In Module One, students are introduced to the basic elements of contract formation, including offer, acceptance, and the legal concept of consideration. Students will also review contracts that are somewhat unique within a business or corporate environment, such as confidentiality agreements and covenants not to compete. In addition, students will analyze a fact pattern to determine the validity and enforceability of a contract within the strictures of the aforementioned legal criteria for the creation of a contract.
This foundational course in business law introduces students to a variety of legal concepts integral to business.
One of the primary concepts in business law—if not the primary concept—is contract law. Contracts are purely legal constructs and rest at the heart and the foundation of virtually all business relationships, whether those relationships are established between one business and another business, between a business and its suppliers, or between a business and its customers.
Any serious study of contract law requires a review of the four basic elements necessary for the creation of a legal, binding, and enforceable contract: (1) offer; (2) acceptance; (3) consideration; and (4) capacity.
Although the essential elements of a legal contract appear to be quite simple, and are summarized by the four words stated above, each of the essential elements is proven complex when parties to a contract disagree over their respective rights and responsibilities under a contract. Moreover, contract law is riddled with nuances and subtleties that may not be as clear cut to the average business owner, corporate representative, or other professional as they are to attorneys, compliance officers, and other individuals who routinely engage in negotiating or litigating contracts.
For example, assume that a prospective employee receives an email from the human resources department of a company to which that individual has submitted a resume, and that the letter reads in part: “Dear Ms. Jenkins: It is with great pleasure that we extend an offer to you in our accounting department. Please let us know if you are still available to accept the position, as we would like to discuss the details of the employment offer. Sincerely, Dymo Ltd.”
At that point, it is fair to say that an offer of employment has been extended to Ms. Jenkins. Right?
Perhaps. The offer, though, is slightly tenuous given the fact that Dymo Ltd. states that it wants to discuss the details of the offer with Ms. Jenkins. In other words, Ms. Jenkins would be prudent to learn the details of the proposal before she resigns from her current employer, or takes any further action in reliance on the offer.
Using the same scenario, assume that Ms. Jenkins lets Dymo Ltd. know that she is available and that she would like to hear the details of the offer. Assume that Dymo Ltd. will meet her salary requirements and advises Ms. Jenkins that she will be required to sign an employment contract prior to starting her new position. Ms. Jenkins specifically states “I accept.”
When Ms. Jenkins utters her acceptance of the offer, an oral contract is formed. Correct?
Perhaps. But if Ms. Jenkins quits her job in order to start working for Dymo Ltd. and then learns that the position is no longer available, she may have a hard time proving the existence of a contract.
Why? Because the essential element of consideration may be missing. In this context, consideration does not mean sensitivity to another’s feelings or emotions. Nor does consideration mean deference or any of the other vernacular meanings of the word. In this context, consideration basically means “something promised” or “something given in exchange for something else.” In the scenario described, it is possible that Ms. Jenkins could argue that Dymo Ltd. offered her a job, that she accepted the job, and that the consideration supporting the contract was her promise to work for Dymo Ltd. in exchange for its promise to pay her for her work.
Dymo Ltd., on the other hand, could argue that no contract was created because Ms. Jenkins never signed a written employment contract, and that in the absence of a signed employment contract, no contract existed.
What would a court likely do if such a lawsuit was filed? Would a court require Dymo Ltd. to hire Ms. Jenkins under the terms of whatever the prospective written employment contract might have stated? Would it award Ms. Jenkins monetary damages from having quit her job in reliance upon the offer and acceptance described above? Would it determine that no contract existed? The short answer is: the outcome of such a lawsuit would depend entirely on the evidence presented to the court, and the court’s application of contract laws in its jurisdiction to the evidence presented.
Depending upon the caliber of the parties’ legal representatives, the laws of the jurisdiction in which the case is brought, the strength of the evidence, and myriad other factors, Ms. Jenkins case might be successful. Or it might be dismissed.
In Module One, students should think creatively about each element required to establish a legal contract, as well as other factors that can affect the validity and enforcement of written or unwritten agreements between and among individuals or organizations. Agreements that are poorly crafted are sometimes easily defeated in court.
The primary purpose of understanding the elements of a valid and enforceable contract is to enable students to identify contractual language that could be improved or changed in order to strengthen contracts and to avoid otherwise unnecessary, costly, and potentially futile litigation against their own companies or against companies with which they work.
In addition to the textbook materials, students will review an agreement with which many students may not be familiar, but one that affects virtually everyone that retains an online presence on social media: Facebook’s Terms of Service.
MBA 610 prepares the student for real-world business law issues that are frequently encountered in management-legal and executive business roles. Although contracts form the bedrock of business relationships and therefore knowledge of contract law is fundamental within the business world, Module Two will focus on the employer-employee relationship, a legal relationship that directly impacts the conduct of every person working within any structured business.
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