1. 19 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Remedies for Breach of Sales and Lease Contracts

2. 19 - 2 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Tender of Delivery Transfer or delivery of goods to the buyer or lessee in accordance with sales or lease contract Requires: –Conforming goods to be put aside and held for buyer or lessee –Notification be made to buyer or lessee –Goods must be tendered in single delivery unless otherwise noted in contract –Payment due upon delivery unless otherwise noted

3. 19 - 3 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Place of Delivery Contract usually states place and time of delivery If contract silent, place is seller’s or buyer’s place of business If they have no place of business, it is their residence

4. 19 - 4 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Place of Delivery (continued) If goods at warehouse and are to be delivered without being moved, delivery occurs when seller: –Tenders buyer negotiable document of title –Produces acknowledgement from bailee of buyer’s right of possession –Tenders nonnegotiable document of title or written direction to bailee to deliver goods to buyer

5. 19 - 5 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Delivery in Carrier Cases Shipment Contracts –Do not name destination Seller must put goods in carrier’s possession and contract for delivery Obtain and deliver all documents necessary for buyer to obtain possession Notify buyer of shipment Destination Contracts –Names destination –Delivery must be made at reasonable time and in reasonable manner

6. 19 - 6 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Perfect Tender Rule If goods fail to conform, buyer/lessee may: –Reject entire shipment –Accept whole shipment, or –Reject part and accept part

7. 19 - 7 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Exceptions Agreement of Parties –Parties may contract to limit perfect tender rule Defective or nonconforming goods may be rejected Seller/lessor may replace nonconforming goods Buyer/lessee accepts nonconforming goods with compensation Substitution of Carriers –Commercially reasonable carrier may be substituted if agreed-upon delivery manner fails or becomes unavailable

8. 19 - 8 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Cure UCC gives seller/lessor opportunity to cure – time has not expired –must notify buyer/lessee of intentions

9. 19 - 9 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Installment Contract –Goods delivered and accepted at different times –Requires specific knowledge –Seller can only reject entire contract if default impairs value of entire contract –Seller can reject non-conforming shipments

10. 19 - 10 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Destruction of Goods Contract void –If goods are totally destroyed through no fault of either party before risk of loss passes –Both parties excused from performance Contract voidable –If goods are partially destroyed through no fault of either party before risk of loss passes –Buyer may inspect goods and choose to void the contract

11. 19 - 11 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Buyer’s and Lessee’s Performance Once seller/lessee has tendered delivery, buyer/lessee is obligated to accept and pay as per sales/lease contract. If contract silent, UCC controls.

12. 19 - 12 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Right of Inspection Buyer has the right to inspect goods before paying for them Buyer may reject nonconforming goods Parties may agree as to time and place of inspection If contract silent, inspection must occur at reasonable time and place

13. 19 - 13 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Payment –Due from buyer when and where goods delivered –Contract may set terms –Can be paid in any manner acceptable in ordinary course of business If cash required, buyer must be given an extension to secure cash

14. 19 - 14 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Acceptance Contract is created when the offeree sends an acceptance to the offeror, not when the offeror receives the acceptance. The UCC permits acceptance by any reasonable manner or method of communication. Acceptance occurs if buyer acts inconsistently with seller’s ownership rights. Buyers/lessees must accept “commercial unit”.

15. 19 - 15 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Revocation of Acceptance Buyer can revoke acceptance if: –Goods are non-conforming –The nonconformity substantially impairs the value of the goods –The seller’s promise to timely cure is not met –Goods were accepted before non- conformity was discovered and the nonconformity was difficult to discover –The goods were accepted before the nonconformity was discovered and the seller/lessor assured the buyer/lessee that the goods were conforming

16. 19 - 16 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Right to Withhold Delivery Delivery of goods may be withheld if: –Seller/lessor is in possession of goods when buyer/lessee breaches contract –Buyer/lessee fails to make payment when due –Buyer/lessee repudiates contract If part of the shipment has been delivered at time of breach, seller/lessor may withhold delivery of remainder. If seller/lessor discovers that buyer/lessee is insolvent, they may require cash payment.

17. 19 - 17 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Right to Stop Goods in Transit Seller/lessor may stop shipment in transit if: –He discovers buyer’s/lessee’s insolvency –Buyer/lessee repudiates shipment –Buyer/lessee fails to make payment when due Seller/lessor must give sufficient notice to allow bailee to prevent delivery

18. 19 - 18 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Right to Reclaim Goods Seller/lessor may reclaim goods if: –The buyer misrepresented their solvency in writing within 3 months before delivery –Paid for goods with a check that bounced –If the lessee is in default of the contract

19. 19 - 19 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Right to Dispose of Goods Must be made in good faith Seller/lessor must give notice to buyer/lessee of intention –Notice not required with perishable goods or goods that will quickly decline in value Seller/lessor may recover damages Profit does not revert to original buyer

20. 19 - 20 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Right to Recover the Purchase Price or Rent Seller/lessor may sue to recover if: –Buyer/lessee fails to pay as due –Buyer/lessee breaches contract after goods have been identified and seller/lessor cannot resell or dispose of them –Goods are damaged or lost after risk passes to buyer/lessee

21. 19 - 21 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Additional Rights Seller/lessor may sue to recover damages caused by buyer’s or lessee’s breach. Seller/lessor may recover lost profits. Seller/lessor may cancel contract if buyer/lessee breaches.

22. 19 - 22 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Buyer’s and Lessee’s Remedies Buyer may reject nonconforming goods or improperly tendered goods. –May reject the whole, accept the whole, or accept any commercial unit and reject the rest –Must reject within a reasonable time period. –Must follow reasonable instructions for return of goods. If goods are perishable, must make reasonable effort to sell them on seller’s behalf. –Buyer entitled to reimbursement for shipping, holding, storage expenses.

23. 19 - 23 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Buyer’s and Lessee’s Remedies (continued) If buyer makes full or partial payment before goods are received and seller/lessor becomes insolvent within ten days of receiving payment, they can recover goods. If goods are unique, buyer can obtain specific performance Buyer/lessor may cover. Buyer/lessee has right to replevy goods, if they are wrongfully withheld.

24. 19 - 24 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Buyer’s and Lessee’s Remedies (continued) Buyer/lessee may cancel contract if seller/lessor fails to deliver conforming goods or repudiates contract –Buyer/lessee may recover damages Buyer/lessee may recover damages for accepted nonconforming goods Buyer/lessee may recover damages for loss from seller’s breach

25. 19 - 25 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Additional Performance Issues Assurance of Performance –An adequate assurance of due performance may be demanded in writing by either party.

26. 19 - 26 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Anticipatory Repudiation –Occurs when a party repudiates the contract before performance is required. –Wavering is not sufficient. –Aggrieved party may: Await performance for a commercially reasonable time. Treat contract as breached at time of anticipatory repudiation. Indicate repudiation is considered final.

27. 19 - 27 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Statute of Limitations –The UCC provides that an action for breach of any written or oral sales or lease contract must commence within four years after the cause of the action accrues.

28. 19 - 28 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Agreements Affecting Remedies Parties may agree to remedies in addition to those available under the UCC. UCC allows for liquidated damages as a substitute for actual damages.