LAW 3201-Business Law

Mitsui Bank hired Ross Duncan as a branch manager in one of its Southern California locations. At that time, Duncan received an employee handbook informing him that Mitsui would review his performance and salary level annually.  In 2008, Mitsui decided to create a new lending program to help financially troubled businesses stay afloat. Duncan was appointed to be the credit development officer (CDO) for the new program and was given a written compensation plan. According to the plan, his compensation plan would be based on the program’s success and involved a bonus and commissions based on the volume of new loans and sales.  The written plan also stated, “This compensation plan will be reviewed and potentially amended after one year and will be subject to such review and amendment annually thereafter.” Duncan’s efforts as CDO were successful and the business-lending program he developed grew to represent 25 percent of Mitsui’s business in 2009 and 40 percent in 2010. Nevertheless, Mitsui refused to give Duncan a raise in 2009. In fact, Mitsui amended his compensation plan to reduce his compensation significantly and to change his performance evaluation schedule to every six months. When he had still not received a raise by 2011, Duncan resigned as CDO and filed a lawsuit alleging breach of contract.

QUESTIONS

1. What are the four requirements of a valid contract?     (2 marks)

2. What are the defenses to the enforceability of a contract?   (2 marks)

3. Did Duncan have a valid contract with Mitsui for employment as CDO? If so, was it a bilateral or unilateral contract?   (2 marks)

4. What are the requirements of an implied contract?  (2 marks)

5. Can Duncan establish an implied contract based on the employment manual or the written compensation plan? Why or why not?

Four basic elements of legal contract are consisting of:-

a)  Offer and acceptance- There must be offer and simultaneous acceptance by the parties involved in a contract for some specific material, whether earthly or abstract.

b) Consideration- There must be involvement of some consideration value for this contract in the form of cash or kind.

c) Capacity- Before entering into any contract, it is to be verified that both the parties should have capacity in the form of mental, financial ability which is required by the contract. A contract can’t be valid if both the parties are not mentally sound.

d) Legal Compliance- The contract is to be made for some legal purpose. There should not be any illegal act or performance can be promoted through a contract (enotes, 2013).

Answer to Q.No.2:

With regard to enforceability of a contract, legal provisions made certain conditions which are given below:-
a) Capacity to contract- the prerequisite of a contract is to prove the capacity of the parties in respect of health, mental condition or impairment which is called capacity to contract.

b) Undue influence. Duress, misrepresentation- undue influence means undue persuasive activities by one party to contract to make other party bound to enter into the contract. Duress means a situation of mental pressure by act of threat occurred from illegal or wrongly action. Misrepresentation means to convey wrong material facts to the party to contract (Shepherd & Paterson, 2012).

c) Unconscionable act – this means the type of work which is not forwarded with ethics of balancing rights and powers between the parties.

d)  Public policy and illegality- the contract must be endorsed with the norms of public policy and barred from illegality.

Answer to Q. No3:

As per the contract between Duncan and Mitsui, Duncan has a valid contract in proper form narrating the legalities and the compensation with the clause of revision and it is bilateral contract by nature.

Answer to q. no. 4:

Implied contract is an agreement enforced legally arising out the conduct with intensions of assumption occurred between the parties with the origination from legal principle of equity.

Answer to q. no 5:

As per the written compensation plan, Duncan can establish the contract as implied as the conditions tells that Mitsui will forward some benefit in lieu of service extended to them by Duncan. He had done his part but Mitsui denied compliance their written commitment.  An implied contract is such contract which enforces both the party with acceptance of benefit knowingly to one party by another party not to be considered as gift and obviously with the consideration value (Smith, 2011).

The consideration value must be fair value of the effort by one party and that is in lieu of the benefit received. In this case Duncan had offered his effort for the performance of Mitsui and had made substantial effect on the performance of the company on the understanding of getting the compensation as per the contract signed by both Duncan and Mitsui. The denial on the part of Mitsui generates the situation of violation of implied contract.