22-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Formation and Terms of Sales Contracts Product Liability Performance of Sales Contracts Remedies for Breach of Sales Contracts Sales P A R T

22-3 Remedies for Breach of Sales Contracts PA E TR HC 22 Every great mistake has a halfway moment, a split second when it can be recalled and perhaps remedied. Pearl S. Buck, novelist What America Means to Me (1943)

22-4 Learning Objectives Discuss meaning of liquidated damages and cover, and when UCC allows enforcement List and describe UCC remedies for an injured buyer or seller Describe damages available to injured buyer, including specific performance

22-5 Parties may agree to remedies in the contract –Agreed remedy applied in the event of a breach of contract to reduce risk –Example: “If delivery is not made by September 1, Seller will pay Buyer $1,000 as liquidated damages.” Agreements as to Remedies

22-6 In a liquidated damages clause, parties agree on the amount of damages to be paid to the injured party –Enforced if reasonable amount and actual damages would be difficult to prove Example: Baker v. International Record Syndicate, Inc. –If not enforceable because amount is a penalty or unconscionable, injured party may recover the actual damages suffered Liquidated Damages

22-7 In a limitation or exclusion clause, parties agree to limit either the remedies that the law makes available or the damages that can be covered [2–719(1)] –Limitations commonly placed on liability for consequential damages –Attempt to limit consequential damages for injury to a person by consumer goods is prima facie unconscionable [2–719(3)] Limitation or Exclusion

22-8 If buyer breaches the contract and seller has goods, seller has several remedies: –Cancel the contract [2–703(f)] and withhold delivery of goods [2–703(a)] –Resell manufactured goods and recover damages (difference between resale price and price buyer agreed to pay by contract [2–706]) Seller’s Remedies

22-9 Recover purchase price of goods (must hold goods for buyer) Recover damages for rejection or repudiation 1.difference between contract price and current market price for the goods and 2.“profit” that seller lost when buyer did not go through with the contract [2–708] See Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co.Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co. More Seller’s Remedies

22-10 If buyer is insolvent and has the goods, seller may: –Recover purchase price –Reclaim goods in possession of buyer If goods are in transit, seller may stop shipment More Seller’s Remedies

22-11 Seller should select alternative that will minimize loss [2–704(2)] Example: Madsen v. Murrey & Sons Co., Inc. –Seller, who did not complete manufacture of goods on buyer’s repudiation, but rather dismantled and largely scrapped the existing goods, was held not to have acted in a commercially reasonable manner Duty to Mitigate Damages

22-12 Under the (CISG), aggrieved seller has five potential remedies when a buyer breaches the contract: 1.suspension of seller’s performance 2.“avoidance” of the contract 3.reclamation of goods in buyer’s possession 4.an action for the price 5.an action for damages Seller’s Remedies & The CISG

22-13 If seller breaches the contract, the buyer has several remedies: –Buy other goods (cover) and recover damages from seller based on any additional expense that buyer incurs in obtaining the goods [2–712] Buyer’s Remedies Example: KGM Harvesting Co. v. Fresh Network

22-14 Recover damages based on difference between contract price and current market price of goods [2–713] Recover damages for any nonconforming goods accepted by buyer based on difference in value between what buyer received and what buyer should have received [2–714] More Buyer’s Remedies

22-15 Obtain specific performance of the contract where goods are unique and cannot be obtained elsewhere [2–716] Recover damages on basis-of- the-bargain calculation for fraud and misrepresentation [2-721] –See Green Wood Industrial Co. v. Forceman Int’l Development Group, Inc. More Buyer’s Remedies

22-16 Thought Question Assume Naomi had a car to sell that she knew had been in an accident and repaired. Is it ethical to sell a damaged and repaired car without telling the potential buyer?