Running head: CONTRACT ANALYSIS
Contract Analysis
Amanda Jenson
Liberty University
CONTRACT ANALYSIS
Contract Analysis
After supplying Alabama bible study student, Marshall, with Muscadine grapes for some
time, the grapes’ notoriety grew and they were in high demand. This new popularity led to a
more lucrative business opportunity with a Texas company. It was obvious that this opportunity
would benefit your company greatly but would leave Marshall “out to dry.” After speaking to
Marshall about this opportunity, and to suggest other suppliers, he became angry and pointed out
that a contract was entered into by my son that locked our company into supplying him with
what he needs, when he needs it, and at the prices he has been paying. Being that this contract
was a surprise, this leads to decide whether or not to continue business with Marshall. The things
that must be considered are possible legal actions that Marshal could bring against the company,
if he could be awarded damages or remedies, what legal defenses we may have, and what
repercussions these dealings could have on Marshall’s new found faith.
Covenants of Good Faith and Fair Dealings
The Implied Covenant of Good Faith and Fair Dealing is a common law in which all
parties are expected to act honestly and in good faith in business. A party should not act in a way
that could destroy or injure the other party’s right to receive or enjoy the benefits from the
business venture.[ CITATION Zar15 \l 1033 ] In the situation with the business dealings with
myself and Marshall, terminating our business could potentially put Marshall into a financial
bind or could even result in the loss of his business. Even though this is a widely accepted
common law, this would not be able to be a sole cause of action for a breach of contract but can
be combined with other factors. Case law is indicative of courts being more willing to apply the
implied covenant of good faith and fair dealing when dealing with undefined aspects of franchise
agreements.[ CITATION Zar15 \l 1033 ]
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Minor’s Capacity to Contract
Code of Alabama 26-1-1 dictates that the age of majority in Alabama is 19. This is the
age that one can enter into a contract. The only exception to this is that an individual, age 15 or
over, can enter into an insurance contract. (Code of Alabama 27-14-5) Acknowledging that my
son has turned 18, he has still not reached the age of majority in order to be able to enter into a
contract with Marshall in Alabama. This would be reason for the contract to be voided.
Fraud in the Execution of a Contract
“Fraud in the Execution” is defined as when a defrauded party did not intent to enter a
contract. This can happen when a party is tricked into signing a contract.[ CITATION Ash08 \l
1033 ] Marshall was not honest with my minor son about what he was signing and he also
misrepresented the implications of signing the contract by saying that it “was just a formality to
guarantee a continuing business relationship.” Considering that my son did not understand that
he was signing a contract and that Marshall was not upfront with his intention, this could be
considered fraud in execution and the contract could be voided.[ CITATION Ash08 \l 1033 ]
An Employee’s Capacity to Bind a Company by Contract
In order for a company to be bound into a contract there would have to be the proper
authority to enter into that contract. The two authorities that could bind a company into a
contract are actual and apparent authority. An employee with actual authority has this authority
granted within their employment agreement. Apparent authority comes about when a third party
can reasonably view the employee as having the authority to enter into a contract for the
company.[ CITATION Ben12 \l 1033 ] While my son was not granted actual authority to enter
into contracts on behalf of our business, it can be reasonable assumed that an immediate family
CONTRACT ANALYSIS
member would have that authority. With only apparent authority being taken into account, the
contract would likely be held up in court.
Section 2-306 of the Uniform Commercial Code
The Uniform Commercial Code is responsible for regulating the sales and leasing of
goods. All 50 states have enacted some portions of the code and some have made some changes.
[ CITATION Ash08 \l 1033 ] Code of Alabama § 7-2-306 is one that enacted the code word for
word. Under subsection 2 of this code, even though there was no express commitment between
Marshall and myself, I would be required to use reasonable effort and due diligence in expanding
my Muscadine grape market. Under this provision, I would also be required to refrain from
supplying another dealer within the same exclusive territory. The Texas company could very
well be dealing on the same territory as Marshall. Taking the output contract that this new
company wants to put emplace into consideration, it is likely that we could not supply both the
Texas company and Marshall. In the event that both could still be supplied and they were not part
of the same territory it would be acceptable to supply them both, but to stop supplying Marshall
with the Muscadine grapes would be violating Alabama code.
Implied Contracts
An implied contract is defined as a contract with major terms implied by the parties’
conduct.[ CITATION Ash08 \l 1033 ] While not considering the contract that my son signed, the
business that was being conducted between Marshall and I could be considered an implied
contract or a contract implied in fact. The reason for this is because for some time I have
supplied Marshall with my Muscadine grapes and he has paid me. Even though there has been
no contract signed between him and I, the facts of our situation indicate that a contract exists.
[ CITATION Ash08 \l 1033 ] Our previous business actions indicated that we had an agreement
CONTRACT ANALYSIS
so if Marshall were to pursue this in court, the court would possibly rule in favor of Marshall as
they did in Live Oak Insurance Agency v. Shoemake. (2003)
Promissory Estoppel
Ashcroft and Ashcroft (2008) explain that promissory estoppel is when one person makes
a promise to another and the other person acts in reliance upon the promise, resulting in the
promisor not being able to claim lack of consideration.[ CITATION Ash08 \l 1033 ] There are
four elements to promissory estoppel. The first is that there must be a promise made and the
unwritten agreement that I would supply Marshall with my Muscadine grapes in exchange for
payment could qualify as that promise. The second element is that the promisor reasonably
expects the promise to induce action by the promise.[ CITATION Ash08 \l 1033 ] Applied to my
situation, Marshall’s agreement to pay me within 30 days of delivery would constitute this
element. The third element is that the promise is required to act.[ CITATION Ash08 \l 1033 ]
Marshall paying his bill would qualify as this element. Finally, the last element is that justice
requires enforcement of this promise.[ CITATION Ash08 \l 1033 ] Due to the likelihood that
Marshall could be financially harmed by voiding this promise, the courts would likely enforce
the promise or a summary judgement.
Biblical Dispute Resolution
Biblical dispute resolution, or biblical conflict resolution employs mediation and binding
arbitration to resolve a conflict in a private medium. Christian Conciliation Service chapters
often assist with conflicting parties coming to an agreement through Biblical conflict resolution
by providing trained mediators or arbitrators. Christian Conciliation is based upon scripture that
offers three steps. The first step is to go to the other party and discuss the issue at hand. In the
event that an agreement cannot be reached at that point, step two is to bring others in as
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witnesses. If these two steps fail, the parties are to bring their dispute before representatives of
the church where the church can be the judge and forum for final resolution in the event that
mediation or arbitration failed.[ CITATION Kee87 \l 1033 ] Christians are bound to keep unity
and peace among each other by 1 Corinthians 1:10. The first step would be for Marshall and me
to sit down and discuss our issues. This step could clear the air of any misunderstandings
relating to continuing business and the contract signed by my son. It is very possible that we can
resolve this issue at this level and not proceed to mediation or arbitration. In the event that we
cannot, we could then involve peacemakers from the church that we can both agree on. The
most crucial tool of Christian conciliation in these processes is a self-study workbook that is an
eight-day study with life inventory and the reading of scripture. The topics of these scripture
readings would include reconciliation, unity of Christians, sin and confession, forgiveness, love,
peace and the Biblical steps to resolving disputes.[ CITATION Kee87 \l 1033 ]
Continuing Business with Marshall
In light of all of these factors, the essential decision maker in continuing business with
Marshall would be the sit down between him and me. With this we could work out any
misunderstandings and come to a formal agreement of continuing business or going another
route. If we were to continue business I would like to relook at the contract that my son signed
and come to a formal contract together. Even though the Texas company would bring a
significant financial windfall to our company, Marshall has been a loyal customer. If we can
come up with some terms to continue business that are agreeable to both of us, I see no issue
with continuing to do business with Marshall. I do not think that he was acting maliciously when
he had my son sign the contract, but that would be the most important thing to rectify. If we are
CONTRACT ANALYSIS
not able to come to an agreement between ourselves, I would like to see us employ Biblical
conflict resolution and work through things that way.
Possible Damages or Remedies
In the event that the decision was made to no longer do business with Marshall and the
courts find that there was a breach of contract, there a several possible remedies. These remedies
fall into two categories of damages referred to as Compensatory Damages or Punitive Damages.
Compensatory damages are calculated by standard measure which takes into account the amount
that would allow Marshall to buy a substitute product or a cost incurred by the breach. The
amount could also be the difference between the contract price and the market price when the
seller provides the goods. The award of damages are limited by the duty to minimize the amount
of damages to a reasonable extent. Damages will not be awarded for losses that could be
reasonably avoided.[ CITATION The15 \l 1033 ]
Spiritual Implications
In light of using Biblical conflict resolution I believe that it would strengthen Marshall’s
exploration of his faith. Coming to a solution reasonably and with the help of the church would
likely cause Marshall to place more faith into the church and continue his journey. Matthew
18:15 states “If your brother sins against you, go and show him his fault, just between the two of
you. If he listens to you, you have won the brother over.” In our situation I believe that we both
have sinned and coming together and talking through that would strengthen both of our
relationships with God. With our new understanding of each other and our strengthened
relationship with God, I believe that our business relationship will also strengthen.
CONTRACT ANALYSIS
Works Cited
Ashcroft, J. D., & Ashcroft, J. E. (2008). Law for Business (16th ed.). Mason: Rob Dewet.
Bennett & Bellfort P.C. (2012, August 20). Step Away from the Pen: Who Can Bind a Company
to a Contract. Retrieved November 13, 2015, from The B & B Docket Blog:
http://bennettandbelfort.com/blog/step-away-from-the-pen-who-can-bind-a-company-to-
a-contract/
Keegan, J. M. (1987). Peacemakers: The Biblical Conflict Resolution and Reconciliation as a
Model Alternative to Litigation. Journal of Dispute Resolution, 1987, 11-24. Retrieved
from http://scholarship.law.missouri.edu/jdr/vol1987/iss/4
The University of New Mexico. (2015). Remedies for Breach of Contract. Retrieved November
14, 2015, from Judicial Education Center: http://jec.unm.edu/education/online-
training/contract-law-tutorial/remedies-for-breach-of-contract
Zarco, R., & Ben-David, M. (2015). Cycle City, Ltd. v. Harley-Davidson Motor Company: Can
Statutory Law or the Implied Covenant of Good Faith and Fair Dealing Override Express
Provisions of a Contract? Franchise Law Journal, 35(1), 47-60. doi:1728266613
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