Using the information learned within this Module write a fictional contract between a professional baker and a catering service for an order of 500 muffins. Be sure to include all four required elements for a contract (Agreement, Consideration, Contractual capacity, Lawful object). Remember, a contract is not legally binding if it is missing one of these requirements. To complete this assignment, upload a Word file containing the completed contract.

Module

The Law of Contracts

To answer these questions, we must enter an extremely important area of civil lawthe law of contracts. A contract is an exchange of promises or an exchange of a promise for an act, and because it involves an exchange, it obviously involves at least two parties. As you can see in Figure 16.1 "Parties to a Contract" , an offeror makes an offer to enter into a contract with an offeree. The offeror offers to do something in particular (or to refrain from doing something in particular), and if the offeree accepts this offer, a contract is created. As you can also see, both offer and acceptance must meet certain conditions.

Figure 16.1 Parties to a Contract

A contract is legally enforceable: if one party fails to do what he or she has promised to do, the other can ask the courts to enforce the agreement or award damages for injury sustained because the contract has been breachedbecause a promise made under the contract hasnt been kept or an act hasnt been performed. A contract, however, can be enforced only if it meets four requirements:^[2]

• Agreement. The parties must have reached a mutual agreement. The offeror must have made an offer, and the offeree must have replied with an acceptance.
• Consideration. Each promise must be made in return for the performance of a legally sufficient act or promise. If one party isnt required to exchange something of legal value (e.g., money, property, a service), an agreement lacks sufficient consideration.
• Contractual capacity. Both parties must possess the full legal capacity to assume contractual duties. Limitations to full capacity include mental illness and such diminished states as intoxication.^[3]
• Lawful object. The purpose of the contract must be legal. A contract to commit an unlawful act or to violate public policy is void (without legal force).

Employment Contracts

Heres where you come in: an employment relationship like the one that you had with your roommate is a contract. Under this contract, both parties have certain duties (youre obligated to compensate your roommate, for instance, and hes obligated to perform his assigned tasks in good faith). The law assumes that, when performing his employment duties, your employee is under your controlthat you control the time, place, and method of the work.^[4] This is a key concept in your case.

Respondeat Superior

U.S. law governing employer-employee contracts derives, in part, from English common law of the seventeenth century, which established the doctrine known as respondeat superiorLet the master answer [for the servants actions]. This principle held that when a servant was performing a task for a master, the master was liable for any damage that the servant might do (a practical consideration, given that servants were rarely in any position to make financial restitution for even minor damages).^[5] Much the same principle exists in contemporary U.S. employment law, which extends it to include the servants violations of tort law. Your clientthe homeownerhas thus filed a respondeat superior claim of negligence against you as your roommates employer.

Scope of Employment

In judging your responsibility for the damages done to the homeowners car by your employee, the court will apply a standard known as scope of employment: an employees actions fall within the scope of his employment under two conditions: (1) if they are performed in order to fulfill contractual duties owed to his employer and (2) if the employer is (or could be) in some control, directly or indirectly, over the employees actions.^[6]

If you dont find much support in these principles for the idea that your roommate was negligent but you werent, thats because there isnt much. Your roommate was in fact your employee; he was clearly performing contractual duties when he caused the accident, and as his employer, you were, directly or indirectly, in control of his activities. You may argue that the contract with your roommate isnt binding because it was never put in writing, but thats irrelevant because employment contracts dont have to be in writing.^[7] You could remind the court that you repeatedly told your employee to put his paint bucket in a safer place, but this argument wont carry much weight: in general, courts consider an employees forbidden acts to be within the scope of his employment.^[8]

On the other hand, the same principle protects you from liability in the assault-and-battery case against your roommate. The court will probably find that his aggressive response to the neighbors comment wasnt related to the business at hand or committed within the scope of his employment; in responding to the neighbors insult to his intelligence, he was acting independently of his employment contract with you.

Finally, now that weve taken a fairly detailed look at some of the ways in which the law works to make business relationships as predictable as possible, lets sum up this section by reminding ourselves that the U.S. legal system is also flexible. In its efforts to resolve your case, lets say that the court assesses the issues as follows:

The damage to the homeowners car amounts to $3,000. He cant recover anything from your roommate, who owns virtually nothing but his personal library of books on medieval theology. Nor can he recover anything from your business-liability insurer because you never thought your business would need any insurance (and couldnt afford it anyway). So that leaves you: can the homeowner recover damages from you personally? Legally, yes: although you didnt go through the simple formalities of creating a sole proprietorship (see Chapter 4 "Selecting a Form of Business Ownership" ), you are nevertheless liable for the contracts and torts of your business. On the other hand, youre not worth much more than your roommate, at least when it comes to financial assets. You have a six-year-old stereo system, a seven-year-old panel truck, and about $200 in a savings accountwhats left after you purchased the two ladders and the platform that you used as scaffolding. The court could order you to pay the $3,000 out of future earnings but it doesnt have to. After all, the homeowner knew that you had no business-liability insurance but hired you anyway because he was trying to save money on the cost of painting his house. Moreover, he doesnt have to pay the $3,000 out of his own pocket because his personal-property insurance will cover the damage to his car.

You should probably consider yourself lucky. Had your case gone to court, it would have been subject to the rules of civil procedure outlined in Figure 16.2 "Stages in a Civil Lawsuit" . As you might suspect, civil suits are time-consuming. Research shows that litigation takes an average of 24.2 months from the time a complaint is filed until a judgment is rendered (25.6 months if youre involved in a tort lawsuit).

Figure 16.2 Stages in a Civil Lawsuit

And of course its expensive. Lets say that you have a $40,000-a-year job and decide to file a civil suit. Your lawyer will charge you between $200 and $350 an hour. At that rate, he or she will consume your monthly net income of about $1,800 in nine hours worth of work. But what about your jury award? Wont that more than compensate you for your legal fees? It depends, but bear in mind that, according to one study, the median award in civil cases is $33,000.^[9] And you could lose.

Key Takeaways

• A negligence tort results from carelessness. In order to prove a negligence claim, a plaintiff must demonstrate four elements:

  1. That the defendant owed a duty of care to the plaintiff. Duty of care refers to the basic obligation not to cause harm or an unreasonable risk of harm.
  2. That the defendant breached his duty of care. Did the defendant fail to act as a reasonable person would act?
  3. That the defendants breach of duty of care caused injury to the plaintiff or the plaintiffs property.
  4. That the defendants action did in fact cause the injury in question. The direct cause-and-effect relationship between the defendants action and the plaintiffs injury is called a cause in fact or actual cause. The point beyond which a defendant is no longer liable for the actions set in motion by his or her carelessness is called a proximate cause or legal cause. The standard for determining proximate cause is generally foreseeability: could the defendant reasonably foresee the possibility of the injury suffered by the plaintiff?
• A contract is an exchange of promises or an exchange of a promise for an act. An offeror makes an offer to enter into a contract with an offereethat is, to do something in particular (or to refrain from doing something in particular). If the offeree accepts this offer, a contract is created.

• A contract is legally enforceable: if one party fails to do what he or she has promised to do, the other can ask the courts to enforce the agreement or award damages for injury sustained because the contract has been breached. An enforceable contract must meet four requirements:

  1. Agreement. The parties must have reached a mutual agreement.
  2. Consideration. Each promise must be made in return for the performance of a legally sufficient act or promise.
  3. Contractual capacity. Both parties must possess the full legal capacity to assume contractual duties.
  4. Lawful object. The purpose of the contract must be legal.
• The law assumes that, in an employeremployee contract, the employer controls the time, place, and method of the employees work. The doctrine of respondeat superiorLet the master answer [for the servants actions]applies to employeremployee contracts. In judging an employers responsibility for the damages caused by an employees negligence, the court will apply the standard of scope of employment: an employees actions fall within the scope of his employment under two conditions: (1) if they are performed in order to fulfill contractual duties owed to his employer and (2) if the employer is (or could be) in some control, directly or indirectly, over the employees actions.