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In: Finance

Peter, Ray and Egon are fired from cushy jobs in academia and decide to move to...

Peter, Ray and Egon are fired from cushy jobs in academia and decide to move to the private sector. Because of the dangerous nature of their pest control business they form a limited liability company. Ray’s parents die and he inherits their family home, intending to use it to help fund the start-up.

Eager to secure financing, the members visit their friendly local bank. The bank agrees to loan the members $300,000 to start their business provided the home is pledged as security. Because of the uncertain market for their new business, the bank demands the members personally guarantee the loan. The bank also wants to charge 36% interest per year. Eager to pursue their dreams, Ray and Egon eagerly agree, shaking hands with the loan officer. Does a contract exist? Why or why not? If there is a contract at this point, would it be unilateral or bilateral?

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Expert Solution

Issue involved: Peter,Ray and egon wants a loan for running their limited liability company so they approached a bank to grant them a loan of $300,000 to start their business provided the home which Ray inherited when his parents died is provided as security to the bank.

Legal Provision: A contract is a agreement which is enforcable by law. Here members visited the bank to grant them a loan and bank wants to charge a 36% for loan so here is a agreement between bank and the members and both have to fulfill their agreement and that agreement is enforcable by law. So we can say it is a contract. But a contract is only legally enforcable when it is in writing so to be a contract bank and members should enter into a written agreement with each other.

Unilateral Contact: It is a contract where only one party of the contract have to perform their right.

Bilateral Contract: It is a contract where both party have to perfoem their right.

So in the given case there is a contract between both the bank and the members as bank is providing loan to members and in return members have to pay interest to bank so both party have to fulfill their obligations. So it is a bilateral contract.

Conclusion : We can conclude it is a contract and it is a bilateral contract.

jeff jeffy answered 1 year ago
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