Contracts Law: Disney World Jurassic Park Amusement Ride

The first question at issue in this study has to do with the termination of an employee for poor sales performance who entered into a non-compete agreement with the company, specifically that of Disney. The employee, Simpson agreed that he would not directly or indirectly compete with Disney as an agent, employer, broker, or contractor for one year from the date of termination. Simpson has argued that he has a wife and three children and that the non-compete agreement should not apply as he has a right to earn a living and this includes anywhere in the United States. Three questions are posed: (1) Is the restriction likely to be found reasonable by a court of law? (2) Does the agreement restrain trade? (3) What change if any would you make to the restrictive wording above for the future?

In answer to this question it must be understood that a non-compete contractual agreement is binding in a court of law. Therefore, Simpson would be legally held to this agreement. A non-compete contract does not restrain trade but restrains the individual from competing directly or indirectly for an agreed upon period following termination or ending of employment with a company. The noncompete agreement is a legal contract and one that is valid and upheld in a court proceedings. The statement of the non-compete being applicable in the United States would be removed.

Question Two

The second question in this study involves a collection agency named Ace Collections that has threatened to file a mechanics lien on a debt owed by a subcontractor, Pollack Excavating Inc. For $5,000. Investigation of the issue has shown that Pollack owed Jones Equipment this sum for equipment rentals and the debt seems valid. Ace is acting on behalf of Jones. The payment is reluctantly authorized since Pollack Excavating has gone bankrupt and it is desired that a mechanics lien be avoided. Following the payment a letter is received from Jones Equipment demanding payment of the $5,000 debt. A protest is made that Ace Collections was already paid and Jones states that Ace was terminated six months ago and no longer represents them. This question will answer as to what position can be taken with Jones in regards to the debt and how the law of agency applies to these facts and who should win.

An agency is a “legal relationship whereby one person acts for another. The person that acts for another is the agent and the person from whom the agent gets authority is the principal. Agency is such that can be created by contract “express, implied, oral or written, but ratification assent is given either to an act done by someone who had no previous authority to act or to act that exceeded the authority granted to an agent, by estoppel a person allows another to act for him/her to such an extent that a third party reasonably believes that an agency relationship exists, or necessity when a person acts for another in an emergency situation without express authority to do so.” Because in this case, Ace is acting on behalf of Jones, and Ace is paid the monies, then because Ace implied a relationship with Jones and Ace had indeed worked for Jones and collected the monies, then the debt would be considered paid and Ace would be liable to pay Jones. It could be reasonably believed that Ace was indeed an agent of Jones.

Question Three

The third question in this study involves Disney subletting some of the set design and fabrication to Meehan Resources, Inc., which advertised itself as a woman owned company that regularly donated 5% of its revenues to environmental causes. A Disney audit revealed that Meehan was not woman owned and had never donated to environmental causes. Disney terminated the contract. Meehan calls you and brings attention to a clause in the Agreement, which reads: (Disney) has examined the contract, knows all the requirements, and is not relying upon any statement made by contractor in respect hereto. He threatens to sue if the termination is followed through. Three questions are posed: (1) Should you revoke the termination? Should you sue for fraud in the inducement? Because of the clause in the contract, Disney cannot reasonable terminate the contract on the grounds that Meehan Resources Inc. misrepresented the company. (2) Who is likely to prevail here between Disney and Meehan? (3) Meehan argues that there is a complete agreement here and parol evidence cannot be introduced. What is parol evidence and is Meehan right? (4) Meehan says Disney agreed in writing to not rely on any statement by Meehan so what is the basis for the termination?

Because of the clause in the contract, Disney cannot reasonable terminate the contract on the grounds that Meehan Resources Inc. misrepresented the company. Meehan is likely to prevail. The parol evidence rule is a substantive common law rule in contract cases that serves to prevent a party to a written contract from presenting outside evidence that is in contradiction or that is an addition to the written terms of the contract that in appearance is whole. The rationale for this ruling is that the parties to the contract have the agreement in a single and final form and written that outside evidence of agreement or terms from the past should not be given consideration when that writing is interpreted since the parties had made the decision to leave those terms and agreements out of the contract.

The termination would be based on Meehan’s misrepresentation of material facts. A material fact is a fact “which, if known would have affected the judgment of one or more of the parties to a transaction. In an action for fraud, a material fact must be of sufficient importance to the matter that a reasonable person would have been likely to rely on it. A material fact cannot be an opinion, belief, prediction, or speculation, and typically must relate to something in the past or present that can be proved or disproved.” (Expert Law, 2013, p.1) Reliance is such that “…within the context of fraud, reliance means that plaintiff would not have taken the particular action which underlies the fraud action (e.g., would not have entered into a contract with the defendant), had the defendant had not made the representation, promise or created the false impression, even if the representation, promise, or false impression was not the only reason for plaintiff’s action.” (Expert Law, 2013, p.1)

Question Four

The fourth question in this study regards the need for laundry services increases as the Jurassic Park project staffs up. I.M. Wright has tentatively negotiated a contract with Island Laundry Inc. But he is worried as to whether they will do the job well. He had requested a clause to the contract that Disney may terminate the agreement with 30 days written notice if it is not happy with the laundry’s performance. Disney does not want to be sued so the clause should be written so it is the company’s call as to the laundry company’s performance. This work will answer what type of condition this is called in a contract.

In the event that Disney is in any way or manner unsatisfied by the services performed by the XYZ laundry company, Disney may terminate the agreement upon providing a 30 day written notice to the XYZ laundry company. This type of condition is called a conditional promise.

Question Five

The contract with Island Laundry calls for them to clean and press 5000 shirts a month. After one week, Island has done 842 shirts but refuses to do any more unless they are paid more money. They want a renegotiation of the pricing. I.M. Wright asks you if Disney must wait until the end of the month to see if Island gets 5000 shirts done and if 30 days notice must be given to terminate them. Describe what actions Disney can take now and whether it must wait until the end of the month to conclude that Island Laundry has breached the contract. Describe the legal doctrine applicable to these facts.

Island Laundry is bound under the original terms of the contract to press 5000 shirts per month for a set fee. Because Island Laundry has refused to fulfill the contract, they are in breach of the contract.

Question Six

The sixth question in this study involves Disney buying up land to permit construction of Jurassic Park however, one lot remains unpurchased, the assistant, Paul Mankin, has related that he has an oral agreement with the owner, Watson, for Disney to buy it for $100,000. Mankin states in a letter to Watson that the agreement to sell Disney the lot for $100,000 was a verbal agreement and is therefore not binding and that he does not intend to sell the lot to Disney for that amount. The question posed is whether Disney can force the sale based on these facts. The argument to make to I.M. Wright about how to proceed will be stated.

An oral agreement is just as binding as a written agreement in a court of law. Watson had made an oral agreement to Watson, representative of Disney, to sell the lot for $100,000, therefore, this is a legal and binding agreement that would be upheld in a court of law. I.M. Wright would be advised to question Watson extensively about the agreement to ensure that there was an oral agreement on the sale and purchase of this lot between Mankin and Disney.

Question Seven

Disney wants to contract with Stephenson, Inc. To build an office building for Disney to use near the park site. . The building must be completed within six months or Disney will suffer extra costs of about $3,000 a day. I.M. Wright would like for a clause to be put into the contract incenting Stephenson to complete on time or before time. He thinks a liquidated damages clause may be appropriate. Write a memo to I.M. Wright describing why a $1,000 a day liquidated damages clause could be enforceable, or, why such a clause should not be used if that is your view. In that case, suggest alternative ways to motivate Stephenson Inc. regarding the completion date.

MEMORANDUM

To: I.M. Wright

In Red: $1,000 a day liquidated damages clause

Because the building at issue in the contract must be completed within six (6) months or Disney will suffer a resulting additional costs of approximately $3,000 per day. A clause should be placed in the contract providing incentive for Stephenson to complete on or prior to the project deadline. Liquidated damages are “an amount of money that contracting parties agree on as the amount of damages one of them can recover if the party breaches the contract. Usually they apply to some specific type of breach of the contract, not any breach of any promise anywhere in the contract. In construction contracts, you’ll most often see liquidated damages apply when the contractor breaches the contract by not finishing the work on time.” (Glazov, 2009, p.1) The formula for liquidated damages generally used is $1,000 per day that substantial completion is late.” (Glazov, 2009, p.1) The owner generally deducts the money from payment to the contractor. Reasons for use of liquidated damages include the following:

(1) Both parties know up front what the damages will be for the applicable breach. An owner knows that if the contractor finishes late, the owner needs only a calendar and their fingers (or a calculator) to identify the amount of their damages.

(2) Contractors know from the outset how much “exposure” they have if they finish the work late. They can use that information to prepare their schedules, deploy their forces, and schedule the timing and sequence of subcontractor work. Moreover they also know how much they have at risk. (Glazov, 2009, p.1)

In addition, an important fact is that providing proof of “actual damages from late substantial completion may prove to be very difficult. That can be avoided by using liquidated damages as a substitute.” (Glazov, 2009, p.1)

References

An Introduction To Corporate Regulation and Standardization (2013) Legal Practitioner. Retrieved from: http://legal.practitioner.com/regulation/standards_9_3_1.htm

Corbin, A. (1919) Conditions in the Law of Contract. Yale Law School. 1 Jan 1919. Retrieved from: http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=3855&context=fss_papers

Entire Agreement (2013) Contract Standards. Retrieved from: http://www.contractstandards.com/contract-structure/general-provisions/entire-agreement

Glazov, J. (2009) Liquidated Damages In Construction Contracts Part 1 — What Are Liquidated Damages And Why Have Them. Construction Law Today. Retrieved from: http://www.constructionlawtoday.com/2009/04/liquidated-damages-in-construction-contracts-part-1-what-are-liquidated-damages-and-why-have-them/

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