Asked by jhadir Charles on Jul 07, 2024

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Pop Co. was a small producer and bottler of carbonated beverages and employed the services of Distribu Co. to promote and distribute its products to grocers and restaurants. The sales of Pop Co.'s products had been steadily increasing and they were gaining considerable popularity among consumers. Distribu Co. had an agreement for five years with Pop Co. under which it received a commission of 10% of gross sales revenue as remuneration for its services. As the costs of advertising and promotion increased Distribu Co. wished to renegotiate its arrangement with Pop Co., particularly since its other clients were paying between 25% and 35% for similar services. During the negotiations that ensued, Distribu Co. pointed out that it was no longer profitable to work for Pop Co. Moreover, if Pop Co. did not increase its commission to 30% of gross sales, Distribu Co. would be forced to remove its services. Pop Co. finally agreed to double the commission as it had always been very satisfied with the services provided by Distribu Co. and did not want to have to establish a relationship with a new distributor. Pop Co.'s sales showed a substantial increase over the next quarter. When Pop Co. received the first quarterly commission invoice pursuant to the new arrangement it was astounded to discover the amount represented by 30% of gross sales revenue. Pop Co.'s president immediately telephoned Distribu Co. and told its finance officer that had Pop Co. realized how much the new commission would cost in dollar terms he would never have agreed to it as it was both unfair and exorbitant. He also stated that he would pay the invoice but at the long-standing rate of 10%.
Discuss the legal issues and arguments which may be raised by the parties involved and the likely outcome if legal action should ensue.
D.L.R. (4^th) 532 although the facts have been changed considerably
This case concerns the nature of consideration and, more specifically, what constitutes mutual promises. Both parties to this agreement are experienced businesspeople with equal bargaining power. Both parties agreed to provide the other with something of value. Pop Co. agreed to increase its commission and Distribu Co. agreed not to withdraw its services. Pop Co. will contend that it received no consideration for its promise of increased commission, thus rendering the agreement void. Specifically, it will argue that Distribu Co.'s promise amounts to nothing more than past consideration and that Distribu Co., for its increased commission, has provided nothing more of value than it was previously committed to provide. Distribu Co. will counter with the argument that it, indeed, promised to provide value to the new agreement. Firstly, it agreed not to withdraw its services and secondly, it achieved increased sales as a result of more promotional activity made possible through the greater resources available from the increased commission.
Although the court will not concern itself with the adequacy of the consideration it is concerned with unconscionable transactions. In this situation, there is nothing to suggest unconscionability or unfairness. The parties negotiated on an equal footing and each received something of value. Even though am increase to 30% was a substantial increase, it was not unfair considering the promotional costs involved to Distribu Co. and it appears to fall within the customary range in this industry.
There appears to have been a mutual exchange of promises constituting valid consideration between the parties. Each has received something of value under the new agreement and it ought to be enforceable.