THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment

THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment of Business A Critical Thinking Approach 5 th Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne © 2009 Pearson Education, Inc. publishing as Prentice Hall 1

THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 11 The Law of Contracts and Sales -

THE LEGAL ENVIRONMENT OF BUSINESS Discharging a Contract q By Performance q By Mutual Agreement q By Conditions q By Impossibility of Performance q By Commercial Impracticability © 2009 Pearson Education, Inc. publishing as Prentice Hall 3

THE LEGAL ENVIRONMENT OF BUSINESS Discharge by Performance q Complete Performance q Substantial Performance q. Most terms completed q. Honest effort q. No willful departure from the terms q. Only minor items not done © 2009 Pearson Education, Inc. publishing as Prentice Hall 4

THE LEGAL ENVIRONMENT OF BUSINESS Material Breach Note: If breach is material, the injured party may end the contract and sue for damages. Elements: q It is a substantial breach q May also be intentional q Breaching party may usually “cure” © 2009 Pearson Education, Inc. publishing as Prentice Hall 5

THE LEGAL ENVIRONMENT OF BUSINESS Sales of Goods UCC Article 2 requires that goods conform to the description Note: Where Seller ships nonconforming goods, Buyer may: q Reject all goods q Accept some and reject some q Notify Seller of defects and allow cure © 2009 Pearson Education, Inc. publishing as Prentice Hall 6

THE LEGAL ENVIRONMENT OF BUSINESS Discharge by Mutual Agreement q Rescission q Accord and

THE LEGAL ENVIRONMENT OF BUSINESS Discharge by Condition q Conditions Precedent q An event that must take place in order for a contractual duty to arise q Conditions Subsequent q An event in the future which, if it takes place following execution of the contract, extinguishes the duty to perform © 2009 Pearson Education, Inc. publishing as Prentice Hall 8

THE LEGAL ENVIRONMENT OF BUSINESS Discharge by Impossibility of Performance Where unforeseeable events either make performance physically impossible or legally impossible, or extremely expensive to perform © 2009 Pearson Education, Inc. publishing as Prentice Hall 9

THE LEGAL ENVIRONMENT OF BUSINESS Impossibility of Performance q Death or illness of promisor q Change in the law q Destruction of the subject matter Commercial Impracticability Performance is possible, but impractical due to unforeseeable costs. © 2009 Pearson Education, Inc. publishing as Prentice Hall 10

THE LEGAL ENVIRONMENT OF BUSINESS Remedies for Breach Legal Remedies q Money Damages q Compensatory q Nominal q Punitive q Liquidated q Incidental and Consequential Note: In Arrowhead School district case, the liquidated damages clause was enforceable. © 2009 Pearson Education, Inc. publishing as Prentice Hall 11

THE LEGAL ENVIRONMENT OF BUSINESS Remedies for Breach Equitable Remedies q Rescission q Reformation

THE LEGAL ENVIRONMENT OF BUSINESS Rescission Definition: “Tearing up the contract” or canceling the contract Application: In cases of fraud, duress, mistake, or undue influence © 2009 Pearson Education, Inc. publishing as Prentice Hall 13

THE LEGAL ENVIRONMENT OF BUSINESS Reformation Definition: Amending the terms of the contract to reflect what has later come to be known as the parties true intent Application: In cases of clerical or typographical errors © 2009 Pearson Education, Inc. publishing as Prentice Hall 14

THE LEGAL ENVIRONMENT OF BUSINESS Specific Performance Definition: An order from the court directing a party to perform according the terms of the contract Application: Usually ordered in cases involving sale of unique items where there is no available substitute for the subject matter in the contract, (i. e. , land) Note: It is a requirement for specific performance that damages at law are not adequate. © 2009 Pearson Education, Inc. publishing as Prentice Hall 15

THE LEGAL ENVIRONMENT OF BUSINESS Injunctions Definition: A court order directing a party to stop doing something. This may be temporary or permanent. Application: Upon a showing that, without an injunction, there will be irreparable harm to plaintiff, and that money damages are inadequate © 2009 Pearson Education, Inc. publishing as Prentice Hall 16

THE LEGAL ENVIRONMENT OF BUSINESS Remedies for Breach of Sales Contracts Seller’s Remedies Article 2 Section Cancel 2 -703(f) Withhold Delivery 2 -703(a) Resell 2 -703(d) Recover the purchase price 2 -709(1) Damages where Buyer breaches 2 -708(1) Reclaim goods © 2009 Pearson Education, Inc. publishing as Prentice Hall 2 -702 17

THE LEGAL ENVIRONMENT OF BUSINESS Remedies for Breach of Sales Contracts Buyer’s Remedies Article 2 Section Specific Performance 2 -716(2) Cancel 2 -711(1) Right to reject goods 2 -601 Partially accept goods 2 -714(1) Revoke acceptance 2 -608(1), (2) © 2009 Pearson Education, Inc. publishing as Prentice Hall 18

THE LEGAL ENVIRONMENT OF BUSINESS Electronic Contracts q E-signatures: Federal and State law q UCITA: Introduced in several states: enacted in only Maryland Virginia q Addresses issues related to electronic contracts q Coverage: computer information transactions © 2009 Pearson Education, Inc. publishing as Prentice Hall 19

THE LEGAL ENVIRONMENT OF BUSINESS International Contracts q Convention on Contracts for the International Sale of Goods (CISG) q Coverage: CISG signatory countries and others who opt in q Parties may also opt out q As a treaty, CISG is superior to state law © 2009 Pearson Education, Inc. publishing as Prentice Hall 20

THE LEGAL ENVIRONMENT OF BUSINESS Major Differences between CISG & UCC on contract formation requirements q Offer and acceptance q Mirror image rule q Mailbox rule q Statute of frauds and parol evidence rule q Consideration © 2009 Pearson Education, Inc. publishing as Prentice Hall 21

THE LEGAL ENVIRONMENT OF BUSINESS Summary q Contracts can be discharged in several ways. q Remedies for breach can be legal and/or equitable. q There is a trend toward more uniform contract law (via the UCC and the CISG). q E-commerce has created new challenges. © 2009 Pearson Education, Inc. publishing as Prentice Hall 22

THE LEGAL ENVIRONMENT OF BUSINESS All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall © 2009 Pearson Education, Inc. publishing as Prentice Hall 23