Topic: The Formation of Sales and Lease Contracts
Problem 1: Legal issue:
Issue: Disney’s management decided to make an oral contract with Martha Stuart to create custom furniture, draperies and designs for the hotel. However, Disney’s management changed their plans and decided not to build the hotel. When Martha Stuart’s products begin arriving, Disney canceled the order and claimed that there was no physical contract. From the situation, is the oral contract as valid as writing?
Problem 2. Why does this topic apply to your workplace? Disney makes constant purchases with various merchants on a consistent basis through contracts. For this reason, Disney needs to understand the laws of sales contracts.
Problem 3. IRAC Analysis:
Issue: Is Disney liable for Martha Stuart’s products even though the contract was made orally?
Rule- The Statute of Frauds, Exceptions: An oral contract for the sale of goods priced at $500 or more or the lease of goods priced at $500 will be enforceable despite the absence of a writing in the following circumstances [UCC 2-201(3), 2A – 201 (4)] (Cite: West Law p. 343.)
Rule- Specially Manufactured Goods: An oral contract is enforceable if it is for goods that are specially manufactured for a particular buyer and specially manufactured. These goods are not suitable for resale or lease to others. The seller has also started to manufacture the goods. Once the seller has taken action, the buyer cannot repudiate the agreement claiming the Statute of Frauds as defense (Cite: West Law p. 343.)
Application: Since Disney did in fact made an oral agreement with Martha Stuart to create products specifically designed and manufactured for the hotel, Disney may not reject the agreement. The products are custom made and also over $500 which make Disney liable to the seller.
Conclusion: Martha Stuart created furniture and decorations that are unique in style for Disney. Therefore, it will be difficult for Martha Stuart to find another buyer if Disney rejects the oral contract. In addition, the UCC indicates that Disney is liable to the seller.
Problem 4: Appropriate management response to the situation to limit legal liability.
Management should order the furniture and decoration when Disney has laid the foundations for the hotel. This way management will be guaranteed that the hotel was being built instead of ordering the products before the construction. In addition, Disney’s management should never make a deal over the phone or orally with a merchant. They should meet with the merchant face to face and create a contract with a cancellation policy written in the contract.
Problem 5. Give citations for legal rules that may limit liability.
If the parties to a contract set forth its terms in a confirmatory memorandum or in a writing intended as their final expression, the terms of the contract cannot be contradicted by evidence of any prior agreements or contemporaneous oral agreements (Cite: West Law p. 345.) Confirmatory memorandum: Contract is enforceable if merchant fails to object in writing to confirming memorandum within tend days of its receipt (Cite: West Law p. 344.)
Problem 6. Preventative measures that management can take to limit liability in the future. Explain the action that management can take to apply the liability limiting rules to the situation.