Legal Question in Credit and Debt Law in New York

Contracts - subject to credit approval, agreement & consideration

I have a hypothetical case for my business law class. One party sent a letter with a proposed terms of a loan. With the information that was given, the letter was simply signed and returned (acceptance?). Within the letter two things occur. In the introduction it says "possibility of providing financing". The other part deals with terms and conditions. The other party signs the letter assuming it was a contract. Later "John called Bill Howell on Sept. 20 to discuss a date to sign documents and recieve the loan proceeds." Bill then stated that they would not provide financing. Was a valid contract formed or were they in the negotiation phase when John signed and returned the initial letter? Or were the parties locked in an agreement? Is the company compelled to give john the loan? I hope I made this clear in the small amount written.


Asked on 10/08/00, 10:48 pm

1 Answer from Attorneys
David Wright Law Offices of David Wright

Re: Contracts - subject to credit approval, agreement & consideration

I think the test is whether the letter as sent, constituted an offer to make a contract. I think the use of words like a "possibility of a loan" suggest it's not a contract, but merely an invitation to negotiate. (An agreement to agree, is generally not enforceable). On the other hand if the letter sets forth all the essential terms of a loan, and invites an acceptance, it may well be binding. I guess it depends on how a court interprets the letter. Generally the formation of a contract is based on the objective conduct, regardless of what was in the mind of the author of the letter.

Read more
Answered on 11/06/00, 9:19 am


Related Questions & Answers

More Credit, Debt and Collections Law questions and answers in New York