Several months ago, I read an interesting article. The author asserted that our modern messaging technology was hurting business. In the old days, if one executive wanted to make an agreement with another, he'd draft a letter, call in his stenographer and dictate it. The stenographer would read it back. The executive might correct some things right there as he heard it read back. Then, a typist would type it up. The executive would read it again and make corrections and changes and it would be retyped and rereviewed. Before it was sent, the executive and his staff would, over the course of a day or even two, review that letter three or more times.
And when that letter was received by the second executive, he'd read it, formulate his response, and then call in his stenographer and the whole process would be repeated.
It was a slow process, yes, but it was a thoughtfull and considered process.
Today, the first executive will IM the second who will receive the message on his Blackberry while riding from the third green to the forth tee. He'll give the inquiry all of five seconds of thought and thumb-typing out a response before taking his tee shot.
I see a similar affect at work on the forum a lot. One person posts and another posts a response just minutes later.
So, while I'm not going to hire a stenographer (I don't know if you can even get one anymore), I have resolved to be more thoughtful.
And thus it was that when I re-read this thread this morning, I realized the problem.
The problem is the word Tangible.
There is a story told of a factory owner who was well-known as a bit of a tightwad. His factory centered around a major machine that did most of the work. One day, that machine broke. None of factory people could figure out how to fix it. So, the owner reluctantly called in a expert.
The expert arrived, spent a few minutes looking over the machine. Then, the expert opened his tool box, selected his hammer, and banged the machine exactly once. The machine sprang to life and resumed operation.
The owner was delighted, "That's wonderful! You've fixed! Thank you, thank you."
"My bill, sir."
"Bill?"
"Yes. I fixed your machine."
"Ten Thousand Dollars! All you did was hit it with a hammer. I'm not going to pay you $10,000 for that."
"Oh, it's only one dollar for hitting the machine with the hammer... the other $9999 are for KNOWING where to hit it."
The hitting is tangible. The knowing where to hit it is intangible... but still billable.
As I understand it, my friend Tonyccw works in the financial industry buying and selling tangible things. In his industry and in his experience, Tony is entirely correct. There must be a tangible consideration.
I've spent a lot of time working in a different industry, an industry full of intangible things, full of ideas, thoughts, styles, creativity, imagination. One of the companies I've worked with in the past is called "Pure Imagination." They sell imagination. Some may ask, "How do you buy and sell imagination? Does it come by the foot, the gallon, or the pound?" Is it shrink-wrapped or does it come in bulk?" It's intangible. How can you buy and sell it?
Ideas, thoughts, styles, creativity, and imagination are not finished goods. They are raw materials. They're the grist that's fed into a mill called "Design." The Design Mill takes these ideas, thoughts, styles, creativity and imagination, and processes them and assembles them and transformes them into drawings, assembly instructions, tools, dies, templates, tapes, formulas, and patents, trademarks, and copyrights.
But even those things, while more tangible, still aren't finished goods. They're an intermediate product. They're just grist for another mill called "Manufacturing." It's the manufacturing mill that turns out the physical product that most people are familiar with and that the UCC focuses on the trading in.
Me? My interest and labor has been this whole process of getting those intangible ideas, that imagination, into physical products. The design and the manufacturing processes combined, I call the combination, "product realization."
Welcome to my world, a world of thoughts and ideas and styles and drawings and instructions and forumulas and tools and dies... and sometimes a certain amount of magic.
It is the finished product where folks like Tony enter the picture and where the UCC focuses.
Don't be surprised, though, if lawyers have figured out structures for trading less tangible goods too. Those structures can apply more broadly.
Consider, for example, a contract for a custom knife. You pay the maker $500. That's a tangible consideration. But what does the maker give you? A promise to deliver the knife at some future time. Legally, that's a promise of future performance and it's not very tangible.
What makes it valuable and, therefore usable as a consideration in a contract, is called "Faith and credit." The buyer needs to have faith, and the maker needs to have credit.
Let's say that some stranger who has never made a knife walks up to you and says, "For $500, I'll make you a custom knife." Does that promise have any credit? You don't who this guy is. He's never made a knife. He doesn't know how. He has no tools, no shop. Therefore, his promise to make a knife is not credible. It has no credit.
But let's say that Alan Blade makes the offer. He has a demonstrated ability to make knives. He has a shop. His promise is credible. But do you have faith in it? He has a history of promising knives and not delivering. There is credit, but there is no faith.
Now, let's say that Darrel Ralph makes the same offer. He also has credit. But he also has a long history of completing hundreds of knives for hundreds of customers. There is reason for you to have faith in his promise.
When there is faith and there is credit, there is legal value in a promise of future performance. That value, legal though intangible, can become a consideration in a contract.
In the case of my recent ill-fated transaction, I and some friends scraped together some money and gave it to a man who promised in return to complete a project for us. He has the necessary credentials to complete such a project and he's done similar projects in the past. So, he had credit and we had faith. His promise of future performance had value and became the consideration in our contract. "In consideration of $X received from Chuck and Co., Mr. Y promises to complete the project as defined." He didn't fulfill his promise. Even though the consideration is intangible, the contract is valid. The lawyers told me so and I'm not going to question them. I believe he broke his contract and we could sue him for it and that the court would find in our favor. That's what I'm told. I elected not to persue the situation not because I didn't feel that that was true, but because I didn't think that even if we won, we'd ever get anything. As I said, "you can't draw water from an empty well."
You might protest, then, "Wasn't the original contract unbalanced? You lost your money, something tangible and obviously valuable, and he lost -- what? -- nothing." Ah, but he did loose something -- something of great value. He lost faith and credibility. He has worked over years to build up and create that faith and credibility. It has been what he has made his living based on. It is the tool of his trade. And now he will not be able to enter into such a contract again. If he wants to continue, he'll have to work hard and accept less favorable deals in order to rebuild that faith and credit.
By the way, I don't think that the project failed entirely because of him. He made a few mistakes, but they were largely in misreading this economy of our's. And who hasn't done that lately?
Let's look again at my more specific example: a contract that I entered into years ago when I bought a house. The seller agreed to hold the house for 48 hours and I agreed to seriously consider purchasing it. As I previously explained, the benefit to both parties was risk mitigation. But what about faith and credibility. The seller offered as consideration a promise of future performance, to not sell the property to someone else for 48 hours. Was that promise credible? Well, the seller owned the property and was in full control of the decision to sell or not sell it. So, yes, that was a credible promise. But could I have reasonable faith (faith based in reason, one of my favorite legal contradictions) that he would, in fact, perform? I'd never met him. Ah, but he was represented by a licensed real estate agent. The agent's good professional reputation and his license gave me reason to have faith in his client's promise of future performance.
On the other side of the table, in consideration of that promise of future performance, I offered a promise of future performance of my own. I promised to seriously consider purchasing the property. Was my promise credible? Well, I was pre-approved for a mortgage well in excess of the price of the house. I am the decision maker in that matter, and I can certainly think. So, my promise had credibility. But could the seller have faith in it? They'd never met me and this was my first house purchase. But the bank's approval of me and my agent's professional reputation and license gave them reason to have faith.
So, both promised have faith and credit. Both promises have value. We believe that the value is approximately equal. And so a contract was made, a contract involving no tangible value, but a contract nonetheless. Had they sold the house to someone else during those 48 hours, I could have sued them for non-performance.
Now, let's take a fresh look at the case in question in this thread. As I previously explained, Mr. Beluga entered a contract with this dealer. In both cases, the consideration was an intangible: risk mitigation. The dealer promised not to sell the knife for a time. And Mr. Beluga promised to buy the knife within that time. Those were both promised of future performance. So, their value, if any comes from faith and credit.
Was the dealer's promise not to sell the knife credible? Yes. He had control of the knife. He could sell it or not. Did Mr. Beluga have a reason to have faith in that promise? Yes. He's had successful transactions with this dealer in the past. The dealer has a good reputation. That's enough. The dealer's promise has credibility and Mr. Beluga had reason to have faith in it.
Was Mr. Beluga's promise to buy the knife credible? At face value, yes. He claimed to basically have the money and just need to get issues resolved with his bank. That's credible. And did the dealer have reason to have faith in Mr. Beluga's promise? Well, he's bought knives from them without problems in the past. So, yes. Mr. Beluga's promise had credibility and the dealer had reason to have faith in it.
So, we have a contract in which both parties receive an intangible benefit, risk mitigation, and in which both parties offer an intangible consideration, a promise of future performance.
But, both parties seem to believe that the proposed benefits have value for them. That's important in a contract.
Both considerations are promises of future performance, but both have faith and credit and, therefore, value.
Benefits of value are exchanged for considerations of value. That's what contracts are about.
Are the values equal? Well, that's hard to say. But, both parties seemed to think so. Both parties have some expert experience in the matter of knife trading. One is a professional dealer. So, it's reasonable to think that they are.
As a result, we have a valid contract even though it doesn't include anything tangible.
And the real conclusion of all of this is that once you stop and think about it instead of just thumb-typing off a hasty response before making your next tee shot, you realize that Tony and I are simply talking across eachother.
Several of the other investors who lost tried to sue for non-performance... non-performance of a promise of future performance for which there was no tangible consideration. Personally, I looked at the situation and said, "While the lawyers think we could win, the fact remains that you can't draw water from an empty well and there's no use throwing good money after bad." The case collapsed when the non-performing party declared bankruptcy.
