Scenario: You own the building and land on which you have been operating
Scenario: You own the building and land on which you have been operating
a business. You want to sell the building and land and expand your business in a new location.
You offered to sell the building and land to Fast Ship, a small shipping and handling business, for $650,000. Fast Ship agreed. Fast Ship promised to pay $600,000 in cash in 3 weeks, and pay the remaining $50,000 1 month later. You agreed and shook hands with the owner of Fast Ship to close the sale. You did not commit the agreement to writing.
In 3 weeks, as agreed, Fast Ship paid you $600,000 in cash, and you transferred the deed to the building and land to Fast Ship. 1 month later, Fast Ship brought the remaining $50,000 cash payment to you. You refused to accept the $50,000.
You regretted selling the real estate and wanted to keep the building and land. You told Fast Ship that you were cancelling the contract and returning the $600,000 cash to Fast Ship. Fast Ship refused the money claiming you had a valid contract.
A. Can you get out of the deal by refusing to accept the $25,000 and returning Fast Ship’s $600,000? Why or why?
Saylor URL:http://www.saylor.org/booksSaylor.org178Chapter 6ContractsLEARNING OBJECTIVESAfter reading this chapter, you should understand what a contract is, how a contract is formed, the typesof law that govern contracts, the elements of common-law contract formation, and defenses to contracts.You will learn about performance and discharge, breach, and remedies. You will also understandimportant differences between common-law contracts and contracts between merchants under theUniform Commercial Code (UCC). You will recognize commonly used clauses in contracts and theirimportance. You will also learn about assignment, delegation, and parol evidence. At the conclusion of thischapter, you should be able to answer the following questions:1.What is a contract?2.How is a contract formed?3.When does common law govern contract formation, and when is the UCC relevant?4.What are the defenses to performance of a contract?5.What does it mean to breach a contract, and what are the consequences of breach?6.What are remedies for breach of contract?7.What common clauses can be used to accomplish certain goals, such as ensuring expediency, limitingliability, or restricting assignment?Clint Eastwood had a long-term relationship with Sondra Locke. Sadly, the relationship deterioratedand, allegedly, ended on unfriendly terms. The couple never married, but they shared a householdfor many years, and they worked on many professional projects together. When the relationshipended, Locke sued Eastwood for various causes of action. To settle the case, Eastwood proposed,among other things, that if Locke dropped the lawsuit against him, he would secure a developmentdeal for Locke at Warner Bros. Inc. Locke was not only an actress; she was also a director. No doubtassuming that this deal would advance her professional interests and, at the same time, bring a long-standing personal dispute to an end, Locke agreed. Locke entered into a settlement agreement withEastwood, and as promised, she contemporaneously entered into an agreement with Warner Bros.Chapter 6 fromThe Legal and Ethical Environment of Businesswas adaptedby The Saylor Foundation under aCreative Commons Attribution-NonCommercial-ShareAlike 3.0license without attribution as requested by the work’s original creator or licensee. © 2014, The Saylor Foundation.
Saylor URL:http://www.saylor.org/booksSaylor.org179The agreement with Warner Bros. had two components. First, it required Locke to submit work thatshe was interested in developing, before she submitted it elsewhere. Warner Bros. was to accept orreject the work within thirty days. For this part of the contract, Locke would receive $250,000 peryear for three years. Second, the contract was a $750,000 “pay or play” deal, which gave WarnerBros. a choice between using Locke’s services as a director and paying Locke a fee. Though Locke didnot know this, Eastwood agreed to reimburse Warner Bros. for the cost of this contract if she did nothave success in developing her projects or using her director services. Warner Bros. paid the $1.5million contemplated under the contract, but it did not develop any of Locke’s thirty proposedprojects, and it did not hire her to direct any films.Locke argued that the agreement had been a sham, because Warner Bros. had never intended tomake films with her. She also argued that its only motivation for entering into the contract with herwas to help Eastwood in settling her earlier claims against him. Locke sued Warner Bros. for anumber of claims, including a breach of the implied covenant of good faith and fair dealing, and fraud.She alleged that she was deprived of the benefit of the bargain and that Warner Bros. had nointention of honoring its agreement with her. Warner Bros. won at trial, and Locke appealed.The California Court of Appeals found that while the creative decisions of Warner Bros. were notappropriate for judicial review, acting in bad faith by refusing to consider the merits of Locke’sproposals was a matter for the courts. The court also noted that even though the contractual sum ofmoney was paid, that alone did not constitute performance under the contract. Part of the value ofthe contract for Locke was the opportunity to work on projects that would earn additional money andpromote and enhance Locke’s career. Moreover, the appellate court found that if Warner Bros. neverintended to work with Locke but had entered into the contract solely to accommodate Eastwood,then a lack of good faith might be inferred.[1]What do you think about this case? After all, Locke was compensated the amount of money explicitlycontemplated under the contract. Should it matter whether one party acts in good faith or not? Wemight say that this contract contains all necessary elements to be enforceable, and it looks on its face
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