Chapter 22 - Performance and Breach of Sales and Lease Contracts

Exceptions to the Perfect Tender Rule

1. Agreement of parties (defect rate) 2. Cure: parties agree that defective goods can be replaced or repaired within a certain time 3. Substitution of carriers 4. Installment Contracts 5. Commercial Impracticability 6. Destruction of Identified Goods 7. Assurance and Cooperation

Additional Provisions Affecting Remedies

1. Exclusive remedies 2. Consequential damages 3. Lemon laws

Remedies of the Seller or Lessor: When the Goods are in Buyer's Possession

1. Seller may sue for purchase price • May also sue buyer if goods specially made and can't be resold • May sue for purchase price if goods destroyed after risk passed to the buyer 2. Seller can reclaim goods received by an insolvent buyer if demand made within 10 days of receipt

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

1. Seller may withhold delivery of the goods: • If material breach by Buyer, Seller can withhold delivery of all goods • If nonmaterial breach, seller can withhold delivery of this installment 2. Seller can withhold delivery of all goods if Buyer is insolvent 3. Seller can rescind 4. Seller can identify goods to the contract 5. Seller may sell raw materials for scrap or finish production 6. Seller may resell goods and • Recover damages • Sue for lost profits 7. Sue buyer for breach of contract • Right to recover damages = market price + incidental damages • Sue for lost profits

Remedies of the Buyer or Lessee: When the Seller or Lessor Delivers Nonconforming Goods and Buyer Accepts Goods

1. Sue for breach of warranty 2. Sue for ordinary damages 3. Sue to recover damages from purchase price

Remedies of the Buyer or Lessee: The Right of Cover

A buyer or lessee can obtain cover (substitute goods) and then sue for damages. The measure of damages is the difference between the cost of cover and the contract price, plus incidental and consequential damages, minus expenses saved by the breach.

Remedies of the Buyer or Lessee: The Right to Obtain Specific Performance

A buyer or lessee can obtain specific performance if goods are unique or damages would be inadequate

Remedies of the Buyer or Lessee: The Right to Replevy Goods

A buyer or lessee can use, against a seller or lessor, replevin (an action to recover goods from a party wrongfully withholding them) if the buyer or lessee is unable to cover

Remedies of the Buyer or Lessee: The Right to Recover the Goods

A buyer or lessee who paid for goods in the hands of the seller or lessor can recover them if the seller or lessor is insolvent or becomes insolvent within ten days of receiving payment and the goods are identified to the contract

Lease contracts

A lessor can reclaim goods from a lessee in default

Sales contracts - A Buyer on the Ordinary Course of Business

A seller cannot reclaim goods for such a buyer

Remedies of the Seller or Lessor: The Right to Recover the Purchase Price or Lease Payments Due

A seller or lessor can bring an action for the price if the buyer or lessee breaches after the goods are identified to the contract and the seller or lessor is unable to resell

Remedies of the Seller or Lessor: The Right to Recover the Purchase Price or Lease Payments Due

A seller or lessor can bring an action for the price, plus incidental damages, if the buyer or lessee accepts the goods but refuses to pay it

Remedies of the Seller or Lessor: When the Goods are in Transit

A seller or lessor can stop delivery for goods if the buyer or lessee is insolvent or the buyer or lessee is solvent but in breach

Perfect Tender Rule

A seller or lessor must deliver goods in conformity with every detail of the contract. If goods or tender fail in any respect, the buyer or lessee can accept the goods, reject them or accept part and reject part.

Acceptance

Acceptance is presumed if a buyer or lessee has a reasonable opportunity to inspect and fails to reject in a reasonable time. A buyer or lessee can accept by words or conduct. Under a sales contract, a buyer can accept by any act inconsistent with the seller's ownership Buyer can accept through: 1. Words or conduct 2. Failure to reject within reasonable time 3. Acts as if he is owner (inconsistent with seller's ownership) 4. Partial Acceptance

Exclusive Remedies

Any remedy can be mad exclusive (at least until it fails in its essential purpose)

Remedies of the Seller or Lessor: The Right to Reclaim the Goods

Sales contract - buyer's insolvency, sales contract - a buyer in the ordinary course of business and lease contracts

Seller's Cure

Seller can cure (ship conforming goods) if: 1. Agreed time of performance hasn't expired (early delivery) 2. Seller had reasonable grounds to expect the buyer would accept nonconforming goods • Goods better than ones ordered • Buyer has history of accepting nonconforming goods

Place of Business: Non-carrier cases

Seller's place of business, if the contract does not designate a place of delivery and the buyer is to pick up the goods, the place is the seller's place of business or if none, the seller's residence. If goods elsewhere and both parties aware then place of delivery is there.

Consequential Damages

If a buyer or lessee is a consumer, limiting consequential damages for personal injuries on a breach of warranty is prima facie unconscionable

Remedies of the Seller or Lessor: The Right to Recover Damages for the Buyer's Nonacceptance

If a buyer or lessee repudiates a contract or wrongfully refuses to accept, the seller or lessor can recover the difference between the contract price and the market price (at the time and place of tender)

Lemon laws

If a car under warranty has a defect that significantly affects the vehicle's value or use, and the seller does not fix it within a specified number of opportunities, the buyer is entitled to a new car, replacement of defective parts or return all consideration paid

Destruction of Goods

If not fault of either party and occurs BEFORE risk passes to buyer then both seller and buyer are excused from performance

Substitution of Carriers

If parties agree to specific carrier which becomes unavailable at fault of neither party a commercially reasonable carrier can be substituted (seller must pay tho)

Partial acceptance

If some of the goods do not conform to the contract, and the seller or lessor has failed to cure, a buyer or lessee can accept only the conforming goods, but not less than a single commercial unit.

Remedies of the Seller or Lessor: Unfinished Goods

If the goods are unfinished at the time of the breach, the seller or lessor can either stop or complete their manufacture before reselling (or releasing) them

Remedies of the Seller or Lessor: When the Goods are in Transit

In transit = goods tendered to carrier In transit until: 1. buyer given negotiable doc. of title 2. Buyer given non-negotiable doc. of title or bailee acknowledge buyer's rights to goods 3. Buyer has had reasonable time to pick up goods (So buyer given doc. of title or has goods) Right to stop the goods in transit if: 1. Buyer is insolvent (seller can stop entire shipment) 2. Buyer is in breach (seller can stop entire truckload or whole container)

Installment Contracts (contracts where goods are delivered in installments)

Installment Contracts can only be rejected in their entriety if: 1. Installment is substantially non-conforming and can't be cured 2. Non-conforming installment substantially impairs the entire contract

Payment

It can be by any means agreed on between the parties

Delivery Via Carriers (Seller's Duty)

It can either be a shipment contract or a destination contract

Remedies of the Buyer or Lessee

It can happen when the seller or lessor refuses to deliver the goods and when the seller or lessor delivers nonconforming goods

The Right to Recover Damages for Accepted Goods

Notice of a breach must be within a reasonable time. The measure of damages is the difference between value of good as accepted and value if they had been as promised

Tender of delivery

Tender must occur at a reasonable hour in a reasonable manner and the goods must be available for a reasonable time. Goods must be tendered in a single delivery unless parties agree otherwise or party can request delivery in lots.

Places of delivery

Parties may agree on a particular destination or the contract or circumstances may indicate a place

Obligations of the buyer or lessee

Payment (time and place the buyer receives the goods), right of inspection, acceptance and partial acceptance

Assurance and Cooperation

• Assurance: If party worried, can ask for right of assurance (in writing) and if not delivered can suspend performance or delivery • Cooperation: if party not cooperating other party can suspend performance

Dealing with International Sales Contracts

• CISG similar remedies to UCC • Article 74 provides for money damages, forseeable consequential damages • Article 28 provides for specific performance where a country would normally grant in own law • Parties can agree to what law they will use

Obligations of the seller or lessor

• Duty to tender delivery of conforming goods (perfect tender rule) • Tender to place of delivery: - With reasonable notice - At a reasonable hour - In a reasonable manner (seller unloads) Exactly, unless otherwise agreed

Good Faith (normal and merchants)

• Normal: honesty in fact • Merchant: honesty in fact and observance of reasonable commercial standards of fair dealing in trade (higher standard of care)

Revocation of Acceptance

• Notify seller of breach • Revoke only if substantial nonconformity and: - Buyer accepted thinking seller would cure - Buyer didn't discover nonconformity cuz defect was latent/hard to detect

Commercial Impracticability

• Occurrence of an unforeseen contingency that makes performance impracticable • Nonoccurrence was basic assumption on which contract was made • If only partially impracticable, seller must allocate remaining goods reasonably among buyers

Right of inspection

The buyer or lessee can verify, before making payment, that the goods are what were contracted for. There is no duty to pay if the goods are not as ordered. Inspection can be in any reasonable place, time and manner, determined by custom of trade, practice of parties and so on. • Costs of inspection go to buyer • COD, CIF, C&F don't gve this right

Remedies of the Seller or Lessor: The Right to Stop Delivery is Lost When

The buyer or lessee has the goods, the carrier or a bailee acknowledges that goods are being held for the buyer or lessee, in the case of a sale, a document of title has been negotiated to the buyer

Remedies of the Seller or Lessor: Measure of Damages

The buyer or lessee is responsible for the difference between the contract and resale (or release) of the prices, as well as incidental damages

Remedies of the Buyer or Lessee: The Right to Recover Damages

The measure of damages is the difference between price and, when the byter or lessee learned of the breach, the market price (at the place of delivery) plus incidental and consequential damages, less expenses saved by the breach

Anticipatory repudiation

The nonbreaching party can (1) treat the repudiation as a final breach by pursuing a remedy or (2) wait hoping that the repudiating party will decide to honor the contract. If the party decides to wait, the breaching party can retract repudiation

Performance obligations

The obligation of good faith and commercial reasonableness underlie every contract within the UCC. There is a higher standard for merchants.

Remedies of the Buyer or Lessee: When the Seller or Lessor Refuses to Deliver the Goods

The right to cancel the contract, the right to recover the goods, the right to obtain specific performance, the right of cover, the right to replevy goods, the right to recover damages If Buyer wants goods 1. Specific performance or replevin 2. Recover goods from seller if seller becomes insolvent within 10 days after receiving first payment If buyer doesn't want goods 1. Rescind contract 2. Cover or do not cover and sue for breach of contract (Cover = trying to buy elsewhere?)

Remedies of the Seller or Lessor: When the Goods are in Possession of the Buyer or Lessee

The right to recover the purchase price or lease payments due and the right to reclaim the goods

Remedies of the Buyer or Lessee: When the Seller or Lessor Delivers Nonconforming Goods

The right to reject the goods, the right to revoke acceptance of the goods, the right to recover damages for accepted goods If seller doesn't perfectly tender Buyer can 1. Reject all or part of goods -Must notify seller of rejection and reasons in timely manner and follow seller's directions 2. Buyer is entitle to commission for selling perishable goods (if goods perishible and buyer has nothing to do with them) 3. Buyer may store the goods and retain a security interest (expect payment) in the goods for his costs

Destination Contract

The seller must give the buyer appropriate notice and necessary documents of title Seller has duty to -Tender goods at reasonable hour and hold conforming goods at buyer's disposal for a reasonable period of time

Shipment contract

The seller must: 1. Put the goods into the hands of a carrier 2. Make a contract for the transport of the goods that is reasonable according to their nature and value 3. Tender the buyer with any documents necessary to obtain possession of the goods from the carrier 4. Promptly notify the buyer that the shipment has been made 5. If a seller fails to meet these requirements and this causes a material loss or delay, the buyer can reject the shipment

Remedies of the Seller or Lessor: Right to Resell or Dispose of the Goods

The seller or lessor can hold the buyer or lessee liable for any loss. The seller must timely notify the buyer unless the goods are perishable or will rapidly decline in value.

Remedies of the Seller or Lessor

There exists the following types: When the goods are in possession of the seller or lessor, when the goods are in transit and when the goods are in possession of the buyer or lessee

Tender

Trying to deliver

Remedies of the Buyer or Lessee: The Right to Revoke Acceptance of the Goods

Under substantial impairment, any nonconformity must substantially impair the value of the goods and either not be seasonably cured or be difficult to discover and the notice of breach must be within a reasonable time, before the goods have undergone substantial change (not caused by their own defects, such as spoilage)

Remedies of the Seller or Lessor: Sales contract - Buyer's Insolvency

if an insolvent buyer gets goods on credit the seller can reclaim them. A seller can reclaim any time if a buyer misrepresent solvency in writing within three months before delivery.