Reference no: EM133684009

To Agree or Not to Agree-That Is the Question Case Study

In December 2003, Michael Gelfand approached David Stein, an long-time family friend, and asked him to become a partner in a new investment opportunity that involved selling clusters of cellular assets in the northwestern United States. After this initial talk, Gelfand sent Stein a draft of an agreement that reflected the essence of their conversation. A short time later, Gelfand and Stein talked again and this time got serious enough to lay down some terms. Under these terms, Stein would contribute 20 percent of the investment, and Gelfand would bring in the remaining 80 percent. They also agreed to cooperate in managing the enterprise and to share profits and losses. A few months later, at another meeting, Gelfand announced that he had formed Buffalo Lake Erie Wireless Company LLC (BLEW). The purpose of BLEW was to acquire the necessary assets to go through with the deal. Gelfand also proposed that he would work with the Federal Communications Commission (FCC) to obtain the needed license. Once they had the license in hand, Stein would join the LLC. A short two months later, Gelfand had the license and had determined that $4 million would be needed to purchase the assets. Gelfand then asked Stein for a list of bullet points that would express his vision of the agreement. Stein complied promptly, and Gelfand went over the list with a fine-toothed comb. As a result of his investigation, Gelfand asked only two questions: (1) How would the two of them resolve any disagreements that might threaten to disrupt their partnership, and (2) why, under Stein's plan, would he (Gelfand) be responsible for loans from commercial lenders? In response, Stein offered a compromise provision as to the loan procedure but insisted on equal control of decision making in the business.

Several weeks later, Stein offered to pay the money that he owed under the 20 percent agreement. Gelfand did not explicitly accept the offer but, instead, in a rather cryptic response, told Stein "not to worry." Stein still worried, and as it turned out for good cause. Still, even after Gelfan's cryptic message, Stein, in good faith, helped Gelfand with the business start-up. For example, he was part of the team that negotiated buying the assets, he helped inspect the assets, he joined in finding personnel for the venture, and he worked at making additional preparations for the coming acquisition. At some point during this stage, Gelfand sent Stein another version of the operating agreement. Stein was dissatisfied with Gelfand's proposals and told him so. Still, the transaction did close on schedule. Stein and Gelfand continued to communicate but never seemed to actually close all the details of the deal. Subsequently, Stein brought this lawsuit alleging breach of fiduciary duty, breach of contract, unjust enrichment, and promissory estoppel. Stein asked for 25 percent of the present value of BLEW less the equity capital he would have invested under the original agreement. The questions relevant to us include the following: If a contract existed, what forms of consideration were part of the agreement? Since Stein did participate in the initial formation of the LLC, was that Page 265 consideration adequate enough to show a contract was intended? Can Stein recover under the doctrine of promissory estoppel?

1. What is consideration? Explain.

2. What does "bargained-for-exchange" mean in contract law? Explain.

3. What type of consideration is involved in the agreement between Stein and Gelfand? Explain.

4. Can the court determine the adequacy of consideration to demonstrate the existence of contract? Explain.

5. What is promissory estoppel, and how does it work? Explain.