The Problem scenario and question
Following lengthy negotiations for the acquisition of cable television rights to the 2012 Olympics, Alice and Bruce sign the following document:
Heads of Agreement - Cable Television Rights
This document records the completion of negotiations of the Heads of an Agreement by virtue of which Alice and Bruce agree to execute a formal contract which gives effect to each of the terms set out below.
- Alice agrees to acquire from Bruce, and Bruce agrees to grant, the exclusive right to exploit the licence that Bruce holds to televise the 2012 Olympics.
- Alice agrees to televise all events at the 2012 Olympics and to provide facilities sufficient to enable appropriate overseas telecasts.
- Alice agrees to pay a sum of $3 million on the signing of the formal contract.
- Alice agrees to pay such sum as Bruce considers to be sufficient in respect of the revenue obtained from:(a) approved sponsors; and (b) overseas telecasters.
- Such other terms as may be agreed between the parties, acting in good faith and in a spirit of co-operation appropriate to the event to which the Agreement relates. All such terms to be:(a) necessary for the efficacy of the venture; and (b) of a kind normally found in contracts of this type.
Alice decides that the price is too high and refuses to comment on a draft of the formal contract prepared by Bruce's solicitors. The draft in fact contains a large number of additional terms, including an obligation that Alice spend no less than $2 million in promoting the telecast and obtaining sponsors.
Answer the questions.
1. When did the parties have an enforceable contract? Upon concluding negotiations or upon signing the document? Yes or no and explain why you think yes or no.
2. Is the written document an enforceable contract or simply a contract to negotiate with each other at a certain price in the future because the document lacks specificity?
3. Is the document unenforceable because of an illusory promise regarding Bruce's consideration?
4. Does Alice breach the document by refusing to respond to the draft of the formal contract?
5. Can a court treat the document as an enforceable contract by severing paragraph 4 from the document?
6. Will Bruce recover for his losses if he sues Alice?