Sterling Computers Scenario Abstract- When

Sterling Computers Scenario

Abstract- When organizations, or individuals, enter into a contract, their assumption is that the terms of the contract will be honored specifically. In this scenario, NoBugs made computer chips that not only did not meet critical standards, but also caused a previously unknown flaw to occur within the computer itself, causing some of the computers to catch fire. While the tort aspect is fairly clear in the case, the two companies in question are inexorably tied based on a decade of business relationship, unique production and specification needs, and a captive market that needs one another in order to succeed. Thus, while full on litigation is a possibility, and clearly NoBugs failed to perform, the cure might be worse than the disease since Sterling would lose its chip maker and NoBugs its major client.

Issue- Sterling Computers uses a special microchip from NoBugs Corporation, and has given NoBugs specific standards to meet. This arrangement has been mutually beneficial for years until recently, when several Sterling computers exploded because of tiny imperfections in NoBugs' microchips, which aggravated a dormant design defect in the computers. The parties cannot agree on compensation percentages, which amounted to about $20 million.

Areas and Principles of Law -- The basic legal issues in this case fall under contract law and performance of duty. The contract is a legal document which grants both parties specific intent and expectation on performance of duty; in this case to provide a specific part (computer chip) at given tolerances and expectations. To form this contract, the parties already had: 1) The capacity to form, 2) lawful due diligence, 3) intent to create a relationship, and 4) consent and consistency. Depending on the actual wording of the contract, Sterling has different forms to redress the situation, which could include arbitration based on the Uniform Arbitration Act, or, if that fails, tort action in Court (Young, 2010).

Key Facts -- In this case there are really three key facts: 1) Sterling contracted with NoBugs to perform according to a specific set of instructions, which was expected and happened over the course of years. 2) NoBugs failed to meet specifications caused by a slight miscalibration of their equipment. 3) This miscalibration cased a previously hidden flaw to occur in Sterling's system.

Analysis - While NoBugs did replace all the chips that caused the Sterling computers to explode, there was still about $20 in damage. Arbitration or Litigation could be initiated against NoBugs, and there would be a strong case for breach of contract. In essence, it does not matter that the miscalibrated chip caused a previously unrelated engineering defect to mis-perform, had the chips been correctly calibrated, the flaw would not have occurred. There is clearly a breach since NoBugs failed to provide an agreed upon product that, in turn, caused damage to Sterling's client's computers.