Mitsui Bank hired Ross Duncan as a branch manager in one of its Southern Califor
ID: 443029 • Letter: M
Question
Mitsui Bank hired Ross Duncan as a branch manager in one of its Southern California location. 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 would be based on the program’s success and would include bonuses and commissions based on the volume of 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 said still not received a raise by 2011, Duncan resigned as CDO and filed a lawsuit alleging breach of contract. Using the information presented in the chapter, answer the following questions.
1. What are the four requirements of a valid contract?
2. Did Duncan have a valid contract with Mitsui for employment as CDO? If so, was it a bilateral or a unilateral contact?
3. What are the requirements of an implied contract?
4. Can Duncan establish an implied contract based on the employment manual or the written compensation plan? Why or why not?
Explanation / Answer
1. The four requirements of a valid contract are:
a. offer - offer is an expression of interest or readiness to do something.
b. acceptance - the offer, as described abovem has to be unconditionally accpted by the other person. It can be orally or in writting.
c. Consideration - it is the benefit that is being conferred by the person who made the promise to the other person. Consideration should be measurable in economic terms.
d. Capacity - the persons entering into a contract should have the legal capacity to enter into a contract. They should not be minors or lunatics.
2. Yes, Duncan did have a valid contract with Mitsui Bank for the CDO post. There was an offer by the bank in terms of the position offered. The offer was accepted by Duncan. This was clear by his conduct as he had worked in that position. The acceptence was by conduct as Duncan had started working as the CDO. The consideration was outlined in the compensation plan. Lastly, both Mitusi and Duncan had the legal capacity to enter into the contract.
This is a bilateral contract as 2 parties are involved - Mitsui Bank and Duncan. Mitsui Bank had made an offer to Duncan for the post of CDO. The consideration was the compensation and Duncan had accepted the offer by having started working in that position.
3. An implied contract is one in which arises from conduct or assumed intentions or from the application of legal rule of equity. This contract is not written or spoken. The requirements are - (i) mutual agreement (ii) intent to promise (agreement and promise not expressed in words) (iii) presence of clear offer and acceptance (iv) mutual intent to be bound
4. Yes, implied contract can be established by Duncan. The compensation plan outlines the benefits. It means that the promise has been expressed in words. The agreement is implied from the facts and circumstances. There is an expressed promise but no expressed contract. However, the implied contract is established by the acts and conducts of Mitsui Bank and Duncan.