SCB2-Stuart Harper SCB2

8/9/2019 SCB2-Stuart Harper SCB2

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Contract Law BasicsContract Law Basics

A Practical Approach to ContractA Practical Approach to Contract

Review and NegotiationsReview and Negotiations


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Three Parts of TheThree Parts of The

PresentationPresentation PracticalPractical

EducationalEducational LegalLegal


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The PracticalThe Practical

Critical Basics to RememberCritical Basics to Remember


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Communication &Communication &

Common SenseCommon Sense

The stuff lawyers make confusingThe stuff lawyers make confusing

and corporations hope you dontand corporations hope you donthave!have!


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Real Life Signs That MakeReal Life Signs That MakeYou Think What Did YouYou Think What Did YouMean to Say ?Mean to Say ? Seeing Eye Dogs AllowedSeeing Eye Dogs Allowed

Please Do Not Put Foreign Material inPlease Do Not Put Foreign Material inthe Urinal.the Urinal.

Hands Free UrinalHands Free Urinal

AHOAHO HOHO


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RULE NUMBER ONERULE NUMBER ONE

Read each contract completely, askRead each contract completely, askquestions and utilize additionalquestions and utilize additionalresources if you need answersresources if you need answers


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Critical Basics toCritical Basics to

RememberRemember Who is the most commonly utilizedWho is the most commonly utilized

resource that should NEVER be aresource that should NEVER be aresource unless all facts are verified?resource unless all facts are verified?


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Your well trained salesYour well trained sales

advisor.advisor.


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Contract Sign On BonusContract Sign On Bonus

The customer signs on and the vendorThe customer signs on and the vendorgets the bonus.gets the bonus.

Close the deal based on the needs ofClose the deal based on the needs ofthe hospital, not the sales promotionthe hospital, not the sales promotiontimetable of the needs of the salestimetable of the needs of the sales

persons wallet.persons wallet.


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Important ResourcesImportant Resources

Corporate Compliance OfficerCorporate Compliance Officer

Risk ManagerRisk Manager

JCAHO Team LeaderJCAHO Team Leader

Subject ExpertSubject Expert

Hospital AttorneyHospital Attorney Outside ReviewOutside Review


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Contract ReviewContract Review

ConsiderationsConsiderations Include hospital terms and conditions as anInclude hospital terms and conditions as an

addendum to the vendors contract. It MUSTaddendum to the vendors contract. It MUST

be stated that hospital terms and conditionsbe stated that hospital terms and conditionsSUPERSCEDE vendor terms and conditions.SUPERSCEDE vendor terms and conditions.

Have an authorized agent of the companyHave an authorized agent of the companysign the hospital purchase order.sign the hospital purchase order.


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ConsiderationsConsiderations BEWARE of the third partyBEWARE of the third party

confidentially clause.confidentially clause.

NEVER sign away the right for thirdNEVER sign away the right for thirdparty review!!!!!!!!!!!!!!!!!!!!!!!party review!!!!!!!!!!!!!!!!!!!!!!!


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ConsiderationsConsiderationsAddress automatic contract renewal,Address automatic contract renewal,

sometimes known as Ever Greensometimes known as Ever Green

clause.clause. Review state law jurisdiction.Review state law jurisdiction.

Consider meditation clauses.Consider meditation clauses.

Use historical data for volumeUse historical data for volumecommitment contracts & projectcommitment contracts & projectconservatively.conservatively.


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Create a Negotiation PlanCreate a Negotiation Plan

To negotiate the sky is the limit, butTo negotiate the sky is the limit, butunderstand your essential needs.understand your essential needs.

Utilize a subject expert.Utilize a subject expert.

Set your time line, the best deal is theSet your time line, the best deal is thenext one!next one!

Know when to close.Know when to close.


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Items to NegotiateItems to Negotiate

Extended PaymentTerms or DiscountedExtended PaymentTerms or DiscountedQuick Pay.Quick Pay.

Late PaymentTerms, be very wary of % ofLate PaymentTerms, be very wary of % ofsale!sale!

Buy out terms.Buy out terms.

Taxes and other fees.Taxes and other fees.

Freight, fuel charges, hazmat fees, ifFreight, fuel charges, hazmat fees, ifapplicable.applicable.

Price Increases.Price Increases.


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Writing Your AddendumWriting Your Addendum

Clearly define expectations in writing.Clearly define expectations in writing.

Craft your language clearly and easyCraft your language clearly and easyto understand.to understand.

The courts normally support theThe courts normally support theclearest definition of intent.clearest definition of intent.

GETTHE LASTWORD IN!GETTHE LASTWORD IN!


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The 800 pound guerillaThe 800 pound guerilla

theorytheory Corporate attorneys write one sidedCorporate attorneys write one sided

agreements, look for balance.agreements, look for balance.

Who has the bigger legal resources?Who has the bigger legal resources?

Leverage Resources.Leverage Resources.

Bring your own guerilla!Bring your own guerilla!


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QUESTIONS ?QUESTIONS ?


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The EducationalThe Educational

Suggested Resources and PracticalSuggested Resources and PracticalAdvice, Four Books to Read to HelpAdvice, Four Books to Read to Help

Win with Contracting & Personal LifeWin with Contracting & Personal Life


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Where to get contractWhere to get contractlanguage, contract reviewlanguage, contract reviewand template RFP, RFI, IFB.and template RFP, RFI, IFB. Utilize third party experts!Utilize third party experts!


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Getting to YesGetting to Yes

How to Negotiate Without GivingHow to Negotiate Without Giving

InIn


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What They Didnt TeachWhat They Didnt TeachYou at Harvard BusinessYou at Harvard BusinessSchoolSchool I dont knowI dont know

I need helpI need help

Im sorryIm sorry


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The Four Agreements, AThe Four Agreements, APractical Guide ToPractical Guide ToPersonal FreedomPersonal FreedomAssume nothing.Assume nothing.

Be true to your word.Be true to your word.

Always do your best.Always do your best.

Dont take anything personal.Dont take anything personal.


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Repacking Your BagsRepacking Your Bags

Continue to grow and refine yourContinue to grow and refine your

skill set!skill set!


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The LegalThe Legal

StuffWritten by a Real AttorneyStuffWritten by a Real Attorney


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I. WhatIs a Contract?I. WhatIs a Contract?

A.A. Some concepts:Some concepts:

1.1. A contract is an agreement between parties to perform or notA contract is an agreement between parties to perform or notperform certain acts in the future, the conduct is of a kind that theperform certain acts in the future, the conduct is of a kind that theparties intend to be legally binding, and the agreement is such thatparties intend to be legally binding, and the agreement is such thata court may measure the loss suffered as a result of a breach.a court may measure the loss suffered as a result of a breach.

2.2. A contract is a promissory agreement between two or more personsA contract is a promissory agreement between two or more personsthat creates, modifies, or destroys a legal relation.that creates, modifies, or destroys a legal relation.

3.3. A contract is an agreement upon sufficient consideration to do orA contract is an agreement upon sufficient consideration to do ornot to do a particular thing.not to do a particular thing.

4.4. In order to be a contract, the promise made must be sufficientlyIn order to be a contract, the promise made must be sufficientlydefinite to justify a promisee in understanding that a commitmentdefinite to justify a promisee in understanding that a commitmenthas been made. Restatement (Second) of Contracthas been made. Restatement (Second) of Contract 2.2.


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B.B. Historically, the concept involved promises to beHistorically, the concept involved promises to bekeptkept ---- pacta sunt servandopacta sunt servando ---- That every manThat every mankept his given word.kept his given word.

1.1. The concept is at least as old as the covenant between Israel andThe concept is at least as old as the covenant between Israel andGod .God .

2.2. The concept of social contract is the basis of the ConstitutionThe concept of social contract is the basis of the Constitution ----government by the mutual consent of the governed. The principlesgovernment by the mutual consent of the governed. The principles

of justice supporting the basic structure of society (i) are the objectof justice supporting the basic structure of society (i) are the objectof the original agreement which formed the government, (ii)of the original agreement which formed the government, (ii)regulate all further agreements and (iii) specify the forms ofregulate all further agreements and (iii) specify the forms ofgovernment that can be established. J. Rawls, A Theory of Justicegovernment that can be established. J. Rawls, A Theory of Justice11 (1971).11 (1971).

3.3. Early American jurisprudence regarded contract rights as a naturalEarly American jurisprudence regarded contract rights as a naturalproduct of the immutable principles that preceded human law.product of the immutable principles that preceded human law.


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C. Requirements for a contract:C. Requirements for a contract:

1.1. PromisePromise: A commitment that something will or will not be: A commitment that something will or will not be

done in the future. It must be definite enough to qualify asdone in the future. It must be definite enough to qualify asa promissory.a promissory.

2.2. ExchangeExchange: Something of value (consideration) is: Something of value (consideration) isexchanged between the parties.exchanged between the parties.

3.3. EnforcementEnforcement: The parties intend to be bound. Failure to: The parties intend to be bound. Failure toabide by the promise results in legal sanctions.abide by the promise results in legal sanctions.


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D.D. Sometimes contract is thought only to beSometimes contract is thought only to bethe writing between the partiesthe writing between the parties. The. The

writing itself is not the contractwriting itself is not the contract. Certain. Certaintypes of contracts must betypes of contracts must be evidencedevidenced by aby awriting, but other contracts that arewriting, but other contracts that areevidenced byevidenced by oral communications ororal communications orconductconduct may be enforceable. A contract ismay be enforceable. A contract is

an abstract legal relationship between thean abstract legal relationship between theparties. J. E. Murray, Jr.,parties. J. E. Murray, Jr., Contracts: CasesContracts: Casesand Materialsand Materials, 5., 5.


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E.E. Importantly, a contract is whatever the court says it is. CaseImportantly, a contract is whatever the court says it is. Caselaw has modified, elaborated, refined and expanded generallaw has modified, elaborated, refined and expanded generalcommon law principles and has construed and interpretedcommon law principles and has construed and interpretedstatutory requirements. Legal research may find case lawstatutory requirements. Legal research may find case lawthat will determine the applicability of these basic conceptsthat will determine the applicability of these basic conceptsto any given situationto any given situation PromisePromise: A commitment that: A commitment thatsomething will or will not be done in the future. It must besomething will or will not be done in the future. It must bedefinite enough to qualify as a promissory.definite enough to qualify as a promissory.

1. An implied contract or quasi1. An implied contract or quasi--contract is an obligation imposed by lawcontract is an obligation imposed by lawfor the purpose of bringing about justice and equity, without reference tofor the purpose of bringing about justice and equity, without reference tothe parties intention. Although it is not a contract, it is treated as athe parties intention. Although it is not a contract, it is treated as acontract. Restitution and unjust enrichment are two important principles: acontract. Restitution and unjust enrichment are two important principles: aperson who has been unjustly enriched at the expense of another isperson who has been unjustly enriched at the expense of another isrequired to make restitution to the other.required to make restitution to the other.


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II. Promise: Offer and AcceptanceII. Promise: Offer and Acceptance

A.A. An offer is a promise to perform,An offer is a promise to perform,conditional on receiving acceptance.conditional on receiving acceptance.

1. Sometime there is lack of mutuality: one party may1. Sometime there is lack of mutuality: one party mayhave made no promise at all or made a promise that willhave made no promise at all or made a promise that willpermit that party to decline to perform. In this case, thepermit that party to decline to perform. In this case, thecontract is illusory because one party is not under anycontract is illusory because one party is not under anyobligation at all.obligation at all.


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B.B. An advertisement is usually not consideredAn advertisement is usually not consideredto be an offer. Consider the problems withto be an offer. Consider the problems with

mass advertising if each flyer weremass advertising if each flyer wereconsidered to be an offer. Advertisementsconsidered to be an offer. Advertisementsare seen as invitations for the buyer toare seen as invitations for the buyer tosubmit an offer.submit an offer.


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C.C. A price quote could be an offer or may be viewedA price quote could be an offer or may be viewedas inviting an offer rather than as making one.as inviting an offer rather than as making one.Restatement on Contracts (Second)Restatement on Contracts (Second) 26,26,

comment (c). The seller quotes a price or bidcomment (c). The seller quotes a price or bidfor a product, and the buyer notifies the sellerfor a product, and the buyer notifies the sellerthat it wants the product. This may be seen asthat it wants the product. This may be seen asan invitation to make an offer (seller) and thean invitation to make an offer (seller) and theoffer (the buyer). But, if the seller startedoffer (the buyer). But, if the seller started

supplying the product, and then increased itssupplying the product, and then increased itsprice, the buyer may be able to argue that thereprice, the buyer may be able to argue that therewas a valid contract, as evidenced by the sellerswas a valid contract, as evidenced by the sellersconduct.conduct.


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D.D. Acceptance: may be made verbally, inAcceptance: may be made verbally, in

writing, or it may be inferred from silencewriting, or it may be inferred from silenceor conduct.or conduct.


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E.E. To be enforceable, the promise must beTo be enforceable, the promise must bedefinite.definite.


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F.F. An offer may be revoked beforeAn offer may be revoked beforeacceptance, unless it is a firm offer, underacceptance, unless it is a firm offer, under

the Uniform Commercial Code,the Uniform Commercial Code, 8.28.2--205205[1][1]::

An offer by a merchant to buy or sell goods in a signedAn offer by a merchant to buy or sell goods in a signedwriting which by its terms gives assurance that it will be heldwriting which by its terms gives assurance that it will be heldopen is not revocable, for lack of consideration, during theopen is not revocable, for lack of consideration, during thetime stated or if no time is stated for a reasonable time, buttime stated or if no time is stated for a reasonable time, but

in no event may such period of irrevocability exceed threein no event may such period of irrevocability exceed threemonths; but any such term of assurance on a form suppliedmonths; but any such term of assurance on a form supplied

by the offeree must be separately signed by the offeror.by the offeree must be separately signed by the offeror.

[1][1] In Virginia, Article 2, the Uniform Commercial Code, codified atTitle 8.2 of the Code of Virginia, governsIn Virginia, Article 2, the Uniform Commercial Code, codified atTitle 8.2 of the Code of Virginia, governscontracts for the sale of goods. This Article will be referenced throughout this presentation as UCCcontracts for the sale of goods. This Article will be referenced throughout this presentation as UCC 8.28.2--xxx.xxx.


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Example 1: This offer will remain open for sixExample 1: This offer will remain open for sixmonths from the date of this letter. Sincerely, Xmonths from the date of this letter. Sincerely, X(The statute permits a firm offer to be open for(The statute permits a firm offer to be open for

just three months.)just three months.)

Example 2: We can offer you this product at $100.Example 2: We can offer you this product at $100.This is a firm offer. Sincerely, X(This offer willThis is a firm offer. Sincerely, X(This offer willremain open for three months.)remain open for three months.)

Example 3: We offer you this product at $100.Example 3: We offer you this product at $100.Sincerely, X (This is not a firm offer).Sincerely, X (This is not a firm offer).


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G.G. Acceptance may be evidenced by a partysAcceptance may be evidenced by a partys

conductconduct


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III. Mirror Image Rule and theIII. Mirror Image Rule and the

Battle of the FormsBattle of the Forms

A.A. Under the common law Mirror ImageUnder the common law Mirror Image

Rule, the acceptance has to be exactly theRule, the acceptance has to be exactly thesame as the offer or there was no contract.same as the offer or there was no contract.

A partys reply changing or adding termsA partys reply changing or adding termsnot in the offer constitutes a counteroffer .not in the offer constitutes a counteroffer .


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B.B. This results in the Battle of the Forms.This results in the Battle of the Forms.The Mirror Image Rule, in transactionsThe Mirror Image Rule, in transactionsinvolving goods between merchants, hasinvolving goods between merchants, hasbeen modified by the Uniform Commercialbeen modified by the Uniform CommercialCode (UCC)Code (UCC) 8.28.2--207:207:

8.28.2--207. Additional terms in acceptance or207. Additional terms in acceptance or

confirmationconfirmation


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Battle of the FormsBattle of the Forms(1)(1) A definite and seasonable expression of acceptance or a writtenA definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as anconfirmation which is sent within a reasonable time operates as anacceptance even though it states terms additional to or different fromacceptance even though it states terms additional to or different fromthose offered or agreed uponthose offered or agreed upon, unless acceptance is expressly made, unless acceptance is expressly madeconditional on assent to the additional or different terms.conditional on assent to the additional or different terms.

(2)(2) The additional terms are to be construed as proposals for addition to theThe additional terms are to be construed as proposals for addition to thecontract. Between merchants such terms become part of the contractcontract. Between merchants such terms become part of the contractunless:unless:

(a) the offer expressly limits acceptance to the terms of the offer;(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or(b) they materially alter it; or

(c) notification of objection to them has already been given or is given(c) notification of objection to them has already been given or is givenwithin a reasonable time after notice of them is received.within a reasonable time after notice of them is received.

(3)(3) Conduct by both parties, which recognizes the existence of a contract isConduct by both parties, which recognizes the existence of a contract issufficient to establish a contract for sale although the writings of thesufficient to establish a contract for sale although the writings of theparties do not otherwise establish a contract. In such case the terms ofparties do not otherwise establish a contract. In such case the terms ofthe particular contract consist of those terms on which the writings of thethe particular contract consist of those terms on which the writings of the

parties agree, together with any supplementary terms incorporated underparties agree, together with any supplementary terms incorporated underan other rovisions of this act.an other rovisions of this act.


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Battle of the FormsBattle of the FormsC.C. Pursuant to UCCPursuant to UCC 8.28.2--104, "Merchant" means a104, "Merchant" means a

person who deals in goods of the kind or otherwiseperson who deals in goods of the kind or otherwiseby his occupation holds himself out as havingby his occupation holds himself out as having

knowledge or skill peculiar to the practices orknowledge or skill peculiar to the practices orgoods involved in the transaction or to whom suchgoods involved in the transaction or to whom suchknowledge or skill may be attributed by hisknowledge or skill may be attributed by hisemployment of an agent or broker or otheremployment of an agent or broker or otherintermediary who by his occupation holds himselfintermediary who by his occupation holds himself

out as having such knowledge or skill. Betweenout as having such knowledge or skill. Betweenmerchants means in any transaction with respectmerchants means in any transaction with respectto which both parties are chargeable with theto which both parties are chargeable with theknowledge or skill of merchants.knowledge or skill of merchants.


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Battle of the FormsBattle of the FormsD.D. UCCUCC 8.28.2--207 was designed to regulate the207 was designed to regulate the

conduct whereby each party sent back preprintedconduct whereby each party sent back preprintedforms with different terms. Now, the mereforms with different terms. Now, the mere

presence of additional terms in one of the partiespresence of additional terms in one of the partiesforms will not prevent the formation of theforms will not prevent the formation of thecontract.contract.

1.1. If no contract is recognized, under 2If no contract is recognized, under 2--207 (1), then the transaction207 (1), then the transactionis nullified.is nullified.

2.2. If performance by both parties evidences the intent to be bound byIf performance by both parties evidences the intent to be bound bya contract, then under 2a contract, then under 2--207(3), the conduct is sufficient to207(3), the conduct is sufficient toestablish a contract.establish a contract.


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Battle of the FormsBattle of the Forms3.3. If there is a contract, the terms are those upon which the partiesIf there is a contract, the terms are those upon which the parties

agree and any additional ones supplemented by the UCC.agree and any additional ones supplemented by the UCC.

4.4. Example: One partys acceptance had arbitration terms. TheExample: One partys acceptance had arbitration terms. Theparties did not agree to arbitration inasmuch as the forms did notparties did not agree to arbitration inasmuch as the forms did notmatch. But both parties performed. There was a breach. Ismatch. But both parties performed. There was a breach. Isarbitration required? Since there was no agreement as to thearbitration required? Since there was no agreement as to thearbitration terms, the question is whether the UCC allows thearbitration terms, the question is whether the UCC allows theparties to supplement that term under some other UCC provision.parties to supplement that term under some other UCC provision.Some courts have held that the only supplemental terms that areSome courts have held that the only supplemental terms that areallowed are those that are the gap filler provisions in Article 2,allowed are those that are the gap filler provisions in Article 2,such assuch as

place of delivery (UCCplace of delivery (UCC 8.28.2--308)308)

time for shipment (UCCtime for shipment (UCC 8.28.2--309)309)

time payment is due (UCCtime payment is due (UCC 8.28.2--310)310)

Other courts may allow a reasonable price term to be substituted, underOther courts may allow a reasonable price term to be substituted, under

UCCUCC 8.2 28.2 2--305 if there was no agreement as to price.305 if there was no agreement as to price.


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Battle of the FormsBattle of the FormsE.E. The italics in the statute above clarifies that whenThe italics in the statute above clarifies that when

an acceptance (absent conditional language in thean acceptance (absent conditional language in theacceptance) adds additional terms, thoseacceptance) adds additional terms, thoseadditional terms become part of the contractadditional terms become part of the contractunless the terms listed in 2 (a)unless the terms listed in 2 (a)--(c) apply. Under(c) apply. Undersection 2, the additional terms proposed by thesection 2, the additional terms proposed by thebuyer are deemed to be proposals for new termsbuyer are deemed to be proposals for new terms

to the contract.to the contract.


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Battle of the FormsBattle of the FormsF.F. If the acceptance of the additional terms isIf the acceptance of the additional terms is

required for a contract to be formed, then a partyrequired for a contract to be formed, then a partycan prevent the others terms from prevailing, butcan prevent the others terms from prevailing, but

there is no contract. Look for the followingthere is no contract. Look for the followingwording to see whether additional terms constitutewording to see whether additional terms constitutea counteroffer as contemplated by section (1):a counteroffer as contemplated by section (1):

Examples: Acceptance of this offer must be made on the exact termsExamples: Acceptance of this offer must be made on the exact termsset forth herein. If additional terms are proposed, these terms willset forth herein. If additional terms are proposed, these terms willconstitute a counteroffer, and no contract will be formed withoutconstitute a counteroffer, and no contract will be formed withoutofferors assent to the counteroffer.offerors assent to the counteroffer.

This response supersedes any conflicting written or verbal terms ofThis response supersedes any conflicting written or verbal terms ofpurchase.purchase.


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G.G. If there are differences in the terms, and theIf there are differences in the terms, and theparties have performed, look to subsection (3) ofparties have performed, look to subsection (3) of

the statute. The contract consists of the termsthe statute. The contract consists of the termsthat match and any that may be supplemented bythat match and any that may be supplemented bythe UCC default provisions.the UCC default provisions.

Example: UCCExample: UCC 8.28.2--305 provides that if there is no price term, the305 provides that if there is no price term, the

contract would be for a reasonable price for the product.contract would be for a reasonable price for the product.


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H.H. Section 8.2Section 8.2--207 is inadequately drafted.207 is inadequately drafted.Frequently, there are two alternatives, but theFrequently, there are two alternatives, but the

statute only addresses one.statute only addresses one.

1.1. An acceptance containing additional terms may be a validAn acceptance containing additional terms may be a validacceptance if it is definite. If the terms are substantially differentacceptance if it is definite. If the terms are substantially different(price, description of goods, quantity) is it definite?(price, description of goods, quantity) is it definite?

2. What if the acceptance states that the agreement is subject to2. What if the acceptance states that the agreement is subject tothe conditions printed on the reverse side of this form? Is that athe conditions printed on the reverse side of this form? Is that aconditional acceptance?conditional acceptance?

3. Section (3) controls a contract established by conduct. This3. Section (3) controls a contract established by conduct. Thiscould be a problem for the offeror because the UCC may establishcould be a problem for the offeror because the UCC may establish

terms more favorable to the offeree.The UCC warranty terms, forterms more favorable to the offeree.The UCC warranty terms, forexample, are probably more favorable to the buyer.example, are probably more favorable to the buyer.


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Battle of the FormsBattle of the Forms4. What is an additional term? Is it the same as a different4. What is an additional term? Is it the same as a differentterm?term?

a. Not necessarily.a. Not necessarily.

b. The courts are split, but the better view is thatb. The courts are split, but the better view is thatdocumentation containing significantly different material terms is notdocumentation containing significantly different material terms is notan acceptance, but beware. Each party should ensure that thean acceptance, but beware. Each party should ensure that thepartys intentions are clear. Consider the following language:partys intentions are clear. Consider the following language:

Acceptance. Acceptance of this offer must be made on itsAcceptance. Acceptance of this offer must be made on its

exact terms and if additional or different terms areexact terms and if additional or different terms areproposedproposed by Seller, its response will constitute a counteroffer, andby Seller, its response will constitute a counteroffer, andno contract will come into existence without offerors assent tono contract will come into existence without offerors assent to

the counteroffer.the counteroffer.


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I.I. Make sure that the material terms match.Make sure that the material terms match.

Generally, price, quantity, date of delivery,Generally, price, quantity, date of delivery,payment terms are material, but each contract ispayment terms are material, but each contract isfactfact--specific. If its important, make sure the termspecific. If its important, make sure the termis expressly written in the final agreement, oris expressly written in the final agreement, orrestated as a condition to the contract in therestated as a condition to the contract in the

acceptance.acceptance.


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J.J. As a buyer, if you have a PO or a RFP that hasAs a buyer, if you have a PO or a RFP that has

terms that are essential and material, make the POterms that are essential and material, make the POor the RFP part of the final contract. You can door the RFP part of the final contract. You can dothis by stating:this by stating:

The Purchase Order (or RFP) of (date) is incorporatedThe Purchase Order (or RFP) of (date) is incorporated

herein by reference and is made a part of this Agreementherein by reference and is made a part of this Agreementas if set forth and restated herein.as if set forth and restated herein.


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IV. Intention to be BoundIV. Intention to be Bound

A.A. Many parties fail to adequately express theirMany parties fail to adequately express their

intention to enter into a contract and to be sointention to enter into a contract and to be sobound. Sometimes a party does not intend that itsbound. Sometimes a party does not intend that itsoffer be accepted without further negotiation. Ifoffer be accepted without further negotiation. Ifso, the offeror should make this clear by indicatingso, the offeror should make this clear by indicating

that the offer is only an invitation to negotiate.that the offer is only an invitation to negotiate.


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B.B. Frequently, the parties carelessly draft a letter ofFrequently, the parties carelessly draft a letter ofintent that turns out to be a letter agreementintent that turns out to be a letter agreement----even though the parties fully intended that furthereven though the parties fully intended that further

drafting/negotiation follow. The following type ofdrafting/negotiation follow. The following type oflanguage should be included in a letter of intent:language should be included in a letter of intent:

In order to be enforceable, the parties must enter into a writtenIn order to be enforceable, the parties must enter into a writtenagreement signed by both parties.agreement signed by both parties.

Among the conditions of closing the contemplated transaction,Among the conditions of closing the contemplated transaction,is the execution of a definitive agreement containing appropriateis the execution of a definitive agreement containing appropriaterepresentations and warranties and requisite corporaterepresentations and warranties and requisite corporateapprovals.approvals.


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C.C. Under the common law parties who agree toUnder the common law parties who agree toagree at a later date did not have a contract.agree at a later date did not have a contract.Under the UCC, however, parties may contract forUnder the UCC, however, parties may contract for

the sale of goods by leaving terms open, accordingthe sale of goods by leaving terms open, accordingto UCCto UCC 8.28.2--204(3):204(3):

8.28.2--204. Formation in general.204. Formation in general.

1) A contract for sale of goods may be made in any manner1) A contract for sale of goods may be made in any manner

sufficient to show agreement, including conduct by both partiessufficient to show agreement, including conduct by both partieswhich recognizes the existence of such a contract.which recognizes the existence of such a contract.

(2) An agreement sufficient to constitute a contract for sale may(2) An agreement sufficient to constitute a contract for sale maybe found even though the moment of its making isbe found even though the moment of its making isundetermined.undetermined.

(3) Even though one or more terms are left open a contract for(3) Even though one or more terms are left open a contract forsale does not fail for indefiniteness if the parties have intendedsale does not fail for indefiniteness if the parties have intended


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V. Consideration V. Consideration

A.A. A contract requires a bargain in which there is aA contract requires a bargain in which there is amanifestation of mutual assent to the exchangemanifestation of mutual assent to the exchangeand a consideration.and a consideration.


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B.B. Consideration is what a party receives in exchangeConsideration is what a party receives in exchangefor his consideration or his promise.for his consideration or his promise.

1.1. It may be an act, a forbearance, or the creation, modificationIt may be an act, a forbearance, or the creation, modificationor destruction of a legal relation (e.g. a separationor destruction of a legal relation (e.g. a separationagreement between spouses).agreement between spouses).

a.a. Mutual promises can be consideration. Look at eachMutual promises can be consideration. Look at eachcontract to determine consideration on both sides.contract to determine consideration on both sides.

b. Its okay if the number of exchanges are not equalb. Its okay if the number of exchanges are not equalor the consideration is not equivalent.or the consideration is not equivalent.

cc But the consideration has to be adequate.But the consideration has to be adequate.


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Without consideration, a promise toWithout consideration, a promise to

perform is a gift promise and is notperform is a gift promise and is notenforceable.enforceable.

Example: Although I promise to give you half my house,Example: Although I promise to give you half my house,

without consideration or an exchange to me on your part,without consideration or an exchange to me on your part,

this is an unenforceable gift promise.this is an unenforceable gift promise.


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VI. Parol EvidenceVI. Parol Evidence

A.A. It is important that the parties are able to rely onIt is important that the parties are able to rely onthe expression of their intent as stated in thethe expression of their intent as stated in thewritten contract or, in the case of an oralwritten contract or, in the case of an oral

contract, in their verbal expression.contract, in their verbal expression.

1. It is wrong, however, to have a partially written and a1. It is wrong, however, to have a partially written and apartially verbal agreement if the contract is intended, orpartially verbal agreement if the contract is intended, or

appears to be intended, to be entirely in writing.appears to be intended, to be entirely in writing.


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B.B. The Parol Evidence Rule: When the parties to a contractThe Parol Evidence Rule: When the parties to a contractembody their agreement in a writing, and intend that theembody their agreement in a writing, and intend that thewriting is the final expression of their agreement, the termswriting is the final expression of their agreement, the termsof the writing may not be contradicted by evidence of a priorof the writing may not be contradicted by evidence of a prior

agreement.agreement.

1.1. Example: The parties had an agreement. Subsequently, there wasExample: The parties had an agreement. Subsequently, there wasanother agreement. A party argues that the second agreement wasanother agreement. A party argues that the second agreement wasintended to be the finalintended to be the final and complete expression of the parties intention,and complete expression of the parties intention,replacing the first agreement. A court would decide the question of fact: Didreplacing the first agreement. A court would decide the question of fact: Didthe parties intend the second agreement to be the final, completethe parties intend the second agreement to be the final, complete

(integrated) agreement, or did they intend(integrated) agreement, or did they intend that the terms of boththat the terms of bothagreements be operative?agreements be operative?

a. Extrinsic (outside the 4a. Extrinsic (outside the 4--corners of the document) or parol (oral) evidence cancorners of the document) or parol (oral) evidence canbe used to determine the meaning of their manifestations of intent, or thebe used to determine the meaning of their manifestations of intent, or theinterpretation of their outward manifestations.interpretation of their outward manifestations.

b.b. Extrinsic or parol evidence cannot be offered toExtrinsic or parol evidence cannot be offered to vary, add to,vary, add to, oror contradictcontradict thethe

terms of a written agreement.terms of a written agreement.


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C.C. The parol evidence rule applies to prior orThe parol evidence rule applies to prior orcontemporaneous agreements and does not havecontemporaneous agreements and does not haveany application to subsequent modifications. Theany application to subsequent modifications. The

parties are free to modify contracts.parties are free to modify contracts.

1.1. UCCUCC 22--209 (1) allows good faith modifications to be effective209 (1) allows good faith modifications to be effectivewithout additional consideration.without additional consideration.

2.2. Frequently, the parties have agreed that oral modifications areFrequently, the parties have agreed that oral modifications are

notnot permitted. An example of this private statute of frauds is:permitted. An example of this private statute of frauds is:

All changes or modifications of this Agreement shall be inAll changes or modifications of this Agreement shall be inwriting signed by the party against whom enforcement of anywriting signed by the party against whom enforcement of anywaiver, change, modification, extension or discharge is sought.waiver, change, modification, extension or discharge is sought.


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VII. Merger ClausesVII. Merger Clauses

A.A. Merger clauses (a/k/a integration clauses orMerger clauses (a/k/a integration clauses orzipper clauses) are contract clauses that readzipper clauses) are contract clauses that readsubstantially as follows:substantially as follows:

1.1. This Agreement contains the whole agreement between theThis Agreement contains the whole agreement between theSeller and Buyer and there are no other terms, obligations,Seller and Buyer and there are no other terms, obligations,covenants, representations, statements or conditions, oral orcovenants, representations, statements or conditions, oral orotherwise of any kindotherwise of any kind whatsoever; orwhatsoever; or

2.2. This Agreement sets forth the entire understanding betweenThis Agreement sets forth the entire understanding between

the parties hereto and supersedes all other prior agreementsthe parties hereto and supersedes all other prior agreementsbetween the partiesbetween the parties with respect to the subject matter hereof.with respect to the subject matter hereof.Each party acknowledges thatEach party acknowledges that no representations, inducements,no representations, inducements,promises or agreements, orally or otherwise, have been made bypromises or agreements, orally or otherwise, have been made byany party, or anyone acting on behalf of any party, that are notany party, or anyone acting on behalf of any party, that are notembodied in this Agreement, and that no other agreement orembodied in this Agreement, and that no other agreement orpromise not contained in this Agreement shall be valid orpromise not contained in this Agreement shall be valid or bindingbindingas between Company and Client.as between Company and Client.


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VII. Merger ClausesVII. Merger Clauses

B.B. Merger clauses are usually interpreted toMerger clauses are usually interpreted to

determine that the agreement is completelydetermine that the agreement is completelyintegrated. There is, however, minority opinionintegrated. There is, however, minority opinionrefusing to give such clauses exclusionary effect, ifrefusing to give such clauses exclusionary effect, ifthe clause is not negotiated and on a preprintedthe clause is not negotiated and on a preprintedform.form.


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VIII. ContractInterpretationVIII. ContractInterpretation

A.A. Some principles of contract constructionSome principles of contract construction

1.1. Purpose of the partiesPurpose of the parties. Make it clear what the purpose of. Make it clear what the purpose of

thethe contract is, and the purpose the parties intended tocontract is, and the purpose the parties intended toeffect.effect.

2.2. The contract should be construed as a whole.The contract should be construed as a whole. CourtsCourtsfavor interpretations that make sense when the contract isfavor interpretations that make sense when the contract isviewed as a whole.viewed as a whole.

3.3. The contract speaks for itself.The contract speaks for itself. This traditional viewThis traditional viewconsiders that the contract says what it means, not what theconsiders that the contract says what it means, not what theparties say it means. A more modern view is:parties say it means. A more modern view is:

4.4. The contract should be viewed in context.The contract should be viewed in context. The contractThe contractis part of the entire situation, the entire context oris part of the entire situation, the entire context or

environment, all ofenvironment, all of which can be used to interpret thewhich can be used to interpret the


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55.. Expressio Unius Est Exclusio AlteriusExpressio Unius Est Exclusio Alterius. (The inclusion of. (The inclusion ofone isone is the exclusion of all others). If a clause in athe exclusion of all others). If a clause in acontract lists specificcontract lists specific items, other items not includeditems, other items not includedwill probably be excluded.will probably be excluded.

a. Use of the wording including but not limited to makes it clear that any list ofa. Use of the wording including but not limited to makes it clear that any list ofparticulars/specifics is not inclusive.particulars/specifics is not inclusive.

6.6. TThe contract is construed against the party drafting it.he contract is construed against the party drafting it.The drafterThe drafter is disadvantaged when courts consider theis disadvantaged when courts consider themeaning of contractualmeaning of contractual terms, interpreting the terms interms, interpreting the terms infavor of the nonfavor of the non--drafting partydrafting party..

7.7. The reasonable, lawful meaning will be chosen over theThe reasonable, lawful meaning will be chosen over theunreasonable, farfetched or unlawful meaning. Theunreasonable, farfetched or unlawful meaning. The

interpretationinterpretation supporting public policy arguments willsupporting public policy arguments willbe favored.be favored.

8.8. Ejusdem Generis.Ejusdem Generis. (Of the same kind.)(Of the same kind.)If generalIf generalcontractcontract lan ua e is followed b s ecific items, thelan ua e is followed b s ecific items, the


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B.B. If you want to:If you want to: Use this language:Use this language:Create a rightCreate a right entitled toentitled to

Create a requirement or dutyCreate a requirement or duty shallshall

Create a discretionary choice or toCreate a discretionary choice or toindicate a exercise of a rightindicate a exercise of a right maymay

Create a condition precedentCreate a condition precedent mustmust


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IX. Oral or Written?IX. Oral or Written?

An oral contract or a contract evidenced by conduct may beAn oral contract or a contract evidenced by conduct may beperfectly enforceable if the other essentials for contractperfectly enforceable if the other essentials for contractformation exist. Under English law, law, however, certainformation exist. Under English law, law, however, certainexceptions were created by the State of Frauds, in 1677 andexceptions were created by the State of Frauds, in 1677 andto a large extent apply today. The following contracts, amongto a large extent apply today. The following contracts, amongothers, should be evidenced by a writing:others, should be evidenced by a writing:

Promise to marry (e.g. prenuptial agreements)Promise to marry (e.g. prenuptial agreements)

Contract which cannot be performed within a yearContract which cannot be performed within a year

Contracts for the sale of land, or interest in landContracts for the sale of land, or interest in land

Contracts or promises made by an executorContracts or promises made by an executorSale of goods worth over $500 (UCCSale of goods worth over $500 (UCC 8.28.2--201):201):

Except as otherwise provided in this section a contract for the sale of goods for the priceExcept as otherwise provided in this section a contract for the sale of goods for the priceof $500 or more is not enforceable by way of action or defense unless there is someof $500 or more is not enforceable by way of action or defense unless there is somewriting sufficient to indicate that a contract for sale has been made between the partieswriting sufficient to indicate that a contract for sale has been made between the partiesand signed by the party against whom enforcement is sought or by his authorized agentand signed by the party against whom enforcement is sought or by his authorized agent

or brokeror broker


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X. BreachX. Breach

Disputes arising out of contracts for the sale ofDisputes arising out of contracts for the sale ofgoods can be very complex. Proper analysisgoods can be very complex. Proper analysisrequires detailed knowledge of the UCC, Article 2.requires detailed knowledge of the UCC, Article 2.

Here are some of the UCC statutes implicated byHere are some of the UCC statutes implicated bydisputes (failure to perform; supply of defectivedisputes (failure to perform; supply of defectivegoods) in the sale of goods. Be careful and seekgoods) in the sale of goods. Be careful and seeklegal counsel when disputes arise.legal counsel when disputes arise.

Rejection of nonconforming goods: UCCRejection of nonconforming goods: UCC 8.28.2--601601Anticipatory Repudiation: UCCAnticipatory Repudiation: UCC 8.28.2--610610

Retraction of Anticipatory Repudication: UCCRetraction of Anticipatory Repudication: UCC 8.28.2--611611

Right to Cure: UCCRight to Cure: UCC 8.28.2--508508

Liquidated Damages: UCCLiquidated Damages: UCC 8.28.2--718 (1)718 (1)

Buyers Remedies: UCCBuyers Remedies: UCC 8.28.2--711711

Right to cover: UCCRight to cover: UCC 8.28.2--712712Sellers Remedies: UCCSellers Remedies: UCC 8.28.2--703703


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XI. IndemnificationXI. Indemnification

A.A. Indemnify means to save harmless; to secureIndemnify means to save harmless; to secureagainst loss or damage; to give security for theagainst loss or damage; to give security for thereimbursement of a person in case of anyreimbursement of a person in case of any

anticipated loss falling upon him. Ananticipated loss falling upon him. Anindemnification clause in a contract is like aindemnification clause in a contract is like aprivate insurance policy: one party (theprivate insurance policy: one party (theindemnitor) promises to pay the damages, andindemnitor) promises to pay the damages, andsometimes, the legal expenses, of the other partysometimes, the legal expenses, of the other party

(the indemnitee), arising out of the contractual(the indemnitee), arising out of the contractualrelationship or transaction. The indemnificationrelationship or transaction. The indemnification

clause usually covers claims by thirdclause usually covers claims by third--parties.parties.


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B.B. Under what circumstance does the indemnitorUnder what circumstance does the indemnitorhave to pay? It depends on the language in thehave to pay? It depends on the language in theindemnification clause:indemnification clause:

1.1. The indemnitor may be obligated to pay if theThe indemnitor may be obligated to pay if theindemnitee is simply sued as a result of the transaction.indemnitee is simply sued as a result of the transaction.

2.2. Sometimes its an absolute requirement to pay allSometimes its an absolute requirement to pay allclaims, period:claims, period:

The customer agrees to defend, indemnify and hold harmless XYZ ContainerThe customer agrees to defend, indemnify and hold harmless XYZ ContainerCorporation from and against any and all claims for loss or damage to property, orCorporation from and against any and all claims for loss or damage to property, orinjury to or death of person or persons resulting from or arising in any manner outinjury to or death of person or persons resulting from or arising in any manner out

ofof customers use, operation or possession of the equipment furnished under thecustomers use, operation or possession of the equipment furnished under theAgreement.Agreement.

Sometimes the indemnification provision is triggered if negligence isSometimes the indemnification provision is triggered if negligence isclaimed; sometimes, the indemnification is triggered if the lawsuit isclaimed; sometimes, the indemnification is triggered if the lawsuit ispremised on the indemnitors intentional or reckless conduct. Or,premised on the indemnitors intentional or reckless conduct. Or,

depending on the language, thedepending on the language, the obligation is triggered if the legal actionobligation is triggered if the legal actionis successful.is successful.


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3.3. If the indemnification provision has the requirement toIf the indemnification provision has the requirement todefend, it usually means the indemnitor has to pay the legaldefend, it usually means the indemnitor has to pay the legalcosts of the other party, but frequently may be able to chosecosts of the other party, but frequently may be able to chose

the indemnitees legal counsel.the indemnitees legal counsel.4.4. Frequently, the indemnification clause is written so it isFrequently, the indemnification clause is written so it is

triggered only if the claims have been successful.triggered only if the claims have been successful.


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XII. WarrantyXII. Warranty

A.A. The UCC has transformed the law of warrantiesThe UCC has transformed the law of warrantieswith respect to the sale of goods. UCCwith respect to the sale of goods. UCC 8.28.2--313,313,--314,314, --315.315.

B.B. TheThe express warrantyexpress warranty is a warranty crated by ais a warranty crated by apromise or affirmation of fact by the seller inpromise or affirmation of fact by the seller inrelation to some quality or feature of the goodsrelation to some quality or feature of the goodswhich are the subject matter of the sale of goods.which are the subject matter of the sale of goods.UCCUCC 8.28.2--313(1)(a)313(1)(a)

1.1. Trade usage, course of dealing or course of performance mayTrade usage, course of dealing or course of performance mayaffecct theaffecct the interpreation.interpreation.

2.2. Express warranties may be created by model or sample; oral orExpress warranties may be created by model or sample; oral orwrittenwritten representations of fact; plans or blueprints; technicalrepresentations of fact; plans or blueprints; technicalspecifications;specifications; reference to official standards; productsreference to official standards; productssupplied in the past.supplied in the past.


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C.C. TheThe implied warranty of merchantabilityimplied warranty of merchantability is theis thebasic quality of goods that the buyer is entitled tobasic quality of goods that the buyer is entitled toreceivereceive ---- goods fit for the ordinary purposes ofgoods fit for the ordinary purposes of

such goods. The buyer may not be entitled tosuch goods. The buyer may not be entitled toperfect goods, but those which a reasonableperfect goods, but those which a reasonablebuyer would normally expect to receive. UCCbuyer would normally expect to receive. UCC8.28.2--314 (2)(c)314 (2)(c)

D.D. TheThe implied warranty of fitness for a particularimplied warranty of fitness for a particularpurposepurpose applies when the seller has reason toapplies when the seller has reason toknow of a particular purpose which the buyerknow of a particular purpose which the buyerexpects the goods to fulfill. The seller may alsoexpects the goods to fulfill. The seller may alsoknow that the buyer is relying on his particularknow that the buyer is relying on his particular

judgment and expertise and skill in supplyingjudgment and expertise and skill in supplying


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E.E. DisclaimersDisclaimers1. Express warranties1. Express warranties

a. Seller warrants that the goods are as described in thisa. Seller warrants that the goods are as described in this

agreement, but no other warranty is made.agreement, but no other warranty is made.b. There are no express warranties.b. There are no express warranties.

2. Specific or general disclaimer to disclaim implied2. Specific or general disclaimer to disclaim impliedwarrantieswarranties

a. UCCa. UCC 8.28.2--316 (2) or (3)316 (2) or (3)

b. As Isb. As Is

c. Conspicuousness requirement of UCCc. Conspicuousness requirement of UCC

Documents

SCB2-Stuart Harper SCB2