© 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 16 Performance and Breach of Sales and Lease Contracts

© 2007 West Legal Studies in Business, A Division of Thomson Learning 2 What are the respective obligations of the parties under a contract for the sale or lease of goods? What is the perfect tender rule? What are some important exceptions to this rule that apply to sales and lease contracts? What options are available to the nonbreaching party when the other party to a sales or lease contract repudiates the contract prior to the time for performance? Learning Objectives

© 2007 West Legal Studies in Business, A Division of Thomson Learning 3 What remedies are available to a seller or lessor when the buyer or lessee breaches the contract? What remedies are available to a buyer or lessee if the seller or lessor breaches the contract? In contracts subject to the UCC, are parties free to limit the remedies available to the non-breaching party on a breach of contract? If so, in what ways? Learning Objectives

© 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Performance Obligations Good faith and commercial reasonableness are implied in every contract. Seller has a basic obligation to transfer and deliver conforming goods. Buyer’s basic obligation is the accept and pay for conforming goods.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Obligations of the Seller or Lessor Tender of Delivery. –Seller has duty to notify Buyer that conforming goods are at the disposal of the Buyer to take delivery. –Reasonable place and time.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 6 Place of Delivery (For Tender). –Non-Carrier: Seller’s place of business. –Carrier Cases. Shipment: Seller must put conforming goods in carrier’s hands, notify Buyer shipment has been made and provide relevant documents. Destination: Seller agrees to deliver goods at a particular destination. Obligations of the Seller or Lessor

© 2007 West Legal Studies in Business, A Division of Thomson Learning 7 The Perfect Tender Rule Perfect Tender Rule. –Seller has duty to ship/tender conforming goods. –If goods fail to conform to the agreement in any way, the Buyer has the right to: Accept the entire shipment. Reject the entire shipment. Accept or reject part of the shipment.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Exceptions to Perfect Tender Agreement of the Parties. Seller can cure within time for performance. Substitution of Carriers. Installment Contracts. Commercial Impracticability. –Foreseeable vs. Unforeseeable Circumstances. –CASE 16.1 Maple Farms, Inc. v. City School District of Elmira (1974).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 9 Exceptions to Perfect Tender Partial Performance. Destruction of Identified Goods. Right of Assurance. –CASE 16.2 Koch Materials Co. v. Shore Slurry Seal, Inc. (2002).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Obligations of the Buyer or Lessee Payment. Right of Inspection. –C.O.D. Shipment. –Payment Due-Documents of Title. Acceptance. –Expressly by words or conduct. –Presumed if Buyer had opportunity to inspect and failed to reject within a reasonable time.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 11 Anticipatory Repudiation Prior to performance, one party communicates to the other his intention not to perform. The non-breaching party can either: –Treat the repudiation as a final breach and pursue a remedy, OR –Wait to see if the repudiating party will honor its obligations. In either case, the non-breaching party may suspend her own performance.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 12 Remedies of the Seller or Lessor The following remedies are available when Buyer is in Breach. If goods are in Seller’s Possession, Seller has the right to: –Cancel the Contract. –Withhold Delivery. –Resell or Dispose of Goods (Incidental Damages). –Recover the Purchase Price Due. –Right to Recover Damages. CASE 16.3 Utica Alloys, Inc. v. ALCOA, Inc. (2004).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 13 Remedies of the Seller or Lessor When the goods are in transit, and Seller learns that buyer is insolvent or will not perform, it has the right to: –Stop the Carrier and Cancel the Contract. –Resell Goods. –Sue to recover the Deficiency between contract price and market. –Right to Recover Damages.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 14 Remedies of the Seller or Lessor When Goods are in Buyer’s Possession, Seller has the right to: –Recover the Purchase Price or Payments Due. –Right to Reclaim Goods.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 15 Remedies of the Buyer or Lessee If the Seller is in breach of contract, the Buyer has various remedies. If Seller refuses to deliver the goods, the Buyer has the right to: –Cancel the Contract. –Recover the Goods. –Obtain Specific Performance. –“Cover”. –Recover Damages.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 16 Remedies of the Buyer or Lessee If Seller delivers non-conforming goods, Buyer has the right to: –Reject Goods with Notice. –Revoke Acceptance. –Recover Damages for Accepted Goods.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 17 Limitation of Remedies Parties can agree to limit remedies. Parties can expressly agree to provide additional remedies than available under UCC. Limits on consequential damages. Parties can agree that a remedy is exclusive (the only remedy available).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 18 Statute of Limitations Action for breach of contract under UCC must commence within four years after the injury. Plus, injured party must give adequate notice of injury to other party within a reasonable time.