Question

As a new sales representative for Madmel Enterprises, you take a long time customer out to dinner and drinks. before dinner is over, buy after sharing a couple rounds of top-shelf tequila, you have shaken hands on a deal to sell the customer nearly a one and half million dollars worth of industrial equipment. Madmel Enterprises is the only supplier of this industrial equipment. you have orally agreed on the essential terms of the deal such as price, quantity, delivery, etc.. In writing up the formal contract the next morning, you discover that you miscalculated the equipment's price. Your error could cost Madmel Enterprises $120,000.

You telephoned your customer to explain the situation. The customer insists we have a deal and if you do not go through with the deal, the customer will sue Madmel Enterprises for specific performance and other damages. The customer says that without the industrial equipment the company's operations will be severely impacted and it will cost thousands of dollars a day in lost profits.

You go to your boss and explain the situation. Your boss is a novice in contract law and asks you to explain in writing whether the deal is enforceable, what specific contractual issues will likely arise in the dispute and if Madmel can even get specific performance or other damages assuming they were successful in a lawsuit.

Prepare a memo for you boss. Discuss the requirements of a valid contract, any possible defenses, validity of customer's demand for specific performance or other damages, and whether business considerations may warrant going through with the deal even if the deal is not a contract or un-enforceable.

Answer 1

The requirements of a legal binding of a contract are (a) offer, (b) acceptance, (c) consideration, (d) mutuality of obligation, (e) competency and capacity, and where there exists certain circumstances or terms it should also (f) a written instrument.

Boss, the terms which were discussed at the dinner table while taking drinks do not be called as the final terms whether concerned with the price, quantity, delivery, etc. Such terms are not legally acceptable because parties are not in good state of mind and things are not in writing. The final and acceptable terms should be while both parties are in good state of mind to validate the terms and that to in written form in the presence of acceptable authority. So, to make the the terms of the contract legally binding, there should be "Competency and capacity", and "a Written instruments". Which are missing in takes at the dinner table last night. Thus, there is not contract exists with the customer.

A valid legal contract should be expressly reflected though written note, memorandum, or agreement that should be signed by the parties or their personal representatives.

Customer would not succeed in enforcing the contract on us legally in any lawsuit and claim damages.

It could possible that we lose one of our long time customer in the process.

Thanks.