Tarkio Business Law v1.2 (3) PDF

Tarkio Technology Institute BUSINESS LAW Instructor: Topics 1. INTRODUCTION 2. BIBLICAL PERSPECTIVE 3. HISTORICAL PERSPECTIVE 4. ETHICS, MORALS & LAW 5. *GENERAL PRINCIPLES OF LAW 6. *CRIMINAL LAW 7. *TORT LAW 8. CONTRACT LAW 1. INTRODUCTION  What is the Law?  It’s About “Right” and “Wrong”  Overview  Rule of Law  Multiple Levels of Law WHAT IS LAW? law [lô] –noun 1. the system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties: 2. a statement of fact, deduced from observation, to the effect that a particular natural or scientific phenomenon always occurs if certain conditions are present 4 ITS ABOUT RIGHT AND WRONG! There are areas of the law that do not hinge on clear- cut “right” or “wrong” but on an ill-defined middle ground. Justice and law are hallmarks of a free society in today’s world. Plaintiff: The party who begins a lawsuit by filing a complaint in the appropriate court. Defendant: The party against whom a lawsuit is brought and from whom recovery is sought It is important to understand certain legal principles because they affect both your business and your personal life. 5 OVERVIEW The law presented in this class deals primarily with the general principles of law and their application to business. Some sections focus on personal applications of the law, however, and others treat ethical aspects of personal and business behavior In today’s world, virtually every area of business is affected by the following areas of law: 1. Corporate law 5. Construction law 2. Employment law 6. Contract and commercial law 3. Real Estate / Landlord tenant law 7. Tort law 4. Tax law 6 RULE OF LAW A culture of Respect for the rule of law is one of the main pillars that cause American enterprise to succeed. Corruption (bribery, conflicts of interest, nepotism, and unequal application of laws due to partisan or self interest) undermine business because it erodes confidence in systems, removes predictability of results of business transactions, and “steals” wealth that has been honestly and properly generated. This is one of the main reasons why third world countries are poor. 7 MULTIPLE LEVELS OF LAW Every business must comply with many federal, state, and local laws that are primarily aimed at regulating business activity. A firm that wishes to set up business in a particular community may find that there are laws that prohibit such activities. Local zoning ordinances might prohibit the operation of a noisy factory in a residential area. State and federal laws prohibit or regulate the operation of certain businesses that might pollute the environment. Still other laws require that businesses provide safe working conditions for employees or demand that only qualified persons perform certain jobs. State laws, for instance, require that barbers and pharmacists pass examinations to be licensed. 8 2. BIBLICAL PERSPECTIVE  A “Just” Government is Ordained by God  “…be subject to…”  Why Did God Ordain Government?  Government Perspective 9 BIBLICAL PERSPECTIVE A “Just” Government is ordained by God: Romans 13 1 Let every soul be subject [a] to the governing authorities. For there is no authority except from God, and the authorities that exist are appointed by God. 2 Therefore whoever resists the authority resists the ordinance of God, and those who resist will bring judgment on themselves. 3 For rulers are not a terror to good works, but to evil. Do you want to be unafraid of the authority? Do what is good, and you will have praise from the same. 4 For he is God’s minister to you for good. But if you do evil, be afraid; for he does not bear the sword in vain; for he is God’s minister, an avenger to execute wrath on him who practices evil. Gov can be ordained… but not all their actions! 10 BIBLICAL PERSPECTIVE Be “Subject” to (Romans 13:1): Subject (Greek Hupotasso); used 13 times in NT Military term meaning “to rank under” (Vine’s Dict) Doesn’t mean “obedience” Apostles beaten/arrested by Jews, didn’t revolt or criticize, but did continue to preach the Gospel They didn’t obey ungodly commands! Our obedience is to God although we can submit to Gov! 11 Is the Bible saying that God ordained government to stop people from hurting each other? Declaration of “We hold these truths to be self-evident, that all Independence men are created equal, that they are endowed by 4 July 1776 their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — …” Our government was created based on this concept! 12 GOVERNMENT PERSPECTIVE What is a “Right”? A right is a privilege that a human being enjoys just because he/she is human. They result from the inherent dignity that each person possesses as one who is made John in the image and likeness of God. Locke Our obedience is to God although we can submit to Gov! 13 GOVERNMENT PERSPECTIVE What happens when my “right” infringes on another person’s “right”? This is where the role of government arises. Rights and obligations are opposite sides of the coin: - Each person has an obligation to respect another person’s rights. - If the government protects rights, it enforces obligations, and vice versa. Now what do we think about the role of Law in Business? 14 3. HISTORICAL PERSPECTIVE  The Conflict Environment  Where Do We Get Our Rights?  Declaration of Independence  The Bill of Rights 1 THE CONFLICT ENVIRONMENT Conflict arises due to not understanding the difference! 16 WHERE DO WE GET OUR RIGHTS? The Bill of Rights! When was the Bill of Rights Ratified (Accepted)? 1-10th Amendments, December 15, 1791 When was the Constitution Ratified? June 21, 1788 15 Years! 12 Years! When did we Declare ourselves Free? July 4, 1776 When did we “Create” the US Army (Birthday)? June 14, 1775 17 DECLARATION OF INDEPENDENCE 4 JULY, 1776 We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. 18 THE BILL OF RIGHTS (1-10 AMENDMENTS TO CONSTITUTION) George Mason – 1 of 3 not to sign Constitution; as it.. “defined no rights!” James Madison – Not needed as “the government can only exert the powers specified by the Constitution.” 19 THE BILL OF RIGHTS (1-10 AMENDMENTS TO CONSTITUTION) Massachusetts compromise Madison – Introduced a list of amendments, June 8 1789! “A form of education and documentation”… not a gifting! The BoR was a list of prohibitions on Governmental Power! 20 4. ETHICS, MORALS & LAW  Ethic, Morals and Law  Business Ethics  Global Market Ethics  Founding Fathers’ Perspective  Relationship Between Law and Ethics  Summary  Definitions 2 ETHICS, MORALS & LAW What is the difference between Ethics, Morals and Laws? ETHICS MORALS What standard do you live by? What does the Bible say? LAWS 22 ETHICS, MORALS AND LAW Murder and theft are crimes because our government has made moral assessments that those actions are wrong. Negligence and breach of contract are the basis for recovery of money damages in a civil court because judges have made a moral assessment these actions are wrong. Morality and Ethics is Fundamental to almost all law. 23 BUSINESS ETHICS Bernie Madoff Scandal: He created an “asset management” investment business, which was really a large Ponzi scheme. His business lost $50 billion. Oregon Governor Kitzhaber: He resigned because he funneled contracts to his fiancé, who was also a “policy advisor” in his office. Examples also can be found in other professions and in government! 24 BUSINESS ETHICS Claimed revenues of nearly $101 billion during 2000. At the end of 2001, it was revealed that its reported financial condition was sustained by institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Enron has since become a well-known example of willful corporate fraud and corruption. Enron filed for bankruptcy in late 2001. The former Enron CEO, Jeffrey Skilling, was convicted of federal felony charges related to Enron’s collapse and was sentenced to 24 years at a federal prison. www.theleadermaker.com/core-values- enron/ http://www.csus.edu/indiv/m/merlinos/enron.html 25 BUSINESS ETHICS 2008 Global Recession / Financial Crisis The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that “this crisis was avoidable.” It found: − “widespread failures in financial regulation; − dramatic breakdowns in corporate governance; − systemic breaches in accountability and ethics at all levels." “We witnessed an erosion of standards of responsibility and ethics that exacerbated the financial crisis.” fcic.law.stanford.edu/report/conclusions 26 GROWING BUSINESS ETHICS Environmental ethics is a growing field as citizens voice their concerns about the pollution of our natural habitat by businesses. Demands for additional government regulation are frequently voiced. The development of technology has introduced a burgeoning array of ethical questions. e.g. Advances in genetics, cloning technologies, and the use of stem cells in medical science have raised ethical dilemmas unheard of even a decade earlier. 27 GLOBAL MARKET ETHICS Businesses deal with different standards of ethics in other countries and cultures. Is it ethical for an American company to conduct business with a company in an undemocratic country? We need to reexamine our ethics and to clarify the distinction between what is ethical versus what is legal. 28 BUSINESS ETHICS It’s important to realize that much of what appears to be support for “ethical” issues by businesses, are really endorsement of the current trend in order to remain (or increase) popularity. Hence, we see businesses endorsing false morality, like “diversity,”, “divestment” and requiring training in appropriate thought and speech regarding sexual identity issues. Critics of corporate social action, suggest it might be better to maximize earnings for shareholders, who could then use the higher earning to advance society if they so desire. It is interesting to note that in many states charitable contributions by corporations are legal, while political contributions are not. 29 OUR FOUNDING FATHER’S PERSPECTIVE Signer of the Declaration of Independence and Second President of the United States. “It is religion and morality alone which can establish the principles upon which freedom can securely stand. The only foundation of a John Adams free constitution is pure virtue.” 1 “We have no government armed with power capable of contending with human passions unbridled by morality and religion.... Our constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.” 2 30 OUR FOUNDING FATHER’S PERSPECTIVE Signer of the Constitution and Declaration of Independence “Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.” Benjamin Franklin 31 OUR FOUNDING FATHER’S PERSPECTIVE “Of all the dispositions and habits which lead to political prosperity, religion and morality are indispensable supports.”… “It is substantially true, that virtue or morality is a necessary spring of popular government. George Washington The rule, indeed, extends with more or less force to every species of free government.” 32 OUR FOUNDING FATHER’S PERSPECTIVE The founders recognized that a free society and republican form of government are suitable only for a “moral and religious people” because, without faith and morality, people would become unrestrained. The less moral the people become, the more insecure society becomes. The more insecure society becomes, the more it will look to the government for regulation and control. Where as a Nation do we stand today? 33 RELATIONSHIP BETWEEN LAW & ETHICS Some examples of the increase in law and regulation in our society directly due to the decline in morality are as follows: 1. Privacy laws (HIPAA) 2. Sarbanes Oxley (Accounting Restrictions due to the Enron scandal) 3. Americans With Disabilities Act 4. Patriot Act 5. Gun control measures 34 RELATIONSHIP BETWEEN LAW & ETHICS Unlike law, ethical issues may be multifaceted. Legal mandates are imposed on individuals or groups by authorities or governments. Ethical ideas have been the foundation of much of the legislation enacted by federal, state, and local governments. Consider the role of ethics in the laws that protect consumers against misleading advertising, deceptive labeling, and price-fixing. These laws are clearly based on ethical considerations. 35 RELATIONSHIP BETWEEN LAW & ETHICS Court decisions are frequently influenced by ethics as judges and juries examine the facts of a case and form beliefs about the parties and issues involved. A distinction between law and ethics is that legal mandates are usually more precise. The law requires individuals and organizations to behave in specified ways, requiring or prohibiting certain acts. Businesses concerned with ethics usually focus on their corporate responsibility and the development of codes of conduct. 36 ETHICS, MORALS AND LAW SUMMARY Ethics is a philosophical approach, examining theories of what is good or bad. Morals are concerned with behavior as judged by society. Values are beliefs or standards considered worthwhile. Individual and group values are influenced by religion, tradition, and customs. Legal mandates are imposed on individuals or groups by authorities or governments. In contrast, ethical considerations generally spring from within individuals or organizations. However, ethical beliefs are the foundation of many of our laws. 37 ETHICS, MORALS AND LAW SUMMARY While the areas covered in codes and law vary from one firm or industry to another, they typically include the following: Diligence and Hard Work. Scriptures: Prov. 10:4; 13:4; 22:29; 24:30-31 Eccl. 9:10 Fundamental honesty and adherence to the law. Scriptures on Honesty in Business: a. General: Romans 12:17; Prov. 21:6 b. False weights: Lev. 19:35-36; Prov. 11:1; 16:11 c. Fair wages: Jer. 22:13; James 5:4; Deut 24:15; Col. 4:1 38 SUMMARY / DEFINITIONS Sarbanes-Oxley: A federal statute putting an onus on upper management to closely monitor the financial dealings and disclosures of their firms and that established a board to oversee accounting practices in the US. Ethics: The philosophical study of what is right and wrong, good and bad. Morals: Beliefs about behavior as judged by society. Values: Beliefs or standards considered worthwhile, and from which a society derives its moral rules. Culture: The set of shared attitudes, values, goals, and practices that characterize a social, racial, religious, or corporate group. 39 SUMMARY / DEFINITIONS Subculture: An ethnic, economic, regional, religious, or social group with attitudes or behaviors that distinguish it from others within a larger culture. Stakeholders: - People or groups who may be affected by a firm’s actions or decisions. Code of Ethics: A set of rules that a company or other group adopts to express principles of ethical behavior that are expected of its personnel. Whistleblower: An employee who discloses to the government, media, or upper management that the company is involved in wrongful or illegal activities. 40 5. GENERAL PRINCIPLES OF LAW  Classifications of Law  Application of Law  Court Systems  Doctrine of Preemption  Clauses  Amendments  Limited Government  Definitions 4 CLASSIFICATIONS OF LAW Classifications of Law Based on Type 1. Civil 2. Criminal Classifications of Law Based on Jurisdiction 3. Federal 4. Indian Nations 5. State a) County b) Municipalities 42 APPLICATION OF LAW Moral Law There are personal obligations to one another beyond those required by the law. For example, someone is drowning or screaming for help, we all have a moral duty to call 911! Classifications of Law Based on Jurisdiction According to the “supremacy clause,” the Constitution is considered to be the “supreme law of the land.” All other laws that are in conflict with the Constitution, are invalid. Federal, State, and city laws must be consistent with the Constitution 43 APPLICATION OF LAW JUDICIAL REVIEW The best-known power of the Supreme Court is judicial review, or the ability of the Court to declare a Legislative or Executive act in violation of the Constitution. The Court established this doctrine in the case of Marbury v. Madison (1803). The power of courts to determine the law is so complete that many lawyers will say that “the law is whatever a judge says it is.” This is because, in practicality, the application of law is governed by case law and how the courts have interpreted the statutes, constitution and administrative laws, not by the actual words of the legislation itself. 44 COURT SYSTEMS State Courts Federal Courts State Supreme Court US Supreme Court Intermediate State Appellate Courts Circuit Courts of Appeal (11 Numbered Circuits + DC + Federal Circuit) State Trial Courts (including multiple Special Courts (Claims, Tax) divisions: civil, criminal, family, probate, small claims) US District Courts (94 Districts)(Trial US District Courts (94 Districts) level) (Trial level) Municipal Courts (Traffic, Justice of Administrative Agency “courts” Peace, etc) 45 THE DOCTRINE OF PREEMPTION Constitution Congressional Laws Grants power to Congress, State Laws expressly or implicitly to create laws. If lower lever laws are deemed unconstitutional then the Federal Law applies! Municipal Laws 46 THE DOCTRINE OF PREEMPTION Constitution Article 1 The Constitution is divided into Section 8 major divisions, called articles; subdivisions, called sections; and in some cases sub-subdivisions, called clauses Clause 3 47 ARTICLE I, SECTION 8, CLAUSE 3 THE COMMERCE CLAUSE “The Congress shall have Power... to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” This clause grants Congress the power to regulate commerce among states in order to prevent the restriction of trade activity. 48 ARTICLE IV, SECTION 1 THE FULL FAITH AND CREDIT CLAUSE “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.” This clause mandates that each state respect and enforce both the judgments awarded by courts in other states, and the statutes and case law of other states. The Supreme Court has made a distinction in the level of the respect that must be given. A great deal of respect must be given to the judgments awarded by courts in other states; however, a lower level of respect must be given to another state’s statutes and case law. 49 ARTICLE IV, SECTION 2 THE SUPREMACY CLAUSE “This Constitution... the Laws of the United States... and all treaties made... shall be the supreme law of the land; and the judges in every state shall be bound thereby...” This clause, closely tied to the doctrine of preemption, requires state judges to follow federal law in the event of a conflict with state law. A Supreme Court ruling that involves a constitutional issue is binding on state courts. Note that the supremacy clause also requires states to recognize the provisions of U.S. treaties over any conflicting state regulations. 50 THE FIRST AMENDMENT: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” This is divided into two interconnected pieces, referred to as the establishment clause and the free exercise clause. The establishment clause makes it unconstitutional for government to recognize a single national religion, or even to create policies or practices that favor one religion over another. The free exercise clause requires that government not interfere with an individual’s practicing the religion of his or her choice. 51 THE FIRST AMENDMENT: The First Amendment’s freedom of speech clause gives Americans a fundamental right. While individuals certainly have the right to freedom of political or religious speech, this right should be guarded most zealously when the speech is unpopular, upsetting, ignorant, or even anger provoking. Thus speech that is sexist, racist, ageist, or otherwise offensive is also protected. Similarly, the act of burning the American flag is considered protected speech, and laws prohibiting such acts are unconstitutional. 52 THE FIRST AMENDMENT: The First Amendment’s freedom of the press clause protects journalists in writing about events and giving opinions/perspective. It would certainly be unconstitutional for a state or municipality to pass a law limiting what a journalist could write or say about a political candidate, event or issue. However, not all laws pertaining to the news media are unconstitutional. For example, it is constitutionally acceptable for government to tax newspapers. Although the press can be held accountable for defamation and lible, the Supreme Court held that debate on public issues would be inhibited if public officials could sue for inaccuracies that were made by mistake. Hence public officials need to prove malicious intent. 53 THE SECOND AMENDMENT: “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” The first issue is what is meant by the term “to bear arms.” Generally this term has been interpreted to mean “to carry firearms.” 2008 case District of Columbia v. Heller – “Individual Right” McDonald v. City of Chicago – “Fundamental Right” NY State Rifle & Pistol Association v. Bruen – “No proper cause” 54 THE FORTH AMENDMENT: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” This requires that police officers and other government officials must have probable cause to be able to conduct a search. Probable cause may be defined as a reasonable belief that a prudent police officer must have that a suspect has committed, is committing, or is about to commit a crime, thereby giving the officer the authority to conduct a search. All other unreasonable searches and seizures are unconstitutional and invalid. 55 THE FIFTH AMENDMENT: “No person shall... be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” This contains four distinct protections: 1. Double jeopardy: 2. Self-incrimination: 3. Due process: 4. Eminent domain: 56 THE EIGHTH AMENDMENT: “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” This restricts both the severity and the types of punishments that may be imposed by federal and state governments 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. 57 THE FOURTEENTH AMENDMENT: “No State shall... deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” While the first 10 amendments, the Bill of Rights, apply to actions of the federal government, the Fourteenth Amendment applies directly to the 50 states. Just as it is impermissible for the federal government to deny an individual either substantive or procedural due process under the Fifth Amendment, it is also unconstitutional for a state to deny an individual due process. 58 THE SIXTEENTH AMENDMENT: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Prior to the passage of the Sixteenth Amendment, there were a series of conflicting court decisions regarding the federal government’s right to levy an income tax. The government exercised this power immediately and, by doing so, created a substantial source of revenue. The Internal Revenue Service (IRS) is a federal agency established by Congress and tasked with administering and collecting federal income tax under the Sixteenth Amendment. 59 LIMITED GOVERNMENT The Framers believed they were creating a government of limited, delegated powers. The Constitution says, 9th Amendment: The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people. 10th Amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. How many pages is the US Constitution? 60 SUMMARY / DEFINITIONS Express Powers: Those that are specifically stated in the Federal 61 Constitution. Implied Powers: Those that have arisen as a result of interpretation of the express powers by the courts. Bill of Rights: The first 10 amendments of the U.S. Constitution. Judicial Review: The process of deciding if a law is contrary to the Constitution. Doctrine of Preemption: Principle that states that when certain state or local laws are inconsistent with the federal law, the federal law must be followed. 61 SUMMARY / DEFINITIONS Commerce Clause: A provision of the Constitution that grants Congress 62 the power to regulate trade with foreign nations, and among the several states, and with the Indian tribes. Full Faith and Credit Clause: A provision of the Constitution that mandates that each state respect and enforce both the judgments awarded by courts in other states, and the statutes and case law of other states. Supremacy Clause: A provision of the Constitution that requires state judges to follow federal law in the event of a conflict with state law. 62 SUMMARY / DEFINITIONS Probable Cause: A reasonable belief that a prudent police officer must 63 have that a suspect has committed, is committing, or is about to commit a crime, thereby giving the officer the authority to conduct a search. Procedural Due Process: A Constitutional mandate that all persons affected by a legal proceeding receive notice of its subject matter, time, and place and that proceedings be conducted by fair and impartial judge. Substantive Due Process: A Constitutional mandate that government not unreasonably interfere with an individual’s life, liberty, or property rights. Rational Basis: A test that measures whether the legislature had a reasonable, and not an arbitrary, basis for enacting a particular statute. 63 SUMMARY / DEFINITIONS 64 Intermediate Scrutiny: A test that measures whether a particular statute is substantially related to an important government objective. Strict Scrutiny: A test that measures whether the legislature had a compelling interest for enacting a particular statute. 64 6. CRIMINAL LAW  Criminal Law  Elements of a Crime  Presumption of Innocence  Other Important Rights  Classification of Crimes  Crimes in the Business World  White-Collar Crime  RICO  Examples  Definitions 115 CRIMINAL LAW Fundamentals of Criminal Law The law assures each person certain rights and assigns each person certain duties. The law enforcement authorities of federal, state, and local governments enforce specific laws called statutes that are designed to protect the public at large. A violation of a statute is a crime. While statutory law determines what is and what is not a crime, many statutes reflect legal principles derived from common law. An act, or failure to act, is a crime because the governing statutes say it is. 66 ELEMENTS OF A CRIME There are 3 classic elements of any crime, as follows: 1. Mens Rea (Guilty mind): A voluntary, purposeful, knowing or reckless act. Often called “intent”. 2. Actus Reus (A criminal act): This refers to an act, or the failure to act, in a proscribed manner that and which occurs simultaneously or concurrently with the “mens rea.” 3. Causation: For many crimes, there is a causation element. This means that particular harm happens as a direct result of the criminal act of the defendant. For example, you cannot be charged with murder unless your criminal act of violence actually causes the death of the victim. 67 PRESUMPTION OF INNOCENCE & BURDEN OF PROOF 1. Taken from British common law, there is a time-honored and fundamental principle of American criminal law. Namely, a defendant is presumed by the law to be innocent until he/she is proven to be guilty in court. 2. A related and important concept is referred to as the “burden of proof.” This term, however, does not imply 'beyond a shadow of a doubt.' If the evidence is so strong that there is only a remote possibility (and no probability) of an extenuating circumstance, the guilt is then deemed to have been proven beyond a reasonable doubt. 68 OTHER IMPORTANT RIGHTS IN CRIMINAL LAW Our legal system stands out in the world because of the guarantees that it provides to the accused. The right to a speedy trial The right to a jury trial Freedom from excessive bail The right to due process The right to confront witnesses Freedom from cruel and unusual punishments The right to have notice of the charges against him Freedom from unreasonable searches and seizures The right to be told what your rights are: “Miranda” warnings Freedom from coerced confessions The right to receive notice from the prosecution of all exculpatory evidence 69 CLASSIFICATION OF CRIMES Crimes are classified into three groups according to the seriousness of the offense: Treason: The levying of war against the United States, or the giving of aid and comfort to the nation’s enemies. Felony: A crime punishable by death or imprisonment in a federal or state prison for a term exceeding one year. Misdemeanor: A less serious crime that is generally punishable by a fine and/or a prison sentence of not more than one year Federal law and the laws of the states determine the classification and largely specify the punishment. 70 CRIMES IN THE BUSINESS WORLD Many people associate crime with criminals and gangsters as they are portrayed on television and in the movies. Crimes, however, are not always committed in the sensational style of blazing guns and wild car chases. Often the site of a business crime is the well-appointed office of a corporate executive, his or her private club, or a nearby bar where employees meet after work. 71 WHITE-COLLAR CRIME A term used to describe various crimes that typically do not involve force or violence committed by and against businesses. Originally white-collar crime related only to nonviolent crimes against businesses, usually committed by their own employees. Depending on its seriousness, a white-collar crime can be either a felony or a misdemeanor and can violate federal or state law. 72 RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT Established in 1970 and known as RICO, this is one of the most successful laws used to combat white-collar crime Examples of crimes considered to be racketeering activities are securities fraud, mail fraud, wire fraud, bribery, acts of violence, and embezzlement from pension funds. Under the RICO Act, it is easier to both prosecute corrupt organizations and seize assets obtained through corruption. 73 EXAMPLES Securities fraud Forgery Ponzi scheme Perjury Arson Embezzlement Larceny Extortion Bribery Credit card fraud False Pretenses Identity theft 74 SUMMARY / DEFINITIONS Crime: An offense against the public at large punishable by the official governing body of a nation or state. Treason: The levying of war against the United States, or the giving of aid and comfort to the nation’s enemies. Felony: A crime punishable by death or imprisonment in a federal or state prison for a term exceeding one year. Misdemeanor: A less serious crime that is generally punishable by a fine and/or a prison sentence of not more than one year 75 SUMMARY / DEFINITIONS White-Collar Crime: A term used to describe various crimes that typically do not involve force or violence committed by and against businesses. RICO: One of the most successful laws used to combat white-collar crime, prohibiting an organization’s employees from engaging in a pattern of racketeering activity. 76 7. TORT LAW 7 TORT LAW The Nature of Torts Tort: A private wrong that injures another person’s physical well being, property, or reputation. A tort, in contrast to a crime, is a violation of the rights of an identifiable individual or business that has been wronged either intentionally or by negligence. When the crime of larceny has been committed, then both a crime has been committed and the victim of the larceny has suffered the tort of conversion (the wrongful taking of property). Torts is only concerned with the violation of private rights. 78 DEFAMATION Defamation is the harming of a person’s reputation and good name by the communication of a false statement. For an act to be considered defamatory, it is necessary to show that the statement was made in such a way that others hear or read it. To call someone a thief to the person’s face may be an insult, but it is not defamation. A defamatory statement usually holds a person up to hatred, ridicule, or contempt; or causes a person’s esteem, respect, or social position to be diminished. The charge of defamation can be separated into two torts: libel and slander. 79 TRADE LIBEL In business, a firm and its owners have the right to remain free from false and malicious statements by others that may cause a loss or damage to the reputation of the firm, the owners, the products produced, or the merchandise carried or manufactured by the firm. The tort of trade libel is similar to traditional defamation but deals with an individual’s title to property, or to the quality or conduct of a business. EXAMPLE - Philo sent an e-mail message to several suppliers claiming that his competitor, Willit, was about to file for bankruptcy and go out of business. Because such an untrue statement could damage his business, Willit could sue Philo, charging trade libel. 80 HUMOR AND SLANDER It might seem that a quick apology and a “sorry, just kidding” might be enough to avoid some charges of slander. Not so! Consider the following case, where the subject of a seemingly harmless remark did not think it was funny. EXAMPLE - A radio station had a call-in program that invited listeners to nominate a person or business for the title of “dodo of the day.” A listener, who identified herself as “Bonnie,” called to nominate her insurance agent, Lawrence Faro. She claimed that after she consulted him about a damaged windshield, he advised her to throw a brick through it to make the claim large enough that the insurance company would pay. Faro denied knowing a customer named Bonnie and sued the radio station for defamation. 81 DEFENSES TO DEFAMATION There are two common defenses to charges of defamation: (1) truth and (2) privilege. If a defamatory statement can be proved to be true, the person who claims that he was defamed cannot recover damages. If the person accused of defamation had a special privilege in making the defamatory statement, such as an attorney in a court proceeding who accuses a witness of lying, the defamed person cannot recover damages. Legislators are also privileged from liability for defamation for remarks made in the course of debate of legislation. 82 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 by another, the wrongdoer is said to have committed the tort of conversion. This tort can involve a wrongful taking, a wrongful detention, or an illegal assumption of ownership. This may involve removal, damage, destruction, or unauthorized use of another person’s property. Conversion may be the only means to recover the loss of property or the loss of productivity from that property! 83 NEGLIGENCE The tort of negligence is the failure to exercise reasonable care necessary to protect others from risk of harm. This number of lawsuits has grown tremendously, in part due to news account of large jury awards and the mind-set that anyone who experiences misfortune, someone else out to pay! Malpractice: a term involving the negligence of professionals (doctors, dentists, nurses, pharmacists, lawyers, and accountants). Corporations have been sued for negligent design or manufacture of products that cause injury. 84 LIABILITY When a person has been judged to be responsible for a loss, he or she is said to be liable (not to be confused with libel, covered earlier). In most lawsuits, the court must decide if the defendant is liable for the damages as charged. In some instances, the law shields certain persons. In other instances, liability is automatically assumed. Once a court deems a company Liable, then it must determine the “cost” or damages owed. 85 UNAVOIDABLE ACCIDENT In theory, all accidents are avoidable. Any truck driver, could avoid any accident by simply not driving the truck at all—or by not getting out of bed that morning. 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. At issue is always the “Perception” of what is “Normal” and “Reasonable” especially under the circumstances. 86 THE “REASONABLE PERSON” The law provides certain ways by which juries can determine if a person has acted negligently. One of these ways is the doctrine of the “reasonable person of ordinary prudence,” a completely fictitious person who is assumed to have the judgment and skill expected from a person with the strengths and limitations of the person whose behavior is being judged. While there is no standard reasonable person, a jury is asked to determine how the mythical person would have behaved under the same or similar circumstances. Obviously, one reason the law has kept this imaginary individual alive is to prevent jurors from judging a defendant in terms of how they themselves would have behaved. 87 VICARIOUS NEGLIGENCE The term vicarious as used to describe an act performed by one person as a substitute for another. Vicarious negligence, therefore, means charging a negligent act of one person to another. Even if he or she was partly at fault. The jury determines how much the plaintiff was at fault and reduces the verdict by that amount. For example, if the plaintiff was found to be 10 percent negligent, he or she would get an award 10 percent less than the full damages as determined by the jury Later you will encounter Vicarious Liability! 88 PREMISES LIABILITY Premises liability (sometimes called “slip and fall” cases) refers to the legal liability of landowners and tenants to others who are injured while using their property. The law typically imposes liability for injuries that result from hidden dangers on the property. Landowners are not liable for “open and obvious” risks. Those are dangers which a person, using reasonable or ordinary care to look out for his own safety, would observe in the normal course of events. 89 PREMISES LIABILITY Different levels of care are owed by the landowner to “invitees” than are owed to “trespassers.” An “invitee” is anyone who is on the property with the express or implied permission of the owner. For businesses, all patrons and guests are considered invitees, even if not expressly invited onto the property. Trespassers are those who are on the property without at least implied consent. The landowner’s duty to those persons is generally to protect against harm from willful and wanton dangers. 90 FRAUD / MISREPRESENTATION Fraud (also known as intentional misrepresentation) is another basis for civil liability in tort. Fraud occurs when someone makes an affirmative statement of fact, which they know or have reason to know is false, with the intention (or reckless disregard of the likelihood) that another will rely on that false statement to their detriment. Fraud can also be based on the omission of a material fact from a statement, which the person making the statement knows or has reason to know, renders the statement misleading. False Advertising could lead to Fraud accusations. 91 NEGLIGENT HIRING AND SUPERVISION Normally, a tort claim is available only against the person who committed the tortious act. Negligent entrustment is available when a third person allows the tortious actor to use the third person’s property, when the third person knows or has reason to know that the actor is not qualified to operate the property or has a history or propensity of carelessness.\ Negligent supervision is available in some states to impose liability on persons who have the power to control the conduct of others but negligently fail to do so, resulting in harm to another. (usually minors) 92 ASSUMPTION OF RISK A defense in a case of negligence in which the defendant demonstrates that the plaintiff voluntarily assumed the risk associated with the dangerous condition caused by the defendant. Negligence assumes the risk as a result of his or her actions. Often parties voluntarily agree to assume the risk associated with dangerous conditions because the advantageous outcomes involved with such exceed the hazards. (skydiving, outdoor adventures, etc) Negligent supervision is available in some states to impose liability on persons who have the power to control the conduct of others but negligently fail to do so, resulting in harm to another. (usually minors) 93 CONTRIBUTORY NEGLIGENCE Under the Common Law, there was a defense in negligence cases known as “contributory negligence.” Under that doctrine, if a Plaintiff was found by a jury to be negligent in causing his own injuries, he could not recover any damages from the defendants. This was true even if the defendants were also negligent, and even if the defendant(s)’ negligence exceeded the Plaintiff’s share of negligence. Thus, under the classic contributory negligence defense, if a Plaintiff had only 1% of the fault in causing his own damages, he could recover nothing from the defendant(s) who were 99% at fault. 94 COMPARATIVE NEGLIGENCE Many states saw the unfairness of “contributory negligence” and created a new defense in the 1970s and 1980s called “comparative negligence.” Under that new defense, a Plaintiff who shared in the fault of causing the accident could still recover damages so long as his / her fault was less than or equal to the Defendant(s)’ fault. So, if the Plaintiff’s negligence is 51% of the total, his claim is barred. But, if his negligence is 49% of the whole, he can still recover his damages, however, they will be reduced proportionately. Comparative negligence provides balance in accountability! 95 JOINT AND SEVERAL LIABILITY Under Common Law, when two or more persons’ negligence combines to cause a single accident or harm, those two persons are both “jointly and severally liable” for the damages. This means that either one of them is responsible for 100% of the harm caused and can be required to pay all of the damages, even if one of them has a less degree of fault than the other. In recent years, many states have attempted to address this disparate treatment. The most common solution is to eliminate joint liability and allow only several liability. Some states have passed laws that a tortfeasor (defendant proven liable) can only be required to pay that portion of the judgment that corresponds to his share of fault in causing the damages. 96 VICARIOUS LIABILITY Vicarious Liability is when the law holds persons liable for the acts of others, such as when an employer is held responsible for the acts of employees, or when a general contractor is held responsible for acts of a subcontractor. (Being found liable of vicarious negligence) General business liability insurance, umbrella insurance, errors and omissions (E&O) coverage, Directors & Officers (D&O) Insurance, and Employment Practices Liability Insurance (EPLI) can provide protection for businesses for the acts of their employees. Vicarious liability is in addition to the employee’s own personal liability for the accident or injury but many times the employee may not face punitive damages due to the employer having the right insurance or because he has no assets from which the plaintiff can gain. 97 STRICT LIABILITY Certain events cause death or injury to others even when no negligence exists. Under a doctrine known as strict liability, people may be liable for injuries to others whether or not they have done something wrong. Examples include damage caused by inherently dangerous activities, events, or animals and might involve domestic pets, fi re, water, explosives, or dangerous chemicals. The broad range of employees injuries on the job is another example of strict liability. Workers’ compensation laws limit the amount of money employees may recover for most work-related injuries and illnesses; however, the employer and their insurance company cannot avoid payment by claiming that the employee contributed to his or her own injury or illness, or that he or she assumed the risks of the job. 98 PRODUCTS LIABILITY In recent years, the doctrine of strict liability also has been applied to cases involving injury or death caused by manufactured products, such as machinery—even if the injured person misused the product. A purchaser who is injured by a product has a cause of action by demonstrating merely that (1) the product was defective, (2) the defect was the cause of the injury, and (3) the defect caused the product to be unreasonably dangerous. Strict liability has been recognized and applied in at least two- thirds of the states in this country. 99 A WORD ABOUT WAIVERS Some states have held that advance liability waivers are not enforceable. Courts will consider some or all of the following factors when determining whether a liability waiver is enforceable: 1. Is the waiver clear and unambiguous? 2. Does it contain clear, explicit language waiving the person’s liability? 3. Is the waiver language conspicuous or hidden in fine print? 4. Is the parties’ intent to "waive negligence" clearly and expressly stated in the agreement? 5. Were the parties sufficiently informed about the potential risks in order to permit a "knowing" waiver of those risks and attendant liabilities? 100 CAUSATION Like criminal law, tort law requires proof that the illegal conduct caused harm. In a civil tort case, the Plaintiff bears the burden of proving that the negligent behavior was the direct cause of injury. At a minimum, he must show that “but for” the defendant’s negligence, the harm would not have happened. But more precisely, he must show that the negligent conduct set in motion a series of events which led directly to the injury, and that the injury was the foreseeable result of the conduct. There can be negligent conduct that does not directly cause injury. In such cases, the Plaintiff cannot recover damages. 101 PUNITIVE DAMAGES & OTHER FORMS OF “RELIEF” In civil cases, there are several kinds of “relief” which a Court can award a successful plaintiff. The first and most basic and common form are “actual” or compensatory “damages.” Another type of damages are “punitive damages.” These are awardable for conduct that is more reprehensible than mere negligence. Other forms of relief available in civil court include injunctions (orders from the court for the defendant to do or not do specific things for specific periods under penalty of contempt and fines), declaratory judgments (legal findings of principle only without findings of particular liability by the defendant); and awards of attorneys fees, costs and interest. 102 SUMMARY / DEFINITIONS Tort: Violation of the rights of an identifiable individual or business that has been wronged either intentionally or by negligence. Common torts include the following: defamation, nuisance, conversion, and negligence.. Defamation: The harming of a person’s reputation and good name by the communication of a false statement. Two common defenses to charges of defamation are: (1) truth and (2) privilege. 103 SUMMARY / DEFINITIONS Libel: The spreading of damaging statements in written form, which include pictures, cartoons, effigies, and any type of media communication. Slander is spreading damaging words or ideas about a person, directly or indirectly, in all other forms not considered libel. Slander: The spreading of damaging words or ideas about a person, directly or indirectly, in all other forms not considered libel. Trade Libel: Defamation that deals with an individual’s title to property, or to the quality or conduct of a business. 104 SUMMARY / DEFINITIONS Nuisance: Unlawful interference with the enjoyment of life or property. There are two types of nuisance charges in the U.S. system: private and public. A private nuisance occurs when a person acts in a way that denies the right of enjoyment to a specific person or persons. A public nuisance occurs when an entire community or the general public is impacted. Conversion: a wrongful act against a person’s right to own and use personal property. This act can include removal, damage, destruction, or unauthorized use of another person’s property. 105 SUMMARY / DEFINITIONS Negligence: the failure to exercise reasonable care to protect others from risk of harm. Types of negligence include vicarious negligence, negligence per se, contributory negligence, comparative negligence, and negligence as a result of assumption of risk. Vicarious Negligence: Charging a negligent act of 1 person to another. Contributory Negligence: A legal defense that involves the failure of an injured party to be careful enough to ensure personal safety. Comparative Negligence: Form of negligence that requires the court to assign damages according to the degree of fault of each party. 106 SUMMARY / DEFINITIONS Assumption of Risk: Defendant demonstrates that the plaintiff voluntarily assumed the risk with the dangerous condition caused by the defendant. Liability: Judging a party legally responsible for a loss or wrong. Examples include being found liable for any of the torts mentioned in this chapter, including defamation, nuisance, conversion, or negligence. Vicarious Liability: The concept of laying responsibility or blame upon one person for the actions of another. Strict Liability: Persons may be liable for injuries to others whether or not they have been negligent or committed an intentional tort. This is liability without the necessity of proving fault. 107 8. CONTRACT LAW  The Nature of a Contract  Agreements That Become Contracts  Contracts  Contract Elements  Clear and Concise  Classification of Contracts  Types of Contracts  Contract Validity  Contract Variables  Contract Termination  Government Contract Variables  Definitions 10 CONTRACT LAW THE NATURE OF A CONTRACT A contract is a legally enforceable agreement that is 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. 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” [UCC 1-201(11)]. The part of the UCC that is relevant to contract law is Article 2. However, Article 2 applies only to transactions in goods or other tangible personal property. 109 AGREEMENTS THAT BECOME CONTRACTS All contracts are agreements, but not all agreements are contracts. Agreements very often deal with personal or social matters that cannot be enforced by law. 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 is not legally enforceable. EXAMPLE - Allen, an executive secretary, agreed to meet Yung, a college friend from the same firm, at noon to share a ride to a training seminar. Allen failed to show up, and Yung, who waited an hour for him, missed the seminar. She had no legal course of action against Allen because Allen’s promise was a gift, and Yung gave no consideration (nothing of value) for it. 110 CONTRACTS Contract: A written or spoken agreement. Enforceable by Law A means to “Manage Expectations” Can constrain or dictate parameters for each progressive step Can be modified when both parties agree… Can be broken or halted by any party! Could lead to litigation! Proactive “Engagement” prevents wasted “Litigation!” 111 CONTRACT ELEMENTS Offer: From one party to another; Shows willingness Acceptance: Agreement to the specific conditions of the offer Mutual Agreement: Clear understanding; clear terms; “meeting of the minds” Consideration: What each party gives up, or promises to do Legality: The intent of the contract must not violate the law Proper Form: Transfer property > $500 must be in writing Capacity: Be of legal age, authority and mental soundness; Competent Who determines if all these are met? 112 CLEAR AND CONCISE There is always more than one solution or approach! Company A We will: Provide… Produce… Sell… Be: Active… We will: Clear… Market… Technical… Company B Inventory… Purposeful! Purchase… ContractsManage can exist Expectations.. between anyone Using orKISS! any business! 113 CLASSIFICATION OF CONTRACTS Contracts may be classified in several ways, depending on the manner in which they are created, expressed, or performed. Oral Written Express Implied Formal Simple Entire Divisible Let’s compare the differences! 114 TYPES OF CONTRACTS ORAL CONTRACTS Most contracts in business and in private life are simple, unwritten agreements that result from conversation between the parties involved. Even a telephone conversation can result in an enforceable oral contract. WRITTEN CONTRACTS A written contract is one that is reduced to writing on a permanent surface. It can be a handwritten note, a printed statement, a letter, or any other memorandum containing the terms of the agreement, as long as it is signed by the parties who wish to be bound by the agreement. 115 TYPES OF CONTRACTS EXPRESS CONTRACTS A contract that specifically states the agreement of the parties, either orally or in writing, is called an express contract. The term is used to distinguish such contracts from others in which the meaning or the intention of the parties is inferred from their actions. IMPLIED CONTRACTS Certain transactions (oral nor written) where the terms of the agreement is understood from the actions or conduct of the parties, or from the customs of the trade, or from the conditions or circumstances, rather than from oral or written words are implied contracts. Like the ordering of something advertised with “market price”. 116 TYPES OF CONTRACTS FORMAL CONTRACTS A formal contract, or specialty contract, is a written contract under seal. The seal on a formal contract may consist of simply the word Seal or L.S. (which means locus sigilli, the place of the seal), a scroll, a wafer, or an impression on the paper. SIMPLE CONTRACTS A contract that is not formal, whether it is written, oral, or implied, is called a simple contract. That is, a simple contract is an informal contract made without seal—even though the subject matter of the contract may be extremely complex and may involve huge amounts of money. 117 TYPES OF CONTRACTS ENTIRE CONTRACTS An entire contract, or indivisible contract, has two or more parts. Each part is dependent upon the others for satisfactory performance. Such a contract must be completely performed. The law of sales specifically states that “unless otherwise agreed, all goods called for by a contract for sale must be tendered [offered] in a single delivery and payment is due only on such tender” (UCC 2- 307). DIVISIBLE CONTRACTS A divisible contract is one that is made up of two or more parts, each part being independent of the others. A sale of goods might require payment for any components delivered “in lots” or parts of the whole. 118 CONTRACT VALIDITY The vast majority of contracts entered into in any business day are valid. A valid contract is an agreement resulting in an obligation that is legally enforceable. It meets all the requirements of a contract because all essential Elements are present. Offer Legality Acceptance Proper Form Mutual Agreement Compacity/Competency Consideration 119 EXAMPLE Gorbea, the owner of a computer supply company, agreed in writing with the Diaz Sign Company to pay $800 to have a specific sign erected on her property within 30 days. The Diaz Sign Company constructed and installed the sign within the specified time and Gorbea sent the company $800. Offer Legality Acceptance Proper Form Mutual Agreement Capacity/Competency Consideration An agreement lacking any element(s) is a void contract! 120 CONTRACT VARIABLES CONDITIONS PRECEDENT Events or occurrences, identified in the contract, which must occur before the contracting party becomes obligated to perform. Example: An option to buy shares if they hit a certain value of a contract containing a condition precedent. In that case, the seller’s obligation to sell is conditioned on the market price of the shares reaching a certain point. CONDITIONS SUBSEQUENT Conditions subsequent are events or occurrences, identified in the contract, which, if they occur, will invalidate the contract. They are “escape” clauses, if you will. 121 CONTRACT VARIABLES IMPOSSIBILITY In contracts where the performance depends on the continued existence of a given person or thing, an implied condition is that the perishing of the person or thing shall excuse performance.. UCC 2-615 Code for the sale of goods sets forth three conditions which must be satisfied before performance is excused: (1) a contingency has occurred; (2) the contingency has made performance impracticable; and (3) the nonoccurrence of that contingency was a basic assumption upon which the contract was made. 122 CONTRACT VARIABLES ARBITRATION Parties are frequently seeking ways to avoid the expensive and time consuming proposition of litigation. Arbitration is a dispute resolution process that involves the appointment by the parties or a neutral arbitration company of one or more impartial persons (often lawyers or experts in the field of business at issue) to decide the case. It is almost always binding. Most states have now enacted laws that make arbitration agreements enforceable in arms length transactions. 123 CONTRACT VARIABLES INDEMNITY Indemnity is the obligation by one party to reimburse another party in the event that party is harmed in a specified way. Indemnification clause is used in case one party is sued by a third party over events that arise out of the subject of the contract. For example, if I agree to hire a contractor to build a building for me. The contract could require the contractor to indemnify (reimburse) me if I get sued because of something negligent/illegal that the contractor did. If the contractor didn’t build the structure to Code, and someone gets hurt and sues me, I would have the option of requiring the contractor to hire a lawyer to defend the case and to pay any judgment that resulted. 124 CONTRACT VARIABLES CHOICE OF FORUM AND CHOICE OF LAW PROVISIONS Most lawyer-drafted contracts these days will contain choice of forum and choice of law provisions. A Choice of Forum provision states that if a lawsuit gets filed over the subject matter of the contract, it has to be filed in a particular court and/or jurisdiction (usually the home town of the party with the stronger bargaining power). A Choice of Law provision, similarly, selects which state’s laws will govern disputes arising under the contract. 125 CONTRACT VARIABLES PAROL EVIDENCE AND ORAL MODIFICATIONS Under the “Parol Evidence Rule” (another way of saying evidence outside the “four corners” of the agreement), evidence about what was said between the parties before a written contract was signed is not admissible in court to prove the terms of an unambiguous contract. This means that statements during negotiations cannot alter the terms of a written contract unless fraud is proven. Issues can arise when parties who signed a contract orally discuss the Modification or terms of the contract. Generally, the law provides that an agreement to modify or amend a written contract is not enforceable unless it too is in writing or has been fully performed. 126 CONTRACT TERMINATION TERMINATION OF AN OFFER Offers are terminated by: 1. Lapse of time, 2. Revocation, 3. Rejection 4. Death or incapacity, and 5. Destruction or illegality. 127 GOVERNMENT CONTRACT CATEGORIES Fixed-price contracts Cost-reimbursement contracts Time and materials contracts Indefinite delivery/Indefinite quantity (IDIQ) Contracts We will cover Contracts with more detail in later classes! 128 SUMMARY / DEFINITIONS Contract: A legally enforceable agreement. Sources of contract law: Article 2 of the UCC and common law. Agreements: All contracts are agreements, but not all agreements are contracts. In some cases, agreements are of a social nature and are not enforceable by law. Elements of enforceable contract: (1) offer, (2) acceptance, (3) mutual agreement, (4) consideration, (5) legality of purpose, and (6) proper form, (7) competent parties. 129 SUMMARY / DEFINITIONS Oral Contract: One that is legally enforceable and is created entirely by the conversation of the parties. Written Contract: One that is reduced to writing in a permanent form. Express Contract: Specifically state the agreement of the parties, either orally or in writing. Implied Contracts : Agreements, the terms of which are inferred from the conduct of the parties, the customs of the trade, or the circumstances. Formal or specialty contract: A written contract under seal. 130 SUMMARY / DEFINITIONS Simple Contract: An informal contract made without seal—even though the subject matter of the contract can be extremely complex. Entire Contract: Has two or more parts, each dependent upon the others for satisfactory performance. Divisible Contract: One that consists of two or more parts, each part being independent of the others. Valid Contracts : Agreements resulting in obligations that are legally enforceable. Void Contracts: Agreements that lack one or more essential elements. 131 SUMMARY / DEFINITIONS Fraud: (a) is a misstatement or nondisclosure of a material fact; (b) is made with knowledge of its falsity or with reckless disregard of its truth; (c) is made with the intention of causing the other party to enter into the agreement; (d) is relied on by the injured party; and (e) results in loss to the injured party. Misrepresentation: (a) is the unintentional misstatement or nondisclosure of a material fact; (b) results in inducing another to enter into an agreement; and (c) results in loss to the injured party. Mistake: A belief that is not in accord with the facts. Mistakes relating to contracts may be concerned with the nature of the subject matter or the quality of the subject matter. 132 SUMMARY / DEFINITIONS Undue Influence: The improper use of power to control the actions of another because of a special or confidential relationship to that person. A contract resulting from the use of undue influence is voidable at the option of the party wrongfully influenced. Duress: The act of applying unlawful or improper pressure or influence to a person in order to gain his or her agreement to a contract. Such pressure can take the form of a threat of bodily harm to an individual or to his or her family, or the threat of serious loss or damage to his or her property. Unconscionable Contracts: Contracts that are regarded as shockingly unjust or unfair. 133 SUMMARY / DEFINITIONS Contracts of adhesion: Contracts that involve parties who have unequal bargaining power. When enforcement of an otherwise legal contract will result in a significant hardship to one of the parties, courts have considered such agreements to be so unfair as to be unenforceable. Mailbox Rule: A rule that states that an acceptance sent via the postal system or by courier is effective when sent. Counteroffer: A response to an offer in which the terms and conditions of the original offer are changed. Termination by Lapse of Time: When an opportunity to form a contract ends because the offeree fails to accept an offer within the time specified. 134 SUMMARY / DEFINITIONS Revocation: The calling back of an offer by the offeror before the offer has been accepted or rejected. Rejection: The express or implied refusal by an offeree to accept an offer. Option Contract: A contract that has a provision to keep an offer open for a certain period of time. 135 QUESTIONS? 13

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