COPYRIGHT © 2010 South-Western/Cengage Learning.

Good Faith Good faith means honesty in fact. Between merchants, it also means the use of reasonable commercial standards of fair dealing. The Code requires good faith in the performance and enforcement of every contract.

COPYRIGHT © 2010 South-Western/Cengage Learning. Seller’s Obligations (and a Few Rights) Conforming goods satisfy the contract terms. Non- conforming goods do not. The seller must tender the goods -- make conforming goods, available to the buyer. Perfect Tender Rule – Under the perfect tender rule, the buyer may reject the goods if they fail in any respect to conform to the contract. – Parties may limit the effect of the perfect tender rule by agreeing to accept imperfection in the goods.

COPYRIGHT © 2010 South-Western/Cengage Learning. Restrictions on the Perfect Tender Rule Usage of trade: any practice that members of an industry expect to be part of their dealings. Course of dealing: previous commercial transactions between the same parties. Course of performance: the history of dealings between the parties in this one contract. This assumes it is a contract demanding an ongoing relationship.

COPYRIGHT © 2010 South-Western/Cengage Learning. Cure When the buyer rejects non-conforming goods, the seller has the right to cure, by delivering conforming goods before the contract deadline. The seller has the right to cure even after the contract deadline if the seller: – reasonably believed the goods to be conforming, and – promptly notified the buyer of his intent to cure within a reasonable time.

COPYRIGHT © 2010 South-Western/Cengage Learning. Substantial Impairment The Code puts a tighter restriction on buyers in the following two cases. A buyer who claims goods are non- conforming must show that the defects substantially impair their value if: – the buyer is revoking acceptance of goods, or – the buyer is rejecting an installment.

COPYRIGHT © 2010 South-Western/Cengage Learning. Destruction of Goods If identified goods are totally destroyed before risk passes to the buyer, the contract is void. If identified goods are partially destroyed, the buyer may choose whether to accept the goods at a reduced price or void the contract.

COPYRIGHT © 2010 South-Western/Cengage Learning. Commercial Impracticability A supervening event excuses performance of a contract, if the event was not within the parties’ contemplation when they made the agreement. – Sometimes natural disasters such as tornadoes and earthquakes may relieve a party from performing.

COPYRIGHT © 2010 South-Western/Cengage Learning. Buyer’s Obligations (and a Few Rights) The buyer must provide adequate facilities to receive the goods. Inspection -- The buyer generally has the right to inspect the goods before paying or accepting. Partial Acceptance -- The buyer may accept some goods and reject others if the goods can be divided into commercial units.

COPYRIGHT © 2010 South-Western/Cengage Learning. Buyer’s Obligations (and a Few Rights) – (cont’d) May revoke acceptance only if the nonconformity substantially impairs the value and only if she had a legitimate reason for the initial acceptance. May reject non-conforming goods by notifying seller within a reasonable time. May reject a non-conforming installment, only if it substantially impairs the value of that installment and cannot be cured.

COPYRIGHT © 2010 South-Western/Cengage Learning. Remedies: Assurance When there are reasonable grounds for insecurity, a party may: – demand written assurance of performance from the other party, and – until he receives it, generally may suspend his own performance.

COPYRIGHT © 2010 South-Western/Cengage Learning. Remedies: Repudiation A party repudiates a contract by indicating that it will not perform. When either party repudiates the contract, the other party may: – for a reasonable time await performance or – resort to any remedy for breach of contract. In either case, it may suspend its own performance.

COPYRIGHT © 2010 South-Western/Cengage Learning. Seller’s Remedies Cancel the contract Stop or refuse delivery Identify goods to the contract – If the seller has not yet identified goods to the contract, he may do so as soon as he learns of the breach. Resale – The seller may recover difference between the resale price and contract price, plus incidental damages, minus expenses saved.

COPYRIGHT © 2010 South-Western/Cengage Learning. Seller’s Remedies (cont’d) Damages for Non-Acceptance – A seller who does not resell, or who resells unreasonably, may only recover the difference between the contract price and the market value of the goods at the time of delivery. ◙ Action for the Price The seller may recover the contract price if: –the buyer has accepted the goods, or –the seller’s goods are conforming and he is unable to resell after a reasonable effort.

COPYRIGHT © 2010 South-Western/Cengage Learning. Buyer’s Remedies Cancel the contract Recover money paid Cover – If the seller breaches, the buyer may ”cover” by reasonably obtaining substitute goods. – Buyer may then obtain the difference between the contract price and the cover price, plus incidental and consequential damages, minus expenses saved.

COPYRIGHT © 2010 South-Western/Cengage Learning. Buyer’s Remedies (cont’d) Non-Delivery – The difference between the market price at the time the buyer learns of the breach and the contract price, plus incidental and consequential damages minus expenses saved. Acceptance of Non-Conforming Goods – Buyer may recover damages for the difference between the goods as promised and as delivered, plus incidental and consequential damages.

COPYRIGHT © 2010 South-Western/Cengage Learning. Buyer’s Remedies (cont’d) Incidental and Consequential Damages – An injured buyer is generally entitled to incidental and consequential damages. Specific Performance – Allowed if the contract goods are unique, or the buyer is unable to obtain cover. Liquidated Damages – Enforceable, but only in an amount that is reasonable in light of the harm.

COPYRIGHT © 2010 South-Western/Cengage Learning. Damage Limitations and Exclusions A court generally will not enforce a limitation that leaves the injured party with no remedy. A court will not enforce an unconscionable exclusion of consequential damages.