Identify the client
Based on the facts of the contract between Pro Golf and First Flight Associates (FFA), which was rescinded prematurely, this paper seeks to advise FFA on the legal framework behind the termination. This paper analyzes the case and explores the problem that prompted the parties to seek court’s intervention whereas there were other avenues at disposal to solve the dispute.
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Additionally, the paper will explore possible actions that the FFA could undertake to preempt the recurrence of a similar problem in its future dealings. My recommendations will be based on my knowledge of the business law, which has been gained throughout the course.
Provide background to problem
The case presented in this paper centers on a controversial agreement between Pro Golf and FFA. FFA was accused of the failure to honor its contractual duties. Pro Golf is a multinational company with its headquarters in the United States (US), and it operates under the trademark FIRST FLIGHT.
Following the company’s desire to penetrate the global market, it appointed Robert G. Wynn as the sales representative in the Far East countries. Consequently, Wynn formed a company to execute the roles of a sales representative in Japan. The company, which was registered by the name First Flight Associates (FFA), marketed Pro Golf’s products under the trademark, FIRST FLIGHT.
This aspect indicates that it was licensed to act as a sales representative of the licensor. The relationship between the two parties was informal since no formal contract was entered between the companies when the license was issued. On the contrary, the two parties formed an implied form of contract substantiated through the letters sent by each party.
From the letters, FFA was to pay $2500 annually to Pro Golf as a consideration for the use of the trademark. However, to boost its marketing power, FFA sub-licensed other firms to use the licensor’s trademark among them being Teito Company. Under the new sub-license agreement, Teito was to pay an annual fee of $25,000 to FFA in exchange for the right to use the trademark to market the goods.
The agreement between FFA and Teito Company caused disputes as the licensor sought full disclosure of the material facts on which the mentioned contract was founded. Following the failure by FFA to disclose the terms of the contract as required, Pro Golf notified the former of the intention to terminate the contract unconditionally due to failure to observe the contractual duties by the plaintiff.
The termination of the contract without an agreement being reached between the two parties as to how to execute the termination process formed the basis of the controversy. FFA allowed Teito Company to use Pro Golf’s trademark. Additionally, it did not disclose the terms of the engagement to the licensor even when required to do so.
The reluctance by FFA to disclose the terms of engagement between it and Teito prompted Pro Golf to revoke the contract that it had made previously with FFA. The agreement was silent as to the reasons that could lead to termination. Therefore, the involved parties could not agree on the legality of such termination.
In addition to the termination of the decree, Pro Golf declined to pay the commissions earned by the plaintiff arguing that the company’s customs allowed payment of such fees upon delivery of goods to customers. FFA approached the courts requiring the defendant to be compelled to pay all the money earned prior to the termination of the contract. Pro Golf opposed the FFA’s claims for commission saying that the licensee failed to observe its contractual duties, thus giving the right to rescind the contract.
Expressly indicate termination causes
According to Schaffer, Agusti, Dhooge, and Earle (2011), under the common law, a legally binding contract can only be terminated under the following circumstances
- Agreement by the parties
- Failure by one party to observe a material contractual duty
- The occurrence of the specified event
- Lapse of time
- Full execution of each parties contractual duties
However, for a contract to be terminated due to the occurrence of a certain event, the anticipated issue must be specified clearly in the contract. Express indication of the events that may cause termination of a contract is important since it averts conflicts that may emerge from wrongful rescission of a contract by either party before maturity.
Additionally, such indication eliminates uncertainties that may present regarding premature termination of a contract by one party. The occurrence of the stated event leads to automatic termination of a contract without having to approach the courts to question the legality of a decision by one party to terminate a contract.
FFA should ensure that its future agreements highlight the conditions in which a contract may be terminated prematurely to avoid the recurrence of a problem similar to the one described in this case. The contract between Pro Golf and FFA did not highlight expressly the events that could prompt impulsive termination of the licensing contract, and thus the parties had to approach the courts for legal assistance.
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Indicating the instances in which a contract may be terminated prevents wrongful termination of a contract by either party. This aspect eliminates confusion and delay in the execution of the contract. Additionally, the occurrence of the stated event leads to the involuntary termination of the contract, thus relieving each party of liability in the contract. This aspect leads to savings in terms of time and resources since the parties do not have to approach the courts to dispute the legality of such termination.
The occurrence of the stated event leads to automatic termination of a contract, thus relieving each party of the attached contractual liabilities. In case one party has executed its duties fully, the other party may fail to honor its part of the bargain, thus leading to fresh disputes. Additionally, a contract may be terminated by other causes apart from those stipulated in the agreement, hence creating controversy.
Establish formal contracts
A formal contract refers to an agreement in which all the involved parties outline the material facts in a written text upon deliberation (Schaffer et al., 2011). Such contracts require extensive consultation between the contracting parties to come up with the representations to be included in the agreement.
Where necessary, a legal expert is hired to oversee the drafting of the contractual document and ensure compliance with the law. FFA should consider engaging in formal contracts in which all facts are stipulated in the contractual document to avoid the controversy that may present in the course of execution of the contract.
In its contract with Pro Golf, the parties did not meet physically to deliberate on the terms of the contract. On the contrary, the parties communicated through letters. The contract was thereby informal, and the conditions of the contract were only traceable from the correspondences.
If FFA had engaged in a formal discussion with the defendant, perhaps the two parties would explore and agree on allowing other companies to use the trademark. Therefore, I would advise FFA to negotiate its rights with other parties and document the terms in written texts to avoid the recurrence of the problem in its future endeavors.
A formal contract has the terms of engagement written and understood by both parties. Therefore, it acts as a proof of the existence of such contract. In case of disputes arising in the course of executing the contract, both parties may refer to the document to resolve the conflict without involving a court of law. Moreover, a formal agreement minimizes the chances of disputes emerging from misunderstandings since the terms of the contract are made clear right from the outset.
The terms of a contract may be of legal nature, which may require the services of a legal expert to guide the parties through the process. Such services may be expensive, which increases the operating costs. Additionally, the illegality of such terms may invalidate a contract even when a written document exists.
Establish a dispute resolution method prior to entering the contract and Indicate the terms of engagement, whether agency or employment. Most contracts often result in conflicts during execution, which must be resolved in time to avoid procrastinations in the performance of the contract. Therefore, parties to a contract ought to agree on the appropriate methods of resolving disputes without involving a court of law.
A clear statement outlining the method to be employed in resolving disputes should be included in the contractual document. In such a case, if a dispute arises prior to the actual period of termination of the contract, it can be resolved promptly.
FFA should consider creating a dispute resolution team with its future contracting parties made up of a representative from both sides. The contract should state the fact that the decision by the team is final and that it cannot be contested in a court of law. This move will minimize the chances of misunderstandings coupled with preempting the chances of the parties to seek justice from the courts.
In the light of these facts, I would advise FFA to deliberate dispute resolution methods prior to committing to a contact. In the contract between FAA and Pro Golf, no provision was made regarding dispute resolution hence the party resorted to seeking a legal interpretation from the courts.
Providing a dispute resolution method provides a ceiling that limits the parties’ ability to go to the courts in case of disputes. Besides, it ensures that disputes are resolved promptly, thus minimizing the chances of court’s involvement in the resolution processes.
Providing for a dispute resolution mechanism may limit the ability of a party to approach a court of law in the case of dissatisfaction by the verdict delivered through the stipulated dispute resolution method. Additionally, the resolution mechanism established by the contract may not always fit the different situations arising during the execution of the contract. Moreover, creating a dispute resolution team may require the establishment of a team of experts, which may increase the operating costs of the two parties.
The terms of a contract
A contract may be terminated on grounds of failure to perform the contractual duties from either party. Each party to a contract is under a legal obligation to act under the provisions of the contract. In case one party fails to act under such provisions, the aggrieved side is entitled to rescind the contract and seek damages for losses coming from the breach (Schaffer et al., 2011).
In the case of FAA v. Pro Golf, the defendant accused the plaintiff of failure to observe the contractual duties, hence rescinding the contract. In the light of the mentioned facts, I would advise FAA to engage actively in the formulation of the contractual terms and stick by them during the execution of its mandated duties. This way, the firm will be freed from any liability arising from the failure to execute its duties as specified in the contract.
Adherence to the contractual duties ensures that the contract remains valid, thus eliminating the chances of the other party rescinding the contract. Additionally, it ensures that the desired outcomes are achieved, thus averting disputes that may lead to legal interventions.
Adherence to contractual duties may be limited by certain factors such as the impracticability of the obligation or illegality of such tasks. In such cases, the execution of the contractual duties is derailed, and it may prompt the involved parties to seek intervention from the courts of law.
Schaffer, R., Agusti, F., Dhooge, L., & Earle, B. (2011). International business law and its environment. Boston, MA: Cengage Learning.