BLAW Chapter 22

Additional provisions affecting remedies

Exclusive remedies, consequential damages and statute of limitations

Commercial Impracticability

Unforeseen circumstances that make performance extremely difficult and partial performance

When goods are in transit

buyer insolvency and buyer breach

When seller refuses to deliver goods, buyer has the right to

cancel, right to obtain goods upon seller insolvency, right to obtain specific performance, right to cover, right to replevy goods

Exception to the perfect tender rule

cure, installment contracts, commercial impracticality, destruction of identified goods, substitution of carriers, assurance and cooperation

o Buyer who has accepted nonconforming goods

may keep the goods and recover damages -§ Buyer must notify the seller of breach within a reasonable time after the defect was or should've been discovered · Failure to give notice of the defects to seller normally bars the buyer from pursuing any remedy

Revocation of acceptance

o Buyer is permitted to revoke their acceptance of goods

Right to obtain goods upon seller insolvency

o If buyer has partially or fully paid for goods that are in possession of seller who become insolvent buyer can obtain goods if § The seller became insolvent within ten days after receiving the first payment. § The goods must be identified to the contract. § The buyer must pay the seller any unpaid balance of the purchase price.

Right to cover

o In certain situations, buyers can protect themselves by obtaining cover, but it is not required.

Right to obtain specific performance

o Ordinarily, an award of damages is sufficient to place a buyer in the position they would have occupied if the seller had fully performed. o However, a buyer can obtain specific performance if either: § The goods are unique. § The remedy at law is inadequate.

· The seller has the right to stop delivery of the goods until the time when:

o The buyer receives the goods. o The carrier or the bailee acknowledges the rights of the buyer in the goods. o A negotiable document of title covering the goods has been properly transferred to the buyer, giving the buyer ownership rights in the goods.

Right to replevy goods

o When a third party is holding your goods o Replevin: you can bring an action to get goods that are being wrongfully withheld § To maintain an action to replevy goods, buyers must show they were unable to cover for goods after making a reasonable effort

Cancel

o When seller fails to make proper delivery or repudiates contract, buyer can cancel § Buyer is relieved of any further obligations

Under UCC, remedies are

o cumulative, parties are not limited to one exclusive remedy § When circumstances cause an exclusive remedy to fail in its essential purpose it is no longer exclusive and buyer may pursue other remedies available under UCC

Basic duty of seller/lessor

o deliver goods called for under the contract to the buyer or lessee

Revocation to acceptance isn't effective until

o notice is given to the seller § Within a reasonable time after buyer either discovers or should've discovered the grounds for revocation § Before goods have undergone any substantial change not caused by their own defects

If a merchant-buyer rightfully rejects goods and seller has no agent,

o the merchant buyer has a good faith obligation to follow any reasonable instructions received from the seller with respect to the goods

Obligations of the buyer or lessee

payment, right of inspection, acceptance

Once acceptance is revoked, the buyer can

pursue remedies, just as if goods had been rejected

Remedies of the Seller or Lessor: Goods are in Possession of Seller

right to cancel the contract, right to withhold delivery, right to resell or dispose of goods, unfinished goods

If no instructions are forthcoming and the goods are perishable or threaten to decline in value quickly,

the merchant-buyer can resell the goods in good faith.

Cover

§ A buyer's purchase on the open market of goods to substitute for those promised but never delivered by the seller. · Under the UCC, if the cost of cover exceeds the cost of the contract goods, the buyer can recover the difference, plus incidental and consequential damages. · Must purchase substitute goods in good faith and without unreasonable delay.

Anticipatory Repudiation

§ Before the time for performance, one part clearly communicates to the other the intention not to perform

Acceptance

§ Buyer can demonstrate acceptance by · Words or conduct · Retain goods and use them · Performing any act inconsistent with the seller's ownership

Right of inspection

§ Buyer or lessee has an absolute right to inspect the goods before making payment · Allows buyer or lessee to verify that goods tendered or delivered conform to the contract · If goods are damaged, buyer has no duty to pay · Opportunity for inspection is a condition precedent § Can take place at any reasonable place and time in any reasonable

Payment

§ Buyer/lessee must make payment at the time and place the goods are received § Payment can be made by any means agreed on between the parties: cash or credit

Place of Delivery

§ Buyer/seller can agree where goods will be delivered § If not, place of delivery will be at... · Seller's place of business · Seller's residence · Location of goods, if both parties know at the time of contracting that the goods are located somewhere in particular

If the buyer or lessee breaches the contract before goods have been delivered, seller/lessor has the right to

§ Cancel the contract § Withhold delivery of goods § Resell goods and sue § Sue to recover the purchase price or lease payments due § Sue to recover damages for the buyer's nonacceptance of goods

o The amount of damages that a buyer can recover after accepting nonconforming goods

§ Damages generally equals the difference between the value of the goods as accepted and their value if they had been delivered as warranted. § The buyer is entitled to incidental and consequential damages when appropriate. § With proper notice to the seller, the buyer can deduct all or any part of the damages from the price still due under the contract

Seller or lessor has a right to attempt to "cure" a defect when the following are true

§ Delivery is rejected bc goods were nonconforming § Time for performance has not yet expired § Seller or lessor provides timely notice to buyer or lessee of intention to cure § Cure can be made within contract time for performance

Destruction of identified goods

§ Identified goods are destroyed § Unexpected event destroys goods § If goods are only partially destroyed, the buyer can inspect them and § Treat contract as void § Accept damaged goods w a reduction in contract price

o Right to Recover Damages for Buyer's Nonacceptance

§ If a buyer repudiates a contract or wrongfully refuses to accept the goods, a seller can bring an action to recover the damages sustained. § Ordinarily, the amount of damages equals the difference between the contract price and the market price at the time and place of tender of the goods, plus incidental damages. § When the ordinary measure of damages is inadequate to put the seller in as good a position as the buyer's performance would have, the proper measure of damages is the lost profits of the seller, including a reasonable allowance for overhead and other expenses.

Assurance

§ If one party has "reasonable grounds" to believe that the other party will not perform, the first party may in writing "demand adequate assurance of due performance" from the other party § Until such assurance is received, the first party may "suspend" further performance without liability § EX: a company goes bankrupt, you are scarred you might not get paid. You have the right to ask for assurances and wait for those before you ship

Exclusive remedies

§ If parties state that a remedy is exclusive, it is the sole remedy § If circumstances cause an exclusive remedy to fail in its essential purpose, buyer can pursue other remedies

Partial acceptance

§ If some of the goods delivered do not conform to the contract and the seller or lessor has failed to cure, the buyer or lessee can make a partial acceptance § buyer or lessee cannot accept less than a single commercial unit · commercial unit cannot be divided without materially impairing the character of the unit, its market value, or its use § you can't keep some parts of a machine but not the others bc the seller can't do anything with it (ex: resell it)

Buyer breach

§ If the buyer is in breach but is not insolvent, the seller can stop the goods in transit only if the quantity shipped is at least a carload, a truckload, a planeload, or a larger shipment. · Broader rule bc seller has a better chance of still getting paid if they sue them

Buyer insolvency

§ If the seller learns that the buyer is insolvent, the seller can stop the delivery of the goods still in transit, regardless of the quantity of goods shipped.

Statute of limitation

§ Limitation for when lawsuits must be filed · Breach of contract: Within 4 years after the breach § Parties can agree to reduce statute of limitation but can't extend it past 4 years

Tender of Delivery

§ Occurs when seller/lessor makes conforming goods available and gives buyer or lessee whatever notification is reasonably necessary to enable the buyer/lessee to take delivery

Buyer must

§ Reject the goods within a reasonable time after delivery or tender of delivery: otherwise, acceptance will be presumed. § Seasonably notify the seller. § Designate defects that are ascertainable by reasonable inspection. · Failure to do so precludes the buyer from using the defects to justify rejection or to establish breach if the seller could have cured the defects.

Perfect tender rule

§ Seller is obligated to deliver goods that conformed with terms of contract in every detail · UCC states: if goods or tender of delivery fails in any respect to conform to contract, the buyer or lessee may accept the goods, reject the entire shipment, or accept part and reject part

Consequential damages

§ Special damages to compensate for indirect losses resulting from a breach of contract that were foreseeable § Under UCC, parties can limit or exclude consequential damages as long as its not unconscionable · When buyer is a consumer, the limitation of consequential damages is unconscionable

Substitution of carriers

§ The agreed-on means of delivery is unavailable and the seller/lessor uses a substitute carrier § EX: USPS goes on strike, so instead the companies use UPS

Acceptance of a lot or a commercial unit can be revoked if

§ The nonconformity substantially impairs the value of the lot or unit. -· Acceptance was based on the reasonable assumption that the nonconformity would be cured, and it has not been cured within a reasonable period of time. o Seller tells you the will fix something and they never show up · The failure of the buyer to discover the nonconformity was reasonably induced either by the difficulty of discovery before acceptance or by assurances made by the seller. o Assurances: seller says its supposed to be that way

o Obtaining cover is available when:

§ The seller repudiates the contract or fails to deliver the goods. § A buyer has rightfully rejected goods or revoked acceptance.

o When seller breaches contract, remedies depend of circumstance

§ Whether seller has refused to deliver conforming goods § Whether seller has delivered nonconforming goods

o Right to recover the Purchase Price

§ an unpaid seller or lessor can bring an action to recover the purchase price or the payments due under the lease contract, plus incidental damages § If a seller is unable to resell the goods and sues for the contract price, the goods must be held for the buyer unless resale becomes possible. § The seller can resell the goods at any time before collecting the judgment from the buyer. § If the goods are resold, the net proceeds from the sale must be credited to the buyer because of the duty to mitigate damages.

If the seller fails in these duties

§ buyer can reject the goods if a material loss or a significant delay results

Conforming goods

§ goods that conform to contract description in every way

Tender

§ must occur at a reasonable at a reasonable hour and in a reasonable manner · Usually, all goods must be tendered in a single delivery unless agreed otherwise

Installment Contracts

§ requires or authorizes delivery in two or more separate lots to be accepted and paid for separately. § With an installment contract, a buyer or lessee can reject an installment only if the nonconformity substantially impairs the value of the installment and cannot be cured § If the buyer or lessee fails to notify the seller or lessor of the rejection, however, and subsequently accepts a nonconforming installment, the contract is reinstated § Unless the contract provides otherwise, the entire installment contract is breached only when one or more nonconforming installments substantially impair the value of the whole contract

Shipment contract

§ requires/authorizes seller to ship goods by a carrier, rather than to deliver them to a certain location · Seller must: § Place goods into hands of carrier § Make contract for transportation of goods that is reasonable according to the nature of goods and their value § Obtain and promptly deliver or tender to buyer any documents necessary to enable the buyer to obtain possession of goods from carrier § Promptly notify the buyer that shipment has been made

Destination Contracts

§ seller agrees to deliver goods to a specified location · Tendered at a reasonable hour · Held at buyer's disposal for a reasonable length of time

Carrier contract

§ seller fulfills obligation to delivery goods through a shipment contract or destination contract

Even if contract expires, seller or lessor can

§ still cure if he or she had reasonable grounds to believe that the nonconforming tender would be acceptable to the buyer or lessee

Right to cure restricts the right of the buyer or lessee

§ to reject goods § To reject, buyer must inform seller or lessor of the particular defect

Unfinished goods

§ when goods contracted for are unfinished at time of breach, seller can · Cease manufacturing goods and resell for scrap or salvage value · Complete the manufacture and resell or dispose of goods and hold buyer liable for any deficiency

Cooperation

§ when performance of one party depends on the cooperation of the other and cooperation is not forthcoming, the 1st party can § Proceed to perform in a reasonable manner § Suspend performance without liability

Right to cancel contract

· If buyer or lessee breaches contract, the seller or lessor can choose to simply cancel the contract § Seller/lessor must notify the buyer of cancellation and at then all remaining obligations of seller/lessor are discharged

§ The Right to Reject the Goods

· If either the goods or their tender fail to conform to the contract in any respect, the buyer can reject all of the goods or any commercial unit of the goods. · Buyer may o Obtain cover or cancel the contract when rejecting the goods o Seek damages just as if the seller had refused to deliver the goods

A repudiation may be retracted

· Once retraction is made, rights of repudiating party are reinstated · There can be no retraction, however, if since the time of the repudiation the other party has canceled or materially changed position or otherwise indicated that the repudiation is final

§ When the seller delivers nonconforming goods, the buyer has several remedies available under the UCC.

· Reject the goods · Revoke acceptance of the goods. · Recover damages for accepted goods.

Right to Withhold Delivery

· Sellers/lessors can withhold/discontinue performance when buyers/lessees are in breach § Can also refuse to deliver the goods to a buyer who is insolvent

If the goods are not perishable, the merchant-buyer may either

· Store them for the seller · Reship them to the seller

Requirements for Stopping delivery

· To stop delivery, the seller must timely notify the carrier or other bailee that the goods are to be returned or held for the seller. o If the carrier has sufficient time to stop delivery, they must follow the seller's instructions. o The seller is liable to the carrier for any additional costs incurred. o After the seller reclaims the goods, they can pursue other remedies for sellers in possession.

When anticipatory repudiation occurs, the nonbreaching party has a choice of two responses:

· Treat the repudiation as a final breach by pursuing a remedy · Wait to see if the repudiating party will decide to honor the contract later § "wait and see"

Right to Resell or Dispose of Goods

· When a buyer breaches the contract while the seller is in possession of the goods, the seller can resell or dispose of the goods. § Any resale of the goods must be made in: § Good faith § A commercially reasonable manner § The seller must give the original buyer reasonable notice of the resale, unless the goods:• Are perishable • Will rapidly decline in value § The seller can:• Retain any profits made as a result of the sale• Hold the buyer liable for any loss

When buyer is in breach, the remedies available depend on circumstance

· Which party has possession of goods · Whether goods are in transit · Whether buyer has rejected or accepted goods

Cure

· seller has the right to repair, adjust, or replace defective or nonconforming goods