Business Plan Memorandum
BUSINESS PLAN MEMORANDUM
This is in response to the request you made last February 2, 2016 for a business and legal advice regarding entering into a contract with a business supplier under conditions and terms that best suits and benefits you as a party.
In dealing with business suppliers, you have to enter into a contract with the other party. A contract is a legally binding agreement between parties entered by them with the intention that it shall have legal effect, which means that any one of them can resort to the law to provide remedy in the event the other party violates any of its terms. This means that in dealing with a potential supplier, you and the supplier must enumerate and specify the terms one by one and agree to include them as part of the contract with the intention that such terms are legally binding on both of you.
It is important to remember that for a contract between you and the supplier to be valid it must have all the essential elements. The essential elements of a contract are the following: agreement; consideration; contractual capacity, and; legality (Cross and Miller 2008). An agreement is manifested by an offer by one party and an acceptance by the other of the terms of that offer. Consideration, on the other hand, is the value or promise made by the parties to support the agreement between them. It may be money or in kind, which has value to the other party. Contractual capacity refers to the personal qualifications of the parties, that is, whether the law recognizes them as having standing to enter into a contract. Some measure of capacity to enter into a contract is age of majority and mental sanity. Finally, legality refers to the nature of the purpose – whether it not illegal and against public policy.
An agreement is valid only when one party makes an offer to the other party, and the other party accepts the terms of that offer. Section 24 of the Restatement (Second) of Contracts defines an ‘offer’ as the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it.” In other words, the offer must be of such nature that there is no doubt in the mind of the offeree that once he or she gives his or her assent to the terms proposed by the offeror an agreement is immediately concluded without need of further discussion of the terms. However, this can only occur when the offer is a valid one; that is, the offer is of such a nature that it is clear to see that the offeror really intends to commit himself/herself to a contract; the terms of the offer are definite and sufficiently clear, and; the commitment of the offeror to enter into a contract is directed to the offeree (Twomey et al 2016).
The first element of a valid offer is that it must show that the offeror has an intention to be legally bound by his or her offer and the only hindrance to that is the acceptance of the offeree. For example, in the case of Lucy v Zehmer, 196 Va. 493; 84 S.E.2d 516 (1954), two men were drinking at a bar during Christmas when one of them told the other that he is selling to him his farm for $55,000. To show that he was serious he wrote out a notice at the back of a check that he and his wife agree to sell the farm after which he had his wife signed it. Later on, however, when the other party tried to enforce the agreement between them, the offeror refused to honor it on the grounds that he was drunk at that time and that he was not serious. The Court, after examining the circumstance of the case held that the actions of the offeror during the incident indicated that he had intention to be bound legally by his offer taking into consideration the series of actions he made. The Court, thus, ordered the agreement to be enforced. The lesson here is not to make a joke of offers because one’s actions may be perceived by the court as intention to be bound.
Moreover, the validity of an offer should also be indicated by the definiteness of its terms. This means that the terms must be clear and the purpose of this is for an easy enforcement of the contract. In Gonzales v. Don King Promotions, Inc. 17 F Supp2d 313 (SDNY 1988), a boxing promoter entered into an agreement with a boxer in a specific match with another. The contract also included an agreement that if the boxer wins the present match he would receive a certain minimum amount and if he would lose, he would also receive a certain minimum amount. However, the fight resulted into a draw and the contract did not make any mention about a draw. The boxer contended that the contract was unenforceable because it was so indefinite. The Court did not agree. On the contrary, it held that although the agreement was poorly drafted, it contained explicit terms as to the price that the boxer would receive in the case of victory or loss from which the minimum price for a draw could be inferred.
A valid offer must be distinguish from other pre-contractual offers, such as an invitation to treat. An invitation to treat differs from an actual, valid offer in that the offeror is only inviting another party to enter negotiations with him or her without actually intending into committing himself or herself to be legally bound by the offer. Examples of an invitation to treat is an advertising board declaring that it is offering the lowest price in the market for airline tickets or shops with flyers or notices that it has the best prices in town compared to its competitors (Miller 2014).
Validity of the Proposals
There is something missing in Richard’s offer, which could impact on its validity. Although there is intent to be bound as evidenced from the time period that he has allotted for acceptance by Gloria, the offer does not indicate the exact dates of delivery of the widgets. This means that additional negotiations must be made between the parties to sort out this aspect. The acceptance of Gloria cannot cure this because this means that another round of negotiations have to be made after that, which gives the offer an element of uncertainty. Thus, if Gloria accepts the offer on the date indicated by Richard, the agreement still cannot be enforced.
The offer made by Jin also suffers from lack of definiteness of some terms. The delivery dates and the exact number of widgets cannot be inferred from the proposal because in the former, the dates are simply absent and in the latter, the 100% could refer to any of the number of widgets that Gloria needs.
The offer of Bonilla is also another instance of an indefinite offer although he indicated the exact number of widgets he can make for Gloria as well as the price. However, Bonilla, like Richard and Jin also fails to provide for the exact date of delivery.
Since you live and operate your business in the United States and some of your potential suppliers are from other countries, you must be careful in entering into contract with them for several reasons. Richard Franklin who also operates in the same state as you do would not present much problem because he is bound by the same law as you are. State courts normally apply state laws if the parties come from the same state. In the United States, the Uniform Commercial Code or UCC applies to the sale of goods. The UCC does not apply in either China or Brazil. Both, however, are signatories to the UN Convention on Contracts for the International Sale of Goods or CISG (UNCITRAL 2016). However, China has entered its reservation to Article 1(1)(b) of the CISG, which expands its application to cases where the “rules of private international law lead to the application of the law of a Contracting State” (Pace Law School Institute of International Commercial Law 2014). Brazil, on the other hand, did not make any reservation on any of the provisions of the CISG when it acceded to the treaty in 2013. To protect yourself, it is better to incorporate into the contract that you will enter into with any of the supplier especially with Jun Chin several clauses, such as the following: choice-of-language clause; a forum-selection clause, choice-of-law clause, and; force majeure clause. A choice-of-language clause ensures that the contract is interpreted in the very same language with which the parties understood wherever the case may be brought. On the other hand, a forum-selection clause provides the parties with the power to determine the court, jurisdiction or tribunal where they could bring a case in the event of breach. This also ensures that the parties have thought out beforehand what is agreeable to them. A choice-of-law clause is very important because it gives the parties the right to choose the law that will govern them in the case of dispute. Finally, a force majeure clause is important because there may be forces of nature that cannot be predicted that can prevent parties from meeting their obligations (Miller 2014).
Finally, you should protect yourself and your family from liabilities that your business may be accountable for. The business climate is often uncertain as can be seen from the latest global economic crisis. To do this, you must choose a business structure most suited to your needs and which would provide you with the best protection. Incorporating guarantees that your business’ liabilities are not your personal liability. Becoming an LLC or a limited liability company is a good decision, because it avoids double taxation as a corporation and for personal income because the IRS has declared that LLCs can be taxed as partnerships (Miller 2014).
Cross, F. and Miller, R. (2008). The Legal Environment of Business: Text and Cases -- Ethical, Regulatory, Global, and E-Commerce Issues. Cengage Learning.
Gonzales v. Don King Promotions, Inc. 17 F Supp2d 313 (SDNY 1988).
Lucy v Zehmer, 196 Va. 493; 84 S.E.2d 516 (1954).
Miller, R. (2014). Business Law Today, Comprehensive: Text and Cases: Diverse, Ethical, Online, and Global Environment. Cengage Learning.
Pace Law School Institute of International Commercial Law (2014). CISG. Retrieved from http://cisgw3.law.pace.edu/cisg/text/e-text-01.html.
Twomey, D., Jennings, M. and Greene, S. (2016). Business Law: Principles for Today’s Commercial Environment. Cengage Learning.
UNCITRAL (2016). Status United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Retrieved from http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html.