THE LEGAL ENVIRONMENT OF BUSINESS A Critical Thinking Approach Fourth Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne Nancy K. Kubasek Bartley A. Brennan M. Neil Browne © 2006 Prentice Hall Ch. 10 Ch. 10-1

THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 10 The Law of Contracts and Sales - I © 2006 Prentice Hall Ch. 10 Ch. 10-2

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Definition, Sources and Classifications of Contract Law Definition A contract is a legally enforceable exchange of promises or an exchange of a promise for an act. Definition

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Purpose of Contracts To provide businesses and individuals with predictability and security via understandable rules for the formation and performance of agreements; as well as recognized remedies for breach

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Sources of Contract Law Case Law or Common Law Real Property ServicesEmployment Statutory Law UCC Art. 2—Sales of Goods Consumer protection statutes

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Classifications of Contracts Express and implied Unilateral and bilateral Void, Voidable, and Valid Executed and executory Quasi-contract

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Elements of a Legal Contract OfferAcceptanceConsideration Genuine assent Competent parties Legal object

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Requirements of the Offer Objective intent to be bound Definiteness Communication to offeree

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Termination of Offers Lapse of time Death of party Destruction of subject matter Rejection by offeree Revocation by offeror

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Requirements for Acceptance Intent to accept Communication to offeror NOTE: UCC Art , where applicable, displaces the common law rule. “Mirror Image Rule” (Common Law) Terms in the purported ‘acceptance’ that vary from the terms of the offer constitute a rejection and counteroffer “Mirror Image Rule” (Common Law) Terms in the purported ‘acceptance’ that vary from the terms of the offer constitute a rejection and counteroffer

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Consideration Adequacy Preexisting Duty Rule Promises Enforceable without Consideration—Promissory estoppel and unjust enrichment Definition A bargained-for exchange of promises in which a legal detriment is suffered by the promisee

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Liquidated & Unliquidated Debts Liquidated debts: no dispute about amount Result - preexisting duty to pay allows claim based on underlying agreement despite partial payment Unliquidated debt: amount claimed is disputed Result - there is new consideration for second agreement to make partial payment; therefore, claim based upon first underlying agreement not supported Legal term: ‘Accord and satisfaction’

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Genuine Assent Problems with Genuine Assent: FraudDuress Undue Influence Mutual Mistake

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Fraud Misrepresentation of a material fact Made with intent to deceive Reasonable reliance Injury

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Duress Wrongful act or threat Prevents a party from exercising free will Interferes with ‘meeting of the minds’ Threats can be physical, or mental

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Undue Influence Unbalanced power relationship Abuse of trust: doctor-patient; lawyer- client Coercive influence Detriment to the subservient party

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Mistake Unilateral Court will not rescind the contract Bilateral Court may rescind the contract

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Competency Major Issues: MinorsInsanityIntoxication DEFINITION The ability to understand the nature of the transaction and the consequences of entering into at the time the contract is formed

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Legal Object Statutory Law: Contracts with unlicensed vendors are unenforceable Case Law: Unreasonable noncompetition agreements are unenforceable General Rule Contracts with illegal subject matter are void

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Contracts That Must Be in Writing Contracts for the sale of land Contracts to pay the debts of another Contracts not performable in one year Sale of goods of $500 or more Contracts in consideration of marriage Contracts of an executor to answer for debts of deceased Contracts for the sale of land Contracts to pay the debts of another Contracts not performable in one year Sale of goods of $500 or more Contracts in consideration of marriage Contracts of an executor to answer for debts of deceased Statute of Frauds 1677

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Parol Evidence Rule Elements: Where there is a written contract Any oral agreements made prior to or contemporaneously with That vary, alter, or contradict Are not admissible Elements: Where there is a written contract Any oral agreements made prior to or contemporaneously with That vary, alter, or contradict Are not admissible

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Exceptions to the Parol Evidence Rule Although offers of oral agreements are not admissible to contradict the written agreement, oral agreements are admissible for the following purposes: 1.to 1.to clarify ambiguities 2.to 2.to prove fraud, mistake, illegality, duress, etc. 3.to 3.to fill in a gap (supplement) the writing

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Third-Party Beneficiary Contracts Donee-beneficiaries Where the parties intend to make a gift Creditor-beneficiaries Where the intent is to fulfill an obligation

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Assignments Note: Rights are assigned; duties are delegated. Assignment is the present transfer of an existing right.

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Assignments-Requirements Obligor must receive notice of assignment Assignment not valid when: It results in material change in the duty of obligor Prohibited by statute Prohibited by contract

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Assignment Process (A)(B) (C) Obligor Obligee-Promisee-Assignor Assignee

THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch Summary A contract is a legally enforceable promise Minimal requirements for enforceability: OfferAcceptanceConsideration Genuine assent Competent parties Legal object