Question

In: Operations Management

For this assignment, describe the legal issue(s), discuss the applicable rules of law, explain how to...

For this assignment, describe the legal issue(s), discuss the applicable rules of law, explain how to minimize any legal risks, list any additional facts that would help in making the decision, and resolve the dispute (who wins and why).

The Case

April 28, 2017: Northeast Financing Company sent a commitment letter to Cloister Dairy offering to loan Cloister $900,000 at 10.25 percent interest; the letter provided that acceptance must be in writing within seven days and must be accompanied by a $20,000 letter of credit or cashier’s check.

            May 15, 2017: The president of Cloister Dairy sent a letter of acceptance to Northeast along with a check.

            May 21. 2017: Northeast cashed the check, which went through standard company processing.

            Northeast claims there is no contract. Is there a contract? What rules of law apply?

Is this contract required to be written to be enforceable? Explain.

Solutions

Expert Solution

Q-1:  Northeast claims there is no contract. Is there a contract? What rules of law apply?

A: The three critical aspects of a contract are: offer, acceptance, and consideration. A contract should be at least bilateral, i.e., having two sides/parties. Offer is made by the first party to a second party to provide some kind of product or service. Acceptance is made the second party to the first party in order to show agreement to the first party's offer. Consideration is the exchange of the mutually agreed provisions to an offer from the first party to the second party for some kind of material benefit or gain like money or barter. Thus, these three aspects of a contract are essential to state or prove that there is an existing contract to be valid and enforceable.

Here, in this case, there is a contract between Northeast Financing Company and Cloister Dairy. It is in fact a written contract since Northeast Financing Company sent a commitment letter to Cloister Dairy offering to loan Cloister $900,000 at 10.25 percent interest, this implies an offer was made which is the first requirement of a contract. The president of Cloister Dairy sent a letter of acceptance to Northeast along with a check this implies an acceptance was made to the offer which is the second requirement to a contract. The letter provided by Northeast Financing Company further stated that acceptance must be in writing within seven days and must be accompanied by a $20,000 letter of credit or cashier’s check, so this goes to show the consideration aspect which is the third requirement for a contract.

Hence, a contract did take place between the two parties, namely, Northeast Financing Company and Cloister Dairy.

There are two types or sections of law which apply to contracts:

1. Codified law which is applicable to goods/products are under the Uniform Civil Code (UCC).

2. Common law which is applicable to land or property transactions/sales, or any service related contracts, etc.

Q-2: Is this contract required to be written to be enforceable? Explain.

A: No, this contract was not required to be written to be enforceable.

Contracts can be implied, or express.

Implied contracts are those which are articulated or said to be understood to be in existence based on a relationship or behaviour between two parties and is also a type of valid and enforceable contract. Example, a person filling gas in his/her vehicle at a gas station.

Express contracts can be both in oral or written form at the time of initiation in order to be valid and enforceable. Express contracts are a set of mutually agreed terms and conditions to a contract which are clear and specific. Example, the above contract in this case study.

Ways to mitigate or minimize risk are to have a written contract which is clear and specific in terms of provisions and considerations, and which are dated, and signed by contracting parties with witness attestations. This makes the contract enforceable at a subsequent stage in the event of any dispute due to a breach or violation of a contract by any of the contracting parties.


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