THE LEGAL ENVIRONMENT
OF BUSINESS
A Critical Thinking Approach
Fourth Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
© 2006 Prentice Hall
Ch. 11-1
-1
THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 11
The Law of Contracts and Sales - II
© 2006 Prentice Hall
Ch. 11-2
THE LEGAL ENVIRONMENT OF BUSINESS
Discharging a Contract
By Performance
By Mutual Agreement
By Conditions
By Impossibility of Performance
By Commercial Impracticability
© 2006 Prentice Hall
Ch. 11-3
THE LEGAL ENVIRONMENT OF BUSINESS
Discharge by Performance
Complete Performance
Substantial Performance
Most terms completed
Honest effort
No willful noncompletion
Only minor items not done
© 2006 Prentice Hall
Ch. 11-4
THE LEGAL ENVIRONMENT OF BUSINESS
Material Breach
Is substantial breach
May also be intentional
Breaching party may usually “cure”
© 2006 Prentice Hall
Ch. 11-5
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-6
THE LEGAL ENVIRONMENT OF BUSINESS
Discharge by Mutual Agreement
Rescission
Accord and
satisfaction
Novation
© 2006 Prentice Hall
Ch. 11-7
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-8
THE LEGAL ENVIRONMENT OF BUSINESS
Discharge by Impossibility of Performance
Application
Where unforeseeable events either
make performance physically
impossible or legally impossible, or
extremely expensive to perform
© 2006 Prentice Hall
Ch. 11-9
THE LEGAL ENVIRONMENT OF BUSINESS
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.
© 2006 Prentice Hall
Ch. 11-10
THE LEGAL ENVIRONMENT OF BUSINESS
Remedies for Breach
Legal Remedies
Money Damages
Compensatory
Nominal
Punitive
Liquidated
Incidental and Consequential
© 2006 Prentice Hall
Ch. 11-11
THE LEGAL ENVIRONMENT OF BUSINESS
Equitable Remedies
Rescission
Reformation
Specific
Performance
Injunction
© 2006 Prentice Hall
Ch. 11-12
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
© 2006 Prentice Hall
Ch. 11-13
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
© 2006 Prentice Hall
Ch. 11-14
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.
© 2006 Prentice Hall
Ch. 11-15
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-16
THE LEGAL ENVIRONMENT OF BUSINESS
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 breaches2-708(1)
Reclaim goods
© 2006 Prentice Hall
2-702
Ch. 11-17
THE LEGAL ENVIRONMENT OF BUSINESS
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)
© 2006 Prentice Hall
Ch. 11-18
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-19
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-20
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-21
THE LEGAL ENVIRONMENT OF BUSINESS
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
© 2006 Prentice Hall
Ch. 11-22