Running head: LAW PROJECT 1

Law Project 1 Sherry De Haven Liberty University

LAW PROJECT 1 Abstract This paper will discuss the formation of a contract from beginning to end as well as the enforceability of said contract. We will also discuss what it means to have genuine assent and what happens it is lacking in a contract. This project looks at a business model from various aspects and looks at a case known as Williams vs. Walker-Thomas Furniture as well as several scriptural references on caring for your neighbor. We look at morality and ethicality as well as

other doctrines such as unconscionability and holder-in-due-course. Finally, the paper shares the authors viewpoint on Mr. Takems business model and integrity. Keywords: contracts, assent, unconscionability, legality, morality, ethics

LAW PROJECT 1 Law Project 1 Contract Law covers contracts; therefore, the project will begin with a discussion concerning contract law. In considering the case for this paper, Takems Appliances and Electronics, LLC, there are several issues present legally, morally, and ethically which will be covered. The enforceability of these contracts depends on the following items that must be followed through legally to make up the formation of the contract which include the agreement, the mutual assent, any consideration involved, the capacity factor, and then finally the actual

legality of the contract being considered. Each of these items consist of several issues which this case does not pass the tests for. Once the legality of the contract is discovered, we then can realize its enforceability. Knowing that the contract is enforceable, we can expect the performance to begin. In order to validate the papers statements we will also consider a case in which the court system at that time ruled in favor of the Plaintiff based on several factors which this paper will cover. After the legality discussion, the paper will turn its attention to the moral and ethical issues at which time an integration of principles we live by as well as Biblical admonitions will be discussed. CONTRACT LAW Article 2-102 of the Uniform Commercial Code (UCC) defines how contract law governs the sale of goods. Because a contract is legally binding, a breach in the contract is cause for some remedy for the injured party. (Clarkson, Miller, Jentz, & Cross, 2006). The remedy for the injured party is called corrective justice and the principles of corrective justice distribute burden and benefits when they say that victims of wrongs are entitled to the benefit of compensation on the part of the wrong-doers who must bear the corresponding (typically economic) burden (Voyiakis, 2012, p. 393). Once the injured party is determined, then the

LAW PROJECT 1 corrective justice is implemented to make the injured party whole again. Should the injured party be the offeror, in this case Tommy Takem, he could sue the offeree for the breach of contract. Should the injured party be Sally Walker, she could avoid the contract if it were not enforceable. Determining that enforceability starts with the legality of a contract, covered next. LEGALITY On what basis does a contract fulfill the requirements of legality; thereby, making the contract one of enforceability in a court of law? There are five requirements to this with subrequirements for many of them. Being the first item for consideration in the formation of the contract, the first of these requirements is, of course, an offer to create an agreement which includes a serious and objective intention to make said agreement by an offeror and an acceptance of that offer by an offeree. (Christman, 2013). In the case presented for this paper,

Tommy Takem who is the owner is the offeror and his customers are the offerees. The customer in question is Sally Walker and she was intentional about her desire to enter into an agreement with Takems Appliances and Electronics, LLC for the purchase of a laptop computer. Our second item in the formation of an enforceable contract is that of mutual assent. Mutual assent occurs when there is a defined set of terms with no errors or mistakes and both parties know what they are embarking upon. There is an understanding on both as to the agreement they are entering into. The third item in the formation of a contract is that of consideration which in this case takes the form of a loan agreement: that of a negotiable promissory note which Takems Appliances and Electronics, LLC furnishes for the financing of said purchases from his customers and charges a 15% fee for doing so on the final purchase price of the item after all other fees and adjustments are made. Sally Walker signed the promissory note indicating her

LAW PROJECT 1 promise to pay the agreed upon amount which would indicate that thus far we have an enforceable contract if the capacity is not troubling which brings us to the fourth item in our list of formation requirements. Because Sally Walker knew the terms, signed the documents, and believed she knew

what she was doing, the contract has no errors; however, the question becomes one of capacity in this situation because Tommy Takem knew that the people in the area were uneducated, had poor credit, and for the majority of them, they were just plain poor people. While Sally Walker may have known she was purchasing a laptop, did she fully understand the costs and fees associated with this agreement? Mr. Takem knew about his customers capacity limitations; yet, he took great advantage and while this limited capacity is not stated specifically as a mental incapacity, there is a limited capacity. This capacity issue could invalidate the contract. Our fifth item of contract formation considers the legality of the contract as a whole. The legality considers the entire process of forming the contract, looking at each step along the way which has been done. The contract fulfils all the requirements of a legal contract. We now turn our attention to the enforceability of said contract. ENFORCEABILITY A contract is enforceable if it meets the terms of enforceability in a court of law. Enforceability requires genuine assent. A contract with a lack of genuine assent is most often caused by misrepresentation of material facts by one of the parties, fraudulent or purposeful misrepresentation by a party, under duress, under undue influence, and may have the component of unconscionability. (Christman, 2013). We will cover each of these issues relating them as needed to the case at hand. The first of these is misrepresentation which concerns material facts and fraudulent or purposeful misrepresentation in an attempt to deceive the other party. The

LAW PROJECT 1 omission of certain facts from Mr. Takems sales techniques and information given to Sally Walker would indicate that there was a purposeful intention to deceive her; thereby, committing a fraudulent act against her. The second of these areas is that of duress. Mr. Takems sales people went door-to-door applying the pressure needed to get them to sign papers to make purchases even though they could not afford the items; thus, enslaving them. The increased terms under which the contracts

were formed also added another level of duress because of the increased prices which the people were required to pay for goods. Our third area, undue influence, is committed when the offeree feels they have no other alternative. This happens many times in a care-giver type situation; however, can happen in many other settings as well. It is not stated specifically that Sally Walker had no other alternatives; however, it is stated that there were few retail outlets in the rural area of Southwest Virginia and the outlying areas of the Appalachian; hence, could Sally Walker believe that she had no other alternatives? In undue influence involves wrongful pressure exerted on a person during the bargaining processthrough persuasion rather than through coercion (Mallor, Barnes, Bowers, & Langvardt, 2010, p. 374) The last area of genuine assent is that of unconscionability. The unconscionability doctrine in contract law enables a court to decline to enforce a contract whose terms are seriously one-sided, overreaching, exploitative, or otherwise manifestly unfair (Shiffrin, 2000, p. 205). Shiffrin (2000) also goes on to say that this doctrine is protective of those who are poor saying, the doctrine is a way to resist grossly inequitable contracts that, often, especially burden the poor (p. 206). In Christmans text, he stated that the contract may still potentially be avoided on the grounds that one party suffered a grossly unfair burden that shocks the objective

LAW PROJECT 1 conscience (Christman, 2013, p. 76). Looking at the way that Tommy Takem assessed all the fees and upcharges he did, the authors conscience was objectively shocked that anyone would do such a thing. In this case, we have a case of severe usury which meets the definition of unconscionability because of its exploitative nature and one-sidedness for Takems Appliances and Electronics, LLC. Usury in this case stems from all the upcharges Tommy Takem assesses his customers. For purposes of illustration for this paper, following is a table showing the percentage of upcharge by the time Sally Walker sighed the promissory note given that the

computer was $500 at Suggested Retail Price (SRP) and that she had At Home service. As can be seen by this example, Tommy Takems rate in upcharges is 79.40% and is unconscionable for any customer to pay as it puts undue burden on the party.
$ 500.00 $ 100.00 $ 600.00 $ 180.00 $ 780.00 $ 117.00 $ 897.00
79.40%

One Laptop Computer at SMR Tommy Takem's initial upcharge Laptop Pricing after Upcharge "At Home" Service Upcharge Cost of Laptop after 2nd Upcharge Financing Application Fee Final Purchase Price BEFORE Interest % of upcharges BEFORE Maximum Interest Allowed by Law Maximum Interest Allowed by Kentucky Law-Simple Maximum Interest Allowed by Tennessee Law-Simple Maximum Interest Allowed by Virginia Law-Simple
Maximum Interest Allowed by West Virginia Law-Simple 6%

20%

30%

15%

8% 10% 8%

$ 71.76 $ 89.70 $ 71.76 $ 53.82

LAW PROJECT 1
Usury Laws prohibit Interest Rates over: Kentucky Law: More than 4% greater than the Federal Reserve Rate or 19% whichever is less. Tennessee Law: Generally 24% or four pints above the average prime loan rate, whichever is less. Virginia Law: none West Virginia Law: maixumu "contractual" rate is 8%

Looking at just the simple interest in each state which is not compounded, we see yet another charge. Simple interest is the contract interest divided over the number of payments; however, if the compounded interest were charged, which is much higher, the interest would be revolving and the amount would be unconscionable as well. Once this writer looked at this contract from the unconscionability factor, this contract becomes unenforceable due to its terrible usury by Takems Appliances and Electronics, LLC. This contract may have been legal in its formation; however, the ability to enforce it lacks genuine assent in the areas of misrepresentation, duress, and unconscionability. Should the courts agree with the determination of this author on the unconscionability of this contract, it would be up to the judge to administer corrective justice to right the wrong against Sally Walker by Tommy Takem. Based on the doctrine of unconscionability, this contract between Takems Appliances and Electronics, LLC and Sally Walker is not enforceable; hence, it is able to be avoided and no performance is needed. A contract such as this one was introduced in a court of law in 1965 and through a process of appeals, a judge finally ruled in favor of the injured party on the basis of unconscionability and a summary of that case follows. In the Williams vs. Walker-Thomas Furniture Co. case, the judge ruled the actions of the Walker-Thomas Furniture Company unconscionable. In this case, the furniture company took unfair advantage of Ms. Williams when she began to run behind in her payments. As she continued to make purchases on her account, each item was not accounted for individually as she had been led to believe. She had paid in good faith for many years and was under the impression

LAW PROJECT 1 that as she paid, items she purchased were hers. That was not the case, however and once she ran behind, the furniture store started repossessing all her items. The contract contained a provision which stated that the balance will remain due on every item purchased until the balance due on all items, whenever purchases, was liquidated. In case of default of payment, all the furniture on which balance is due will be repossessed ("Contracts," n.d., para. 1). This clause was ruled wrong on the basis of unconscionability in favor of Ms. Williams. The UCC Section 2-302 allows the courts to rule on the basis of unconscionability in cases where there is no other reason for avoiding such a contract. Mr. Takem needs to take this matter seriously. While his business model may be legal based on the legality description above, his business is going to have trouble with the unconscionability doctrine as time moves forward and others understand what he is doing to them. Mr. Takem is in a precarious position now and protecting himself is not going to be easy. Mr. Takem wants to know if he can set up a financing company that he also owns in essence creating the situation that follows: that of holder-in-due-cause. HOLDER-IN-DUE-COURSE According to the holder-in-due-course doctrine, a party unrelated to the initial company holding the promissory notes or other negotiable instruments could not own the company receiving said instruments. Not only would this be an abuse of the doctrine but it would also be a conflict of interests. This would not be a way for Mr. Takem to protect himself. According to

one article, the holder-in-due-course seems to recur through various English cases and the point appears to be an evasive one (Hamilton, 1913, p. 41) with some of the opinions against it and some of the opinion for it depending on the justice or court you ask. This intermediary

LAW PROJECT 1 situation is fraught with potential trials and tribulations as well as an increased ability for fraudulent activity between the two parties. MORALS & ETHICS

10

We now turn our attention to the morality and ethicality of Mr. Takems business model. This writer wishes to start this section with an admonition from the Apostle Paul who in 1 Corinthians 10:23 stated that All things are lawful, but not all things are helpful. All things are lawful, but not all things build up. (ESV) While according to the legal framework in this country, Mr. Takems business model is legal aside from the issues involving lack of genuine assent in the areas of misrepresentation, duress, and unconscionability, this writer would frown on the business model for many reasons. Mr. Takems business model does not edify and is not expedient. There are so many issues here; however, we will address only a few with the biggest one being that of integrity since that encompasses so many areas. A person without integrity is a person lacking character and in Micah 6:8 we read He has told you, O man, what is good; and what does the Lord require of you but to do justice, and to love kindness, and to walk humbly with your God? (ESV) Integrity involves among other things trust, honesty, compassion, consideration, and truthfulness. In Mr. Takems business model there is no honesty or truthfulness to his customers and his compassion and consideration is severely lacking as well. His customers cannot trust him and his reputation will soon become that of predator or loan shark. God gave Moses the Ten Commandments in Exodus 20. Among those commandments we have number eight which commands us not to steal and nine commands us not to lie. Lying and stealing seem to be a part of Mr. Takems business model because he is committing the sin of lying by omission in neglecting to tell his customers the truths they need in making the proper decisions and in the inflated pricing he is really stealing

LAW PROJECT 1 from them. A person of compassion, care, and truthfulness is going to watch out for his neighbors; yet, Mr. Takem is acting in a very selfish way which bring us to the issue of ethics. Ethics in business is critical. Ethics comes from the heart; hence, ethics is a manifestation of who you are. Is Mr. Takems business model ethical? No, it is not ethical because ethics edifies and builds up one another. Paul admonished us to be ethical in 1 Corinthians 7:5 when he stated Defraud ye not one the other, except it be with consent for a time, that ye may give yourselves to fasting and prayer; and come together again, that Satan

11

tempt you not for your incontinency. (KJV) Ethical behavior does not defraud your neighbor, does not lie or steal but protects and encourages one another in love. Mr. Takem does not display ethical behavior in his dealings with his customers. To wrap up this paper we have discussed many issues and areas of Takems Appliances and Electronics, LLC from the formation of contracts through the enforceability of them. We can to see that Mr. Takems contracts while they may be legal, they do have problems with genuine assent on the part of both parties. We have seen that his contracts do not have the ability of being enforced due to misstatements, duress, and above all unconscionability. We looked at the idea of him being a holder-in-due-course as a way to protect himself and found that it would not be a viable option. We then turned our attentions to the business model as a whole and its validity legally, morally, and ethically and this author deemed his model to be quite challenging morally and ethically even though it could potentially stand legally. Several moral and ethical thoughts were also backed up by Scripture passages and the authors own thoughts. For further reading on these topics and more, please see the sources listed in the reference list.

LAW PROJECT 1

12

LAW PROJECT 1 References Christman, R. (2013). Advanced Business Law for Accountants. United States: Liberty University School of Business. Clarkson, K. W., Miller, R. L., Jentz, G. A., & Cross, F. B. (2006). Wests Business Law Text and Cases (10th ed.). Mason, OH: Thomson/South-Western.

13

Hamilton, A. M. (1913). Holder in due course. The Juridical Review, 41, 41-50. Retrieved from http://heinonline.org Law School Case Briefs. (n.d.). Retrieved from http://www.invispress.com/law/contracts/williams.html Mallor, J. P., Barnes, A. J., Bowers, T., & Langvardt, A. W. (2010). Business Law: The Ethical, Global, and E-Commerce Environment (14th ed.). New York, NY: McGraw-Hill Irwin. Shiffrin, S. V. (2000). Paternalism, Unconscionability, and Accommodation. Philosophy & Public Affairs, 29, No. 3, 205-250. Retrieved from www.jstor.org/stable/2672846 State Interest Rates & Usury Limits. (2013). Retrieved from http://www.lectlaw.com/files/ban02.htm Voyiakis, E. (2012). Contract Law and Reasons of Social Justice. Canadian Journal of Law and Jurisprudence, 25, No. 2, 393-416. Retrieved from http://go.galegroup.com.ezproxy.liberty.edu:2048/ps/i.do?action=interpret&id=GALE|A3 19383708&v=2.1&u=vic_liberty&it=r&p=LT&sw=w&authCount=1