LEGL 2700 - Exam 2

Why talk about Ethics in business law class?

• Keep us out of trouble 

  • Personally and as a company 

  • Permeates everything we do – not just big scandals 

    • Interconnected economies but certainly down to the firm level and even to individual workers 

• Use to our advantage 

  • Corporate culture 

  • Win trust of clients, suppliers, investors 

No, they are not the same but are related 

Are legal and ethical the same thing?

Ethics and Law

• Ethics help set the law 

• Law helps set/change ethnics 

• Legal system is institution of the state 

• Law is the floor or minimum bar while ethics involves doing the right thing often above and beyond what the law requires 

What are the key sources people rely on when making ethical business decisions?

• Legal Regulation 

• Business organizational codes of ethics 

  • Key to codes, training, etc. is ACTIONS 

• Professional codes of ethics 

• Personal Values 

What are two main ethical decision-making frameworks?

• Formalism and Consequentialism 

  • These frameworks guide individuals in evaluating the morality of their actions based on principles or outcomes.

Formalism

• Affirms absolute morality

• Duty based view = not to lie

• Particular act is in itself right or wrong, always in every situation

• Focuses on individual rights

Consequentialism

• Concerned with moral consequences of actions

• Utilitarianism = judges actions by usefulness, by whether they serve to increase the common good

• Focuses on the common good (increases in common good = ethical)

• Consequences or end results of lying are evaluated

Positional Negotiation

Competitive style by stating their respective expectations

• Not based on interests or underlying conflict

• Focused on winning during imbalance of power

• Either I win or you win

Principled Negotiation

More mature form of negotiating and generally more effective

• Helpful in creating win-win, long-term relationships

• Focuses on the parties’ interests as opposed to positions

What are the four pillars of principled negotiating?

1. Separate people from problems = business relationship, do not take things personal

2. Deal with people's interests = commission, financing plan, quotas

3. Generate options = new pricing or financing options, choose the unwanted inventory for lower price

4. Use objective criteria = coming in with details and facts to negotiate

What are the required elements for a contract?

• Offer

• Acceptance

• Consideration

• Capacity

• Legality

Offer

Contains a specific promise and a specific demand

Acceptance

Contractual communication of agreeing to another’s offer, creating a contract

Capacity

Mental ability to make a rational decision that includes the ability to perceive and appreciate all relevant facts

Legality

Valid contract

• Not all contracts, but some do:

  • Land

  • Sales of good >= $500

Do contracts have to be in writing to be enforceable? Which ones?

Bilateral Contract

Agreement containing multiple promises

• Ex: David promises to sell his laptop to Laura in exchange for her to promise to pay $1000 to David for the equipment

Unilateral Contract

Agreement with only one promise and one party is committed to perform

• Ex: Lisa tells Olaf, “If you sell 100 units this year, I’ll pay you a bonus of $1000.”

Express Contract

Parties have communicated in word (verbal or nonverbal) form they intend to have a contract.

Two Types of Implied Contracts

Implied-in-fact and Implied-in-law

Implied-in-fact Contract

Conduct of the parties evidencing their intent to enter into contract.

• Ex: Asking an accountant for professional advice implies a promise to pay the going rate for their advice even though you do not make an express promise to pay for it.

Implied-in-law Contract

Quasi-contract where a party can be unjustly enriched.

• Ex: If debtor overpays a creditor $5000, the debtor can force the creditor to return that amount by suing under quasi-contract

Executed Contract

All of the obligations have been met/discharged

• Ex: Take a grocery item to the cashier and pay for it

Executory Contract

When the parties have not yet performed their agreement

• Ex: If you promise your new employer to begin working next month and that employer promises to pay you at the end of the first month’s work

Valid

When an agreement is enforceable because all the essential requirements are present

Void

One that appears to be an agreement but lacks an essential requirement for validity and enforceability.

• Ex: A business contract that involves the shipment of contraband is void and unenforceable

Voidable

An agreement when at least one party has the right to withdraw from the promise made without incurring any legal liability

Unenforceable

A nonperforming party has a justifiable reason for noncompliance with a promise

Quality of an Offer

• Offeror must intent to make the offer by making a commitment to the offeree 

• Communicated to intended offeree 

• Contractual terms must be definite and specific 

Offer Termination

Offeror can rescind offer before offeree accepts or changes happens

• Counteroffer 

• Rejection 

• Revocation 

• Lapse of Time 

• Subject Matter Destruction

• Offeror Death or Insanity (capacity)

• Subject Matter Illegality

Mirror Image Rule for Acceptance

Acceptance must match the offer exactly to create a binding contract

Mailbox Rule for Acceptance

Acceptance becomes legally binding when the offeree deposits it with the postal service

Consideration

The receipt of a legal benefit or the suffering of a legal detriment

What counts as consideration?

• Any promise to do something one has no obligation to do  

• Any promise to refrain from doing something one has the right to do 

• Any performance when there is no obligation for one to perform (unilateral agreements) 

How is consideration bargained for?

• Pre-existing obligations do not count 

• Prior (past) consideration does not count

• The amount is irrelevant, but the genuineness is highly relevant (bargained for exchange) 

Option

An agreement that the offeror will keep the offer open exclusively for the offeree 

• Requires separate consideration 

• Open for finite period of time 

What is the UCC?

• Uniform Commercial Code (UCC) is the most successful attempt to have states adopt a uniform law. This code’s purpose is to simplify, clarify, and modernize the laws governing commercial transactions.

• It is an example of a state-based legislation affecting contract law, while common law comes from judges’ decisions.

What are some groups of people where capacity is an issue?

• Minors - under 18 years of age   

  • Cannot be legally bound to contractual promises with exceptions for "necessaries" of life

  • Contract is voidable at the election of the minor 

  • When no longer a minor, the minor must ratify/affirm or avoid/disaffirm the contract – express, implied, time 

• Intoxicated and mentally incompetent people 

  • Contracts are voidable depending on the person's capability to understand the contract's nature and purpose  

  • If a guardian appointed for incompetent person, then it is a void contract if formed directly with the incompetent person 

  • Also must pay for necessaries 

Legality

Contracts that require commission of a crime or tort or violate accepted standards of behavior are void  

• No action will be taken 

• Contracts that restrain trade are illegal and void as well as others that violate "public policy"  

  • Covenants not to compete: Protects employers from having the employees they train leave them and compete against them 

Statute of Frauds

• Legal requirement that certain contracts be in writing, signed by the party against whom the contract is being enforced 

• Business contracts required in writing 

  • Sale of an interest in land 

  • Sale of good => $500 

  • Collateral promise to pay another's debt 

  • Contracts that cannot be performed in a year 

  • Other contracts based on state statues (e.g., Georgia – commitment to lend money) 

  • Marriage as consideration 

Promissory Estoppel

Rises when an offeree justifiably relies on a promise to his or her detriment 

• This is the case even though a contract does not exist 

What are some issues that come up where there is a lack of mutual understanding? Which ones are valid, void, or voidable?

• Fraud: Intentional misstatement of material fact that induces another to enter into a contract – voidable 

• Mistake 

  • Mutual mistake – voidable 

  • Unilateral mistake – valid  

• Duress: Threat of force 

  • Force can be physical – void 

  • Improper threats (financial or social) - voidable 

• Undue Influence: When a person is taken advantage of unfairly through a contract based on dominant (think structural) position – voidable  

Parol Evidence Rule

• Generally, courts will not allow you introduce extra evidence that may have occurred during the negotiation (prior to the written agreement)

• Make sure the written agreement contains all the relevant information 

Good Faith

Implied duty to not act in "bad faith" even if technically allowed to do things in the contract

• Contracts have a requirement that the parties act in good faith in carrying out their obligations.

Duty of Performance

The obligations

Discharged

Party has completed their duties

Executed Contract

When both parties have Discharged their Duties of Performance

Complete Performance

A party does everything required under the contract

Substantial Performance

• Less than complete performance 

• Entitled to partial recovery but responsible for damages

• Degree of performance recognizing that a contracting party has honestly attempted to perform but has fallen shortgree of performance recognizing that a contracting party has honestly attempted to perform but has fallen short.

Material Breach

When performance is materially deficient or nonexistent under a contract

What are some permissible excuses for parties not to perform?

• Impossibility of Performance

• Force Majeure

Impossibility of Performance

• Subject matter of the contract is destroyed the contract becomes impossible to perform.

• Contract for personal services and the party promising the services becomes ill or dies, the party receives discharge from performance.

• The party that promises performance that becomes illegal is also discharged because of impossibility of performance.

Force Majeure

• Contractual provision that is related but generally broader than what is already excused under "Impossibility" 

• Specifically negotiated part of a contract that excuses or delays a parties obligation to perform if a certain extreme event occurs.

Breach of Contract

Permissible excuse for parties not to perform out of inconvenience

Waivers

Intentionally relinquishes right to enforce contract of a provision of the contract after the breach occurs

Releases

One party allows another party to not perform obligation as promised (bargained for consideration) before a breach occurs

What remedies are available in contract disputes (types of damages and types of equitable relief)?

• Compensatory Damages

• Consequential Damages

• Liquidated Damages

• Specific Performance

• Recession

• Injunction

Compensatory Damages

Put plaintiff in same position as if contract had been performed.

Consequential Damages

Usual losses that were reasonably foreseeable

Liquidated Damages

Written into the contract and avoid the court deciding 

• At time of contracting, damages hard to calculate 

• Damages represent a reasonable forecast (and not a penalty!) 

Specific Performance

Forced to fulfill their promises in the contract; when the subject matter is unique

Recession

Return the consideration and essentially cancel the contract by the harmed party 

Injunction

Court order for a party to do something or refrain from doing something 

Non-breaching party must try to mitigate (limit) damages 

Can the non-breaching party let the damages keep increasing? If not, what do they have to do?

Tort

A civil wrong other than breach of contract----> Tort law limits how people act towards each other 

What types of damages are available?

Compensatory Damages and Punitive Damages

Compensatory Damages

Two types:

• Special Damages are actual financial losses (e.g., medical bills, lost wages, property damage, etc.) 

• General Damages compensates people (not companies) for nonmonetary damages (e.g., pain and suffering, and diminished quality of life, reputation, loss of consortium) - think of it as not easy to access exactly

Punitive Damages

Egregious (really bad!) intentional acts or willful and wanton disregard (a level of negligence worse than ordinary), strict liability as well.   

• Meant to punish the offending party 

• Deter others from committing the same act 

What are the three buckets of torts?

1. Intentional

2. Negligent

3. Strict Liability

Assault

Reasonable apprehension of physical safety (immediate harmful or offensive contact) 

• Harmful – physical harm 

• Offensive – unwanted touching  

Battery

Illegal touching of another 

• Without justification, and 

• Without the consent of the person being touched        

Intentional Infliction of Mental Distress

Outrageous, intentional conduct that carries a strong probability of causing mental distress (did it also cause physical symptoms? Headaches, etc.)? 

• Creditors harassing debtors 

• Another business example would be someone fired or discriminated against 

Invasion of Privacy

• Appropriating name or likeness for his or her own use 

• Intrusion upon physical solitude – illegal searches or invasions of home or possessions, illegal wiretapping, reading others' email, etc. 

  • Must be highly offensive to a reasonable person 

• Public disclosure of highly objectionable, private information about plaintiff – cause of action even though information is true – news media ok if about public people 

 

False Imprisonment

Intentional, unjustified confinement of a nonconsenting person

• States have statutes that say merchants can detain – reasonable 

• Unnecessary force, lack of reasonable suspicion, or time is not ok 

Malicious Prosecution

False arrest – arrest is done to harass 

Trespass

Can apply to real or personal property 

• Real property: entering another's land without consent or remaining there after being asked to leave 

• Personal property, similar to conversion but seriousness is less (I don't test on this concept – trespass to chattels) 

Conversion

Wrongful exercise of dominion (power) and control over the personal resources of another (treating it as their own) 

• Stealing or misappropriating as your own 

  • Includes mistakes including giving items to wrong person or receiving stolen property 

• Not returning (have consent initially) 

• Damaging another's property intentionally or while treating as your own 

Defamation

Publication of untrue statements about another that hold up that person's character or reputation to contempt and ridicule – publication means known to third parties 

• Oral/Spoke - slander 

• Written – libel 

• For public people, must prove knowingly false or reckless disregard for the truth (The New York Times Co. V Sullivan (US 1964)) 

  • Who is a public figure? Curtis Publishing Co v Butts (US 1967)) 

    • Former UGA athletic director  

Fraud

Intentional misrepresentation of a material fact that is justifiably relied upon and person injured. 

Injurious Falsehood

Consists of publishing untrue statements that disparage another's business or product and made with malice (motive to hurt or injure) 

• Truth is a defense (like defamation) 

• Comparative advertising requires disclosure. 

Intentional Interference with Contractual Relations

Occurs when a business damages another's business relationships 

• New employer enticed someone to break their employment agreement 

• Knowingly paying off a company breach their exclusivity arrangement with another company. 

Elements of a Negligence Claim

• Duty

• Breach of Duty

• Causation

• Actual Injury

Duty

• Must act reasonably to avoid hurting others 

• Generally no duty through inaction 

• Reasonable person v reasonable professional 

Breach of Duty

• Unreasonable behavior 

• Generally a decision for jury 

• Willful & Wanton  

• Conscious disregard 

Causation 

• In fact: 

  • Jury question so long as could be substantial, material factor 

  • The actual cause of an event; the instrument that is the responsible force for the occurrence of a certain event.

• Proximate:   

  • An act foreseeably causes an injury or risk

  • Chain of events breaks down (directly) 

Actual Injury

Damage to plaintiff's resources (including self) 

Silent

• Being silent on the offeree's part does not imply acceptance 

• "Automatic shipment" in course of dealing between parties may after this rule

Affirmative Defenses of Negligence

• Assumption of Risk

• Contributory Negligence

• Comparative Negligence

Assumption of Risk

Plaintiff’s knowing and willing undertaking of an activity made dangerous by the negligence of another

Contributory Negligence

Barred the plaintiff from recovery if the plaintiff’s own fault contributed to the injury “in any degree, however slight.”

Comparative Negligence

Compares the plaintiff’s contributory fault with the defendant’s fault and allows the jury to reduce the plaintiff’s verdict by their "comparative" negligence amount (generally percentage basis).

Strict Liability

Injury-causing behavior that is neither intentional nor negligent 

Strict Product Liability

All "merchants" in the supply chain who sell an unjustly dangerous faulty product that causes injury to a user of the product is strictly liable

Production Defects

Products not manufactured to a manufacturer’s own standards 

Design Defects

Product injures a user due to its unsafe design

Contributory Negligence

Not a defense

Assumption of Risk/Misuse

Yes a defense

Ultra-hazardous activity

• Transporting and using explosives and poisons 

• Keeping dangerous wild animals 

• Artificial storage of large quantities of liquid 

Dram shop acts

In Georgia, Georgia Code section 51-1-40 allows an injured person to hold a seller of alcohol (such as a bar, restaurant, or liquor store) liable if the establishment: 

• "willfully, knowingly, and unlawfully" serves alcohol to a person who's younger than age 21 or "knowingly" serves alcohol to a person who's in a state of noticeable intoxication," and 

• knows that the minor or intoxicated person will soon be driving a motor vehicle.