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Chapter 11 Sales, Leases, and E-Contracts PowerPoint PPT Presentation


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Chapter 11 Sales, Leases, and E-Contracts. Introduction. Facilitates commercial transactions. UCC Article 2: Sale of Goods. Modifies common law of contracts of some areas. UCC 2 preempts common law. Where UCC2 is silent, common law governs. §1: The Scope of UCC 2— The Sale of Goods.

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Chapter 11 sales leases and e contracts l.jpg

Chapter 11Sales, Leases, and E-Contracts


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Introduction

  • Facilitates commercial transactions.

  • UCC Article 2: Sale of Goods.

    • Modifies common law of contracts of some areas.

    • UCC 2 preempts common law.

    • Where UCC2 is silent, common law governs.


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§1: The Scope of UCC 2—The Sale of Goods

  • Does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC2 does not apply.

  • Generally contracts for services are not governed by UCC2.

  • What if Goods and Services combined?


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Scope of Article 2

  • UCC2 applies to the “sale of goods.”

    • A “sale” is the passing of title of “goods” to/from a “merchant” (seller or buyer) for a price (money, goods, services,etc).

    • “Goods” are tangible and movable.

    • A “merchant” has special business expertise and is not a casual buyer/seller.


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§2: Scope of UCC 2A-Leases

  • Contract for lease of personal goods between a lessor and a lessee.

  • Consumer Leases (total payments less than $25,000).

  • Finance Leases (involves a 3rd party-supplier).


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§ 3: Amendments to Articles 2 and 2A

  • 2002 Amendments attempt to accommodate electronic commerce.

  • Article 2 consistent with UETA and E-SIGN.

  • “Writing” is now “record.”


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§4: Formation of Sales and Lease Contracts

  • At common law once a valid offer is unequivocally accepted, a binding contract is formed.

  • UCC is more flexible, and allows for open pricing, payment, and delivery terms.


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Open Terms

  • UCC 2-204: even if terms of are undetermined, a contract may still exist.

    • Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy.


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Open Terms

  • Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” UCC2-305.

  • Open Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC2-310(a).

  • Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a).


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Open Terms

  • Open Quantity: generally courts will not impose a quantity. UCC2-306. Exceptions:

    • Requirements Contract: buyer agrees to purchase what the buyer needs or requires.

    • Output Contract: buyer agrees to buy all of seller’s production or output.


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Merchant’s Firm Offer

  • At common law, an offer could be revoked any time prior to acceptance, unless there was some consideration.

  • At UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary.


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Acceptance

  • Any reasonable means of acceptance under the circumstances is permissible.

  • Promise to ship or prompt shipment is acceptance.

  • Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer (UCC2-206).


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Additional Terms

  • If either party is a non-merchant, the contract is formed according to original terms of the offer.

  • If both parties are merchants, contract incorporates new terms unless:

    • (1) original offer expressly limits terms, or

    • (2) material change, or

    • (3) offeror objects within reasonable time.


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§ 5: Consideration

  • UCC requires consideration and modifications must be made in good faith.

  • Modification must be in writing if required by Statute of Frauds.


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§ 6: Statute of Frauds

  • Sale of goods over $500 must have a signed writing to be enforceable.

  • Exceptions to this rule:

    • Specially manufactured goods.

    • Admissions by breaching party.

    • Partial performance.

    • Merchant doesn’t object within 10 days.

  • Oral agreement enforceable after written confirmation between merchants.


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§ 7: Title, Risk and Insurable Interest

  • Sale of goods requires different rules than real property transactions: risk should not always pass with title.

  • UCC replaces title with identification, risk, and insurable interest.


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Identification

For any interest to pass to buyer, goods must be:

  • In existence.

  • Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others. Except for fungible goods which do not need separation).


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Identification [2]

  • Gives the buyer the right:

    • To obtain insurance on the goods.

    • To recover from third parties who damage the good.

  • Identification occurs:

    • If goods are designated when contract is made. If goods are not designated when contract is made, then identified at time of designation.


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When Title Passes

  • Title can pass:

    • Upon physical delivery, or

    • When agreed to by the parties, or

    • If no agreement, depends on whether contract is shipment or destination contract:

      • Shipment: title passes at time and place of shipment.

      • Destination: title passes when goods are tendered at the destination.

  • Case 11.1:In re Stewart (2002).


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Delivery Without Movement of Goods

  • Title passes when agreed by the parties, or

  • With document of title: when and where document delivered.

  • Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified.


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Risk of Loss

  • ROL is important because of insurance concerns.

  • ROL does not necessarily pass with title.

  • Unless agreed otherwise, ROL passes to Buyer depending on whether delivery is with or without movement of the goods.


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ROL: Delivery With Movement

  • Shipment Contracts.

    • ROL passes to Buyer when tendered to Carrier. If goods damaged in transit, Buyer’s loss.

  • Destination Contracts.

    • ROL passes to Buyer when goods tendered at particular Destination.


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ROL: Delivery Without Movement of Goods

  • Goods Held by Seller:

    • Document of Title is generally not used.

    • If Seller is a merchant, ROL passes when buyer takes physical possession of goods.

  • Goods Held by Bailee (Warehouse). ROL passes when:

    • Buyer receives document of title; bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.


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ROL: Shipping Terms


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ROL: Conditional Sales

  • Sale on Approval.

    • ROL passes when buyer approves expressly or implicitly.

  • Sale or Return. (Consignment is sale or return unless it complies with Art. 9.)

    • ROL passes to buyer with possession.


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ROL in Breach of Contract

  • Generally breaching party bears ROL.

  • Seller’s Breach.

    • Rejection - risk stays with seller.

    • Revocation of acceptance - risk passes back to seller to the extent that buyer’s insurance does not cover the loss.

  • Buyer’s Breach. Goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.


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Insurable Interest

  • Buyer has an insurable interest in goods that have been identified.

  • Seller has an insurable interest in goods as long as they retain title or a security interest.

  • Both buyers and sellers can have an insurable interest at the same time.


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§ 8: Performance of Sales and Lease Contracts

  • Seller must transfer and deliver conforming goods.

  • Buyer must accept and pay for conforming goods.

  • In the absence of an agreement between Seller and Buyer UCC Article 2 controls as set out below.


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Good Faith Requirement

  • Good Faith is the foundation of every UCC commercial contract.

  • Good faith means honesty in fact.

  • For a merchant, it means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Merchants are held to a higher standard of care than non-merchants.


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Obligations of the Seller or Lessor

  • Seller has a duty to “tender” delivery of “conforming goods.”

  • Tender means “delivery” to agreed place:

    • With reasonable notice.

    • At a reasonable hour.

    • In a reasonable manner.

    • Exactly, unless otherwise agreed.


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Place of Delivery

  • If no place designated, Buyer picks up at Seller’s place of business or, if Seller has no place of business, then Seller’s residence.

  • If contract involves identified goods, and the goods are located somewhere else (e.g., a warehouse), then the location of the goods is the place of delivery.


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The Perfect Tender Rule

If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to:

  • Accept the goods;

  • Reject the entire shipment; or

  • Accept part and reject part.


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Exceptions to the Perfect Tender Rule

  • Agreement of the Parties.

  • Cure.

  • Substitution of Carriers.

  • Installment contracts.

  • Commercial Impracticability.

  • Destruction of Identified goods.

  • Cooperation and Assurance.


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Exceptions: Agreement of the Parties

  • Parties agree that some defective goods will be acceptable.

  • Parties agree that defective goods can be replaced or repaired within a certain time.


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Exceptions: Seller’s Cure

  • Seller has the right to “Cure” (ship conforming goods to Buyer) if:

    • Agreed time of performance has not yet expired; or

    • If Seller had reasonable grounds to expect that Buyer would accept non-conforming goods, i.e., these goods are better than goods ordered, or Buyer has accepted non-conforming goods in the past.


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Exceptions: Substitution of Carriers

If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable.


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Exceptions: Commercial Impracticability

  • Occurrence of an unforeseen contingency that makes performance impracticable.

  • Nonoccurrence was a basic assumption on which the contract was made.

  • If only partial impracticability, Seller must allocate what he/she has.


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Exceptions: Installment Contracts

  • Installment Contracts can be rejected if:

    • installment is substantially non-conforming and can’t be cured.

    • non-conforming installment substantially impairs the entire contract.


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Exceptions: Destruction of Goods

  • If no fault of either party and it occurs

  • Before risk passes to Buyer then

  • Both Seller and Buyer are excused from performance.


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Exceptions: Cooperation

  • Sometimes unforeseen event only partially affects Seller’s capacity to perform.

  • In that event, Seller has duty to reasonably allocate any remaining production capacity to fulfilling contractual performance.

  • Buyer has the right to reject.

  • Case 11.2:Koch Materials Co. v. Shore Slurry Seal, Inc. (2002).


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Obligations of the Buyer or Lessee

  • Furnish facilities reasonably suited for receipt of the goods.

  • Make payment at the time and place the Buyer receives the goods.

    • Credit has to be prearranged.

      • Credit period begins on the date of shipment.

    • Pay with cash, credit card, check.

      • But if Seller asks for cash, Seller has to give Buyer time to get cash.


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Buyer’s Obligations

  • Buyer has right to inspection before paying:

    • Costs of inspection borne by Buyer.

    • However, C.O.D., C.I.F. and C&F give Buyer no right to inspect.


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Acceptance

  • Buyer can accept goods:

    • By words or conduct.

    • If Buyer had reasonable amount of time and failed to reject.

    • Buyer performs an act which indicates he thinks he is the owner.

  • Partial Acceptance.


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Revocation of Acceptance

  • Notify Seller of breach.

  • Revoke only if substantial nonconformity; and

    • Buyer accepted on the reasonable assumption that the Seller would cure the non-conformity OR Buyer did not discover the nonconformity because defect was latent or hard to discover.


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Anticipatory Repudiation

  • Party communicates he will not perform by time of contract performance.

  • Non-breaching party may suspend performance and:

    • Treat the A.R. as material breach and pursue a remedy; or

    • Wait a reasonable time.


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Seller

Buyer

Goods in Seller’s Possession

Goods in Seller’s Possession

Goods are in Transit

Seller delivers non-conforming goods

Goods in Buyer’s Possession

Proceed to § 10: Warranties

§ 9: Remedies for Breach

Click on the Links Below


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Seller- Goods in Seller’s Possession

  • Seller may withhold delivery of the goods:

    • If material breach by Buyer, Seller can withhold delivery of all goods.

    • If non-material breach, Seller can withhold delivery of this installment.

  • Seller can withhold delivery of all goods if Buyer is insolvent.

Next


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Seller- Goods in Seller’s Possession

  • Seller may rescind the contract.

  • Seller may identify the goods to the contract.

  • Seller may sell raw materials for scrap or finish production.

Next


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Seller-Goods in Seller’s Possession

  • Seller may resell the goods; and

    • Recover damages: the difference between the contract price and the resale price + incidental damages+ damages = the market price at the time & place of tender + incidental damages - expenses saved.

    • If No Damages, Seller can sue for lost profits.

  • Case 11.3:Brandeis Machinery v. Capital Crane Rental (2002).

Next


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Seller-Goods in Seller’s Possession

  • Seller may sue Buyer for breach of contract.

    • Recover Damages = the market price at the time & place of tender + incidental damages.

      • if there are no damages, Seller can sue for lost profits.

Return


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Seller-Goods in Transit

  • Goods are “in transit” when Seller has tendered goods to Carrier.

  • Goods are in transit until:

    • Buyer is given negotiable document of title to goods.

    • Buyer is given non-negotiable document of title or Bailee has acknowledged Buyer’s right to have the goods.

    • Buyer has had a reasonable time to pick up the goods.

Next


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Seller-Goods in Transit

  • Seller has the right to stop the goods in transit if:

    • Buyer is insolvent - Seller can stop entire shipment of goods.

    • Buyer is in breach - Seller may stop a whole truckload or whole container.

Return


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Seller-Goods in Buyer’s Possession

  • Seller may sue for the purchase price.

    • Seller may also sue Buyer if goods were “specially-made” which Seller cannot resell.

    • Seller may also sue for the purchase price if the goods were destroyed and the risk had already passed to the Buyer.

  • Seller can reclaim goods received by an insolvent Buyer if demand made within 10 days of receipt.

Return


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Buyer-Goods in Seller’s Possession

  • Buyer Wants Goods

    • Specific performance or replevin

    • Recover goods from Seller if Seller becomes insolvent within 10 days after receiving first payment.

  • Buyer Does Not Want Goods

    • Rescind contract.

    • Cover or do not cover and sue for breach of contract. Case 22.2: KGM Harvesting v. Fresh Network (1995).

Return


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Buyer-Seller Delivers Nonconforming Goods

  • If Seller does not make perfect tender Buyer has the right to reject all or part of goods.

    • Buyer must timely notify Seller of rejection and reasons and follow Seller’s directions.

    • Buyer is entitled to commission for selling perishable goods.

    • Buyer may store the goods and retain a security interest in the goods for his costs.

Next


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Buyer-Seller Delivers Nonconforming Goods

  • If Buyer has accepted non-conforming goods, she may:

    • Sue for breach of warranty.

    • Sue for ordinary damages.

    • Deduct damages from purchase price.

Return


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Contractual Provisions Affecting Remedies

  • Limitation of Damages.

  • Limitation of Remedies.

  • Waiver of Defenses.


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§ 10: Sales and Lease Warranties

  • A warranty is an assurance of fact upon which a party may rely.

    • Warranty of Title.

    • Express Warranty.

    • Implied Warranty of Merchantability.

    • Implied Warranty of Fitness for a Particular Purpose.

    • Implied warranty arising from the course of dealing or trade usage.


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Warranty of Title

  • Automatically arises in most commercial sales transactions.

  • UCC-312 creates 3 warranties:

    • Good Title.

    • No Liens.

    • No Infringements.


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Warranty Title Disclaimer

  • Title warranty can generally be disclaimed only with specific language in contract.

  • Circumstances may be obvious to clearly indicate disclaimer of title, such as a sheriff’s sale.


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Express Warranties

  • Can be oral or written-- don’t have to use the words “warrant” or “guarantee.”

    • Any Affirmation or Promise.

    • Any Description.

    • Any Sample or Model.


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Express Warranties

  • To create an express warranty, the affirmation of fact must become the “basis of the bargain.”

  • And Buyer must rely on warranty when he enters into contract.


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Express Warranties

  • Statements of Opinion and Value.

    • Generally excludes “puffing” – “Best car in town”, not an express warranty.

    • However, expert opinion is not puffery.


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Implied Warranties

  • Warranty inferred at law based on the circumstances or nature of the transaction.

  • Under the UCC, merchants warrant the goods they sell are “merchantable”, i.e., fit for ordinary purpose for which such goods are sold.


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Implied Warranty of Merchantability

  • Automatically arises from merchants.

  • Goods are of average, fair, or medium-grade.

  • Adequately packaged and labeled.

  • Conform to promises on label.

  • Have a consistent quality and quantity among the commercial units.


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Implied Warranty of Fitness for a Particular Purpose

  • Arises by any Seller who:

    • Knows the particular purpose for which the goods are being bought; and

    • Knows the buyer is relying on seller’s skill and judgment to select suitable goods.


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Implied Warranty Arising from Course of Dealing or Trade Usage

  • Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction.


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Warranty Disclaimers

  • Express Warranties can be disclaimed:

    • If they were never made (evidentiary matter).

    • If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).


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Warranty Disclaimers

  • Implied Warranties:

    • Merchantability: “As Is,” “With All Faults.”

    • Fitness for a Particular Purpose: must be in writing and conspicuous.

    • If Buyer has the right to fully inspect and either: does so or refuses to do so, warranties are disclaimed as to defects that could reasonably be found.

  • Case 23.3:International Turbine Services v. Vasp Brazilian Airlines (2002).


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§ 11- E-Contracts

  • Most courts find E-Contracts involve basic principles of contract law, applied in the online context.


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Online Contract Formation

  • Online Offers should include:

    • Remedies for Buyer.

    • Statute of Limitations.

    • What constitutes Buyer’s acceptance.

    • Method of Payment.

    • Seller’s Refund and Return Policies.

    • Disclaimers of Liability.

    • How Seller will Use Buyer’s Information (Privacy).


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Online Contract Formation

  • Dispute Settlement Provisions.

    • Choice of Law.

    • Choice of Forum.

    • E-Bay uses online dispute resolution.

  • Displaying the Offer (via hyperlink).

  • How Offer Will Be Accepted.

    • Amazon.com--Checkout.

    • “I Accept” Button to Click.


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Online Acceptances

  • Click-on Agreements.

  • Shrink-Wrap Agreements.

    • Contract terms are inside the box.

    • Party opening box agrees to terms by keeping merchandise.

  • Enforceable Contract Terms. (UCC 2-204).

  • Additional Terms.


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Online Acceptances

  • Click-On Agreements occur when Buyer “checks out” or clicks on “I Accept” button on Seller’s website or when software is installed.

  • Browse-Wrap Terms.

  • Case 11.5:Specht v. Netscape Communi-cations (2002).


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E-Signatures

  • E-Signature Technologies.

    • Asymmetric Cryptosystem.

    • Cyber Notary.

  • State Law Governing E-Signatures.

    • Uniform Electronic Transactions Act (1999).

  • Federal Law.

    • E-SIGN (2000) gives e-signatures and e-documents legal force.


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UETA

  • Purpose is to remove barriers to forming electronic commerce.

  • E-Signature is “electronic sound, symbol or process…associated with a record and… adopted by a person with intent to sign the record.”

  • UETA applies only to e-records and e-signatures relating to a transaction.


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UETA and E-SIGN

  • E-SIGN explicitly refers to UETA.

  • Provides that E-SIGN is pre-empted by state passing of UETA.

  • But state law must conform to minimum E-SIGN procedures.


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Highlights of UETA

  • Parties must agree to Conduct Transactions Electronically.

    • A party can “opt out” of UETA terms.

  • Attribution—process to ensure person sending an electronic record is in fact the real person.

  • Electronic Errors.

  • “E-Mailbox” Rules.

    • Dispatched when leaves control of sender.

    • Received when enters recipient’s processing system.


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UCITA

  • Applies to computer information.

  • Software is not a “good” but intellectual property.

  • Software is licensed, not sold;

  • License contract gives Buyer (Licensee) only specific rights.

  • Attribution and Authentication.

  • Mass Market Licenses.


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Law on the Web

  • National Conference of Commissioners.

  • U. Penn Final Draft of Uniform Laws.

  • UCC at Cornell U.

  • Commercial Law at Hale-Dorr.

  • Legal Research Exercises on the Web.


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