exclusive negotiation agreement stipulated that no distribution contract existed unless it was in writing. Just three days before the expiration of the 90-day period, the parties reached an oral distribution agreement at a meeting. Chou offered to draft the contract that would memorialize their agreement.
A contract is a promise that can be enforced by law. In order for a contract to be enforceable it must have the necessary elements to form a contract. The elements of a contract are an offer and acceptance, consideration, capacity, and legality. Three days before the 90-day expiration period was up, BTT and Chou reached an oral agreement. Immediately after the oral agreement, the BTT manager sent Chou and e-mail with the subject line “Strat Deal” in which he repeated the terms of the distribution agreement. The e-mail included price, time frames, and the obligations of both parties. Even though Chou made an agreement with BTT under the exclusive negotiation agreement in which it stated there would be no distribution contract unless it was in writing, the e-mail is considered “in writing” under the mailbox rule. All the elements of a contract were met in the e-mail, offer, acceptance, consideration, capacity, and legality. Even though Chou failed to follow up with a distribution contract in writing for both parties to sign, he did receive the terms in writing from the BTT manager. This validates that there was an actual contract between both
Contracts can be formed as long as the terms are still accepted by both parties, and it can be binding as well. A signature is not always required so it is important that if either one of the parties do not want the agreement to be binding, they must clearly state it in the e-mail that it is not a contract and it is merely a discussion of the terms. In this scenario, Chou could have argued that the contract was binding if it was not created during the duration of the initial contract, which clearly states no distribution contract existed unless it was in writing. Because Chou never drafted the contract in writing BTT can alter or reject the contract since it cannot be considered binding. The fact that Chou sent the draft immediately upon request has no relevance because the offer still needed to be approved on BTT’s side. So unless Chou has a prior e-mail or correspondence stating that both sides null the term where the contract had to be in writing to be binding there is nothing he can