Chapter 22 - Performance and Breach of Sales and Lease Contracts

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

1. Treat the repudiation as a final breach by pursuing a remedy. 2. Wait to see if the repudiating party will decide to honor the contract despite the avowed intention to renege.

Perfect Tender Rule

A common law rule under which a seller was obligated to deliver goods that conformed with the terms of the contract in every detail.

Cover

buying or leasing substitute goods for those that were due under the contract

Replevin

an action to recover identified goods in the hands of a party who is unlawfully withholding them

Conforming Goods

goods that conform to the contract description in every way

Tender of Delivery

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

Cure

refers to the right of the seller or lessor to repair, adjust, or replace defective or nonconforming goods

Shipment Contracts

seller is required to ship goods by a carrier, rather than to deliver them at a particular destination.

Exceptions to the Perfect Tender Rule

-Agreement of the parties -Cure -Substitution of Carriers -Installment Contracts -Commercial Impracticability -Destruction of Identified Goods -Assurance and Cooperation

UCC Good Faith Provision

Every contract or duty within this Act importers an obligation of good faith in its performance or enforcement.

The seller or lessor has a right to attempt to "cure" a defect when the following are true:

1. A delivery is rejected because the goods were non conforming 2. The time for performance has not yet expired 3. The seller or lessor provides timely notice to the buyer or lessee of the intention to cure 4. The cure can be made within the contract time for performance

If the seller or lessor refuses to deliver the goods to the buyer or lessee, the basic remedies available to the buyer or lessee include the right to:

1. Cancel the contract 2. Obtain goods that have been paid for if the seller or lessor is insolvent 3. Sue to obtain specific performance if the goods are unique or if damages are an inadequate remedy 4. Buy other goods and recover damages from the seller 5. Sue to obtain identified goods held by a third party 6. Sue to obtain damages

Under the UCC, if the buyer or lessee breaches the contract before the goods have been delivered, the seller or lessor has the right to pursue the following remedies:

1. Cancel the contract 2. Resell the goods and sue to recover damages 3. Sue to recover the purchase price or lease payments due 4. Sue to recover damages for the buyer's nonacceptance of goods

Under a shipment contract, unless otherwise agreed, the seller must do the following:

1. Place the goods into the hands of the carrier 2. Make a contract for their transportation that is reasonable according to the nature of the goods and their value 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

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

1. The buyer or lessee receives the goods. 2. The carrier or the bailee acknowledges the rights of the buyer or lessee in the goods 3. A negotiable document of title covering the goods has been properly transferred to the buyer in a sales transaction, giving the buyer ownership rights in the goods.

In purchasing or leasing substitute goods, the buyer or lessee must act in good faith and without unreasonable delay. The buyer or lessee can recover from the seller or lessor:

1. The difference between the cost of cover and the contract price 2. Incidental damages that resulted from the breach 3. Consequential damages to compensate for indirect losses resulting form the breach that were reasonably foreseeable at the time of contract formation.

Remedies available when the seller or lessor delivers nonconforming goods

1. The right to reject the goods 2. Revocation of acceptance 3. The right to recover damages for accepted goods

If the contract does not indicate where the goods will be delivered, then the place for delivery will be one of the following:

1. The seller's place of business 2. The seller's residence, if the seller has no business location 3. The location of the goods, if both parties know at the time of contracting that the goods are located somewhere other than the seller's business

Installment Contract

A single contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately.

Tender must occur

At a reasonable hour and in a reasonable manner.

Perfect Tender Doctrine

If goods or tender of delivery fails in any respect to conform to the contract, the buyer or lessee may accept the goods, reject the entire shipment, or accept part and reject part.

The Right of Assurance

If one party has "reasonable grounds" to believe that the other party will not perform as agreed, she may, in writing, "demand adequate assurance of due performance" from the other party.

Effect of Insolvency and Breach

If the seller or lessor learns that the buyer or lessee is insolvent, the seller or lessor can stop the delivery of the goods still in transit, regardless or the quantity of goods shipped. A different rule applies if the buyer or lessee is in breach but is not insolvent. In this situation, the seller or lessor can stop the goods in transit only if the quantity shipped is at least a carload, a truckload, a plane load, or a larger shipment.

Exclusive Remedy

It is the sole remedy

The Duty of Cooperation

Sometimes, the performance of one party depends on the cooperation of the other. When cooperation is not forthcoming, the other party can suspend performance without liability and hold the uncooperative party in breach or proceed to perform the contract in any reasonable manner.

Letters of Credit

The issuer (a bank or financial institution) agrees to issue a letter of credit and to ascertain whether the beneficiary (seller or lessor) performs certain acts. In return, the account party (buyer or lessee) promises to reimburse the issuer for the amount paid to the beneficiary.

Destination Contract

The seller agrees to deliver conforming goods to the buyer at a particular destination.

Carrier Contracts

The seller fulfills the obligation to deliver the goods through either a shipment contract or a destination contract.

When the Goods Are in the Possession of the Buyer or Lessee

When the buyer or lessee breaches the contract while the goods are in his possession, the seller or lessor can sue. The seller or lessor can recover the purchase price of the goods plus incidental damages.

When the Goods are in Transit

When the seller or lessor has delivered the goods to a carrier or a bailee but the buyer or lessee has not yet received them.