Chapter 20 Remedies for Breach of Sales and Lease Contracts

Seller and Lessor Performance The seller’s or lessor’s basic obligation is the tender of delivery Tender of delivery: The obligation of a seller to transfer and deliver goods to the buyer or lessee in accordance with a sales or lease contract 20-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Place of Delivery The UCC stipulates place of delivery based on the following rules: Noncarrier cases Carrier cases Shipment contract Destination contract 20-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Shipment contract: A sales contract that requires the seller to send the goods to the buyer but not to a specifically named destination Destination contract: A sales contract that requires the seller to deliver the goods to the buyer’s place of business or another specified destination 20-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Perfect Tender Rule If the goods or tender of a delivery fail in any respect to conform to the contract, the buyer may opt to: Reject the entire shipment Accept the whole shipment Reject part and accept part of the shipment 20-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Installment contracts Requires or authorizes goods to be delivered and accepted in separate lots The entire contract can be rejected only if the default Destruction of goods If goods identified in a sales or lease contract are totally destroyed without fault of either party before the risk of loss passes to either party, the contract is void 20-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Right of Inspection Buyer has the right to inspect goods before paying for them Exception – COD and CIF contracts Buyer may reject nonconforming goods Parties may agree as to time and place of inspection If contract silent, inspection must occur at reasonable time and place 20-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Acceptance Acceptance occurs in each of the following cases: The buyer indicates acceptance by words The buyer fails to reject goods within reasonable time The buyer acts inconsistently with seller’s ownership rights Buyers/lessee may accept only “commercial unit” 20-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Payment Due from buyer when and where goods delivered Contract may set terms Can be paid in any manner acceptable in ordinary course of business If cash required, buyer must be given an extension to secure cash 20-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Revocation of Acceptance: Buyer can revoke acceptance if: Goods are nonconforming Nonconformity substantially impairs value of goods Seller’s promise to timely cure are not met Goods were accepted before nonconformity discovered and the nonconformity was difficult to discover 20-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Performance Goods were accepted before nonconformity discovered and seller/lessor assured buyer/lessee that goods were conforming 20-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Seller and Lessor Remedies Right to withhold delivery Right to stop delivery of goods in transit Right to reclaim goods Right to dispose of goods Right to recover the purchase price or rent Right to recover damages for breach of contract Right to cancel a contract 20-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Unfinished Goods Seller/lessor may cease manufacture and sell for scrap or salvage value, or Complete manufacture and resell or release, and recover damages 20-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Buyer and Lessee Remedies Right to reject nonconforming goods or improperly tendered goods Right to recover goods from an insolvent seller or lessor Right to obtain specific performance Right to replevy goods 20-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Buyer and Lessee Remedies Right to cancel a contract Right to recover damages for nondelivery or repudiation Right to recover damages for accepted nonconforming goods 20-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Additional Performance Issues Assurance of Performance Party with grounds to believe that the other party will not perform may demand adequate assurance of performance Performance may be suspended until adequate assurance of due performance is received from the other party 20-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Additional Performance Issues Statute of Limitations Action for breach of sales or lease contract must commence within four years after the cause of the action accrues Parties may reduce time to one year Parties cannot extend the time beyond four years 20-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Additional Performance Issues Agreements Affecting Remedies Parties may agree to remedies in addition to those available under the UCC, or agree to limit remedies Liquidated damages may be substituted 20-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Additional Performance Issues Liquidated Damages Damages that will be paid upon a breach of the contract Preestablished damages Substitute for actual damages 20-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 20-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.