Explain business contracts

Assignment Help Business Law and Ethics

Reference no: EM1340145

Explain Business Contracts

Don Willetts and his wife Dana began visiting the Sunday School class you teach in New Bern, NC, about 3 months ago. Don is not a Christian, but, with the encouragement of his wife who is a Christian, he says he is beginning to explore the faith.

After his first visit to the class, you spent some time talking with Don. You discovered that he owns a small, local health food products business and that he is interested in growing the business by adding some new product lines. You informed him of the high anti-oxidant qualities of the Scuppernong grapes your family produces company sells, and you asked him if he might be interested in promoting either the grapes themselves or the various products and pills developed using their seeds. Don was interested, and, a few days later, you supplied him with some samples. The samples turned out to be a very popular item with his regular customers, so he placed a modest phone order with your company. Over time, Don placed regular, increasing phone orders, and he began investing heavily in advertising for the Scuppernong products at his store. Your company has faithfully delivered everything requested, promptly, and at consistent prices. You typically sent an invoice with each delivery, requiring payment within 30 days, and, though Don had frequently been late making payment, he had generally paid each invoice within 45 to 60 days. You had elected not to charge him any interest or penalties though your invoices state that you reserve the right to do so.

On one occasion when your 17-year-old son, a part-time deliveryman for your company, delivered some product to Don's store, Don handed your son a requirements contract and asked him to sign it on behalf of your company. The contract included a guaranteed price schedule consistent with what he had been paying. Don told him that it was "just a formality" to guarantee a continuing business relationship. Your son signed the contract and gave it back to Don. Neither Don nor your son mentioned the contract to you.

After a columnist for the New York Times wrote an article praising the anti-oxidant qualities of Scuppernongs, the demand for Scuppernongs skyrocketed nationwide. Your company became inundated with orders, far in excess of your ability to meet the demand. A company in Connecticut offered to pay you twice the going rate for your products, but the company also required you to sign an output contract as a part of the deal.

Though this contract would represent a substantial financial windfall for your company, you felt bad about potentially leaving Don out to dry. You called Don, advised him of the offer you had received, and, to try and soften the blow, you suggested to him the names of other reputable potential suppliers in the area.

To your surprise, Don became very angry and told you that he expected you to continue to supply him with all the product he needed, when he needed it, and at the prices he had always paid per the requirements contract between your businesses as well as in accord with an implied duty of good faith and fair dealing that had evolved based on your ongoing business relationship. When you asked what requirements contract he was talking about, he faxed you a copy of the contract that had been signed by your son.

Looking at the situation from a legal perspective:
1. What should you do about continuing to do business with Don?
2. If you elect to stop doing business with Don, what legal causes of action might he bring against your company, what damages or remedies might he seek, and what legal defenses might your company have?
In connection with this situation you may want to research the following legal concepts and incorporate what you find if you consider them relevant:

- Covenants of good faith and fair dealing

- Minor's capacity to contract

- Fraud in the execution of a contract

- An employee's capacity to bind a company by contract

- Section 2-306 of the Uniform Commercial Code

- Implied contracts

- Promissory Estoppel

- Custom and practice between merchants

- Any other legal concepts you believe may be relevant

Reference no: EM1340145

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