Chapter 20 Performance and Breach of Sales and Lease Contracts

Chapter 20 Performance and Breach of Sales and Lease Contracts

Learning Objectives 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?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives 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? What remedies are available to a seller or lessor when the buyer or lessee breaches the contract?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives 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 nonbreaching party on a breach of contract? If so, in what ways? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Introduction Seller must transfer and deliver conforming goods.
Buyer must accept and pay for conforming goods. In the absence of an agreement between Seller and Buyer, UCC Article 2 controls as set out below. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Obligations
The UCC’s Good Faith Provision. Good faith means honesty in fact. Contract Performance: For a merchant, it means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Merchants are held to a higher standard of care than non-merchants. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Obligations
Good Faith and Contract Performance. Seller’s obligation is to transfer and deliver conforming goods. Buyer’s obligation is to accept and pay for conforming goods. Court imposes good faith standards when contract is unclear. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Obligations of the Seller or Lessor
Tender of Delivery: occurs when seller makes conforming goods available to buyer. Requires reasonable notice. Tender at a reasonable hour and manner. Generally, all goods in one installment (unless agreed upon by parties). © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Place of Delivery: parties can agree goods tendered at a particular destination for buyer to take possession. If the contract does not specify, then it is the seller’s place of business (or the location of the goods.) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Place of Delivery (cont’d). Buyer picks up at Seller’s place of business or, if Buyer has no place of business, then Buyer’s residence. If both parties know the goods are elsewhere (at a warehouse), then place of delivery is where the goods are. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Delivery via Carrier. Shipment Contracts. Seller has a duty to: Put goods into hands of independent carrier. Make contract for transportation. Obtain and promptly deliver or tender to the Buyer any documents necessary. Promptly notify Buyer that shipment has been made. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Delivery via Carrier (cont’d). Destination contracts. Seller has duty to: Tender the goods at a reasonable hour and hold conforming goods at the Buyer’s disposal for a reasonable period of time. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule. If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to: Accept the goods; Reject the entire shipment; or Accept part and reject part. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions: Agreement of the Parties: agree that some defective goods will be acceptable. Cure. Seller has right to repair or replace defective goods within the time of contract performance. Seller must have reasonably expected buyer would accept non-conforming goods.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Cure. Restriction on the Buyer’s or Lessee’s Right of Rejection. Substantially restricts right of rejection; buyers must act in good faith and give specific reasons for refusing acceptance. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Substitution of Carriers. If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Installment Contracts can be rejected if: installment is substantially non-conforming and can’t be cured. non-conforming installment substantially impairs the entire contract. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Commercial Impracticability. Perfect tender rule no longer applies. Seller must notify the buyer as soon as practicable the shipment is delayed or undeliverable.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Commercial Impracticability. Foreseeable versus Unforeseeable Contingencies: only unforeseeable events provide a defense. CASE Maple Farms v. City School District of Elmira (1974). Can unanticipated increases in a seller’s costs make performance impracticable? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Commercial Impracticability. Partial Performance. What happens if the unforeseeable event only partially affects the seller’s ability to perform? Seller can re-allocate goods with timely notice to buyer. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Destruction of Identified Goods. Bothe seller and buyer are excused from performance if destruction is not the fault of either party, and the destruction occurs before risk passes to buyer. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Perfect Tender Rule (cont’d). Exceptions (cont’d). Assurance and Cooperation. Right of Assurance (in writing). Until received the other party has the right to ‘suspend’ performance or delivery. Duty of Cooperation. If a party is not cooperating, the other party has the right to suspend performance. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Obligations of the Buyer or Lessee
Payment. Payment made at the time and place the buyer receives the goods. Credit has to be prearranged. Pay with cash, credit card, check. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Right of Inspection. Buyer has absolute right to inspection before payment, unless C.O.D. Goods must be conforming before payment. CASE Romero v. Scoggins-Dickey Chevrolet-Buick, Inc. (2010). Why wasn’t the ‘contract order’ a binding contract for sale of goods? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Acceptance. Buyer can accept goods: By words or conduct. If Buyer had reasonable amount of time and failed to reject. Buyer performs an act which indicates he thinks he is the owner. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Acceptance (cont’d). Partial Acceptance. If some of the goods do not conform to the contract, and seller has failed to cure, buyer can make a partial acceptance. But buyer cannot accept less a single commercial unit. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Anticipatory Repudiation
Party communicates he will not perform when performance due. Suspension of Performance Obligations. Nonbreaching party may suspend performance and treat the AR as material breach and pursue a remedy; or wait a reasonable time.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Anticipatory Repudiation
A Repudiation May Be Retracted. UCC permits breaching party to ‘retract’ repudiation by any method that clearly indicates their intent. However, no retraction if the nonbreaching party has materially changed their position. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Remedies of the Seller or Lessor
When buyer or lessee is in breach, seller has various remedies under UCC, depending on circumstances. Important considerations: which party has possession of the goods, whether goods are in transit, and whether the buyer has rejected or accepted the goods. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When the Goods are in the Possession of Seller or Lessor. Right to Cancel (Rescind) the Contract. Seller must notify buyer. Buyer is not discharged from remaining obligations.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When the Goods are in the Possession of Seller or Lessor (cont’d). Right to Withhold Delivery. If material breach by buyer, seller can withhold delivery of all goods. If non-material breach, seller can withhold delivery of this installment. Seller can withhold delivery of all goods if buyer is insolvent. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When the Goods are in the Possession of Seller or Lessor (cont’d). Right to Resell or Dispose of Goods: Seller can resell and keep profits from sale and hold buyer liable for difference. Unfinished Goods: seller can (1) cease manufacturing, (2) complete manufacture. Seller can sell and hold buyer responsible for deficiency. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When the Goods are in the Possession of Seller or Lessor (cont’d). Right to Recover the Purchase Price or Lease Payments Due. Seller can bring action to recover purchase price plus incidentals. If unable to resell, seller must hold goods for buyer. Seller can sell goods any time prior to collecting judgment. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When the Goods are in the Possession of Seller or Lessor (cont’d). Right to Recover Damages for Buyer’s Nonacceptance. If buyer repudiates goods, seller can bring action to recover damages. Measure of damages: market price at the time & place of tender + incidental damages. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Goods are in Transit. Goods are “in transit” when Seller has tendered goods to Carrier. Seller can stop goods in transit if: Buyer is insolvent - Seller can stop entire shipment of goods. Buyer is in breach - Seller may stop a whole truckload or whole container.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Goods are in Transit (cont’d). Seller has the right to stop delivery of the goods until: Buyer receives the goods. Carrier or bailee acknowledges rights of buyer in the goods (reshipment or holding goods for buyer). Negotiable document of title has been transferred to buyer’s possession. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Goods are in Possession of the Buyer or Lessor. Seller may sue for the purchase price. Seller may also sue Buyer if goods were “specially-made” which Seller cannot resell. Seller may also sue for the purchase price if the goods were destroyed and the risk had already passed to the Buyer. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Goods are in Possession of the Buyer or Lessor (cont’d). In some situations, seller can reclaim goods received by an insolvent buyer if demand made within 10 days of receipt. Seller’s right to reclaim goods is subject to rights of a good faith purchaser. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Remedies of the Buyer or Lessee
When Seller or Lessor Refuses to Deliver the Goods. Buyer has the right to: Cancel (rescind) the contract. Recover Goods paid for if seller insolvent: whether partial or full payment.  Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Seller or Lessor Refuses to Deliver the Goods (cont’d). Buyer has the right to: Sue to obtain specific performance and recover damages. CASE Houseman v. Dare (2009). Does return of a pet require specific performance? Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Seller or Lessor Refuses to Deliver the Goods (cont’d). Buyer has the right to: Cover: in some situations. Replevy goods if held by third person. Recover Damages. Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Seller or Lessor Delivers Nonconforming Goods. Right to Reject Goods. Timeliness and Reason for Rejection. Buyer must timely notify Seller of rejection and reasons and follow Seller’s directions. Duties of Merchants When Goods Rejected: Good faith obligation to follow instructions. Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Seller or Lessor Delivers Nonconforming Goods (cont’d). Revocation of Acceptance for substantial nonconformity, and: Acceptance assumed defect would be cured, or Nonconformity was discovered after acceptance. Notice must be given to seller. Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

When Seller or Lessor Delivers Nonconforming Goods (cont’d). Right to Recover Damages for Accepted Goods. Buyer may keep the goods and: Recover any loss in ordinary course of events. With notification to seller. Measure of damages: difference between value of accepted goods and goods as warranted. Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Additional Provisions Affecting Remedies
Exclusive Remedies. Consequential Damages. Lemon Laws. liquidated damages or 20% of total price of goods or $500 whichever is greater Limitation can agree to another exclusive remedy if exclusive remedy fails in its essential purpose, the remedy is no longer exclusive can exclude consequential damages, but in in consumer sales Waiver clauses are not enforceable in consumer transactions FTC © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter 20 Performance and Breach of Sales and Lease Contracts

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Chapter 20 Performance and Breach of Sales and Lease Contracts

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