BUSN 370 RU Contract Covenant And Responsibility Paper

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BUSN 370

Regent University

BUSN

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Utilizing the information to this point in the course, write a paper from a biblical worldview perspective that develops on the legal concepts of (1) the elements of a contract and how contracts differ from the biblical covenant; and (2) responsibility and how Christians should fulfill business obligations.


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Chapter 1 Our System of Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 1-2 The Law in Our World Justice and law are hallmarks of a free society in today’s world. Attorneys seek favorable outcomes for their clients (plaintiffs or defendants): • Plaintiff: Person who brings a lawsuit against another • Defendant: Person against whom a lawsuit is brought or a violation of law is charged. ©2019 McGraw-Hill Education. 1-3 Applications of Law Laws apply to all persons, institutions and organizations: • Personal Applications of Law • Example: Traffic laws, Taxes • Business Applications of Law • Example: Product Liability, Employment issues • Government Applications of Law • Example: Building roads, schools ©2019 McGraw-Hill Education. 1-4 Sources of Law The body of law affecting persons in our country is derived from: • • • • • • • • Constitutional Law Executive Orders Treaties Common Law Precedent Case Law Statutory Law Administrative Law ©2019 McGraw-Hill Education. 1-5 Constitutional Law Principles and ideals protecting individual liberty and freedom are incorporated in the Constitution of the United States (federal Constitution). Also, each state has its own constitution establishing certain powers to its various levels of government, and, provide safeguards for the rights of individuals within the particular state. ©2019 McGraw-Hill Education. 1-6 Executive Orders An executive order is a legally binding directive to agencies of the federal government issued by the President to implement policy and improve government operations. Executive orders alter the manner in which federal agencies and officials operate. • Example: 1863, President Lincoln ordered all those enslaved to be forever free under the Emancipation Proclamation. ©2019 McGraw-Hill Education. 1-7 Treaties A treaty is a written agreement among two or more countries that establishes the terms of an international relationship. Treaties become legally binding to the U.S. when approved by 2/3’s of the Senate. ©2019 McGraw-Hill Education. 1-8 Common Law After the Revolutionary War, the United States adopted English system of laws used for centuries known as the common law; still influences legal decisions today. Common law incorporates the practice of stare decisis, (“to stand on decided cases”) when relying on previous legal decisions of similar disputes. ©2019 McGraw-Hill Education. 1-9 Precedent A precedent is a court decision on which later courts rely in similar cases. Whether a court follows or overrules a precedent depends on: • The court that ruled on the case. • Whether or not the previous case was decided by a state’s highest court. • Higher court’s review based on substantial changes in society and circumstances ©2019 McGraw-Hill Education. 1-10 Case Law Case Law • At times a statute or a common law precedent is difficult to apply to certain cases. • In such cases, a court may disregard earlier interpretations of a statute, a principle of common law, or, interpret them differently. • A court’s decision in these cases becomes new precedent influencing future like cases. ©2019 McGraw-Hill Education. 1-11 Statutory Law Statutory Law • Field of law that deals with statutes—laws passed by Congress or state legislatures. • Statutes provide specific applications of powers and rights in federal and state constitutions. • Statutes allow governments to respond to particular public policy issues. • Ordinance: A law is passed by a local government, such as a city council. ©2019 McGraw-Hill Education. 1-12 Administrative Law Administrative agencies are created by federal, state, or local legislatures to develop and enforce rules based on law. Administrative Law is the body of rules, regulations, and decisions created by agencies under particular statutes. Administrative agencies reduce need for police and courts to establish and enforce regulations on highly technical or specialized matters. ©2019 McGraw-Hill Education. 1-13 Uniform Commercial Code The Uniform Commercial Code was established (1952) by the National Conference of Commissioners on Uniform State Laws. UCC exists to promote effective commerce across the states. The UCC is a set of laws governing commercial transactions, designed to bring uniformity to state laws. ©2019 McGraw-Hill Education. 1-14 Classifications of Law Constitutional law: The study of the federal Constitution, its interpretation by the federal courts, and its relationship to existing laws. Civil law: The study of the rights and obligations of individuals; includes the law of property, the law of contracts, and the law of torts. Criminal law: Concerned with acts against society (criminal acts) and the regulation of criminal activity. Administrative law: Concerned with the conduct of governmental administrative agencies and their regulations. International law: Concerned with the conduct of nations in their relations with other nations. ©2019 McGraw-Hill Education. 1-15 Moral Law (1) The “law” concerned with the unenforceable obligations that people have to one another. • Many legal obligations are based on moral obligations, but not all moral obligations are legally enforceable. • When moral obligations are not legally enforceable a person’s conscience is the only means of implementation. ©2019 McGraw-Hill Education. 1-16 Moral Law (2) Examples of moral law • A person who sees someone drowning has a moral obligation to attempt rescue. • A person who hears someone screaming for help in the night has a moral duty to call the police. ©2019 McGraw-Hill Education. 1-17 System of Courts There must be a means of administering the law to protect due process rights of individuals, businesses and curtail activities of wrongdoers. Courts and administrative agencies have been established to administer the law. Federal and state constitutions established a court system to ensure citizens’ rights; enforce federal and state statutes. Courts are a “check and balance” on legislative and executive branches of government. ©2019 McGraw-Hill Education. 1-18 Court Jurisdiction (1) Jurisdiction: Authority or power of a court to hear cases, as granted by a constitution or legislative act. • A court may be limited in authority over certain types of cases or geographical areas. • A court has original jurisdiction if authorized to hear and decide a case when first presented. ©2019 McGraw-Hill Education. 1-19 Court Jurisdiction (2) Appellate Jurisdiction: The power to review decisions of another court. Special Jurisdiction: Courts that are limited in authority to hear only certain kinds of cases. • Examples: family courts, traffic courts, bankruptcy courts, and tax courts. ©2019 McGraw-Hill Education. 1-20 Supreme Court (1) Article III-U.S. Constitution provides for federal courts; the Supreme Court is the highest court in the federal system. The Supreme Court is the court of original jurisdiction for certain kinds of cases such as disputes between and among states. ©2019 McGraw-Hill Education. 1-21 Supreme Court (2) The Supreme Court: • Rules on constitutionality of laws. • Hears appeals from the highest state courts. • Hears appeals from federal circuit courts of appeal. • Hears certain specific original jurisdiction cases. • Accepts only a small percentage of appeals. It has no legal obligation to review all decisions from lower courts. ©2019 McGraw-Hill Education. 1-22 Federal Courts Federal courts have original jurisdiction in cases involving federal statutes. Federal courts have original jurisdiction in Diversity of Citizenship cases, that is parties are citizens of different states and amount involved is greater than $75,000. Federal courts also include specialized courts hearing only specific subject cases (examples: U.S. Tax Court, Bankruptcy Court, and U.S. Court of Claims). ©2019 McGraw-Hill Education. 1-23 State Courts State Courts: Each state establishes its own court structure • General trial courts: courts of original jurisdiction. • Handle state law cases such as breach of contracts, criminal law, & family law. • Trial courts include municipal courts handling • Traffic violations, juvenile, domestic relations. • Magistrate courts hear certain minor violations of the law or small claims ©2019 McGraw-Hill Education. Chapter 2 Ethics and the Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 2-2 Unethical Behavior in Our World Some multimillion-dollar companies have been involved in acts society deemed unethical and illegal behavior; questionable accounting practices, fraud, deception, insider trading and attempts to influence both politicians and the media. As response to the unethical corporate behavior, Congress passed the Sarbanes-Oxley Act (2002), placing greater accountability on top management to closely monitor financial dealings and corporate disclosures. ©2019 McGraw-Hill Education. Example of Unethical Business Practices Facts: • Entrepreneur Martha Stewart (2004) was investigated for selling several thousand shares of ImClone stock after allegedly receiving and illegally acting on insider information. • Found guilty of a federal crime for lying to federal investigators, Stewart received a 10-month sentence, a $30,000 fine, and 19 months of supervised probation. ©2019 McGraw-Hill Education. 2-3 2-4 Ethics in a Global Marketplace (1) Group and individual values are influenced by religion, tradition, culture and customs. With expansion of businesses in a global marketplace, business professionals face different standards in different countries. ©2019 McGraw-Hill Education. 2-5 Ethics in a Global Marketplace (2) Culture and Subculture influence the development of individual and group values. Culture is of utmost importance. It is the values held those of a nation or an ethnic group. Subculture are the values held by a smaller group —for example, employees of a corporation, or a department within a company—and may differ from those of the larger culture. ©2019 McGraw-Hill Education. 2-6 Ethics, Morals, and Values Ethics - An individual’s beliefs as to what is right and wrong. Morals - Standards and principles society has adopted as a guide for acceptable behavior of individuals within society Values - Beliefs or standards considered worthwhile which establish an individual’s ethics and a society’s morals. ©2019 McGraw-Hill Education. Sources of Group and Individual Values Group and individual values are influenced by religion, traditions and customs. • An individual’s values are significantly influenced by groups to which the person belongs. • Other influences shaping an individual and group values are: • Culture: Values of a nation or ethnic group. • Subculture: Values held by employees of a corporation or a specific department (may be different from those of the larger culture). ©2019 McGraw-Hill Education. 2-7 Relationship between Law and Ethics Legal mandates are placed on individuals or groups by authorities or governments. Ethical considerations are generally derived from within individuals or organizations. Ethical ideas have been the foundation of most legislation enacted by governments. ©2019 McGraw-Hill Education. 2-8 Responses of Business Firms to Ethical Issues (1) Organizations are concerned about possible legal consequences of unethical behavior. Executives may embrace ethical practices due to favorable publicity it gives their firms. Businesses concerned with ethics usually focus on corporate responsibility and development of codes of conduct. ©2019 McGraw-Hill Education. 2-9 Responses of Business Firms to Ethical Issues (2) Corporate Responsibility • Actions taken by corporations are intended to demonstrate their wish to behave responsibly. • Corporate actions reflect a moral and ethical concern with observed social problems. Codes of Ethics • Companies understand the need to be ethical. • Some firms establish a code of ethics, sometimes called a credo or a values statement. • Sarbanes-Oxley requires codes for public firms. ©2019 McGraw-Hill Education. 2-10 Responses of Business Firms to Ethical Issues (3) Many firms expect employees to strictly follow codes; others require employees to sign contracts of adherence to ethics standards. Management should consider relevant stakeholders; those people or groups affected by a firm’s actions or decisions, when establishing codes or making ethical decisions. ©2019 McGraw-Hill Education. 2-11 Responses of Business Firms to Ethical Issues (4) A general list of topics covered in codes: • • • • • • • • • • • Fundamental honesty and adherence to the law Product safety and quality Workplace Health and safety Avoiding conflicts of interest Employment practices Fairness in selling and marketing practices Financial reporting Supplier relationships Pricing, billing, and contracting Trading in securities and using insider information Payments to obtain business ©2019 McGraw-Hill Education. 2-12 Responses of Educational Institutions to Ethical Issues Educational institutions have increased the need to examine ethics by adding internal policies, training courses, workshops, and programs. Typical topics include: • • • • • • Fairness in hiring practices Employment Promotions Ethical issues in multinational business Ethical issues arising from technology Economic justice, environmental ethics, and ecology ©2019 McGraw-Hill Education. 2-13 2-14 Responses of Governments Governments try to protect consumers, the environment and influence business ethical behavior. Governments enact laws, regulations and programs to ensure and encourage ethical behavior. • For example, Federal Sentencing Guidelines provide an incentive for corporations to act more ethically. • Under this mandate, when an employee violates a law a firm may reduce its liability by showing it took action to develop moral guidelines for its employees. ©2019 McGraw-Hill Education. Responses of Trade and Professional Associations Trade associations develop guidelines for ethical business practices. • Example: The direct marketing association (DMA) provides self-regulatory standards for: • • • • • Telephone marketing Sweepstakes Fund-raising Marketing to children Collection and use of marketing data ©2019 McGraw-Hill Education. 2-15 2-16 Ways to Ensure Ethical Practices (1) Sometimes the driving force for reform may be the individual whistleblower. • Whistleblower: A person who reveals to a governmental authority, or news media, confidential information concerning some wrongdoing or conduct he or she regards as unethical and/or illegal. The federal government and many states have laws that protect whistleblowers from retaliation. The usual motivation behind whistleblowing is outrage to a person’s sense of ethics. ©2019 McGraw-Hill Education. Ways to Ensure Ethical Practices (2) Federal government has now enacted laws to encourage whistleblowing by providing financial incentives for doing so. • For example, the Securities and Exchange Commission, in an effort to enhance its reputation, has established a program to reward whistleblowers with a percentage of penalties imposed. ©2019 McGraw-Hill Education. 2-17 Integration of Ethics into Business and Government (1) Business should be conducted in ways that will not harm the consumers or environment. A chief executive officer or board of directors may discontinue ethical practices if they reduce profits or adversely affect the firm. Likewise, firms of high ethics will maintain practices that enhance the firm’s profits. ©2019 McGraw-Hill Education. 2-18 Integration of Ethics into Business and Government (2) Additional government regulation could ensure compliance with ethical standards, but such enforcement proves costly and at times oppressive bureaucracy. Ideally, individuals, industry organizations, and watchdog groups should encourage business and governments to reach mutually agreed ethical practices. ©2019 McGraw-Hill Education. 2-19 Chapter 3 Criminal Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 3-2 Crime versus Tort (Civil Law) Crime: Violation of a statute that is an offense against society; the public at large punishable by state or federal government. Tort (Civil Law): A private wrong causing injury to another person’s physical well-being, property, or reputation. Certain acts may be charged separately as a criminal violation and as a tort (civil violation). ©2019 McGraw-Hill Education. 3-3 Crime versus Tort While statutory law determines what constitutes a crime, many laws reflect legal principles derived from longstanding common law. A high degree of uniformity normally exists among states, thus a particular act to be legal in one state and illegal in another is rare. • A current exception is marijuana use: legal in a few states, illegal in others and illegal under federal drug laws. Legislatures attempt to reflect public interest enacting laws making certain acts a crime if there is sufficient public demand. ©2019 McGraw-Hill Education. 3-4 Classification of Crimes (1) Crimes in the U.S. are classified into three general categories according to seriousness of the offense: • Treason • Felony • Misdemeanor ©2019 McGraw-Hill Education. 3-5 Classification of Crimes (2) Treason: Levying war against the United States, or providing aid and comfort to the nation’s enemies. (U.S. Constitution, Art. 3, Sec. 3) Felony: A crime punishable by death or imprisonment in federal or state prison for a term exceeding one year. Misdemeanor: A less serious crime generally punishable by a fine and/or a prison sentence of less than one year. ©2019 McGraw-Hill Education. 3-6 Crimes in the Business World (1) Crimes, do not always involve force or violence against people or businesses. Business crimes may also occur in the office, over telephone, computer systems or in social occasions and locations where employees may meet. ©2019 McGraw-Hill Education. 3-7 Crimes in the Business World (2) Crimes in the business world include: • Securities Fraud • Arson • Bribery • False pretenses • Forgery • Larceny • Perjury • Embezzlement • Extortion • Consumer and Government Contract Fraud • Tax Evasion or Fraud • Other business-related crimes… ©2019 McGraw-Hill Education. 3-8 White Collar Crime (1) White-Collar Crime is a term used to describe categories of crimes typically financial related that do not involve force or violence by or against businesses. Depending on its seriousness and particular state or federal law, a white-collar crime may be a felony or a misdemeanor. Laws governing white collar crime have expanded at the federal and state level. ©2019 McGraw-Hill Education. 3-9 White Collar Crime (2) RICO -Racketeer Influenced and Corrupt Organizations Act of 1970 - is one of the most successful federal laws used to combat white collar crime. • RICO prohibits organization's employees from engaging in a pattern of racketeering or illegal acts. • Under RICO, it is easier to prosecute corrupt organizations and seize illegally obtained assets. ©2019 McGraw-Hill Education. 3-10 Securities Fraud (1) Securities Fraud occurs when a person or company provides false information to potential investors intended to influence decisions to buy or sell securities. Securities fraud encompasses: • Theft of investor's assets • Stock trading based on non-public information • Wrongful manipulation of financial statements and/or intentional false information. • Sales by unlicensed stock brokers. ©2019 McGraw-Hill Education. 3-11 Securities Fraud (2) A Ponzi scheme is a type of securities fraud in which large gains are promised to investors; but, in reality, newer investments are used to provide returns to earlier investors. Knows also as Pyramid Schemes, these schemes inevitably collapse over time as required returns to earlier investors become too large to cover income from new investors. ©2019 McGraw-Hill Education. 3-12 Arson Arson is a willful or malicious act of causing the burning of property belonging to the owner, another person or business. Most states have laws establishing particular criminal penalties to persons who burn their own property with intent to collect insurance money. Such statutes establish a special category of crime called burning to defraud. Insurance companies and law enforcement have developed sophisticated investigation techniques to combat these illegal practices. ©2019 McGraw-Hill Education. 3-13 Example: Arson Facts: • Filkins, the owner of a clothing manufacturer was losing money so he hired an arsonist to set the building on fire. • The building, inventory, and equipment were insured. • Insurance investigators and fire marshal found evidence of arson. • The insurance company refused to pay for the loss. • Filkins and the arsonist were charged with the crime of arson. ©2019 McGraw-Hill Education. 3-14 Larceny Larceny is a general term including most forms of theft. It may be a felony or misdemeanor based on size. • Classified as petty (small) or grand (large), depending upon the value of the stolen property. Types • Robbery: Taking of property in the possession of another person against that person’s will and under threat of bodily harm. • Burglary: Forcible entry to another person’s premises for the purpose of committing a crime. ©2019 McGraw-Hill Education. 3-15 Bribery Bribery consists of giving or taking money or property of value with intent of influencing someone (usually a public official or business official) to act contrary to performance of his or her duty. Some states have enacted laws that make it a crime to bribe someone other than a public official. Both the giver of the bribe and the receiver may be charged with bribery. Federal law prohibits bribery of foreign officials. ©2019 McGraw-Hill Education. 3-16 False Pretenses False pretenses describe a broad category of crimes involcing activities intended to deceive others by making false claims, or to obtain goods by using false pretenses. • Example: A person who makes false statements to a bank for the purpose of obtaining a loan. Federal and state statutes govern activities considered unlawful false pretenses. ©2019 McGraw-Hill Education. 3-17 Forgery Forgery consists of wrongfully making or altering the writings of another with the intent to defraud. • Example: Falsifying a signature on a check or on the endorsement of a check. The act of signing another person’s name to a credit card charge slip, contract, or, other official documents without permission is also considered forgery. ©2019 McGraw-Hill Education. 3-18 Perjury Perjury consists of intentionally giving false oral or written statements under oath in a judicial proceeding after having sworn to tell the truth. • Example: A person knowingly lies in court while under oath. Often, giving false information on a government form such as a tax return, trademark application and the like is considered perjury. ©2019 McGraw-Hill Education. 3-19 Embezzlement Embezzlement is the wrongful taking of money or other property entrusted to a person as a part of his or her employment. • Example: A computer programmer at a bank programs a computer so that interest earned on a depositor's account would be split; a portion diverted into a deposit into his personal account. ©2019 McGraw-Hill Education. 3-20 Extortion Extortion is the act of taking or demanding money or other property from someone by using force, threats of force, personal humiliation or economic harm. The difference between extortion and bribery is that in bribery both parties are willing participants, whereas in extortion, one person is willing and the other person is unwilling. ©2019 McGraw-Hill Education. 3-21 Other Business-Related Crimes The number of crimes involving businesses has grown with researchers suggesting there are now as many as 4,500 federal crimes in the U.S. Code. As business practices and technology change, new types of bad acts arise for which Congress and states increasingly enact laws carrying criminal penalties and forfeiture of illegal benefits. Some examples are: • Credit card fraud: Using stolen or counterfeit credit cards. • Identity theft: Stealing someone else’s identity to get credit cards or loans. • Environment: Discharging waste into waterways. ©2019 McGraw-Hill Education. 3-22 Criminal Penalties in Business Businesses convicted of crimes typically pay large fines, incur court injunctions, legal and other costs. Some laws allow Responsible Corporate Officers to be charged, convicted and jailed. In extreme cases (RICO) the business or its property may be seized by government authority. ©2019 McGraw-Hill Education. Chapter 4 Tort Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. The Nature of Torts Tort: A violation of the rights of an individual or business that has been damaged either intentionally or by negligence. • Law of torts does not deal with duties from contract but is concerned only with violation of private rights. Common torts include: • • • • • Defamation Assault or Battery Nuisance Conversion Negligence ©2019 McGraw-Hill Education. 4-2 Defamation Defamation: The harming of a person’s reputation and good name by communication of a false statement to 3d parties. • For an act to be considered defamatory, it is necessary to show the statement was made in such a way that others hear or read it. • Example: Writing an article that contains defamatory statements about someone in a newspaper. Defamation has been separated into two torts: • Libel • Slander ©2019 McGraw-Hill Education. 4-3 Libel and Slander Libel: Spreading of damaging statements in written form, including pictures, cartoons, and effigies (likenesses). • Defamation on radio, television, and Web sites is also considered libel. Slander: Spreading of damaging words or ideas about a person, directly or indirectly, in all other forms not considered libel. • The most common form of slander is spoken words. • Slander also can be committed by means of gestures and actions. ©2019 McGraw-Hill Education. 4-4 Characteristics of Libel While several libel cases involve defamatory statements published in books, media, and Web sites, the possibility of libel also exists in business e-mails, memos, and letters. • The libel need not be direct. Subtle suggestion or implication is enough to bring about legal charges. Example: In the case of a missing laptop computer, a manager might write an e-mail to his team asking them to check with Joe Anderson, who was known to “borrow” things. (Implication equals Joe is a thief) ©2019 McGraw-Hill Education. 4-5 Characteristics of Slander Slander describes almost all defamation that cannot be classified as libel. • It includes spoken words, gestures, actions, and even omissions. • Most cases of slander involve thoughtless statements that reflect badly on another person’s good name and reputation. • Anyone hearing a slanderous statement may be called upon later to testify to having heard it. • Slander does not require direct defamatory statement. Gestures and actions may be as damaging. ©2019 McGraw-Hill Education. 4-6 Trade Libel The tort of trade libel is similar to traditional defamation but deals with an individual’s title to property, or quality of product or service. • Example: A manager sends an e-mail to his suppliers claiming his competitor is having trouble with finances and is planning on filing bankruptcy. Humor and Slander • A quick apology might be enough to avoid some charges of slander, but not always. • Some forms are guilty on their face Slander per se. ©2019 McGraw-Hill Education. 4-7 Defenses to Defamation Two common defenses to charges of defamation are: truth and privilege. • Truth: If a defamatory statement proves to be true, the person claiming defamation cannot recover damages. • However, a person engaged in business should still be careful, since it is often expensive to go to court in order to prove the truth of a statement. • Privilege: If the person accused of defamation had a special privilege in making the defamatory statement (an attorney in a court proceeding who accuses a witness of lying), the defamed person cannot recover damages. ©2019 McGraw-Hill Education. 4-8 Nuisance Nuisance: An unlawful interference with the enjoyment of life or property constitutes a nuisance. • The law gives everyone the right to enjoy his or her land without unreasonable interference from others. Private nuisance: A person who acts in a way that denies this right to a specific person or group. Public nuisance: Affects the community or the general public. • Example: Loud noise or music, bright lights ©2019 McGraw-Hill Education. 4-9 Conversion The law gives each person the right to own and use personal property without interference from others. When this right is denied or abridged, the wrongdoer is said to have committed conversion. • Can involve a wrongful taking, a wrongful detention, or an illegal assumption of ownership. Example: A person who stole personal property, and damaged it in the process, may be sued for monetary damages in an action for conversion. Unlike larceny, conversion may occur without intent. ©2019 McGraw-Hill Education. 4-10 Negligence The tort of negligence is the failure to exercise reasonable care necessary to protect others from risk of harm. Negligence is classified as simple or gross. • The number of lawsuits negligence cases has grown greatly in recent years, in part due to news accounts of large jury awards have encouraged lawsuits. Example: Corporation is liable for the tort of negligence for negligent design or manufacture of products that cause injury. ©2019 McGraw-Hill Education. 4-11 Unavoidable Accidents and the “Reasonable Person” Unavoidable Accident • The concept of “unavoidable accident” is intended to focus attention on whether an accident could have been avoided if the person alleged to be responsible had acted reasonably. “Reasonable Person” • One way juries determine if a person is negligent is by using the doctrine of “reasonable person of ordinary prudence,” a fictitious individual who is assumed to have judgment and skill one would expect from a person with the strengths and limitations of normal personal behavior on which to be judged. ©2019 McGraw-Hill Education. 4-12 Kinds of Negligence (1) Vicarious negligence (liability) • This means charging responsibility for a negligent act by one person to another. • Example: An employer may be held responsible for the negligent acts of employees. Negligence per se • This occurs when a defendant charged with • negligence has violated a law enacted to prevent the type of injury that occurred. Example: A defendant, removes the safety shield on a tool loaned to a person who is later injured by its use. ©2019 McGraw-Hill Education. 4-13 Kinds of Negligence (2) Contributory negligence • This is a legal defense by the defendant arguing the plaintiff was negligent as well and contributed to his or her own injuries. • Another term for this principle is contributory fault. Comparative negligence • The injured party bringing the lawsuit is not prevented from recovering damages even if he or she was partly at fault. The jury determines percentage of fault by plaintiff and reduces the verdict by that amount. Negligence as a result of assumption of risk • This legal defense occurs when the defendant demonstrates the plaintiff voluntarily assumed the risk associated with the dangerous condition. ©2019 McGraw-Hill Education. 4-14 Liability When a person has been judged to be responsible for a loss, he or she is said to be liable (not the same as libel). • In most lawsuits, the court must decide if the defendant is liable for the damages as charged. Example: A customer who rents a defective car suffers bodily injuries in a car accident that was caused by the defect. The car rental company is liable for the injuries and payment of damages. ©2019 McGraw-Hill Education. 4-15 Vicarious Liability The law holds persons liable for the acts of others. The term for this shifting of responsibility is vicarious liability. • Example: When an employer is held responsible for the acts of employees, or when a general contractor is held responsible for acts of a subcontractor. ©2019 McGraw-Hill Education. 4-16 Example: Vicarious Liability Facts: • Stuart, owner of a cab services company, hired Ron to drive one of his cabs. • After six months, Ron has an accident as a result of negligent driving, injuring three persons traveling in the cab owned by Stuart’s company. • In this case, the injured parties may file a suit against the employer of the wrongdoer because the accident took place when the injured parties availed the cab services. The injured parties can hold the employer (Stuart) vicariously liable for the acts of the employee (Ron) as vicarious liability. ©2019 McGraw-Hill Education. 4-17 Strict Liability Certain events cause death or injury to others even when no negligence exists. Under this doctrine, business may be liable for injuries to others whether or not they have done something wrong. • Example: Damage caused by inherently dangerous activities, events, or animals. • Broad range of injuries suffered by employees on the job. In recent years, strict liability has also been applied to cases involving injury or death caused by manufactured products or business locations open to the pubic. Strict liability has been recognized and applied in at least two-thirds of the states in the United States. ©2019 McGraw-Hill Education. 4-18 4-19 Example: Strict Liability Facts: • Jack Builders, Inc. constructs a house on 65th Street. • Even after ensuring all necessary precautions were undertaken, employees of Jack Builders, Inc. damaged the adjacent building. • Under strict liability, it is not necessary for the owner to show negligence. If the owner can only prove the damage had occurred due to the wrongdoings of Jack Builders, Inc., then it shall be enough to sue the wrongdoer and not the owner. ©2019 McGraw-Hill Education. Chapter 5 Constitutional Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. The United States Constitution The U.S. Constitution (1789), although relatively brief, forms the basis for all American law. Each of the following must be consistent with the U.S. Constitution: • • • • • All federal statutes enacted by Congress All state statutes enacted by state legislatures All ordinances enacted by local municipalities All administrative laws and decisions Every court decision in every case in every jurisdiction ©2019 McGraw-Hill Education. 5-2 Constitutional Powers Both the federal government and the fifty states’ governments have the power (under certain conditions) to regulate citizens who reside within their jurisdictions. • Also, each state has its own state constitution This system of government is known as federalism. The federal Constitution and state constitutions confer two types of powers on the governments: • Express powers • Implied powers ©2019 McGraw-Hill Education. 5-3 Express and Implied Powers Express powers are those that are specifically stated in constitutions. • Example: The U.S. Constitution grants the federal government the explicit power to raise an army and to impose taxes. (Article I Powers) Implied powers are those that have arisen as a result of interpretation of the express powers by the courts. • Example: The federal Constitution gives Congress the implied power to create an agency to explore outer space. ©2019 McGraw-Hill Education. 5-4 Constitutional Amendments (1) Amendments to the Constitution were necessary to address changing needs of the country and its people in the years following the drafting of the original document. (Article V) The Constitution has been amended, or changed, 27 times, and it will probably continue to be amended. • However, the amendment process in an onerous one. ©2019 McGraw-Hill Education. 5-5 Constitutional Amendments (2) Each amendment must be proposed by a twothirds vote of Congress and ratified, or approved, by the legislatures of three-fourths of the 50 states. It is also possible for an amendment to be initiated by states. The first ten amendments are referred to as the Bill of Rights (Known as “fundamental rights”). ©2019 McGraw-Hill Education. 5-6 Judicial Review Federal and state courts have the power to determine whether laws enacted by legislatures or decisions made by lower courts violate the Constitution. If a court decides a law is contrary to the Constitution, the law may be declared unconstitutional and, invalid. The process of deciding if a law is contrary to the Constitution is known as judicial review. ©2019 McGraw-Hill Education. 5-7 The Doctrine of Preemption If a state or local law is inconsistent with the federal law, the state or local law may be declared unconstitutional, and federal law must be followed. This is known as doctrine of preemption; federal law preempts, or supersedes, the state law. • This doctrine only applies in instances where the law in question pertains to a power that the Constitution has expressly or implicitly granted to Congress. ©2019 McGraw-Hill Education. 5-8 The Commerce Clause (1) This clause grants Congress the power to regulate commerce among states in order to prevent the restriction of trade activity. Article I, Sec. 8, Clause 3 Courts have held the term commerce, as used in the Constitution, is defined as the movement or exchange of persons, goods, or information across state lines. ©2019 McGraw-Hill Education. 5-9 The Commerce Clause (2) The commerce clause creates one of the most fundamental powers in the Constitution. • Some judges and legal scholars take a broad and expansive view of this clause. • Others are strict constructionists, maintaining many of the matters Congress now legislates would be more appropriately left to the states. ©2019 McGraw-Hill Education. 5-10 The Full Faith and Credit Clause (1) The full faith and credit clause reads as follows: • “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.” Article IV, Section 1 This clause mandates each state respect and enforce both the judgments awarded by courts in other states, and the laws and case law of other states ©2019 McGraw-Hill Education. 5-11 The Full Faith and Credit Clause (2) The Supreme Court has made a distinction in the level of the respect that must afforded each state’s laws. • A great deal of respect must be given to judgments awarded by courts in other states; • A lower level of respect must be given to another state’s statutes and case law. Example: A handful of states provide that individuals may make personal use of marijuana, while other states ban it. However a citizen of a state that allows its use, may not use or possess marijuana while in a state where its possession and use is illegal. Here the full faith and credit clause does not apply. ©2019 McGraw-Hill Education. 5-12 The Supremacy Clause This clause requires state judges to follow federal law in the event of a conflict with state law. • Under this clause, the provisions of U.S. treaties supersede any conflicting state regulations. According to the supremacy clause, a Supreme Court ruling that involves a constitutional issue is binding upon all state courts. Article IV, Section 2 ©2019 McGraw-Hill Education. 5-13 The First Amendment (1) Four important parts of this Amendment are: • The Establishment and Free Exercise Clauses Relating to Religion • Freedom of Speech • Freedom of the Press • Freedom of Association (Assembly) ©2019 McGraw-Hill Education. 5-14 The First Amendment (2) The Establishment and Free Exercise Clauses Relating to Religion The First Amendment right to freedom of religion is divided into two interconnected pieces: • (1) the establishment clause, (2) the free exercise clause. The establishment clause makes it unconstitutional for government to recognize a single national religion, or to create policies or practices that favor one religion over another. The free exercise clause requires government not interfere with an individual’s practicing the religion of his or her choice. ©2019 McGraw-Hill Education. 5-15 The First Amendment (3) Freedom of Speech The First Amendment’s freedom of speech clause provides Americans with a fundamental right. While individuals have the right to freedom of political or religious speech, this right is guarded most zealously when speech is unpopular, upsetting, ignorant, or even anger-provoking. Speech that is sexist, racist, ageist, or otherwise offensive is also protected. • Example: The act of burning an American flag is considered protected speech and laws prohibiting such are unconstitutional. ©2019 McGraw-Hill Education. 5-16 The First Amendment (4) Freedom of Speech All speech is not protected under the First Amendment. The following are examples of speech that may constitutionally be limited or silenced: • • • • • • Speech that incites imminent danger Child pornography Speech that is legally obscene Speech that threatens physical harm Speech that is defamatory, including both slander and libel Interference with works protected by trademark, patent, or copyright law • Commercial speech, such as deceptive advertising ©2019 McGraw-Hill Education. 5-17 The First Amendment (5) Freedom of the Press It is unconstitutional for governments to pass a law limiting what a journalist could write or say about a political candidate or issue. However, not all laws pertaining to the news media are unconstitutional. • Example: It is constitutionally acceptable for government to tax newspapers. ©2019 McGraw-Hill Education. 5-18 The First Amendment (6) Freedom of Association (Assembly) Citizens and businesses have the right to associate with groups to petition the government to address grievances. This includes organizing for political or business purposes, such as Chambers of Commerce, Environmental Groups, civil rights groups, etc. Assembly and association must be peaceful. ©2019 McGraw-Hill Education. 5-19 The Second Amendment This Amendment provides Americans with the “right to bear arms.” Generally, this term has been interpreted to mean “to carry firearms.” The Supreme Court decisions clarify this is a fundamental individual right of private citizens. The right to bear arms is not unlimited, however. • The fire power of certain type modern weapons exceed that of those when the Constitution was drafted and are restricted by the federal Gun Act of 1934. • Convicted criminals may not own guns. ©2019 McGraw-Hill Education. 5-20 The Fourth Amendment The Fourth Amendment requires police officers and government officials (but not private citizens) to have probable cause in order to be able to conduct a personal or property search. Probable cause is defined as a reasonable belief by a prudent law enforcement officer that a suspect has committed, is committing, or about to commit a crime. A judge issues a warrant giving the officer authority to conduct a search. • All other unreasonable searches and seizures are unconstitutional and invalid. • Example: A detention of longer than 48 hours after a criminal arrest ©2019 McGraw-Hill Education. 5-21 Example: The Fourth Amendment Facts: • A police chief, concerned that police officers were using their text pagers mostly for personal messages, decided to read some of them. • The chief discovered most of the messages sent by one of the officers were personal in nature. • After learning his messages had been read, the officer sued both the chief and city, claiming that this action violated the Fourth Amendment Because the search by the police chief was motivated by a legitimate work-related purpose and because it was on a city owned device, the Supreme Court ruled the search to be reasonable. (City of Ontario v. Quon, 2010) ©2019 McGraw-Hill Education. 5-22 The Fifth Amendment (1) The Fifth Amendment contains four distinct protections from governmental actions. • Double Jeopardy – the Fifth Amendment does not allow a court to try a criminal defendant more than once for the same offense. • Self Incrimination – the Fifth Amendment provides individuals with the right to refuse to divulge information to police or in court that could be used against them in a criminal proceeding. This is applicable to any federal or state legal proceeding. ©2019 McGraw-Hill Education. 5-23 The Fifth Amendment (2) Due Process – the Fifth Amendment requires that all persons be granted both procedural and substantive due process. • Procedural Due Process mandates all persons affected by a legal proceeding receive notice of its subject matter, time, and place and that these proceedings be conducted by a judge (or jury) who is fair and impartial. • Substantive Due Process mandates government not unreasonably interfere with an individual’s life, liberty, or property rights. Eminent Domain – the Fifth Amendment permits the government to take private property, both real and personal, for a public purpose so long as the owner receives just compensation. ©2019 McGraw-Hill Education. 5-24 The Eighth Amendment (1) The Eighth Amendment restricts both the severity and types of punishments that may be imposed by federal and state governments. The Supreme Court has ruled punishments must be proportionate to the crime committed. The following are examples of punishments prohibited under the Eighth Amendment: • • • • A person convicted of armed robbery is sentenced to death. A person convicted of shoplifting is sentenced to life in prison. A minor is sentenced to life in prison for stealing a car. A person convicted of assault and battery is sentenced to death. ©2019 McGraw-Hill Education. 5-25 The Eighth Amendment (2) This amendment prohibits certain barbarous types of punishment, such as burning at the stake, regardless of the type of crime committed. In addition, the Eighth Amendment mandates people accused or convicted of crimes are not to be subjected to excessive bail. • However, the Supreme Court has ruled that in extreme cases a court may deny bail altogether. The Eighth Amendment prevents government from imposing an unjustly harsh fine on a person convicted of a crime. • Grossly disproportionate fines may be overturned. ©2019 McGraw-Hill Education. 5-26 The Fourteenth Amendment (1868) Under the 14th Amendment, it is unconstitutional for a state to deny any citizen due process. The Fourteenth Amendment also provides when states pass laws, they must treat all individuals equally (Equal Protection Clause) Laws that do not treat all persons equally are unconstitutional unless the state can prove the laws pass one of the following tests: (1) rational basis, (2) intermediate scrutiny, or (3) strict scrutiny. ©2019 McGraw-Hill Education. 5-27 The Fourteenth Amendment (1) The rational basis test is a standard measuring whether the state had a reasonable, and not an arbitrary, basis for enacting a particular law or regulation. • Used if the law places restrictions on economic or property interests, or if the law discriminates on a basis other than race, sex, religion, national origin, and other related categories The intermediate scrutiny test is a standard measuring whether a particular statute is substantially related to an important government interest or objective and is the least option to accomplish that interest (Central Hudson Test) • Used if the law discriminates on the basis of sex, or if the law restricts commercial speech ©2019 McGraw-Hill Education. 5-28 The Fourteenth Amendment (2) The strict scrutiny test is the highest standard used when a law infringes on a “fundamental right” such as free speech, press, religion, and the like. It determines whether the legislature had a compelling state interest for enacting a particular statute. • Used if the law discriminates on the basis of race or national origin, or if the law infringes on a fundamental constitutional right ©2019 McGraw-Hill Education. 5-29 The Sixteenth Amendment (1913) The Sixteenth Amendment granted the federal government power to impose and collect a tax on individuals’ incomes. The Internal Revenue Service (IRS) is a federal agency established by Congress and empowered with administering and collecting federal income tax under the Sixteenth Amendment and other federal tax laws. • The IRS engages in the creation of tax regulations, reporting, enforcement of tax laws and regulations, and improving taxpayers’ understanding/compliance. ©2019 McGraw-Hill Education. 5-30 Chapter 6 Administrative Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Administrative Agencies An administrative agency is a governmental body responsible for the regulation and supervision of a particular activity or area of public interest. Legislatures lack time and expertise to: • • Make necessary rules to govern operations of complex areas of our social and economic life. Supervise the many details of complex areas on a daily basis. Legislatures delegate these tasks to administrative agencies, or, regulators. ©2019 McGraw-Hill Education. 6-2 Organization of Governments Our traditional constitutional governments operate at federal, state and local levels. Each level of government has three branches: • Legislative • Executive • Judicial Each branch has specific duties and powers. ©2019 McGraw-Hill Education. 6-3 Legislative Branch The legislative branch at all levels of government consists of elected representatives who have responsibility for passing laws representing the will of the people. • At the federal level, the two houses of Congress are: • House of Representatives • Senate • At the state level, the legislative branch is often called the general assembly. • It consists of two houses (except in Nebraska). • At the local level, the legislative branch is often called a city or a county council (or similar name). ©2019 McGraw-Hill Education. 6-4 Executive Branch The executive branch at all levels of government ensures all enacted legislation is implemented or enforced. • Federal level: Executive branch is headed by the president. • State level: Executive is the governor. • Local level: Executive is the mayor, county executive (or individual with similar title). ©2019 McGraw-Hill Education. 6-5 Judicial Branch The judicial branch of government determines if there have been violations of law. It also interprets law as to questions about what the law means in particular situations. • Federal level: District courts, appeals courts, and the U.S. Supreme Court. • State level: Several levels of courts including trial courts, appeals courts, and a supreme court. • Local level: Municipal courts, justice-of-the-peace courts, and magistrate courts. ©2019 McGraw-Hill Education. 6-6 Functions of Administrative Agencies Regulating conduct • Price, entry into a particular geographical area, or entry into a particular kind of business. Satisfying government requirements • Collection of taxes and revenues through various licensing laws. Disbursing benefits • Subsidies and benefits of various kinds to farmers, persons in need of public assistance, students, unemployed, and elderly. Providing goods and services • Electricity, water, sewer, highway maintenance, hospital care, and public housing. ©2019 McGraw-Hill Education. 6-7 Formation of an Administrative Agency (1) 6-8 An administrative agency might be formed to protect the public from certain behaviors. • Example: From unlawful or deceptive businesses. (Federal Trade Commission) The agency would implement law passed by the city council, to ensure that the businesses comply. (City Housing Administration) If the businesses violate law or fail to correct problems, their business license could be revoked by the agency and business could be closed. • Generally, before such measures are taken, business owners are issued a subpoena, or an order requiring the recipient to appear at a hearing to account for the actions. ©2019 McGraw-Hill Education. Formation of an Administrative Agency (2) 6-9 To comply with the subpoena, the merchant must attend a hearing at a specified time and place to answer an agency inspector’s complaints. Businesses are entitled to Due Process. • An Administrative Hearing – is a trial-like judicial proceeding without a jury, in which an administrative agency decides on matters of regulation or law for which the agency is charged with enforcement. ©2019 McGraw-Hill Education. Similarities between Administrative Agencies and Governments Executive Function: • Daily operation of the agency and establishment of policies and objectives. Legislative Function: • Rules and regulations resemble laws passed by a legislature. Must comply with constitutions and statutes Judicial Function: • Holds hearings and oversees compliance with decisions. ©2019 McGraw-Hill Education. 6-10 Differences between Administrative Agencies and Governments Executive Function Voters have the opportunity to vote the executive into and out of office. Voters normally do not elect the administrator of a regulatory agency There are two general patterns in executive organization of an administrative agency. • the executive is appointed by and serves at the discretion of the elected executive of the government subject to approval by the legislature. These executives may be removed from office either with or without cause. • Congress has created agencies outside the executive branch headed by individuals. Such boards or commissions carry out agency executive functions. Once appointed to multiyear terms, members may not be removed by the president without cause (or may be impeached by Congress). ©2019 McGraw-Hill Education. 6-11 Differences between Administrative Agencies and Governments (1) Legislative Function Rules and regulations are established by the agency, not by elected representatives. • Congress has the power to review and override unjust rules The voter does not have direct control. Administrators are usually appointed by the executive with advice and consent of the legislature. • This practice gives the public some indirect control over the operations of administrative agencies. • After administrators have been approved, it is generally difficult to remove them. • The only recourse is to bring pressure on the executive or legislative branch to change the agency or to remove the administrator. ©2019 McGraw-Hill Education. 6-12 Differences between Administrative Agencies and Governments (2) Judicial Function Hearings conducted by an administrative agency do not have a jury. Procedures are not as formal, compared to a regular court hearing. The “administrative law judge” at agency hearing may not entirely impartial. Determinations reached at a hearing by an administrative agency may be appealed through the regular court system. ©2019 McGraw-Hill Education. 6-13 Differences between Administrative Agencies and Governments (3) Judicial Function There was an early debate over whether a legislature could delegate to an administrative agency authority to function as judge in certain matters • This question was largely settled in the case of Crowell v. Benson, 285 U.S. 22 (1932). The Supreme Court decided an administrative agency does have such authority. • The Court has set some limitations by 2-part test in Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984). ©2019 McGraw-Hill Education. 6-14 Criticism of Administrative Agencies Some critics allege certain administrative agencies have been “captured” by the industries they were created to regulate. Due to economic benefits or costs agencies can bestow on a firm or industry, those regulated have powerful incentives to secure favorable rulings. The need for specialized expertise in a given area can often come only from the regulated industry itself. ©2019 McGraw-Hill Education. 6-15 Chapter 7 Contracts ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 7-2 Nature of a Contract A contract is a legally enforceable agreement created when two or more competent parties agree to perform, or to avoid performing, certain acts that they have a legal right to do and that meet certain legal requirements which may be enforced in court. The Uniform Commercial Code (UCC) defines a contract as “the total legal obligation which results from the parties’ agreement as affected by the Uniform Commercial Code or any other applicable rules of law.” ©2019 McGraw-Hill Education. 7-3 Sources of Contract Law Article 2 of the UCC is relevant to contract law but only applies to transactions in goods or other tangible personal property. [Most states follow similar rules on other forms of contracts.] Tangible personal property can be defined as personal property that can be moved, such as a vehicle, kitchen table, or computer. Common law is the source of contract law regarding the sale of fixed assets, services, or intangibles. ©2019 McGraw-Hill Education. 7-4 Agreements that Result in a Contract All contracts are agreements, but not all agreements are contracts. If an agreement imposes a legal obligation, an enforceable contract results; if it imposes only a social or moral obligation, however, it is not a contract and cannot be legally enforced. • Example: Allen promises Kobayashi, a coworker, a ride to a training seminar. Allen failed to keep the promise and Kobayashi missed the seminar. Kobayashi has no legal remedy against Allen because the agreement was based on a social or moral obligation, not a legal obligation. ©2019 McGraw-Hill Education. 7-5 Purposes of a Contract Contracts may be created to establish legal obligations regarding many matters including: • The sale of merchandise or services • Employment • The transfer of ownership of land (real property) or personal property such as a car A contract may be extended and/or terms revised to reflect the parties future wishes. ©2019 McGraw-Hill Education. Elements of an Enforceable Contract (1) To be legally enforceable, a contract must contain six elements: • Offer and Acceptance • An offer is made by the offeror and accepted by the offeree. This indicates both parties intent to enter into the agreement. • Mutual Agreement • The parties must have a clear understanding of what they are undertaking and the contract must show mutual agreement (that is meeting of the minds). • Consideration • Each party to a contract must promise to give up something of recognized value. The exchange of promises (where each party gives the other something of value) is called consideration. ©2019 McGraw-Hill Education. 7-6 Elements of an Enforceable Contract (2) Elements of an Enforceable Contract • Competent Parties • The parties to a contract must be legally competent and capable of understanding what they are doing. (Example: legal age, mentally stable) • Legality of Purpose • The intent of the contract must not violate the law. The courts will not enforce a contract that violates the law. • Proper Form • Requirements for contracts are known as proper form. Some contracts must not only be in writing but also follow a prescribed form, such as containing the signatures of the parties. ©2019 McGraw-Hill Education. 7-7 7-8 Kinds of Contracts (1) Contracts may be classified in several ways, depending on the manner in which they are created, expressed, or performed. A contract may be: • • • • Oral or written Express or implied Formal or simple Entire or divisible ©2019 McGraw-Hill Education. 7-9 Kinds of Contracts (2) Oral Contracts: • Not in writing or signed by the parties, but are real contracts created entirely by conversation of the parties. Written Contracts: • Reduced to writing in a permanent form. A written contract may be simply a handwritten note, electronic message or any other memorandum containing the terms of agreement, as long as it is signed by the parties who wish to be bound by the agreement and has consideration. • The law does not specify any particular form or language to be used. It is sufficient that the parties clearly express themselves in understandable language. ©2019 McGraw-Hill Education. 7-10 Kinds of Contracts (3) Express Contracts: • One that specifically states the terms of agreement between the parties (either written or oral). Implied Contract: • A contract where rather than from oral or written words its terms are derived from – • the intentions of the parties which is inferred by their actions, or • from customs of the trade, or • from conditions or circumstances. ©2019 McGraw-Hill Education. 7-11 Kinds of Contracts (4) Formal Contract: • Also referred to as specialty contract, it is a written contract under seal. The seal may consist of simply the word Seal or L.S. (locus sigilli), a scroll, a wafer, or an impression on the paper. • Today few contracts, such as bonds, mortgages, and deeds conveying title to real estate, are required to have a seal. • Many states have stopped using the seal entirely. Simple Contract: • An informal contract made without seal (even though the subject matter of contract may be extremely complex and may involve large amounts of money). ©2019 McGraw-Hill Education. 7-12 Kinds of Contracts (5) Entire Contract: • Also known as an indivisible contract, it has two or more parts. Each part is dependent on the others for satisfactory performance. Such a contract must be completely performed. Divisible Contract: • Is made up of two or more parts, and each part’s performance is independent of the others. ©2019 McGraw-Hill Education. 7-13 Status of Contracts Contracts may call for performance over an extended period. At any particular time, a contract may be – • Awaiting the first to commence obligation • In the process of completion • Fully completed. ©2019 McGraw-Hill Education. 7-14 Executory or Executed Contracts Executory Contract: • A contract where a future act or obligation remains to be performed under its terms. • A contract is completely executory if no part of it has been performed. • It is partly executory if some parts have been performed and some have yet to be performed. Executed Contract: • If all the terms of the agreement have been fully performed by both parties, it is an executed contract. • It is more a record of an agreement completed by all the parties. ©2019 McGraw-Hill Education. 7-15 Example: Executory Contracts Facts: • Lee, a secretary, signed a contract with an employment agency that agreed to find him a job. • Lee agreed to pay the agency 50% of his first month’s salary. • The agency found him a new job. • A month later Lee sent the agency a check for 50 % of his first month’s salary as agreed. • The contract is now fully executed as there are no further legal obligations left to either party. ©2019 McGraw-Hill Education. 7-16 Enforceability of Contracts (1) It is important to determine whether a contract is valid, void, or voidable, because not all contracts can be enforced. • Valid contracts are agreements meeting all legal terms resulting in obligations legally enforceable. • Void contracts are agreements lacking one or more essential elements of a contract. • Voidable contracts are agreements that may be rejected by one of the parties for a legally acceptable reason. ©2019 McGraw-Hill Education. 7-17 Enforceability of Contracts (2) Valid Contracts: • A majority of contracts entered into business transactions are valid. • Meets all the requirements of a contract because all six essential elements present. • Recall the six elements are offer and acceptance, mutual agreement, consideration, competent parties, legality of purpose and proper form. ©2019 McGraw-Hill Education. 7-18 Enforceability of Contracts (3) Void Contract • An agreement that lacks one or more of the essential elements of a contract is a void contract. • It cannot be enforced and is not a true contract. • Is treated as if no contract exists. ©2019 McGraw-Hill Education. 7-19 Enforceability of Contracts (4) Voidable Contract • A contract that may be rejected by one party (for a legally acceptable reason) is voidable. • Such a contract is valid and enforceable unless and until rejected by a party who has the right to reject. • For instance, in a contract between a minor and an adult, the adult must perform his or her part of the agreement, unless and until the minor decides to withdraw from the contract (disaffirmance). ©2019 McGraw-Hill Education. Example: Enforceability of Contracts Facts: • Braun, a minor, agreed with dealer to buy car. • Dealer must perform as agreed, but Braun, who is not legally a competent party, can withdraw. • The fact that Braun is a minor and thus not legally competent renders the contract voidable. ©2019 McGraw-Hill Education. 7-20 Chapter 8 Offer and Acceptance ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 8-2 Reaching Agreement Remember the six elements of an enforceable contract. First essential contract element is offer and acceptance. A valid contract must have a proposal both offered by the offeror and accepted by the offeree. ©2019 McGraw-Hill Education. 8-3 Requirements for a Valid Offer For an offer to be valid, it must be: • • • Definite and certain Communicated properly to the offeree Made with serious intention that the offeror will be bound by it ©2019 McGraw-Hill Education. An Offer Must Be Definite and Certain (1) To be definite and certain, an offer should specify all terms and conditions of the proposed contract. A later disagreement may be avoided if the offer terms are made as specific and clear as possible. ©2019 McGraw-Hill Education. 8-4 An Offer Must Be Definite and Certain (2) Under the Uniform Commercial Code (UCC) an omission of one or more essential terms does not necessarily make an offer invalid provided the contract contains sufficient information to prove the parties intended to enter into a contract. In the UCC, uncertainty with respect to specific terms does not necessarily invalidate a contract. ©2019 McGraw-Hill Education. 8-5 8-6 Offer Must Be Communicated (1) An offeror may make the offer known to the offeree in various ways. The usual means of communication are: • Oral communication (in person or by telephone, television, or radio) • Written communication (letter, fax, e-mail, text message, or other written forms) ©2019 McGraw-Hill Education. 8-7 Offer Must Be Communicated (2) Businesses often use printed or electronic purchase orders containing terms of an offer. Purchase orders are considered offers to buy. • In these cases, the buyer of goods is the offeror and the seller is the offeree. • Communication may be implied by actions of the parties. ©2019 McGraw-Hill Education. An Offer Must Intend an Enforceable Obligation Offers made in anger or jest, or those made under severe emotional strain, are obviously not made with the intent of entering into a valid, enforceable agreement. Lack of serious intent must, however, be apparent to a reasonable person. ©2019 McGraw-Hill Education. 8-8 8-9 Bids, Advertising, and Public Offers The requirement of offer and acceptance is usually fairly straightforward in contracts involving few parties. Complications may arise when there is little or no direct contact between the parties. • For example, bidding, advertising, and public offers. ©2019 McGraw-Hill Education. 8-10 Bids and Estimates A call for a bid or materials/work estimate is a request for an offer, not an offer. • May be an invitation to negotiate. • Can be accepted or rejected by the person calling for the bid. Such announcement or solicitation is often called a request for proposal. ©2019 McGraw-Hill Education. 8-11 Advertising (1) Advertisements are generally regarded as invitations to trade, or, to make an offer, rather than valid offer because they usually contain insufficient words of commitment to sell. If an advertisement contains a positive promise; that is a positive statement of what the advertiser expects in return, courts may hold the advertisement as an offer. • This is especially true if the word offer is used in the advertisement. ©2019 McGraw-Hill Education. 8-12 Advertising (2) Errors: Sometimes goods are advertised at an incorrect price. • If the error is the merchant’s fault, he or she is required to honor the lower price. • If the error is not the merchant’s fault, he or she might decide to honor the lower price, even if not profitable in order to retain public goodwill. ©2019 McGraw-Hill Education. 8-13 Public Offers Advertising that offers a reward for information leading to arrest of a criminal, or, for return of a lost article, is regarded as a general offer to the public at large. Acceptance of a public offer by anyone, indicated by performance of the act, is an enforceable contract. • Example: An advertisement in a local newspaper, offering a $200 reward for a dog’s return, is valid even though it is directed to thousands of readers and only one of whom could accept it. ©2019 McGraw-Hill Education. Requirements for a Valid Acceptance For an acceptance of an offer to be valid: • It must be communicated to the offeror, and • It must be unconditional. It is important to determine how an acceptance is communicated and when such acceptance becomes legally effective. ©2019 McGraw-Hill Education. 8-14 8-15 Acceptance Communication (1) Method of Communication • The usual forms of communication (telephone, letter, fax, e-mail, text message) may be used in accepting an offer. • Exception – If offer specifies a certain form of communication, such as “Reply by registered mail,” “Reply by return mail,” or “Reply by e-mail.” ©2019 McGraw-Hill Education. 8-16 Acceptance Communication (2) When Acceptance Becomes Effective • General rule is an acceptance becomes effective when the parties specify. • The offer may explicitly state whether acceptance is effective when sent by offeree or when received by offeror. • Mailbox Rule: If the offer is silent as to time acceptance is effective, the mailbox rule states an acceptance sent by mail or courier is effective when properly sent. ©2019 McGraw-Hill Education. 8-17 Acceptance Communication (3) When Acceptance Becomes Effective • An acceptance communicated by telephone, fax, or telex is effective when received. • Courts are divided on whether an acceptance sent by e-mail or text message is effective when sent or received (unless noted in the offer itself). ©2019 McGraw-Hill Education. Acceptance Communication (4) Silence as Acceptance • A person cannot be compelled to speak or write to avoid a binding agreement. • A person is under no obligation to reply to an offer. • Silence may indicate assent to an offer only when both parties have specifically agreed in advance that “no response” is the means of acceptance. ©2019 McGraw-Hill Education. 8-18 Example: Silence as Acceptance Facts: • Jimmy has to board the local train to get to his destination. • He approaches the teller at the train station and hands her the correct amount required for his travel. • The teller, without making conversation, hands him a pass in exchange for the money. The UCC 2-204 provides that a “contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” In the above scenario, the conduct of the parties binds this into a contract. ©2019 McGraw-Hill Education. 8-19 8-20 Acceptance Must Be Unconditional (1) A counteroffer that is conditional, or a qualified acceptance of an offer, is interpreted as a rejection and not binding on the parties. The general rule of contract: • The acceptance of an offer must be the same as the offer “Mirror Image Rule.” • If there are any material (important) differences between the offer and acceptance, the acceptance is regarded as a rejection of the offer. ©2019 McGraw-Hill Education. 8-21 Acceptance Must Be Unconditional (2) The UCC provides an exception to the unconditional acceptance rule: • Between merchants, “a definite and reasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.” ©2019 McGraw-Hill Education. 8-22 Termination of an Offer (1) Offers are terminated by: • • • • • Lapse of time Revocation Rejection Death or incapacity Destruction or illegality ©2019 McGraw-Hill Education. 8-23 Termination of an Offer (2) Termination by Lapse of Time • When offeree fails to accept an offer within the time specified, the opportunity to form a contract ends due to a termination by lapse of time. • When no definite time for acceptance is stated in an offer, it terminates after a reasonable time. • What is considered a reasonable time can vary according to the circumstances. (usually no more than one year) ©2019 McGraw-Hill Education. 8-24 Termination of an Offer (3) Termination by Revocation • An offer that has been neither accepted nor rejected by offeree may be revoked, or withdrawn, by the offeror. • The offeror may communicate revocation to the offeree in either spoken or written words. • BUT, according to the UCC, an offer that includes specific time limits expires automatically when the time is up, unless the offeror chooses to extend the offer. ©2019 McGraw-Hill Education. 8-25 Termination of an Offer (4) Termination by Rejection • A direct, unqualified rejection, or refusal to accept, terminates an offer. • The offer, once rejected by the offeree, cannot be revived or made a counteroffer once rejection is communicated and has been received by offeror. • BUT, If the offeror acknowledges rejection yet restates the offer, the offeree still has the opportunity to accept, or reject, or make a counteroffer. (This is in effect a New Offer.) ©2019 McGraw-Hill Education. 8-26 Termination of an Offer (5) Termination by Death or Incapacity • Mutual agreement cannot occur if either the offeror or the offeree die or becomes incapacitated/legally incompetent. • An offer is immediately terminated as a result of death or legal incapacity of either offeror or offeree. ©2019 McGraw-Hill Education. 8-27 Termination of an Offer (6) Termination by Death or Incapacity • Although an offer is terminated as a result of death of either offeror or offeree, if either the offeror or offeree are bound by an option contract the surviving party may still be obligated to the contract. • An option contract has a provision to keep an offer open for a certain period of time. • In the event of death, the estate of the deceased is responsible to carry out the provisions of a the option contract. ©2019 McGraw-Hill Education. 8-28 Termination of an Offer (7) Termination by Destruction or Illegality • If the subject matter of the contract is destroyed or declared illegal after the offer has been made but before acceptance, the contract is terminated. • Example – • Gipson offered to sell Ramirez her boat for $8,000. • While the boat was docked, a storm sunk and destroyed the boat • Because the boat was destroyed, Gipson’s offer to sell Ramirez the boat would be terminated. ©2019 McGraw-Hill Education. Chapter 9 Mutual Agreement ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 9-2 Defective Agreements (1) A meeting of the minds (that is genuine assent) is the second of six requirements necessary for an enforceable contract. Genuineness of Assent to a contract is present when there is evidence of a true meeting of the minds of the parties in an agreement. ©2019 McGraw-Hill Education. 9-3 Defective Agreements (2) If there are misunderstanding, use of force or deception to obtain the agreement by either party, the contract is voidable: that is may be disaffirmed at the option of the injured party. A voidable contract results if agreement (of either party) is obtained by fraud, misrepresentation, mistake, undue influence, or duress. A voidable contract may result if the contract is one of adhesion, or is unconscionable. ©2019 McGraw-Hill Education. 9-4 Fraud (1) The intentional misstatement or nondisclosure of a material fact made by one party to influence the actions of another party is fraud. Fraud may arise from spoken or written words or by acts or conduct. Regardless of how the fraud is committed, the party who relies on the misstatement or nondisclosure must suffer a loss (damages) resulting from the act. Intentional concealment or nondisclosure of material facts is just as fraudulent as making a false statement. ©2019 McGraw-Hill Education. 9-5 Fraud (2) In order to prove a fraud case, a plaintiff must demonstrate five elements: • A misstatement or nondisclosure of a material fact; • Knowledge of its falsity or with reckless disregard of its truth; • Intention of causing the other party to enter into the agreement; • Reliance by the injured party; and • Harm to injured party (financial, physical, or both) ©2019 McGraw-Hill Education. 9-6 Puffing There is a distinct difference between a fraudulent statement and a salesperson’s “puffing.” Puffing is considered a mere expression of opinion. Most people have experienced puffing when we speak to a salesperson. Some examples of puffing are: • “This washing machine is the best buy in town.” • “This computer is as good as other well-known brands.” • “The engine in this car has the latest hybrid technology.” ©2019 McGraw-Hill Education. 9-7 Misrepresentation Misrepresentation (Negligent Misrepresentation) is the unintentional misstatement or nondisclosure of a material fact that results in inducing another to enter into an agreement to his or her loss (detriment). • When misstatement is made knowingly or recklessly, it is fraud. • Remedy is different for fraud versus misrepresentation. • An injured party proving fraud may have contract canceled and sue for additional damages. • An injured party proving misrepresentation may have contract canceled but normally cannot sue for additional damages. ©2019 McGraw-Hill Education. 9-8 Mistake (1) A mistake is a belief that is not in accord with the facts. Mistakes relating to contracts may concern the nature of the subject matter, or, quality of the subject matter. Court decisions involving mistakes are often complex, and courts attempt to determine whether the mistake was “unilateral,” or “mutual.” • A unitlateral mistake is a mistake made by only one party. • A mutual mistake is a mistake made by both parties. ©2019 McGraw-Hill Education. 9-9 Mistake (2) For a contract to be dissolved due to a mistake, the law usually requires both parties be a part of the mistake —that is, the mistake must be mutual. Example: • Chin, a painting delear offered to sell a particular Picasso painting (catalog number 1401) to Kovacs for $14,000. • When it came time to exchange the painting for the money, it was obvious that Kovacs expected a different Picasso painting (catalog number 1410). • Chin believed Kovacs wanted to buy catalog number 1401. • The contract can be canceled by either party because this was a mutual mistake. ©2019 McGraw-Hill Education. 9-10 Undue Influence At times a person may have the power to control actions of another due to a special or confidential relationship. • Examples: Relationships between employer and employee; physician, nurse and patient; teacher and student. • When a person uses power improperly to his or her personal advantage, it is undue influence. • A contract resulting from use of undue influence is voidable at the option of the wrongfully influenced party. ©2019 McGraw-Hill Education. 9-11 Duress Duress is the act of applying unlawful or improper pressure or influence to a person in order to gain his or her agreement to a contract. Some types of pressure are: • Threat of bodily harm to an individual or to their family, or, to personal reputation (defamation). • Threat of serious loss or damage to property. If someone enters into a contract under duress, the injured party may dissolve the agreement. ©2019 McGraw-Hill Education. 9-12 Contracts of Adhesion (1) A contract that involves parties who have unequal bargaining power is known as a contract of adhesion. Sometimes referred to as “take-it-or-leave-it” contracts, they are quite common and are normally enforceable. • BUT, when enforcement of an otherwise legal contract results in significant hardship to one of the parties, courts do consider such agreements so unfair as to be unenforceable. ©2019 McGraw-Hill Education. 9-13 Contracts of Adhesion (2) Inequality of bargaining power exists in contracts prepared by one party and presented to the other without opportunity for true negotiation. Example – • Lorenz brought shirts to a laundry service for cleaning. • A note on the receipt he was given indicated that the establishment was not responsible for goods left over 30 days. • Lorenz attempted to pick up his shirts 35 days later and was told that, under contract terms he was not entitled to them. • The “30 day” clause would be a contract of adhesion. ©2019 McGraw-Hill Education. 9-14 Unconscionable Contracts An unconscionable contract is regarded as shockingly unjust or unfair as to offend the public. While courts are reluctant to uphold such contracts, more recently the UCC has made unconscionable contracts much less likely to be enforced. • Note: Many states now have laws with criminal penalties against unconscionable contracts forced on the elderly. • Under the UCC if there is a judicial finding of unconscionability, the court may – • Refuse to enforce the contract, or • Strike any unconscionable clause and enforce the remainder of the contract, or • limit application of any unconscionable clause to avoid an unconscionable result. ©2019 McGraw-Hill Education. Chapter 10 Consideration ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 10-2 The Nature of Consideration Consideration is defined as something of value exchanged by the parties to affirm a contract. Consideration may be money or anything a court would recognize as having recognized “value.” Forbearance is a valuable promise to refrain from doing something that a party has a legal right to do, or a promise of inaction. Consideration in a contract may be more than merely item of value or valuable promises exchanged by the parties, but the actual benefit gained or detriment avoided by the agreement. ©2019 McGraw-Hill Education. Characteristics of Valid Consideration Legality • A valid contract does not exist if the consideration is a promise to perform an illegal act (or to avoid performing a legal act). Adequacy • Adequacy of the type and amount of consideration is usually left to the agreement of the parties. • In some cases, consideration that is relatively small may signal to a court the lack of serious intent to contract. Possibility of Performance • A legally enforceable contract cannot be based on a promise that is impossible to fulfill. ©2019 McGraw-Hill Education. 10-3 10-4 Kinds of Valid Consideration Consideration required in an enforceable contract may be: • An exchange of valuable promises • Forbearance • Pledges or subscriptions ©2019 McGraw-Hill Education. 10-5 A Promise for a Promise Promise: A valuable promise by one party in exchange for the promise of an act by another is a valid consideration. • The exchange of money is not a requirement Example: Joanne promised to paint Elaine’s office room if Elaine helps with her landscape project. The law provides certain remedies where there is partial or nonperformance. ©2019 McGraw-Hill Education. 10-6 Example: Valid Consideration Facts: • Jamaal promised to repair Jane’s bike if Jane agreed to paint Jamaal’s room. • Although the most common form of valid consideration is the promise of money by one party for an act or service, the exchange of money is not a requirement. Therefore, the exchange of promises would be deemed a valid consideration even though there was no money exchange involved between Jamaal and Jane. ©2019 McGraw-Hill Education. 10-7 Promise of Forbearance One party to a contract may wish to exchange his or her promise to pay money for a promise of inaction from the other party. • Example: Jonah agreed to purchase a printing business from Mark for a certain price, only if Mark promised to refrain from opening another printing business within 10 miles for two years. ©2019 McGraw-Hill Education. 10-8 Example: Forbearance Facts: • Amy agreed to purchase a grocery store from Ben for $500,000 if Ben promised to refrain from opening another grocery store within a 50-mile radius for the next two years. • Many contracts in which part of the consideration is forbearance involve agreements not to compete. • This situation falls under a promise of forbearance because Amy’s consideration was her promise to pay the agreed selling price for Ben’s business, and promise of inaction, or forbearance. Ben’s consideration was his promise to transfer the business to Amy, and to avoid opening a similar business within the set radius for two years. ©2019 McGraw-Hill Education. 10-9 Pledge or Subscription A pledge is a promise to donate money or property to charitable organizations such as religious institutions, hospitals, colleges, cultural institutions. As pledges are for worthy causes, courts have deemed them enforceable. Some courts hold that consideration given by a charitable institution is a promise to use the donation for specific purpose for which it was donated. • Example: John Peterson makes a pledge of $20.00 to the local firefighters association. ©2019 McGraw-Hill Education. 10-10 Consideration and the UCC In cases involving contracts to sell goods, the Uniform Commercial Code (UCC) does not require consideration in certain contracts that involve the following: • Irrevocable Contract Offers: A merchant’s written firm offer that provides that the contract is irrevocable. • A written discharge of a claim for an alleged breach of contract. • Modifications of existing contracts. ©2019 McGraw-Hill Education. 10-11 General Release General Release: Laws permit a person with claim against another to give up, or release, his or her claim without an exchange of consideration by making a written statement of release of claim. A general release may be regarded as valid consideration if intended by the parties. • In such cases, the general release is viewed as forbearance. In some states, a general release is supported by consideration only where the original claim being released is not regarded by courts as frivolous. Rif a general release is deemed frivolous, there is no forbearance since, in effect, the releasing party is not giving up anything of value. ©2019 McGraw-Hill Education. Agreements That Lack Consideration Certain agreements are not enforceable because they lack consideration. • • • • Barren promises Gratuitous promises Illusory promises Agreements supported by: • Moral consideration • Past consideration ©2019 McGraw-Hill Education. 10-12 10-13 Barren Promises A promise to do something one is already required to do by law or contract represents no additional sacrifice and is not valid consideration. A promise to pay an existing debt or obey the law, or a like promise, is called a barren promise. An obligation to perform acts already required is known as a preexisting duty. ©2019 McGraw-Hill Education. 10-14 Gratuitous Promises A person who makes a promise without requiring some benefit in return has made a gratuitous promise. • Agreements based on such one-sided promises are generally not enforceable. Example: A golf pro promises to give her golf clubs to her friend after a tournament is over. She realizes the clubs are worth more than she orignally thought and changes her mind. The pro is not obliged to give her friend the clubs as it was a gratuitous promise. ©2019 McGraw-Hill Education. 10-15 Illusory Promises An illusory promise consists of an indefinite, open-ended statement purporting to be an agreement. A person who makes an illusory promise never commits to a specific or absolute act. • Example: The manager of a fleet of delivery trucks tells the owner of an auto repair shop “If your tires are high quality, I will purchase all the tires I need from you.” ©2019 McGraw-Hill Education. Agreements Supported by Moral Consideration A person is not legally bound to do what he or she may feel obligated to do because of love, friendship, honor, sympathy, conscience, or some other moral consideration. • Some courts, may justify enforcement of some contracts, even though there is no consideration, by stating that there was “moral consideration.” ©2019 McGraw-Hill Education. 10-16 Agreements Supported by Past Consideration Past consideration is a promise to repay someone for a benefit received previously. Such promise is generally not a valid consideration and is considered a gratuitous promise. • Example: Mike promised his brother Joe that he would give him two Superbowl tickets when Joe graduated college. As planned, Joe graduated and Mike gave him the tickets. When Joe realized how expensive the tickets were, he promised to pay Mike one-half of the ticket price. Joe later changed his mind and decided not to keep his promise. Joe will not be legally held to his promise since it was based on past consideration. ©2019 McGraw-Hill Education. 10-17 Chapter 11 Competent Parties ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 11-2 Capacity to Contract (1) A competent party is a person who must meet all the following legal conditions: • Must be of legal age. • Must have normal mental capacity. • Is considered by law to be capable of understanding the meaning of a contract. A competent party must have contractual capacity—the ability to make a valid contract. ©2019 McGraw-Hill Education. 11-3 Capacity to Contract (2) Minor: A person who has not yet reached the age of majority (in most states, age 18). • Minors and persons who are mentally ill or mentally challenged cannot make legally binding contracts, although they are not denied the opportunity to benefit from their legal rights. Responsibility for determining whether a person is competent to contract rests on the party who enters into a contract with such a person. ©2019 McGraw-Hill Education. Minors’ Contracts Until individuals reach legal age, or the age of majority, they are not legally required to carry out most of their contract obligations. • The legal age of majority varies but is 18 in most states, and 19 or 21 in others. According to the coming of age rule, in common law, a person’s legal birthday is 12:01 a.m. of the day before their actual birthday. • BUT, under the modern birthday rule, a person attains a given age on the anniversary date of his or her birth. ©2019 McGraw-Hill Education. 11-4 Avoidance of Minors’ Contracts In contracts between a minor and a competent person, only the minor has the privilege of disaffirmance (That is avoidance of the contract); the competent party is bound. In contracts for necessities (food, shelter, clothing, and medical care), in most states the minor is bound as well. Generally, a minor may not disaffirm a contract involving the sale or purchase of real estate. ©2019 McGraw-Hill Education. 11-5 Example: Avoidance of Minors’ Contracts Facts: • Fifteen-year-old Dillon made a $100 clothing purchase from a store using a credit card. • One month later, when he received the credit card bill, he refused to pay, claiming that he was not responsible for the payment as a minor. • However, a contract made for necessities by a minor, must be paid for their reasonable value. Since food, clothing, employment, and medical care are considered necessities, Dillon can be held liable to pay the reasonable value of the clothing. ©2019 McGraw-Hill Education. 11-6 11-7 Ratification of Minors’ Contracts (1) Minors may disaffirm a contract whether it has not yet been performed (executory contract) or fully performed (executed contract). A minor must return the entire contracted items when disaffirming. BUT, Once the minor reaches legal age of majority, the contract must be either ratified (that is, agreed to in fact or act) or disaffirmed within a reasonable time. ©2019 McGraw-Hill Education. Ratification of Minors’ Contracts (2) A contract involving a minor may be ratified by an act that demonstrates the minor party intends adhere to the terms of the contract. If a reasonable period of time passes after a minor reaches legal age, and, he or she has said nothing about disaffirming the contract, the law considers the contract ratified. When a contract is ratified, the entire contract must be ratified, not merely a part of it. ©2019 McGraw-Hill Education. 11-8 Disaffirmance of Minors’ Contracts An minor may disaffirm a contract, that is, state his or her intention either orally or in writing not to honor a contract made before legal age. Disaffirmance may be done before reaching legal age or within a reasonable time after reaching adulthood. Disaffirmance, like ratification, may be implied by acts of the person who has reached legal age and wishes to disaffirm. • For example, disaffirmance might be implied by failing to make an installment payment. ©2019 McGraw-Hill Education. 11-9 Minors’ Enforceable Contracts Minors by law are responsible for contract commitments for necessaries not provided by parents or guardian. When a minor is declared emancipated by a court, he or she assumes many of the rights and obligations of a person of legal age. • Emancipation could result from marriage or voluntary separation of a minor from his or her parents or guardians. A minor is liable only for the reasonable value of necessaries purchased. The law regards actions by a minor resulting from emancipation as abandonment—a surrender of special legal protection given minors by law. ©2019 McGraw-Hill Education. 11-10 Liability for Minors’ Torts and Crimes (1) The law does not protect minors who have committed a tort or a crime. • A minor may be liable for such injuries or damages and may be prosecuted by the state in a criminal action. A minor may be held liable for money damages in a tort action when he or she: • Destroys property and/or appropriates it. • Causes another person to suffer a money loss through their negligence. • Persuades another person to break a contract • Makes damaging statements in writing or orally. Note: Some states now hold parents liable for certain acts of their minors. ©2019 McGraw-Hill Education. 11-11 Liability for Minors’ Torts and Crimes (2) State laws that determine liability for minors’ torts and crimes vary from state to state. In most states, parents are not held liable for torts committed by their children. • However, if a child causes damage due to a lack of parental supervision, the parent may be held for any damages caused by the unsupervised child. In many states, when a minor disaffirms a contract and returns the goods, he or she can be held liable for damages to the goods. ©2019 McGraw-Hill Education. 11-12 Contracts of the Mentally Incompetent (1) Mentally incompetent people cannot make binding contracts to safeguard their own affairs. • Consequently, most of their contracts are considered voidable and cannot be enforced against them if they do not carry them out. If the person entered into a contract during a lucid interval and the other party can prove it, such a mentally ill person will be held to the contract. • A person with mental incompetence is liable for the reasonable value of necessaries that he or she buys, unless he or she can return them. • For all other contracts, the person who is mentally incompetent can recover his or her money or property, but the other party’s consideration must be returned if possible. ©2019 McGraw-Hill Education. 11-13 Contracts of the Mentally Incompetent (2) A contract with a person who has been declared insane by the courts is void: • Even if the other party who contracted with the incompetent individual did not know that he or she had been declared insane by the courts. • Even if the contract was made during a lucid period. When a court classifies a person as insane, it appoints a legal guardian to handle his o...
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Running head: CONTRACTS, COVENANTS AND BUSINESS

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Biblical perspective of Contracts, Covenant and Christian Responsibilities and Fulfillment of
Business Obligations
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CONTRACTS AND COVENANTS AND BUSINESS
Contracts, Covenant and Christian Responsibilities on Business Obligations
In the business world, contracts are inevitable because they not only bring together the
business and the clients but also are fundamental elements that sustain the business. Liuzzo and
Hughes (2019) define a contract as a legally binding agreement between parties. Although
contracts are usually in written form, they can also be in a form of oral agreement. In business,
contracts are common in tenancy and employment as well as in the sales of products and
services. According to Nash, Netter and Poulsen (2013), a contract is a formal agreement
between parties. As such, a contract can exist in business, marriages and in religion among other
day-to-day encounters. Many people use contracts synonymously with covenants. However,
covenants and contracts are in many ways different. As defined by Kim, Fisher and McCalman,
(2016), a covenant is an agreement that often introduce a new and committed relationship
between God and humanity. While people apply the term contract in many instances on day-today encounters, the bible uses the term covenant frequently as opposed to contracts. The latter
demonstrates that a covenant is more religious than a contract. In fact, covenants are eternal
promises while contracts last for a given period. This paper discusses the legal concepts of a
contract from a biblical standpoint wile examining the differences from a covenant. Additionally,
this paper establishes the responsibility and ways in which Christians should honor business
obligations.
Legal concepts of a contract from a biblical view
A contract is a legally enforceable or binding agreement between two parties or more
with the objective to realize a particular goal where both parties benefits by either performing or
not performing some tasks. Contracts have a number of legal concepts including contractual
terms and conditions; offer, acceptance and revocation; counter offer; consideration, genuineness
of assent, contractual capacity, the contracting parties and the legality of the contract. For a
contract to exist, therefore, the contracting parties must make the intentions of the contract clear
to permit legality (Schweizer, 2016). Each of the participating parties must understand the te...


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