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Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 11Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
The Legal Environment:Business Law
andGovernment Regulation
Elements of a Valid Elements of a Valid ContractContract AgreementAgreement
OfferOffer AcceptanceAcceptance
ConsiderationConsideration Contractual capacityContractual capacity LegalityLegality
Contract
Plus Two Supplemental Plus Two Supplemental Requirements:Requirements:
Genuineness of AssentGenuineness of Assent FormForm Chapter 22 Business Law and Government Regulation Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter 22 Business Law and Government Regulation Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall
2 2
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 33Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
AgreementAgreement
Governed by the Governed by the objective theory of objective theory of contractscontracts, which states that a , which states that a party’s intent to enter into a party’s intent to enter into a contract is measured by outward contract is measured by outward facts – words, conduct, and facts – words, conduct, and circumstances - rather than by circumstances - rather than by subjective intentionssubjective intentions
Comprised of an offer and an Comprised of an offer and an acceptanceacceptance
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 44Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
OfferOffer
A promise to do or to refrain from A promise to do or to refrain from doing something in the futuredoing something in the future
For a valid offer to exist, there must For a valid offer to exist, there must be:be: Serious objective intentSerious objective intent Reasonably certain termsReasonably certain terms Communication of the offerCommunication of the offer
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 55Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
OfferOffer
Generally, an offeror can revoke an offer at Generally, an offeror can revoke an offer at any time before the offeree accepts itany time before the offeree accepts it
Two exceptions:Two exceptions: Option contract – A separate contract in Option contract – A separate contract in
which a potential buyer purchases the which a potential buyer purchases the right to keep an offer open for a specific right to keep an offer open for a specific time periodtime period
Merchant’s firm offer – Under the UCC, a Merchant’s firm offer – Under the UCC, a merchant who makes an offer in a signed merchant who makes an offer in a signed writing to sell goods cannot revoke that writing to sell goods cannot revoke that offer for the stated period, which cannot offer for the stated period, which cannot exceed 3 months exceed 3 months
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 66Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
AcceptanceAcceptance
Mirror image rule - Common law Mirror image rule - Common law requires the offeree’s acceptance to requires the offeree’s acceptance to exactly match the offeror’s offerexactly match the offeror’s offer
If offeree changes the terms in the If offeree changes the terms in the offeror’s offer, he or she is making a offeror’s offer, he or she is making a counteroffer, which is a rejection of counteroffer, which is a rejection of the original offer the original offer
Generally, silence by an offeree does Generally, silence by an offeree does not indicate acceptancenot indicate acceptance
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 77Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
ConsiderationConsideration
Something of Something of legallegal value, bargained value, bargained for, and given in exchange for an act for, and given in exchange for an act or a promise or a promise
Consideration does Consideration does notnot have to have have to have any economic value – just legal value any economic value – just legal value
Exception: Promissory estoppel:Exception: Promissory estoppel: Promise must be likely to induce reliancePromise must be likely to induce reliance Justifiable reliance on the promiseJustifiable reliance on the promise Justice is better served by enforcing the Justice is better served by enforcing the
promisepromise
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 88Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Contractual CapacityContractual Capacity
The ability to enter into a contractThe ability to enter into a contract Three groups:Three groups:
1.1. Minors – Most contracts that minors Minors – Most contracts that minors (those under the age of 18) create are (those under the age of 18) create are voidablevoidable at the minor’s option at the minor’s option
2.2. Intoxicated people – If a person’s Intoxicated people – If a person’s reason and judgment were so impaired reason and judgment were so impaired by alcohol or drugs at the time of by alcohol or drugs at the time of creating a contract that he cannot creating a contract that he cannot understand its consequences, the understand its consequences, the contract is voidablecontract is voidable
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 99Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Contractual CapacityContractual Capacity
The ability to enter into a contractThe ability to enter into a contract Three groups:Three groups:
3.3. People with mental incapacities – People with mental incapacities – Depending on the mental state of the Depending on the mental state of the person, a contract can be void, person, a contract can be void, voidable, or valid voidable, or valid
A person who is insane cannot create a A person who is insane cannot create a valid contract; these contracts are voidvalid contract; these contracts are void
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1010Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
LegalityLegality
The purpose of the parties’ contract The purpose of the parties’ contract must be legalmust be legal
Laws vary from one state to Laws vary from one state to another, but issues include: another, but issues include: Contracts that violate usury lawsContracts that violate usury laws Sabbath (Blue) lawsSabbath (Blue) laws Gambling contractsGambling contracts
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1111Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Genuineness of Genuineness of AssentAssent Verifies that the parties’ Verifies that the parties’
agreement is genuineagreement is genuine MistakesMistakes MisrepresentationMisrepresentation FraudFraud DuressDuress Undue influence Undue influence
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1212Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
FormForm
Writing requirement – “statute of Writing requirement – “statute of frauds”frauds”
Contracts required to be in writing:Contracts required to be in writing: Sale of landSale of land Other interests in landOther interests in land Contracts that cannot be performed Contracts that cannot be performed
within one year of their formationwithin one year of their formation Collateral contracts Collateral contracts Administrator of an estate to pay a debt Administrator of an estate to pay a debt
of the deceased of the deceased Sale of goods priced at $500 or moreSale of goods priced at $500 or more
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1313Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Contract PrinciplesContract Principles
A written contract is preferred to an oral A written contract is preferred to an oral contract; however, most oral contracts are contract; however, most oral contracts are just as enforceable as written onesjust as enforceable as written ones
Oral agreements should be followed up by Oral agreements should be followed up by written confirmationswritten confirmations
A contract for the sale of goods priced at A contract for the sale of goods priced at $500 or more $500 or more mustmust be in writing be in writing
Contract terms should be clear and specificContract terms should be clear and specific Any handwritten changes to a written Any handwritten changes to a written
contract should be initialed by both partiescontract should be initialed by both parties
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1414Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
A complete contract covers all material A complete contract covers all material items to be enforceditems to be enforced
Past contractual practices have legal Past contractual practices have legal weight in a contract disputeweight in a contract dispute
As a buyer, you can reject goods that do As a buyer, you can reject goods that do not meet specifications or are defectivenot meet specifications or are defective
As a seller, you are entitled to prompt As a seller, you are entitled to prompt notification of shipment acceptance or notification of shipment acceptance or rejectionrejection
Courts will likely interpret unclear terms Courts will likely interpret unclear terms against the party who wrote the contractagainst the party who wrote the contract
Contract PrinciplesContract Principles
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1515Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
The Uniform The Uniform Commercial Code (UCC)Commercial Code (UCC)
A comprehensive document drafted in A comprehensive document drafted in the 1940s that assembled a uniform the 1940s that assembled a uniform set of laws across the states to govern set of laws across the states to govern routine business transaction. Its routine business transaction. Its provisions reflect the way people provisions reflect the way people conduct businessconduct business
The UCC contains ten articles, but The UCC contains ten articles, but Article 2Article 2, which governs the , which governs the sale of sale of goodsgoods, affects many small businesses, affects many small businesses
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1616Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
The UCC applies to The UCC applies to everyevery sale of sale of goods, but it imposes a higher goods, but it imposes a higher standard on professional merchant standard on professional merchant sellers and sometimes includes rules sellers and sometimes includes rules that vary slightly or substantially from that vary slightly or substantially from basic contract lawbasic contract law
The Uniform The Uniform Commercial Code (UCC)Commercial Code (UCC)
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1717Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Who Is a Who Is a Merchant?Merchant?
1. A merchant is one who deals in goods of 1. A merchant is one who deals in goods of the kind involved in the sales contract (e.g. a the kind involved in the sales contract (e.g. a sporting goods retailer buying sporting sporting goods retailer buying sporting goods)goods)2. A merchant is one who, by occupation, 2. A merchant is one who, by occupation, holds himself out as having knowledge or skill holds himself out as having knowledge or skill pertaining to the practices or goods in the pertaining to the practices or goods in the sale (e.g. a bank selling a repossessed car)sale (e.g. a bank selling a repossessed car)3. A person who employs a merchant as a 3. A person who employs a merchant as a broker or an agent has merchant status for broker or an agent has merchant status for that transaction (e.g. “gentleman farmer” that transaction (e.g. “gentleman farmer” who hires a broker to buy livestock for him)who hires a broker to buy livestock for him)
The UCC defines a merchant in three The UCC defines a merchant in three
ways:ways:
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1818Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Sales WarrantySales Warranty
A promise or a statement of fact A promise or a statement of fact by a seller that a product will by a seller that a product will meet certain standardsmeet certain standards
Types of warranties:Types of warranties: Express warrantiesExpress warranties Implied warrantiesImplied warranties
Warranty of titleWarranty of title Warranty of merchantabilityWarranty of merchantability Warranty of fitness for a particular Warranty of fitness for a particular
purposepurpose
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 1919Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Product LiabilityProduct Liability
Negligence – when a manufacturer or Negligence – when a manufacturer or seller fails to do something that a seller fails to do something that a reasonable person would do reasonable person would do Negligent designNegligent design Negligent manufacturingNegligent manufacturing Failure to warnFailure to warn
Strict liability – when a manufacturer is Strict liability – when a manufacturer is liable for its actions no matter what its liable for its actions no matter what its intentions or the extent of its negligence intentions or the extent of its negligence
19,664
15,31813,206
41,934
22,509
34,928
30,295
49,743
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Yea
r
1999 2000 2001 2002 2003 2004 2005 2006
Number of Law Suits
Number of Product Liability Law Suits
Source: "Product Liability Cases Commenced," Judicial Business of the United States Courts 2006.
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2121Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Protecting Intellectual Protecting Intellectual Property RightsProperty Rights
Three important tools:Three important tools: PatentsPatents Trademarks and service marksTrademarks and service marks CopyrightsCopyrights
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2222Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
PatentsPatents
Patent Patent - a grant from the U.S. - a grant from the U.S. Patent and Trademark Office Patent and Trademark Office (PTO) to the inventor of a (PTO) to the inventor of a product, giving the exclusive product, giving the exclusive right to make, use, or sell the right to make, use, or sell the invention in the U.S. for 20 years invention in the U.S. for 20 years from the date of filing the patent from the date of filing the patent applicationapplication
P.T.O. has issued more than 7 P.T.O. has issued more than 7 million patents to date million patents to date
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
1980 1985 1990 1995 2000 2005
Patent Applications and Patents Granted
Patent Applications
Patents Granted
Source: U.S. Patent and Trademark Office.
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2424Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Obtaining a Obtaining a PatentPatent Establish noveltyEstablish novelty Document the deviceDocument the device Search existing patentsSearch existing patents Study search resultsStudy search results Submit the patent applicationSubmit the patent application Prosecute the patent applicationProsecute the patent application
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2525Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
TrademarksTrademarks
TrademarkTrademark - any distinctive word, - any distinctive word, symbol, name, logo, slogan, or symbol, name, logo, slogan, or trade dress that a company uses to trade dress that a company uses to distinguish its product from other distinguish its product from other goods on the market goods on the market
Any business that claims a Any business that claims a trademark can use the trademark can use the symbol symbol
Only those businesses that have Only those businesses that have registered their trademarks with registered their trademarks with the PTO can use the the PTO can use the ®® symbol symbol
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2626Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
TrademarksTrademarks
Trademarks can also cover Trademarks can also cover symbols, shapes, colors, and symbols, shapes, colors, and sounds - all part of “trade dress” sounds - all part of “trade dress”
1.5 million trademarks registered 1.5 million trademarks registered in U.S. in U.S.
A A service markservice mark, noted by the , noted by the SMSM symbol is the same as a trademark symbol is the same as a trademark except that it identifies and except that it identifies and distinguishes the source of a distinguishes the source of a service service
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2727Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
CopyrightsCopyrights
CopyrightCopyright - an exclusive right that - an exclusive right that protects the creator of original protects the creator of original works of authorship, such as works of authorship, such as literary, dramatic, musical, and literary, dramatic, musical, and artistic works – e.g., a video gameartistic works – e.g., a video game
The The symbol denotes a symbol denotes a copyrighted work copyrighted work
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2828Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
The Law of AgencyThe Law of Agency
Agent’s duties:Agent’s duties: LoyaltyLoyalty PerformancePerformance NotificationNotification Duty of CareDuty of Care AccountingAccounting
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 2929Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
The Law of AgencyThe Law of Agency
Principal’s duties:Principal’s duties: CompensationCompensation ReimbursementReimbursement CooperationCooperation Safe working Safe working
conditionsconditions
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 3030Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
BankruptcyBankruptcy
Chapter 7: LiquidationChapter 7: Liquidation - Most common - Most common type (70% of all filings)type (70% of all filings) Business ceases to exist after bankruptcy Business ceases to exist after bankruptcy
proceeding is completedproceeding is completed Chapter 11: ReorganizationChapter 11: Reorganization - Company - Company
is protected from creditors' legal actions is protected from creditors' legal actions while formulating a reorganization planwhile formulating a reorganization plan
Chapter 13: Individual debtorsChapter 13: Individual debtors – – Consumer version of Chapter 11 Consumer version of Chapter 11 bankruptcybankruptcy Less complex and less expensiveLess complex and less expensive
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1989 1992 1995 1998 2001 2004
Year
Number of Business Bankruptcies
Source: American Bankruptcy Institute, 2007.
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 3232Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Government Government RegulationRegulation
NFIB Study: NFIB Study: Cost of complying with government Cost of complying with government
regulation cost businesses $1.1 trillion regulation cost businesses $1.1 trillion per year per year
NFIB study: For companies with fewer NFIB study: For companies with fewer than 20 employees, costs of than 20 employees, costs of complying with government complying with government regulations is $7,647 per employee vs. regulations is $7,647 per employee vs. $5,411 per employee for large $5,411 per employee for large companies companies
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 3333Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Government Government RegulationRegulation
Trade PracticesTrade Practices Sherman Antitrust ActSherman Antitrust Act Clayton ActClayton Act Federal Trade Commission ActFederal Trade Commission Act Robinson-Patman ActRobinson-Patman Act
Consumer ProtectionConsumer Protection
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 3434Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
Consumer CreditConsumer Credit Consumer Credit Consumer Credit
Protection Act (Truth-in-Protection Act (Truth-in-Lending Act)Lending Act)
Fair Credit Billing ActFair Credit Billing Act Equal Credit Opportunity Equal Credit Opportunity
ActAct Fair Credit Reporting ActFair Credit Reporting Act Fair Debt Collection Fair Debt Collection
Practices ActPractices Act
Government Government RegulationRegulation
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 3535Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
EnvironmentEnvironment Clean Air ActClean Air Act Clean Water ActClean Water Act Resource ConservationResource Conservation
and Recovery Act and Recovery Act
Government Government RegulationRegulation
Copyright 2009 Prentice Hall Publishing CompanyCopyright 2009 Prentice Hall Publishing Company 3636Chapter 22 Business Law and Government Chapter 22 Business Law and Government RegulationRegulation
All rights reserved. No part of this publication may All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, electronic, mechanical, photocopying, recording, or otherwise, without the prior written or otherwise, without the prior written permission of the publisher. Printed in the United permission of the publisher. Printed in the United States of America.States of America.
Copyright ©2009 Pearson Education, Copyright ©2009 Pearson Education, Inc. Publishing as Prentice HallInc. Publishing as Prentice Hall