Case law analysis: contract law
Write a 2–page executive briefing of a selected business-related case pertaining to the topic of contract law.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 1: Articulate the importance, context, purpose, and relevance of law in a business environment.
- Summarize the facts and ruling of a legal case.
- Competency 2: Evaluate the role of contracts in commercial transactions.
- Analyze how a legal case could impact businesses.
- Explain how a legal case could impact a specific organization.
- Competency 5: Develop information literacy skills as applied to business law.
- Exhibit information literacy skills as applied to business law.
Importance of Contracts
Imagine a business environment that had no contracts, as we know them today. Parties would rely simply on trust, agreements, handshakes, and oral assurances. Courts of law would have absolutely no way of determining the intent of either commercial party upon entering into a joint endeavor without such disagreements becoming a he said, she said scenario. Judges and juries would have to begin anew to determine the scope of every agreement, and remedies for breaching such agreements would be almost impossible to determine without clear-cut evidence for one party or the other. In short, a commercial transactional world lacking contracts is one built upon false promises and blind trust. Such a world would make it impossible for commercial parties to enter into risky financial propositions, because no assurances could be made about contractual performance or damages. It is for that reason that contract law remains one of the most important components of business law today.
Consideration, Capacity, and Legality
One of the most important foundational concepts to recognize is that a contract must have something of value at stake, or, better known by its legal term, consideration. Consideration simply refers to something of value that two parties contract about, so that courts can answer one fundamental question: why have the parties agreed to do something, and what is the value of this shared endeavor? As you might imagine, consideration is typically in the form of money, but it can also be a service or a product. Even in instances where one party does not intend to enrich itself from its actions, a single dollar will be used as consideration, just to signal to the court that something of value (albeit of very tiny value) was at stake.
Parties must have the capacity to enter into an agreement, or, in other words, the ability to understand the terms of the agreement. Oftentimes when contracts are breached, one party will argue that some mitigating factor limited its ability to fully understand the details of a contract, and therefore that party should be excused from performance. Courts recognize certain classifications of capacity—for example, minors cannot enter into contracts—but, overall, the courts have been extremely unwilling to find a lack of capacity against parties, especially when a commercial party has been active in the business law landscape for quite some time. It would be incredulous to believe that such a person or organization was unsophisticated about business law.
It goes without saying that parties cannot contract for anything illegal—as strange as it may seem, parties sometimes bring their disputes to a court of law even when the controversy in question involves something that is outside the scope of what is legally permissible.
In short, contracts must be entered into for something of value, between two parties that fully understand the terms of the agreement, and for a purpose that is recognized as legal in a public policy context.
Breach of Contract
Breach of contract is another fundamental issue in business law. Consider what happens when one party makes an offer to another, but the other party changes any part of that original offer. When that occurs, the party that made even a slight change has, in the eyes of the law, rescinded the original contract and offered the original party a new contract, because the terms of the original contract were changed. What the party has done is to submit a counteroffer. The original party then has the option to pull out of the contract, if the counteroffer does not meet acceptable terms.
Once the battle of the contracts is over and both parties have agreed to a document, signifying their cooperation in the commercial endeavor, the text of the contract itself usually spells out what damages will ensue and how one party will compensate the other for any breach. Often, this entails monetary compensation, but it can involve something else, such as performance of some responsibility. Courts will look within the contract to determine not only what the expectations of the parties were, but also to divine whether the parties had agreed to some course of action should one party not perform the terms of the contract.
Creditors, Debtors, and Bankruptcy
Another basic element of contract law is the relationship between creditors and debtors. With the recent implosion of the housing market in the United States, millions of people experienced overwhelming debt, firsthand. Lenders who did not properly screen borrowers suffered as well, in some cases receiving massive bailouts from the federal government, or from sovereign wealth funds of foreign countries such as Singapore, Dubai, and Kuwait. Take some time to examine how that relationship has evolved in a legal context, and how both debtors and creditors have rights regarding their relationship in a lending situation.
Bankruptcy laws in the United States have changed dramatically, and it is now harder for many individuals to obtain bankruptcy status. Congress reformed the bankruptcy laws due, in part, to a perception that many citizens were relying upon bankruptcy protections to evade creditors after spending money on frivolous, unnecessary, and luxury items. Critics argue that many individuals are deeply in debt not because of frivolous purchases but because of overwhelming health care costs, exploding higher education fees, and a variety of other expenses that have far exceeded the rate of inflation.
However you feel about the public-policy origins of debt and the rising costs of a variety of services and products, one thing is certain; the bankruptcy laws are now much more creditor-friendly than they have ever been, and individuals and businesses who seek the protection of bankruptcy laws will often find that they will not be able to completely escape the reach of those who seek remuneration for debts owed.
The New Frontier: E-Contracts
A fascinating component of contract law today is the emergence of the e-contract, or contracts that have relevance to the evolving commercial universe of cyberspace. The cyberspace commercial environment has exploded in the last ten years, not only within the United States, but around the world. Entire industries have effectively been co-opted by the online universe, including the sale of books, music, movies, and a whole host of other products and services.
The courts have grappled with how to regulate contracts in an e-commerce world; not only because the parties are usually separated by many hundreds (if not thousands) of miles, but because the parties may actually live and operate in separate countries. A contract dispute between two parties on eBay might involve litigants in Indiana and India, or South Carolina and South Africa. How do courts determine what law adheres (or which country’s legal system governs) contracts that are formed through an online transaction? This is new territory for the courts. You are encouraged to speculate on how the courts may interpret e-contracts in the future, and how that might impact the global economy and commercial transactions in cyberspace.