Transcript Business Law Chapter 5 PPT

2015
Mr. Sherpinsky’s Business Law Class
Entering Into Contracts
Mr. Sherpinsky’s Business Law Class
Entering Into Contracts
Justice Journal
 Imagine you have your own website design
company. You have several contracts with small
businesses in your community.
 In addition to doing design work, you host Web
sites, keep the information updated, and
troubleshoot problems for these companies.
▪ Take Five (5) Minutes: Think! Come up
with three to four reasons why there is an
importance of having a contract, what type of
information would be included in your
contract?…
▪ Things like: How would you bring your contract to an
end or settle any disputes.
THE PLAYERS
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Mr. Benes
Alena
Viktor
Hana
Emil
QUESTIONS TO PONDER!
1)
2)
3)
4)
5)
Does a promise create a
contract?
What characteristics do
contracts have?
When does a contract
legally come into existence?
What constitutes a legal
offer?
What constitutes a legal
acceptance?
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contract (p. 106)
offer/acceptance (p. 109)
genuine agreement (p. 109)
capacity (p. 109)
consideration (p. 109)
legality (p. 109)
void/voidable contract (p. 110)
unenforceable (p. 111)
express/implied contract (p. 111)
bilateral/unilateral contract (pp. 111, 112)
Following through on a promise is
an important underlying
assumption in a contract between
people and businesses.
 Certain key elements must exist for
a contract to be legally binding.
What types of elements do you think
must exist between two parties so that
a contract is binding?????
How would you define contract?


A contract is any agreement
enforceable by law.
Not all agreements are
contracts, however.
 Whether or not it’s a contract,
depends on the circumstances of
the agreement.
Evolution of contract law:
Equity Theory: Parties to a contract exchanged
things of equal value. This approach was called
the equity theory of contract law.
 Free Will Theory: The advent of industrial
capitalism forced the courts to shift their focus.
They began to ask if the parties had agreed to the
terms in the agreement of their own free will.
 Formalist Theory: Then the courts began to
study the parties’ actions and words to determine
if there was a “meeting of the minds.”
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Offer
Acceptance
Genuine Agreement
Consideration
Capacity
Legality
***All six elements must be
present in order to
constitute a contract***

An offer is a proposal by one party to
another intended to create a legally
binding agreement
 Must be directed to a specific person
 Example:
 Menu listing prices isn’t an offer because it’s
not directed toward anyone in particular
 When you place your order, you make an offer
 When they start cooking your food, the
restaurant has accepted your offer, and a
contract has been formed

An acceptance is the second
party’s unqualified willingness to
go along with the first party’s
proposal
 The law infers acceptance from
certain actions, such as signing a
contract or beginning to carry out
the terms of a bargain

Genuine Agreement:
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
If a valid offer is met by a valid
acceptance, a genuine agreement
exists.
Capacity is the legal ability to
enter a contract.
 Minors can make contracts, but many
times they are asked to have a
cosigner (Person responsible for the
contract should the minor fail to pay)

Capacity is the legal ability to enter
a contract.
 Conditions affecting capacity:
 Intoxication, mental illness, legal
competency or something against the
public good is usually NOT enforceable

Consideration is the exchange of things
of value.
 (Must be legally sufficient and bargained-for)
What about a promise?
 You buy a shirt, the consideration you pay is the
money, and the merchant’s is the item you’re buying
 DOES NOT have to be the same value?

Legality means that people can
only enter into contracts for legal
purposes.
 People cannot enter into
contracts to commit illegal
acts.
JJ Heller
Item
Totals Contract
Application
Food
18
X
Full entourage
Transportation
18
X
Full entourage
Drink
17
X
Full entourage
Private Dressing Room
15
X
Star and Band
Accommodations
11
X
Star and Band
Clothes
8
O
See SWAG
Personal Assistant/Care
8
X
Liaison w/Star Staff
Security
8
X
Min: 8/2 Directly Assigned to Star
TV/Entertainment
8
O
Part of Accommodations
After Party/Gathering
4
X
Up to 40 people
Make-Up Artist
4
O
Has own people
Free Passes
3
X
Up to 20 people/Identified in advance
Recording of Event
3
X
Mandatory for Label
Swag
3
X
Venue and Promotional products/full entourage
Technical Stuff
3
X
Setup 12 hours/2 rehearsals/No visitors
Payment Up front
2
X
Paid 30 days in advance of event
Flowers
1
X
In room/dressing room/vehicle (daily)
Spa
1
O

Contracts can have any of the
following characteristics:
 valid, void, voidable, or
unenforceable
 express or implied
 bilateral or unilateral
 oral or written

Contracts can have any of the
following characteristics:
 Formal and Informal
 Formal: Requires a special form or
method of creation for contract formation
 Examples: contracts under seal,
negotiable instruments, letters of credit
 Informal or (Simple Contracts):
 Requires no special form for contract
information, but usually details or conditions are
put into writing to hold proof of existence.
Valid, Void, Voidable, or Unenforceable
 A valid contract is legally binding.
 MUST have the necessary contractual elements of offer,
acceptance, agreement, consideration, legal capacity, and legal
purpose

A contract that is void has no legal effect.
 No contract exists, or there is a contract without legal obligations
Valid, Void, Voidable, or Unenforceable
 A contract that is void has no legal effect.
 When a party to a contract is able to
avoid, or enforce, or cancel the contract
for any legal reason, it is a voidable
contract.

An unenforceable contract is one the
court will not uphold.
Express or Implied

Express contract is stated in
words.
 Can be oral, written or a combination.

An implied in fact contract
comes about from the actions
of the parties. (Conduct)
Bilateral or Unilateral
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A bilateral contract contains

A unilateral contract contains
two promises.
 Promise for a promise
a promise by only one person to do
something, if and when the other
party performs some act.
 A promise for an act
 Acceptance is the completed or
substantial performance of the
contract
Oral or Written
 An oral contract is created by word
of mouth and comes into existence
when two or more people form a
contract by speaking to each other.
 Sometimes, however, it is desirable
to put contracts in writing.

Pennsylvania Law requires
written contracts!
What is one characteristic
that you think a contract
must have?
CONTRACT
FORMATION
Bilateral
A promise for a promise
Unilateral
A promise for an act
Formal
Requires a special form for creation
Informal
Requires no special form for creation
Express
Formed by words
Implied by fact
Formed at least in part by the parties conduct
 Concept
Development
 6 Elements of a Contract
▪ Features and Details of
Contracts
▪ Be specific and detailed when
possible
▪ WARNING: Watch for problems!
Use the Six (6) Elements
 Childcare Care Giver Contract:
▪ Dates: Begin/End
▪ Worksite/Work Schedule
▪ Job Responsibilities
▪ Compensation
▪ Paid Time Off/Sick/Family leave
▪ Holidays/Off/Modified Work Schedule
▪ Taxes/Raises/Reviews/Periods
▪ Termination
▪ Social media/Privacy
▪ Signature Lines w/date
Care Giver Contract:
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Dates: Begin/End
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Worksite/Work
Schedule
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Start Date-End Date
Main Workplace/worksite
Days and Times for regular work
schedule
Job Responsibilities
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Create a stimulating, nurturing, and safe
environment for the children
Supervise the children’s activities at all times
Plan and prepare meals and bottles for, and
feed, the children
Dress the children
Place the children down for naps and
bedtime
Care Giver Contract:
Job Responsibilities-Con’t
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Bathe the children
Change diapers
Potty train the children
Perform housework related to child care,
including washing the children’s clothes,
cleaning up after meals, tidying play areas,
and washing bottles
Teach the children good social manners
Play with the children, both indoors and
outdoors
Plan and lead educational activities,
including reading, with the children
Discipline the children, when necessary
Drive the children to and from activities
Administer medicine to the children
Care Giver Contract:
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Compensation
Regular rate of pay
Overtime Rate
Pay day (Twice monthly/weekly/monthly)
Time off
▪ When/what days allowed
▪ Paid vs. unpaid holidays
▪ Sick days- Paid or unpaid
 Number of sick days allowed (per period)
▪ Family leave time
▪ Vacation time
 Taxes (Who is paying them)
 Raises/Reviews/Time Periods
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GROUNDS FOR TERMINATION
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The following are grounds for immediate termination:
▪ Allowing the safety of the dependent(s) to be compromised
▪ Inconsistent or non-performance of agreed-upon job
responsibilities
▪ Concerning issues in background checks
▪ Dishonesty
▪ Stealing
▪ Misuse of family automobile
▪ Breach of confidentiality clause
▪ Persistent absenteeism or tardiness
▪ Unapproved guests
▪ Smoking or consumption of alcohol while on duty
▪ Use of an illegal drug
▪ Overuse of cell phone while on duty or while driving
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PRIVACY
 Any and all private information obtained
during the course of employment considered
private
▪
▪
▪
▪
▪
Medical
Financial
Legal
Career
Strictly confidential and may not be disclosed to any
third party for any reason without a court order!
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Social media
 No information about:
▪ His/her location
▪ Plans for the day
▪ Pictures of the children
▪ Information sharing
 Distractions and fears for kids using Internet
 Emails, Instant Messenger, and chats
 Cyberbullying
Use the Six (6) Elements
 Childcare Care Giver Contract:
▪ Dates: Beginning/End Dates of
employment
▪ Worksite/Work Schedule Min. 6 day
week with hours on specific days
▪ Job Responsibilities Min. 6 duties
▪ Compensation Salary, Benefits
▪ Paid Time Off/Sick/Family leave
▪ Holidays/Off/Modified Work Schedule
▪ Taxes/Raises/Reviews/Periods
▪ Termination-Min. 10 reasons
▪ Social media/Privacy: Rules
▪ Signature Lines w/date
Offer and Acceptance
1.
2.
3.
Must be made seriously
Has to be definite and certain
Must be communicated to offeree
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No contract without
both primary
elements
Mutually agreed
terms

Offeror
 Gives proposal

Offeree
 Person to whom offer is made

Proposal by offeror to do something
 Must appear to intend to create legal
obligation
 Terms must be definite & complete
 Must be communicated to the offeree

Objective legal test used by
jurors or judges
 Concerned with the
appearance of the action
▪ Problem: Think you are
joking but interpreted as
serious intention then you
have made an offer
▪ Problem: If you are serious
but interpreted as joking
you have not made an offer

The intention of entering into a legal
obligation.
 Example: Venting

Offer must be made with seriousness
 Not in heat of anger
 As a joke
Advertisement for Lava Lamps, $49.98
Buyer comes to store to buy a lamp
Clerk apologized and said lamps had sold
out in 1 hour after the store opened.
Information communicated
without indicating intent
 Social Agreements
▪ Don’t create legal obligations
 Advertisements
▪ Not considered an offer – but an
invitation to make offer

Advertisements (price tags, signs in
windows or on counters, prices marked on
merchandise)…unless it contains a
specific promise, Example: “first
come, first served”

Example 3, pg. 114

Allows court to determine what was
intended & identify legal rights
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Complete
 Price (if not communicated = current market
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price)
Full terms for payment
Legal description of goods/services
Date for delivery of possession
Date for delivery of the transfer of
ownership/title/deed
Definite
 Essential term identified clearly

Cannot be a certain offer if
something is too unclear or vague
 Example 4, pg. 115-116
Example
 Joe Vasquez offered a position as an
account executive w/ International Corp.
 Salary of $2,400 per month plus
reasonable commission on total sales
 Is this a definite and certain offer?
 No, why?
 Difficult to determine what
“reasonable” commission is….

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Only intended
offeree can
accept
Can’t accept if
didn’t know
offer was made
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Telephone, letter, telegram,
fax, e-mail, or any other
method that communicates
the offer to the offeree.
Mailbox Rule!
 Example 5, pg. 116
Example:
 Jean LeFerve found a wallet.
 The driver’s license identified the owner.
 Jean returned the wallet
 The owner thank her but did nothing more
 Later in the evening, while reading the
newspaper, Leferve discovered that the
owner offered a reward for the return of
the wallet.
 Does she have a claim?
1.
2.
3.
Must be made seriously
Has to be definite and certain
Must be communicated to offeree
Work
Packet!
Must be
1. Unconditional
2. Unqualified
3. Must follow all
rules regarding
the method of
acceptance

Offeree must accept all terms
 Changes = Counteroffer
 Mirror Image Rule
▪ Terms in acceptance exactly match the terms
contained in the offer

Silence as Acceptance
 Continuing relationship – agree in advance
▪ Not Valid if offer is worded in a way in which silence
means acceptance

Unilateral Acceptance
 Promises something in return for the offeree’s
performance & indicates performance is
acceptance
▪ Only be revoke after reasonable amount of time
Example:
 Bradley wrote a letter to Franz offering to
sell his motorcycle. “If I do not hear from
you, I shall assume that you have
accepted my offer,” he said…
 Did he really accept the offer?
 Would being silent bind him to pay?

Bilateral Acceptance
 Most offers use this type of acceptance
 Most common method of acceptance
▪ Requires that offeree accept by communicating the
requested promise back to offeror
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Telephone?
Text Messaging?
Mail?
Delivery Service?
E-mail?
Fax?
Other?
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Offeror may require offeree to use a
certain communication method to
accept.
Once it is accepted, it’s binding
 Oral/Spoken
 Mail
 Telegram
 Fax
 Email

The time at which
an acceptance
takes place is
important because
that is when the
contract comes into
existence.
 Example 7, pg. 119


Art Gifford sent a letter to Marge and
Norm Grayson, offering to buy their home
for $80,000
The Graysons who advertised their house
at $85,000, wrote a reply stating, “We
accept your offer. However, we would like
the price set at $83,000
 Did the Graysons accept the offer?
May occur in any of 5 ways
1. Revocation
2. Rejection
3. Counteroffer – ends the first offer
4. Expiration of time
5. Death or Insanity
Taking back of an offer by the offeror
Example
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Rob offered to sell his CD burner to Jodi Costa for
$250.00
Jodi examined the CD burner and found that it
was in good condition
However, Jodi couldn’t decide if she wanted to
spend so much money.
She told Rob she would consider his offer.
Rob called Jodi later the same day and withdrew
his offer.
Can he do so? Why?
Jodi had not yet accepted his offer….
– example 8, pg. 120
Refusal of an offer by the offeree
brings the offer to an end.
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Example
Diane decided that she wanted to make
some extra money by selling dried flower.
She offered the flowers to a friend for
$40.00
Friend looked at the flowers and decided
not to purchase them.
Has the offer come to an end?
– example 9, pg. 120
A counteroffer ends the first offer.
Example:
“I’ll sell you my camera for $50.00, and you say
“I’ll give you $45.00 for it.”
 No contract comes into existence unless the
original offeror accepts your new offer.
 If you say later, “Ok, I’ll give you $50.00 you are
now making a new offer…”

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Mirror Image Rule (Must be exactly same)
If the offeror sets a time limit for the
acceptance of the offer, it must be honored.
Example:
If Frank says to John, “I’ll sell you my
motorcycle for $1,000 and you have till noon
tomorrow to accept, then you must honor the
timeline given.
 If no timeline is given then the offer must be
accepted within a reasonable time.

Example:

Options
 If an offeree pays money or other consideration to an
offeror to hold an offer open for an agreed period of
time, an option contract comes into existence.
 An option contract is a binding promise to hold an
offer open for a specific period of time.
▪ Exclusive right to accept the offer
▪ Within the agreed time
▪ Subject to the terms of the original offer
If the offeror dies or becomes insane
before the offer is accepted, the offer
comes to an end.
 Death ends an offer, but not a contract
 Estate heirs will have to comply with the terms of
any contract
 Unless the contract is for personal services

Destruction of specific subject matter

Options
 Offeree gives the offeror something of value in
return for a promise to keep the offer open
▪ Binding the Offerer within the specific limits

Firm Offers (Standing Offers)
 Applies to merchants who make offers in
writing…MUST STAY OPEN UNTIL DEADLINE!
▪ MUST contain a term stating how long it is to stay
open and how it MAY be revoked!

What are the requirements of an
offer?
 Serious intent
 Clear and definite terms
 Communication to the offeree

What is the difference between an
offer and an invitation to negotiate?
 An offer empowers the offeree to accept
its terms and create a contract
 An invitation to negotiate invites the other
party to make an offer.

What are the requirements of
acceptance?
 Must be unconditional (Known as???)
 Must follow the rules regarding the method of
acceptance

What is the difference between an
acceptance and a counteroffer?
 An acceptance creates a contract
 A counteroffer means the original offer has not
been accepted… New offer has been made

When is an offer terminated?
 Upon revocation by offeror
 On rejection by offeree
 When a counteroffer has been made
 After expiration of a set period of time or
deadline
 Death/and/or Insanity or Destruction of
Subject Matter
YOU BE
THE
JUDGE!
Situation Analysis
 Anne Samuels offered John Goodwin $25.00 if
Goodwin would polish her car. Goodwin said
nothing but started to work and polished the
car.
 Is there a contract?
Situation Analysis
 Anne Samuels offered John Goodwin $25.00 if
Goodwin would polish her car. Goodwin said
nothing but started to work and polished the
car.
 Is there a contract?
 Yes…But what kind of contract?
 This unilateral contract consists of an offer that
is accepted by an act. When the act is done the
contract is complete.
Situation Analysis
 An auctioneer says, “Do I hear a bid for this
antique sofa? Someone in the crowd say,
“$300.”
 Is there a contract?
Situation Analysis
 An auctioneer says, “Do I hear a bid for this
antique sofa? Someone in the crowd say,
“$300.”
 Is there a contract?
 NO…No contract has been made. WHY?
 Auctioneer said “What am I bid” which is an
invitation to make an offer…
 The $300 bid is only an offer…
Situation Analysis
 Annette Ramsey, a sales rep. for the Carlin Boat
Company, wrote to harry Duffin, offering to sell him a
boat for $600 and agreeing to hold the offer open for
one week. Two days later, before Duffin made an
acceptance, the boat company withdrew its offer.
 Could the company legally do this?
Situation Analysis
 Annette Ramsey, a sales rep. for the Carlin Boat
Company, wrote to harry Duffin, offering to sell him a
boat for $600 and agreeing to hold the offer open for
one week. Two days later, before Duffin made an
acceptance, the boat company withdrew its offer.
 Could the company legally do this?
 No. … But Why?
 An offer to sell goods written and signed by the
merchant’s rep. assures that the offer is held
open during the stated time. This is a firm offer.
Situation Analysis
 Arlene Burns, a dealer in pre-owned cars, telephoned
Sam Firman and offered to sell him a pre-owned car
for $2,000. Firman told her he wanted to think it over
and would let her know later. That afternoon Firman
sent Burns a letter express mail stating he would buy
the used car.
 Did this result in a valid contract?
 Yes….But Why?
 An offer to make a contract can be accepted in
any manner reasonable under the
circumstances.
Situation Analysis
 Bob Keefer wrote to Ed Ramirez offering to sell him the
restaurant that Keefer owned. Rameriz wrote back to
Keefer accepting the offer. He mailed the letter of
acceptance on March 17 at 10:30AM., and Keefer
received it on March 18 at 11:00AM. Keefer had
decided to revoke his offer, however, and had mailed a
second letter to Ramirez on March 16 at 11:00AM.,
which stated his decision to revoke. Ramirez received
his letter on March 17 at 10:00AM.
 Was there a contract?
 No. The revocation took effect at March 17th
10:00AM.
Situation Analysis
 Betty Allen offered to sell Cynthia Blaustein her skis for
$100. She wrote to Blaustein, saying, “If I do not hear
from you in two weeks, I will assume that you accept
my offer,”
 If Blaustein does not answer, must she pay Allen
$100 for the skis?
 No.
 A person cannot be compelled to speak or write
in order to avoid a binding agreement and is
under NO obligation to reply to the offer.
 Using MS Word, respond to the
challenges using concepts and
ideas from Chapter 5.
 Cite specific concepts and
make sure you explain how it
applies.
 Use exact information from the
case to back up your
assumptions…
1.
2.
3.
What are the 6 elements of a
contract?
Who can accept an offer?
What is the Mirror Image Rule?

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
Finish Chapter 5
Packet and Vocabulary
Review Thursday…
Exam will be
Monday……