Question

John and Eric are childhood friends who went to school and university together. After graduation, John moved to Spain where he joined his family and started a business exporting authentic Spanish Artwork to clients around the World. Eric operates a retail store in Brazil, and the two friends agreed to start a business together. John would send artwork to Eric who would sell it in his store at a reasonable price. John shipped the Artwork by mail to ensure quick, timely delivery. Eric verbally agreed to pay John 30 days after shipment and they would split the profits equally, with each party getting 50 percent. 45 days after shipment, John contacted Eric to see how things were progressing. Eric informed John that the Artwork had not sold. He indicated some potential buyers had shown interest, but thought the art was priced too high. A month later, John called Erik to follow up and collect funds. Eric mentioned he had no cash on hand and his financial situation made it impossible to make any payments for the moment. Eric gave John the option to either take the frames back or sell them at cost. John is unable to obtain assistance from any of his friends and lawyers as there are no written contractual agreements signed. 4 months later, John followed up one last time. Eric mentioned he sold the frames for 25 percent of the asking price, and he did not transfer any funds for payment of artwork and additional costs. John lost $9,000 worth of goods and a friend that he trusted.

. What mistakes did John make during his negotiation that led to this loss? *

2. Is there anything John can legally do now to minimize his loss in this transaction? *

3. How would you negotiate differently in a similar future transaction to avoid this situation at the end? *

Answer 1

1. The first and foremost mistake was that there was no written record of the agreement between John and Eric. Without a written contract, the entire transaction is null and void and it doesn't exist. The next big mistake was not having any upfront payment and deciding to split the profits. The minimum selling price was also not agreed upon.

2. Legally there is nothing left for John to do now. At best he can have his shipping records to Eric but since there is no verbal agreement, those shipping records can only mean that John gave Eric the artwork as gifts. So for now, there is no way to minimize his loss in the transaction other than talking to Eric on good faith and getting some part of the money from him.

3. In future, the following payment terms can be done

i) Upfront payment of cost price of the painting to be shipped

ii) Pre-determined and agreed upon minimum price of selling

iii) 50% of profit within 30 days of shipment as per minimum selling price

iv) Any profit over and above that can be kept by Eric

v) The entire clause must be put in writing and a formal contract must be drawn up for business.

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