Chapter 5 – How Contracts Arise - PowerPoint Presentation

Slide1

Chapter 5 – How Contracts Arise

Mr. Sherpinsky’s Business Law Class

Entering Into Contracts

2015Slide2

Chapter 5 – Section 1

Mr. Sherpinsky’s Business Law Class

Entering Into ContractsSlide3

Chapter 5 – How Contracts Arise (Discussion)

Justice JournalImagine 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.Slide4

Opening Scene, pg. 105The PlayersMr. Benes

AlenaViktorHanaEmil

Questions To Ponder!

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?Slide5

Key Termscontract (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)Slide6

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?????Slide7

Nature of a ContractHow 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.Slide8

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.”Slide9

6 Elements

of a Contract

Offer

Acceptance

Genuine Agreement

Consideration

Capacity

Legality

***All six elements must be present in order to constitute a contract***Slide10

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 formedSlide11

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 bargainSlide12

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)Slide13

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

enforceableSlide14

Elements of Contract DefinedConsideration

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?Slide15

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.Slide16

Example ContractSlide17

Actual Contract/PerformanceItem

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

X

Venue

and Promotional products/full

entourage

Technical

Stuff

3

X

Setup 12 hours/2 rehearsals/No visitors

Payment Up front2XPaid 30 days in advance of event Flowers1XIn room/dressing room/vehicle (daily) Spa1O Slide18

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 writtenSlide19

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.Slide20

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 Slide21

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. Slide22

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)Slide23

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 actAcceptance is the

completed or substantial performance of the contractSlide24

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!Slide25

Characteristics of a Contract

What is

one

characteristic that you think a contract must have?Slide26

Visual Mapping: ContractsSlide27

Class Discussion for WritingConcept Development

6 Elements

of a ContractFeatures and Details of Contracts

Be specific and detailed when possible

WARNING: Watch for problems

!Slide28

Write a Basic ContractUse the Six (6) ElementsChildcare Care Giver Contract:Dates: Begin/End

Worksite/Work ScheduleJob ResponsibilitiesCompensation

Paid Time Off/Sick/Family leaveHolidays/Off/Modified Work ScheduleTaxes/Raises/Reviews/PeriodsTermination

Social media/Privacy

Signature Lines w/dateSlide29

Elements with detailsCare Giver Contract:Dates: Begin/End

Start Date-End DateWorksite/Work ScheduleMain Workplace/worksite

Days and Times for regular work scheduleJob ResponsibilitiesCreate 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 childrenSlide30

Elements with detailsCare Giver Contract:CompensationRegular rate of pay

Overtime RatePay day (Twice monthly/weekly/monthly)Time offWhen/what days allowed

Paid vs. unpaid holidaysSick days- Paid or unpaid

Number of sick days

allowed (

per period)

Family leave time

Vacation time

Taxes (Who is paying them)Raises/Reviews/Time PeriodsSlide31

Example of TerminationsGROUNDS FOR TERMINATION The following are grounds for immediate termination:

Allowing the safety of the dependent(s) to be compromisedInconsistent or non-performance of agreed-upon job responsibilitiesConcerning issues in background checks

DishonestyStealingMisuse of family automobileBreach 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 drivingSlide32

Example of Privacy IssuesPRIVACYAny and all private information obtained during the course of employment considered private

MedicalFinancialLegalCareerStrictly confidential and may not be disclosed to any third party for any

reason without a court order!Slide33

Example of Social Media IssuesSocial mediaNo information about:His/her locationPlans for the

dayPictures of the childrenInformation sharingDistractions and fears for kids using InternetEmails, Instant Messenger, and chats

CyberbullyingSlide34

Write a Basic ContractUse the Six (6) ElementsChildcare 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 dutiesCompensation

Salary, Benefits

Paid Time Off/Sick/Family leave

Holidays/Off/Modified Work Schedule

Taxes/Raises/Reviews/Periods

Termination-M

in. 10 reasonsSocial media/Privacy: RulesSignature Lines w/dateSlide35

Chapter 5, Section 2Offer and AcceptanceSlide36

Bell Ringer – Class DiscussionEvaluating Intent“Janine and Sedrick were joking about how difficult it was to go back in college after the summer break. Janine said that she wished she were back at home and would sell all her books to the first person who gave her $100. Sedrick pulled out $100 and offers it to Janine for her books.”

Should Janine be required to sell her books to Sedrick?Slide37

Justice JournalWhat do you think is the difference between an offer and an invitation to negotiate?

Offer versus Invitation to NegotiateSlide38

3 Basic Requirements of

Offer

Must be made seriouslyHas to be definite and certain

Must be communicated to offereeSlide39

Offer & AcceptanceNo contract without both primary elementsMutually agreed termsSlide40

OfferOfferorGives proposalOffereePerson to whom offer is made

Proposal by offeror to do somethingMust appear to intend to create legal obligationTerms must be definite & completeMust be

communicated to the offereeSlide41

Test of Reasonable Person

Objective legal test used by jurors or judgesConcerned with the

appearance of the action

Problem:

Think

you are joking but interpreted as

serious intention

then

you have made an offerProblem: If you are serious but interpreted as joking you have not made an offerSlide42

Serious Intent

The intention of entering into a legal obligation.

Example: VentingSlide43

Serious IntentOffer 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.Slide44

Preliminary NegotiationsInformation communicated without indicating intentSocial AgreementsDon’t create legal obligations

AdvertisementsNot considered an offer – but an invitation to make offerSlide45

Invitation to NegotiateAdvertisements (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. 114Slide46

Complete & DefiniteAllows court to determine what was intended & identify legal rightsCompletePrice (if not communicated = current market price)

Full terms for paymentLegal description of goods/servicesDate for delivery of possessionDate for delivery of the transfer of ownership/title/deed

DefiniteEssential term identified clearlySlide47

Definiteness and CertaintyCannot be a certain offer if something is too unclear or vagueExample 4, pg. 115-116Slide48

Definiteness and Certainty

ExampleJoe Vasquez offered a position as an account executive w/ International Corp.Salary of $2,400 per month plus reasonable commission on total salesIs this a definite and certain offer?

No, why?Difficult to determine what “reasonable” commission is….Slide49

Must Be CommunicatedOnly intended offeree can acceptCan’t accept if didn’t know offer was madeSlide50

Communication to the Offeree

Telephone, letter, telegram, fax, e-mail, or any other method that communicates the offer to the

offeree.Mailbox Rule!

Example 5, pg. 116Slide51

Communication to the Offeree

Example:Jean LeFerve found a wallet.The driver’s license identified the owner.Jean returned the wallet

The 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?Slide52

Review: 3

Basic Requirements of an Offer

Must be made seriously

Has to be definite and certain

Must be communicated to offereeSlide53

Work

Packet!

Time!Slide54

Requirements of an Acceptance

Must be

UnconditionalUnqualified

Must follow all rules regarding the method of acceptanceSlide55

Acceptance Must Match OfferOfferee must accept all termsChanges = Counteroffer

Mirror Image RuleTerms in acceptance exactly match the terms contained in the offerSlide56

Acceptance Must be CommunicatedSilence as AcceptanceContinuing relationship – agree in advanceNot 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 acceptanceOnly be revoke after reasonable amount of timeSlide57

Methods of AcceptanceExample:

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?Slide58

Acceptance Must be CommunicatedBilateral AcceptanceMost offers use this type of acceptanceMost common method of acceptanceRequires that offeree accept by communicating the requested promise back to

offerorSlide59

Modes of Contractual CommunicationTelephone?Text Messaging?Mail?Delivery Service?E-mail?Fax?Other?Slide60

When Acceptances are EffectiveOfferor may require offeree to use a certain communication method to accept. Once it is accepted, it’s binding

Oral/SpokenMailTelegram

FaxEmailSlide61

Methods of AcceptanceThe time at which an acceptance takes place is important because that is when the contract comes into existence.

Example 7, pg. 119Slide62

Acceptance

Art Gifford sent a letter to Marge and Norm Grayson, offering to buy their home for $80,000The Graysons who advertised their house at $85,000, wrote a reply stating, “We accept your offer. However, we would like the price set at $83,000Did the Graysons accept the offer?Slide63

Review ChallengeSlide64

Review ChallengeSlide65

Termination of an Offer

May occur in any of 5 ways

Revocation Rejection

Counteroffer – ends the first offer

Expiration of time

Death or InsanitySlide66

Revocation

Taking back of an offer by the offerorExampleRob offered to sell his CD burner to Jodi Costa for $250.00

Jodi examined the CD burner and found that it was in good conditionHowever, 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. 120Slide67

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. 120Slide68

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)Slide69

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.Slide70

Expiration of Time

Example:OptionsIf 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 offerWithin the agreed time

Subject to the terms of the original offerSlide71

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 matterSlide72

Can An Offer Be Kept Open?OptionsOfferee gives the offeror something of value in return for a promise to keep the offer openBinding 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!Slide73

Review Concepts

What are the requirements of an offer?Serious intentClear and definite terms

Communication to the offereeWhat 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.Slide74

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 contractA counteroffer means the original offer has not been accepted… New offer has been madeSlide75

Review Concepts

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 deadlineDeath/and/or Insanity or Destruction of Subject MatterSlide76
Slide77

Let’s Debate…

YOU BE THE JUDGE!Slide78

Class WorkSituation AnalysisAnne 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?Slide79

Class WorkSituation AnalysisAnne 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.Slide80

Class WorkSituation AnalysisAn auctioneer says, “Do I hear a bid for this antique sofa? Someone in the crowd say, “$300.”

Is there a contract?Slide81

Class WorkSituation AnalysisAn 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…Slide82

Class WorkSituation AnalysisAnnette 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?Slide83

Class WorkSituation AnalysisAnnette 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.Slide84

Class WorkSituation AnalysisArlene 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.Slide85

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 17

th

10:00AM.Slide86

Class WorkSituation 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.Slide87

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…Slide88

Offer & Acceptance Quiz

What are the 6 elements of a contract?

Who can accept an offer?

What is the Mirror Image Rule?Slide89

Class WorkFinish Chapter 5 Packet and VocabularyReview Thursday…Exam will be Monday……