CONTRACTS ANALYSIS CASE STUDY

QUESTION

Contracts
Analysis Case Study
Marshall Petersen and his wife, Gloria, began visiting the Sunday school
class you teach in Huntsville, Alabama, about six months ago. Marshall is not a
Christian, but with the encouragement of his wife, who is a believer, he says
he is beginning to explore the faith.
After his first visit
to the class, you spent some time talking with Marshall and you discovered that
he owns a small, local health food products business, and that he is interested
in growing the business by adding some new product lines. You informed him of
the high antioxidant qualities of the Muscadine grapes your family’s produce
company sells, and you asked him if he might be interested in promoting either
the grapes themselves or the various products developed using their seeds. Marshall
was interested, and a few days later you supplied him with some samples. The
samples turned out to be a very popular item with his regular customers, so he
placed a modest phone order with your company. Over time, Marshall placed
regular, increasing phone orders, and he began investing heavily in advertising
for the Muscadine products at his store. Your company has faithfully delivered
everything requested, promptly, and at consistent prices. You typically sent an
invoice with each delivery, requiring payment within 30 days, and though Marshall
has frequently been late making payment, he has generally paid each invoice
within 45 to 60 days. You have elected not to charge him any interest or
penalties, though your invoices state that you reserve the right to do so.
On one occasion when
your son, a part-time deliveryman for your company, delivered some product to Marshall’s
store, Marshall handed your son a requirements contract and asked him to sign
it on behalf of your company. The contract includes a guaranteed price schedule
consistent with what he had been paying. Marshall told him that it was “just a
formality” to guarantee a continuing business relationship. Your son signed the
contract and gave it back to Marshall. Neither Marshall nor your son mentioned
the contract to you. Your son was 17 years old at the time, but turned 18 last
month.
After a columnist for
The Huffington Post wrote an article
praising the antioxidant qualities of Muscadines, the demand for Muscadines
skyrocketed nationwide. Your company became inundated with orders, far in
excess of your ability to meet the demand. A company in Texas offered to pay
you twice the going rate for your products, but the company also required you
to sign an output contract as a part of the deal.
Though this contract
would represent a substantial financial windfall for your company, you felt bad
about potentially leaving Marshall out to dry. You called Marshall, advised him
of the offer you had received, and you suggested to him the names of other reputable
potential suppliers in the area to try and soften the blow.
To your surprise, Marshall
became very angry and told you that he expected you to continue to supply him
with all the product he needs, when he needs it, and at the prices he had
always paid, per the requirements contract between your businesses and in
accordance with an implied duty of good faith and fair dealing that had evolved
based on your ongoing business relationship. When you asked what requirements contract
he was talking about, he faxed you a copy of the contract that had been signed
by your son.

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