THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch The Legal Environment of Business A Critical Thinking Approach 5 th Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 10 The Law of Contracts and Sales - I

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Contract Definition: A contract is a legally enforceable exchange of promises or an exchange of a promise for an act. Purpose: 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 © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Sources of Contract Law  Case Law or Common Law  Real Property  Services  Employment  Statutory Law  UCC Art. 2 - Sales of Goods  Consumer protection statutes

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Classifications of Contracts  Express and implied – Case example: Fox v. Mountain View Electric  Unilateral and bilateral – Case example: Audito v. City of Providence  Void, Voidable, and Valid  Executed and executory  Quasi-contract

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Elements of a Legal Contract  Offer  Acceptance  Consideration  Genuine assent  Competent parties  Legal object

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Requirements of the Offer  Objective intent to be bound  Definiteness  Communication to offeree

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Requirements for Acceptance  Intent to accept  Communication to offeror “Mirror Image Rule” (Common Law): Terms in the purported ‘acceptance’ that vary from the terms of the offer constitute a rejection and counteroffer Note: UCC Art , where applicable, displaces the common law rule.

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Genuine Assent - “ meeting of the minds” Problems:  Fraud  Duress  Undue Influence  Mutual Mistake

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Fraud  Misrepresentation of a material fact  Made with intent to deceive  Reasonable reliance  Injury

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Mistake  Unilateral  Court will not rescind the contract  Bilateral  Court may rescind the contract

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Competency Major Issues:  Minors  Insanity  Intoxication Definition:The ability to understand the nature of the transaction and the consequences of entering into at the time the contract is formed. 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 © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Contracts 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 Law: Statute of Frauds 1677

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing 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

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Exceptions to the Parol Evidence Rule Rule: Offers of oral agreements are not admissible to contradict the written agreement. Oral agreements are admissible for the following purposes: 1. to 1. to prove a subsequent modification of the written agreements 2. to 2. to clarify ambiguities 3. to 3. to prove fraud, mistake, illegality, duress, etc. 4. to 4. to fill in a gap (supplement) the writing

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing 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 © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Assignments Note: Rights are assigned; duties are delegated. Definition: Assignment is the present transfer of an existing right.

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Assignments  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  Contracts for personal services

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Assignment Process ObligorObligeePromiseeAssignor Assignee

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch Summary  A contract is a legally enforceable promise  Minimal requirements for enforceability:  Offer  Acceptance  Consideration  Genuine assent  Competent parties  Legal object

THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing Prentice Hall Ch All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall