CHAPTER 11 The Law of Contracts and Sales - II THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 11 The Law of Contracts and Sales - II © 2006 Prentice Hall Ch. 11-2

Discharging a Contract By Performance By Mutual Agreement By Conditions By Impossibility of Performance By Commercial Impracticability

Discharge by Performance Complete Performance Substantial Performance Most terms completed Honest effort No willful noncompletion Only minor items not done

Material Breach Is substantial breach May also be intentional Breaching party may usually “cure”

Sales of Goods UCC Art 2 requires that goods conform to the description Where Seller ships nonconforming goods, Buyer may: Reject all goods Accept all goods Accept some and reject some Notify Seller of defects and allow cure

Discharge by Mutual Agreement Rescission Accord and satisfaction Novation

Discharge by Condition Conditions Precedent An event that must take place in order for a contractual duty to arise Conditions Subsequent An event in the future which, if it takes place following execution of the contract, extinguishes the duty to perform

Discharge by Impossibility of Performance Application Where unforeseeable events either make performance physically impossible or legally impossible, or extremely expensive to perform

Impossibility of Performance Death or illness of promisor Change in the law Destruction of the subject matter Commercial Impracticability Performance is possible, but impractical due to unforeseeable costs.

Remedies for Breach Legal Remedies Money Damages Compensatory Nominal Punitive Liquidated Incidental and Consequential

Equitable Remedies Rescission Reformation Specific Performance Injunction

Rescission Definition “Tearing up the contract” or canceling the contract Application: In cases of fraud, duress, mistake, or undue influence

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

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.

Injunctions May be temporary or permanent Definition A court order directing a party to stop doing something. Application: Upon a showing that, without an injunction, there will be irreparable harm to plaintiff, and that money damages are inadequate

Remedies for Breach of Sales Contracts UCC Article 2 Remedies for Seller 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 2-702

Remedies for Buyer Under UCC Article 2 Specific performance 2-716(2) Cancel 2-711(1) Right to reject goods 2-601 Partially accept goods 2-714(1)

Electronic Contracts E-signatures: Federal and State law UCITA: Introduced in several states: enacted in only two--Maryland and Virginia Addresses issues related to electronic contracts Coverage: computer information transactions

International Contracts Convention on Contracts for the International Sale of Goods (CISG) Coverage: CISG signatory countries and others who opt in Parties may also opt out As a treaty, CISG is superior to state law

CISG Major Differences with UCC In the rules of contract formation Offer and acceptance Mirror image rule Mailbox rule Statute of frauds and parol evidence rule Consideration

Summary Contracts can be discharged in several ways Remedies for breach can be legal and/or equitable There is a trend toward more uniform contract law via the UCC and the CISG E-commerce has created new challenges