1. Legal Environment for a New Century

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3. Legal Environment for a New Century Quote of the Day “A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.” Karl Marx, German political philosopher

4. Legal Environment for a New Century The Uniform Commercial Code (UCC)  The UCC is the single most important source of law for commerce and contracts.  The UCC is “ancient in origin, contemporary in usage, admirable in purpose, and flawed in application.” Click here to view the text of the UCC on the internet.

5. Legal Environment for a New Century UCC Basics  Code’s Purpose To simplify, clarify and modernize the law governing commercial transactions, To permit the continued expansion of commercial practices through custom, usage and agreement of the parties, To make uniform the law among the various jurisdictions.  Scope of Article 2 UCC §2-102: Article 2 applies to the sale of goods, things that are movable, other than money and investment securities.

6. Legal Environment for a New Century Merchants  UCC §2-104: A merchant is someone who routinely deals in the particular goods involved, or who appears to have special knowledge or skill in those goods, or who uses agents with special knowledge or skill in those goods.  The UCC frequently holds a merchant to a higher standard of conduct than a non- merchant.

7. Legal Environment for a New Century Contract Formation  UCC §2-204 provides three rules to help parties form contracts easily. Parties may use any manner that shows agreement. Moment of making is not important in contract formation. It is enforceable if an agreement was reached. One or more terms may be left open without voiding the agreement.

8. Legal Environment for a New Century Statute of Frauds  UCC §2-201 requires a writing for any sale for goods worth more than $500.  Contracts for Goods over $500 Writing Sufficient to Indicate a Contract –In general, the writing must be signed by the defendant. Incorrect or Omitted Terms –Under the UCC, a court may enforce a bargain even though one or more terms were left open. Enforceable Only to Quality Stated –The Code will enforce the contract only up to the quality of goods stated in the writing.

9. Legal Environment for a New Century Merchant Exception  When two merchants make an oral contract, and one sends a confirming memo to the other within a reasonable time, and the memo is sufficiently definite that it could be enforced against the sender herself, then the memo is also valid against the merchant who receives it, unless he objects in 10 days.

10. Legal Environment for a New Century Added Terms: Section 2-207  Under §2-207, an acceptance that adds or alters terms will often create a contract. OFFER Offeree intends to accept Offeree does NOT intend to accept NO CONTRACT Accepts terms Contract Adds terms Usually forms a contract Changes terms Usually forms a contract Accepts IF offerer accepts new terms NO contract (is a new offer) Click once to start self-building graphic.

11. Legal Environment for a New Century Additional or Different Terms  Additional: those that raise issues not covered in the offer. When both parties are merchants, additional terms generally become part of the bargain.  Different: contradict terms in the offer. Cancel each other out; if there is no clear oral agreement, the Code supplies its own terms to cover prices, delivery dates and places, warranties, and other subjects.

12. Legal Environment for a New Century Buyer’s Remedies  Conforming goods satisfy the contract terms. Non-conforming goods do not.  The buyer has the right to reject non- conforming goods.  Inspection -- The buyer generally has the right to inspect the goods before paying or accepting.

13. Legal Environment for a New Century Buyer’s Remedies  Cover If the seller breaches, the buyer may ”cover” by reasonably obtaining substitute goods. Buyer may then obtain the difference between the contract price and the cover price, plus incidental and consequential damages, minus expenses saved.  Incidental and Consequential Damages An injured buyer is generally entitled to incidental and consequential damages.

14. Legal Environment for a New Century Cure  When the buyer rejects non-conforming goods, the seller has the right to cure, by delivering conforming goods before the contract deadline.  The seller has the right to cure even after the contract deadline if doing so is reasonable.

15. Legal Environment for a New Century Seller’s Remedies  Stop or refuse delivery  Resell The seller may recover difference between the resale price and contract price, plus incidental damages, minus expenses saved.  Action for the Price A seller may recover the contract price if: –the buyer has accepted the goods, or –the seller’s goods are conforming and he is unable to resell after a reasonable effort.

16. Legal Environment for a New Century Product Liability  When goods cause injury, there is a question of product liability.  There are three main issues related to product liability cases: Warranty -- a contractual assurance that goods will meet certain standards. Negligence – unreasonable conduct by the defendant. Strict Liability – policy which holds the defendant liable regardless of his behavior.

17. Legal Environment for a New Century Express Warranties  An express warranty is one that the seller creates with his words or actions.  Any affirmation of fact--or any promise--can create an express warranty.  Any description of the goods can create an express warranty.  Any sample or model can create an express warranty.  The seller’s conduct must have been part of the basis of the bargain.

18. Legal Environment for a New Century Implied Warranties  Are created by the Code itself, not by any act or statement of the seller.  Implied Warranty of Merchantability Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale, if the seller is a merchant of goods of that kind.

19. Legal Environment for a New Century Implied Warranties (cont’d)  Implied Warranty of Fitness for a Particular Purpose When the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller’s skill and judgement, there is (unless excluded or modified) an implied warranty that the goods shall be fit for such purpose.

20. Legal Environment for a New Century Negligence  In negligence cases, plaintiffs most often raise one or more of these claims: Negligent design Negligent manufacture Failure to warn  Where a sales contract includes proper disclaimers or remedy limitations, a buyer barred from a negligence case may have no remedy at all.

21. Legal Environment for a New Century Strict Liability  Need not prove that the defendant’s conduct was unreasonable.  Strict liability may be imposed if: The defective condition is unreasonably dangerous to the user. Seller is in business to sell this product. The product reaches the user without substantial change.  Strict liability may be imposed EVEN if: The seller exercised all reasonable care. There is no contractual relationship.

22. Legal Environment for a New Century Commercial Paper  Commercial paper is a contract to pay money.  It can be: A Substitute for Money A Loan of Money

23. Legal Environment for a New Century Fundamental “Rule”  The possessor of a piece of commercial paper has an unconditional right to be paid, as long as: the paper is negotiable; it has been negotiated to the possessor; the possessor is a holder in due course; and the issuer cannot claim any of the limited number of “real” defenses.

24. Legal Environment for a New Century Types of Negotiable Instruments  Note (also called a promisory note) is a promise to pay money. Certificate of Deposit (CD) is a note made by a bank.  Draft is an order directing someone else to pay money for you (e.g., checks). Cashier’s check -- a draft drawn by a bank on its own account. Traveler’s check -- a draft issued by and paid by the same company (such as American Express)

25. Legal Environment for a New Century Requirements for Negotiation  To be negotiated, order paper must first be indorsed and then delivered to the transferee.  Bearer paper must simply be delivered to the transferee; no indorsement is required.

26. Legal Environment for a New Century Holder in Due Course  A holder in due course has an automatic right to receive payment for a negotiable instrument (unless issuer can claim one of a few “real” defenses).  Requirements for Holder in Due Course Under §3-302 of the UCC, a holder in due course is a holder who have given value for the instrument, in good faith, without notice of outstanding claims or other defects.

27. Legal Environment for a New Century Defenses  The issuer of a negotiable instrument is not required to pay if: His signature was forged; His debts were discharged in bankruptcy after he signed the instrument; The amount was altered; He signed under duress, while mentally incapacitated or as part of an illegal transaction; He was tricked into signing the instrument.

28. Legal Environment for a New Century “The Uniform Commercial Code enables merchants to form contracts more quickly and easily. But along with this increased facility goes greater responsibility, since informal discussions may suddenly turn into … a contract.”

29. Legal Environment for a New Century Link to the Internet  Clicking on the orange button below will link you the website for this book. (You must first have an active link to the internet on this computer.)  Once there, click: Online Study Guide, then Your choice of a chapter, then Practice, then Internet Applications.  You should then see web links related to that chapter. Click above to return to the slide show. Click Here!