BUL 5332 Class 3 Contract Law Cont'd / Sales Law

6 Ways to Discharge Contract

Ways to Discharge a Contract

1. Performance ←- Executed vs. Executory

2. Agreement ←- Parties agree to discharge contract

3. Accord of Satisfaction ←- Other party accepts half performed contract completed

4. Covenant Not to Sue ←- Release agreement

5. Novation ←- Release agreement

6. Operation of Laws

   1. Too much time passes

   2. Subject of matter is destroyed

   3. Death or incompetence of a party

   4. Consummate contract becomes illegal

   5. Bankruptcy

Performance

A way to discharge a contract where the parties have done everything they were supposed to do under the contract and completed the contract

• Fully performed contract is discharged

• Defined as:

  1. Executed

  2. Executory

Executed

Type of performance where both parties have fully performed the deal

Executory

Type of performance where there’s still something left to be done by one or more of the parties, and performance has NOT been competed

Accord of Satisfaction

Way to discharge a contract where an agreement is signed where one of the parties has NOT fully performed, but the other party is willing to consider the contract as completed

• Other party is willing to accept half performance

Covenant Not To Sue

Way to discharge a contract that’s a type of release agreement where one party agrees to release other party from its obligations under the contract in short of fully performing it

• One party may NOT be fully performed, but may pay a settlement to other party

Breach of a Contract

When party breaches a contract, you can sue and get Legal and Equitable Remedies (Promissory Estoppel)

Legal Remedy

Legal money damage (Cash) ←- Breach of Contract

1. Restitution ←- Give back what you got

2. Quantum Mervit ←- Equivalent value you would’ve gotten if contract was honored (“The Benefit of the Bargain”)

3. Expectation

Equitable Remedy

Something other than money damages (Breach of Contract)

1. Rescission/ Restitution ←- Re-send deal/ give back what you got

2. Reformation ←- Re-write contract

3. Specific Performance ←- Force other party by court to honor deal

Restitution

Someone breaches a contract where you can sue them and each party must give back what they got

• Lowest measure of money damage

• Legal Remedy

Expectation

Someone breaches a contract where you can sue them for anything you expected to be honored in the deal; the full value of what you would’ve gotten and more (additional costs) if contract had been honored

• Largest measure of money damages

• Legal Remedy

Recission

Someone breaches a contract and you cancel the deal/ resend the deal

• Equitable Remedy

Reformation

When someone breaches a contract and you ask the court to re-write the contract to reflect the deal that was agreed to, NOT what the document says ←- Legitimate error in contract

• Equitable Remedy

Specific Performance

When someone breaches a contract and you ask the court to force the other party to honor the deal

• Preferred remedy in Land Contracts

• Equitable Remedy

Sales Law

In modern era, we have created statutes to deal with contracting transactions in a business context; known as Article 2 of the UCC

Uniform Commercial Code (UCC)

A book filled with all the law merchant rules that was intended to simplify the rules

• NOT a law, meant to be guidelines at first…

  • In modern era, states started adopting it and made it statutory law

• Intent = Keeps parties out of court (Result disputes instead of filing lawsuits)

  • Meant to be a gap filler ←- If not stated in terms of the agreement

Law Merchant

A basic body of merchant law that tells about the rules of transacting with businesses

• All merchants knew the rules of transacting

Article 2 of the UCC

Sales law that applies to a sale of goods of $500 or more, where at least one party is a merchant

• Treats any kind of transaction in business as a contract ←- Emails are allowed

• UCC will identify goods if NOT stated in contract

Merchant

A person or entity who deals in goods and holds themselves out as having knowledge or skill peculiar to those goods

Goods

All things moveable, in existence, tangible, and identified to a contract

Identification

Requires that the goods be in existence and specifically identified to a contract UCC to recognize it

• Very loose in terms

  • If not in terms of the contract, UCC will tell when/ how the goods are identified

Once Identified, we know:

1. Who has title of goods ←- UCC imposes a warranty obligation

2. Who bears Risk of Loss

3. Who should buy insurance on goods

Can separate between parties ←- CANNOT separate in Common law

Risk of Loss

Who bears the risk of loss if the goods are damaged or destroyed

• Triggered at the time the goods are identified

• UCC treats all risk of loss as a Shipping Contract ←- ROL passes to Buyer when goods hit the carrier

  • Document of title ←- ROL passes when seller tenders document to the buyer

  • No document of title ←- ROL passes to buyer when the seller informs the holder of the goods of sale

Title

Possession of the title document; can state in agreement when title passes from seller to buyer

• Owner ←- Common Law

Whoever has title must give a warranty to the buyer when title passes

3 things triggered with title:

1. Warranty of title ←- Legitimate goods

2. Tells when title legally passes ←- Shipping vs. Destination contract

3. Voidable title ←- Good faith purchaser

Warranty of Title

A warranty obligation imposed by the UCC when title passes from buyer to seller ensuring that the seller is selling legitimate goods

• Automatically get warranty when title transfers from seller to buyer

• Held accountable even if you didn’t know the goods you sold were stolen

  • Voir Vs. Trinity ←- Seller of good bears risk of loss

Shipping Contracts

Type of shipping where title of goods pass when seller places the goods in the hands of a carrier

• Buyer bears the risk of loss (Must get insurance)

Destination Contracts

Type of shipping when goods are received (tendered) to the buyer at the designated destination

• Seller bears the risk of loss (Must get insurance)

• Must tender to buyer ←- Buyer must inspect

Tendered to the Buyer

Shipper (Seller) must present the goods to the buyer at the destination, and buyer has the right to inspect the goods before they accept it

Document of Title

UCC states that when there’s no shipment yet, look to the document of title (email, receipt), and title passes when the seller tenders the document to the buyer

• Has Document of title ←- Title passes when the seller tenders the document to the buyer

• No Document of title ←- Title passes the minute the goods are identified in the contract

Good Faith Purchaser (GFP)

Person must have purchased the goods with no knowledge of the impaired title to keep product as if you got a valid title rather than getting a refund

• Voidable title at your discretion

Nonconforming Goods

When Buyer does NOT get exactly what they bargained for, however, it must be material to underlying product (NOT substantially similar/ the same)

• If a seller ships non-conforming goods, risk of loss stays with the seller regardless of what deal says

• If Buyer rejects it, but UCC deems goods conforming —> risk of loss passes to the buyer

  • Buyer has responsibility to minimize loss/ ensure goods are NOT impaired until Seller can take them back

• Seller ships goods, then buyer subsequently discovers they are non-conforming, risk of loss passes back to seller the minute the buyer notifies the seller

Sale of Approval

Category of sale under UCC where the risk of loss stays with the Seller until the Buyer accepts the goods

• Buyer wants to try product out

• You believe in your product

Sale on Return

Category of a sale under UCC where the risk of loss stays with the Buyer from the point it was shipped to them until whatever was returned in the trucks if they know how may the want

• If Buyer does NOT know how much they want, risk of loss stays with Buyer the whole time

• Buyer is not certain of how much product they will need from the Seller and will send back whatever product that is NOT used

Right of the Buyer

The Buyer has an absolute right to inspect, before they accept

• Buyer can determine whether the goods are conforming, then can accept

Right of Adequate Assurance of Performance

If the Seller is in financial distress, and the Buyer has a purchase commitment, the Buyer has the right to request the Seller provide them with proof they can meet the Bueyer’s contract

• Absolute modern law, UCC rule

• Seller must provide a bank statement or whatever the Buyer requests

• Buyer can breach contract, if assurance canNOT be given ←- Seller canNOT sue

Right of the Seller

Seller has the rights to be paid, and have the right to adequate assurance of performance

• Seller has the right to request assurance from the Buyer ←- Can sue if Seller canNOT get adequate assurance

Remedies for the Buyer

Remedies that the UCC provides:

1. Cover and recover the price difference + Consequential damages

   1. Cover: Go to market and find substitute products and then sue Seller to recover the difference in price paid

   2. Consequential damages ←- Additional costs

Buyer must take action to cover to try to limit their damages

Remedies for the Seller

1. Seller can sue for the value of the product based on the contract

2. Seller can sell product to a different buyer and recover the difference of price + unpaid portion of the contract price + incidental damages

Products Liability Law

Modern law creation where each state categorizes it differently:

1. Negligence: Careless in making product with a defect

2. Strict Liability: Defective product = All supply chain is liable

3. Breach of Warranty

   1. Common Law = “Buyer Beware” ←- can NEVER sue Seller

Warranty

Under UCC when you sell goods, a buyer must get a warranty from the seller based on the type of transaction

• Expressed Warranty ←- Quality, condition, description, performance

• Implied Warranty ←- Created by law under UCC

  1. Implied Warranty of Merchantability

  2. Implied Warranty of Fitness For a Particular Purpose

Seller can disclaim all warranties ←- Do NOT have to give a warrant = “As is”

• Must tell you there’s NO warranty

Expressed Warranty

The seller makes a representation about the quality, condition, description, or performance of the goods

• “As Is” or “All Faults” ←- NO expressed warranty are made

Implied Warranty of Merchantability

Type of Implied warranty that’s automatic in every sale of goods of $500 or more where the merchant gives the Buyer a warranty under the UCC

• States the goods that are being bought are reasonably fit for the ordinary purposes for which such goods are used ←- Comparable to similar goods on market

• “Implied Warranty of Average”

  • Good just has to be average

Implied Warranty of Fitness For a Particular Purpose

Type of Implied warranty created by a transaction where the Seller has special knowledge or expertise about a product, and the Buyer relies on Seller’s expertise to select/ recommend suitable goods

• Product does NOT live up to expectation, because it was NOT fit for the purpose it was intended for ←- Breached