The Legal Environment Of Business

Dr. John Dehrer-Wendt

Contract / Introduction to U.C.C. Outline

 

I.  Introduction  (Minnesota Contract Law from Weblocator.com)

A. Introductory Problems -- How attorneys view problems.  Is there a problem with:

1.  Formation: Have the parties reached an agreement?

2.  Enforcement: Are there reasons why the courts should not enforce the agreement?

3.  Quasi-Contracts: Are there circumstances where the law will imply a contract?

4.  Rights: Who can enforce rights arising from the bargain?

5.  Duties: Against whom are you enforcing? Are the duties absolute or conditional?

6.  Remedies: What do you want?

B.  Legal Terminology

1.  Suffix ending "-OR" (one who gives something); "-EE" (one who receives something)

2.  Privity: The relationship that exists between the parties

C. How Contracts are Classified

1.  Express-Implied: How is the contract created?

2.  Bilateral-Unilateral: What form do they take?

  • "House Closing" vs. "Be My Baby"

3.  Valid-Void-Voidable-Unenforceable: What is their legal enforceability?

4.  Executed-Executory: To what extent have they been completed?

5.  Quasi-Contracts: Do circumstances exist in law that create a contract when no real contract exists?

II. Elements to a Contract

A.  Mutual Agreement

1. Offer

a.  Contractual Intent

* Lack of Intent Examples -- If no intent, no offer and hence no contract

  1. Social Invitation  (Jacklovich v. Stallman)

  2. Offers made in jest or excitement  (Lucy v. Zehmer)

  3. Invitations to negotiate -- Advertisements  (Lefkowitz v. Great Minneapolis Surplus Store)

b. Definite & Certain: Subject matter and terms

c. Communication to Offeree

d. Termination of Offers

1. Counteroffer (Marx Brothers Negotiation at "A Night At The Opera")

2. Revocation of Offer Before Acceptance (Option K)

3. Rejection

4. Lapse of Time

5. Death or Disability

6. Subsequent Illegality

2.  Acceptance of Offer

a.  Absolute and Unconditional: Subject Matter and Terms (Mirror Image Rule)

b.  Communicated to Offeror

c. Mail Box Rule: Acceptance valid upon dispatch

B. Consideration

1. Legal Benefit or Detriment   To be sufficient, the consideration must have some value. Something that is completely worthless cannot constitute sufficient consideration. Promises by the parties bargained for and given in exchange for each other constitute consideration.

The waiver of any legal right at the request of another is sufficient consideration for a promise.  (Hamer v. Sidway)

Legal Benefit: Something that the person who receives it, e.g. the promisor, was not entitled to before

Legal Detriment: Doing or promising to do something that the promisee had no obligation to do, or forbearing, i.e. refraining.

a. Return Promise

b. An Act

c. Forbearance

Any act or forbearance which is of benefit to the promisor or detriment to the promisee.   (Hamer v. Sidway,124 N.Y. 538, 27 N.E. 256 (1891).) 

 

2. Problems

a.  Past Consideration

b.  Preexisting Duty

c.  Reward

d.  Adequacy of Consideration

e.  Gifts

f.   Voluntary Subscriptions (must be in writing) (Ralph Engelstad Arena)

3. Consideration Substitutes

a. Statutory Substitutes

      1. Merchant's Firm Offers

      2. Modification of a contract

      b.  Promissory Estoppel 

      1.  Promisor makes a gratuitous promise, which he should reasonably have expected to induce action or forbearance of a definite and substantial character on the part of the promisee

      2. The Promisee justifiably relies on the promise

      3. The Promisee is caused a substantial detriment

      4. Injustice can be avoided only be enforcing the promise (Hoffman v. Red Owl)

       

C. Capacity / Reality of Consent / Conduct Invalidating Consent

 1.  Protected Classes -- Presumptions of Lack of Capacity

a. Minors (Necessities)

b. Mental Capacity (Lucid Moment)

c. Intoxication

d. A_________

e. M________W______     Pond v. Carpenter

2. Mistakes

a. Unilateral-Bilateral

b. Material-Immaterial

c. Law-Fact

d. Errors in Computation

e. Ambiguity

3.  Fraud -- All four elements must be present for a successful claim

a. Material misrepresentation by a false statement

b. Made with intent to defraud

c. Relied upon by the defrauded party

d. Damage

4. Duress (The Godfather -- "He made him an offer he couldn't refuse")

5. Economic Duress St. Louis Park Inv. v. R.L. Johnson Inv.

6. Undue Influence

D.  Legality of the Object

1.  Illegal Contracts Johnstown Land v. Brainerd Brewing

2.  Gambling (Viva Las Vegas; Cincinnati Kid; BetOnSports.com)

3.  Sunday Laws

4.  License Requirements

a. To protect the public

b. Revenue measure

5. Usury

6. Restraint of Trade Dr. Kai-Fu Lee and Microsoft  Kallock v. Medtronic

III. Contracts in Writing

A. Statute of Frauds -- The following must be in writing to be enforceable

1. Land Contracts

2. Surety Contracts

3. Contracts which cannot possibly be performed within one year

4. Contracts for the sale of goods under the U.C.C. for more than $500

5. Exceptions

a. Partial Performance

b. Special Goods

6. What Constitutes a Sufficient Writing?

a. ID Parties

b. Subject Matter

c. Essential Terms of Conditions.

d. Signature of Party Being Charged

B.  Parol Evidence Rule  (Four Corners Rule)

When the parties to a contract express their agreement in a writing with the intent that it embodies the full and final expression of their bargain, any other expressions -- written or oral -- made prior to or contemporaneous with the writing are inadmissible in court to vary the terms of the writing.

 

IV. Rights of Third Parties

A. Third Party Beneficiary Contracts

1. Donee; Creditor; Intended; Incidental;

2. Vesting

3. Life Insurance Contracts

B. Assignment of Rights

C. Delegation of Duties

D. Novation

VI. Discharge of Contracts

A. Discharge by Performance

1. Conditions

(A fact or event, the happening or non-happening of which creates or extinguished an absolute duty to perform on the part of the promisor -- dependent upon timing of occurrence)

a. Condition Precedent: e.g. I promise to loan you $50M on June 1, if the market value of your uranium stock equals $100M on June 1

b. Condition Concurrent: e.g. closing on your house -- Delivery of deed upon delivery of the purchase price

c. Condition Subsequent: e.g. I sell my grocery store across from the dorms now, but "in the event the school closes at the end of the year, the contract is null and void"

B. Discharge by Breach of Contract and Anticipatory Repudiation

C. Discharge by Agreement

1. Rescission

The contract is revoked, set aside, or undone by the mutual agreement of both parties. Generally a K that is executory on both sides can be rescinded

2. Substituted Contract

The original K is replaced with a new K, so the original K is discharged. The parties remain the same.

3. Novation 

The original parties and a third party all agree that the third party will take the place of one of the original parties to the contract. So a new K with new parties is created.

4. Accord and Satisfaction

An accord is an agreement to settle a claim by a different performance than that required by the original contract. A satisfaction is carrying out the new agreement.

D. Discharge by Impossibility of Performance

General rule is that impossibility that occurs after the formation of a K has no effect on the K.

Objective Impossibility: The obligation can not be performed by anyone -- Result = K is Discharged

Subjective Impossibility: The promisor can not perform, but someone else could -- Result = K Not Discharged

Exceptions

1. Destruction of Particular Subject Matter

2. Personal Service Contracts

3. Impossibility Created by the Act of the Other Party

4. Commercial Frustration

E. Discharge by Operation of Law

1. Bankruptcy -- "That's All They Do And They Do It Well."

2. Statute of Limitations

3. Change in Law

VII. Remedies

A. Damages from a Court of Law

1. Compensatory Damages Hahn v. Bettingen

a. General (Direct)

b. Special

2. Liquidated Damages

3. Nominal Damages

4. Punitive Damages

5. Mitigation of Damages (Parker v. 20th Century Fox) (The Big Country)

B. Equitable Remedies

1. Rescission

2. Specific Performance

3. Injunction (Conjunction Junction)

4. Restitution

 

UNIFORM COMMERCIAL CODE IMPORTANT DIFFERENCES

ARTICLES 1 AND 2

I. Introduction

A. Historical Background and Philosophy:  (Cher- Gypsies, Tramps and Thieves )

  • •Fusion of:
  • The Law Merchant – Lex Mercatoria
  • Courts of Pied Poudre
  • Fairs of Champagne
  • Common Law of England
  • Various Statutes

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•
•
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•General Rule: Common law still applies, unless superseded by UCC (UCC 1-103)

B. Scope and Applicability

Article 2 applies to transactions in goods, including all contracts involving the sale (and under 2A, leases) of goods

Goods = all things movable at the time they are identified to the contracts (UCC 2-105(1))

C. Structure (Articles)

D. Minnesota Application, MSA Chapter 336

II. Themes that permeate the UCC

A. Good Faith (UCC 1-203)

B. Unconscionability (2-302)

Basic Test: Whether, in light of the general commercial background and needs of the particular parties, the clauses are so one-sided as to be unconscionable under the circumstances existing at time K was made: Usually one side has substantially superior bargaining power

Adhesion Contracts: "Take It or Leave It" Buyer has no choice

C. Merchant Standards (2-104(1))

A number of rules in Article 2 depend on whether the seller (and sometimes the seller and buyer) is a merchant. The Code define a "merchant" as one who regularly deals in goods of the kind sold or who otherwise holds himself out as having special knowledge of the goods sold.

III.  Important Differences

A. Firm Offers (2-205)

If a merchant signs a written offer giving assurances that it will be held open, the offer is irrevocable for the stated period, or for a reasonable period if none is stated, in no event to exceed 3 months.

B. Battle of the Forms (2-207)

Article 2 abandons the Mirror Image Rule, and any acceptance or written confirmation sent within a reasonable time that indicates an intention to enter into a contract will be effective as an acceptance, even if it states additional or different terms for the K, unless the acceptance is made expressly conditional on assent to the acceptance terms. Whether the acceptance terms will be included in the K depends on whether both parties are merchants.

1. Ks Involving a Non-Merchant -- Terms of the Offer Govern

2. Ks between Merchants -- Acceptance Terms Usually Govern

C. Course of Dealing (1-205)

A sequence of previous conduct between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding

D. Usage of Trade (1-205) (2 x 4)

A practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question.

E. Open Terms -- (2-204, 2-305)

Court can supply reasonable terms for those that are missing

F. Allocation of Interest and Risk of Loss

Under pre-UCC law, title was a central concept in sales law controlling risk of loss, the seller's right to the sales price, and the buyer's right to the goods. Under the UCC, the importance of title has been substantially reduced. It controls none of the above questions and the drafters of the UCC tried to divorce the question of title as completely as possible from the question of the rights and remedies of the parties to a sales contract. Under the UCC scheme, several concepts replace title. They are (1) identification, (2) insurable interest, and (3) risk of loss

1. Identification: Designation of specific goods -- It gives the Buyer an insurable interest

2. Insurable Interest: The Buyer has an insurable interest in identified goods and can buy insurance even before the risk of loss has passed to her

3. Risk of Loss: Denotes which party will pay for goods that are lost, stolen, damaged or destroyed. Central question is when does the ROL shift from S to B

While at common law, tender of non-conforming goods does not constitute acceptance, under UCC shipment of NCG results as both acceptance of offer and breach

G. Non-Conforming Goods (2-206(1)(b))

H. Doctrine of Cure (2-508)

Where the B has rejected goods because of defects, S may within the time originally provided for performance "cure" by giving reasonable notice of intention to do so and making a new tender of conforming goods that the B must then accept.

IV. Remedies

A. Acceptance (2-606)

Occurs when (1) after a R opportunity to inspect B indicates to S that they conform to requirements or that she will keep them even though they fail to conform; or (2) B fails to reject within the proper time; or (3) B does any act inconsistent with the seller's ownership

B. Buyer's Rights On Improper Deliver

1. Reject Whole

2. Accept Whole

3. Accept in Part/Reject in Part

C. Buyer's Remedies Before Acceptance (2-711)

1. Cancel (2-106)

2. Damages (2-712) Basic remedy it the difference b/t the K price and either goods (Cover)

* "Market" = the difference b/t the contract price

* "Cover" = the cost of buying replacement goods

3. Specific Performance or Replevin (2-716)

D. Buyer's Remedies After Acceptance -- Revocation (2-608)

The time of acceptance is important because it terminates B's power to reject goods and obligates her to pay the price less any damages because of S's breach

B may revoke her acceptance if the defect materially impairs the value to her and (1) she accepted them on a reasonable belief that the defect would be cured and it has not been; or (2) she accepted them b/c of the difficulty of discovering defects or b/c of S's assurance that the goods conformed to the K

E. Merchant Buyer's Duties as to Rightfully Rejected Goods (2-602 -- 2-604)

1. Follow Seller's instructions to reship, store or deliver

2. If perishable goods, affirmative action to resell

F. Seller's Remedies before Buyer has Accepted (2-703)

1. Withhold Delivery of Goods (2-702; 2-705)

2. Stop Manufacturing (2-704)

3. Resell and Recover Damages (2-706)

4. Sue for Damages for Non-Acceptance (2-708)

5. Action for the Price (2-709)

6. Cancel (2-703)

G. Seller's Remedies After the Buyer Has Accepted

1. Action for the Price (2-709)

2. Seller's Right to Reclaim (2-702)

H. Anticipatory Repudiation and Assurances (2-609)

Under common law, intentional or unintentional actions or situations that make it unlikely that the other party will be able to carry out the K, may sometimes be treated as an anticipatory repudiation. Not so under UCC. However UCC gives protection in that the party who reasonably fears that the other party will not perform may demand assurances that performance will be forthcoming at the proper time.

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Index on Class Notes

BLAW600

BLAW301