CHAPTER 18 PERFORMANCE AND REMEDIES DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 PERFORMANCE OF A SALES CONTRACT General Obligations. – The topics of title and risk of loss must be examined. – Act in good faith. – Any merchant is obligated to act in a commercially reasonable manner. – Buyer must accept and pay for goods delivered. – Seller must transfer and deliver conforming goods to the buyer. General Obligations. – The topics of title and risk of loss must be examined. – Act in good faith. – Any merchant is obligated to act in a commercially reasonable manner. – Buyer must accept and pay for goods delivered. – Seller must transfer and deliver conforming goods to the buyer.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 PERFORMANCE OF A SALES CONTRACT General Obligations. – Conforming goods are goods that are within the description of the goods as out in the contract. – Payment by the buyer will be made at the time and place of delivery. – The manner of payment will be spelled out in the contract. General Obligations. – Conforming goods are goods that are within the description of the goods as out in the contract. – Payment by the buyer will be made at the time and place of delivery. – The manner of payment will be spelled out in the contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 PERFORMANCE OF A SALES CONTRACT Cooperation. – Parties are required to cooperate with one another in performance of their duties. – Failure to cooperate or interference with the performance of the other party can be treated as a breach of contract or as an excuse for a delayed performance. Cooperation. – Parties are required to cooperate with one another in performance of their duties. – Failure to cooperate or interference with the performance of the other party can be treated as a breach of contract or as an excuse for a delayed performance.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 SELLER’S DUTIES Tender delivery of conforming goods according to the terms of the contract. Normally the contract specifies when and where goods are to be available. If not specified seller required to put and hold goods at buyer’s disposition. Tender delivery of conforming goods according to the terms of the contract. Normally the contract specifies when and where goods are to be available. If not specified seller required to put and hold goods at buyer’s disposition.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 SELLER’S DUTIES Notify buyer they are available. Tender at reasonable time and place. Buyer must provide facilities suitable for receiving the goods. Notify buyer they are available. Tender at reasonable time and place. Buyer must provide facilities suitable for receiving the goods.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 SELLER’S DUTIES Five possible ways delivery can occur: – Buyer takes goods from seller. – Seller takes goods to buyer. – Seller ships goods to buyer by common carrier. – Goods are in the hands of a third person (bailee), and no documents of title are involved. – Goods are in the hands of bailee, seller is to deliver document of title to buyer. Five possible ways delivery can occur: – Buyer takes goods from seller. – Seller takes goods to buyer. – Seller ships goods to buyer by common carrier. – Goods are in the hands of a third person (bailee), and no documents of title are involved. – Goods are in the hands of bailee, seller is to deliver document of title to buyer.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 INTERVENING RIGHTS Once seller’s duties have been performed. Focus of sales contract shifts to buyer’s duties. Buyer as an intervening right to inspect for conformity of goods. Seller may have right to cure. Only after these intervening rights have been exercised/waived does duty of buyer to perform arise. Once seller’s duties have been performed. Focus of sales contract shifts to buyer’s duties. Buyer as an intervening right to inspect for conformity of goods. Seller may have right to cure. Only after these intervening rights have been exercised/waived does duty of buyer to perform arise.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 INTERVENING RIGHTS Inspection. – Empowers buyer to inspect the goods in any reasonable manner and time and place. – Buyer bears expense inspection: 1) Encourages buyer to use reasonable method of inspection. 2) Eliminates “phantom” inspections. – Nonconforming goods buyer recovers inspection expenses and any other damages. Inspection. – Empowers buyer to inspect the goods in any reasonable manner and time and place. – Buyer bears expense inspection: 1) Encourages buyer to use reasonable method of inspection. 2) Eliminates “phantom” inspections. – Nonconforming goods buyer recovers inspection expenses and any other damages.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 INTERVENING RIGHTS Cure. – Should buyer find on inspection nonconforming goods buyer can: Accept goods despite nonconformity is minor. Goods are to different to be acceptable. Promptly notify seller, specifying in detail problems with goods result in nonconformity. – If time for performance has not expired, the Code allows seller to avoid breaching the contract. Cure. – Should buyer find on inspection nonconforming goods buyer can: Accept goods despite nonconformity is minor. Goods are to different to be acceptable. Promptly notify seller, specifying in detail problems with goods result in nonconformity. – If time for performance has not expired, the Code allows seller to avoid breaching the contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 INTERVENING RIGHTS Cure. – Seller may cure the defect, put goods into conformity within time period specified in original agreement. – No extension time permitted without buyer’s consent. Cure. – Seller may cure the defect, put goods into conformity within time period specified in original agreement. – No extension time permitted without buyer’s consent.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 12 BUYER’S DUTIES Duty to accept goods. Duty to pay for the goods. Acceptance – Accept entire shipment without regard to conformity of the goods. – Reject the entire shipment without regard conformity of the goods. – Accept some of the goods and reject the rest of the shipment. Duty to accept goods. Duty to pay for the goods. Acceptance – Accept entire shipment without regard to conformity of the goods. – Reject the entire shipment without regard conformity of the goods. – Accept some of the goods and reject the rest of the shipment.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 13 BUYER’S DUTIES After reasonable time to inspect, buyer accepts by: – Signifying that the goods conform to the contract. – Signifying that the goods do not conform, but will be retained and accepted despite nonconformity. – Failing to make proper rejection of goods if they are nonconforming. – Doing anything that is not consistent with the seller’s ownership of the goods. After reasonable time to inspect, buyer accepts by: – Signifying that the goods conform to the contract. – Signifying that the goods do not conform, but will be retained and accepted despite nonconformity. – Failing to make proper rejection of goods if they are nonconforming. – Doing anything that is not consistent with the seller’s ownership of the goods.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 14 BUYER’S DUTIES Payment. – Duty to tender payment. – Buyer allowed to pay in any manner that is normal in the ordinary course of business. – Once buyer pays, the contract is fully performed. Payment. – Duty to tender payment. – Buyer allowed to pay in any manner that is normal in the ordinary course of business. – Once buyer pays, the contract is fully performed.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 15 LEASES UNDER ARTICLE 2A Article 2A provides remedies if lease contract is breached. Lessor’s Remedies. – Lessee wrongfully rejects goods tendered, revokes acceptance, fails to make payments, or repudiates the lease, the lessor may: Article 2A provides remedies if lease contract is breached. Lessor’s Remedies. – Lessee wrongfully rejects goods tendered, revokes acceptance, fails to make payments, or repudiates the lease, the lessor may:

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 16 LEASES UNDER ARTICLE 2A Lessor’s Remedies. – Cancel the lease contract. – Proceed respecting goods not identified to the lease. – Withhold delivery of goods and take possession of previously delivered goods. – Stop delivery of goods by any bailee. – Dispose of goods and recover damages, retain goods and recover damages, or recover rent. Lessor’s Remedies. – Cancel the lease contract. – Proceed respecting goods not identified to the lease. – Withhold delivery of goods and take possession of previously delivered goods. – Stop delivery of goods by any bailee. – Dispose of goods and recover damages, retain goods and recover damages, or recover rent.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 17 LEASES UNDER ARTICLE 2A If Lessor fails to deliver conforming goods, repudiates the lease, or lessee rightfully rejects goods or justifiably revokes acceptance, the Lessee may: – Cancel lease contract. – Recover rent and security paid; recover in installment lease that which is just under the circumstances. – Cover and recover damages to all goods affected, whether or not identified on leases contract, or recover damages for non-delivery. If Lessor fails to deliver conforming goods, repudiates the lease, or lessee rightfully rejects goods or justifiably revokes acceptance, the Lessee may: – Cancel lease contract. – Recover rent and security paid; recover in installment lease that which is just under the circumstances. – Cover and recover damages to all goods affected, whether or not identified on leases contract, or recover damages for non-delivery.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 18 LEASES UNDER ARTICLE 2A Lessee’s Remedies. – If lessor fails to deliver or repudiates contract, lessee may: Recover goods identified to the contract. Obtain specific performance or replevin. Lessee’s Remedies. – If lessor fails to deliver or repudiates contract, lessee may: Recover goods identified to the contract. Obtain specific performance or replevin.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 19 SALES UNDER CISG Seller tenders goods to Buyer as per contract. Duty of Good Faith imposed on parties. Buyer has right to inspect goods (two years notice to reject goods!). Seller may cure defects. Seller tenders goods to Buyer as per contract. Duty of Good Faith imposed on parties. Buyer has right to inspect goods (two years notice to reject goods!). Seller may cure defects.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 20 THE REASON FOR REMEDIES Seller tenders conforming goods to buyer at time and place of delivery. Buyer inspects, accepts, and pays for goods. Seller can cure if goods are nonconforming. Remedies available to both the buyer and seller should breach develop. Remedies seek to minimize the impact of the breach. Seller tenders conforming goods to buyer at time and place of delivery. Buyer inspects, accepts, and pays for goods. Seller can cure if goods are nonconforming. Remedies available to both the buyer and seller should breach develop. Remedies seek to minimize the impact of the breach.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 21 SELLER’S REMEDIES If buyer wrongfully rejects goods, or Refuses to pay for the goods, or Breaches the contract, then Seller is entitled to remedies. Possible remedies depend on when buyer breaches. – Six possible remedies if breach occurs before acceptance. – After acceptance two possible remedies. If buyer wrongfully rejects goods, or Refuses to pay for the goods, or Breaches the contract, then Seller is entitled to remedies. Possible remedies depend on when buyer breaches. – Six possible remedies if breach occurs before acceptance. – After acceptance two possible remedies.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 22 SELLER’S PRE-ACCEPTANCE REMEDIES Withhold delivery of goods. Stop delivery of goods in transit to the buyer. Sue for the contract. Resell any goods, or raw materials, or work- in-process. Sue for damages or lost profit due to breach. Cancel any future performance obligations. Withhold delivery of goods. Stop delivery of goods in transit to the buyer. Sue for the contract. Resell any goods, or raw materials, or work- in-process. Sue for damages or lost profit due to breach. Cancel any future performance obligations.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 23 SELLER’S POST-ACCEPTANCE REMEDIES Sue the buyer for the price of the goods. Reclaim the goods. – To do so the seller must prove: 1) Buyer received the goods on credit while insolvent. 2) Seller demanded the return of the goods within 10 days of delivery to the buyer. – Buyer misrepresented insolvency in writing to seller within three months of delivery, which waives 10 day limit. Sue the buyer for the price of the goods. Reclaim the goods. – To do so the seller must prove: 1) Buyer received the goods on credit while insolvent. 2) Seller demanded the return of the goods within 10 days of delivery to the buyer. – Buyer misrepresented insolvency in writing to seller within three months of delivery, which waives 10 day limit.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 24 BUYER’S REMEDIES Buyer entitled to remedies. Buyer remedy options depend on the timing of the breach. Six pre-acceptance remedies available. Three post-acceptance remedies available. Buyer entitled to remedies. Buyer remedy options depend on the timing of the breach. Six pre-acceptance remedies available. Three post-acceptance remedies available.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 25 BUYER’S PRE-ACCEPTANCE REMEDIES Pre-acceptance Remedies of the Buyer. – Sue for damages for breach of contract. – Cover, and sue for damages resulting from the cost of covering. – Seek specific performance or replevin. – Claim any identified goods in seller’s possession. – Resell any nonconforming goods shipped by seller. – Cancel any future duties under the contract. Pre-acceptance Remedies of the Buyer. – Sue for damages for breach of contract. – Cover, and sue for damages resulting from the cost of covering. – Seek specific performance or replevin. – Claim any identified goods in seller’s possession. – Resell any nonconforming goods shipped by seller. – Cancel any future duties under the contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 26 BUYER’S POST-ACCEPTANCE REMEDIES Revoke acceptance and seek any appropriate pre- acceptance remedies. – 1) Defect must have been hidden; or seller must have promised to cure defect, but no cure occurred. – 2) Defect must substantially impair the value of the contract. Sue for damages due to nonconformity of goods shipped. Recoup by deducting damages suffered from total contract price still owed to the seller. Revoke acceptance and seek any appropriate pre- acceptance remedies. – 1) Defect must have been hidden; or seller must have promised to cure defect, but no cure occurred. – 2) Defect must substantially impair the value of the contract. Sue for damages due to nonconformity of goods shipped. Recoup by deducting damages suffered from total contract price still owed to the seller.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 27 MODIFICATIONS Parties to a contract may tailor remedies to fit their contract and circumstances. Contract may expressly contain remedy provisions, in addition to those provided by UCC. May provide remedies in place of those provided by UCC. Parties to a contract may tailor remedies to fit their contract and circumstances. Contract may expressly contain remedy provisions, in addition to those provided by UCC. May provide remedies in place of those provided by UCC.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 28 MODIFICATIONS May place a limit on the remedies that may be used. Select one remedy to be used as the exclusive remedy for particular contract. Consequential damages may be excluded or limited. Liquidated damages may be specified. May place a limit on the remedies that may be used. Select one remedy to be used as the exclusive remedy for particular contract. Consequential damages may be excluded or limited. Liquidated damages may be specified.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 29 SPECIAL PROBLEMS In determining when remedies may be obtained and what remedies to seek. Several special problems may arise: – (Anticipatory) Repudiation. – Excused Performance. – Adequate Assurances. – Duty to Particularize. In determining when remedies may be obtained and what remedies to seek. Several special problems may arise: – (Anticipatory) Repudiation. – Excused Performance. – Adequate Assurances. – Duty to Particularize.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 30 SPECIAL PROBLEMS Anticipatory Repudiation. – One party may repudiate obligations before performance is due. – Other party may choose: 1) To await performance for a commercially reasonable time despite repudiation. 2) Non-repudiating party may treat repudiation as an immediate breach and seek any available remedies. 3) Non-repudiating party may suspend performance under contract until there is a resolution of problem. Anticipatory Repudiation. – One party may repudiate obligations before performance is due. – Other party may choose: 1) To await performance for a commercially reasonable time despite repudiation. 2) Non-repudiating party may treat repudiation as an immediate breach and seek any available remedies. 3) Non-repudiating party may suspend performance under contract until there is a resolution of problem.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 31 SPECIAL PROBLEMS Excused Performance. – Seller forced into delay in making delivery. – Not able to make delivery. – May have to make partial delivery. – Excused, in whole or in part, if performance is impracticable of occurrence of event whose nonoccurrence was basic assumption of contract. – Also excused, if lack of performance is based on compliance with government order or regulation. Excused Performance. – Seller forced into delay in making delivery. – Not able to make delivery. – May have to make partial delivery. – Excused, in whole or in part, if performance is impracticable of occurrence of event whose nonoccurrence was basic assumption of contract. – Also excused, if lack of performance is based on compliance with government order or regulation.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 32 SPECIAL PROBLEMS Adequate Assurances. – Each party expects to receive the benefit of the bargain made. – Insecure party may demand assurances of performance. – Insecure party must make a written demand for assurance that performance will be tendered. – Until assurances are given, requesting party may suspend performance. Adequate Assurances. – Each party expects to receive the benefit of the bargain made. – Insecure party may demand assurances of performance. – Insecure party must make a written demand for assurance that performance will be tendered. – Until assurances are given, requesting party may suspend performance.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 33 SPECIAL PROBLEMS Duty to Particularize. – Buyer rightfully rejects goods, must do so properly. – Buyer may reject only by stating exactly what the defect is. – Failure to particularize can result in buyer’s being required to pay for nonconforming goods or other liability to the seller. Duty to Particularize. – Buyer rightfully rejects goods, must do so properly. – Buyer may reject only by stating exactly what the defect is. – Failure to particularize can result in buyer’s being required to pay for nonconforming goods or other liability to the seller.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 34 STATUTE OF LIMITATIONS Any lawsuit for breach of a sales contract must be started within four years of the breach, unless contract sets shorter time period. Time period cannot be less than one year. Time limitation begins at breach not at discovery. Reemphasizes the need for a buyer to inspect goods carefully and completely. Any lawsuit for breach of a sales contract must be started within four years of the breach, unless contract sets shorter time period. Time period cannot be less than one year. Time limitation begins at breach not at discovery. Reemphasizes the need for a buyer to inspect goods carefully and completely.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 35 REMEDIES IN LEASING UNDER 2A Lessor’s Remedies: – Cancel the Lease contract. – Withhold delivery of goods. – Stop delivery of goods by bailee. – Dispose (sell) goods and recover damages. Lessee’s Remedies: – Cancel the contract. – Recover rent and security deposit. – Cover and recover damages for goods. Lessor’s Remedies: – Cancel the Lease contract. – Withhold delivery of goods. – Stop delivery of goods by bailee. – Dispose (sell) goods and recover damages. Lessee’s Remedies: – Cancel the contract. – Recover rent and security deposit. – Cover and recover damages for goods.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 36 REMEDIES UNDER CISG Breach by Seller (Buyer’s Remedies found in Exhibit 18.4). Breach by Buyer (Seller’s Remedies found in Exhibit 18.5). Breach by Seller (Buyer’s Remedies found in Exhibit 18.4). Breach by Buyer (Seller’s Remedies found in Exhibit 18.5).