Question

Evelyn Kowalchuk, an 88 year old widow, and her son, Peter, put their savings into accounts managed by Matthew Stroup. Later, they initiated an arbitration proceeding before the National Association of Securities Dealers (NASD), asserting that Stroup fraudulently or negligently handled their accounts. They asked for an award of $832,000. After the hearing, but before a decision was rendered, Stroup offered to pay the Kowalchuks $285,000, and they e-mailed their acceptance. Stroup signed and faxed a settlement agreement to the Kowalchuks for their signatures. Meanwhile, the NASD issued an award in the Kowalchuks’ favor for $88,788. Stroup immediately told them that he was withdrawing his settlement “offer.” When Stroup did not pay according to its terms, the Kowalchuks filed a suit in a New York state court against him for breach of contract.

Did these parties have a contract? Why or why not?

What do Stroup’s actions suggest about his ethics?

Answer 1

Yes, the parties have a contract as the elements required for a valid contract is fulfilled here. There is both offer and acceptance and also the offeror, Stroup has signed on the contract. Both the parties have the legal capacity to enter into the contract and consideration is also present as the contract offers to pay $285,000 to the Kowalchuks for their losses. Hence the parties had a valid contract which can be executed.

Stroup’s actions are unethical and show that he takes decisions without analyzing the situation or about the consequences. First of all Stroup was not supposed to make the offer when the arbitration is going on and he should have informed NASD, who is conducting arbitration about his move to give the offer. He should have signed the agreement only after analyzing the legal issues and the fact that the offer cannot be withdrawn after signing the contract. He is obliged to pay the amount and his actions shows about his ethics that he does not value professional ethics, is not firm on his decisions, does not value customers and also he is not bothered about the legal consequences.