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TASKS:After reading theLucy v. Zehmercase complete the two tasks mentioned below:
Task #1: Assume you are the lawyer for Lucy, what legal arguments would you present to the judge on behalf of your client Lucy?
Task #2: Assume you are the lawyer for Zehmer
, what legal arguments would you present to the judge on behalf of your client Zehmer?
Note: Task #1 and #2 must be completed in one post. The word count for task #1 and #2 should be at least 350 words.
Here is the case:
W. O. Lucy had known A. H. Zehmer more than fifteen years and had offered to buy the Ferguson Farm from him many times. One night, Lucy stopped to visit the Zehmers at the restaurant and gas station they operated and tried to buy the Ferguson Farm once again. Lucy said to Zehmer, “I bet you wouldn’t take $50,000 for that place.” Zehmer replied, “Yes, I would too; you wouldn’t give fifty.” Throughout the evening, both men continued to drink whiskey while talking, and the conversation returned to the sale of the Ferguson Farm for $50,000.
Eventually, Lucy enticed Zehmer to write up an agreement to the effect that the Zehmers would sell the Ferguson Farm to Lucy for $50,000 complete. Later, Lucy sued Zehmer to compel him to go through with the sale. Zehmer argued that he had been drunk and that the offer had been made in jest and hence was unenforceable. The trial court agreed with Zehmer, and Lucy appealed. The V
irginia Supreme Court looked at the parties’ outward expressions of intent and held in favor of Lucy. The parties had discussed the terms of the sale for at least forty minutes and had done two drafts of the contract before both men agreed to sign it. Therefore, the serious-intent requirement had been met, and the contract was binding.
Professor Wambui Mungai
School of Business
George Mason University
Discussion Board Rubric
Content
Points
Submits initial response which includes all of the Basic Elements:
• Posted before the due date
• Met required word count
• Addressed the question(s)
• Followed instructions on Blackboard
10 points
Student’s assignment displays critical thinking and deep
understanding of the topic. Post generates active learning and
engaging conversation within the discussion and displays:
• Understanding of material
• Makes a compelling argument
• Includes legal analysis
• Uses and applies legal principles
• Doesn’t ramble on
• Makes logical conclusions
• Post demonstrates thorough knowledge and understanding of
chapter content; post is written using logical thought and flow.
• Where relevant, case law is applied
25 points
Response/reply is relevant to posting and supports or opposes
position with factual and legal information as well as:
10 points
•
•
•
Posted before the due date
Met required word count
Reply extends the discussion, or provides another legal
perspective.
5 points
Spelling, punctuation and grammar, are correct. Organization is
clear and logical with good sentence structure and flow. Post is
completed using complete sentences with no grammatical errors.
Post does not use first person.
TOTAL
50 points
THE LEGAL ENVIRONMENT OF BUSINESS
EXAM #3 REVIEW SHEET
CHAPTERS: 2, 10 and 11
INSTRUCTOR: Wambui Mungai, Professor of Business
___________________________________________________________________________
CHAPTER 10: CONTRACT FORMATION
K = contract
▪
▪
▪
▪
▪
An Overview of Contract Law
o Objective Theory of Contracts => the theory is that a party’s intention to enter into a
contact is judged by outward, objective facts as interpreted by a reasonable person,
rather than by the party’s own secret, subjective intentions. (Remember Lucy v.
Zehmer)
Elements of a Contract
o Requirements of a valid contract
▪ Agreement
• Offer and acceptance
▪ Consideration
▪ Contractual Capacity
▪ Legality
o Defenses to the Enforceability of a Contract
▪ Genuineness of assent aka voluntary consent (see more of this in Chapter 11)
▪ Form (most K do not require any special form, but some K must be in
writing => Statute of Frauds ( “MY LEGS” categories”)
Types of Contracts
o Bilateral (promise for promise) => contract formed when offeree accepts the offer.
o Unilateral (promise for an act) => contact formed when offeree takes action. The
conduct (action) is the acceptance.
▪ Revocation of Offers for Unilateral contracts
• In contract law, offers are normally revocable (capable of being
taken back, or cancelled) until accepted. The modern day view is
that once performance of the K has been substantially undertaken,
the offeror cannot revoke the offer.
o Express K – words/written
o Implied K – conduct
Contract Performance
o Executed v. Executory contract
Contract Enforceability
o Valid contract
o Voidable contract: a K that can be legally rescinded (cancelled) at the option of one
or more parties if they give the court a reason why (see more of this in chapter 11
when voluntary consent is discussed)
o Void Contract: A K having no legal force or binding effect.
o Unenforceable contract: the K is unenforceable by some statute or law. Remember
the Statute of Frauds & “MY LEGS” categories. Focus on the “L”, and “Y”
▪
Agreement:
o Offer & Acceptance
o Requirements of Offer:
▪ 1) Offeror’s serious intention
• Intent is determined by what a reasonable person in the offeree’s
position would think the offeror’s words and conduct meant.
• Offers made in obvious anger, jest, or undue excitement do not meet
the intent test because a reasonable person would realize that a
serious offer was not being made.
• Lucy v. Zehmer Case
o Intoxication does not negate contractual intent.
o Need to look at the actions of the parties to determine
seriousness of intention.
o Reinforces the objective theory of contracts
▪ 2) Definite terms – All K’s need certain terms to be considered complete
such as:
• Identification of parties
• Identification of the object/subject matter
• Consideration to be paid
• Type of payment, delivery, or performance.
▪ 3) Communicated
o Termination of the Offer
▪ Unless the offer is irrevocable (it has already been accepted), it can be
revoked by the offeror at any time prior to acceptance.
▪ The offeror can revoke the offer by an express repudiation (“I withdraw my
previous offer”) or by acts that are inconsistent with the existence of the offer
and are made known to the offeree.
▪ The offeree may reject the offer. A rejection of the offer is usually
accomplished by words or conduct evidencing an intent not to accept the
offer. The offeree may respond to the offer with a counteroffer. A
counteroffer by the offeree is a rejection of the original offer and making of a
new offer.
▪ Termination of an offer can occur by operation of law
• Lapse of time
• Destruction of specific subject matter
• Death or incompetence of offeror or offeree
• Supervening illegality of proposed contract
o Acceptance
▪ Acceptance is a voluntary act (either words or conduct) by the offeree that
shows assent (agreement) to the terms of an offer.
▪ Acceptance must be unequivocal and must be communicated to the offeror.
▪ Silence is NOT acceptance unless there is a prior course of dealing between
the parties.
▪ Mirror image Rule – Acceptance must “mirror” the offer exactly. No
deviations permitted. If there are any new or different terms with the
acceptance, then that is a counteroffer (as explained above)
▪ Mode and timeliness of acceptance:
• Mailbox rule
o Acceptance is effective on dispatch. Once acceptance is
dispatched, this creates the K.
▪
▪
▪
Consideration
o The value given in return for a promise. Must have legally sufficient value.
o Promissory Estoppel: A person who has reasonably and substantially relied on the
promise of another, can use this doctrine in court to make the contract/promise
enforceable. Issue is to avoid an injustice that would otherwise result (Remember
Quasi Contract from Chapter 11? Courts can create contracts to prevent unjust
enrichment)
Contractual Capacity
o Minors (under 18)
▪ A minor can enter into any contract that an adult can.
▪ A contract entered into by a minor is voidable at the option of that minor.
▪ A contract can be disaffirmed (cancelled) at any time during the age of
minority or for a reasonable period after the minor comes of age.
o Intoxication
▪ Based on the reasonable person standard. Objective indicators that the person
knew what they were doing. (Remember Lucy v. Zehmer case)
o Mental Incompetence – If a party is deemed mentally incompetent by a court, any K
that they enter into subsequent to that court judgment are void.
Legality: K are void if they are:
o Contrary to Public Policy
o Unconscionable
▪ Procedural Unconscionability
▪ Substantive Unconscionability
o Some exculpatory clauses may also be void. (ie: a doctor who contracts out of
negligence => void. A garage parking lot saying you park at your own risk => OK,
valid)
CHAPTER 11: CONTRACT PERFORMANCE BREACH, & REMEDIES
K = contract
▪
Voluntary Consent
o A contract may be UNenforceable if it lacked voluntary consent
▪ Mistake
• A bilateral (mutual) mistake occurs when parties to both sides of a
contract are mistaken as to the same material fact, either party can
rescind the contract at any time. (K voidable)
• A unilateral mistake occurs when one party is mistaken. (K
enforceable)
o Generally, the mistaken party has no right to relief. There are
two exceptions. The rule is not applied if the other party knew
or should have known that a mistake was made. Also, some
states will not enforce a contract against a mistaken party if an
error was due to a significant mathematical mistake and it was
done inadvertently and without gross negligence.
▪ Fraudulent Misrepresentation (K voidable)
• The elements are (1) misrepresentation of a material fact, (2) an intent to
deceive, and (3) the innocent party’s justifiable reliance on the
misrepresentation
o Remember: an opinion is NOT an offer, nor a contract term,
nor fraud. Also “puffery” is not actionable.
o
▪
▪
▪
Reliance on Misrepresentation: The deceived party must
justifiably rely on the misrepresentation, and the misrepresentation must be an important factor in inducing the party to contract.
Reliance is not justified if the innocent party knows the true facts
or relies on obviously extravagant statements.
o Injury to Innocent Party: A showing of injury may not be
required in an action to rescind a contract, but in an action to
recover damages, proof of injury is required.
▪ Undue Influence (K voidable)
o Undue influence occurs in relationships in which one party can greatly
influence another, thus overcoming the other’s free will.
▪ Duress (K voidable)
o Duress involves conduct of a coercive nature, such as forcing a party to
contract by threatening the party with a wrongful or illegal act. Duress is
a defense to the enforcement of a contract and a ground for rescission
The Statute of Frauds – Writing Requirement
▪ Certain contracts must be in writing. Remember “MY LEGS” categories. Focus
on “land” and “1 year rule”.
o Exceptions: doctrine of promissory estoppel & quasi contract may
allow parties to recover under oral (verbal) contracts that would
otherwise be unenforceable under the Statute of Frauds, because of
detrimental reliance.
Third Party Rights
▪ Assignment of Rights: The act of transferring to another all of one’s rights
arising under a contract. The assignor (the party assigning their rights) is usually
no longer responsible under the contract.
▪ Delegation of Duty: The transfer of a contractual duty to a third party. The
party delegating the duty (the delegator) to the third party (the delegatee) is still
obligated to perform the contract should the delegatee fail to perform.
▪ Third Party Beneficiaries: One for whose benefit a promise is made in a
contract but who is not a party to the contract.
o Intended – Have rights under the K and can enforce the K.
o Incidental beneficiaries – have no rights under the K and cannot enforce
the K.
Performance & Discharge
▪ A party may be discharged from a valid contract by:
o Full or substantial performance.
o Performance to the satisfaction of another.
o Material breach by the other party.
o A condition occurring or not occurring.
o Anticipatory repudiation.
o Agreement of the parties.
o Operation of law.
▪ Conditions of Performance
o Condition Precedent: An event that must occur that triggers the
performance of a legal obligation or terminate an existing obligation
under a contract. (ie: Leasing land with an option to purchase. The
condition is that you pay the rent on time for 6 months, and if you do,
you can then exercise the option to purchase the land. If you are late in
paying the rent, then you no longer have that option to purchase. Paying
the rent on time is the condition precedent to the option to purchase the
land.)
o Condition Subsequent: A future event, the occurrence or nonoccurrence
of which will trigger the performance of a legal obligation or terminate
▪
an existing obligation under a contract. (ie: A contract to rent a banquet
hall for a wedding reception. The wedding/marriage is the condition
subsequent that must occur for the contract to rent the banquet hall to be
enforceable/binding).
▪ Discharge by Performance
o The contract comes to an end when both parties fulfill their respective
duties by performing the acts they have promised.
▪ Complete Performance & Substantial Performance
▪ Performance to the satisfaction of another
▪ Material breach of contract
▪ Anticipatory repudiation of contract (treated as a material
breach)
▪ Remember – any breach allows the non-breaching party to sue
for damages, but only material breaches will discharge
performance.
▪ Discharge by Agreement
o Rescission
▪ Process by which a contract is cancelled or terminated and the
parties are returned to the positions they occupied prior to
forming it.
▪ Oral rescission is generally enforceable unless the original
contract was a contract for a sale of goods and required written
rescission. Contracts that are executory on both sides can be
rescinded solely by agreement.
▪ Contracts that are executed on one side can be rescinded only if
the party who has performed receives consideration to call off
the deal.
o Novation (you can do this instead of an assignment or delegation)
▪ Novation substitutes a new party for an original party by agreement of all the parties. Novation requires (1) a previous valid
obligation, (2) an agreement of all the parties to a new contract,
(3) the extinguishment of the old obligation (discharge of the
prior party), and (4) a new valid contract
o Settlement Agreement
▪ A compromise, or settlement agreement may be substituted as a
new contract, and revoke and discharge the obligations under the
prior contract.
▪ Old K is gone, can only sue on the settlement agreement.
o Accord and Satisfaction
▪ Parties agree to accept performance that is different from the
performance originally promised. An accord is a contract to
perform some act to satisfy the existing contractual duty. A
satisfaction is the performance of the accord agreement.
▪ Old K is still in place until the accord has been satisfied. Once
the accord takes place, the old K is gone.
o Discharge by Operation of Law
▪ Alteration of a contract without consent
▪ Statutes of Limitations
▪ Bankruptcy
Damages for Breach of Contract
▪ Damages are designed to compensate the injured party for the loss of the contract
or give the injured party the benefit of the contract—that is, an innocent party is
to be placed in the position he or she would have been in if the contract had been
fully performed.
▪
▪
▪
Types of Damages
o Compensatory
▪ Special – Quantifiable losses
▪ General – “pain and suffering”
o Consequential – damages that you make the other party aware of.
o Punitive – meant to punish the wrongdoer
▪ Mitigation of Damages: there is a duty to mitigate your damages. Mitigation of
damages is a rule requiring a plaintiff to do whatever is reasonable to minimize
the damages caused by the breaching defendant.
o Hadley v. Baxendale, 1854
Equitable Remedies
▪ Rescission
▪ Restitution
▪ Specific Performance
o Land
o Scarce commodity
Election of Remedies
▪ This is to prevent “double dipping” – you must choose which remedy you want.
CHAPTER 2: ETHICS
▪
Business Ethics
▪ The Moral Minimum
▪ Short-Run Profit Maximization
▪ “Gray Areas” in the Law
▪ The Importance of Ethical Leadership
o Attitude of Top Management
o Behavior of Owners & Managers
▪ Creating Ethical Codes of Conduct
o Ethics Training for Employees
o The Sarbanes-Oxley Act and Web-Based Reporting Systems
▪ Approaches to Ethical Reasoning
o Duty-Based Ethics
o Outcome-Based Ethics
o Corporate Social Responsibility
o Foreign Corrupt Practices Act
