Carson and Deby’s Gallery - Business Law

Business law.

        Contracts have been necessary since business began . They allow businesses to count on money, supplies and services. According to The Restatement ( Second ) of Contracts, the definition of a contract is explained as “ a promise or set of promise for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty ”. And the formation of law contains three main parts : Offer, Acceptance and Consideration.

        Firstly, offer should be taken into consideration. In this case, there are two parties: Carson and Deby’s gallery involving in the contract, so it is classified as a bilateral contract. A bilateral contract is a contract in which both parties promise to perform certain things. The factors of offer includes : parties, subject matter, price, payment terms and performance time. As mentioned above, Carson and Derby are two parties involving in the contract. Moreover, the subject matter of this contract is that Carson was interested in purchasing a painting from Derby by an up- and coming young artist at the price of 700.000 Usd, and both Carson and Derby reached an agreement on payment terms and performance time. Carson, who bought the painting, by definition, is the offeror. Offeror is the person who makes the offer, in particular, Carson made an offer to Derby’s gallery with a view to buy his favourite painting. On the other hand, Derby’s gallery accepted the offer to sell the painting to Carson, and it is called the offeree of a contract. Besides that, both Carson and Derby’s gallery  also expressed their acceptance in the formation of contract. The last main factor of a contract, the consideration is showed clearly in this case. Consideration is what distinguishes gifts from contracts and is what each party – offeror and offeree- gives up under the contract. Carson agreed to buy the painting at the price of 700.00 USD and received the painting in return. So, to conclude, this case contains enough three main factors of a contract, so it is cosidered to be a valid contract.

        Even though a contract may have been formed with the three elements of offer, acceptance and consideration, however, one of the element may be flawed. The result is a contract may be void, voidable, or unenforceable. When one of the required elements of formation is flawed, the contract is subject to a defense. A contract defense is a situation, a term or an event that makes an otherwise valid contract invalid. These defenses ensure that the parties ever into contracts voluntarily on the basis of accurate information. Defenses of a contract includes : Capacity, Misrepresentation, Fraud, Illegality and public policy , Duress and undue influence. In this case, the fact that Carson is totally a wise man, he did not have any problems with mental or anything like that so he did not belong to the capacity defense. The same is applied to Duress and Undue influence, as it did not give us any information about these defenses in this case. Unfortunately, there is a problem involving Misrepresentation and fraud that makes this case ambiguous.

        The first circumstance is that it had a misrepresentation in this case, and it is considered to be innocent . Innocent misrepresentation includes three main elements:

1. Misstatement of a material fact ( or the failure to disclose a material fact)
2. Reliance by the buyer on that material misstatement or omission
3. Resulting damages to buyers.

In terms of misstatement of a material fact: Carson and Derby’s gallery both reached to an agreement on buying this painting at the price of 700.000 USD, with the knowledge of the fact that Derby’s gallery was showing a notice prominently displayed in the window stating “ The member of the Association of Modern Art Dealers” . However, one year later, Carson discovered by chance that Derby was not a member of this Asoociation at the time he purchased the painting . Derby had forgotten to pay his annual subscription and his membership had expired the previous month. So, misrepresentation had occurred here. Mr Carson did not get enough accurate information about Derby’s gallery before came to the conclusion to buy that painting. Misrepresentation occurs when one party to a contract is not given full or accurate information by the other party about the contract subject matter. Carson only decided to pay for this picture given that the Derby’s gallery was stll “ Member of Association of Modern Art Dealers ”, which indicated that Carson had a reliance on the material fact misstatement made by Derby, which is the second element of innocent misrepresentation. Had Carson known the truth, he would not have purchased that painting because the information from Derby’s gallery was not accurate..However, the problem located in the third element. According to the case : “ while the price of 700.000 USD which Carson agreed to pay only reflecting the market’s value of this painting at that time, with the given material fact misstatement mentioned above. The truth is that the painting is now only worth 100.000 USD. It can be easily observed that this picture had depreciated by an amount of money which is equal 600.000 USD just because of the Derby’s statement. It almosts causes damages to Carson. When there has been misrepresentation,in the formation of contract, the law allows a recission of the contract. Recission means that the contract is set aside.