Mr. Sherpinskys Business Law Class Entering Into Contracts 2015.
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Transcript of Mr. Sherpinskys Business Law Class Entering Into Contracts 2015.
Chapter 5 – How Contracts Arise
Mr. Sherpinsky’s Business Law ClassEntering Into Contracts
2015
Chapter 5 – Section 1Mr. Sherpinsky’s Business Law ClassEntering Into Contracts
Chapter 5 – How Contracts Arise (Discussion)
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.
Opening Scene, pg. 105
THE PLAYERS
Mr. Benes Alena Viktor Hana Emil
QUESTIONS TO PONDER!
1) Does a promise create a contract?
2) What characteristics do contracts have?
3) When does a contract legally come into existence?
4) What constitutes a legal offer?
5) What constitutes a legal acceptance?
Key Terms
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)
Bell Ringer Activity – Class Discussion
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?????
Nature of a Contract
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.
3 Theories of Contract Law
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.”
6 Elements of a ContractOfferAcceptanceGenuine AgreementConsiderationCapacityLegality***All six elements must be
present in order to constitute a contract***
Elements of Contract Defined
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
Elements of Contract Defined
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
Elements of Contract Defined
Genuine Agreement: 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)
Elements of Contract Defined
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
Elements of Contract Defined
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?
Elements of Contract Defined
Legality means that people can only enter into contracts for legal purposes. People cannot enter into
contracts to commit illegal acts.
Example Contract
Actual Contract/Performance
Item Totals
JJ Heller
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 XVenue 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
Characteristics of a Contract
Contracts can have any of the following characteristics: valid, void, voidable, or
unenforceable express or implied bilateral or unilateral oral or written
Characteristics of a Contract
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.
Characteristics of a Contract
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
Characteristics of a Contract
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.
Characteristics of a Contract
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)
Characteristics of a Contract
Bilateral or Unilateral A bilateral contract contains
two promises. Promise for a promise
A unilateral contract contains 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
Characteristics of a 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!
Characteristics of a Contract
What is one characteristic that you think a contract must have?
Visual Mapping: Contracts
CON
TRAC
T FO
RMAT
ION
BilateralA promise for a promise
UnilateralA promise for an act
FormalRequires a special form for creation
InformalRequires no special form for creation
ExpressFormed by words
Implied by factFormed at least in part by the parties conduct
Class Discussion for Writing
Concept Development 6 Elements of a Contract▪ Features and Details of Contracts▪ Be specific and detailed when possible▪WARNING: Watch for problems!
Write a Basic ContractUse 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
Elements with detailsCare Giver Contract: Dates: Begin/End
Start Date-End Date Worksite/Work
Schedule Main Workplace/worksite Days and Times for regular work
schedule Job Responsibilities
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
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
Elements with detailsCare Giver Contract: 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
Example of TerminationsGROUNDS FOR TERMINATION
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
Example of Privacy IssuesPRIVACY
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!
Example of Social Media Issues
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
Write a Basic ContractUse 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
Chapter 5, Section 2Offer and Acceptance
3 Basic Requirements of Offer
1. Must be made seriously2. Has to be definite and certain3. Must be communicated to
offeree
Offer & Acceptance
No contract without both primary elements
Mutually agreed terms
OfferOfferor
Gives proposalOfferee
Person to whom offer is madeProposal by offeror to do
something Must appear to intend to create legal
obligation Terms must be definite & complete Must be communicated to the
offeree
Test of Reasonable Person
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
Serious IntentThe intention of entering into a
legal obligation. Example: Venting
Serious Intent
Offer must be made with seriousness Not in heat of anger As a joke
Advertisement for Lava Lamps, $49.98Buyer comes to store to buy a lampClerk apologized and said lamps had
sold out in 1 hour after the store opened.
Preliminary Negotiations
Information communicated without indicating intent
Social Agreements▪ Don’t create legal obligations
Advertisements▪ Not considered an offer – but
an invitation to make offer
Invitation to Negotiate
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
Complete & Definite Allows court to determine what
was intended & identify legal rights
Complete Price (if not communicated = current
market 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
Definiteness and CertaintyCannot be a certain offer if
something is too unclear or vague Example 4, pg. 115-116
Definiteness and CertaintyExample 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….
Must Be Communicated
Only intended offeree can accept
Can’t accept if didn’t know offer was made
Communication to the OffereeTelephone, letter,
telegram, fax, e-mail, or any other method that communicates the offer to the offeree.
Mailbox Rule! Example 5, pg. 116
Communication to the Offeree
Example: Jean LeFerve found a wallet.The driver’s license identified the
owner. Jean returned the walletThe owner thank her but did nothing
moreLater 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?
Review: 3 Basic Requirements of an Offer
1. Must be made seriously2. Has to be definite and certain3. Must be communicated to
offeree
Work Packet!Time!
Requirements of an Acceptance
Must be1. Unconditional2. Unqualified3. Must follow all
rules regarding the method of acceptance
Acceptance Must Match Offer
Offeree must accept all terms Changes = CounterofferMirror Image Rule▪ Terms in acceptance exactly match the terms
contained in the offer
Acceptance Must be CommunicatedSilence as Acceptance
Continuing relationship – agree in advance▪ Not Valid if offer is worded in a way in which
silence means acceptanceUnilateral Acceptance
Promises something in return for the offeree’s performance & indicates performance is acceptance▪ Only be revoke after reasonable amount of
time
Methods of Acceptance
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?
Acceptance Must be CommunicatedBilateral 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
Modes of Contractual Communication
Telephone?Text Messaging?Mail?Delivery Service?E-mail?Fax?Other?
When Acceptances are EffectiveOfferor may require offeree to
use a certain communication method to accept.
Once it is accepted, it’s binding Oral/Spoken Mail Telegram Fax Email
Methods of Acceptance
The time at which an acceptance takes place is important because that is when the contract comes into existence.
Example 7, pg. 119
Acceptance
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?
Termination of an OfferMay occur in any of 5 ways
1. Revocation 2. Rejection 3. Counteroffer – ends the first
offer4. Expiration of time5. Death or Insanity
RevocationTaking back of an offer by the offerorExample 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
Rejection
Refusal of an offer by the offeree brings the offer to an end. 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
Counteroffer
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…” Mirror Image Rule (Must be exactly same)
Expiration of Time
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.
Expiration of 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
Death/Insanity/Destruction
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
Can An Offer Be Kept Open?Options
Offeree gives the offeror something of value in return for a promise to keep the offer open▪ Binding the Offerer within the specific
limitsFirm 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!
Review ConceptsWhat 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.
Review ConceptsWhat are the requirements of
acceptance? Must be unconditional (Known as???) Must follow the rules regarding the method
of acceptanceWhat 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
Review ConceptsWhen 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
Let’s Debate…
YOU BE THE JUDGE!
Class Work
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?
Class Work
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.
Class Work
Situation Analysis An auctioneer says, “Do I hear a bid for
this antique sofa? Someone in the crowd say, “$300.”
Is there a contract?
Class Work
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…
Class Work
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?
Class Work
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.
Class Work
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.
Class WorkSituation 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.
Class Work
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.
Contract…Does it Exist! 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…
Offer & Acceptance Quiz
1. What are the 6 elements of a contract?
2. Who can accept an offer?3. What is the Mirror Image
Rule?
Class Work
Finish Chapter 5 Packet and Vocabulary
Review Thursday…Exam will be
Monday……