BUSINESS LAW – BALW 20150
FALL 2018
MIDTERM ASSESSMENT #2 – CONTRACTS PAPER
OUTLINE
ESSAY
I. OFFER BY MARSHALL AND PROMISE BY CHARLOTTE TO HOLD THE OFFER OPEN
The first issue that seems to arise in the fact pattern is that, when he sends his offer via e-mail to Charlotte on Friday, September 19th, Marshall is under the effect of alcohol. A premise that is worth making is that, being the drinking age in the state of Hollis 21 and being Marshall only 20 years old, he is drinking alcohol illegally. However, the fact that he is drinking while underage does not seem to have in itself any direct consequences on the validity or lack thereof of the contract. We should rather focus on the state of drunkenness itself to establish if it prejudices the validity of the contract. Intoxication is defined as “a condition in which a person’s normal capacity to act or think is inhibited by alcohol or some other drug”. The general rule is that a contract entered into by an intoxicated person is voidable if the person was sufficiently intoxicated to lack mental capacity, whereas it is enforceable if the person – despite intoxication – understood the legal consequences of the agreement. This is reflected in Johnson v. Phifer, in which the court held that “drunkenness cannot relieve a party from a contract on the ground that he/she was drunk when it was entered into, unless his condition reached that degree which may be called excessive drunkenness, where a party is utterly deprived of reason and understanding”. Marshall’s case does not seem to fall under this exception, since it appears that when he sends the e-mail he is conscious of the consequences entailed by his offer (e.g., he is obliged to pay, but he does not have the money, so he needs to ask for his parents’ permission). In addition, his intention to buy the truck is corroborated by his efforts to scrape the money together in the following days, even after he became sober. Therefore, Marshall’s state of drunkenness does not impair the validity (and thus enforceability) of the contract. On a final note, it is worth pointing out that in the case in point Marshall would be the one seeking to enforce the contract in court and hence it would not be in his own interest to raise the fact the he was drunk when sending his offer.
At this point, however, another issue appears that would prevent the contract from being enforced. Indeed, in her reply of Saturday, September 20th, Charlotte renegotiates the price, changing it from the $5000 offered by Marshall to a higher $5200. In doing so, Charlotte is de facto making a counteroffer, i.e. rejecting the original offer and simultaneously making a new one. The mirror image rule requires the offeree’s acceptance to match the offeror’s offer exactly. Whenever an offeree changes the terms of the original offer, he/she is in fact rejecting the original offer and making a counteroffer, which is an offer in and of itself, and therefore must be accepted by the other party for a valid contract to come into existence. Given that Marshall never expresses his acceptance until September 23rd, when he confirms that he physically has the $5200, Charlotte would have grounds to argue that, until September 23rd, there is no acceptance and hence no contract in the first place. To counter this claim, Marshall could maintain that he has accepted the counteroffer with his acts and conduct, i.e. by zealously trying to put the money together in the days following the e-mail exchange. Indeed, even in the case of a counteroffer, the other party can accept the terms either by word or by conduct. If the court were not to accept Marshall’s claims, there would be indeed no contract to be enforced, and Marshall would most likely be unable to seek any remedies.
At the same time, Charlotte’s promise to hold the offer open for a period of time must be regarded to as a separate contract from the sales contract in determining its validity. It is an option contract and as such it requires all the five elements of a contract, including separate consideration in order to preserve the mutuality of obligation (e.g., a down payment). In the case at hand, there is no consideration on the part of Marshall, his commitment to find the money is just an illusory promise that cannot be enforced, hence Charlotte’s promise to hold the offer open is not enforceable either.
Even assuming that the promise was enforceable, Charlotte’s e-mail of Saturday, September 20th sets a time lapse of, verbatim, “a couple of days” in which the offer will be left open. This would mean that she promises not to accept any other offers for two days, until Monday 22nd, however Marshall does not get back to her until Tuesday 23rd, when the promise has already expired, and therefore could not raise any claims. Nevertheless, in a potential court proceeding in which Marshall would be trying to enforce the contract, he could argue that Charlotte’s terms were ambiguous in that the expression “a couple of days” may refer both literally to “two” days and more generally to “a few” days. Building on the latter interpretation, Marshall could claim that his acceptance would be within the deadline and he could therefore try to enforce the contract. The principle of “construction against the drafter” states that a party who uses ambiguous expressions is held to be responsible for the ambiguities, and thus that ambiguous language will be interpreted against the party who drafted the contract. Applying this principle, the court might be inclined towards the second, more generic interpretation, issuing a ruling in favor of Marshall: had Charlotte specifically wanted the money within two days, she should have chosen her words more carefully in order to manifest her will in a clear and unequivocal way. Marshall may also make the argument that, provided that the deadline was set after two days, the contract did not specify whether it referred to calendar or working days. This would be relevant because, being Charlotte’s e-mail sent on Saturday 20th, if only working days were counted the deadline would be on Tuesday 23rd, precisely the day in which Marshall gets back to her. Once again, applying the principle of “construction against the drafter” the court may interpret the terms in the light least favorable to Charlotte. Here, however, the court might also consider the “plain meaning” rule, according to which words must be given their plain, ordinary meaning. In this perspective, a day could simply be interpreted as a solar day of 24 hours, making the court more prone to rule in favor of Charlotte.
II. SALES CONTRACT OF TRUCK BETWEEN CHARLOTTE AND VIJAY
Moving on to the sales contract of the truck between Charlotte and Vijay, the first issue that stands out is that Vijay is 17 years old, whereas the statutory age of contractual majority in the state of Hollis is 18. The general rule is that a minor can enter into any contract that an adult can (except for contracts that are prohibited by law for minors, e.g. purchase of alcohol), but that any contract entered into by a minor is voidable at the option of that minor, which can choose to “avoid” the contract by disaffirming it. To disaffirm, the minor must manifest and communicate to the other party his/her clear and unequivocal intention not to be bound to the contract and he/she must return “as much of the consideration as the minor has”, provided that this is possible: even if that is nothing or even just “bits and pieces”, it is enough for the minor to release himself from his contractual obligations. Indeed, even if different states’ laws differ in identifying a minor’s obligations on disaffirmance, courts in most states hold that even if the minor returns damaged goods, he/she is still entitled to disaffirm the contract and receive a full refund of the purchase price. This may seem unfair towards the adult, but in Webster Street Partnership v. Sheridan, the court stated that: "The result seems hardly just to the [adult], but persons dealing with infants do so at their peril. The law is plain as to their disability to contract, and safety lies in refusing to transact business with them”. On the other hand, in an increasing number of states courts place and additional duty of restitution on the minor, holding him/her responsible for damage, wear and tear, and depreciation of goods that the minor used prior to disaffirmance. This is seen in Dodson v. Shrader, where a minor who purchased a pickup truck and used it in spite of mechanical problems until the engine “blew up” was not entitled to a full refund of the purchase price, but only to the purchase price minus the depreciation in value. In that ruling, the court gives a modern, abreast-of-the-times interpretation of contractual rights and responsibilities of infants, stating that: “[an infant] ought not to be permitted to recover the amount actually paid, without allowing the vender of the goods reasonable compensation for the use of, depreciation, and willful or negligent damage to the article purchased, while in his hands” and that “minors will not be permitted to use the shield of infancy as a cover, or turn it into a sword with which to injure others dealing with them in good faith”.
Applying the rules abovementioned to the case at hand, therefore, we can say that the contract concluded between Charlotte and Vijay is voidable at the option of Vijay. In fact, Vijay successfully disaffirms it when, on Monday, September 29th, he brings the truck – even though damaged – back to Charlotte’s apartment and communicates unambiguously his willingness to disaffirm the contract, taking advantage of the fact the she has not cashed his check yet to obtain a full refund of the purchase price. Being Vijay a minor, Charlotte has no possibility of enforcing the contract in court, but she could file a lawsuit asking a court to hold Vijay responsible for the damages caused to the truck, calling for a judgment along the lines of the aforementioned Dodson v. Shrader case and seeking to only refund him of the current market value of the truck, i.e. the purchase price minus the depreciation caused by the damage. To support her claims, Charlotte could show that she has dealt with Vijay in good faith, not knowing that he is underage – the fact pattern does not suggest that she is aware of that, so we can assume that she is not –, whereas he is acting in bad faith in trying to take advantage of infancy protection to make her pay the price of his actions (“turn the shield of infancy into a sword…”). One element that Charlotte most likely would not be able to argue is that there was fraud on the part of Vijay, because he never misrepresented his age with the intent to deceive her. As a matter of fact, no reference to age has ever been made by either of them. This rather begs the question as to whether there was negligence on the part of Charlotte in not requiring from him some form of identification during the negotiation of the sale. On the other hand, given that the check with which Vijay paid Charlotte was returned for insufficient funds, and assuming that he was aware that he wrote her a bad check, we might find that there is fraud on the part of Vijay. Indeed, fraud requires a false statement of material fact made with the intent to deceive or induce reliance, on which the other party does reasonably rely to their own detriment. In the case in point, Vijay falsely states that he has the agreed amount in his bank account (“I have the cash in the bank”), most likely with the intent to deceive Charlotte, and she indeed reasonably relies on that statement. However, since she has lost the check before depositing it, it is impossible for Charlotte to know that it would not have cleared, so there is no way she would be able to go after Vijay for fraud. Plus, even if she did, she would have to find “clear and convincing evidence” of Vijay’s fraudulent behavior to meet the standard of proof for fraud, which would be very difficult.
A final issue worth mentioning is that, when Charlotte endorses the check by signing it on the back, she turns it into a bearer instrument which can be deposited by anyone that is in possession of it. In order to avoid this, she should have added the wording “to the order of” and her full name on the back of the check, which would have allowed exclusively her to deposit it.
III. SALES CONTRACT OF SOUND SYSTEM BETWEEN DECIBELZ AND MERYL
As with Vijay, the first issue is that Meryl is 17 years old, whereas the statutory age of contractual majority in the state of Hollis is 18. As a consequence, the same legal framework for infancy and disaffirmance that was previously discussed with reference to Vijay also applies to Meryl. Given that she opens a credit account, it is reasonable to believe that Decibelz is aware of Meryl’s age.
which means that Decibelz agrees to sell and install the sound system “at its own peril”.
• Even if Meryl has already turned 18 when she calls Decibelz on Monday, September 29th, she was not yet 18 when the sale was concluded.
• which means that the Third Fifth National Bank accepts to deposit the check in Meryl’s account “at its own peril”.
• It is reasonable to expect that the bank should be aware of Meryl’s age.