Business Law Block 2
Business Law 2
Block 2
Exam 4 main subjects; tort, breach of contract, insurance and
representation
Subject: Business Law 2
Chapter’s summarized: Chapter 1 until 7
Final grade: 7,2
Test assignment: Yes, this summary includes a test assignment
PowerPoint 1 CONTRACT LAW;
This may lead you to think that contract law is only about written agreements,
but that’s not true. Actually, it would have been more precise to call it
‘agreement law’ and not contract law, because contract law deals with
agreements in writing and oral agreements.
An obligation is a legal or moral duty to do or not do something. In a multilateral
juridical act there are always at least two obligations.
Debtor = obligor
Creditor = obligee
Intention and declaration can be the same. If you want to buy a telephone for
$10,- than your intention and declaration is the same. You intent and the seller
declarate.
However, it has not necessary be the same, if you hold a gun to someone’s head,
because you want his telephone. Then your intention and declaration is the
same, but the victim’s intention is to not give it to you, but his declaration is to
give it to you, because he is scared that you shoot.
Main principles of contract law;
- Freedom of contract (you can sell everything you want to everyone you want)
- Pacta sunt servanda (means agreements must be kept)
- Reasonableness and fairness (it is determined by circumstances applies to the
whole time of the contract) (Fair, proper or moderate under the circumstances)
What do you need to reach a binding agreement with a client/customer?
> In principle, you just need an agreement
For an agreement you need; a scope and remuneration.
How to reach a legally binding agreement?
Offer and acceptance
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A= Offeror (is someone who offer
something)
B= Offeree (is someone who is offer to)
1 = You send the offer to the offeree. Now you can still withdraw the order,
because he do not receive it yet, but if you are at point 2 you cannot withdraw
anymore. So if someone receive it instantly, you cannot withdraw, because he
receive it already > via email for example.
(PowerPoint) 1= The offer;
- A makes B an offer
- Scope clearly described
- Remuneration determined, if not; negotiations.
2= You receive the order (the television)
(PowerPoint) 2= The offer arrives;
- Offer valid when it reached other party (reception theory)
- If/when offeree actually reads offer is irrelevant, it does not matter if
offeree read it or not.
- Up to the moment of reception, A can still withdraw his offer.
3= Considering, you think about the offer (reflection period). How long can the
considering be? It must be a reasonable time. For example the television for $500
you have 1 week or 2 weeks, but how higher the price, how higher the reflection
period. Something for 60 million dollar, then you have about 1 - 2 months
reflection.
(PowerPoint) 3= Reflection period;
- If fixed period in offer, that period shall apply
- If not; a reasonable timeframe
- Reasonableness depends on object and professionalism of both parties
> In the “thinking” period of the offeree, can the offeror revoke his order.
4= Sending the acceptance the offeror can revoke (withdraw) the offer. So the
acceptance to the offeror > the offeree send it. You can only revoke the offer if
the offeree is still “thinking” (reflection period) about the offer. So if he did not
send the acceptance yet after 8 days, you can still revoke, but if the offeree
sends the acceptance to the offeror, the offeror cannot revoke anymore. Then
you go to point 5.
(PowerPoint) 4= The acceptance;
- Until B sends acceptance, A can revoke his offer
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- Revocation impossible if; offer is irrevocable (for example a fixed timeframe for
acceptance) or if it was reasonable for the offeree to rely on the offer.
5= Receiving the acceptance.
(PowerPoint) 5= The acceptance arrives;
- Final agreement
- Once again irrelevant whether A has read the acceptance (reception
theory)
General principles of negotiations
- Pre-contractual stage is governed by good faith
- Duty to supply correct information
- Providing misleading information >fraud
- One can rely upon information provided by the ‘expert party’
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Breaking off negotiations can lead to compensation on the basis of tort.
Negotiations are mostly;
- Based on jurisprudence
- Relevant if; one party pulls out of the negotiations, simply leaving the other
party (substantial >aanzienlijk) negotiation costs
- The party that incurred these costs can start a tort-claim
Negotiations;
Phase 1; If you break off at the start, there are no consequences.
(PowerPoint) Phase 1;
- The starting phase of the negotiations
- Both parties are free to break off the negotiations without having to pay
financial compensation to each other
Phase 2; If you break off the negotiations, you need to pay 50% of the damages
(this damages can be, accommodation, restaurants etc) >this are only the direct
costs that you have to pay. > This is called negative contract value.
(PowerPoint) Phase 2;
- Negotiations on-going for a while
- Both parties are free to break off the negotiations
- However, if, for example, A made direct costs (especially if at B’s request), then
B usually has to compensate at least 50% of these direct costs (negative contract
value).
Phase 3; If you break-off at the last phase, you need to pay (compensate) both
direct and indirect costs. > This is called; a positive contract value.
(PowerPoint) Phase 3;
- Agreement within reach
- Breaking off the negotiations at this point will likely constitute a tort
- Party that breaks off the negotiations possibly has to compensate both direct
and indirect costs (positive contract value)
Letter of intent (LOI);
This can be used when the contract negotiations are not yet finalised. Three
possible situations; no contract at all, an ordinary contract or an ‘if’ contract.
>Determined by the circumstances. Common goal of an LOI is; ‘early start’.
‘A letter from one company to another acknowledging a willingness and ability to
do business. A letter of intent is most often issued as acknowledgment of the fact
that a merger between companies or an acquisition is being considered
seriously.’
