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


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: 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.

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


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 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


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?

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……

mr. sherpinskys business law class entering into contracts 2015

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