Business Law - Chapter 18 (Performance and Breach of Sales and Lease Contracts)

UCC good faith provision

obligation of *honesty in fact* in performance of contract; merchant must also *observe reasonable commercial standards of fair dealing*

tender of delivery

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

merchantable goods

"reasonably fit for the ordinary purposes for which such goods are used"; must be of at least average quality, adequately packaged and labeled, and must conform to promises made on container/label

buyer rights when seller breaches

1. cancel (rescind) contract 2. obtain goods that have been paid for if the seller is insolvent 3. sue to obtain specific performance if the goods or unique or damages are an inadequate remedy 4. buy other goods and obtain damages from the seller 5. sue to obtain identified goods held by 3rd party 6. sue to obtain damages

seller rights when buyer breaches and seller possesses goods

1. cancel (rescind) contract 2. withhold delivery of goods 3. resell or dispose of the goods and sue to recover damages 4. sue to recover the purchase price or lease payments due 5. sue to recover damages for the buyer's nonacceptance

seller obligation in shipment contracts

1. put the goods into hands of carrier 2. make a contract for their transportation that is reasonable according to nature of goods 3. obtain and promptly deliver or tender to the buyer any documents necessary to enable the buyer to obtain possession of the goods from the carrier 4. promptly notify the buyer that shipment has been made

buyer rights when seller delivers nonconforming goods

1. reject the goods (must reject and notify seller within reasonable amount of time) 2. revoke acceptance of goods (available when goods not cured in reasonable time or buyer did not discover nonconformity before acceptance) 3. recover damages for accepted goods

remedies available to buyer if they obtain cover

1. the difference between the cost of cover and the contract price 2. incidental damages that resulted from breach 3. consequential damages to compensate for indirect losses (such as lost profits) resulting from breach that were reasonably foreseeable

warranty of title

3 types: good title (right to sell), no liens (no claims, charges, or liabilities that buyer is unaware of can be imposed), and no infringements (buyer assumes goods are free of infringement)

statute of limitations

action for breach of contract must be commenced within 4 years after the cause of action accrues (buyer must file lawsuit within 4 years after breach occurs)

exceptions to the perfect tender rule

agreement is made by parties (ex. "defective goods will not be rejected"), right to cure

implied warranty of fitness for a particular purpose

arises in sale or lease of goods when seller knows both 1. the particular purpose (as opposed to ordinary purpose in merchantability) for which a buyer will use goods and 2. that the buyer is relying on the skill or judgment of the seller to select suitable goods

implied warranty of merchantability

automatically exists for sale or lease of goods made by a merchant who deals in that good

anticipatory repudiation

breach of contract in which one party clearly communicates to the other the intention not to perform; nonbreaching party has right to either 1. treat repudiation as a final breach by pursuing a remedy or 2. wait to see if repudiating party will honor contract

perfect tender rule

buyer has right to reject goods it they do not completely conform to the contract in every way

limitation on consequential damages

consumers as buyers suffering personal injuries have no limitation while those commercial in nature (ex. lost profits, property damage) may be limited

place of delivery (if unspecified)

either 1. the seller's place of business 2. the seller's residence or 3. the location of the goods (if both parties know at time of contracting that goods are located outside seller's business)

seller rights when buyer breaches and goods are in transit

if buyer is insolvent, seller can stop carrier/bailee from delivering goods no matter quantity; if buyer simply breached, seller can only stop delivery if the quantity shipped is at least a carload or larger

buyer examination/refusal to expect

means there is no implied warranty with respect to defects that a reasonable examination would reveal

duties of merchant buyers if rejecting goods

merchant has good faith obligation to follow any reasonable instructions received from seller and may be reimbursed for care and cost in following instructions; if goods are perishable, they may be sold by buyer in good faith

disclaiming implied warranty of merchantability

must include word "merchantability"

basis of the bargain

question of fact whether a representation was made at such a time and in such a way that it induced the buyer to enter into the contract

replevin

right of buyer to recover identified goods from a third party (bailee) who is wrongfully withholding them; seller must have repudiated or breached and buyer must show that they are unable to cover for the goods

right to cure

seller can attempt to cure a defect when: 1. a delivery is rejected because it was nonconforming, 2. the time for performance hasn't expired, 3. the seller or lessor provides timely notice to the buyer of intention to cure, and 4. the cure can be made within the contract time for performance

destruction of identified goods

seller has loss; parties excused from performance

substitution of carriers

when an agreed-on manner of delivery becomes impracticable or unavailable; if a reasonable substitute exists, it must be used by seller and counts as sufficient tender to the buyer; seller generally responsible for additional costs

3 circumstances of express warranties

when seller indicates either 1. the goods conform to any affirmation or promise of fact that the seller makes to buyer (ex. these drills will penetrate stainless steel) 2. that the goods conform to any description of them (ex. contract calls for delivery of "wool coat") 3. that the goods conform to any sample or model of the goods shown to buyer

when can a buyer obtain specific performance

when the goods or unique or monetary damages are inadequate