REMEDIES FOR BREACH OF SALES AND LEASE CONTRACTS CHAPTER 20 REMEDIES FOR BREACH OF SALES AND LEASE CONTRACTS © 2010 Pearson Education, Inc., publishing as Prentice-Hall

Parties’ Obligations Seller/lessor must transfer and deliver conforming goods. Buyer/lessee must accept and pay for goods. Upon breach, non-breaching party entitled to remedy. Give non-breaching party benefit of full performance.

Tender of Delivery Transfer or delivery of goods to buyer/lessee in accordance with contract. Requires: Conforming goods to be put aside and held for buyer/lessee. Notification be made to buyer/lessee. Single delivery unless otherwise noted. Payment due upon delivery unless otherwise noted.

Place of Delivery Contract usually states place and time of delivery. If contract silent, place is seller/lessor’s place of business. If no place of business, seller/lessor’s residence.

Place of Delivery (continued) Goods to be delivered without being moved, delivery occurs when: Seller tenders negotiable document of title, or Bailee acknowledges buyer’s right of possession, or Seller tenders nonnegotiable document of title or written direction to bailee to deliver goods to buyer.

Delivery in Carrier Cases Shipment Contracts Seller must put goods in carrier’s possession and contract for delivery. Obtain and deliver all documents necessary for buyer to obtain possession. Notify buyer of shipment.

Delivery in Carrier Cases (continued) Destination Contracts Requires delivery to buyer’s location or other destination. Delivery must be made at reasonable time and in reasonable manner.

Perfect Tender Rule If goods fail to conform in any respect, buyer/lessee may: Reject entire shipment Accept whole shipment, or Reject part and accept part.

Exceptions to Perfect Tender Rule Agreement of Parties E.g., parties agree that buyer will accept non-conforming goods with compensation, or that buyer will reject only nonconforming goods. Substitution of Carriers Commercially reasonable carrier may be substituted if agreed-upon delivery manner fails or becomes unavailable.

Exceptions to Perfect Tender Rule (continued) Installment contracts May reject entire contract only when value of contract substantially impaired. May reject installment only if value impaired and defect cannot be cured. Destruction of goods If identified goods destroyed without fault before risk of loss passes, both parties discharged.

Cure Seller/lessor may repair or replace defective or nonconforming goods. within time for contract performance, or within reasonable time, if seller/lessor had reason to believe delivery would be accepted.

Good Faith and Reasonableness All parties must act in good faith. “Honesty in fact.” Merchants must follow commercially reasonable practices. Standard of “reasonableness” found throughout Code. Defined by reference to course of dealing, trade usage, etc.

Buyer/Lessee’s Performance Once seller/lessor has properly tendered delivery, buyer/lessee must accept and pay for goods. If contract silent, UCC controls.

Right of Inspection Buyer has the right to inspect goods before paying for them. Except in 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.

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.

Acceptance of Goods Acceptance occurs if: Buyer indicates acceptance by words, or Fails to reject goods within reasonable time, or Buyer acts inconsistently with seller’s ownership rights. Buyers/lessee may accept only “commercial unit.”

Revocation of Acceptance Buyer can revoke acceptance if: Goods are nonconforming, and Nonconformity substantially impairs value of goods, and Seller’s promise to timely cure not met, or Goods were accepted before nonconformity discovered and nonconformity was difficult to discover, or Goods were accepted before nonconformity discovered and seller/lessor assured buyer/lessee that goods were conforming.

Right to Withhold Delivery Seller may withhold delivery if buyer/lessee fails to pay or repudiates contract. If discovered that buyer/lessee is insolvent, may require cash payment. If part of the shipment has been delivered at time of breach, seller/lessor may withhold delivery of remainder.

Right to Stop Goods in Transit Seller/lessor may stop carload, truckload in transit if: Buyer/lessee repudiates. Buyer/lessee fails to make payment when due. Seller/lessor may stop any size shipment in transit if: Seller/lessor discovers buyer/lessee’s insolvency.

Right to Reclaim Goods Seller/lessor may reclaim goods if: Was credit sale and seller discovers buyer’s insolvency (must reclaim within 10 days of delivery), or Buyer misrepresented solvency in writing within 3 months before delivery, or Buyer paid for goods with bad check, or Lessee is in default of contract.

Right to Dispose of Goods Seller/lessor may resell/release the goods. Typically with notice to buyer/lessee. Seller/lessor may recover damages. Difference between disposition price and original contract price, plus incidental damages. Profit does not revert to original buyer.

Unfinished Goods Seller/lessor may cease manufacture and sell for scrap or salvage value, or Complete manufacture and resell or release, and recover damages.

Right to Recover Purchase Price or Rent Seller/lessor may sue to recover if: Buyer/lessee fails to pay as due, or Buyer/lessee breaches contract after goods have been identified and seller/lessor cannot resell or dispose of them, or Goods are damaged or lost after risk passes to buyer/lessee.

Additional Rights Seller/lessor may sue to recover damages caused by buyer/lessee’s breach. Difference between contract price and market price. Seller/lessor may recover lost profits if lost volume seller. Seller/lessor may cancel contract if buyer/lessee breaches.

Buyer/Lessee’s Remedies Reject nonconforming or improperly tendered goods. May reject all or part. Must reject within reasonable time. Must follow reasonable instructions for return of goods. Entitled to reimbursement for shipping, holding, storing rejected goods.

Buyer/Lessee’s Remedies (continued) Cover Purchase or rent substitute goods. Obtain as damages difference between cover price and contract price, plus incidental and consequential damages, less expenses saved. Buyer/lessee not required to cover.

Buyer/Lessee’s Remedies (continued) If buyer/lessor made payment before goods received and seller/lessor becomes insolvent within 10 days of receiving payment, buyer/lessor can recover goods. If goods are unique, buyer/lessee can obtain specific performance. If goods wrongfully withheld and cover unavailable, buyer/lessee can replevy.

Buyer/Lessee’s Remedies (continued) Cancel contract. Recover damages for nondelivery or repudiation. Difference between contract price and market price. Recover damages for accepted nonconforming goods. Recover damages for loss from seller’s breach.

Assurance of Performance Party with grounds to believe that the other party will not perform may demand written assurance of performance. If assurances not forthcoming, party may suspend performance.

Anticipatory Repudiation Party indicates before performance is required that it will not perform. Wavering is not sufficient. Aggrieved party may: Await performance for a commercially reasonable time. Treat contract as breached at time of anticipatory repudiation. Indicate repudiation is considered final.

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 but not extend it.

Agreements Affecting Remedies Parties may agree to remedies in addition to those available under the UCC, or agree to limit remedies. E.g., limit to repair and replacement. Liquidated damages may be substituted.