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Aim: How to Negotiate a Contract? Do Now: Rank the following values in order of importance: Winning Making People Happy Getting the Job Done
Three Types of Negotiators • Hard • Soft • Principled
Hard Negotiator • Focus on winning at whatever cost.
Soft Negotiator • Focus on others feelings
Principled Negotiator • Focus on getting the problem solved.
Getting to Yes • Don’t Bargain over positions The problem with negotiations is that people argue positions. This is problematic because it: • Produces Unwise outcomes • Positions are inefficient • It endangers an ongoing relationship • Problem is directly correlated to the number of people involved in the negotiations. The more people, the greater the problem • Being nice is no answer • THERE IS AN ALTERNATIVE Instead:
Negotiate the Merits.. People – separate the people from the problem Interests – Focus on interests, not positions Options – invent multiple options looking for mutual gains before deciding what to do Criteria – Insist that the result be based on some objective standard
Contract Basics: • Offer • Acceptance • Consideration • UCC • Statute of Frauds • Parole Evidence
What is a Contract? • A contract, whether verbal or in writing, is a legally binding agreement enforceable in a court of law. However, not all agreements between two parties are legally binding contracts. For it to be considered a valid contract, certain elements must exist.
Offer, Acceptance and Consideration • Offer • An offer is a proposal to make a deal. An offer must be communicated to another person, and it remains open until it is accepted, rejected, retracted or has expired. A counter-offer closes the original offer. • Acceptance • Acceptance is an acknowledgment by the person to whom the offer was made that the offer is accepted. The acceptance must comply with the terms of the offer and must be communicated to the person who proposed the deal. • Express or Implied (Silent) Acceptance • Consideration • Consideration is the bargained-for exchange. It is the legal benefit received by one person and the legal detriment imposed on the other person. Usually consideration takes the form of money, property or services.
Other Requirements • Beside the fundamental elements of a contract (offer, acceptance, and consideration), there are other requirements: 1. Competence: to make a contract means each party has the legal capacity to make a contract. Generally, people are considered to be competent to make contracts if they are over 18 years of age and of sound mind. • 2. Consent means that each party to the contract must agree to the terms of the contract. This requirement of consent fits the general idea of contract as a private law-making activity. However, consent does not mean that you have to know what the contract says. • 3. Legality: For a contract to be enforceable, it must involve a legal activity. The law does not enforce contracts based on illegal activity.
The Uniform Commercial Code (UCC) • The Uniform Commercial Code (UCC or the Code), first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the USA.
UCC Article 2A Article 2, dealing with sales Article 2A, dealing with leases
UCC Contract Formation • Contract formation – • Firm offers (offers that cannot be revoked for a set time) are valid without consideration and irrevocable for time stated (or up to 3 months) and must be signed. • Acceptanceto buy goods for “prompt shipment” invites acceptance by either prompt shipment or a prompt promise to ship. Therefore, this offer is not strictly unilateral. However, this “acceptance by performance” does not even have to be by conforming goods §2-206(1) • Consideration - modifications without consideration may be acceptable in a contract for the sale of goods. §2-209(1) • Failure to state price: In a contract for the sale of goods, the failure to state a price will NOT prevent the formation of a contract if the parties original intent was to form a contract. A reasonable price will be determined by the court. [2-305] • Assignments: a requirement contracts CAN be assigned IF the quantity required by the assignee is not unreasonably disproportionate to original quantity (§2-306)
Contract repudiation and breach • Nonconforming goods—If non-conforming goods are sent with a note of accommodation, such tender is construed as a counteroffer, and if accepted, forms a new contract and binds buyer at previous contract price. If seller refuses to conform and buyer does not accept, the buyer can sell the goods at public or private auction and credit the proceeds to amount owed. • Perfect tender—The buyer however does have a right of “perfect tender” and can accept all, reject all, or accept conforming goods and reject the rest, within a reasonable time after delivery but before acceptance, he must notify the seller of the rejection. If the buyer does not give a specific reason (defect), he cannot rely on the reason later, in legal proceedings. (akin to the cure before cover rationale). Also, the contract is not breached per se if the seller delivered the non-conforming goods, however offensive, before the date of performance has hit.
Contract repudiation and breach • “Reasonable time/good faith” standard—Such standard is required from a party to a contract indefinite as to time, or made indefinite by waiver of original provisions. • Reasonable grounds for insecurity—In a situation with a threat of non-performance, the other part may suspend its own performance and demand assurances in writing. If assurance not provided “within a reasonable time not exceeding 30 days,” the contract is repudiated. [2-609] • Statute of frauds as applicable to the sale of goods—The actual contract does not need to be in writing. Just some note or memo must be in writing and signed. However, the UCC exception to the signature requirement is where written confirmation is received and not objected to within 10 days [§2-201(2)] • Cure/cover—Buyer must give seller time to cure the defective shipment before seeking cover
Contract repudiation and breach • FOB place of business:The seller assumes risk of loss until goods are placed on a carrier. • FOB destination: seller risks loss until shipment arrives at destination. If the contract leaves out the delivery place, it is the seller’s place of business. • Risk of loss—Equitable conversion does not apply. In sale of specific goods, the risk of loss lies with the seller until tender. Generally, the seller bears risk of loss until the buyer takes physical possession of the goods (the opposite of realty) • Reclamation—Successful reclamation of goods excludes all other remedies with respect to the goods [2-702(3)]. A seller can reclaim goods upon demand within 20 days after buyer receives them if the seller discovers that the buyer received the goods while insolvent.
Contract repudiation and breach • Rightfully rejected goods—A merchant buyer may follow reasonable instructions of the seller to reject the goods. If no such instructions are given, the buyer make a reasonable effort to sell them, and the buyer/bailee entitled to 10% of the gross proceeds. • Implied warranty of fitness—Implied warranty of fitness arises when the seller knows the buyer is relying upon his expertise in choosing goods. Implied warranty of merchantability: every sale of goods fit for ordinary purposes. Express warranties: arise from any statement of fact of promise. • UCC damages for repudiating/breaching seller—Difference between 1) the market price when the buyer learned of breach and the 2) contract price 3) plus incidental damages. An aggrieved seller simply suing for the contract price is economically inefficient. [2-713]
Statute of Frauds • A "statute of frauds" requires that certain contracts be in writing, and that they be signed by all parties to be bound by the contract. Although there can be significant variation between jurisdictions, the most common types of contracts to which a statute of fraud applies are: 1. Contracts involving the sale or transfer of land; 2. Contracts to answer for the debt or duty of another; 3. Contracts that, by its terms, cannot be completed within one year. (Please note that the fact that a contract is not completed within one year does not mean that it is voidable under a statute of frauds. For the statute to apply, the actual terms of the contract must make it impossible for performance to be completed within one year); and 4. Certain contracts for the sale of goods, under the Uniform Commercial Code.
Parol Evidence • The Parol Evidence Rule is a substantive rule which states that whenever contractual intent is sought to be ascertained from among several expressions of agreement by the parties, an earlier tentative agreement will be rejected in favor of a later expression that is final. Harker v. Kissock, 12 N.J. 310, 321 (1953). Simply stated, the final agreement made by the parties supercedes any terms discussed in earlier negotiations. • The “purpose of the Parol Evidence Rule is not to exclude unreliable evidence, but to exclude evidence, however reliable, of negotiations and understandings which the parties intended to supplant with the agreement under consideration.” • Otherwise referred to as the Four Corners of the Contract.