Module 2 Contract Formation BUS 105 Power Points

Module 2 Contract Formation BUS 105 Power. Points by Rick Manzano is licensed under CC-BY 4. 0

Definition of a Contract l A contract is a: • Promise or set of promises, • For which breach of which, • The law provides a remedy, or • The performance of which the law in some way recognizes as a duty.

Elements of a Contract l l l Agreement (Offer and Acceptance). Consideration. Contractual Capacity.

I. Agreement l l l Agreement = offer and acceptance. Parties must show mutual assent to terms of contract. Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed.

Requirements of the Offer l l l Offeror’s serious intention. Definiteness of terms. Communication to Offeree.

Offer: Intention l l l Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer. Offers made in anger, jest, or undue excitement are usually not offers. Expressions of opinion are not offers. Statements of Intention or preliminary negotiations are not offers. Advertisements, Catalogues, Price Lists, and Circular are treated as Invitations to negotiate and not as offers.

Offer: Definiteness of Terms l Terms (Expressed or Implied). • Identification of the parties. • Object or subject matter of the contract. • Consideration to be paid. • Time of payment, Delivery, or Performance.

Offer: Communication l Offeree’s knowledge of the offer: • Directly by the Offeror. • Use of Agents.

Termination of the Offer l An offer may be terminated prior to acceptance by either: • Action of the Parties; • Operation of Law. or by

Termination by Action of the Parties l Revocation of the offer by the Offeror: • Offer can be withdrawn anytime before Offeree • • accepts the offer. Effective when the Offeree or Offeree’s agent receive it. Exceptions: • Irrevocable Offers (Detrimental Reliance). • Option Contract: Promise to hold an offer open for a specified period of time in return of consideration.

Termination by Action of the Parties • Exceptions (Cont’d): • Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer. l Rejection of the offer by the Offeree: • • Rejection by the Offeree (expressed or implied) terminates the offer. Effective only when it is received by the Offeror or Offeror’s agent.

Termination by Action of the Parties l l Rejection by Offeree (Cont’d). • A counteroffer by the Offeree is a rejection of the original offer and making of a new offer. Mirror Image Rule. • Offeree’s acceptance to match the Offeror’s offer exactly.

Termination by Operation of Law l Lapse of Time. • • l l Offer terminates by law when the period of time specified in the offer has passed. If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. Destruction of the Subject Matter. Death or Incompetence of the Offeror or Offeree. Supervening Illegality of the Proposed Contract.

Acceptance l Acceptance is the l “Mirror Image” Rule. • Voluntary act (expressed or implied), • by the Offeree that, • shows assent (agreement), • to the terms of an offer.

Silence as Acceptance l Acceptance of Services by Silence. l Prior Dealings and Acceptance. • Sometimes Offeree has a duty to speak. • Silence can be acceptance if there are prior dealings. l Solicited Offers. • Offeree has a duty to reject.

Timeliness of Acceptance l Mail Box Rule - Acceptance becomes effective on dispatch, providing that authorized means of communication is used. Offeree accepts by using the stipulated means of acceptance. • Offeror specifies (expressly or impliedly) how • acceptance should be made. Effective when dispatched (mailed, shipped).

Authorized Means of Acceptance l Exceptions: • If acceptance is not properly dispatched by the • • l Offeree. If Offeror specifies that acceptance will not be effective until it is received. If acceptance is sent after rejection, whichever is received first is given effect. Unauthorized Means of Acceptance. • Not effective until it is received by the Offeror. If timely sent and dispatched it is considered to have been effective on its dispatch.

II. Consideration l Consideration for a promise must be either: • Legally detrimental to the promisee, or Legally beneficial to the promisor. l “Legal Value”: • Promise, • Performance, or • Forbearance.

Adequacy of Consideration l A Court will not question the fairness of the bargain if legally sufficient. • Law does not protect a person for entering • into an unwise contract. In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable.

Agreements That Lack Consideration l Preexisting Duty. • • l Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration. Exceptions: • Unforeseen Difficulties. • Recession and New Contract. Past Consideration is no consideration because the bargained-for exchange element is missing.

Promissory Estoppel l Promissory Estoppel and Detrimental Reliance: • Must be definite promise. • Promisee must justifiably rely on the promise. • Reliance is substantial. • Justice will be served by enforcing promise.

III. Capacity l Contractual Capacity. • The legal ability to enter into a contractual relationship. • Full competence. • No competence. • Limited competence. l Legality. • The agreement must not call for the performance of any act that is criminal, tortious, or otherwise opposed to public policy.

Minors l l l In most states, a person is no longer a minor for contractual purposes at the age 18. A minor can enter into any contract that an adult can. A contract entered into by a minor is voidable at the option of that minor.

Minor’s Right to Disaffirm l l l A contract can be disaffirmed at any time during minority or for a reasonable period after the minor comes of age. Minor must disaffirm the entire contract. Disaffirmance can be expressed or implied.

Minor’s Obligation on Disaffirmance l Minor must restore the goods received in substantially the same condition as received.

Exceptions to Minor’s Right to Disaffirm l Misrepresentation of Age. l Contracts for Necessaries. • Minor can disaffirm the contract. • Contracts for food, clothing, shelter may be disaffirmed by minor is liable for reasonable value of goods or services.

Exceptions to Minor’s Right to Disaffirm l l Insurance. • Not viewed as necessaries, so minor can disaffirm contract and recover all premiums paid. Loans. • Seldom considered to be necessaries. • Exception: • Loan to a minor for the express purpose of enabling the minor to purchase necessaries.

Special Types of Contracts for which Minors May be Liable l l l l Medical, surgical, and pregnancy care Psychological counseling Health and life insurance Performance of duties relating to stock and bond transfers, bank accounts, etc. Educational loan expenses Contracts to support children Contracts to enlist in the military Artistic, sports, and entertainment contracts

Ratification l Minor, or after reaching majority, indicates (expressly or impliedly) an intention to become bound by a contract made as a minor.

Parent’s Liability l l Contracts. • Parents not liable (This is why parents are usually required to sign any contract made with a minor). Torts: • • • Minors are personally liable for their own torts. Liability imposed on parents only for willful acts of their minor children. Liability imposed on parents for their children negligent acts that result from their parents’ negligence.

Illegality—Contracts Contrary to Statutes l l l Usury laws Gambling statutes Sabbath laws or blue laws Contracts to commit a crime Licensing statutes

Module 2 Contract Performance, Breach, and Remedies 32

A party may be discharged from a valid contract by: l l A condition occurring or not occurring. • Types of Conditions: • Conditions Precedent. • Conditions Subsequent. Full performance or material breach by the other party. Agreement of the parties. Operation of law.

Discharge by Performance l Types of Performance: • Complete Performance. • Substantial Performance (minor breach). • Performance to the Satisfaction of One of the Parties or a Third Party. l Jacobs & Young v. Kent (1921). Substantial performance by builder was entitled to contract amount less amount of cost to cure.

Breach of Contract l Breach of Contract - the nonperformance of a contractual duty. l l l Material breach. • Discharges the non breaching party from the contract. Non-material breach • Does not discharge non-breaching party. • Damages Time for Performance. • If none specified, reasonable time is implied

Discharge by Agreement l l Discharge by Rescission. Discharge by Novation: • Previous obligation. • All parties agree to new contract. • Extinguishment of old obligations. • New Contract Formed. Discharge by Substituted Agreement. Accord and Satisfaction.

Discharge by Operation of Law Alteration of The Contract. l Statutes of Limitations. l Bankruptcy. l Impossibility or Impracticability. l

Impossibility or Impracticability of Performance l Objective Impossibility of Performance. l Commercial Impracticability. • Key: Circumstances not foreseeable. • Death or incapacitation prior to performance; • Destruction of the Subject Matter; or • Illegality in performance. Frustration of Purpose. l Temporary Impossibility.

Breach of Contract and Remedies l Most Common Remedies: • Damages. • Rescission and Restitution. • Specific Performance. • Reformation. • Recovery Based on Quasi Contract.

Damages l l Compensatory Damages—direct losses. • • • Sale of Goods: difference between contract and market price. Sale of Land: specific performance. Construction Contracts: varies. Consequential (Special) Damages—foreseeable losses. • • Breaching party is aware or should be aware, cause the injury party additional loss. Hadley v. Baxendale (1854). • Mill

Damages l Punitive Damages—punish or deter future conduct. • Generally not available for mere breach of • l contract. Usually tort (e. g. , fraud) is also involved. Nominal Damages—no financial loss. • Defendant is liable but only a technical injury.

Mitigation of Damages l l When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. Duty owed depends on the nature of the contract.

Liquidated Damages l Liquidated Damages. • A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. l Penalties. • Specify a certain amount to be paid in the event of a default or breach of contract and are designed to penalize the breaching party.

Rescission and Restitution l l l Rescission. • A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. Restitution. • Both parties must return goods, property, or money previously conveyed. Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission.

Specific Performance l l Equitable remedy calling for the performance of the act promised in the contract. Remedy in cases where the consideration is: • • • Unique (land); Scarce; or Not available remedy in contracts for personal services.

Reformation l l Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. Available when an agreement is imperfectly expressed in writing.

Recovery Based on Quasi Contract l l Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Party seeking quantum meruit must show the following: • • A benefit was conferred to the other party. Party conferring did so with the reasonable expectation of being paid. The benefit was not volunteered. Retaining benefit without paying for it would result in unjust enrichment of the party receiving the benefit.

Election of Remedies l l l Doctrine created to prevent double recovery. • Non-breaching party must choose which remedy to pursue. UCC rejects election of remedies. • Cumulative in nature and include all the available remedies for breach of contract. California Law • Pleadings contain all remedies. Only one recovery

Waiver of Breach l l l A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party should give notice to the breaching party that full performance will be required in the future.

Contract Provisions Limiting Remedies l Exculpatory clauses. • Provisions stating that no damages can be recovered. l Limitation of liability clauses. • Provisions that affect the availability of certain remedies.

Contracts Defenses to Contracts

Intoxication l l Lack of contractual capacity at the time the contract is being made. Contract can be either voidable or valid. • Courts look at objective indications to determine if contract is voidable. l If voidable: • Person has the option to disaffirm, or • Person may ratify the contract expressly or impliedly.

Mentally Incompetent Persons l l l Void. • If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed. Voidable. • If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences. Valid. • • If person is able to understand the nature and effect of entering into a contract yet lack capacity to engage in other activities. Lucid Interval.

Genuineness of Assent l Contract may be unenforceable if the parties have not genuinely assented to its terms by: • Mistakes. • Misrepresentation. • Undue Influence. • Duress.

Mistakes l l l Only a Mistake of Fact allows a contract to be canceled. Mistake of Value is enforceable. Bilateral (Mutual) Mistakes can be rescinded by either party. Unilateral Mistakes cannot be canceled unless: • • If other party to the contract knows or should have known that a mistake of fact was made. If mistake was due to mathematical mistake in addition, summation, subtraction, division, or multiplication and was made inadvertently and without gross negligence.

Fraudulent Misrepresentation l l Contract Voidable by Innocent Party. Elements: • Misrepresentation of Material Fact. • Intent to Deceive. • Reliance on Misrepresentation. • Injury to the Innocent Party.

Nonfraudulent Misrepresentation l l Innocent Misrepresentation. Negligent Misrepresentation. • Equal to Scienter. • Is treated as fraudulent misrepresentation, even though the misrepresentation was not purposeful.

Undue Influence l Contract is Voidable. • Confidential or Fiduciary Relationship. • Relationship of dependence. • Influence or Persuasion. • Weak party talked into doing something not beneficial to him or herself. l Presumption of Undue Influence.

Duress l l l Forcing a party to enter into a contract under fear or threat makes the contract voidable. Threatened act must be wrongful or illegal. Exceptions: • • Threat to exercise legal rights (criminal or civil suit). Economic.

Adhesion Contracts and Unconscionability l l Adhesion Contracts. • Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract. Unconscionability. • One sided bargains in which one party has substantially superior bargaining power and can dictate the terms of the contract. • “Standard-form. ” • “Take-it-or-leave-it” adhesion contracts.

Statutes of Frauds l To be enforceable, the following types of contracts must be in writing and signed: • Contracts involving interest in land. • Contracts involving “One Year Rule. ” • Promise made in consideration of marriage. • Contracts for the sale of goods over a set price.

Module 2 Sales, Leases, and EContracts Uniform Commercial Code 62

Compare l Be able to compare the difference between common law contracts (chapter 9 -10) and contracts under the UCC.

Introduction l l Facilitates commercial transactions. UCC Article 2: Sale of Goods. • Modifies common law of contracts of some • • • areas. UCC 2 preempts common law. Where UCC 2 is silent, common law governs. Adopted by Cal: Cal UCC § 2100 Et Seq.

The Scope of UCC 2— The Sale of Goods l l Does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC 2 does not apply. Generally contracts for services are not governed by UCC 2.

Scope of Article 2 l UCC 2 applies to the “sale of goods. ” • A “sale” is the passing of title of “goods” • • to/from a “merchant” (seller or buyer) for a price (money, goods, services, etc). “Goods” are tangible and movable. A “merchant” has special business expertise and is not a casual buyer/seller.

Scope of UCC 2 A-Leases l l l Contract for lease of personal goods between a lessor and a lessee. Consumer Leases (total payments less than $25, 000). Finance Leases (involves a 3 rd partysupplier).

Formation of Sales and Lease Contracts l l At common law once a valid offer is unequivocally accepted, a binding contract is formed. UCC is more flexible, and allows for open pricing, payment, and delivery terms.

Open Terms l UCC 2 -204: even if terms of are undetermined, a contract may still exist. • Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy.

Open Terms üOpen Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery. ” UCC 2 -305. üOpen Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC 2 -310(a). üOpen Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC 2 -308(a).

Open Terms l Open Quantity: generally courts will not impose a quantity. UCC 2 -306. Exceptions: • Requirements Contract: buyer agrees to purchase what the buyer needs or requires. • Output Contract: buyer agrees to buy all of seller’s production or output.

Merchant’s Firm Offer l l At common law, an offer could be revoked any time prior to acceptance, unless there was some consideration. At UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary.

Acceptance l l l Any reasonable means of acceptance under the circumstances is permissible. Promise to ship or prompt shipment is acceptance. Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer (UCC 2 -206).

Additional Terms l l If either party is a non-merchant, the contract is formed according to original terms of the offer. If both parties are merchants, contract incorporates new terms unless: • (1) original offer expressly limits terms, or • (2) material change, or • (3) offeror objects within reasonable time.

Consideration l l UCC requires consideration and modifications must be made in good faith. Modification must be in writing if required by Statute of Frauds.

Statute of Frauds l l l Sale of goods over $500 must have a signed writing to be enforceable. Exceptions to this rule: • Specially manufactured goods. • Admissions by breaching party. • Partial performance. • Merchant doesn’t object within 10 days. Oral agreement enforceable after written confirmation between merchants.

Title, Risk and Insurable Interest l l Sale of goods requires different rules than real property transactions: risk should not always pass with title. UCC replaces title with identification, risk, and insurable interest.

Identification For any interest to pass to buyer, goods must be: • In existence. • Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others. Except for fungible goods which do not need separation).

Identification l [2] Gives the buyer the right: • To obtain insurance on the goods. • To recover from third parties who damage the good. l Identification occurs: • If goods are designated when contract is made. If goods are not designated when contract is made, then identified at time of designation.

When Title Passes l Title can pass: • Upon physical delivery, or • When agreed to by the parties, or • If no agreement, depends on whether contract is shipment or destination contract: • Shipment: title passes at time and place of shipment. • Destination: title passes when goods are tendered at the destination.

In re Stewart (2002). l l l When did title to the cattle pass? Under UCC title to cattle passed upon delivery. Therefore cashiers checks to cover bounced checks were part of bankruptcy estate. • Allows for recall of payments to creditors unless for “contemporaneous exchange. ”

Delivery Without Movement of Goods l l l Title passes when agreed by the parties, or With document of title: when and where document delivered. Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified.

Risk of Loss l ROL is important because of insurance concerns. l ROL does not necessarily pass with title. l Unless agreed otherwise, ROL passes to Buyer depending on whether delivery is with or without movement of the goods.

ROL: Delivery With Movement l Shipment Contracts. • ROL passes to Buyer when tendered to Carrier. If goods damaged in transit, Buyer’s loss. l Destination Contracts. • ROL passes to Buyer when goods tendered at particular Destination.

ROL: Delivery Without Movement of Goods l l Goods Held by Seller: • • Document of Title is generally not used. If Seller is a merchant, Risk of Loss passes when buyer takes physical possession of goods. Goods Held by Bailee (Warehouse). ROL passes when: • Buyer receives document of title; bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.

ROL: Shipping Terms Term Definition F. O. B. Free on Board. Sales price includes shipping to specific place in contract. Example: FOB Chicago. F. A. S. Free Along Side. Requires seller to deliver goods alongside the ship before ROL passes to buyer. C. I. F. Cost, Insurance and Freight. Seller puts the goods in possession of a carrier. Delivery Ex- Deliver from Carrying shipping vessel. ROL passes to Ship buyer when goods leave the ship or unloaded.

ROL: Conditional Sales l Sale on Approval. • ROL passes when buyer approves expressly or implicitly. l Sale or Return. (Consignment is sale or return unless it complies with Art. 9. ) • ROL passes to buyer with possession.

ROL in Breach of Contract l l l Generally breaching party bears ROL. Seller’s Breach. • • Rejection - risk stays with seller. Revocation of acceptance - risk passes back to seller to the extent that buyer’s insurance does not cover the loss. Buyer’s Breach. Goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.

Insurable Interest l l l Buyer has an insurable interest in goods that have been identified. Seller has an insurable interest in goods as long as they retain title or a security interest. Both buyers and sellers can have an insurable interest at the same time.

Performance of Sales and Lease Contracts l l l Seller must transfer and deliver conforming goods. Buyer must accept and pay for conforming goods. In the absence of an agreement between Seller and Buyer UCC Article 2 controls as set out below.

Good Faith Requirement l l l Good Faith is the foundation of every UCC commercial contract. Good faith means honesty in fact. For a merchant, it means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Merchants are held to a higher standard of care than non-merchants.

Obligations of the Seller or Lessor l l Seller has a duty to “tender” delivery of “conforming goods. ” Tender means “delivery” to agreed place: • With reasonable notice. • At a reasonable hour. • In a reasonable manner. • Exactly, unless otherwise agreed.

Place of Delivery l l If no place designated, Buyer picks up at Seller’s place of business or, if Seller has no place of business, then Seller’s residence. If contract involves identified goods, and the goods are located somewhere else (e. g. , a warehouse), then the location of the goods is the place of delivery.

The Perfect Tender Rule If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to: • • • Accept the goods; Reject the entire shipment; or Accept part and reject part.

Exceptions: Agreement of the Parties l l Parties agree that some defective goods will be acceptable. Parties agree that defective goods can be replaced or repaired within a certain time.

Exceptions: Seller’s Cure l Seller has the right to “Cure” (ship conforming goods to Buyer) if: • Agreed time of performance has not yet • expired; or If Seller had reasonable grounds to expect that Buyer would accept non-conforming goods, i. e. , these goods are better than goods ordered, or Buyer has accepted nonconforming goods in the past.

Exceptions: Substitution of Carriers If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable.

Exceptions: Commercial Impracticability l l l Occurrence of an unforeseen contingency that makes performance impracticable. Nonoccurrence was a basic assumption on which the contract was made. If only partial impracticability, Seller must allocate what he/she has.

Exceptions: Installment Contracts l Installment Contracts can be rejected if: • installment is substantially non- conforming and can’t be cured. • non-conforming installment substantially impairs the entire contract.

Exceptions: Destruction of Goods l l l If no fault of either party and it occurs Before risk passes to Buyer then Both Seller and Buyer are excused from performance.

Exceptions: Cooperation l l l Sometimes unforeseen event only partially affects Seller’s capacity to perform. In that event, Seller has duty to reasonably allocate any remaining production capacity to fulfilling contractual performance. Buyer has the right to reject.

Obligations of the Buyer or Lessee l l Furnish facilities reasonably suited for receipt of the goods. Make payment at the time and place the Buyer receives the goods. • Credit has to be prearranged. • Credit period begins on the date of shipment. • Pay with cash, credit card, check. • But if Seller asks for cash, Seller has to give Buyer time to get cash.

Buyer’s Obligations l Buyer has right to inspection before paying: • Costs of inspection borne by Buyer. • However, C. O. D. , C. I. F. and C&F give Buyer no right to inspect.

Acceptance l Buyer can accept goods: • By words or conduct. • If Buyer had reasonable amount of time and • l failed to reject. Buyer performs an act which indicates he thinks he is the owner. Partial Acceptance.

Revocation of Acceptance l l Notify Seller of breach. Revoke only if substantial nonconformity; and • Buyer accepted on the reasonable assumption that the Seller would cure the non -conformity OR Buyer did not discover the nonconformity because defect was latent or hard to discover.

Anticipatory Repudiation l l Party communicates he will not perform by time of contract performance. Non-breaching party may suspend performance and: • Treat the A. R. as material breach and pursue • a remedy; or Wait a reasonable time.

Seller- Goods in Seller’s Possession l Seller may withhold delivery of the goods: • If material breach by Buyer, Seller can • l withhold delivery of all goods. If non-material breach, Seller can withhold delivery of this installment. Seller can withhold delivery of all goods if Buyer is insolvent. Next

Seller- Goods in Seller’s Possession l l l Seller may rescind the contract. Seller may identify the goods to the contract. Seller may sell raw materials for scrap or finish production. Next

Seller-Goods in Seller’s Possession l Seller may resell the goods; and • Recover damages: the difference between the • contract price and the resale price + incidental damages+ damages = the market price at the time & place of tender + incidental damages expenses saved. If No Damages, Seller can sue for lost profits. Next

Seller-Goods in Seller’s Possession l Seller may sue Buyer for breach of contract. • Recover Damages = the market price at the time & place of tender + incidental damages. • if there are no damages, Seller can sue for lost profits.

Seller-Goods in Transit l l Goods are “in transit” when Seller has tendered goods to Carrier. Goods are in transit until: • Buyer is given negotiable document of title to • • goods. Buyer is given non-negotiable document of title or Bailee has acknowledged Buyer’s right to have the goods. Buyer has had a reasonable time to pick up the goods. Next

Seller-Goods in Transit l Seller has the right to stop the goods in transit if: • Buyer is insolvent - Seller can stop entire • shipment of goods. Buyer is in breach - Seller may stop a whole truckload or whole container.

Seller-Goods in Buyer’s Possession l Seller may sue for the purchase price. • Seller may also sue Buyer if goods were • l “specially-made” which Seller cannot resell. Seller may also sue for the purchase price if the goods were destroyed and the risk had already passed to the Buyer. Seller can reclaim goods received by an insolvent Buyer if demand made within 10 days of receipt.

Buyer-Goods in Seller’s Possession l Buyer Wants Goods • Specific performance or replevin • Recover goods from Seller if Seller becomes insolvent within 10 days after receiving first payment. l Buyer Does Not Want Goods • Rescind contract. • Recover or do not recover and sue for breach of contract.

Buyer-Seller Delivers Nonconforming Goods l If Seller does not make perfect tender Buyer has the right to reject all or part of goods. • Buyer must timely notify Seller of rejection and • • reasons and follow Seller’s directions. Buyer is entitled to commission for selling perishable goods. Buyer may store the goods and retain a security interest in the goods for his costs. Next

Buyer-Seller Delivers Nonconforming Goods l If Buyer has accepted nonconforming goods, she may: • Sue for breach of warranty. • Sue for ordinary damages. • Deduct damages from purchase price.

Contractual Provisions Affecting Remedies l l l Limitation of Damages. Limitation of Remedies. Waiver of Defenses.

Sales and Lease Warranties l A warranty is an assurance of fact upon which a party may rely. • Warranty of Title. • Express Warranty. • Implied Warranty of Merchantability. • Implied Warranty of Fitness for a Particular • Purpose. Implied warranty arising from the course of dealing or trade usage.

Warranty of Title l l Automatically arises in most commercial sales transactions. UCC-312 creates 3 warranties: • Good Title. • No Liens. • No Infringements.

Warranty Title Disclaimer l l Title warranty can generally be disclaimed only with specific language in contract. Circumstances may be obvious to clearly indicate disclaimer of title, such as a sheriff’s sale.

Express Warranties l Can be oral or written-- don’t have to use the words “warrant” or “guarantee. ” • Any Affirmation or Promise. • Any Description. • Any Sample or Model.

Express Warranties l l To create an express warranty, the affirmation of fact must become the “basis of the bargain. ” And Buyer must rely on warranty when he enters into contract.

Express Warranties l Statements of Opinion and Value. • Generally excludes “puffing” – “Best car in • town”, not an express warranty. However, expert opinion is not puffery.

Implied Warranties l l Warranty inferred at law based on the circumstances or nature of the transaction. Under the UCC, merchants warrant the goods they sell are “merchantable”, i. e. , fit for ordinary purpose for which such goods are sold.

Implied Warranty of Merchantability l l l Automatically arises from merchants. Goods are of average, fair, or mediumgrade. Adequately packaged and labeled. Conform to promises on label. Have a consistent quality and quantity among the commercial units.

Implied Warranty of Fitness for a Particular Purpose l Arises by any Seller who: • Knows the particular purpose for which the • goods are being bought; and Knows the buyer is relying on seller’s skill and judgment to select suitable goods.

Implied Warranty Arising from Course of Dealing or Trade Usage l Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction.

Warranty Disclaimers l Express Warranties can be disclaimed: • If they were never made (evidentiary matter). • If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).

Warranty Disclaimers l Implied Warranties: • Merchantability: “As Is, ” “With All Faults. ” • Fitness for a Particular Purpose: must be in • • writing and conspicuous. If Buyer has the right to fully inspect and either: does so or refuses to do so, warranties are disclaimed as to defects that could reasonably be found. UCC allows for disclaimer of all warranties if in writing.

E-Contracts l Most courts find E-Contracts involve basic principles of contract law, applied in the online context.

Online Contract Formation l Online Offers should include: • Remedies for Buyer. • Statute of Limitations. • What constitutes Buyer’s acceptance. • Method of Payment. • Seller’s Refund and Return Policies. • Disclaimers of Liability. • How Seller will Use Buyer’s Information (Privacy).

Online Contract Formation l Dispute Settlement Provisions. l Displaying the Offer (via hyperlink). How Offer Will Be Accepted. l • Choice of Law. • Choice of Forum. • E-Bay uses online dispute resolution. • Amazon. com--Checkout. • “I Accept” Button to Click.

Online Acceptances l l Click-on Agreements. Shrink-Wrap Agreements. • Contract terms are inside the box. • Party opening box agrees to terms by keeping merchandise. l l Enforceable Contract Terms. (UCC 2204). Additional Terms.

Online Acceptances l l Click-On Agreements occur when Buyer “checks out” or clicks on “I Accept” button on Seller’s website or when software is installed. Browse-Wrap Terms. Does not require “I accept” just part of document. • Specht v. Netscape Communi-cations (2002). Failure to have I accept button meant buyer did not agree to terms of contract.

E-Signatures l E-Signature Technologies. • • Asymmetric Cryptosystem. • Software that allows recipient to verify “signature” • California does not allow a number of documents to be e -signed. Cyber Notary. • Electronic certification of the signature keys used in the e-signature. l Federal Law. • E-SIGN (2000) gives e-signatures and e-documents legal force to certain documents only.