Management and Organizational Studies 2275A/B Lecture Notes - Lecture 3: Computer Case, Netflix, Reasonable Person

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Paul Dimovski
Business Law
Contracts:
Definition: Contract
An exchange of value (often in the form of promises) which the law will enforce
It is a bargain and exchange; “This for that”
We enforce contracts in order to promote business and its good for the economy (Trade
and Commerce)
oMetrics to measure government
GDP, Trade Balance …etc. (Strength of Economy)
Modern Capitalist Economy requires people to enforce contracts
Purpose of Contract Law
To promote trade and commerce
Forms the very foundation of our capitalist economic system
Without it: we would have a very difficult time maintaining our free market
Unfair Contracts
oFairness is assumed. People must act within their own self interest
oFairness is subjective. Who is to decide what is fair and what is not fair?
oThink Corvette example in lecture: as long as the two parties agree to the
contract then it is a contract and no independent arbitrators should decide
whether the contract is fair or unfair
Assumptions Made in Contract Law
People will not enter into contracts if they do not receive a benefit
oAssume people are selfish, rationally selfish
The terms of contracts voluntarily entered are fair
Law is full of exceptions
oSometimes fairness creeps back into the mix
Contract Essentials (5 Requirements for it to be a contract)
These are all principles that have been set by precedent from previous cases. These
principles are basic and fundamental, and there is no debate. Long line of established
cases. In order to prove a contract exists, all of these 5 contract essentials must be
within the contract
Consensus
oNeed to prove to the judge that we both agreed to the same terms
oTest for consensus: there has to be an offer and an acceptance of that offer
Consideration
oMust be something of value received by each party
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Paul Dimovski
Intent
oWe have to show that by reaching a consensus on an exchange of values, the
parties intended to create a legally binding agreement between them
Legality
Capacity
Contacts are everywhere in business
oMany of the areas of law, have contracts and consist of contract law
oLaw is full of contractual relationships
Consensus
Distinguish offers from mere “invitations to treat”
oAdvertisements and for sale signs are invitations to treat
Invitation to a contract
oThey are not offers
Offers must be communicated
oThey don’t have to be in writing
oMost contracts do not have to be in writing
oEvidence is always critical; if you need to convince a judge, one needs evidence
Offers are effective when received and understood
oThink about the Dell Computer case
Two offers, with both not having to be received and understood
When does an offer lapse
oIt is rejected
Offer is done when you first reject the offer, once you reject it, one
cannot go back to it
oThere is a counter-offer
Once the second offer happens, the initial offer is no longer in effect
Risk of making counter offer- original offer is not on the table any more
oIt expires
When they are stated to expire
One offer will be expired after a reasonable period of time
Reasonable depends on all the circumstances (Ex: Milk sale when
it spoils, a reasonable expiry will be when the milk spoils)
oIt is revoked
Revoke any time before acceptance
Once revoked, it cannot be acceptance
Promise:
Is that promise enforceable?
oNo it is not enforceable. Lacking: Consideration (Nothing in
exchange to leave the offer open)
oProbably bad business, it is legally possible for one to
break a promise
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